RNS Number:8643U
Bank of Montreal
28 November 2000
PART 1
Bank of Montreal Reports 11th Consecutive Year of Earnings Growth
TORONTO, November 28, 2000 - Bank of Montreal today reported financial results
for the year ended October 31, 2000. The highlights include (on a year-over-year
basis):
- net income of $1,857 million, up $475 million or 34 per cent
- return on equity of 18.0 per cent, up from 14.1 per cent in 1999, an
increase of 27.7 per cent
- earnings per share of $6.56, up $1.84 or 39 per cent
- expense-to-revenue ratio of 60.7 per cent, improved from 66.7 per cent
"Our earnings performance was driven by volume growth in personal banking,
commercial and small business banking and wealth management," said Tony Comper,
Chairman and Chief Executive Officer. "In addition, our performance benefited by
the gains generated from the sale of some non-core businesses and by continuing
to maintain good credit quality and expense control.
"Execution of our strategy is producing strong, consistent results. The year
just ended was a year of increasing focus on growth and the realignment of
activities for future accelerated growth."
The Bank met its financial targets for the year 2000. The improved results mark
the 11th consecutive year of earnings growth. Bank of Montreal is the only major
North American bank to earn a return on equity of at least 14 per cent in each
of those years.
SUMMARY OF FINANCIAL RESULTS
Fiscal 2000 compared with Fiscal 1999
- Net income increased $475 million or 34.4 per cent over 1999. Excluding non-
recurring items in both periods, net income rose $195 million or 13.1 per
cent.
- Revenues increased $736 million or 9.3 per cent. Excluding non-recurring
items, revenues increased $482 million or 6.1 per cent.
- Non-interest expenses decreased $30 million or 0.6 per cent. Excluding non-
recurring items, non-interest expenses increased $154 million or 3.0 per cent.
- The provision for credit losses increased $38 million to $358 million.
Excluding the reversal of the country risk allowance, the provision for credit
losses increased $80 million to $400 million.
-/2
Fourth Quarter 2000 compared with Fourth Quarter 1999
- Net income increased $227 million or 87.9 per cent. Excluding non-recurring
items, net income rose $59 million or 15.6 per cent.
- Revenues increased $154 million or 7.7 per cent. Excluding non-recurring
items, revenues increased $92 million or 4.4 per cent.
- The provision for credit losses decreased $22 million. Excluding reversal of
the country risk allowance, the provision increased $20 million.
- Lower taxes from reduced rates in Canadian subsidiaries and U.S. operations
increased net income $20 million.
Fourth Quarter 2000 compared with Third Quarter 2000
- Net income increased $84 million or 20.8 per cent. Excluding non-recurring
items, net income increased $40 million or 10.0 per cent.
- Revenues increased $67 million or 3.2 per cent. Excluding non-recurring items
revenues increased $79 million or 3.8 per cent.
- Non-interest expenses increased $4 million or 0.4 per cent. Excluding non-
recurring items, non-interest expenses increased $47 million or 3.7 per cent.
- The provision for credit losses was reduced $42 million. Excluding the
reversal of the country risk allowance, the provision was unchanged.
- Lower taxes from reduced rates in Canadian subsidiaries and U.S. operations
increased net income $20 million.
"Fiscal 2000 saw the Bank continue to implement its growth strategy," said Mr.
Comper. "With the start of the new fiscal year the Bank is moving to accelerate
the shift of its business mix to higher-growth, higher-return businesses,
aggressively investing where it has proven capability, where the market is
growing, emerging or under-served, and where price-to-earnings multiples are
attractive."
2
Annual and Fourth Quarter 2000 Review - 3
ANNUAL AND FOURTH QUARTER 2000 REVIEW
Fiscal 2000 vs. Fiscal 1999
Bank of Montreal earned net income of $1,857 million for the year ended October
31, 2000, an increase of $475 million or 34.4 per cent over 1999. Excluding
non-recurring items in both periods, net income rose $195 million or 13.1 per
cent to $1,672 million.
Return on equity for the year was 18.0 per cent, up from 14.1 per cent in 1999.
Excluding non-recurring items, return on equity was 16.1 per cent, compared with
15.1 per cent in the prior year.
