Bank of Montreal 2010 Annual Report Download - page 59

MD&A
Corporate Services, including Technology and Operations
Corporate Services consists of the corporate units that provide enterprise-
wide expertise and governance support in a variety of areas, including
strategic planning, risk management, finance, legal and compliance,
communications and human resources. Our operating results reflect the
impact of certain securitization and asset-liability management activities,
the elimination of taxable equivalent adjustments and the impact of
our expected loss provisioning methodology.
Technology and Operations (T&O) manages, maintains and provides
governance over information technology, operations services, real
estate and sourcing for BMO Financial Group. T&O focuses on enterprise-
wide priorities that improve service quality and efficiency to deliver
an excellent customer experience.
Financial Results
Operating results for T&O are included with Corporate Services for
reporting purposes. However, the costs of T&O services are transferred
to the three operating groups, and only minor amounts are retained in
T&O results. As such, results in this section largely reflect the corporate
activities outlined above.
Corporate Services net loss for the year was $299 million, compared
with a net loss of $1,146 million in 2009. The improvement was attrib-
utable to lower provisions for credit losses and higher revenues. The
provision for credit losses was $821 million lower as a result of reduced
provisions charged to Corporate Services under our expected loss pro-
visioning methodology. Included in the 2009 provision for credit losses
was a $60 million increase in the general allowance for credit losses.
There was no change in the general allowance in 2010. The improvement
in revenues is primarily related to a decrease in the negative carry on
certain asset-liability interest rate positions as a result of management
actions and more stable market conditions, as well as the diminished
impact in
2010 of funding activities in prior years that enhanced our
strong
liquidity position.
As explained on page 43, BMO analyzes revenues on a teb basis
at the operating group level, with an offsetting adjustment in Corporate
Services. Results reflect teb reductions in net interest income and
related income taxes. The impact on net interest income is itemized
in the adjacent table.
Corporate Services, including Technology and Operations
(Canadian $ in millions, except as noted)
Change from 2009
As at or for the year ended October 31 2010 2009 2008 $ %
Net interest income
before teb offset (425) (1,095) (492) 670 61
Group teb offset (355) (247) (285) (108) (44)
Net interest income (teb) (780) (1,342) (777) 562 42
Non-interest revenue 212 450 522 (238) (53)
Total revenue (teb) (568) (892) (255) 324 36
Provision for credit losses 152 973 825 (821) (84)
Non-interest expense 147 189 41 (42) (22)
Income (loss) before income taxes
and non-controlling interest
in subsidiaries (867) (2,054) (1,121) 1,187 58
Income taxes (recovery) (teb) (642) (984) (784) 342 35
Non-controlling interest
in subsidiaries 74 76 74 (2) (3)
Net income (loss) (299) (1,146) (411) 847 74
Full-time equivalent employees 9,968 9,577 9,459 391 4
U.S. Business Selected Financial Data (US$ in millions)
Change from 2009
As at or for the year ended October 31 2010 2009 2008 $ %
Total revenue (teb) (155) (265) (138) 110 41
Provision for credit losses 227 767 783 (540) (70)
Non-interest expense (64) (24) (68) (40) (+100)
Income taxes (recovery) (teb) (128) (383) (325) 255 67
Net income (loss) (208) (643) (546) 435 67
BMO’s practice is to charge loss provisions to the client operating
groups each year, using an expected loss provisioning methodology
based on each group’s share of expected credit losses. Corporate Services
is generally charged (or credited) with differences between expected
loss provisions charged to the client operating groups and provisions
required under GAAP.
Financial Condition Review
Summary Balance Sheet ($ millions)
As at October 31 2010 2009 2008 2007 2006
Assets
Cash and interest bearing
deposits with banks 20,554 13,295 21,105 22,890 19,608
Securities 123,399 110,813 100,138 98,277 67,411
Securities borrowed
or purchased under
resale agreements 28,102 36,006 28,033 37,093 31,429
Net loans and acceptances 176,643 167,829 186,962 164,095 159,565
Other assets 62,942 60,515 79,812 44,169 41,965
411,640 388,458 416,050 366,524 319,978
Liabilities and Shareholders’ Equity
Deposits 249,251 236,156 257,670 232,050 203,848
Other liabilities 135,933 126,719 134,761 114,330 96,743
Subordinated debt 3,776 4,236 4,315 3,446 2,726
Capital trust securities 800 1,150 1,150 1,150 1,150
Preferred share liability – – 250 250 450
Shareholders’ equity 21,880 20,197 17,904 15,298 15,061
411,640 388,458 416,050 366,524 319,978
Overview
Total assets increased $23.2 billion or 6.0% from the prior year to
$411.6 billion at October 31, 2010, despite the impact of the weaker
U.S. dollar on U.S.-dollar-denominated assets, which reduced the increase
by approximately $5.3 billion. The year-end exchange rate is used for
translation of assets and liabilities and the U.S. dollar was weaker at
October 31, 2010, than at October 31, 2009. The $23.2 billion increase
reported in assets primarily reflects increases in securities of $12.6 billion,
net loans and acceptances of $8.8 billion and cash and interest bearing
deposits with banks of $7.3 billion, as well as a $1.9 billion increase in
derivative instruments, which are included in other assets in the adjacent
table. Securities borrowed or purchased under resale agreements fell
by $7.9 billion.
Total liabilities and shareholders’ equity increased $23.2 billion or
6.0%. There was a $13.1 billion increase in deposits, a $9.2 billion increase
in other liabilities and a $1.7
billion increase in shareholders’ equity.
Cash and Interest Bearing Deposits with Banks
Cash and interest bearing deposits with banks increased $7.3 billion to
$20.6 billion in 2010, reflecting the growth in cash invested on a short-
term basis with the U.S. Federal Reserve, a response to deposit growth
and lower loan balances in certain businesses in the United States.
BMO Financial Group 193rd Annual Report 2010 57