Bank of Montreal 2010 Annual Report Download - page 37

MD&A
2010 Financial Performance Review
Highlights
•
The provision for credit losses fell to $1,049 million from
$1,603 mil lion in 2009. Specific provisions were down $494 million
to $1,049 million and there was no increase in the general
allowance, compared with a $60 million increase a year ago.
Credit market conditions have improved but remain challenging.
• Non-interest expense increased 3% in 2010. The increase was
attributable to acquired businesses, higher performance-based com-
pensation in line with improved results, and higher technology
costs and initiative spending to support our businesses. The weaker
U.S. dollar reduced expense growth by 2.9 percentage points.
• The effective income tax rate was 19.2%, compared with a rate of
10.5% in 2009. The higher rate in 2010 was mainly attributable to
proportionately lower income from lower-tax-rate jurisdictions.
This section provides a review of our enterprise financial performance for 2010 that focuses on the Consolidated Statement of Income included in
our consolidated financial statements, which begin on page 110. A review of our operating groups’ strategies and performance follows the enterprise
review. A summary of the enterprise financial performance for 2009 appears on page 92.
Impact of Business Acquisitions
BMO Financial Group has selectively acquired a number of businesses.
These acquisitions increase revenues and expenses, affecting year-
over-year comparisons of operating results. The adjacent table outlines
acquisitions by operating group and their incremental impact on BMO’s
revenues, expenses (excluding acquisition integration costs) and
net income for 2010 relative to 2009 and 2009 relative to 2008, to assist
in analyzing changes in results. The impact on net income includes
the impact of provisions for credit losses and income taxes, which are
not disclosed separately in the table.
In respect of fiscal 2010 results relative to fiscal 2009, for the acqui-
sitions completed in fiscal 2010, the incremental effects are the revenues
and expenses of those businesses that are included in results for fiscal
2010. For the acquisitions completed in fiscal 2009, the incremental
effects on results for 2010 relate to the inclusion of 12 months of results
in 2010 and a lesser number of months in 2009.
In respect of fiscal 2009 results relative to fiscal 2008, for the
acquisitions completed in fiscal 2009, the incremental effects are the
revenues and expenses of those businesses that are included in results
for fiscal 2009. For the acquisitions completed in fiscal 2008, the
incremental effects on results for 2009 relate to the inclusion of
12 months of results in 2009 and a lesser number of months in 2008.
Impact of Business Acquisitions on Year-over-Year
Comparisons of Operating Results (1)
($ mil lions) Increase (decrease) in:
Business acquired/sold Revenue Expense Net income
Personal and Commercial Banking
Incremental effects on results for: 2010 158 86 26
2009 36 35 (1)
Personal and Commercial Banking Canada
Incremental effects on results for: 2010 (2) 114 45 24
2009 – – –
Diners Club North American franchise
Acquired December 2009 for $838 million
Personal and Commercial Banking U.S.
Incremental effects on results for: 2010 44 41 2
2009 36 35 (1)
AMCORE Bank, N.A. – certain assets and liabilities
Acquired April 2010 for $225 million
Merchants and Manufacturers Bancorporation, Inc.
Acquired February 2008 for $135 million
Ozaukee Bank
Acquired February 2008 for $180 million
Private Client Group
Incremental effects on results for: 2010 46 45 1
2009 65 39 18
Integra GRS
Acquired November 2009 for $16 million
Stoker Ostler Wealth Advisors, Inc.
Acquired September 2009 for $12 million
AIG Life Insurance Company of Canada (BMO Life Assurance)
Acquired April 2009 for $278 million
Pyrford Internation plc
Acquired December 2007 for $47 million
BMO Capital Markets
Incremental effects on results for: 2010 10 21 (8)
2009 71 50 13
Paloma Securities L.L.C. – certain assets
Acquired December 2009 for $7 million
Griffin, Kubik, Stephens & Thompson, Inc.
Acquired May 2008 for $31 million
BMO Financial Group
Incremental effects on results for: 2010 214 152 19
2009 172 124 30
Purchases of businesses for $1,086 million in 2010 and $290 million in 2009
(1) The impact excludes integration costs.
(2) The Diners Club franchise acquisition raised provisions for credit losses by $32 million.
• Revenue increased $1,146 million or 10% in 2010 to $12.2 billion,
following growth of 8% in 2009 and 9% in 2008. This consistently
high rate of revenue growth demonstrates the benefit of our
diversified business mix in market conditions that have been
challenging at times.
• Revenue growth of $543 million or 10% in P&C Canada was
primarily attributable to volume growth in most products, an
improved net interest margin and the impact of the inclusion of
the Diners Club North American franchise results in the current
year. The other operating groups also made significant contributions,
with strong revenue growth in Corporate Services and revenue
growth of 12% in Private Client Group, 6% in BMO Capital Markets
and 2% in P&C U.S. on a U.S. dollar basis.
BMO Financial Group 193rd Annual Report 2010 35