Fully diluted earnings per share were $6.56, up 39.0 per cent from $4.72 in
1999. Excluding non-recurring items, fully diluted earnings per share rose $0.81
or 16.0 per cent to $5.88.
On a cash basis, net income for 2000 grew 33.3 per cent to $1,931 million; basic
earnings per share grew 37.5 per cent to $6.89; and return on equity increased
by 4.0 percentage points to 18.8 per cent.
Excluding non-recurring items (which are itemized on page 14), on a cash basis,
net income for 2000 grew 13.1 per cent to $1,746 million; basic earnings per
share grew 15.5 per cent to $6.20; and return on equity increased by 1.0
percentage points to 16.9 per cent.
Bank of Montreal achieved its 11th consecutive year of earnings growth and is
the only major North American bank to earn a return on equity of at least 14 per
cent in each of those years. Improved results for fiscal 2000 were driven by
volume growth in retail banking and in wealth management businesses, by gains
generated on sales of non-core businesses and by low expense growth. The
contribution to net income from normal operations of institutional businesses
increased modestly year-over-year. Results for the Bank also reflected lower
earnings from the Bank's investment in Grupo Financiero Bancomer and a higher
provision for credit losses.
Expenses were contained throughout the year and the Bank achieved its target of
$250 million of cost-reduction initiatives. These initiatives are expected to
produce $400 million of cost savings in 2001. The Bank disposed of businesses
and distribution outlets that were not generating an acceptable rate of return,
had low-growth potential and did not fit its strategic requirement of offering a
reasonable prospect of achieving top-tier performance. The dispositions resulted
in pre-tax gains of $226 million, or $135 million after-tax, which were
reinvested in high-potential businesses and strategic initiatives.
In fiscal 2000 the Bank met its financial targets and progressed towards its
objective of achieving top-tier performance by 2002.
Targets for 2000 were:
- Increase earnings per share by at least 10 per cent from the 1999 base of
$5.14. The Bank increased earnings per share by 27.6 per cent; and
- Increase return on equity by between 1.0 and 1.5 percentage points from the
1999 base of 15.4 per cent. The Bank increased return on equity by 2.6
percentage points.
Excluding non-recurring items in both years, earnings per share rose 16.0 per
cent and return on equity rose 1.0 percentage point.
Annual and Fourth Quarter 2000 Review - 4
Gross impaired loans and acceptances have risen over the past year from 0.75 per
cent to 1.04 per cent of total loans and acceptances. These levels remain within
the average experienced over the past decade under a variety of economic
conditions. The allowance for credit losses continues to exceed the amount of
gross impaired loans and was $96 million higher at the end of 2000, compared
with a $256 million excess at the end of 1999 and a $195 million excess in
the third quarter of 2000.
The Bank maintained a strong Tier 1 capital ratio, which, at 8.83 per cent,
exceeded target levels. Under a share-buyback program, which expired on October
31, 2000, the Bank acquired 7.86 million common shares to reduce capital by $500
million.
OPERATING GROUP HIGHLIGHTS
Personal and Commercial Client Group (excluding Bancomer)
Personal and Commercial Client Group net income increased 33.2 per cent, from
$624 million to $831 million, excluding non-recurring items. The increase in net
income, excluding non-recurring items, was driven by increasing revenues in
Canada and the United States, while limiting expense growth to 0.2 per cent.
Revenues, excluding non-recurring items, increased 9.4 per cent, driven by
volume growth in both Canadian and U.S. retail banking.
The Group launched several product innovations and introduced profitable changes
in the distribution networks. Working in partnership with Emfisys, the Bank's
technology and operations business, Personal and Commercial Client Group
continued to innovate with web-enabled and wireless banking initiatives and is
generally acknowledged as a North American leader in e-commerce banking
initiatives.
Private Client Group
Private Client Group net income increased 48.0 per cent, from $130 million to
$192 million, driven by increased revenues, partially offset by increased
expenses due to higher revenue-driven compensation and other costs of business
expansion.
