first quarterreport - bmo information... · 2005. 10. 11. · january 2000 $ 45.95 for the period...

For dividend information, change inshareholder address or to advise of duplicate mailings, please contactThe Trust Company of Bank of Montreal129 Saint-Jacques StreetB Level NorthMontreal, QuebecH2Y 1L6Telephone: (514) 877-2500Fax: (514) 877-9676

For other shareholder information, please contactShareholder ServicesCorporate Secretary’s Department21st Floor1 First Canadian PlaceToronto, OntarioM5X 1A1Telephone: (416) 867-6785Fax: (416) 867-6793E-mail: [email protected]

For further information on this report, please contactInvestor Relations Department18th FloorP.O. Box 11 First Canadian PlaceToronto, OntarioM5X 1A1

F i r s t Q u a r t e r R e p o r t

Shareholder Dividend Reinvestment and Share Purchase Plan

Average market priceNovember 1999 $ 53.79December 1999 $ 49.41January 2000 $ 45.95

Fo r t h e Pe r iod E n d e d J anu a r y 31, 2000

291.446 1stQtr_ENG forSEDAR 3/9/00 12:24 PM

2 Bank of Montreal F i rs t Quarter Report 2000

Financial Highlights For the three months ended

Jan 31, Oct 31, Jan 31, Change from(Canadian $ in millions except as noted) 2000 1999 1999 Jan 31, 1999

Net Income StatementNet interest income (TEB) (a) $ 1,081 $ 1,124 $ 1,089 (0.7)%Other income 1,042 884 845 23.3Total revenue (TEB) (a) 2,123 2,008 1,934 9.8Provision for credit losses 100 80 80 25.0Non-interest expense 1,254 1,501 1,232 1.8Provision for income taxes (TEB) (a) 279 153 243 15.6Non-controlling interest in subsidiaries 4 4 7 (39.3)Net income before goodwill 486 270 372 30.2Amortization of goodwill, net of applicable income tax 12 12 10 11.2Net income 474 258 362 30.8Taxable equivalent adjustment 31 33 36 (12.6)

Per Common Share ($)Net income before goodwill • basic $ 1.72 $ 0.91 $ 1.29 $ 0.43

• fully diluted 1.71 0.90 1.28 0.43Net income • basic 1.68 0.87 1.25 0.43

• fully diluted 1.66 0.86 1.24 0.42Dividends declared 0.50 0.47 0.47 0.03Book value per share 35.77 34.87 33.09 2.68Market value per share 48.15 56.65 66.75 (18.60)Total market value of common shares ($ billions) 12.9 15.1 17.7 (4.8)

As at

Jan 31, Oct 31, Jan 31, Change from2000 1999 1999 Jan 31, 1999

Balance Sheet SummaryAssets $ 228,525 $ 230,615 $ 224,919 1.6%Loans 133,148 138,001 134,481 (1.0)Deposits 154,469 156,874 146,577 5.4Capital funds 15,920 15,693 15,413 3.3Common equity 9,571 9,313 8,785 8.9Net impaired loans and acceptances (240) (256) (319) 24.8Average BalancesLoans 135,659 134,362 136,226 (0.4)Assets 230,195 225,321 230,169 0.0

Jan 31, 2000 Oct 31, 1999 Jan 31, 1999Three Months Twelve Months Three Months

Primary Financial Measures (%) (b)Five-year total shareholder return 17.5 22.0 21.6Net economic profit ($ millions) 201 401 130Earnings per share growth 33.9 1.3 (2.4)Return on equity 19.0 14.1 15.1Revenue growth 9.8 9.0 5.6Expense-to-revenue ratio 59.0 66.7 63.7Provision for credit losses as a % of average loans and acceptances 0.28 0.22 0.22Gross impaired loans and acceptances as a % of equity and allowance for credit losses 8.89 8.53 7.28Liquidity ratio 29.9 29.2 28.6Tier 1 capital ratio 7.84 7.72 7.41Credit rating AA- AA- AA-

Other Financial Ratios (% except as noted) (b)Total shareholder return (12.0) (7.4) 8.7Dividend yield 3.3 2.9 2.8Price-to-earnings ratio (times) 9.3 11.9 14.3Market-to-book value (times) 1.35 1.62 2.02Cash earnings per share – basic ($) 1.74 5.01 1.32Cash return on common shareholders’ equity 21.0 15.9 17.1Return on average assets 0.82 0.61 0.62Net interest margin 1.87 1.95 1.88Other income as a % of total revenue 49.1 44.3 43.7Expense growth 1.8 10.5 6.0Tier 1 capital ratio – U.S. basis 7.63 7.42 7.15Total capital ratio 10.99 10.77 10.53Equity-to-assets ratio 5.1 4.9 4.9

(c) All ratios in this report are based on unrounded numbers.(a) Reported on a taxable equivalent basis (TEB).

