Bank of Montreal 2004 Annual Report Download - page 44

BMO Financial Group Annual Report 200440
MD&A
Management’s Discussion and Analysis
U.S. Operations Financial Results
Net income from U.S. operations represented 11% of total
Personal and Commercial Client Group net income for the
year, compared with 10% for fiscal 2003. BMO’s corporate
banking operations in the United States are concentrated
among mid-market corporate clients, which BMO manages
and reports in our Investment Banking Group operations
because of the enhanced opportunities to cross-sell
products. BMO’s North American peers typically include
similar businesses in their personal and commercial
banking units. The table below shows the effects of includ-
ing this U.S.-based mid-market business in Personal and
Commercial Client Group on a pro-forma basis and pro-
vides more geographic detail on results. The table reflects
the inclusion of $545 million ($574 million in 2003) of cor-
porate mid-market revenue and $197 million ($215 million
in 2003) of net income in U.S. results for the year.
If results of the U.S. mid-market banking unit were
included in Personal and Commercial Client Group
results, net income from U.S. operations would represent
26% of the group’s earnings in the year, compared with
11% as currently reported. Revenue, after including the
U.S. mid-market banking unit, would be 26% of the group’s
revenue, compared with 17% as currently reported.
The non-interest expense-to-revenue ratio would be
59.8%, compared with the 62.8% currently reported.
Personal and Commercial Client Group adjusted
to include U.S.-Based Mid-Market Business
Change
(Canadian $ in millions, except as noted)
from 2003
For the year ended October 31 2004 2003 2002 $%
Canada – revenue 4,055 3,995 3,732 60 1
United States – revenue 1,404 1,403 1,417 1 –
Total revenue (teb) 5,459 5,398 5,149 61 1
Canada – net income 889 839 715 50 6
United States – net income 311 313 288 (2) –
Total net income 1,200 1,152 1,003 48 4
Canada – return on equity (%) 28.5 29.1 26.8 (0.6)
United States – return on equity (%) 17.3 13.8 11.5 3.5
Total return on equity (%) 24.4 22.4 19.5 2.0
Canada – non-interest
expense-to-revenue ratio (%) 60.4 61.1 62.5 (0.7)
United States – non-interest
expense-to-revenue ratio (%) 58.0 57.7 59.1 0.3
Total non-interest
expense-to-revenue ratio (%) 59.8 60.2 61.6 (0.4)
U.S. Business Environment and Outlook
Chicagoland is unique among U.S. financial services markets,
and remains one of the most fragmented, with more than
250 banks. Harris and the two other largest banks together
hold approximately 30% of the market – unchanged from 1997.
Chicago is the second-largest market in the United States;
new banks continue to enter this market, and many others have
begun to roll out significant branch expansions. Others are
using unique distribution offers or are significantly increasing
brand marketing in attempts to capture market share.
Chicagoland is a hotly contested market because of the
growth opportunities it presents. While the region has attracted
some significant competitors, we are committed to defending
our growing business, and therefore expect some margin
pressure through the next year. In the longer term, competitive
pressures should subside and profitability should improve.
We expect the larger players to reap the benefits of these
developments and we intend to be one of those players.
We continue to expect the Chicagoland market to experience
growth on par with the overall U.S. economy. Demand for
consumer credit should continue to generate healthy profits
and the banking needs of small business clients should increase
with an expanding economy, growing in volume and complex-
ity and creating new opportunities.
In 2005, we will continue to put heavy emphasis on expand-
ing in the Chicago area through a combination of organic
growth and acquisitions. In addition, we will continue to
improve our efficiency by streamlining operating platforms
and reducing overhead costs. Finally, by building our business
around enduring client relationships, we will continue to
enhance our reputation as a high-quality, client-focused bank.