BMO Financial Group Reports Strong Fourth Quarter Results
Fourth Quarter 2009 Report to Shareholders
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BMO Financial Group Reports Strong Fourth Quarter Results
Strong Net Income Reflects Good Revenue Growth, as BMO's Focus on
Customers is Yielding Results, and Effective Expense Management
Personal and Commercial Banking Canada Continues to Deliver Robust
Revenue and Net Income Growth and Improvement in Competitive Position
Tier 1 Capital Ratio Remains Strong, at 12.24%
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Financial Results Highlights:
Fourth Quarter 2009:
- Net income of $647 million, up $87 million or 16% from a year ago
- EPS(1) of $1.11 and cash EPS(2) of $1.13, both up $0.05 from
a year ago
- Revenue increased 6.3% and expenses were reduced by 2.2% from
a year ago
- Provision for credit losses of $386 million, down $79 million from a
year ago. There was a $150 million increase in the general allowance
last year and no change in the current quarter.
Fiscal 2009:
- Net income of $1,787 million, compared with $1,978 million a year ago
- EPS of $3.08 compared with $3.76 a year ago and cash EPS of $3.14
compared with $3.83 a year ago
- Income Before Credit Provisions and Income Taxes of $3.7 billion in
fiscal 2009, up from $3.3 billion a year ago
- Provision for credit losses of $1,603 million comprised of specific
provisions of $1,543 million and an increase in the general allowance
of $60 million, compared with a provision for credit losses of $1,330
million a year ago comprised of specific provisions of $1,070 million
and an increase in the general allowance of $260 million
- Adjusted cash EPS(2) of $4.02 after excluding certain capital markets
environment charges of $355 million after tax ($0.66 per share),
severance costs of $80 million after tax ($0.15 per share) in the
second quarter and an increase in the general allowance of $39
million after tax ($0.07 per share) in the third quarter
Today, we announced a first-quarter 2010 dividend of
"Defining great customer experience means delivering in ways that are rooted in customer choice - with consistency at every interaction. It's a disciplined approach that, for us, is yielding results," said Bill Downe, President and Chief Executive Officer, BMO Financial Group. "Particularly during this past year, individuals and businesses needed to know that their banker would be there for them. BMO stood by its customers, listened, helped them make sense of the environment as it related to their individual circumstances and worked with them to make sure they were well-positioned for the recovery. By doing so, we also attracted new customers looking for a better banking experience.
"P&C
"BMO Capital Markets results for the quarter were strong. Although net income was in line with a year ago, in 2008 we benefited from significant income tax recoveries. There were improved corporate banking revenues and underwriting fees increased. In 2009, we saw very strong revenue growth, with relatively modest expense growth which reflected focused cost control. Net income for the year was up 49% to more than
"Private Client Group delivered good revenue growth in its business lines for the second consecutive quarter, reflective of improved equity markets and a continued focus on attracting new client assets. Net income was up strongly from a year ago, when results were affected by capital markets environment charges, and down somewhat from the third quarter which benefited from a recovery of prior periods' taxes. Our U.S. retail banking franchise saw net income consistent with the third quarter and up from a year ago. Our focus on new customer acquisitions, lending and deposit gathering is enhancing our reputation in the U.S. Midwest as a bank that is here to help.
"Our businesses gained strength over the course of 2009 as we have achieved strong revenue growth while keeping a firm grip on expenses. We maintained tight control over staffing levels and supplier costs while continuing to leverage opportunities for process simplification. We enter 2010 with strong capital and liquidity and the confidence of knowing that our consistent approach is turning customers into advocates. While we expect credit losses to remain elevated into 2010, we believe that we are well positioned for further growth as the economy improves," concluded
(1) All earnings per share (EPS) measures in this document refer to
diluted EPS unless specified otherwise.
(2) The adjustments that change results under generally accepted
accounting principles (GAAP) to cash results are outlined in the Non-
GAAP Measures section at the end of Management's Discussion and
Analysis (MD&A), where such non-GAAP measures and their closest GAAP
counterparts are outlined. Adjusted cash EPS is also a non-GAAP
measure; please see details in the Notable Items section and also the
GAAP and Related Non-GAAP Measures section.
Segment Overview
P&C
Net income was a strong
Our strategy, of focusing on providing an excellent customer experience and improving productivity, is working. We have narrowed the gap to the industry leader on both personal and commercial loyalty scores relative to a year ago.