(b) For the period ended or as at, as appropriate.


Bank of Montreal (the Bank) reported net income of $474million for the quarter ended January 31, 2000, comparedwith $362 million a year ago, and $258 million in thefourth quarter of 1999.

Fully diluted earnings per share were $1.66 ($1.68basic), versus $1.24 ($1.25 basic) last year and $0.86 ($0.87basic) in the fourth quarter of 1999. Return on equity was19.0%, compared with 15.1% for the first quarter of 1999,and 9.8% for the fourth quarter of 1999. Return on equityon a cash basis was 21.0% up from 17.1% a year ago, and11.2% in the fourth quarter of 1999.

Excluding the gain on the sale of Partners First, netincome was $407 million, fully diluted earnings per sharewere $1.42 ($1.43 basic), and return on equity was 16.2%.The net income increase of $45 million, excluding the gainon sale, was driven by higher revenues and a higher pro-portion of foreign income which resulted in lower taxes.This was partly offset by expense growth and an increasein the provision for credit losses.

The rise in net income, excluding the gain on sale, wasthe result of strong business volume growth in the Bank’sretail and commercial businesses, and in the wealth man-agement businesses, particularly full-service and directinvesting. Net income from institutional businesses was rel-atively unchanged as lower volumes and narrower spreadson fixed income and money market securities, and lowercash collections on impaired loans, were offset by revenuegrowth from investment and corporate banking activities.

Strategic Highlights

The Bank’s record performance in the first quarterreflected the aggressive pursuit and execution of our sixpoint strategy. Key features of the strategy, developed inJanuary, include:1. Continue to aggressively build the value of Harris

Bank. On a U.S. GAAP basis, Harris Bank earnings wereUS$58 million, up US$7 million or 12.7% from the firstquarter of 1999.

2. Rapidly grow the wealth management business.During the first quarter Nesbitt Burns full-serviceonline was introduced as Canada’s first full-serviceonline investment program. In addition, the acquisitionof the Chicago-based discount brokerage Burke,Christensen & Lewis was completed.

3. Capitalize on the Bank’s strong Canadian position inpersonal and commercial banking. Year over year resi-dential mortgages rose 6.3%, credit cards and other per-sonal loans 7.4% and loans to commercial enterprises6.9%. In addition, three new In-Store branches wereopened and two branches consolidated during the quarter.

4. Build on the Bank’s strong leadership position ininvestment banking. The Bank was ranked either firstor second in corporate underwriting and institutionalequity, and first in mergers and acquisitions, researchand securitizations.

5. Drive e-business opportunities. During the quarter theBank became the first bank in North America to deliverintegrated wireless banking and trading services, inpartnership with the Toronto-based software company724 Solutions, which went public in January. The Bankholds 3.4 million shares of common stock, a 9.4% interestin 724 Solutions, after an initial investment of $2 million.

6. Intensely focus on cost, capital and risk management.The Bank sold its investment in Partners First, a U.S.credit card issuing business, to Wachovia Bank CardServices for an after-tax gain of $67 million.

Financial Highlights

RevenueTotal revenues for the first quarter increased $189 million,or 9.8%, relative to a year ago. Excluding the gain on sale,revenues increased $77 million or 4.0%. The 4.0% rise inrevenue reflects a decrease of $8 million in net interestincome or 0.7%, and an increase of $85 million or 10.1% inother income.

Expenses Expense growth relative to last year was $22 million, or1.8%, and was driven by higher revenue-driven compensa-tion, spending on new strategic initiatives, offset by afavourable foreign-exchange impact on U.S.-basedexpenses, and a reduction in on-going business expensesincluding cost reductions.

Asset Quality The provision for credit losses for the quarter was $100 million versus $80 million in 1999. The Bank currently forecasts an annual provision for credit lossesof $400 million, compared with $320 million in 1999.

Gross impaired loans at the end of the quarter grew $72 million over the last quarter. The allowance for creditlosses exceeded gross impaired loans by $240 million atthe end of the quarter.

Capital Adequacy The Bank’s Tier 1 Capital Ratio was 7.84% and the TotalCapital Ratio was 10.99% at January 31, 2000 compared with7.41% and 10.53% at January 31, 1999. This compares with7.72% and 10.77% at October 31, 1999. Risk-weighted assets atJanuary 31, 2000 of $138 billion, were relatively unchangedfrom last year, and up 1.0% from October 31, 1999.