Higher volumes in wealth management businesses drove revenue growth of 25.7 per
cent. However, the Group's revenues from normal operations were 31.7 per cent
higher than in the prior year as 1999 included an extra month's results of BMO
Nesbitt Burns Inc. This had the effect of increasing 1999 revenues and thus
reducing reported revenue growth in 2000 by 6.0 per cent.
During the year, there were a number of enhancements to product offerings and
distribution capabilities as the Private Client Group made key additions in its
target markets in the United States, with the acquisitions of: two direct
investing firms - Chicago-based Burke, Christensen and Lewis Securities and
Seattle-based Freeman Welwood; and two private banks - Village Bank of Naples,
Florida and Century Bank in Scottsdale, Arizona, an acquisition that is pending.
Investment Banking Group
Investment Banking Group net income declined 5.2 per cent, from $666 million to
$632 million. Net income from normal operations rose $13 million or 2.0 per
cent, driven by increased revenues in most units, partially offset by lower
revenues in interest rate sensitive businesses and by higher expenses due to
increased revenue-driven compensation in units that had achieved improved
operating results.
Annual and Fourth Quarter 2000 Review - 5
The comparability of results between fiscal 2000 and fiscal 1999 was affected by
two factors that increased fourth quarter and fiscal 1999 net income by $47
million, relative to fourth quarter and fiscal 2000:
(i) The Bank extended its expected loss provisioning methodology in 2000 to
allocate the provision for credit losses to the operating groups. If this
methodology had been applied last year, 1999 net income would have been
lower by $38 million; and
(ii) Net income for last year included an extra month's results of BMO Nesbitt
Burns, which increased 1999 net income by $9 million.
The $13 million increase in Investment Banking Group net income from normal
operations was achieved while reducing risk-weighted assets by $11.2 billion or
13.4 per cent year-over-year. Results benefited from strong performance in
equity sales and trading and in mergers and acquisitions. The Group also added
significant expertise in its target niche industry sectors and maintained
top-tier performance in Canadian securitizations, credit investment management
and trade finance activities. The combination of a rising interest rate
environment and a flattening of the yield curve led to a significant decline in
the contributions from interest rate sensitive businesses, particularly
international money markets and Harris treasury. In addition, exposure to
natural gas price volatility resulted in a trading loss of $52 million pre-tax,
or $30 million after-tax, in the third quarter of fiscal 2000.
Bancomer
A notable event during the year was the reduction of the Bank's ownership
interest in Bancomer, when its shareholders approved a merger with Grupo
Financiero Probursa on June 30, 2000. As a result, and to maximize its return to
shareholders, the Bank announced its intention to exit the investment in an
orderly fashion and adopted the cost basis of accounting for its ownership
interest. Lower reported earnings by Bancomer and the change in accounting
method resulted in a $54 million year-over-year decline in net income from the
investment.
Q4 2000 COMPARED WITH Q4 1999
The Bank earned net income of $485 million for the fourth quarter ended October
31, 2000, an increase of $227 million or 87.9 per cent over the fourth quarter
of 1999. Excluding non-recurring items in both quarters, net income rose $59
million or 15.6 per cent to $430 million.
Return on equity for the quarter was 18.4 per cent, up from 9.8 per cent in the
fourth quarter of last year. Excluding non-recurring items, return on equity was
16.2 per cent, compared with 14.7 per cent in the corresponding quarter of last
year.
Fully diluted earnings per share were $1.75 for the quarter, up 103.5 per cent
from $0.86 in the fourth quarter of 1999. Excluding non-recurring items, fully
diluted earnings per share rose $0.27 or 21.3 per cent to $1.54.
The increase in net income, excluding non-recurring items, was driven by lower
income taxes, which contributed $20 million to net income, and revenue growth
from increased volumes in Canadian and U.S. retail banking. Wealth management
also contributed to the increase. The contribution to net income from normal
operations of institutional businesses increased year-over- year. A higher
provision for credit losses and a lower return from the investment in
Bancomer limited the improvement in the Bank's results.
Lower income taxes were due to reduced rates for Canadian subsidiaries and
United States operations. Approximately one third of the reductions were due to
higher levels of investments in those entities; the remainder was due to changes
in amounts of tax liabilities.
