RNS No 0537c
BANK OF MONTREAL
24th November 1998
Bank of Montreal Reports Year-end Results
TORONTO, November 24,1998 - Bank of Montreal's net income for the year ended
October 31, 1998 was $1.350 billion, up 3.5 per cent from $1.305 billion in
1997. Fully diluted earnings per share were $4.66 ($4.72 basic), up from $4.62
($4.69 basic) a year ago. Return on equity for 1998 was 15.2 per cent compared
to 17.1 per cent for 1997. Net income included a $110 million addition to the
bank's general provision for loan losses, bringing the total general allowance
to $885 million.
Earnings growth reflected continued business volume growth and strong asset
quality, partially offset by the effects of unusual market conditions in the
fourth quarter. These abnormal markets drove net trading losses of $90 million
after tax in the quarter and contributed to the year-over-year decline in
other institutional businesses and a lower contribution from Grupo Financiero
Bancomer.
"1998 marks our ninth consecutive year of EPS growth and record earnings and,
although the impact of abnormal markets prevented us from achieving our minimum
10 per cent EPS growth objective, we continue to maintain this as our target
going forward," said Matthew W. Barrett, Chairman and Chief Executive Officer.
For the fourth quarter, net income was $234 million compared to $297 million for
the same quarter last year. Fully diluted earnings per share were $0.76 ($0.77
basic), down from $1.04 ($1.05 basic) a year ago. Return on equity was 9.4 per
cent compared to 14.5 per cent for the fourth quarter of 1997. The decline in
net income was primarily a result of trading losses incurred in the quarter and
a lower contribution from Bancomer, offset in part by continued business volume
growth, strong asset quality and lower levels of expenses.
"While the operating groups serving our institutional clients were affected by
global market upheaval, the groups serving our retail and commercial sectors,
in both Canada and the U.S., had an excellent year, with high volume growth
driven by product and service innovation, high consumer demand and favourable
economic conditions," said F. Anthony Comper, President and Chief Operating
Officer."
Harris Bank reported strong earnings growth with net income up 19 per cent to
$282 million in 1998 from $237 million a year earlier. Harris' strong
performance was offset by the effects of the sale of the U.S. credit card
business and the declines in institutional businesses and Bancomer referred to
above. As a result, earnings from outside Canada declined to $587 million, or 43
per cent of net income, from $770 million in 1997.
Bank of Montreal, Canada's first bank, is a highly diversified financial
services institution with average assets of $227 billion. The Bank's group of
companies include Nesbitt Burns, one of Canada's largest, full-service
investment firms, Chicago-based Harris Bank, a major U.S. mid-west financial
institution and mbanx, the first North American-wide virtual banking unit. Bank
of Montreal has an equity position in, and an alliance with, Grupo Financiero
Bancomer, a leading Mexican financial institution.
For greater detail, please see attached highlights and financial statements.
Media Relations Contacts: Investor Relations Contacts:
Lynne Kilpatrick, Toronto (416) 927-2740 Bob Wells, (416) 867-4009
Ronald Monet, Montreal (514) 877-1101 Cathy Cranston, (416) 867-6656
Internet: http://www.bmo.com
Financial Highlights for the year
Revenue
Revenues for 1998 of $7.270 billion were up 1.4 per cent from $7.167
billion a year ago due to strong business volume growth, primarily in our retail
and commercial businesses, offset in part by lower contributions from several
institutional businesses, Bancomer, and foregone revenue due to the sale of the
U.S. credit card business to Partners First, as well as the associated start-up
losses in this venture. Business volume growth included the foreign exchange
rate impact on U.S.-based revenues.
In Canada, average residential mortgages increased $4.7 billion from a year ago.
Credit card and other personal loans were up $1.6 billion and loans to
commercial enterprises, including small and medium-sized businesses, were up
$1.8 billion. Harris Bank experienced average loan growth of $2.5 billion.
Revenue growth was offset in part by the trading losses in our institutional
businesses which are discussed in greater detail below. Total net trading
revenues for 1998 were $133 million compared to $312 million a year ago. Our
institutional businesses also saw lower contributions from impaired loan
collections and decreased earnings on bonds and equities of lesser-developed
countries in 1998, reducing revenues by $188 million. The Bank's revenues from
these sources continues to decline due to reduced exposure in these portfolios.