Overview

Bank of Montreal F i rs t Quarter Report 2000 3

F. Anthony Comper (signed)Chairman andChief Executive Officer


F inancia l Performance

Shareholder Value■ The five-year annualized total shareholder return (TSR) was 17.5% for the first

quarter of 2000, versus 21.6% for the first quarter of 1999.■ Annual TSR was negative 12.0% for the first quarter of 2000 compared to

8.7% for the first quarter of 1999.■ Share price declined 15.0% from the end of the fourth quarter of 1999, and

27.9% from the end of the first quarter of 1999.

22.023.326.1

22.217.5

Q1 0099989796

(13.5)(4.7)

36.5

102.7

54.9

Q1 0099989796

0.9 1.3

11.9

22.2

33.9

Q1 0099989796

14.115.217.117.019.0

Q1 0099989796

9.0

1.4

15.19.9 9.8

Q1 0099989796

Net Economic Profit Growth■ Net economic profit growth for the first quarter of 2000 was 54.9%, com-

pared to negative 13.8% for the first quarter of 1999. The growth in 2000resulted from earnings growth, which outpaced the growth in average common shareholders’ equity.

Earnings Growth■ Earnings growth for the first quarter of 2000 was 30.8%. Excluding the gain

on sale of Partners First, earnings grew 12.3%. The increase in net income,excluding the gain on sale, was driven by higher revenues and a higher pro-portion of foreign income which resulted in lower taxes. This was partiallyoffset by an increase in expenses and a higher provision for credit losses.

■ Earnings per share rose 33.9% in the current quarter, compared to growth of(2.4)% in 1999. Excluding the gain on sale, earnings per share increased 14.5%.

Profitability■ The Bank achieved a 19.0% ROE for the first quarter of 2000 compared with

15.1% for the first quarter of 1999.■ Excluding the gain on sale of Partners First, ROE for the first quarter of the

year was 16.2%.

Revenue Growth■ Revenue growth for the first quarter of 2000 was 9.8% compared to 5.6% for

the first quarter of 1999. Excluding the gain on sale of Partners First, revenuegrowth was 4.0% for the first quarter of the year.

■ Revenue growth reflected business volume growth in the Bank’s retail andcommercial businesses, and expansion of the wealth management busi-nesses, particularly full-service and direct investing.

Five-Year Total ShareholderReturn (%)

Fully Diluted Earnings perShare Growth (%)

Objective (Minimum of 10%)

Return on CommonShareholders’ Equity (%)

Revenue Growth (%)

Net Economic Profit Growth (%)

Expense-to-Revenue Ratio (%)

66.765.863.762.8 59.0

Q1 0099989796

Expense-to-Revenue Ratio■ The expense-to-revenue ratio was 59.0% for the first quarter of the year com-

pared to 63.7% for the first quarter of 1999.■ Expense growth was 1.8% for the first quarter of the year compared to 6.0%

for the first quarter of 1999. Expense growth was driven by higher revenue-driven compensation, continued spending on strategic initiatives, offset by afavourable foreign-exchange impact on U.S.-based expenses, and a reductionin on-going business expenses.



F inancia l Condit ion

Credit Risk■ The provision for credit losses as a percentage of average loans and accep-

tances was 0.28% for the first quarter of 2000 compared to 0.22% for the firstquarter of 1999.

■ Gross impaired loans, as a percentage of equity and allowance for creditlosses was 8.89% compared to 8.53% at the end of the fourth quarter of 1999,and 7.28% at the end of the first quarter of 1999.

Liquidity Ratio■ The liquidity ratio was 29.9% at January 31, 2000 compared to 29.2% at

October 31, 1999 and 28.6% at January 31, 1999.

Capital Adequacy■ The Tier 1 Capital ratio was 7.84% at January 31, 2000 compared to 7.72% at

October 31, 1999, and 7.41% at January 31, 1999.■ The Total Capital ratio was 10.99% at January 31, 2000 compared to 10.77%

at October 31, 1999, and 10.53% at January 31, 1999.

Credit Rating■ The composite credit rating remained unchanged.

