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For the Period Ended July 31, 2000 Shareholder Dividend Reinvestment and Share Purchase Plan
Average market price May 2000 $ 59.86 June 2000 $ 62.76 July 2000 $ 64.90
For dividend information, change in shareholder address or to advise of duplicate mailings, please contact The Trust Company of Bank of Montreal 129 Saint-Jacques Street B Level North Montreal, Quebec H2Y 1L6 Telephone: (514) 877-2500 Fax: (514) 877-9676
For other shareholder information, please contact Shareholder Services Corporate Secretary’s Department 21st Floor 1 First Canadian Place Toronto, Ontario M5X 1A1 Telephone: (416) 867-6785 Fax: (416) 867-6793 E-mail: [email protected] Third Quarter Report
For further information on this report, please contact Annual Meeting 2001 Investor Relations Department The next Annual Meeting of Shareholders will be held on 18th Floor Tuesday,February27,2001inVancouver,BritishColumbia. P.O. Box 1 1 First Canadian Place Toronto, Ontario M5X 1A1
On May 24, 2000, the Bank announced it had filed and the Toronto Stock Exchange had accepted its Notice of Intention to Purchase Common Shares for cancellation. This Normal- Course Issuer Bid provides that the Bank may, at its discre- tion, purchase up to 10,000,000 shares, being approximately 3.7% of the then-issued and outstanding shares. The Bid expires on October 31, 2000. A copy of the Notice may be obtained, without charge, from Shareholder Services at the address above. 291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 2
Financial Highlights For the three months ended For the nine months ended Jul 31, Apr 30, Jan 31, Jul 31, Change from Jul 31, Jul 31, Change from (Canadian $ in millions except as noted) 2000 2000 2000 1999 Jul 31, 1999 2000 1999 Jul 31, 1999 Net Income Statement Net interest income (TEB) (a) $ 1,090 $ 1,084 $ 1,081 $ 1,092 (0.2)% $ 3,255 $ 3,293 (1.1)% Other income 1,005 1,200 1,042 933 7.7 3,247 2,627 23.6 Total revenue (TEB) (a) 2,095 2,284 2,123 2,025 3.4 6,502 5,920 9.8 Provision for credit losses 100 100 100 80 25.0 300 240 25.0 Non-interest expense 1,326 1,348 1,254 1,284 3.1 3,928 3,787 3.7 Provision for income taxes (TEB) (a) 252 322 279 247 1.9 853 721 18.4 Non-controlling interest in subsidiaries 4 5 4 5 (3.4) 13 17 (20.5) Net income before goodwill 413 509 486 409 1.2 1,408 1,155 21.8 Amortization of goodwill, net of applicable income tax 12 12 12 11 13.0 36 31 12.2 Net income 401 497 474 398 0.9 1,372 1,124 22.1 Taxable equivalent adjustment 33 35 31 34 (3.0) 99 105 (5.6) Per Common Share ($) Net income before goodwill – basic $ 1.46 $ 1.81 $ 1.72 $ 1.42 $ 0.04 $ 4.99 $ 4.01 $ 0.98 – fully diluted 1.45 1.79 1.71 1.41 0.04 4.95 3.98 0.97 Net income – basic 1.41 1.76 1.68 1.38 0.03 4.85 3.89 0.96 – fully diluted 1.40 1.75 1.66 1.37 0.03 4.81 3.86 0.95 Dividends declared 0.50 0.50 0.50 0.47 0.03 1.50 1.41 0.09 Book value per share 37.74 37.45 35.77 34.91 2.83 37.74 34.91 2.83 Market value per share 63.75 53.75 48.15 54.90 8.85 63.75 54.90 8.85 Total market value of common shares ($ billions) 16.7 14.4 12.9 14.6 2.1 16.7 14.6 2.1 As at Jul 31, Apr 30, Jan 31, Jul 31, Change from 2000 2000 2000 1999 Jul 31, 1999 Balance Sheet Summary Assets $ 235,646 $ 238,414 $ 228,525 $ 225,218 4.6% Loans 137,134 136,697 133,148 136,263 0.6 Deposits 156,675 162,067 154,469 150,424 4.2 Capital funds 16,603 16,428 15,920 15,914 4.3 Common equity 9,904 10,037 9,571 9,291 6.6 Net impaired loans and acceptances (195) (283) (240) (203) 3.7 Average Balances Loans 135,356 136,536 135,659 136,965 (1.2) Assets 238,488 233,354 230,195 226,541 5.3 For the three months ended For the nine months ended Jul 31, 2000 Apr 30, 2000 Jan 31, 2000 Jul 31, 1999 Jul 31, 2000 Jul 31, 1999 Primary Financial Measures (%) (b) 5 year total shareholder return 21.5 18.2 17.5 22.6 21.5 22.6 Net economic profit ($ millions) 124 226 201 147 551 409 Earnings per share growth 2.2 40.0 33.9 4.6 24.6 (1.0) Return on equity 15.0 19.8 19.0 16.2 17.9 15.6 Revenue growth 3.4 16.5 9.8 5.8 9.8 4.7 Expense-to-revenue ratio 63.2 59.1 59.0 63.4 60.4 64.0 Provision for credit losses as a % of average loans and acceptances 0.28 0.28 0.28 0.22 0.28 0.22 Gross impaired loans and acceptances as a % of equity and allowance for credit losses 9.83 8.71 8.89 8.56 9.83 8.56 Liquidity ratio 29.1 30.1 29.9 28.6 29.1 28.6 Tier 1 capital ratio 8.44 8.06 7.84 7.87 8.44 7.87 Credit rating AA- AA- AA- AA- AA- AA- Other Financial Ratios (% except as noted) (b) Total shareholder return 16.7 (1.0) (12.0) (10.3) 16.7 (10.3) Dividend yield 3.7 4.2 3.3 3.1 3.5 2.9 Price-to-earnings ratio (times) 11.1 9.4 9.3 11.8 11.1 11.8 Market-to-book value (times) 1.69 1.44 1.35 1.57 1.69 1.57 Cash earnings per share – basic ($) 1.49 1.83 1.74 1.44 5.06 4.08 Cash return on common shareholders’ equity 16.6 21.8 21.0 18.1 19.7 17.5 Return on average assets 0.67 0.87 0.82 0.70 0.78 0.66 Net interest margin 1.82 1.89 1.87 1.91 1.86 1.94 Other income as a % of total revenue 48.0 52.5 49.1 46.1 49.9 44.4 Expense growth 3.1 6.2 1.8 6.4 3.7 6.2 Tier 1 capital ratio – U.S. basis 8.07 7.67 7.63 7.56 8.07 7.56 Total capital ratio 12.33 11.13 10.99 10.84 12.33 10.84 Equity-to-assets ratio 5.1 5.1 5.1 5.1 5.1 5.1 (a) Reported on a taxable equivalent basis (TEB). (b) For the period ended or as at, as appropriate. (c) All ratios in this report are based on unrounded numbers.