Annual and Fourth Quarter 2000 Review - 6
Q4 2000 COMPARED WITH Q3 2000
Net income for the fourth quarter of fiscal 2000 was $84 million or 20.8 per
cent higher than net income for the third quarter of the year. Excluding
non-recurring items in both quarters, net income rose $40 million or 10.0 per
cent.
Return on equity for the quarter rose 3.4 percentage points from the third
quarter of the year and, excluding non-recurring items, rose 1.7 percentage
points.
Fully diluted earnings per share for the quarter rose $0.35 or 25.0 per cent
from the third quarter. Excluding non-recurring items, fully diluted earnings
per share rose $0.18 or 13.2 per cent.
The increase in net income, excluding non-recurring items, was attributable to
improved results in the Investment Banking Group and in the Personal and
Commercial Client Group, as well as a $20 million income tax reduction in
Corporate Support.
Private Client Group net income declined, while Investment Banking Group net
income increased due to improved trading revenues and higher advisory fees.
Personal and Commercial Client Group net income grew on continued volume growth.
Despite higher revenues in Private Client Group, net income declined because of
higher expenses from increased business development activities, business growth
and other integration costs, particularly related to the acquisition of new
businesses.
GROWTH STRATEGY
In October 2000, Global Finance Magazine rated Bank of Montreal the 'Best Bank'
in Canada for 2000, for the Bank's leadership in the delivery of wireless
financial services in Canada and the U.S., for its expansion of wealth
management operations and for its overall growth through acquisitions and new
product introductions.
The Bank has now moved into the next phase of its growth strategy, namely the
acceleration of the shift of its business mix to higher-growth, higher-return
businesses. Looking forward, the Bank, within its three client Groups, will
aggressively invest in high-growth, high-return businesses, and will prioritize
the allocation of resources to areas in which it has proven capability, where
the market is growing, emerging or under-served, and where price-to-earnings
multiples are attractive.
The Bank announced a realignment of its Personal and Commercial Client Group,
effective November 1, 2000, and moved most of the Bank's e-business activities
into Emfisys, its technology and operations unit. Combining Emfisys' technology
expertise and capabilities with e-business research, development, and incubation
increases the Bank's capacity in these areas and enhances its enterprise-wide
approach to prioritizing technology investments. The alignment maximizes the
potential of existing leadership in selected e-businesses and will provide more
focus and timeliness to the incubation of new e-businesses.
The Bank will focus on three key markets: business customers (small business and
commercial banking); personal customers (wealth management and consumer
lending); and e-business. Maintaining a disciplined approach to cost, capital
and risk management, the Bank will fund high priority businesses, including
wholesale businesses, by accelerating the extraction of capital and other
resources from low-potential businesses.
Annual and Fourth Quarter 2000 Review - 7
To satisfy customer needs and lifestyle changes, Personal and Commercial Client
Group will continue to pursue an integrated approach to branch and electronic
banking to help simplify customers' financial lives. The Bank will pursue a
technology-driven, strategic approach to the development and marketing of
personal banking products and will build on its leadership position in the key
commercial business market. Aggressive growth targets have been set for
the under-served small business banking market.
Emfisys and E-Business continued to build on the framework initiated in 1999 to
support the Bank's focus on creating shareholder value. In the year ahead, this
newly integrated unit will continue to increase market competitiveness,
efficiency and quality of service by creating new high-growth, high-return
businesses, and investing in technology and innovation, and in e-business
research and development. The unit will optimize its use of strategic alliances,
partnerships, joint ventures, and outsourcing opportunities.
The expansion of an enterprise-wide retail customer information system to all
service delivery channels will promote high quality customer service, including
the delivery of web-enabled services to more lines of business, for both
customer and employee use.
The Bank had previously made significant organizational changes in the Private
Client Group and Investment Banking Group.
Private Client Group's growth strategy involves differentiation through a
focused advisory-driven approach designed to help clients accumulate, grow and
protect assets through their financial life cycles. The group will support the
growth of its Canadian business by increasing the number of investment
professionals.
The Bank will continue to aggressively grow its U.S. wealth management business
in fast-growing, affluent, technology-friendly urban centres and, under The
Harris brand, will develop its wealth management business by building on Harris
Bank's long-standing expertise in investment management and trust and estate
services.