0.22

0.09

0.230.230.28

Q1 0099989796

8.536.667.65

15.71

8.89

Q1 0099989796

67,30968,35463,19574,034

60,796

29.228.435.635.8

29.9

Q1 0099989796

7.727.266.806.717.84

Q1 0099989796

Provision for Credit Lossesas a % of Average Loansand Acceptances

Gross Impaired Loans as a% of Equity and Allowancefor Credit Losses

Cash Resources($ millions)

Securities

Cash and Securities-to-TotalAssets (%)

Tier 1 Capital Ratio (%)

Tier 1 RegulatoryRequirement (4%)

Composite Credit Rating

The credit rating represents acomposite of Moody’s andStandard & Poor’s debt ratings.AA-




Quarterly Financial OverviewThe Bank reported net income of $474 million for the quar-ter ended January 31, 1999, compared with $362 million ayear ago and $258 million in the fourth quarter of 1999.

Fully diluted earnings per share were $1.66 versus $1.24last year and $0.86 in the fourth quarter of 1999. Return onequity was 19.0%, compared with 15.1% for the first quarterof 1999 and 9.8% for the fourth quarter of 1999. Return onequity on a cash basis was 21.0% up from 17.1% a year ago,and 11.2% in the fourth quarter of 1999.

Net income in the current period included an after-taxgain of $67 million from the sale of the Bank’s investmentin Partners First, a U.S. credit card issuing business.Excluding the gain on the sale, net income was $407 mil-lion, fully diluted earnings per share were $1.42 ($1.43basic), and return on equity was 16.2%.

Revenue Total revenues for the first quarter increased $189 million,or 9.8%. This increase consisted of an $8 million decreasein net interest income and an increase of $197 million, or23.3%, in other income. Excluding the gain on sale ofPartners First, revenues increased $77 million, or 4.0%.

Relative to the fourth quarter of 1999, revenue increased$115 million or 5.8%. The fourth quarter of 1999 included a$55 million one-time charge for distressed securities, and$89 million from an additional month’s revenues due to theNesbitt Burns change of year-end. Excluding these non-recurring items, including the gain on sale during the firstquarter of 2000, revenues increased $37 million, or 1.9%.The increase reflected business volume growth in retailand commercial businesses, and wealth management.Investment banking revenues were essentially unchangedwhile support revenue declined due to narrower spreadson securitizations and capital funds.

Net Interest Income Average assets for the total Bank were unchanged com-pared to the prior year, with a 6.3% growth in retail andcommercial assets, being offset by a reduction in the assetsof institutional businesses. Net interest margin decreasedmarginally by 0.01%, to 1.87%. The overall decrease wasdue to a $42 million, or 4.5%, increase in retail, commer-cial and wealth management businesses, which was morethan offset by lower cash collections on impaired loans,and lower volumes and spreads on fixed income andmoney market businesses.

In Canada, the Bank’s residential mortgages rose $2.4billion, or 6.3%, from a year ago. Credit card and other per-sonal loans were up $1.2 billion, or 7.4%, and loans to com-mercial enterprises, including small and medium-sizedbusinesses, were up $1.2 billion, or 6.9%. Average loangrowth of US$956 million, or 7.1%, at Harris Bankincreased U.S. retail banking results.

Net interest income decreased $43 million, or 3.8% fromthe fourth quarter of 1999. Excluding the non-recurring items

Management Analys is of Operat ions

referred to above, net interest income decreased $35 million.

Other Income Excluding the gain on sale, other income increased $85million, or 10.1%, and can be attributed to higher businessvolumes across most areas of the Bank.

Other income rose $158 million, or 17.9%, from thefourth quarter of 1999. Excluding the non-recurring itemsother income rose $72 million or 8.4%.

Non-Interest Expense Expense growth relative to last year was $22 million, or1.8%. This was driven by higher revenue-driven compen-sation (4.4%), spending on new strategic initiatives (1.1%),largely offset by a favourable foreign exchange rate impacton U.S.-based expenses (1.1%), and a reduction in on-goingbusiness expenses, including $50 million in cost reduc-tions (2.6%).

Expenses decreased $247 million, or 16.5% relative to thefourth quarter of 1999. Excluding non-recurring items,being the one-time charge for restructuring and the addi-tional month’s expenses in the last quarter from the NesbittBurns change of year-end, expenses decreased $34 millionor 2.7% across the Bank. The expense decline of 2.7% wasdriven by reduced revenue-driven compensation (1.7%), areduction in on-going business expenses, including $50million in cost reductions (2.1%) partially offset by invest-ment in strategic initiatives (1.1%).

Caution Regarding Forward-Looking StatementsFrom time to time we make written and verbal forward-looking state-ments. These may be included in this quarterly report, filings withCanadian regulators or the U.S. Securities and Exchange Commission, inreports to shareholders and in other communications. These forward-looking statements include but are not limited to comments with respectto our objectives and strategies, financial condition, the results of ouroperations and our businesses, our outlook for the Canadian economyand our risk management discussion including the Year 2000 issue.

