Bank of Montreal 2004 Annual Report Download - page 71

BMO Financial Group Annual Report 2004 67
MD&A
BMO’s quarterly earnings, revenue and expense are modestly
affected by seasonal factors. Since our second fiscal quarter has
89 days (90 days in a leap year) and other quarters have 92 days,
second-quarter results are lower relative to other quarters
because there are 3% fewer calendar days, and thus fewer
business days. The months of July (third quarter) and August
(fourth quarter) are typically characterized by lower levels of
capital markets activity, which has an effect on results in Private
Client Group and Investment Banking Group. The December
holiday season also contributes to a slowdown in some activities;
however, credit card purchases are particularly robust in that
first quarter period, as well as in the back-to-school period that
falls in our fourth quarter.
Quarterly results and statistics for the past eight quarters are
outlined on page 69. The most compelling trend, albeit one
that was not sustained in the last quarter of 2004, was that of
increasing earnings. Net income had risen in nine consecutive
quarters until then. Nonetheless, we continued to benefit from
focusing on improving productivity and from superior credit
management, and through the last quarter of 2004, we had
achieved nine consecutive quarters of year-over-year quarterly
earnings growth.
The most significant factor contributing to the trend of
increasing earnings was a lowering of provisions for credit
losses, although improvements were broadly based, with
earnings generally trending higher in all operating groups.
The provision totalled $150 million in the first quarter of fiscal
2003, but declined in each quarter, totalling only $5 million in
the second quarter of 2004 and improving to a net recovery in
the third and fourth quarters. The improvements reflected
improving credit quality that reduced the incidence of new
problem loan formations and expected losses when they occur.
Recoveries of allowances established in prior periods and of
amounts previously written off also contributed to the improve-
ment. These recoveries can be quite unpredictable and were
particularly high in the third quarter of 2004. Improving credit
quality and lower corporate loan balances also contributed to
reductions of the general allowance for loan losses, which was
reduced in each quarter of 2004 and by $170 million for the
year, the first time in more than 10 years that any portion of the
general allowance had been released.
Other notable trends were the weakening of the U.S. dollar,
which has reduced revenues and expenses, general improve-
ments in the results of Private Client Group and Investment
Banking Group, which benefited from more activity in capital
markets and higher equity valuations, and higher earnings
in Personal and Commercial Client Group related to higher
volumes. Improved results in Corporate Support were
largely due to lower provisions for credit losses.
Quarterly Earnings Trends
At BMO Financial Group, we believe that social responsibility
begins with a commitment to ethical behaviour. By conducting
our business and serving our customers and communities
according to the principles of honesty, transparency and
accountability, we earn the trust that is the foundation of
our business.
BMO maintains a comprehensive code of conduct –
FirstPrinciples, Our Code of Business Conduct and Ethics – and
has established specific behavioural standards through
FirstPrinciples and related policies, standards and guidelines.
We exercise the fundamental rule of good banking practice,
“Know your customer,” in the course of all business dealings
with customers and in the evaluation of prospective customers.
•We will not knowingly conduct any type of business with
customers whose money is derived from illegal activities.
Management considers the reputation, integrity and charac-
ter of a counterparty and/or its management in deciding
whether to conduct business with that counterparty.
•We will not complete any transaction of any type or operate
any account for customers who fail to provide evidence
of their identity, source of funds, or any other information
we require to establish the good faith of a customer.
Furthermore, we avoid providing preferential treatment
when entering into banking transactions with a political party,
constituency association, candidate, leadership contestant
or any other public official (including any such individual’s
family and/or related business enterprises).
BMO adheres to the principles of confidentiality and privacy
in customer relations. We follow applicable codes of conduct
and legislation that protect and respect personal information
and initiate fair and timely redress of customer complaints and
concerns. We also maintain strict conflict of interest rules for
employees, officers and directors.
In the development of foreign business, we consider
ethical, political, social and economic factors in addition
to other more traditional lending considerations. We do not
knowingly lend, in North America or internationally, for
purposes that support the suppression of basic individual free-
doms, encourage racial discrimination or national hatreds, or
promote the use of violence or repression.
We are committed to truthful and ethical practices in
advertising.
We champion principles of inclusion through our diverse
workforce and supportive and equitable workplace.
Social and Ethical Risk