Bank of Montreal 2010 Annual Report Download - page 27

BMO Financial Group
Canadian peer group average
North American peer group average
20102009
AA AA
AA–
Aa1
A+
AA–
Aa2
A+
2008
AA
AA–
Aa1
A+
2007
AA
AA–
Aa1
A+
2006
AA
AA–
Aa3
AA–
DBRS
Fitch
Moody’s
S&P
20102009
AA
AA–
Aa1
AA–
AA
AA–
Aa1
AA–
2008
AA
AA–
Aa1
AA–
2007
AA
AA–
Aa1
AA–
2006
AA
AA–
Aa3
AA–
DBRS
Fitch
Moody’s
S&P
20102009
AA
AA–
Aa3
A+
AAL
AA–
Aa2
A+
2008
AA
AA–
Aa2
AA–
2007
AA
AA–
Aa2
AA–
2006
AAL
AA–
Aa3
A+
DBRS
Fitch
Moody’s
S&P
Canadian peer group averageBMO Financial Group North American peer group average
2009 2010200820072006
4.4
12.1
4.1
14.9 13.6
2009 2010200820072006
33.1
29.1
27.2
31.9
35.0
2009 2010200820072006
9.77
12.24
10.22
2006 – 2007
under Basel I
2008 – 2010
under Basel II
13.45
9.51
P 85
P 60
Peer Group Performance
The Canadian peer group averages are based on the performance of Canada’s six largest banks: BMO Financial Group, Canadian Imperial Bank
of Commerce, National Bank of Canada, RBC Financial Group, Scotiabank and TD Bank Financial Group. The North American peer group averages
are based on the performance of 13 of the largest banks in North America. It includes the Canadian peer group, except National Bank of Canada,
as well as BB&T Corporation, Fifth Third Bancorp, Key Corp., Bank of New York Mellon, The PNC Financial Services Group Inc., Regions Financial,
SunTrust Banks Inc. and U.S. Bancorp. The North American peer group was redefi ned in 2010. Prior year averages have not been restated.
Our Performance (Note 1)
Credit Losses
• The provision for credit losses (PCL) fell to $1,049 million from
$1,603 million in 2009. There was no change in the general
allowance, compared with a $60 million increase a year ago.
• PCL as a percentage of average net loans and acceptances fell
to 61 basis points from 88 basis points a year ago. Credit market
conditions improved but remain challenging in certain sectors.
Impaired Loans
• Gross impaired loans and acceptances (GIL) decreased
to $3,221 million from $3,297 million in 2009, and
represented 13.6% of equity and allowances for credit losses.
GIL includes $302 million in respect of loans acquired in 2010
for which there is a loss-sharing agreement with the FDIC.
• Formations of new impaired loans and acceptances, a key
driver of provisions for credit losses, were $1,525 million,
down 43% from $2,690 million in 2009, with the United States
accounting for the majority of the impaired formations.
Cash and Securities-to-Total Assets
• The cash and securities-to-total assets ratio increased
to 35.0% from 31.9% in 2009, reflecting a strong
liquidity position.
• Liquidity continues to be supported by our large base
of customer deposits and our strong capital position.
Capital Adequacy
• The Tier 1 Capital Ratio remained strong at 13.45%,
up from 12.24% in 2009.
• The Total Capital Ratio was 15.91%, up from 14.87%
in 2009.
Credit Rating
• BMO’s credit ratings, as assessed by the four major ratings agencies, are listed
below. There was one downgrade in 2010 and all four ratings are considered
high-grade and high quality.
• Credit ratings are important in the raising of both capital and funding to support
our business operations. Maintaining strong credit ratings allows us to access
the capital markets at competitive pricing. Should our credit ratings materially
decrease, our cost of funds would likely increase significantly and our access
to funding and capital through capital markets could be reduced. A material
downgrade of our ratings could have additional consequences, including those
set out in Note 10 on page 130 of the financial statements.
Cash and Securities-to-Total Assets (%)
• The cash and securities-to-total assets ratio for
the Canadian peer group of 31.0% was unchanged from
2009 levels. The average ratio remains at a level that
is in line with historic averages.
• The North American peer group average ratio was 30.4%
in 2010, a level that is up from a year ago but marginally
below the average of our Canadian peers.
Capital Adequacy
• The Canadian peer group average Tier 1 Capital Ratio
was 12.81% in 2010, up from 11.78% in 2009, as all banks
in the peer group had higher capital ratios.
• The basis for computing capital adequacy ratios is not
comparable in Canada and the United States.
• The Canadian peer group median credit ratings were unchanged in 2010.
Each of the median Canadian peer group ratings is considered high-grade
and high quality.
•
The North American peer group median credit rating as assessed by
one of the ratings agencies fell slightly from 2009, while another increased
slightly. Three of the ratings were slightly lower than the median of
the Canadian peer group, as economic conditions remain more difficult
in the United States.
2009 2010200820072006
0.61
0.11 0.21
0.76 0.88
Provision for Credit Losses as a % of Average
Net Loans and Acceptances
• The Canadian peer group average PCL represented
56 basis points of average net loans and acceptances,
down from 90 basis points in 2009.
• The North American peer group average PCL was 137 basis
points, well below the 2009 level but still elevated, as
U.S. bank results continued to be severely affected by
weakness in the real estate market and broader economy.
Gross Impaired Loans and Acceptances as a
% of Equity and Allowances for Credit Losses
• The Canadian peer group average was in line with last
year, at 11.0% of equity and allowances for credit losses.
• The average ratio for North American banks was also
in line with a year ago, at 13.9%, and remains higher
than the average of the Canadian peer group.
P 40, 80
P 40, 80
BMO Financial Group 193rd Annual Report 2010 25
North American peer group data for 2008 and 2009 is not to scale.
P 86