Bank of Montreal 2003 Annual Report Download - page 26

Management’s Discussion and Analysis of Operations and Financial Condition
BMO Financial Group 186th Annual Report 200322
Revenue ($ millions)
For the year ended October 31 2003 2002 2001 2000 1999
Net interest income (teb) 5,051 4,935 4,641 4,338 4,417
Year-over-year growth (%) 267(2) 6
Non-interest revenue 4,220 3,924 4,222 4,326 3,511
Year-over-year growth (%) 8(7) (2) 23 13
Total revenue 9,271 8,859 8,863 8,664 7,928
Year-over-year growth (%) 5 – 299
Revenue and Revenue Growth
Revenue on a taxable equivalent basis (see page 20) rose$412mil-
lion or 5% in 2003 to $9,271 million, driven by growth in all
operating groups. After adjusting 2003 revenue for the $122 mil-
lion incremental effect of acquired businesses, which is explained
on page 21, revenue increased $290 million or 3%. The weaker
U.S. dollar reduced revenue in 2003 by $264 million and lowered
revenue growth by 3 percentage points.
BMO, like many banks, analyzes revenue on a taxable equiv-
alent basis (teb). The teb adjustments for fiscal 2003 totalled
$152 million, up from $106 million a year ago. This year, we
refined our policies prospectively to include adjustments for
dividend revenue from common and certain additional preferred
shares, resulting in a $71 million increase in the teb adjustment
in fiscal 2003, primarily in Investment Banking Group.
Personal and Commercial Client Group revenue rose on
continued volume growth in both Canada and the United States,
although the impact of U.S. growth was offset by the weaker
U.S. currency. Canadian growth was primarily in the personal
banking segment, where retail deposits, card services and
residential mortgages were particularly strong. Private Client
Group revenue rose on improving market fundamentals and
stronger performance in direct and full-service investing and in
investment products. Investment Banking Group benefited from
stronger income trust origination activity and higher trading
revenue. A $105 million reduction in net investment securities
losses also contributed to BMO’s revenue increase.
Net Interest Income
Net interest income for the year was $5,051 million, an increase
of $116 million or 2% from 2002, driven by volume growth.
Average assets of $264 billion were $16 billion or 6% higher
than a year ago, split equally between personal and commercial
banking and Investment Banking Group. The growth occurred
in spite of the weaker U.S. dollar. Asset growth in Personal and
Commercial Client Group was related to active residential mort -
gage markets and strong credit card and consumer loans growth.
Growth in Investment Banking Group assets was primarily in
trading securities, as business and government loans declined
due to weak demand.
Taxable equivalent basis (teb)
Revenues reflected in our MD&A are presented on a taxable equivalent
basis (teb). The teb adjustment increases GAAP revenues and the provision
for income taxes by an amount that would increase revenues on certain
tax-exempt securities to a level that would incur tax at the statutory rate,
to facilitate comparisons. The effect is disclosed on page 20 and in Table 6
on page 56.
20032002
Revenue by Country (%)
64
33
3
67
30
3
Canada
United States
Other countries
20032002200120001999
Revenue ($ millions)
and Annual Growth (%)
99
5
2
0
7,92 8
8,863 8,859
9,271
8,664
Growth (%)
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 2003 2002 $ % 2003 2002 $ % 2003 2002 Change
P&C Canada 2,687 2,479 208 8 93,865 87,190 6,675 8 286 284 2
P&C United States 632 620 12 2 16,046 14,861 1,185 8 394 417 (23)
Personal and Commercial Client Group (P&C) 3,319 3,099 220 7 109,911 102,051 7,860 8 302 304 (2)
Private Client Group (PCG) 544 522 22 4 5,282 5,450 (168) (3) 1,030 958 72
Investment Banking Group (IBG) 1,394 1,480 (86) (6) 144,449 136,487 7,962 6 97 108 (11)
Corporate Support, including Technology
and Solutions (Corp) (206) (166) (40) (25) 4,324 4,002 322 8 nm nm nm
Total 5,051 4,935 116 2 263,966 247,990 15,976 6 191 199 (8)
nm – not meaningful
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
accounting, less interest expense paid on liabilities, such as deposits.
Net interest margin is the ratio of net interest income to average assets,
expressed as a percentage or in basis points.