Bank of Montreal 2003 Annual Report Download - page 24

BMO Financial Group 186th Annual Report 200320
Non-GAAP Measures Used in the MD&A ($ millions, except as noted)
2003 2002 2001
Net interest income per financial statements 4,899 4,829 4,499
Non-interest revenue per financial statements 4,220 3,924 4,222
Revenue per financial statements 9,119 8,753 8,721
Taxable equivalent basis adjustment (see page 22) 152 106 142
Revenue on a taxable equivalent basis (teb) (a) 9,271 8,859 8,863
Provision for income taxes 688 424 501
Taxable equivalent basis adjustment 152 106 142
Provision for income taxes (teb) 840 530 643
Non-interest expenses (b) 6,087 6,030 5,671
Amortization of intangible assets (105) (87) (43)
Cash expenses (c) 5,982 5,943 5,628
Net income 1,825 1,417 1,471
Amortization of goodwill and intangible assets 79 75 101
Cash net income 1,904 1,492 1,572
Preferred share dividends (82) (79) (80)
Charge for capital (1,119) (1,045) (1,059)
Net economic profit 703 368 433
Non-interest expense-to-revenue (1)
ratio ((b/a) x 100) (%) 65.7 68.1 64.0
Cash non-interest expense-to-revenue (1)
ratio ((c/a) x 100) (%) 64.5 67.1 63.5
EPS (uses net income) ($) 3.44 2.68 2.66
Cash EPS (uses cash net income) ($) 3.59 2.83 2.86
(1) Also referred to as productivity and cash productivity.
BMO uses certain non-GAAP measures to assess performance.
Securities regulators require that companies caution readers
that earnings and other measures adjusted to a basis other
than generally accepted accounting principles (GAAP) do not
have standardized meanings under GAAP and are unlikely to be
comparable to similar measures used by other companies.
In 2002 we indicated that management and certain other
observers believe that analyzing results excluding non-recurring
items can enhance analysis of financial performance. However,
the Securities and Exchange Commission in the United States
enacted rules in the past year that, going forward, restrict the
designation of items as non-recurring. This impairs the useful-
ness of such measures, and as a result we have discontinued our
practice of reporting results excluding non-recurring items. As
such, there were no items designated as non-recurring in fiscal
2003. In 2002, $62 million ($39 million after tax) of acquisition-
related costs incurred by Private Client Group were designated as
non-recurring, increasing EPS in 2002 by $0.08 when stated on a
basis that excludes non-recurring items. Table 26 on page 67 pro-
vides details of items that had been designated as non-recurring
in 2002 and 2001, now referred to as unusual items.
Cash earnings and productivity measures may enhance com-
parisons between periods when there has been an acquisition,
particularly because the purchase decision may not consider
the amortization of intangible assets to be a relevant expense.
Cash EPS measures are also useful because analysts often
focus on this measure, and cash EPS is used by Thomson First
Call to track third-party earnings forecasts that are frequently
reported in the media. Cash measures add the after-tax amor-
tization of goodwill and intangible assets to GAAP earnings to
derive cash income (and associated EPS) and deduct the amorti-
zation of intangible assets from non-interest expenses to derive
cash productivity measures.
BMO, like many banks, analyzes revenue on a taxable equiva-
lent basis (teb). This basis includes an adjustment that increases
GAAP revenues and the provision for income taxes by an amount
that would increase revenues on certain tax-exempt securities
to a level that would incur tax at the statutory rate.
Net economic profit is another non-GAAP measure. It repre-
sents cash earnings available to common shareholders less a
charge for capital.
Financial Performance Review
This section provides a review of our enterprise financial performance that focuses on the Consolidated Statement of Income
included in our consolidated financial statements, which begin on page 69. A review of our operating group strategies and per-
formance follows the enterprise review.
Non-GAAP Measures
Highlights
▪ Revenue increased $412 million or 5% in 2003 and was higher in each
of our client operating groups.
▪ Growth was attributable to improved volumes in Personal and Commercial
Client Group and Private Client Group and to lower investment securities
losses and higher equity origination fees and trading-related revenue in
Investment Banking Group.
▪
The provision for credit losses declined $365 million due to improved
credit performance over the year.
▪Non-interest e xpense increased 0.9% in 2003, after growing more than
6% in both 2002 and 2001.
▪ The expense-to-revenue ratio (or productivity ratio) improved by 240 basis
points to 65.7%, as improving productivity was our top priority in the year.