Bank of Montreal 2008 Annual Report Download - page 55

MD&A
BMO Financial Group 191st Annual Report 2008 | 51
P&C U.S. Financial Results
Non-interest expense increased $139 million or 22% to $773 million.
Excluding a Visa litigation reserve of $24 million related to the IPO and
operating and integration costs of acquired businesses of $55 million,
expense increased $60 million or 9.5%. The remaining increase reflected
our continued targeted investment and expansion efforts, including
the cost of previously committed new branches, sales force expansion
and advertising, increased costs related to the difficult credit market
environment and costs associated with higher business volumes.
These factors were partially offset by the impact of our expense
management initiatives.
The P&C U.S. cash productivity ratio deteriorated by 470 basis
points to 77.5%. Excluding acquisition integration costs of $23 million,
the cash productivity ratio was 75.1%.
P&C U.S. net income was $96 million in 2008, a $20 million or
17% decline from 2007. On a U.S. dollar basis, net income decreased
$12 million or 11%. The remainder of this discussion is on a
U.S. dollar basis.
Revenue increased $126 million or 15% to $959 million. The increase
was largely driven by acquisitions ($51 million) and the gain on
sale of a portion of our investment in Visa upon its successful initial
public offering (IPO) ($38 million). The remaining increase reflected
volume and deposit spread improvement as well as stronger fee
revenues, partially offset by the impact of difficulties in credit markets.
Net interest margin fell 37 basis points, largely due to the
22 basis point impact of a transfer of a portfolio from Corporate Services,
higher levels of non-performing loans and the highly competitive
environment. The overall decline in net interest margin was mitigated
by pricing actions in certain loan and deposit categories.
Chicago’s financial services marketplace remains one of the most
fragmented in the United States, encompassing more than 250 banks.
Harris and the two other largest banks have together held 25%
to 30% of the personal and commercial deposit market since 1997.
The Chicago area remains a highly contested market because of
its fragmentation and the growth opportunities it presents. Competitors
are attempting to capture market share through acquisitions,
aggressive pricing and significantly increased brand marketing. Bank
of America’s acquisition of LaSalle Bank, J.P. Morgan Chase’s acquisition
of Washington Mutual and PNC’s acquisition of National City will
shift the competitive dynamic by further consolidating the market.
U.S. Business Environment and Outlook
We expect the local Chicago economy and credit markets to
remain
weak in 2009, consistent with the broader U.S. economy.
The implementation of tighter lending practices and declining home
prices will likely continue to dampen demand for residential mortgages
and home equity loans. The level of consumer spending remains low
and is at risk of weakening further if home prices continue to decline.
In 2009, we plan to continue to grow our distribution network
through organic expansion and possible acquisitions, opportunistically
taking advantage of the current market disruption. We will strive to
improve our financial performance by focusing on revenue growth and
effectively managing costs. By building our business around enduring
client relationships, we expect to continue to enhance our reputation as
a high-quality, client-focused bank.