RNS No 4905m
BANK OF MONTREAL
24 August 1999
Bank of Montreal Reports Third Quarter Results
TORONTO, August 24, 1999 - Bank of Montreal reported net income of $398 million
for the quarter ended July 31, 1999, compared with $378 million a year ago and
$364 million in the second quarter of 1999.
Fully diluted earnings per share were $1.37 ($1.38 basic), versus $1.31 ($1.32
basic) last year and $1.25 ($1.26, basic) in the second quarter of 1999. Return
on equity was 16.2 per cent, compared with 16.7 per cent for the third quarter
of 1998 and 15.5 per cent for the second quarter of 1999.
Net income for the first nine months of the year was $1,124 million and fully
diluted earnings per share were $3.86 ($3.89 basic). The figures for last year
were $1,116 million and $3.90 ($3.95 basic) respectively. Return on equity for
the first nine months in 1999 was 15.6 per cent, compared with 17.3 per cent for
the first nine months of 1998.
Net income for the third quarter relative to a year ago reflected increased
revenues of $112 million or 5.8 per cent, partly offset by expense growth of $74
million or 6.1 per cent and an increase of $35 million in the provision for loan
losses. Earnings growth was driven by the bank's retail and commercial
businesses, where continued business volume growth, partially offset by a
decline in spreads, was augmented by an increased contribution from the bank's
investment in Grupo Financiero Bancomer, and a gain on the sale of the Global
Custody business of $18 million after tax ($27 million before tax). Net income
for the current quarter increased by $34 million from the second quarter of
1999, as revenue growth of $64 million exceeded expense growth of $13 million.
"Bank of Montreal gained more business from customers during the quarter in key
areas including small business, personal loans and mortgages." said Tony Comper,
Chairman and Chief Executive Officer, Bank of Montreal. In addition, our
position as an industry leader in the provision of e-commerce solutions has
continued. Veev, the wireless banking technology developed by 724 Solutions, a
company in which we hold an equity investment, was introduced to Bank of
Montreal customers in pilot mode. In the last few weeks, BankAmerica and
Citigroup have announced they Will be employing 724 Solutions as well. Cebra,
our electronic commerce subsidiary. continues to break new ground in electronic
commerce, particularly With its Electronic Post Office project with Canada
Post."
Financial Statement Highlights
Revenues
Total revenues for the third quarter increased $112 million, or 5.8 per cent,
relative to a year ago with growth in both net interest income and other income.
Net interest income, on a taxable equivalent basis, increased $13 million in the
third quarter, or 1.2 per cent, over the prior year. Average assets grew 0.2 per
cent over last year while spreads rose two basis points to 1.91 per cent.
Overall, spreads improved reflecting increased volumes in higher spread retail
and commercial businesses and decreased volumes in lower spread securities in
institutional businesses.
Net interest income in the banks retail and commercial businesses grew
marginally year over year as volume growth was countered by a reduction in
spread. The reduction in spread was largely the result of a flatter yield curve
in Canada, and in the U.S., reflected continued growth in new business and the
relatively higher cost of additional supporting funding.
In Canada, the bank's residential mortgages rose $2.7 billion, or 7.7 per cent,
from a year ago. Credit card and other personal loans were up $945 million, or
5.9 per cent. and loans to commercial enterprises, including small and
medium-sized businesses, were up $680 million, or 4.2 per cent. Average loan
growth of $1.2 billion, or 6.1 per cent. at Harris Bank drove up U.S. retail
banking results.
Within the bank's institutional businesses, net interest income was up over last
year, principally due to increased volumes and spreads in the corporate lending
portfolio.
Growth in net interest income for the quarter was also impacted by a $35 million
increase in contribution from Bancomer, a $20 million increase in cash
collections on impaired loans and by asset securitization activities.
Securitization of assets by the bank results in a shift in the reporting of
revenue on such assets from net interest income to other income. Net interest
income for the quarter fell by $51 million while other income was up $42 million
as a result of securitization. The net revenue impact of $9 million reflects a
cost of securitization.
Other revenue grew by $99 million. or 11.8 per cent, relative to a year ago
driven by a $27 million gain on the sale of the Global Custody business, the
impact of asset securitization activities and increased card services revenue,
partially offset by the impact of weaker capital markets.