Investment Banking Group will focus on its Canadian leadership position in all
business sectors to grow its customer base and will continue to expand coverage
of the highly profitable U.S. Midwest mid-market and related specialty sectors,
such as agri-business and asset-based lending.
The Group will continue to build client relationships in the media and
telecommunications sector and in the energy sector, and will leverage its
capabilities-based businesses, including merchant banking, securitization and
credit investment management.
Annual and Fourth Quarter 2000 Review - 8
TARGETS FOR 2001
This next phase of the growth strategy is designed to move the Bank closer to
its objective of top-tier performance. The Bank has its strategic plans in place
and has increased its targets for 2001 by planning for growth.
Targets for 2001, excluding the effects of non-recurring items are:
- growth in earnings per share in the range of 10.0 to 15.0 per cent;
- return on shareholders' equity of 17.0 to 17.5 per cent;
- revenue growth of 7.0 to 9.0 per cent;
- an expense-to-revenue ratio consistent with the 2000 ratio;
- a provision for credit losses consistent with the 2000 provision;
- a tax rate (tax equivalent-basis) averaging approximately 37 per cent;
- modest growth in risk-weighted assets;
- maintain a Tier 1 capital ratio of at least 8.0 per cent;
- a cash and securities-to-total assets ratio consistent with the 2000 ratio.
Non-recurring items are generally infrequent, material and quantifiable.
Financial ratios will be disclosed on a basis that adjusts for the effects of
the transactions. A table detailing non-recurring items and their effects on
results for 2000 and 1999 follows the Operating Group Review on page 14.
OPERATING GROUP REVIEW
Personal and Commercial Client Group (excluding Bancomer)
The Personal and Commercial Client Group provides financial services, including
electronic financial services, to households and commercial businesses in Canada
and the United States. Results exclude the contribution from the Bank's
investment in Bancomer.
Fiscal 2000 vs. Fiscal 1999
Net income for 2000 was $966 million, an increase of $324 million or 50.6 per
cent from the prior year. Excluding non-recurring items that increased net
income by $135 million in 2000 and by $18 million in 1999, net income increased
$207 million or 33.2 per cent to $831 million.
Revenues for the year increased $595 million or 14.1 per cent over 1999.
Excluding non-recurring items, revenues increased by $396 million or 9.4 per
cent, driven by volume growth in Canada and the United States. Net interest
margins increased over the second half of the year, reversing the trend of 1999,
and were modestly higher year-over-year.
Expense growth for the year was limited to $5 million or 0.2 per cent. The
effects of business growth and strategic initiative spending were almost
entirely offset by lower costs due to business dispositions and sustained cost
control.
The provision for credit losses increased by $57 million year-over-year.
In Canada, residential mortgages, after adjusting for securitizations, increased
by $2.3 billion or 6.4 per cent, credit cards and other personal loans increased
by $1.1 billion or 6.7 per cent, and loans and acceptances to commercial
enterprises, including small business, increased by $1.8 billion or 8.4 per cent
from the prior year. In U.S. retail banking, consumer loans grew by 15.0 per
cent and total loans increased by 11.9 per cent from a year ago.
Annual and Fourth Quarter 2000 Review - 9
Fourth Quarter 2000 vs. Fourth Quarter 1999
Net income for the fourth quarter of fiscal 2000 was $225 million, an increase
of $56 million or 32.9 per cent from the comparable period last year. Excluding
a $5 million non-recurring after-tax gain on sales of branches in the fourth
quarter of the current year, net income increased $51 million or 29.8 per cent.
Revenues for the quarter increased $131 million or 12.3 per cent over the fourth
quarter of last year. Excluding non-recurring items, revenues increased $124
million or 11.6 per cent, driven by volume growth across most business lines.
Net interest margins also increased.
Expenses for the quarter decreased by $2 million or 0.1 per cent from the fourth
quarter of last year as the effects of cost reductions and business dispositions
largely offset expenses from business growth and strategic initiative spending.
Fourth Quarter 2000 vs. Third Quarter 2000
Net income for the fourth quarter of 2000 increased $8 million or 3.8 per cent
from the third quarter. Excluding non-recurring items, net income increased $14
million or 6.6 per cent. Revenues increased $14 million from the third quarter.