In personal banking, we focus on product offers that are consistent with our brand promises, such as BMO Smart Steps. Since the launch of this offer, more than 100,000 BMO customers have taken advantage of at least one of the steps we recommend to make more from their hard-earned money. The First Home Essentials kit, targeted to potential homebuyers and launched in
In commercial banking, our goal is to become the bank of choice for businesses across
In the cards business, we are the largest MasterCard issuer in
Today, we announced that we have signed a definitive agreement to purchase the Diners Club North American franchise from Citigroup, a transaction that on completion will more than double BMO's corporate card business. The deal gives BMO exclusive rights to issue Diners Club cards to corporate and professional clients in the
P&C U.S. (all amounts in U.S. $)
Net income was
Cash net income was
Deposits grew
We are maintaining our focus on new customer acquisition in both the consumer and commercial businesses, while continuing to make loans and provide deposit services to our customers and prudently manage expenses. Mortgage originations have moderated in the quarter but remain strong with some growth in new home buyer activity. We continue to focus on the customer experience as reflected in our sustained high loyalty scores. Our retail net promoter score was 44 for 2009, compared with 42 in 2008, while the average scores of our large bank competitors declined. These efforts have positioned us well as we come out of the current economic downturn.
Given the economic environment in fiscal 2009 and its impact on our loan portfolios, we have strengthened our review and monitoring processes. We have also added expertise to our problem loan resolution teams to help our customers and to ensure effective management of our exposures.
Private Client Group (PCG)
Net income in the fourth quarter increased
Net income for the quarter decreased
PCG net income excluding the insurance business was
Net income in the insurance business was
PCG announced the expansion of the exchange traded fund (ETF) product suite by launching nine new funds to offer a total of 13 funds. The ETF product line is part of our commitment to providing our clients with the most diverse group of products and solutions, and the best education and support in the field of investments, a testament to our dedication to helping clients make sense of their finances. BMO remains the only major Canadian financial institution to offer a family of these low-cost, easy-to-understand, risk-diversifying investment products.
The Globe and Mail ranked BMO InvestorLine best of the bank-owned brokerages in its 2009 online brokerage rankings.
BMO Capital Markets
Net income for the quarter was
Revenue for the quarter increased
To better serve clients with a more focused and integrated capital markets business, on
Our continued commitment to our clients is being noticed. During the quarter, BMO Capital Markets received the best FX Bank Canadian Dollar award from FX Week in their annual rankings and was named the best foreign exchange bank in
BMO Capital Markets was involved in 131 new issues in the quarter including 25 corporate debt and 27 government debt deals, eight issues of preferred shares and 71 common equity transactions, raising
Corporate Services
The net loss was
The net loss of
BMO employs a methodology for segmented reporting purposes whereby expected credit losses are charged to the operating groups quarterly based on their share of expected credit losses. The difference between quarterly charges based on expected losses and required quarterly provisions based on actual losses, as well as changes in the general allowance are charged (or credited) to Corporate Services.
Caution
The foregoing sections contain forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.
Medium-Term Performance Targets
BMO has medium-term objectives of, over time, increasing EPS by an average of 10% per year, earning average ROE of between 17% and 20%, achieving average annual cash operating leverage of at least 2 percentage points, and maintaining a strong regulatory capital position.
Management's Discussion and Analysis
MD&A commentary is as of
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Bank of Montreal uses a unified branding approach that links all of the
organization's member companies. Bank of Montreal, together with its
subsidiaries, is known as BMO Financial Group. As such, in this document,
the names BMO and BMO Financial Group mean Bank of Montreal, together
with its subsidiaries.
