Bank of Montreal 2010 Annual Report Download - page 40

MANAGEMENT’S DISCUSSION AND ANALYSIS
MD&A
Non-Interest Revenue ($ millions)
Change from 2009
For the year ended October 31 2010 2009 2008 $ %
Securities commissions and fees 1,048 973 1,105 75 8
Deposit and payment
service charges 802 820 756 (18) (2)
Trading revenues 504 723 546 (219) (30)
Lending fees 572 556 429 16 3
Card fees 233 121 291 112 93
Investment management
and custodial fees 355 344 339 11 3
Mutual fund revenues 550 467 589 83 18
Securitization revenues 678 929 513 (251) (27)
Underwriting and advisory fees 445 397 353 48 12
Securities gains (losses) 150 (354) (315) 504 +100
Foreign exchange, other
than trading 93 53 80 40 75
Insurance income 321 295 237 26 9
Other 224 170 210 54 32
Total 5,975 5,494 5,133 481 9
$4.1 billion excluding the impact of the weaker U.S. dollar. Asset levels
were reduced in BMO Capital Markets and P&C U.S., due in part to the
weaker U.S. dollar, but there were solid increases in P&C Canada and
Private Client Group. BMO’s overall net interest margin was up 25 basis
points in 2010, driven primarily by higher margins in P&C Canada
and improved net interest income in Corporate Services. The main drivers
of BMO’s overall net interest margin are the individual group margins,
changes in the magnitude of each operating group’s assets and changes
in net interest income in Corporate Services.
P&C Canada recorded a solid increase in net interest income.
Volume growth remained strong in all major product categories.
Net interest margin increased 13 basis points, driven primarily by
actions taken in 2009 to mitigate the impact of rising long-term funding
costs, improvement in the spread on deposit products from unusually
low levels a year ago and higher volumes in more-profitable products.
In P&C U.S., net interest income fell, but increased on a U.S. dollar basis.
The favourable effects of the Rockford, Illinois-based bank transaction
and loan spread improvement more than offset the impact of impaired
loans, the decrease in commercial loan balances caused by lower
client utilizations, and deposit spread compression. P&C U.S. net interest
margin rose significantly from 2009.
Private Client Group net interest income increased modestly.
Volume growth in our brokerage and private banking businesses
was partially offset by spread compression in our brokerage businesses.
The group’s net interest margin decreased 53 basis points, with
approximately 90% of the decrease due to the mid-2009 acquisition
of BMO Life Assurance, which increased assets with no change to
net interest income.
BMO Capital Markets net interest income decreased $134 million
or 9%. Revenues from interest-rate-sensitive businesses and corporate
bank ing were lower, while trading net interest income was higher.
The group’s average earning assets were reduced by $16.9 billion,
including the $8.2 billion negative impact of the weaker U.S. dollar, due
mainly to lower levels of money market and corporate lending assets.
Net interest margin increased nominally as higher net interest income
from trading assets was offset by lower spreads on money market
and corporate lending assets.
The improvement in Corporate Services net interest income was
primarily due to a lower negative carry on certain asset-liability interest
rate positions as a result of management actions and more stable market
conditions, and the diminished impact in 2010 of funding activities in
prior years that enhanced our strong liquidity position.
Table 9 on page 100 and Table 10 on page 101 provide further details
on net interest income and net interest margin.
Non-Interest Revenue
Non-interest revenue, which comprises all revenues other than net
interest income, was $5,975 million in 2010, an increase of $481 million or
9% from 2009. Revenues in BMO Capital Markets in 2009 were elevated
by favourable market conditions, but charges related to notable items
reduced revenue in that year by $521 million, increasing year-over-year
growth in 2010. The net impact of acquired businesses increased 2010
non-interest revenue by $190 million, while the impact of the weaker
U.S. dollar decreased non-interest revenue by $155 million.
Securities commissions and fees increased $75 million or 8%.
These fees consist largely of full-service and online brokerage commis-
sions within Private Client Group, which account for about two-thirds
of the total, and institutional equity trading commissions within BMO
Capital Markets. The increase was largely due to increases in client
trading volumes in Private Client Group, as equity market valuations
were low in the first half of 2009 and activity levels were reduced.
Deposit and payment service charges decreased $18 million or
2%, largely due to the impact of the weaker U.S. dollar on revenues in
P&C U.S. and BMO Capital Markets.
Adjusting for the weaker
U.S. dollar, earning assets
increased with improved
net interest margin.
There was growth in
institutional, personal and
mutual fund assets under
administration.
Growth reflects the number
of new clients and stronger
equity markets, offset in part
by the weaker U.S. dollar.
20102009200820072006
1.81 1.59 1.55
261
304
327
Average Earning Assets and
Net Interest Margin
Average earning assets ($ billions)
Net interest margin (%)
20102009200820072006
5.1
4.7 4.8 5.1
5.3
4.5
Net Interest Income
and Non-Interest Revenue
($ billions)
Non-interest revenue
Net interest income
There was consistent growth
in net interest income and
non-interest revenue.
20102009200820072006
259 261
228 230
Assets under Administration
($ billions)
20102009200820072006
109 109
133 129
Assets under Management
($ billions)
342
1.63
5.5
5.6
239
106
332
1.88
6.0
6.2
38 BMO Financial Group 193rd Annual Report 2010