Bank of Montreal 2010 Annual Report Download - page 49

MD&A
Canadian Business Environment and Outlook
The Canadian economy emerged from recession in the summer of
2009. The recovery was supported by broad-based growth in consumer
and government spending, residential construction, exports and, more
recently, business investment. Residential mortgage balance growth
was strong in the first half of 2010, as homebuyers entered the market
ahead of the introduction of the Harmonized Sales Tax in Ontario and
British Columbia. However, residential mortgage growth eased in the
second half due to higher interest rates and tighter mortgage rules.
Retail operating deposits grew rapidly in 2009 and the first half of 2010,
reflecting unwillingness to lock up savings in low-interest, fixed-term
accounts. Rising interest rates encouraged savers to move back to
fixed-term deposits in the second half of 2010. In commercial banking,
deposit growth was strong, reflecting an upturn in profits and cash
flows. Commercial loan growth slowed sharply in 2009 and into 2010,
initially reflecting the significant decline in business investment in
2009 and then tighter lending standards, but has shown recent signs
of improvement.
Looking forward to 2011, we anticipate that the recovery will
continue at a moderate rate. Financial product performance will likely
reflect the moderate rate of growth. In personal banking, deposit growth
is expected to be dampened by relatively slow growth in personal
income and a redeployment of deposits into equities and longer-term
mutual funds. Housing sales are expected to continue their slow decline
from previous record highs. As a result, growth in residential mortgage
balances is expected to slow in 2011. In commercial banking, demand
for non-residential mortgages and business loans should experience an
upturn as the recovery in business investment gathers steam in 2011.
Business deposit growth is expected to slow in 2011, as businesses
deploy funds currently held as liquid assets.
P&C Canada Financial Results
P&C Canada net income was $1,644 million, up $229 million or 16% from
a year ago.
Revenue increased $543 million or 10% to $5,830 million, driven
by volume growth in most products and improvements in net interest
margin, as well as the impact of the inclusion of ten months of the
results of the Diners Club business in the current year. Net interest mar-
gin was 2.95%, 13 basis points higher than in the prior year. The increase
was largely driven by actions taken in 2009 to mitigate the impact of
rising long-term funding costs, improvement in the spreads on deposit
products from the unusually low levels of a year ago and higher volumes
in more-profitable products.
In our personal banking business, revenue increased $231 million
or 9.0%. The increase was driven by volume growth in personal lending
products, improved net interest margin and higher revenue from our
mutual fund products.
In our commercial banking segment, revenue increased $140 million
or
9.4%. The increase was attributable to volume growth in loans and
deposits, higher loan and deposit fees and mark-to-market investment
securities losses in the prior year.
Cards and payment services revenue increased $172 million or 14%.
The increase was attributable to growth in account balances and the
$114 million impact of the inclusion of the results of the Diners Club
business in the current year, partially offset by lower card fees.
Non-interest expense was $2,978 million, up $141 million or 4.9%
due to higher initiatives costs, the $45 million impact of the inclusion
of the results of the Diners Club business in the current year and higher
employee-related costs. Our cash productivity ratio improved 260 basis
points to 51.0%, as revenue growth outpaced expense growth.
BMO Financial Group 193rd Annual Report 2010 47