2 Bank of Montreal Third Quarter Report 2000 291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 3
Overview
Bank of Montreal (the Bank) earned net income of $401 3. Capitalize on the Bank’s strong Canadian position in million for the quarter ended July 31, 2000, an increase of personal and commercial banking. Residential mort- $3 million year-over-year. Excluding after-tax gains on gages increased by $2.6 billion, or 6.9%, after adjusting dispositions of businesses, net income for the quarter was for securitizations; credit cards and other personal $390 million, an increase of $10 million year-over-year. loans increased by $1.1 billion, or 6.4%; and loans to Return on equity for the quarter, on a cash basis, was commercial enterprises, including small business, 16.6%, compared with 18.1% for the third quarter of the increased $1.7 billion, or 8.4% from the third quarter of prior year. Excluding gains on dispositions, return on the prior year. The Bank continued transforming the equity, on a cash basis, was 16.2%, compared with 18.1% distribution channels by arranging for the purchase of 12 in the third quarter of 1999. Ontario TD/Canada Trust branches from TD Financial Fully diluted earnings per share were $1.40 for the Group and opening seven in-store branches in large quarter, up from $1.37 in the third quarter of 1999. supermarkets. Excluding gains on dispositions, fully diluted earnings 4. Build on the Bank’s strong leadership position in per share were $1.36, compared with $1.30 in the third investment banking. On a year-to-date basis, quarter of the prior year. Investment Banking Group ranked first, among Net income was $1,372 million year-to-date, an increase Canadian brokers, in institutional equity, research and of $248 million over the prior year. Excluding gains on securitizations, and second in corporate underwriting. dispositions in the current and 1999 year-to-date results, BMO Nesbitt Burns co-led the $1 billion initial debt net income increased $136 million year-to-date. offering of Hydro One Inc. Return on equity for the year-to-date, on a cash basis, was 5. Drive e-business opportunities. The Bank enhanced its 19.7%, compared with 17.5% for the prior year-to-date. leadership position through Veev wireless financial Excluding gains on dispositions, return on equity, on a cash services with the addition of news reports from basis, was 17.8% year-to-date, compared with 17.2% in the Canadian Press, full-service capability in French, an Air prior year. Miles collector card balance feature and a first-time Fully diluted earnings per share were $4.81 year-to- user Air Miles bonus. E-post, the Bank’s joint venture date, compared with $3.86 in the prior year. Excluding with Canada Post Corporation delivered the first gains on dispositions, fully diluted earnings per share Canadian municipal government e-bill, for the City of were $4.34, up from $3.79 in 1999. Toronto. The Bank announced, subject to regulatory With strong expense management, the Bank is on track approval, the planned launch of a new merchant pro- with its financial objectives. Good progress continues in cessing company, which will be owned equally with the implementation of the Bank’s six-point strategy. Royal Bank of Canada. The new company will provide merchants, retailers and e-tailers across North America 1. Continue to aggressively build the value of Harris. with one-stop card-based transaction processing. Harris Bank earnings increased by 11.1%, excluding Harris Wireless was launched in Chicago, making securities gains, over the third quarter of 1999. Small Harris the first bank in the U.S. to provide banking serv- business, consumer and mortgage loans in Harris Bank ices to its customers via digital mobile phones. Community Banking increased 8.9% over last year, with 6. Intensely focus on cost, capital and risk management. particularly strong consumer loan growth of 12.6%. The Bank completed the sale of another 31 branches to a 2. Rapidly grow the wealth management business. Private group of credit unions and has now completed 48 branch Client Group net income increased by 27.0%, and revenues sales this year. During