FINANCIAL RESULTS FOURTH QUARTER 2004 KAREN MAIDMENT Senior Executive Vice President & CFO Investor Community Conference Call November 23, 2004
Forward-Looking Statements CAUTION REGARDING FORWARD-LOOKING STATEMENTS Bank of Montreal's public communications often include written or oral forward-looking statements. Statements of this type are included in this presentation, and may be included in filings with Canadian securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made pursuant to the 'safe harbor' provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives for 2004 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price, and the results of or outlook for our operations or for the Canadian and U.S. economies. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: global capital market activities; interest rate and currency value fluctuations; the effects of war or terrorist activities; the effects of disease or illness that impact on local, national or international economies; the effects of disruptions to public infrastructure, such as transportation, communications, power or water supply disruptions; industry and worldwide economic and political conditions; regulatory and statutory developments; the effects of competition in the geographic and business areas in which we operate; management actions; and technological changes. We caution that the foregoing list of factors is not exhaustive and that when relying on forward-looking statements to make decisions with respect to Bank of Montreal, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Bank of Montreal does not undertake to update any forward- looking statement, whether written or oral, that may be made, from time to time, by the organization or on its behalf. Investor Relations Susan Payne 416-867-6656 susan.payne@bmo.com Steven Bonin 416-867-5452 steven.bonin@bmo.com Amanda Mason 416-867-3562 amanda.mason@bmo.com Fax: 416-867-3367 Email: investor.relations@bmo.com F I N A N C I A L R E S U L T S F O U R T H Q U A R T E R 2 0 0 4 1
EPS GROWTH EPS GROWTH Q4 2004 Financial Highlights 9.3% 9.3% Annual Target 10 - 15% • Ninth consecutive quarter of Y/Y earnings ROE ROE growth 17.8% 17.8% - Net Income of $563 MM - up 10% Y/Y but down 4% excluding PCLs and Annual Target 16 – 18% down 14% Q/Q - unusually high recoveries in Q3 SPECIFIC PCL SPECIFIC PCL $37 MM $37 MM • Continued strong credit performance - $13 MM net recovery of credit losses in quarter Annual Target < $500MM • TIER 1 CAPITAL TIER 1 CAPITAL Business growth Y/Y in operating groups 9.81% 9.81% - volume-based revenue growth - cost containment Annual Target > 8.0% • CASH PRODUCTIVITY CASH PRODUCTIVITY Cost management remains a focus 63.5% 63.5% - Cash productivity ratio improvement target for Annual Target 150 – year achieved 200 bps improvement F I N A N C I A L R E S U L T S F O U R T H Q U A R T E R 2 0 0 4 2
Financial Summary Q4 2004 Fiscal Fiscal Performance Measure Q4 2004 Q3 2004 Q4 2003 2004 2003 563 654 513 2,351 1,825 Net Income ($ MM) Cash EPS – Diluted ($/share) 1.10 1.27 1.00 4.57 3.59 EPS – Diluted ($/share) 1.06 1.24 0.97 4.42 3.44 18.5 21.7 18.5 20.1 17.1 Cash Return on Equity (%)* Return on Equity (%)* 17.8 21.0 17.9 19.4 16.4 Revenue Growth – Y/Y (%) (4.2) 3.9 5.4 3.7 4.7 (3.4) 3.6 (3.6) 1.1 0.9 Expense Growth – Y/Y (%) 63.5 62.4 63.1 63.0 64.5 Cash Productivity Ratio (%) 64.6 63.5 64.0 64.1 65.7 Productivity Ratio (%) (0.03) (0.28) 0.25 (0.07) 0.30 PCL/Avg. Loans Accept. (%)* 9.81 9.44 9.55 9.81 9.55 Capital: Tier 1 Capital (%) * Annualized F I N A N C I A L R E S U L T S F O U R T H Q U A R T E R 2 0 0 4 3