Bancomer's contribution to net income declined to $24 million in 1998 from $77
million a year ago, due to unsettled global economic conditions which directly
affected Bancomer's trading and investment income and indirectly affected
lending activities through slower growth in the Mexican economy.
Net interest margin declined 30 basis points from 1997, largely as a result of
the items mentioned above.
Expenses
Expense growth of 4.7 per cent, the lowest level in nine years, was
driven by continued strategic initiatives such as mbanx and telephone banking
(2.1 per cent), the foreign exchange rate impact on US-based expenses (1.5 per
cent) and on-going business volume growth, net of productivity improvements (3.5
per cent). This growth was offset in part by the impact of a $75 million charge
recorded in the fourth quarter of 1997 for accelerated depreciation related to
technology changes, and for costs to improve the efficiency of the Bank's credit
process (1.6 per cent), as well as a decline in revenue driven compensation (0.8
per cent).
Asset Quality
The Bank's total provision for credit losses of $130 million
included a $110 million addition to the general allowance, which was charged
to net income. The provision was $145 million lower than 1997 due to a $90
million lower general provision, a reduction of approximately $100 million
relating to credit card portfolios which were sold or securitized, offset by a
higher level of net specific provisions.
The allowance for credit losses exceeded the gross amount of impaired loans by
$342 million at the end of 1998, versus $358 million at the end of 1997. The
provisioning ratio - the annual provision for credit losses as a percentage of
average loans and acceptances - improved to 0.09 per cent from 0.23 per cent a
year ago.
The Bank's direct exposure to troubled economies is relatively low with no
significant losses experienced in 1998. Dealings in Asia have generally been
confined to high-quality financial institutions or to providing
self-liquidating trade or project financing. Outstandings in Eastern Europe are
nominal.
Capital Ratios
The Bank's Tier 1 Capital Ratio increased to 7.26 per cent and
the Total Capital Ratio increased to 10.38 per cent at October 31, 1998 from
6.80 per cent and 9.66 per cent, respectively, at October 31, 1997.
Financial Highlights for the fourth quarter
Revenue
Revenues for the fourth quarter were $1.616 billion, down from $1.862
billion for the same quarter last year, primarily as a result of trading losses
and a lower contribution from Bancomer. This was offset in part by volume
growth, mainly in our retail and commercial businesses, including the foreign
exchange rate impact on U.S.-based revenues.
Trading losses were incurred as a result of abnormal capital market conditions
which drove a widening in credit spreads and a reduction in liquidity in the
corporate debt markets. Total trading losses for the quarter, which occurred
primarily in the Bank's North American corporate debt portfolios, were $155
million ($90 million after-tax), including the $140 million ($80 million
after-tax), previously announced.
Expenses
Expenses for the fourth quarter declined 3.2 per cent to $1.23 billion,
compared to $1.27 billion a year ago, primarily as a result of the $75 million
charge discussed above (5.9 per cent) and a decline in revenue driven
compensation (4.1 per cent). This was offset in part by increased strategic
initiatives (1.2 per cent), the foreign exchange rate impact on U.S.-based
expenses (2.3 per cent) and on-going business volume growth, net of productivity
improvements (3.3 per cent).