Excluding non-recurring items, revenues increased $26 million or 2.1 per cent
driven by volume growth. Expenses grew $3 million or 0.5 per cent from the third
quarter.
Business Developments
The Bank announced the sale of another 15 branches to credit unions in British
Columbia and Manitoba. Six instore branches were opened, bringing the total
number of instore branches in operation to 71.
Harris Bank has achieved notable growth in deposits and loans and, under its
senior Hispanic leadership, now serves 50,000 Hispanic customers through its 20
bilingual branches in the Chicago area, a bilingual call centre and its Spanish
language web-site.
Bank of Montreal and 724 Solutions began a market trial using Veev and 724
Solutions' LiveClips aggregation technology that offers customers secure,
personalized, web-based access to accounts across financial institutions and the
ability to extract and present summarized content. The Bank also signed an
agreement with InBusiness.com to operate regional online customized business
centres for small and mid-sized clients.
Private Client Group
The Private Client Group (PCG), which has total assets under management and
administration, and term investments of $234 billion and approximately 4,700
employees, brings together all of the Bank of Montreal Group of Companies'
wealth management services. Operating under Private Client Group in Canada and
The Harris in the United States, PCG provides North American investors with the
tools they need to accumulate, grow and protect their financial assets. PCG
offers a broad array of products and services including retail investment
products, direct and full-service investing, private banking and institutional
money management.
Fiscal 2000 vs. Fiscal 1999
Net income for 2000 was $192 million, an increase of $62 million or 48.0 per
cent from the prior year.
Annual and Fourth Quarter 2000 Review - 10
Revenues for the year increased $320 million or 25.7 per cent to $1,565 million.
The extra month's results from BMO Nesbitt Burns increased revenues in 1999 by
$56 million and had the effect of reducing reported revenue growth in fiscal
2000 by 6.0 per cent. Normal operating revenues increased $376 million or 31.7
per cent, driven by higher client-trading volumes in both full-service and
direct investing businesses. Volumes were particularly high in the first half of
the year. Higher term investments volumes also contributed to the increase,
while lower trading returns on managed futures limited revenue growth.
Non-interest expenses increased $207 million or 20.7 per cent to $1,211 million.
The extra month's results from BMO Nesbitt Burns increased 1999 expenses by $53
million and had the effect of reducing reported expense growth in fiscal 2000 by
6.7 per cent. Normal operating expenses increased $260 million or 27.4 per cent,
driven by higher revenue-driven compensation, strategic initiative spending and
business growth, including growth from acquired operations in the United States.
Assets under management and administration and term deposits grew by $37 billion
or 18.8 per cent to $234 billion, reflecting growth in client businesses and the
effects of acquisitions.
Fourth Quarter 2000 vs. Fourth Quarter 1999
Net income for the fourth quarter of fiscal 2000 was $36 million, an increase of
$7 million or 26.2 per cent from the comparable period last year.
Revenues for the quarter increased $41 million to $391 million. Normal operating
revenues increased $97 million or 33.5 per cent, driven primarily by increased
full-service and direct investing client equity trading and growth in term
investments and margin loans.
Non-interest expenses increased $28 million to $322 million. Normal operating
expenses increased $81 million or 33.9 per cent, due to higher revenue-driven
compensation, strategic initiative spending and business growth, including the
acquisition of new businesses.
Fourth Quarter 2000 vs. Third Quarter 2000
Net income for the fourth quarter of 2000 declined $9 million or 18.5 per cent
from the third quarter. Revenues for the quarter increased $12 million or 3.4
per cent on increased trading volumes in direct and full-service investing and
improved returns in the institutional asset management business. Non-interest
expenses increased $27 million or 9.2 per cent, primarily due to higher business
development, systems and other business integration costs, and to costs of
acquired operations in the United States and costs of strategic initiative
spending.
Business Developments
PCG's team of investment professionals, located in Bank of Montreal branches,
grew to 450 representatives. The team provides advice and services to help
clients accumulate, grow and protect their financial assets.