However, by their nature these forward-looking statements involvenumerous assumptions, inherent risks and uncertainties, both generaland specific and the risk that predictions and other forward-lookingstatements will not be achieved. We caution readers of this quarterlyreport not to place undue reliance on these forward-looking statementsas a number of important factors could cause actual future results todiffer materially from the plans, objectives, expectations, estimates andintentions expressed in such forward-looking statements.

Forward-looking statements may be influenced by the following fac-tors: fluctuations in interest rates and currency values; regulatory devel-opments; the effects of competition in the geographic and businessareas in which we operate, including continued pricing pressure on loanand deposit products; and changes in political and economic conditionsincluding, among other things, inflation and technological changes. Wecaution that the foregoing list of important factors is not exhaustive andthat when relying on forward-looking statements to make decisionswith respect to Bank of Montreal, investors and others should carefullyconsider the foregoing factors as well as other uncertainties and events.


Asset QualityThe provision for credit losses for the quarter was $100million versus $80 million in 1999. This is based on a fore-cast provision for the year of $400 million, compared to$320 million in 1999. In line with the methodology estab-lished for a number of years, this estimate takes intoaccount several factors including the level of expected lossin the loan portfolio, management’s view of the currenteconomic cycle, the level of impaired loans, as well as theamount of the general allowance for credit losses which iscurrently $970 million.

Gross impaired loans at the end of the quarter grew $72 million over the last quarter. At the end of the first quarter, the allowance exceeded gross impaired loans by $240 million, compared with $319 million at the end of thefirst quarter of 1999, and $256 million at the end of the last quarter.

Capital ManagementThe Bank’s Tier 1 Capital Ratio increased to 7.84% and theTotal Capital Ratio increased to 10.99% at January 31,2000. This compares with 7.72% and 10.77% at October 31,1999. Risk weighted assets at January 31, 2000 were relatively unchanged at $138 billion from last year and up1% from October 31, 1999.

LiquidityLiquid assets or cash, securities and deposits with banksincreased by $4.1 billion from the first quarter of last year,and amounted to 29.9% of total assets at January 31, 2000compared to 29.2% at October 31, 1999. To maintain strongliquidity the Bank continues to ensure that it has well-diversified funding sources, with deposits broadlydiversified by customer, type, currency and geography.The Bank’s large base of deposits by individuals provides astrong and secure source of funding in both the Canadianand U.S. dollar markets. These deposits along with theBank’s strong capital base reduce the reliance on othermore volatile sources of funds.

Credit RatingThe Bank’s credit rating, as measured by a composite ofMoody’s and Standard & Poor’s senior debt ratings,remained unchanged at AA-.

F inancia l Condit ion Overv iew


Geographic SegmentationIn the current quarter, foreign earnings were $250 million,representing 52.7% of total earnings, compared to $216million or 59.6% a year ago. The Bank’s equity stake inBancomer generated earnings of $31 million, which hasdecreased $1 million compared with the same period lastyear. The contribution from Harris Bank was $78 million,compared to $76 million a year ago.

Geographic Diversification of Net Income – First Quarter($ millions) 2000 1999

Canada 224 146United States 184 146Mexico 35 35Other 31 35

Total 474 362

The Annual and Special Meeting of Common Shareholders and theSpecial Meeting of Class B Preferred Shareholders were held onFebruary 29, 2000 in London, Ontario. At the Common Shareholdersmeeting, shareholders appointed the auditors of the Bank,approved an amendment to the Stock Option Plan, and confirmedSpecial By-law “F” to change and increase the authorized capital ofthe Bank.

The following seventeen individuals were elected directors ofthe Bank: Stephen Bachand, David Beatty, Peter Bentley, RobertChevrier, Tony Comper, John Fraser, David Galloway, Eva Lee Kwok,Blair MacAulay, Frank McKenna, Robert McKercher, Bruce Mitchell,Philip Orsino, Jeremy Reitman, Joseph Rotman, Guylaine Saucierand Nancy Southern.

Five of six shareholder proposals before the meeting, details ofwhich were included in the Proxy Circular forwarded to all share-holders in January 2000, were not accepted by shareholders. A sixthproposal, Publication of Auditor’s Fees, was accepted.

In addition, the Chairman and Chief Executive Officer, TonyComper, outlined the Bank’s six-point growth strategy.