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Summary Data
(Unaudited)
(Canadian $ in Increase Increase
millions, except (Decrease) (Decrease)
as noted) Q4-2009 vs. Q4-2008 vs. Q3-2009
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Net interest income 1,442 33 2% (24) (2%)
Non-interest revenue 1,547 143 10% 35 2%
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Revenue 2,989 176 6% 11 -
Specific provision for
credit losses 386 71 23% 29 8%
Increase in the general
allowance - (150) (100%) (60) (100%)
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Total provision for
credit losses 386 (79) (17%) (31) (7%)
Non-interest expense 1,779 (39) (2%) (94) (5%)
Provision for (recovery
of) income taxes 158 207 +100% 46 40%
Non-controlling interest
in subsidiaries 19 - - - -
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Net income 647 87 16% 90 16%
Amortization of
acquisition-related
intangible assets
(after tax)(1) 8 (2) (15%) (1) (11%)
Cash net income(2) 655 85 15% 89 16%
Earnings per share
- basic ($) 1.12 0.06 6% 0.15 15%
Earnings per share
- diluted ($) 1.11 0.05 5% 0.14 14%
Cash earnings per share
- diluted ($)(2) 1.13 0.05 5% 0.15 15%
Return on equity (ROE) 14.0% - 1.9%
Cash ROE(2) 14.2% (0.1%) 1.9%
Productivity ratio 59.5% (5.1%) (3.4%)
Cash productivity
ratio(2) 59.2% (5.0%) (3.3%)
Operating leverage 8.5% nm nm
Cash operating
leverage(2) 8.3% nm nm
Net interest margin
on earning assets 1.73% 0.02% (0.01%)
Effective tax rate 19.2% 28.4% 2.8%
Capital Ratios
Tier 1 Capital Ratio 12.24% 2.47% 0.53%
Total Capital Ratio 14.87% 2.70% 0.55%
Net income:
Personal and Commercial
Banking 419 83 25% 38 10%
P&C Canada 394 70 22% 38 11%
P&C U.S. 25 13 +100% - -
Private Client Group 110 26 32% (10) (7%)
BMO Capital Markets 289 (1) (1%) (54) (16%)
Corporate Services,
including Technology
and Operations (T&O) (171) (21) (14%) 116 41%
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BMO Financial Group
Net Income 647 87 16% 90 16%
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Increase
(Decrease)
vs.
Fiscal-2009 Fiscal-2008
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Net interest income 5,570 498 10%
Non-interest revenue 5,494 361 7%
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Revenue 11,064 859 8%
Specific provision for
credit losses 1,543 473 44%
Increase in the general
allowance 60 (200) (77%)
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Total provision for
credit losses 1,603 273 21%
Non-interest expense 7,381 487 7%
Provision for (recovery
of) income taxes 217 288 +100%
Non-controlling interest
in subsidiaries 76 2 3%
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Net income 1,787 (191) (10%)
Amortization of
acquisition-related
intangible assets
(after tax)(1) 35 - -
Cash net income(2) 1,822 (191) (10%)
Earnings per share
- basic ($) 3.09 (0.70) (18%)
Earnings per share
- diluted ($) 3.08 (0.68) (18%)
Cash earnings per share
- diluted ($)(2) 3.14 (0.69) (18%)
Return on equity (ROE) 9.9% (3.1%)
Cash ROE(2) 10.1% (3.2%)
Productivity ratio 66.7% (0.9%)
Cash productivity
ratio(2) 66.3% (0.8%)
Operating leverage 1.3% nm
Cash operating
leverage(2) 1.3% nm
Net interest margin
on earning assets 1.63% 0.08%
Effective tax rate 10.5% 14.0%
Capital Ratios
Tier 1 Capital Ratio 12.24% 2.47%
Total Capital Ratio 14.87% 2.70%
Net income:
Personal and Commercial
Banking 1,501 196 15%
P&C Canada 1,392 183 15%
P&C U.S. 109 13 14%
Private Client Group 381 (71) (16%)
BMO Capital Markets 1,060 349 49%
Corporate Services,
including Technology
and Operations (T&O) (1,155) (665) (+100%)
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BMO Financial Group
Net Income 1,787 (191) (10%)
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(1) The amortization of non-acquisition-related intangible assets is not
added back in the determination of BMO and the groups' cash net
income.
(2) These are non-GAAP amounts or non-GAAP measures. Please see the GAAP
and Related Non-GAAP Measures section at the end of the MD&A, which
outlines the use of non-GAAP measures in this document.
nm - not meaningful.
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Management's Responsibility for Financial Information
BMO's 2009 Annual Report will contain a statement signed by the President & Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) outlining management's responsibility for financial information contained in the report. In addition, BMO's CEO and CFO are expecting to sign certifications relating to the appropriateness of the financial disclosures in our annual filings and the design and effectiveness of our disclosure controls and procedures and internal control over financial reporting.
BMO's internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of BMO; provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with Canadian generally accepted accounting principles and the requirements of the Securities and Exchange Commission in the
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
There were no changes in our internal control over financial reporting in fiscal 2009 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. BMO Financial Group's management, under the supervision of the CEO and CFO, has evaluated the effectiveness of our internal control over financial reporting using the framework and criteria established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management is expecting to conclude that internal control over financial reporting was effective as of
BMO will file the applicable CEO and CFO certifications with the Canadian Securities Administrators and the SEC in the
As in prior quarters, BMO's audit committee reviewed this document, including the unaudited interim consolidated financial statements, and BMO's Board of Directors approved the document prior to its release.
