Bank of Montreal 2004 Annual Report Download - page 32

BMO Financial Group Annual Report 200428
MD&A
Management’s Discussion and Analysis
Revenue on a taxable equivalent basis (see page 26) rose
$341 million or 3.7% in 2004 to $9,612 million, driven by
growth in all operating groups. The weaker U.S. dollar
lowered
revenue growth
in each of the operating groups and lowered
BMO’s overall revenue growth by $243 million or 2.6 percentage
points, while the incremental effects of acquired businesses
added $91 million or 1.0 percentage points to revenue growth.
The $341 million increase was almost entirely due to increased
non-interest revenue, as higher net interest income in per-
sonal and commercial banking was largely offset by declines
in Investment Banking Group and Private Client Group.
BMO, like many banks, analyzes revenue on a taxable equiva-
lent basis (teb). The teb adjustments for fiscal 2004 totalled
$139 million, down from $152 million a year ago.
Personal and Commercial Client Group revenue rose on higher
volumes and the inclusion of revenues from acquired businesses.
These increases were partially offset by the impacts of lower
net interest margins and lower card fees, including an adjust-
ment
related to rising reward redemption rates in our customer
loyalty program. Private Client Group revenue also increased, as
successful revenue-generating initiatives and improved market
fundamentals drove higher commission and fee-based revenues.
Investment Banking Group revenue rose due to higher securi-
ties trading commissions and underwriting fees as well as net
investment securities gains, compared with net losses a year
ago, and the inclusion of revenues from Harris Nesbitt Gerard.
Net Interest Income
Net interest income for the year was $5,061 million, an increase
of $10 million from 2003. The benefits of volume growth in
Personal and Commercial Client Group were partially offset
by reduced net interest margin in the competitive low interest
rate environment. Average assets of $270 billion were $6 billion
or 2% higher than a year ago, as the group’s average assets
increased $9 billion, while Investment Banking Group’s average
assets fell $3 billion. The increase in assets occurred notwith-
standing the lower Canadian/U.S. dollar exchange rate. Asset
growth in Personal and Commercial Client Group was derived
from robust residential mortgage markets and strong consumer
and commercial loan growth in Canada and the United
States. The decline in Investment Banking Group assets was
primarily in interest-rate-sensitive businesses, in anticipation
of rising interest rates, and in loan balances due to both
weak corporate demand and the group’s strategy of exiting
certain non-core relationships.
Revenue
Taxable equivalent basis
Revenues reflected in our MD&A are presented on a taxable equivalent
basis (teb). The teb adjustment increases GAAP revenues and the provision
for income taxes by an amount that would increase revenues on certain
tax-exempt securities to a level that would incur tax at the statutory rate,
to facilitate comparisons. The effect is disclosed on page 26 and in Table 7
on page 72.
Net interest income is comprised of earnings on assets such as loans
and securities, including interest and dividend income and BMO’s share
of income from investments accounted for using the equity method
of account ing, less interest expense paid on liabilities such as deposits.
See page 26.
Net interest margin is the ratio of net interest income to average assets,
expressed as a percentage or in basis points. See page 26.
Revenue ($ millions)
and Annual Growth (%)
9
2
4
0
5
8,664
8,859
9,271
9,612
8,863
20042003200220012000
Growth
Revenue
Revenue by Country (%)
64
33
3
67
30
3
69
28
3
200420032002
Canada United States
Other countries
Revenue growth was solid for the
second straight year as all groups
increased their revenues.
The weak U.S. dollar has limited the
proportion of U.S. revenue in the
past two years.
Revenue ($ millions)
For the year ended October 31 2004 2003 2002 2001 2000
Net interest income (teb) 5,061 5,051 4,935 4,641 4,338
Year-over-year growth (%) 0.2 2.3 6.3 7.0 (1.8)
Non-interest revenue 4,551 4,220 3,924 4,222 4,326
Year-over-year growth (%) 7.8 7.6 (7.1) (2.4) 23.2
Total revenue 9,612 9,271 8,859 8,863 8,664
Year-over-year growth (%) 3.7 4.7 – 2.3 9.3
Change in Net Interest Income, Average Assets and Net Interest Margin
Net interest income (teb) Average assets Net interest margin
($ millions) Change ($ millions) Change (in basis points)
For the year ended October 31 2004 2003 $% 2004 2003 $% 20042003 Change
P&C Canada 2,760 2,685 75 3 101,181 93,844 7,337 8 273 286 (13)
P&C United States 684 633 51 8 17,908 16,065 1,843 11 382 394 (12)
Personal and Commercial Client Group (P&C) 3,444 3,318 126 4 119,089 109,909 9,180 8 289 302 (13)
Private Client Group (PCG) 499 541 (42) (8) 5,326 5,292 34 1 937 1,022 (85)
Investment Banking Group (IBG) 1,305 1,393 (88) (6) 141,691 144,418 (2,727) (2) 92 96 (4)
Corporate Support, including Technology and Solutions (187) (201) 14 7 3,686 4,347 (661) (15) nm nm nm
Total 5,061 5,051 10 – 269,792 263,966 5,826 2 188 191 (3)
nm – not meaningful