The Group continued the North American expansion of its wealth management
business with the pending completion of its acquisition of Scottsdale,
Arizona-based, Century Bank. Century Bank's geographic coverage presents an
opportunity to deliver a full suite of wealth management products and services
to an expanded and highly desirable market.
BMO Nesbitt Burns full-service investing expanded its online offering with the
launch of third-party U.S. research on Gateway, the unit's online client
information centre.
Annual and Fourth Quarter 2000 Review - 11
The Group also enhanced its direct investing capabilities in North America and
expanded its wealth management operations in the United States by completing the
purchase of Freeman Welwood.
Investment Banking Group
The Investment Banking Group provides a full range of financial products and
services to institutional investors and corporate, government and institutional
client segments.
Fiscal 2000 vs. Fiscal 1999
Net income for 2000 was $632 million. Net income fell $34 million or 5.2 per
cent. In 2000, the Bank extended its expected loss provisioning methodology to
allocate the provision for credit losses to the operating groups. If this
methodology had been applied last year, reported net income in 1999 would have
been $38 million lower. In addition, the inclusion of the extra month's results
from BMO Nesbitt Burns increased 1999 net income by $9 million. Together,
these factors increased fourth quarter and fiscal 1999 net income by $47
million, relative to 2000. The Group's net income from normal operations rose
$13 million or 2.0 per cent from the prior year.
Revenues for the year were $2,368 million, a decrease of $6 million or 0.3 per
cent. The extra month's results from BMO Nesbitt Burns in the fourth quarter of
1999 reduced reported revenue growth in fiscal 2000 by $37 million or 1.6 per
cent. Revenues from normal operations increased $31 million or 1.3 per cent.
Increases in normal operating revenues were attributable to higher advisory fees
on mergers and acquisitions, underwriting fees and trading commissions. Equity
trading gains and higher gains on securities sales also contributed to the
increase. Higher interest rates and a flattening of the yield curve caused a
significant reduction in net interest income from interest rate sensitive
businesses, primarily international money markets and Harris treasury. Exposure
to natural gas price volatility resulted in trading losses on natural gas
options of $52 million in the third quarter of fiscal 2000.
Non-interest expenses for the year were $1,169 million, an increase of $20
million or 1.8 per cent. The extra month's results from BMO Nesbitt Burns
increased 1999 expenses by $20 million and reduced the reported 2000 growth rate
by 1.8 per cent. Normal operating expenses increased $40 million or 3.6 per cent
because of higher revenue-driven compensation in units that had improved
operating results.
Fourth Quarter 2000 vs. Fourth Quarter 1999
Net Income for the fourth quarter was $161 million. Net income declined by $29
million or 15.9 per cent from the comparable period last year. Normal operating
income increased $18 million or 11.7 per cent from the fourth quarter of last
year.
Revenues for the quarter were $601 million, a decline of $1 million from the
prior year. Normal operating revenues increased $36 million or 6.3 per cent,
driven by increased advisory fees, trading income and gains on securities sales,
partly offset by lower earnings from interest rate sensitive businesses.
Non-interest expenses decreased $2 million or 0.6 per cent to $288 million.
Normal operating expenses increased $18 million or 6.7 per cent because of
higher revenue-driven compensation in units with improved operating results.
Fourth Quarter 2000 vs. Third Quarter 2000
Net Income for the fourth quarter increased $18 million or 11.8 per cent from
the third quarter. Revenues for the quarter increased $50 million or 9.3 per
cent, driven by increased advisory Annual and Fourth Quarter 2000 Review - 12
fees. Trading results improved because of a return to more normal performance in
the natural gas options portfolio. Non-interest expenses increased by $5 million
or 1.5 per cent.
Business Developments
During the quarter, BMO Nesbitt Burns advised Westburne Inc., a distributor of
electrical and plumbing supplies, on its sale to Paris-based Rexel S.A. In
addition, BMO Nesbitt Burns advised London-based Billiton Plc on its acquisition
of Rio Algom, a major Canadian copper mining company. In media and telecom, BMO
Nesbitt Burns advised BCE on its $4 billion media joint venture with Thomson
Corp.