A comprehensive discussion of our businesses, strategies and objectives can be found in Management's Discussion and Analysis in BMO's 2008 Annual Report, which can be accessed on our website at www.bmo.com/investorrelations. Readers are also encouraged to visit the site to view other quarterly financial information.
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Caution Regarding Forward-Looking Statements
Bank of Montreal's public communications often include written or oral forward-looking statements. Statements of this type are included in this document, and may be included in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made pursuant to the safe harbour provisions of, and are intended to be forward-looking statements under, the
By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that our assumptions may not be correct and that actual results may differ materially from such predictions, forecasts, conclusions or projections. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.
The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: general economic and market conditions in the countries in which we operate; interest rate and currency value fluctuations; changes in monetary policy; the degree of competition in the geographic and business areas in which we operate; changes in laws; judicial or regulatory proceedings; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; our ability to execute our strategic plans and to complete and integrate acquisitions; critical accounting estimates; operational and infrastructure risks; general political conditions; global capital market activities; the possible effects on our business of war or terrorist activities; disease or illness that impacts on local, national or international economies; disruptions to public infrastructure, such as transportation, communications, power or water supply; and technological changes.
We caution that the foregoing list is not exhaustive of all possible factors. Other factors could adversely affect our results. For more information, please see the discussion on pages 30 and 31 of the BMO 2008 Annual Report, which outlines in detail certain key factors that may affect our future results. When relying on forward-looking statements to make decisions with respect to Bank of
Assumptions about the level of asset sales, expected asset sale prices, net funding cost, credit quality and risk of default and losses on default of the underlying assets of the structured investment vehicles were material factors we considered when establishing our expectations regarding the structured investment vehicles discussed in this document, including the amount to be drawn under the BMO liquidity facilities and the expectation that the first-loss protection provided by the subordinate capital notes will exceed future losses. Key assumptions included that assets would continue to be sold with a view to reducing the size of the structured investment vehicles, under various asset price scenarios, and that the level of defaults and losses will be consistent with the credit quality of the underlying assets and our current expectations regarding challenging market conditions continuing.
Assumptions about the level of defaults and losses on defaults were material factors we considered when establishing our expectation of the future performance of the transactions that Apex Trust has entered into. Key assumptions included that the level of defaults and losses on defaults would be consistent with historical experience. Material factors that were taken into account when establishing our expectations of the future risk of credit losses in Apex Trust and risk of loss to BMO included industry diversification in the portfolio, initial credit quality by portfolio, the first-loss protection incorporated into the structure and the hedges that BMO has entered into.
Assumptions about the performance of the Canadian and U.S. economies as well as overall market conditions and their combined effect on the bank's business, including those described under the heading Economic Outlook, are material factors we consider when determining our strategic priorities, objectives and expectations for our business. In determining our expectations for economic growth, both broadly and in the financial services sector, we primarily consider historical economic data provided by the Canadian and U.S. governments and their agencies.
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Regulatory Filings
Our continuous disclosure materials, including our interim filings, annual MD&A and audited consolidated financial statements, our Annual Information Form and the Notice of Annual Meeting of Shareholders and Proxy Circular are available on our website at www.bmo.com/investorrelations, on the Canadian Securities Administrators' website at www.sedar.com and on the EDGAR section of the SEC's website at www.sec.gov. We expect to file our fiscal 2009 year end continuous disclosure materials on or about
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Economic Outlook
The Canadian economy has likely emerged from recession, with domestic-led growth more than offsetting weakness in exports. Consumer spending has trended moderately higher since the spring in response to record-low interest rates, with auto sales almost returning to pre-recession levels. Housing markets have fully recovered from last year's slump in sales and prices amid improved affordability. Supported by continued low interest rates, domestic demand should continue to expand in 2010, sustaining growth in personal credit and residential mortgages. However, business investment and loan growth will likely lag the recovery given low rates of capacity utilization and continued weakness in exports in the face of a strong Canadian dollar and soft U.S. demand. The unemployment rate is expected to decline next year as the recovery gains strength. However, the excess capacity in the economy should keep inflation low and, together with a strong currency, encourage the Bank of
The U.S. economy is recovering from its worst downturn in seven decades, with growth resuming as a result of expansive monetary and fiscal policies. Housing markets have stabilized in response to record affordability and tax incentives for first-time home buyers. Consumer spending has turned up modestly, but will likely remain soft in the face of high rates of joblessness and elevated debt levels, restraining personal loan demand. Business investment has started to improve, though it will likely remain constrained by excess capacity, restricting loan growth. The unemployment rate is projected to hover near a quarter-century high of 10% in 2010. To promote a durable recovery, the Federal Reserve is expected to hold overnight rates near zero until next September. Certain capital markets activities should continue to strengthen as credit markets and the economy improve.