Q/Q Earnings Growth Q/Q Earnings Growth Cash EPS Growth ($/share) Drivers: Drivers: • Strong operating performance in • Strong operating performance in Q4 ’04 vs Q3 ’04 P&C with decline in IBG and P&C with decline in IBG and PCG due to softening markets PCG due to softening markets • Higher specific provision for • Higher specific provision for 1.27 credit losses in part due to lower credit losses in part due to lower ↓ 0.14 ↓ ↓ ↓ recoveries recoveries ↑ ↑ 0.02 ↑ ↑ 1.10 ↑ 0.04 ↑ ↑ ↑ • “Other” includes • ↑ 0.01 ↑ ↑ ↑ “Other” includes net investment net investment ↓ 0.10 ↓ ↓ ↓ securities gains net of securities gains net of adjustment to credit card fees adjustment to credit card fees Q3 04 Specific Business Reduction Tax Rate Other Q4 04 PCL Growth in General Allowance Y/Y Earnings Growth Y/Y Earnings Growth Drivers: Drivers: Q4 ’04 vs Q4 ’03 • Lower specific provision for • Lower specific provision for credit losses plus reduction of credit losses plus reduction of the general allowance the general allowance • Expense control offsetting • Expense control offsetting 1.10 ↑ 0.07 ↑ ↑ ↑ lower revenues in market- -driven driven lower revenues in market 1.00 ↑ 0.07 ↑ ↑ ↑ businesses businesses ↑ ↑ 0.02 ↑ 0.02 ↑ ↑ ↑ ↑ ↑ ↓ ↓ ↓ ↓ 0.08 • Improved volumes in P&C • Improved volumes in P&C • Improved overall operating • Improved overall operating Q4 03 Business Tax Rate Other Reduction Specific Q4 04 group performance group performance Growth in General PCL • “Other” includes net investment • “Other” includes net investment Allowance securities gains net of net of securities gains adjustment to credit card fees adjustment to credit card fees F I N A N C I A L R E S U L T S F O U R T H Q U A R T E R 2 0 0 4 4
Annual Cash EPS Growth ($/share) Strong credit performance and business Annual Earnings Annual Earnings growth drove increase Growth Drivers: Growth Drivers: 2004 vs 2003 • Lower specific provision for • Lower specific provision for credit losses plus reduction of credit losses plus reduction of the general allowance the general allowance • • Record net income in each of 4.57 Record net income in each of ↑ ↑ ↑ ↑ 0.52 ↑ ↑ ↑ ↑ 0.22 ↓ ↓ 0.09 ↓ ↓ the operating groups the operating groups ↑ ↑ 0.06 ↑ ↑ ↑ 0.27 ↑ ↑ ↑ 3.59 • “Other” includes share • “Other” includes share issuances, net investment net investment issuances, securities gains, net of securities gains, net of adjustment to credit card fees adjustment to credit card fees and losses on unwinding and losses on unwinding hedges hedges 2003 Tax Rate Other Business Reduction Specific 2004 Growth in General PCL Allowance F I N A N C I A L R E S U L T S F O U R T H Q U A R T E R 2 0 0 4 5
Q/Q Changes Q/Q Changes Revenue Growth • Decline in IBG due to lower net interest • Decline in IBG due to lower net interest Revenue lower due to softer markets and weaker income on narrower spreads and lower income on narrower spreads and lower U.S. dollar interest collections interest collections • PCG and IBG both impacted by lower • PCG and IBG both impacted by lower commissions on client activity commissions on client activity Q4 ’04 vs Q3 ’04 ($MM) • Increase in P&C due to volume growth • Increase in P&C due to volume growth and higher transaction based revenues and higher transaction based revenues 18 (0.7%) 7 (0.3%) • All groups impacted by weaker U.S. • All groups impacted by weaker U.S. dollar dollar • “Other” includes • “Other” includes net investment net investment -35 (-1.5%) securities gains, net of adjustment to securities gains, net of adjustment to credit card fees credit card fees -101 (-4.1%) -111 (-4.6%) Y/Y Changes Y/Y Changes • Lower spreads and lending volumes in • Lower spreads and lending volumes in Q4 ’04 vs Q4 ’03 ($MM) IBG IBG • Increase in P&C due to higher volumes • Increase in P&C due to higher volumes 15 (0.6%) and impact of acquired businesses, and impact of acquired businesses, 13 (0.6%) mitigated by reduced net interest mitigated by reduced net interest margins margins • All groups impacted by weaker U.S. • All groups impacted by weaker U.S. dollar dollar -39 (-1.7%) • “Other” includes • “Other” includes net investment net investment securities gains, net of adjustment to securities gains, net of adjustment to -88 (-3.7%) -99 (-4.2%) credit card fees credit card fees Total Growth Foreign Acquisitions Business Other Exchange Growth F I N A N C I A L R E S U L T S F O U R T H Q U A R T E R 2 0 0 4 6
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