Total revenues for the third quarter were up $64 million, or 3.3 per cent, from
the second quarter of 1999. The inclusion of three extra days in the quarter, as
well as increased card services revenue, drove revenue growth in the retail and
commercial businesses. Revenues from institutional businesses grew as a result
of increased capital markets activities. The gain on the sale of the Global
Custody business, and a $21 million increase in cash collections on impaired
loans also contributed to revenue growth. A $46 million decrease in revenues
from lesser developed countries and a $23 million lower contribution from
Bancomer negatively impacted revenue.
Expenses
Expense growth relative to last year of $74 million, or 6.1 per cent, was driven
by on-going business operations (3.9 per cent), continued spending on strategic
initiatives (1.2 per cent) and higher revenue-driven compensation (1.0 per
cent).
Expenses in the current quarter were up $13 million, or 1.1 per cent, from the
second quarter of 1999. The effects of increases in on-going business operations
(1.3 per cent) and continued spending on strategic initiatives (0.2 per cent)
were partially offset by lower revenue-driven compensation (0.3 per cent) and a
lower foreign exchange rate impact on U.S.-based expenses (0. 1 percent).
Asset Quality
The provision for credit losses for the quarter was $80 million versus $45
million in 1998. This is based on a forecast provision for the year of $320
million compared to the $180 million planned provision in 1998. The 1998
provision was lower because of the benefit of a high level of recoveries, which
also enabled the Bank to subsequently reduce its provision to $130 million in
the fourth quarter of 1998.
Gross impaired loans at the end of the quarter grew $63 million over the last
quarter, resulting primarily from weakness in the energy sector. However, the
allowance for credit losses continues to exceed gross impaired loans. At the end
of the third quarter, the allowance exceeded gross impaired loans by $203
million, compared to $502 million at the end of the third quarter of 1998 and
$212 million at the end of last quarter.
Capital Management
Average assets for the quarter were $227 billion, up $1 billion from a year ago
and up $2 billion from the second quarter of 1999. The banks Tier 1 Capital
Ratio rose to 7.87 percent and the Total Capital Ratio increased to 10.84 per
cent at July 31, 1999. This compares with 7.73 per cent and 10.85 per cent,
respectively, at April 30, 1999.
Operating Group Review
During the quarter, Bank of Montreal completed a significant organizational
restructuring that consolidated all the bank's North American lines of business
into three client-focused groups - the Personal and Commercial Client Group,
the Private Client Group and the Investment Banking Group. The bank's results
are presented below on the basis of these new groups.
Personal and Commercial Client Group
The Personal and Commercial Client Group provides financial services, including
electronic financial services, to households and commercial businesses in
Canada, the U.S. and Mexico. Net income in the Personal and Commercial Client
Group was $285 million in the third quarter, up $60 million, or 26.8 per cent,
over last year. Revenue growth of $108 million, or 8.9 per cent, was partly
offset by expense growth of $27 million.
Business volume growth, partially offset by a decline in spreads in both Canada
and the U.S., was the primary factor in revenue growth. An increase in the
contribution from Bancomer, a gain on the sale of the Global Custody business
and increased card services revenue had a positive effect on revenue. The 3.4
per cent rise in expenses from a year ago was the result of on-going business
operations, costs related to strategic initiatives and continued investment in
alternate delivery channels.
Compared to the second quarter of 1999, net income was up $12 million. This can
be attributed to the impact of three additional days in the quarter, the gain on
sale of the Global Custody business and increased card services revenue. The
increase in income was partially offset by a lower contribution from Bancomer
and higher expenses.
Private Client Group
Bank of Montreal's Private Client Group provides a full range of wealth
management services to clients in both Canada and the United States through
Nesbitt Burns, InvestorLine, Harris Private Bank and Bank of Montreal's private
banking and asset management services. Net income in the Private Client Group
was $26 million in the third quarter, which is relatively unchanged from both
the third quarter of 1998 and the second quarter of 1999. Revenues and expenses
have remained at consistent levels throughout these quarters. The leveling of
net income in the third quarter, compared to the second quarter, recognizes the
seasonal activity of the investment business.
Much of the last quarter was dedicated to determining the correct alignment of
the wealth management businesses in terms of resources, distribution, products
and technology. These re-alignments will allow the bank to move forward
aggressively in growing the wealth management business.