At the Special Meeting of Class B Preferred Shareholders, share-holders approved special resolutions to change and increase theaggregate consideration with respect to Class B and Class APreferred Shares.

Shareholders wishing to receive the minutes of the meetingsmay contact:Bank of MontrealCorporate Secretary’s Department – Shareholder Services1 First Canadian Place, 21st Floor100 King Street WestToronto, Ontario M5X 1A1Telephone: (416) 867-6785 Fax: (416) 867-6793E-mail: [email protected]


Net Income and Average Assets by Operating Group (For the three months ended)

Personal & Commercial Private Client Investment Banking TotalClient Group (a) Group (b) Group (c) Consolidated (d)

Jan 31, Oct 31, Jan 31, Oct 31, Jan 31, Oct 31, Jan 31, Oct 31,2000 1999 2000 1999 2000 1999 2000 1999

Net Income ($ millions)

Canada 166 143 24 5 56 50 224 80United States 143 79 8 8 34 87 184 145Mexico 32 17 0 0 2 3 35 19Other Countries 16 14 1 3 14 (3) 31 14

Total 357 253 33 16 106 137 474 258

Average Assets ($ billions)

Canada 79.0 77.8 1.6 1.8 50.6 40.7 123.7 112.0United States 37.5 36.2 1.9 1.9 34.6 37.1 77.9 79.1Mexico 0.8 0.8 0.0 0.0 0.8 0.8 1.7 1.7Other Countries 0.2 0.2 0.1 0.1 26.5 32.1 26.9 32.5

Total 117.5 115.0 3.6 3.8 112.5 110.7 230.2 225.3

Net Income and Average Assets by Operating Group (For the three months ended)

Personal & Commercial Private Client Investment Banking TotalClient Group (a) Group (b) Group (c) Consolidated (d)

Jan 31, Jan 31, Jan 31, Jan 31, Jan 31, Jan 31, Jan 31, Jan 31,2000 1999 2000 1999 2000 1999 2000 1999

Net Income ($ millions)

Canada 166 140 24 6 56 31 224 146United States 143 68 8 6 34 55 184 146Mexico 32 33 0 0 2 1 35 35Other Countries 16 13 1 3 14 19 31 35

Total 357 254 33 15 106 106 474 362

Average Assets ($ billions)

Canada 79.0 74.1 1.6 1.6 50.6 45.8 123.7 114.0United States 37.5 35.5 1.9 1.8 34.6 40.0 77.9 78.3Mexico 0.8 0.7 0.0 0.0 0.8 1.0 1.7 1.8Other Countries 0.2 0.2 0.1 0.1 26.5 35.8 26.9 36.1

Total 117.5 110.5 3.6 3.5 112.5 122.6 230.2 230.2

(a) Personal and Commercial Client Group (P&C) is responsible for financial services to retailand commercial businesses in Canada and the U.S. through its branch and automated bank-ing networks, electronic banking products, including mbanx services, credit card, corporateelectronic banking, telebanking and alliances with the Bank’s affiliated corporation GrupoFinanciero Bancomer.

(b) Private Client Group (PCG) is responsible for providing wealth management services to individuals, including the services of Nesbitt Burns and Asset Management Services, whichincludes InvestorLine discount brokerage, First Canadian Funds, Jones Heward InvestmentManagement Services and Harris Private Bank.

(c) Investment Banking Group (IBG) is responsible for relationship management for large corporate and institutional customers, the delivery of treasury products and corporate andinvestment banking in Canada and the U.S.

(d) Total Consolidated includes general provisions for credit losses and any residual revenuesand expenses representing the difference between actual amounts incurred and theamounts allocated to operating groups.

Basis of presentation of results of operating groups: Expenses are matched against the revenues to which they relate. Indirect expenses, such as overhead expenses and any revenuethat may be associated thereto, are allocated to the operating groups using appropriate allocation formulas applied on a consistent basis. For each currency, the net income effect offunds transferred from any group with a surplus to any group with a shortfall is at market rates for the currency and appropriate term. Segmentation of assets by geographical region isbased upon the ultimate risk of the underlying assets. Segmentation of net income is basedupon the geographic location of the unit responsible for managing the related assets, liabilities,revenues and expenses.



Personal and Commercial Client GroupThe Personal and Commercial Client Group (P&C) provides financial services including electronic financialservices, to households and commercial businesses,including small businesses, in Canada, the U.S. and Mexico.

Net income for the first quarter was $357 million, anincrease of $103 million or 40.7% from the comparableperiod last year. Excluding the gain on the sale of PartnersFirst, net income increased $36 million, or 14.2%. Businessgrowth was driven by increased volumes, partially offset bynarrower spreads and an increase in the provision forcredit losses.