BANK OF MONTREAL
FINANCIAL HIGHLIGHTS
(Canadian $ in millions except as noted)
For the 3 months ended For the 12 months ended
Change Change
from from
Oct 31 Jul 31 Oct 31 Oct 31 Oct 31 Oct 31 Oct 31
1998 1998 1997 1997 1998 1997 1997
Net Income Statement
Net Interest Income $984 $1,079 $1,091 (9.9)% $4,162 $4,186 (0.8)%
(TEB) (a)
Other Income 632 834 771 (18.0) 3,118 2,981 4.6
Total Revenue (TEB) (a) 1,616 1,913 1,862 (13.2) 7,270 7,167 1.4
Provision for credit
losses (5) 46 69 (107.3) 130 275 (52.7)
Non-interest expense 1,230 1,222 1,269 (3.2) 4,833 4,613 4.7
Provision for income
taxes (TEB) (a) 153 259 220 (30.6) 932 949 (1.8)
Non-controlling interest
in subsidiaries 4 9 7 (36.3) 25 25 1.8
Net Income 234 378 297 (21.2) 1,350 1,305 3.5
Taxable equivalent
adjustment 36 32 28 29.7 128 109 17.9
Per Common Share ($)
Net Icome- basic $0.77 $1.32 $1.05 $(0.28) $4.72 $4.69 $0.03
- fully diluted 0.76 1.31 1.04 (0.28) 4.66 4.62 0.04
Dividends declared 0.44 0.44 0.44 0.00 1.76 1.64 0.12
Book value per share 32.71 32.41 29.18 3.53 32.71 29.18 3.53
Market value per share 63.10 73.65 60.85 2.25 63.10 60.85 2.25
Total market value of
common share
($ billions) 16.7 19.4 15.9 0.8 16.7 15.9 0.8
As at
Change from
Oct 31 July 31 Oct 31 Oct 31
1998 1998 1997 1997
Balance Sheet Summary
Assets $222,590 $229,277 $207,838 7.1%
Loans 129,691 134,016 114,918 12.9
Deposits 143,983 152,643 144,212 (0.2)
Capital Funds 16,399 15,460 12,734 20.9
Common equity 8,650 8,522 7,629 13.4
Net impaired loans
and acceptances (342) (602) (358) (4.5)
Average Balances
Loans 136,248 136,351 116,844 16.6
Assets 237,643 226,006 204,819 16.0
Oct 31 July 31 Oct. 31
1998 1998 1997
Twelve Nine Twelve
Months Months Months
Primary Financial
Measures (%) (b)
Five-Year return on
common shareholders'
investment 23.3 27.0 26.1
Return on common
shareholders' equity 15.2 17.3 17.1
EPS growth - fully
diluted 0.9 8.9 11.9
Revenue growth 1.4 6.6 15.1
Expense-to-revenue
ratio 66.5 63.7 64.4
Provision for credit
losses as a % of
average loans and
acceptances 0.09 0.13 0.23
Gross impaired loans
and acceptances as a %
of equity and allowance
for credit losses 6.66 6.67 7.65
Tier 1 capaital ratio 7.28 7.32 0.80
Cash and securities-to-
total assets 28.4 31.5 35.6
Credit rating AA- AA- AA-
Other Financial Ratios
(% except as noted) (b)
Return on common
shareholders' investment 6.4 23.9 55.0
Dividend yield 2.9 2.9 3.9
Price-to-earnings per
share (times) 13.4 14.7 13.0
Market-to-book value
(times) 1.93 2.27 2.09
Cash earnings per share
- basic ($) 4.98 4.16 4.97
Cash return on common
shareholders' equity 17.5 19.9 20.0
Return on average
assets 0.69 0.67 0.66
Net interest income
to average assets 1.63 1.89 2.13
Other income as a %
of total revenue 42.9 44.0 41.6
Expense growth 4.7 7.8 16.8
Tier 1 capital ratio
- US basis 6.95 6.98 8.35
Total capital ratio 10.38 10.50 9.66
Equity-to-assets
ratio 5.0 4.8 4.44
a) Reported on a taxable equivalent basis (TEB)
b) For the period ended or as at,as appropriate
CONSOLIDATED STATEMENT OF INCOME
(Canadian $ in millions except number ommon shares
For the 3 months ended For the 12 months ended
Oct 31 July 31 Oct 31 Oct 31 Oct 31
1998 1998 1997 1998 1997
$ $ $ $ $
Interest, Dividend
and Fee Income
Loans 2,697 2,698 2,110 10,015 8,058
Securities 716 666 581 2,595 2,144
Deposits with banks 303 333 378 1,511 1,332
3,616 3,697 3,069 14,121 11,634
Interest Expense
Deposits 1,881 1,870 1,377 7,254 5,208
Suordinated debt 88 91 72 331 293
Other liabilities 698 689 557 2,512 1,956
2,667 2,650 2,006 10,097 7,457
Net Interest income 948 1,047 1,063 4,024 4,077
Provision of credit
losses (5) 45 69 130 275
Net interest income
After Provision for
Credit Losses 953 1,002 994 3,894 3,802
Other income
Deposit and payment
service charges 145 144 129 556 508
Lending fees 63 95 69 290 240
Capital market fees 216 194 238 869 819
Card services 50 46 57 196 251
Investment management
and custodial fees 95 115 58 407 299
Mutual fund revenues 50 54 44 199 155
Trading revenues (176) 83 66 40 276