Investment Banking Group
The Investment Banking Group services the corporate and investment banking and
investment needs of larger corporate and institutional clients. Net income in
the Investment Banking Group was $116 million in the third quarter. This
represents a decrease of $23 million, or 16.4 per cent, from the last year, as
expense growth of $41 million exceeded revenue growth of $20 million.
Revenues from the Investment Banking Group increased 3.7 per cent as increased
volumes and spreads from corporate and investment banking activities and
increased cash collections were partially offset by the effects of lower capital
markets activities relative to a year ago. Expenses increased 18.6 per cent over
the prior year, driven largely by increased performance based compensation,
including costs associated with a newly redesigned long-term incentive pay
program. This program replaces compensation previously provided to employees
through holdings in non-voting shares of a subsidiary.
Net income for the third quarter rose $38 million from the second quarter of
1999. Revenue growth of $71 million was attributable to increased capital
markets activity, continued volume growth from corporate and investment banking
activity, and increased cash collections. Expenses remained relatively unchanged
compared to the second quarter.
Harris Bank
Harris Bank earnings were $80 million for the quarter, up 8.0 per cent (12 per
cent in U.S.$/U.S. GAAP) from a year ago and up 1.7 per cent from the second
quarter. Harris Bank results are included as part of the Personal and Commercial
Client Group and the Private Client Group.
Bank of Montreal, Canada's first bank, is a highly diversified financial
services institution. The bank operates in more than 30 lines of business within
its group of companies, including Nesbitt Burns, one of Canada's largest
full-service investment firms and Chicago-based Harris Bank, a major U.S.
mid-west financial institution. Bank of Montreal has an equity position in and a
strategic alliance with Grupo Financiero Bancomer, a leading Mexican financial
institution.
Media Relations Contacts: Joe Barbera, Toronto (416) 927-2740
Ronald Monet, Montreal (514) 877-1101
Investor Relations Contacts: Bob Wells, (416) 867-4009
Cathy Cranston, (416) 867-6656
Internet: http://www.bmo.com
BANK OF MONTREAL
FINANCIAL HIGHLIGHTS
(Canadian $ in millions except as noted)
For the three months ended
July 31, April 30, July 31, Change from
1999 1999 1998 July 31, 1988
Net Income Statement
Net interest income (TEB)(a) $ 1,092 $ 1,112 $ 1,079 1.2%
Other income 933 849 834 11.8
Total revenue (TEB)(a) 2,025 1,961 1,913 5.8
Provision for credit losses 80 80 45 77.8
Non-interest expense 1,296 1,283 1,222 6.1
Provision for income taxes
(TEB)(a) 246 229 259 (4.9)
Non-controlling interest in
subsidiaries 5 5 9 (50.6)
Net income 398 364 378 5.2
Taxable equivalent adjustment 34 35 32 5.4
Per Common Share ($)
Net income - basic $ 1.38 $ 1.26 $ 1.32 $ 0.06
- fully diluted 1.37 1.25 1.31 0.06
Dividends declared 0.47 0.47 0.44 0.03
Book value per share 34.91 33.53 32.41 2.50
Market value per share 54.90 60.80 73.65 (18.75)
Total market value of common
shares ($ billions) 14.6 16.2 19.4 (4.8)
For the nine months ended
July 31, July 31, Change from
1999 1998 July 31, 1988
Net Income Statement
Net interest income (TEB)(a) $ 3,293 $ 3,168 3.9%
Other income 2,627 2,486 5.7
Total revenue (TEB)(a) 5,920 5,654 4.7
Provision for credit losses 240 135 77.8
Non-interest expense 3,823 3,603 6.1
Provision for income taxes(TEB) (a) 716 779 (8.0)
Non-controlling interest in
subsidiaries 17 21 (22.3)
Net income 1,124 1,116 0.7
Taxable equivalent adjustment 105 92 14.0
Per Common Share ($)
Net income - basic $ 3.89 $ 3.95 $ (0.06)
