Bank of Montreal 2003 Annual Report Download - page 39

Private Client Group Financial Results
Private Client Group net income increased $65 million or 93%
to $136 million. Earnings growth was achieved primarily through
effective cost containment initiatives implemented in response to
challenging market conditions, with moderate revenue growth.
In the first half of 2003, the group generated $58 million or
42% of its total net income for the year, including a $13 million
after-tax gain on TSX common shares. Fixed income products
provided relatively stable earnings with their product appeal in
the conservative investor climate, while market-sensitive client
trading and fee-based revenues experienced downward pressure.
In the latter half of 2003, the group earned $78 million or 58% of
its total net income for the year. Earnings growth was achieved
through the cost containment and revenue enhancement ini-
tiatives implemented earlier in the year. In 2002, $62 million
($39 million after tax) of acquisition-related costs were desig-
nated as non-recurring for reporting purposes.
Private Client Group acquired a number of businesses over
the past two years. These acquisitions have incremental effects
on revenue and expenses that impact the year-over-year compar-
ison of operating results; these effects are explained on page 21.
Revenue increased $132 million or 8% to $1,795 million.
Revenue growth was $27 million or 2% after adjusting for the in -
cremental effects of acquired businesses. Improved earnings in
Investment Products and moderate improvement in fee-based
and client trading revenues contributed to the growth. The lower
Canadian/U.S. dollar exchange rate lowered total revenue growth
by 3 percentage points.
Non-interest expenses increased $33 million or 2% to
$1,576 million, due primarily to the incremental effects of
acquired businesses. There was significant progress in reducing
expenses, which declined $60 million or 4%, after adjusting for
the incremental effects of acquired businesses and last year’s
acquisition-related expenses. Cost containment initiatives in-
cluded reducing third-party service and technology costs, consol -
idating call centre and branch sites and reducing staff positions
by 8%. The expense-to-revenue ratio was improved by 500 basis
points from a year ago, consistent with our focus on improving
productivity. The lower Canadian/U.S. dollar exchange rate
reduced total expense growth by 4 percentage points.
U.S. operations incurred a net loss of $42 million in 2003,
compared with a net loss of $60 million a year ago. Revenue of
$576 million improved by $77 million but declined $27 million
excluding the incremental effects of acquired businesses.
Revenue growth was affected by narrowing spreads earned on
loan products, the impact of weak equity markets on trust and
investment fees earned, and the weaker U.S. dollar. Expenses of
$636 million rose $39 million. Excluding the incremental effects
of acquired businesses and last year’s acquisition-related costs,
expenses declined $53 million or 11%. Expenses were reduced
primarily through cost containment initiatives, the realization of
synergies from businesses acquired in fiscal 2002 and the effects
of the lower Canadian/U.S. dollar exchange rate.
Private Client Group ($ millions, except as noted)
As at or for the year ended October 31 2003 2002 2001
Net interest income (teb) 544 522 516
Non-interest revenue 1,251 1,141 974
Total revenue (teb) 1,795 1,663 1,490
Provision for credit losses 212
Non-interest expense 1,576 1,543 1,282
Income before income taxes, non-controlling
interest in subsidiaries and goodwill amortization 217 119 206
Income taxes (teb) 81 48 89
Amortization of goodwill, net of applicable
income taxes –– 10
Net income 136 71 107
Amortization of goodwill and
intangible assets (after tax) 47 43 28
Cash net income 183 114 135
Net economic profit (2) (32) 45
Return on equity (%) 7.6 4.8 12.6
Cash return on equity (%) 10.4 8.0 16.0
Non-interest expense-to-revenue ratio (%) 87.8 92.8 86.0
Cash non-interest expense-to-revenue ratio (%) 83.5 89.3 84.8
Average net interest margin (%) 10.30 9.58 9.76
Average common equity 1,677 1,322 821
Average assets 5,282 5,450 5,294
Total risk-weighted assets 4,540 5,184 4,420
Average current loans 2,686 3,060 3,478
Average deposits 41,575 39,720 39,869
Assets under administration 170,255 160,210 130,548
Assets under management 75,900 74,981 72,980
Full-time equivalent staff 5,436 5,902 5,671
2003200220012000
Assets under Management
and Administration including
Term Deposits ($ billions)
234 237
270 282
Canada
United States
Productivity ratio
Cash productivity ratio
Productivity and
Cash Productivity (%)
2000 2001 2002 2003
77.3
84.8
89.3
83.5
77.7
86.0
92.8
87.8
2000 2001 2002 2003
189
107
71
136
203
135 114
183
Net Income and
Cash Net Income ($ millions)
Net income
Cash net income
20032002200120001999
Canadian Wealth Management
Market Share
(where available)
1,040
1,260 1,160 1,160 1,280
8.60 8.78
9.03
9.57
9.65
Industry assets ($ billions)
PCG market share (%)
BMO Financial Group 186th Annual Report 2003 35