Revenues increased $160 million or 12.7% over last year.Excluding the gain on sale, revenues were up $48 million or3.8%. Net interest income and other revenue growth weredriven by volume growth across most lines of business.Expenses decreased $6 million or 0.8% from last year.

Compared with the fourth quarter of 1999, net incomewas $104 million or 40.5% higher. Excluding the gain onthe sale of Partners First, net income increased $37 millionor 14.1%. The increase resulted from business growth inCanada, the U.S. and an increase in the contribution fromthe Bank’s investment in Bancomer, partly offset by anincrease in the provision for credit losses. Business growthwas driven by increased volumes across most lines of busi-ness, increased margins in Canada and a reduction inoperating expenses.

Private Client GroupBank of Montreal’s Private Client Group (PCG) bringstogether all of the Bank’s wealth management capabilitiesin six lines of business: retail investment products, directand full service investing, Canadian and U.S. private bank-ing and institutional asset management.

Net income for the first quarter of 2000 was $33 mil-lion, an increase of $18 million or 112.2% from the com-parable period last year. Revenues increased $70 millionor 28.7% over last year primarily due to increased vol-umes in both full-service and direct investing, which ben-efited from strong equity markets. Expenses increased$44 million or 20.8% due to higher variable compensationand the expansion of the Bank’s wealth management busi-ness. PCG has total assets under management and admin-istration of $171 billion.

Net income increased $17 million, or 110.2% comparedto the fourth quarter of 1999. During 1999, Nesbitt Burnschanged its year-end, resulting in one additional month ofresults being included in the fourth quarter of 1999. Theinclusion of the additional month of results accounted foran additional $56 million in revenue and $53 million inexpenses, with a positive net income impact of $2 million.

Revenue growth of $55 million, excluding the extra monthin the previous quarter, was driven by increased volumesin both full service and direct investing, while expensesincreased $28 million due to revenue-driven compensa-tion and continued investment in the wealth managementline of business.

Investment Banking GroupThe Investment Banking Group (IBG) services the corpo-rate and investment banking needs of larger corporate andinstitutional clients.

Net income was $106 million for the quarter, unchangedfrom the prior year. Revenues of $439 million were down$2 million, or 0.5%. Expenses were up $10 million, or4.3%, over last year. Lower provisions for credit losses offset these changes.

Overall, the decline in revenues was due to lower volumes and narrower spreads on fixed income and moneymarket securities, and lower cash collections on impairedloans. These were offset by revenue growth from invest-ment and corporate banking activities. Expense growthwas driven by increased revenue-driven compensation intrading and investment lines of business.

Net income decreased $31 million, or 22.6%, from thefourth quarter of 1999. Revenues were down $32 million,while expenses decreased $14 million. In 1999, NesbittBurns changed its year-end, resulting in the inclusion ofan additional month of results in the fourth quarter. Thisinclusion resulted in an additional $37 million of revenues,$20 million of expenses and a positive net income impactof $9 million. Excluding the impact of the extra month’sresults, net income for the current quarter was down $22million, as the revenue increase of $5 million was morethan offset by a rise in expenses of $6 million, and anincrease in the provision for credit losses. The provisionfor credit losses returned to normal levels, after a recoveryof $32 million in the fourth quarter of 1999.

Operat ing Group Review



Consolidated Statement of IncomeFor the three months ended

(Unaudited) (Canadian $ in millions except number of common shares) January 31, 2000 October 31, 1999 January 31, 1999

Interest, Dividend and Fee IncomeLoans $ 2,449 $ 2,364 $ 2,566Securities 701 632 637Deposits with banks 231 274 277

3,381 3,270 3,480

Interest ExpenseDeposits 1,754 1,571 1,730Subordinated debt 86 85 86Other liabilities 491 523 611

2,331 2,179 2,427

Net Interest Income 1,050 1,091 1,053Provision for credit losses 100 80 80

Net Interest Income After Provision for Credit Losses 950 1,011 973

Other IncomeDeposit and payment service charges 164 165 146Lending fees 80 91 78Capital market fees 224 265 184Card services 53 55 48Investment management and custodial fees 104 103 104Mutual fund revenues 52 60 49Trading revenues 77 52 65Securitization revenues 70 84 75Other fees and commissions 218 9 96

1,042 884 845

Net Interest and Other Income 1,992 1,895 1,818

Non-Interest ExpenseSalaries and employee benefits 734 749 668Premises and equipment 257 295 274Communications 65 72 66Other expenses 194 239 218