- fully diluted 3.86 3.90 (0.04)
Dividends declared 1.41 1.32 0.09
Book value per share 34.91 32.41 2.50
Market value per share 54.90 73.65 (18.75)
Total market value of common shares
($ billions) 14.6 19.4 (4.8)
---------------As at------------
July 31, April 30, July 31, Change from
1999 1999 1998 July 31,1998
Balance Sheet Summary
Assets $225,218 $219,653 $229,277 (1.8)%
Loans 136,263 132,984 134,016 1.7
Deposits 150,424 146,965 152,643 (1.5)
Capital funds 15,914 15,479 15,460 2.9
Common equity 9,291 8,916 8,522 9.0
Net impaired loans and
acceptances (203) (212) (502) 59.7
Average Balances
Loans 136,965 134,806 136,351 0.4
Assets 226,541 224,762 226,006 0.2
July 31, Oct.31, July 31,
1999 1998 1998
Nine Twelve Nine
Months Months Months
Primary Financial Measures(%)(b)
Five year return on common
shareholders' investment 22.6 23.3 27.0
Return on common shareholders' equity 15.6 15.2 17.3
EPS Growth - fully diluted (1.0) 0.9 8.9
Revenue growth 4.7 1.4 6.6
Expense-to-revenue ratio 64.6 66.5 63.7
Provision for credit losses as a %
of average loans and acceptances 0.22 0.09 0.13
Gross impaired loans and acceptances as
a % of equity and allowance for credit
losses 8.56 6.66 5.67
Tier 1 capital ratio 7.87 7.26 7.32
Cash and securities-to-total assets 28.4 31.5
Credit rating 28.6 AA- AA-
AA-
Other Financial Ratios (% except
as noted)(b)
Return on common shareholders'
investment (10.3) 6.4 23.9
Dividend yield 2.9 2.9 2.9
Price-to-earnings ratio (times) 11.8 13.4 14.7
Market-to-book value (times) 1.57 1.93 2.27
Cash earnings per share - basic ($) 4.08 4.98 4.16
Cash return on common shareholders'
equity 17.5 17.5 19.9
Net economic profit ($ millions) 409.0 464.0 467.0
Return on average assets 0.66 0.59 0.67
Net interest income to average assets 1.94 1.83 1.89
Other income as a % of total revenue 44.4 42.9 44.0
Expense growth 6.1 4.7 7.8
Tier 1 capital ratio - U.S.basis 7.56 6.95 6.98
Total capital ratio 10.84 10.38 10.50
Equity-to-assets ratio 5.1 5.0 4.8
(a) Reported on a taxable equivalent basis (TEB).
(b) For the period ended or as at, as appropriate.
BANK OF MONTREAL
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Canadian $ in millions except number of common shares)
For the three For the nine
months ended months ended
July 31, April 30, July 31, July 31, July 31,
1999 1999 1998 1999 1998
Interest, Dividend
and Fee Income
Loans $2,405 $2,321 $2,698 $7,292 $7,418
Securities 569 611 666 1,817 1,880
Deposits with
banks 258 260 333 795 1,208
3,232 3,192 3,697 9,904 10,506
Interest Expense
Deposits 1,545 1,482 1,870 4,757 5,373
Subordinated debt 85 83 91 254 243
Other liabilities 544 550 689 1,705 1,814
2,174 2,115 2,650 6,716 7,430
Net interest
Income 1,058 1,077 1,047 3,188 3,076
Provision for 80 80 45 240 135
Credit losses
Net Interest Income
After Provision for
Credit Losses 978 997 1,002 2,948 2,941
Other Income
Deposit and
payment service
charges 155 150 144 451 413
Lending fees 89 71 95 238 227
Capital market
fees 207 185 194 576 653
Card services 56 46 46 150 146
Investment
management and
custodial fees 111 101 115 316 312
Mutual fund
revenues 52 46 54 147 149
Trading revenues 86 92 83 243 216
Securitization
revenues 69 68 15 212 76
Other fees
and commissions 108 90 88 294 294
933 849 834 2,627 2,486
Net Interest 1,911 1,846 1,836 5,575 5,427
and Other Income
Non Interest Expense
Salaries and
employee benefits 705 698 649 2,071 1,949
Premises and
equipment 280 274 246 828 702
Communications 62 68 64 196 198
Other expenses 232 226 243 676 697
1,279 1,266 1,202 3,771 3,546
Goodwill and other
valuation
intangibles 17 17 20 52 57
Total non-interest
expense 1,296 1,283 1,222 3,823 3,603
Income Before
Provision for
Income Taxes 615 563 614 1,752 1,824
Provision for