As part of the continued development of its energy sector strategy, the Group
hired a new head for its U.S. Energy - Oil and Gas unit, based in Houston. In
the U.S. Midwest, Harris Nesbitt continued to build on its strong position in
agri-business by advising Basic Vegetable Products on its sale to ConAgra.
The Bank of Montreal entered into a joint venture agreement with Australia and
New Zealand Banking Group, Barclays Plc and American Management Systems to form
an independent, global, trade services processing company.
For the overall year, BMO Nesbitt Burns retained its number one position in
block trading volume in Canada for the fourth straight year. The securitization
unit maintained its position as the largest Canadian issuer of multi-vendor
conduit securities and as the number one distributor of asset-backed and
mortgage-backed securities in Canada. In the results of the 2000 Brendan
Wood Survey of Institutional Money Managers, BMO Nesbitt Burns' Institutional
Equity Group was ranked first in market penetration for the sixth year running
and had the top-ranked sales coverage and trader coverage. The Brendan Wood
Survey also produced a first-place ranking for the Equity Research team for the
twentieth consecutive year.
Bancomer
There were no earnings in the fourth quarter from the Bank's investment in
Bancomer. This represented a decrease of $17 million from the comparable period
last year and a decrease of $3 million from the third quarter this year.
On June 30, 2000, Bancomer shareholders approved its merger with Grupo
Financiero Probursa. With this event, as previously announced, the Bank adopted
the cost basis of accounting, replacing the equity basis of accounting for the
investment. Lower reported earnings by Bancomer and the change in accounting
method resulted in a $54 million year-over-year decline in net income from the
Bank's investment.
At year-end, the market value of the Bank's investment exceeded its cost base by
$181 million, net of a deferred currency translation adjustment of $96 million.
Corporate Support
Corporate Support includes two areas: the corporate units that provide expertise
and governance support for the Bank, such as strategic planning, law, finance,
economics, real estate, internal audit, risk management, corporate
communications, human resources and learning; and Emfisys, the integrated
systems and operations business that delivers e-business solutions, technology
strategy, systems development, and operational transaction processing services
to the Bank.
Annual and Fourth Quarter 2000 Review - 12
Fiscal 2000 vs. Fiscal 1999
Net income for 2000 was $11 million, an increase of $177 million from the prior
year. Excluding non-recurring items that increased net income by $50 million in
2000 and decreased net income by $113 million in 1999, net income rose by $14
million, year-over-year.
Fourth Quarter 2000 vs. Fourth Quarter 1999
Net income for the fourth quarter of fiscal 2000 was $63 million, an increase of
$210 million from the comparable period in 1999. Excluding non-recurring items
in both years, net income increased $47 million over the comparable quarter in
1999.
Fourth Quarter 2000 vs. Third Quarter 2000
Net income for the fourth quarter of 2000 increased $70 million from the third
quarter. Excluding non-recurring items, net income increased $20 million, driven
by lower income tax rates.
Harris Bank
For the Year
On a U.S. dollar/U.S. GAAP basis, Harris Bank earned net income of $268 million
for fiscal 2000, an increase of $48 million or 21.8 per cent from a year
earlier. Excluding a non-recurring gain on sale of corporate trust businesses
and securities gains, earnings increased 13.1 per cent from the prior year.
Harris Bank earnings included in the Bank's consolidated results, on a Canadian
dollar/Canadian GAAP basis, were $385 million, an increase of 21.1 per cent from
last year. The increase was driven by business growth, sustained cost control
and continued low credit losses, partially offset by the effects of higher
interest rates.
For the Quarter
On a U.S. dollar/U.S. GAAP basis, Harris Bank earnings for the fourth quarter of
fiscal 2000 were $63 million, an increase of $5 million or 8.6 per cent from the
same quarter a year earlier. Excluding securities gains, earnings increased 6.0
per cent from the prior year. Harris Bank earnings included in the Bank's
consolidated results, on a Canadian dollar/Canadian GAAP basis, were $94
million, an increase of 13.2 per cent from the same period last year. The
increase was driven by business growth, sustained cost control and continued low
credit losses, partially offset by the effects of higher interest rates.
Annual and Fourth Quarter 2000 Review - 13
MORE TO FOLLOW
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