1,250 1,355 1,226Amortization of intangible assets 4 5 6

1,254 1,360 1,232Restructuring charge – 141 –

Total non-interest expense 1,254 1,501 1,232Income Before Provision for Income Taxes,

Non-Controlling Interest in Subsidiaries and Goodwill 738 394 586Income taxes 248 120 207

490 274 379Non-controlling interest 4 4 7

Net Income Before Goodwill 486 270 372Amortization of goodwill, net of applicable income tax 12 12 10

Net Income $ 474 $ 258 $ 362

Dividends Declared • preferred shares $ 25 $ 27 $ 30• common shares $ 134 $ 125 $ 125

Average Number of Common Shares Outstanding 267,248,718 266,761,950 264,952,530Average Assets $ 230,195 $ 225,321 $ 230,169

Note: Reporting under United States generally accepted accounting principles would have resulted in Consolidated Net Income of $456, basic earnings per share of $1.61 and fully diluted earnings pershare of $1.59 for the three months ended January 31, 2000.



Condensed Consolidated Balance SheetAs at

(Unaudited) (Canadian $ in millions) January 31, 2000 October 31, 1999 January 31, 1999

Cash resources $ 23,441 $ 24,036 $ 23,823Securities 44,913 43,273 40,420

68,354 67,309 64,243

LoansResidential mortgages 38,598 38,189 36,349Consumer instalment and other personal loans 17,052 16,912 15,817Credit card loans 1,217 1,160 882Loans to businesses and governments 59,727 57,998 50,658Securities purchased under resale agreements 17,958 25,090 31,996

134,552 139,349 135,702Allowance for credit losses (1,404) (1,348) (1,221)

133,148 138,001 134,481

Customers’ liability under acceptances 8,195 6,753 6,649Other assets 18,828 18,552 19,546

Total Assets $ 228,525 $ 230,615 $ 224,919

DepositsBanks $ 27,869 $ 30,398 $ 28,926Businesses and governments 64,564 65,459 56,968Individuals 62,036 61,017 60,683

154,469 156,874 146,577

Acceptances 8,195 6,753 6,649Securities sold but not yet purchased 14,161 10,450 8,038Securities sold under repurchase agreements 19,504 24,177 31,655Other liabilities 16,276 16,668 16,587

58,136 58,048 62,929

Subordinated debt 4,688 4,712 4,750

Shareholders’ equityShare capital

Preferred shares 1,661 1,668 1,878Common shares 3,205 3,190 3,138

Retained earnings 6,366 6,123 5,647

11,232 10,981 10,663

Total Liabilities and Shareholders’ Equity $ 228,525 $ 230,615 $ 224,919

Note: These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles, including the accounting requirements of theSuperintendent of Financial Institutions Canada.



Condensed Consolidated Statement of Cash FlowFor the three months ended

(Unaudited) (Canadian $ in millions) January 31, 2000 January 31, 1999

Cash Flows From (Used in) Operating ActivitiesNet income $ 474 $ 362Adjustments to determine net cash flows (4,228) 2,816

(3,754) 3,178

Cash Flows From (Used in) Financing ActivitiesDeposits (2,405) 2,594Other liabilities (1,351) 2,429Debt and share capital 15 (78)Dividends paid (152) (155)

(3,893) 4,790

Cash Flows From (Used in) Investing ActivitiesInvestment securities 2,334 1,046Loans 4,753 (4,837)Premises and equipment – net purchases (35) (84)Interest bearing deposits with banks 1,041 (4,273)

8,093 (8,148)

Net Increase (Decrease) in Cash and Cash Equivalents 446 (180)Cash and Cash Equivalents at Beginning of Period 2,419 2,962

Cash and Cash Equivalents at End of Period $ 2,865 $ 2,782

Condensed Consolidated Statement of Changesin Shareholders’ Equity

For the three months ended

(Unaudited) (Canadian $ in millions) January 31, 2000 January 31, 1999

Balance at Beginning of Period $ 10,981 $ 10,608Net income 474 362Dividends • Preferred shares (25) (30)

• Common shares (134) (125)Preferred share redemption – (72)Common share issues 15 43Translation adjustment on preferred shares issued in a foreign currency (7) (8)Unrealized gain (loss) on translation of net investment in foreign operations,

net of hedging activities and applicable income taxes (72) (90)Costs of proposed merger, net of applicable income taxes – (25)

Balance at End of Period $ 11,232 $ 10,663



first quarterreport - bmo information... · 2005. 10. 11. · january 2000 $ 45.95 for the period...

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