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due to volume growth in the Personal and Commercial Client Group and acquired businesses in Private Client Group while Investment Banking Group benefited from the declining interest rate environment, higher levels of dividend income on merchant banking securities and improved spreads. 

Non-interest revenue, excluding non-recurring items, declined 1% from fiscal 2000. 

## Expense-to-Revenue Ratio 

The expense-to-revenue ratio was 68.1% in 2002, up 4.1 percent- age points from a year ago. Excluding non-recurring items, the ratio was 67.4%, compared with 65.1% in 2001. BMO’s overall expense ratio in any year is affected by the relative strength of the revenues of each of the operating groups. The expense-to- revenue ratio of each group is typically quite different because of the different nature of their businesses. Personal and Com- mercial Client Group is BMO’s largest group and its efficiency ratio improved by 252 basis points. Excluding non-recurring gains on branch sales in 2001, the ratio improved by 269 basis points to 60.0%. 

The efficiency ratios of the other operating groups were less favourable than a year ago. In fee-based businesses, particularly businesses driven by equity markets, the efficiency ratio is more volatile. Excluding non-recurring items, Private Client Group’s expense-to-revenue ratio rose due to higher amortization of intangible assets related to acquisitions. If acquired businesses were excluded, the expense-to-revenue ratio of Private Client Group would have improved modestly from a year ago. In spite of a $91 million reduction in year-over-year expenses, the Invest- ment Banking Group expense-to-revenue ratio rose because of declining revenues in the difficult market environment. 

Expenses were up 6% year-over-year, or 5% excluding non- recurring items. Expenses included $250 million related to the additive effect of acquired businesses and $50 million of severance costs in the fourth quarter. These costs relate to reducing staffing by approximately 500 positions, about 55% of which relate to activities in Corporate Support, including Technology and Solutions. 

Excluding non-recurring items, severance costs and acquired businesses, expenses were flat year-over-year. Expenses for 2002 were influenced by a $68 million increase in pension costs and 

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## Provision for Credit Losses 

The provision for credit losses was $820 million. The provision totalled $880 million in 2001, excluding a $100 million general provision that was categorized as non-recurring for reporting purposes. BMO’s target for 2003 is to maintain provisions for credit losses at the same level as 2002. The provision for credit losses is discussed on page 29 in the credit risk section. 

The expense-to-revenue ratio is our primary measure of productivity. It is calculated as non-interest expense divided by total revenues. The ratio is calculated on a taxable equivalent basis. It is often referred to as the efficiency ratio or productivity ratio. 

theeffectsofastrongerU.S.dollar.Theseincreaseswerepartially offset by lower performance-based compensation costs and the effects of continued cost containment measures. Performance- based compensation costs were down appreciably in Investment Banking Group but were largely offset by higher costs in Personal and Commercial Client Group. The accompanying table indicates increased expenses in most categories, reflecting the factors discussed above. 

## Non-Interest Expense (excluding non-recurring items) ($ millions) 

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## Contribution to Non-Interest Expense Growth 

( excluding non-recurring items) (%) 

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