Bank of Montreal 2010 Annual Report Download - page 39

MD&A
Change in Net Interest Income, Average Earning Assets and Net Interest Margin
Net interest income (teb) Average earning assets Net interest margin
($ millions) Change ($ millions) Change (in basis points)
For the year ended October 31 2010 2009 $ % 2010 2009 $ % 2010 2009 Change
P&C Canada 4,164 3,811 353 9 141,069 134,985 6,084 5 295 282 13
P&C U.S. 1,092 1,220 (128) (11) 30,149 38,933 (8,784) (23) 362 313 49
Personal and Commercial Banking (P&C) 5,256 5,031 225 4 171,218 173,918 (2,700) (2) 307 289 18
Private Client Group (PCG) 365 353 12 3 12,981 10,567 2,414 23 281 334 (53)
BMO Capital Markets (BMO CM) 1,394 1,528 (134) (9) 152,116 169,033 (16,917) (10) 92 90 2
Corporate Services, including Technology and Operations (780) (1,342) 562 42 (3,847) (11,670) 7,823 67 nm nm nm
Total BMO (1) 6,235 5,570 665 12 332,468 341,848 (9,380) (3) 188 163 25
(1) Total BMO net interest margin is stated on a GAAP basis. The operating groups net interest margins are stated on a teb basis.
nm – not meaningful
Revenue ($ millions)
For the year ended October 31 2010 2009 2008 2007 2006
Net interest income 6,235 5,570 5,072 4,829 4,732
Year-over-year growth (%) 11.9 9.8 5.0 2.0 (0.9)
Non-interest revenue 5,975 5,494 5,133 4,520 5,253
Year-over-year growth (%) 8.8 7.0 13.6 (14.0) 3.8
Total revenue 12,210 11,064 10,205 9,349 9,985
Year-over-year growth (%) 10.4 8.4 9.2 (6.4) 1.5
Revenue Taxable equivalent basis (teb) Revenues of operating groups
reflected in our MD&A are presented on a taxable equivalent
basis (teb). The teb adjustment increases GAAP revenues and
the provision for income taxes by an amount that would increase
revenues on certain tax-exempt securities to a level that would
incur tax at the statutory rate, to facilitate comparisons.
Revenue increased $1,146 million or 10% in 2010 to $12,210 mil lion. There
was solid revenue growth in each of the operating groups except P&C U.S.,
where revenues were modestly higher on a U.S. dollar basis. Revenues
in BMO Capital Markets in 2009 were elevated by favourable market
conditions but were lowered by a charge of
$521 million related to the
impact of the difficult capital markets environment.
There were no such
charges in 2010. The weaker U.S. dollar lowered overall revenue growth
by $365 million or 3.3 percentage points, while the net impact of acquired
businesses increased growth by $214 million or 1.9 percentage points.
BMO analyzes revenue at the consolidated level based on GAAP
revenues reflected in the financial statements rather than on a taxable
equivalent basis (teb), which is consistent with our Canadian peer group.
Like many banks, we continue to analyze revenue on a teb basis at
the operating group level. The teb adjustments for fiscal 2010 totalled
$355 million, up from $247 million in 2009.
P&C Canada revenue increased $543 million or 10%. The segment’s
revenue growth was driven by volume growth in most products,
improved net interest margin and the inclusion of ten months of revenues
from the Diners Club acquired business. P&C U.S. revenue increased
US$25 million or 1.8%. Adjusting for the impact of the acquisition of cer-
tain assets and liabilities of AMCORE Bank, N.A., a Rockford,
Illinois-based
bank, and the impact of impaired loans, revenue decreased US$27 million
or 2.0% as the effect of loan spread improvement was more than
offset by a decrease in commercial loan balances related to lower client
utilizations, as well as deposit spread compression. Private Client Group
revenue increased $233 million or 12%, reflecting revenue growth
across all of its businesses. The improvement in equity market conditions
for most of the year increased the group’s assets under management
and administration and associated fee-based revenues. Insurance revenue
increased due to higher premiums and the inclusion of a full year’s
results of the BMO Life Assurance acquisition, partially offset by the
effects of unfavourable market movements. BMO Capital Markets
revenue increased $190 million or 6% from results in 2009 that were
lowered by the charge outlined above. Investment securities gains
increased. Mergers and acquisitions fees and debt underwriting fees
also improved but revenues from interest-rate-sensitive businesses and
corporate lending and trading revenue fell in the more difficult market
conditions. Corporate Services revenues were significantly higher due to
more stable market conditions and management actions.
For the third consecutive year, there was solid growth in both BMO
net interest income and non-interest revenue.
Net Interest Income
Net interest income for the year was $6,235 million, an increase of
$665 million or 12% from 2009. The net effect of businesses acquired
increased net interest income by $24 million, while the impact of
the weaker U.S. dollar decreased net interest income by $210 million.
The bank’s average earning assets decreased $9.4 billion, but increased
Net interest income is comprised of earnings on assets, such
as loans and securities, including interest and dividend income
and BMO’s share of income from investments accounted for
using the equity method of accounting, less interest expense
paid on liabilities, such as deposits.
Net interest margin is the ratio of net interest income to
earning assets, expressed as a percentage or in basis points.
3
75
22
2009 20102008
Revenue by Country (%)
Canada
United States
Other countries
70
25
5
2010 marked a third consecutive
year of strong revenue growth.
1.5
(6.4)
9,985
9,349
10,205
9.2
Revenue and Annual Growth
20092008 201020072006
Revenue ($ millions)
Growth (%)
11,064
The change in revenue by
country reflects the stronger
economic recovery in Canada.
12,210
8.4 10.4
3
75
22
BMO Financial Group 193rd Annual Report 2010 37