Income taxes 212 194 227 611 687
Income Before
Non-Controlling
Interest in
Subsidiaries 403 369 387 1,141 1,137
Non-controlling 5 5 9 17 21
interest
Net Income $398 $ 364 $378 $1,124 $1,116
Dividends Declared
-preferred shares $30 $ 30 $ 31 $90 $81
-common shares $125 $ 125 $115 $375 $346
Average
Number
of
Common
Shares
out-
standing 266,031,542 265,695,473 262,742,270 265,558,358 262,083,606
Average
Assets $226,541 $224,762 $226,006 $227,184 $224,015
BANK OF MONTREAL
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited) (Canadian $ in millions)
As at
July 31, 1999 April 30, 1999 July 31,1998
Cash resources $ 25,776 $ 23,215 $ 23,695
Securities 38,557 39,035 48,478
64,333 62,250 72,173
Loans
Residential mortgages 37,280 36,196 37,843
Consumer instalment and other
personal loans 16,554 16,226 16,005
Credit card loans 1,026 919 657
Loans to businesses and governments 60,292 51,999 50,818
Securities purchased under
resale agreements 22,424 28,903 29,893
137,576 134,243 135,216
Allowance for credit losses (1,313) (1,259) (1,200)
136,263 132,984 134,016
Customers' liability under
acceptances 6,583 6,530 6,470
Other assets 18,039 17,889 16,618
Total Assets $ 225,218 $ 219,653 $ 229,277
Deposits
Banks $ 29,407 $ 27,930 $ 32,390
Businesses and governments 60,051 58,199 61,512
Individuals 60,966 60,836 58,741
150,424 146,965 152,643
Acceptances 6,583 6,530 6,470
Securities sold but not yet
purchased 10,942 9,181 11,433
Securities sold under repurchase
agreements 25,527 26,526 26,557
Other liabilities 15,828 14,972 16,714
58,880 57,209 61,174
Subordinated debt 4,746 4,699 4,988
Shareholders' equity
Share capital
Preferred shares 1,877 1,864 1,950
Common shares 3,162 3,152 3,063
Retained earnings 6,129 5,764 5,459
11,168 10,780 10,472
Total Liabilities and
Shareholders' Equity $ 225,218 $ 219,653 $ 229,277
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. There are no material differences in consolidated total assets
and liabilities, consolidated net income or consolidated shareholders'
equity compared to what would have been reported under United States
generally accepted accounting principles.
BANK OF MONTREAL
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)(Canadian $ in millions) For the nine months ended
July 31, 1999 July 31, 1998
Cash Flows From Operating Activities
Net Income $ 1,124 $ 1,116
Adjustments to determine net cash flows 5,217 (2,504)
6,341 (1,388)
Cash Flows From Financing Activities
Deposits 6,441 8,431
Other liabilities (63) 6,455
Debt and share capital (59) 1,877
Dividends paid (465) (427)
5,854 16,336
Cash Flows Used in Investing Activities
Investment securities (790) 3,931
Loans 6,702 19,233
Premises and equipment - net purchases 237 334
Interest bearing deposits with banks 6,125 (7,679)
12,274 15,819
Net(Decrease) in Cash and Cash Equivalents ( 79) ( 871)
Cash and Cash Equivalents at Beginning of Period 2,962 2,651
Cash and Cash Equivalents at End of Period $ 2,883 $ 1,780
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)(Canadian $ in millions) For the nine months ended
July 31, 1999 July 31, 1998
Balance at Beginning of Period $ 10,608 $ 8,903
Net Income 1,124 1,116
Dividends - Preferred shares ( 90) ( 81)
- Common shares (375) (346)
Preferred share issues (redemptions) (72) 650
Common share issues 67 44
Translation adjustment on preferred shares issued
in a foreign currency (9) 26
Unrealized gain (loss) on translation of net
investment in foreign operations, net of hedging
activities and applicable income taxes (60) 168
Costs of proposed merger, net of applicable
income taxes (25) -
Share issue expense, net of applicable income taxes - (8)
Balance at End of Period $ 11,168 $ 10,472
END
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