the quarter, the Bank announced by 23.1% from the comparable quarter in the prior year. the sale of three additional branches to local credit Assets under Management and Administration and term unions in Alberta and, recently announced the sale of 13 deposits have increased approximately $26 billion, or branches to credit unions in British Columbia. Most of 13.0% over the prior year. The Bank enhanced its direct these transactions are expected to close by the end of the brokerage capabilities in North America with the purchase year. Cost reduction initiatives totaled $67 million for the of Seattle-based direct brokerage firm Freeman quarter, $182 million year-to-date and were on track to Welwood. The acquisition will allow the Bank to extend achieve the year’s $250 million objective. its service to key locations in the Northwest and West Coast. BMO InvestorLine, the Bank’s direct investing line of business, introduced fixed income trading through Fixed Income Online. The Bank launched BMO Harris Private Banking, its new Private Banking F. Anthony Comper (signed) operation, to provide seamless North American delivery Chairman and of customized wealth management solutions. Chief Executive Officer
Bank of Montreal Third Quarter Report 2000 3 291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 4
Financial Performance and Condition
Five-Year Total Shareholder Shareholder Value 26.1 Return (%) 23.3 The average annual total shareholder return (TSR) for the five years ended 22.2 22.0 21.5 July 31, 2000 was 21.5%, versus 22.6% for the period ended July 31, 1999. The annual TSR was 16.7% for the year to date, compared with negative 10.3% in the prior year. The share price increased 18.6% from the second quarter of 2000 and increased 16.1% from the third quarter of 1999. 96 97 98 99 YTD 00
Net Economic Profit Net Economic Profit Growth Neteconomicprofit(NEP)forthefirstninemonthsof2000grew34.6%from Growth (%) 102.7 the comparable period in the prior year, compared with a decline of 12.3% for the first nine months of 1999. The increase in 2000 reflects a higher growth 36.5 34.6 in earnings relative to, the growth in average common shareholders’ equity (4.7) (13.5) andanincreaseinthecostofequity.Excludinggainsonsalesdescribedbelow, NEP growth was 7.5% over the prior year. 96 97 98 99 YTD 00
Fully Diluted Earnings Per Earnings Per Share Growth Share Growth (%) Earnings per share (EPS) rose 24.6% for the first nine months of 2000, compared 24.6 with a decline of 1.0% for the first nine months in 1999, while earnings rose22.1% Objective (Minimum 22.2 over the prior year. The first nine months of 2000 included gains on sales of of 10%) 11.9 Partners First, U.S.corporate trust businesses and retail branches. The first nine
0.9 1.3 months of 1999 included a gain on sale of the Bank’s global custody business. Excluding these gains, EPS grew by 14.5% and earnings grew by 12.3%. The 96 97 98 99 YTD 00 increases were driven by revenues from widespread volume growth, partially offset by increased expenses and a higher provision for credit losses.
Return on Common Profitability Shareholders’ Equity (%) The Bank achieved an annualized 17.9% ROE for the first nine months of 2000, compared with 15.6% for the first nine months of 1999. Excluding the 17.0 17.1 17.9 15.2 14.1 gains on sales of businesses, the annualized ROE was 16.1%.
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Revenue Growth (%) Revenue Growth Revenue in the first nine months of 2000 grew 9.8% over the comparable period in the prior year, compared with 4.7% growth for the first nine 15.1 monthsof1999.Excludingthegainsonsalesofbusinesses,revenuegrowth 9.9 9.0 9.8 was 6.6%. Revenue growth reflected widespread volume growth. 1.4 96 97 98 99 YTD 00
Expense-to-Revenue Expense-to-Revenue Ratio Ratio (%) 65.8 66.7 The expense-to-revenue ratio was 60.4% for the first nine months of 2000, 62.8 63.7 60.4 compared with 64.0% for the first nine months of 1999. Excluding the gains on sales of businesses, the expense-to-revenue ratio was 62.5%. Expenses on a year-to-date basis grew 3.7% over the prior year, compared with growth of 6.2% in 1999. Expense growth was driven by higher revenue- driven compensation and spending on strategic initiatives, partly offset by 96 97 98 99 YTD 00 a reduction in on-going business expenses.
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Financial Performance and Condition
Credit Risk Provision for Credit Losses The provision for credit losses as a percentage of average loans and accept- as a % of Average Loans ances was an annualized 0.28% for the first nine months of 2000, compared 0.28 0.23 0.23 and Acceptances with 0.22% for the first nine months of 1999. 0.22 0.09
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