Securitization revenues 82 15 32 158 32
Other fees and
comissions 107 88 78 401 301
632 834 771 3,118 2,981
Net interest and
other income 1,585 1,836 1,765 7,012 6,783
Non-Interest Expense
Salaries and employee
benefits 625 649 676 2,574 2,535
Premises and equipment 270 246 287 972 916
Communications 68 64 65 266 246
Other expenses 252 243 223 949 842
1,216 1,202 1,251 4,761 4,539
Goodwill and other
valuation intangibles 15 20 18 72 74
Total non-interest
expense 1,230 1,222 1,269 4,833 4,613
Income before Provision
for Income Taxes 355 614 496 2,179 2,170
Provision for income taxes 117 227 192 804 840
Income Before Non-
Controlling interest
in subsidiaries 238 387 304 1,376 1,330
Non-Controlling interest 4 9 7 26 25
Net income 234 378 297 1,350 1,305
Dividends Declared
- preferred shares 31 31 23 112 83
- common shares 117 115 115 463 427
Average Number of Common
Shares Outstanding 263,778,217 262,742,270 260,915,889 262,510,741 260,409,736
Average Assets 237,643 226,006 204,819 227,450 196,721
BANK OF MONTREAL
CONDENSED CONSOLIDATED BALANCE SHEET
(Canadian $ in millions)
As at
Oct 31 Jul 31 Oct 31
1998 1998 1997
Cash resources $ 19,730 $ 23,695 $ 32,245
Securities 43,465 48,478 41,789
63,195 72,173 74,034
Loans
Residential mortgages 35,847 37,843 35,655
Consumer instalment and other personal loans 16,095 16,005 14,682
Credit card loans 797 657 1,912
Loans to businesses and governments 50,598 50,818 45,397
Securities purchased under resale agreements 27,520 29,893 18,517
Allowance for credit losses 130,857 135,216 116,063
(1,166) (1,200) (1,145)
129,691 134,016 114,918
Customers' liability under acceptances 6,944 6,470 5,594
Other assets 22,760 16,618 13,292
Total Assets $222,590 $229,277 $207,838
Deposits
Banks $ 26,256 $ 32,390 $ 31,272
Businesses and governments 58,064 61,512 54,901
Individuals 59,663 58,741 58,039
143,983 152,643 144,212
Acceptances 6,944 6,470 5,594
Securities sold but not yet purchased 7,843 11,433 10,304
Securities sold under repurchase agreements 29,758 26,557 21,389
Other liabilities 18,663 16,714 13,605
63,208 61,174 50,892
Subordinated debt 4,791 4,988 3,831
Shareholders' equity
Share capital
Preferred shares 1,958 1,950 1,274
Common shares 3,095 3,063 3,019
Retained earnings 5,555 5,459 4,610
10,608 10,472 8,903
Total Liabilities and Shareholders' Equity $222,590 $229,277 $207,838
Note: These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles, including the
accounting requirements of the Superintendent of Financial Institutions
Canada.
BANK OF MONTREAL
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(Canadian $ in millions) For the twelve months ended
Oct 31 Oct 31
1998 1997
Cash Flows From Operating Activities
Net Income $ 1,350 $ 1,305
Adjustments to determine net cash flows 1,596 (3,041)
2,946 (1,736)
Cash Flows From Financing Activities
Deposits (229) 24,950
Other liabilities 4,742 3,024
Debt and share capital 1,720 964
Dividends paid (575) (510)
5,658 28,428
Cash Flows Used In Investing Activities
Investment securities 5,647 1,316
Loans 14,901 16,780
Premises and equipment - net purchases 571 539
Interest bearing deposits with banks (12,826) 8,753
8,293 27,387
Net Increase (Decrease) in Cash and Cash Equivalents 311 (695)
Cash and Cash Equivalents at Beginning of Year 2,651 3,346
Cash and Cash Equivalents at End of Year $ 2,962 $ 2,651
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(Canadian $ in millions) For the twelve months ended
Oct 31 Oct 31
1998 1997
Balance at Beginning of Year $ 8,903 $ 7,586
Net Income 1,350 1,305
Dividends - Preferred shares (112) (83)
- Common shares (463) (427)
Preferred share Issues 650 400
Common share Issues 76 30
Translation adjustment on preferred shares issued in a
foreign currency 34 17
Unrealized gain on translation of net investment in
foreign operations, net of hedging activities and
applicable income tax 178 81
Share Issue expense, net of applicable income tax (8) (6)
Balance at End of Year $ 10,608 $ 8,903
END
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