This Economic Outlook section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.
Effects of the Capital Markets Environment on Fourth Quarter Results
No charges in respect of the capital markets environment have been designated as notable items this quarter in light of the relative insignificance of the amounts.
Further details are provided in the Financial Instruments in the Difficult Credit Environment section and in the BMO Capital Markets section.
Foreign Exchange
The Canadian dollar equivalents of BMO's U.S. dollar-denominated net income, revenues, expenses, provisions for credit losses and income taxes were decreased relative to the fourth quarter of 2008 and third quarter of 2009 by the weakening of the U.S. dollar. The average Canadian/U.S. dollar exchange rate in the fourth quarter, expressed in terms of the Canadian dollar cost of a U.S. dollar, fell by 3% from a year ago and by 2% from the average of the third quarter. Over the course of fiscal 2009, the U.S. dollar strengthened relative to the Canadian dollar, raising the Canadian dollar equivalents of BMO's U.S. dollar-denominated net income, revenues, expenses, provisions for credit losses and income taxes relative to fiscal 2008. The following table indicates the relevant average Canadian/U.S. dollar exchange rates and the impact of changes in the rates.
Effects of U.S. Dollar Exchange Rate Fluctuations on BMO's Results
Q4-2009 Fiscal-
---------------- 2009 vs
vs. vs. Fiscal-
(Canadian $ in millions, except as noted) Q4-2008 Q3-2009 2008
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Canadian/U.S. dollar exchange rate (average)
Current period 1.0827 1.0827 1.1648
Prior period 1.1107 1.1102 1.0321
Increased (decreased) revenue (20) (20) 363
Decreased (increased) expense 12 12 (216)
Decreased (increased) provision for
credit losses 6 6 (125)
Decreased (increased) income taxes (1) (1) 24
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Increased (decreased) net income (3) (3) 46
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At the start of each quarter, BMO assesses whether to enter into hedging transactions that are expected to partially offset the pre-tax effects of exchange rate fluctuations in the quarter on our expected U.S. dollar-denominated net income for that quarter. As such, the hedging activities partially mitigate the impact of exchange rate fluctuations within a single quarter; however, the hedging transactions are not designed to offset the impact of year-over-year or quarter-over-quarter fluctuations in exchange rates. The U.S. dollar strengthened in the first and second quarters, and weakened quite markedly over the course of the third quarter. The U.S. dollar strengthened modestly in the fourth quarter, as the exchange rate increased from Cdn$1.0775 per U.S. dollar at
The effect of currency fluctuations on our investments in foreign operations is discussed in the Income Taxes section.
Other Value Measures
Net economic profit was
The total shareholder return (TSR) on an investment in BMO common shares was 25.1% for the twelve months ended
Net Income
Q4 2009 vs Q4 2008
Net income was
Results a year ago included notable items totalling
Specific provisions for credit losses were
P&C
P&C U.S. net income increased by Cdn$13 million (by US$12 million) to Cdn$25 million. Results benefited from reductions in integration costs and changes in the Visa litigation accrual. Higher levels of impaired loans and the costs of managing this portfolio have reduced net income in the quarter by US$12 million (US$9 million a year ago). Cash net income was US$39 million, including a severance charge of US$2.4 million after tax, on a basis that adjusts for the impact of impaired loans, integration costs and the Visa litigation accrual. This was in line with the last five quarters where cash net income on this basis had exceeded US$40 million.
Private Client Group net income increased
BMO Capital Markets net income was in line with the prior year. Results a year ago benefited from a
Corporate Services net loss increased
Q4 2009 vs Q3 2009
Net income increased
In P&C
P&C U.S. net income of US$23 million was consistent with last quarter. Revenue was up primarily due to improved loan spreads and the impact of more days in the current quarter. Expenses increased largely due to higher marketing and severance costs. Cash net income was US$39 million, including a severance charge of US$2.4 million after tax, on a basis that adjusts for the impact of impaired loans, integration costs and the Visa litigation accrual. On a comparably-adjusted basis, cash net income was in line with last quarter.
Private Client Group net income decreased
BMO Capital Markets net income decreased
Corporate Services net loss improved by
Fiscal 2009 vs Fiscal 2008
Net income decreased
In P&C
P&C U.S. net income decreased US$1 million or 0.6%. The impact of impaired loans reduced net income by US$46 million in 2009 compared to US$22 million in 2008. Revenue increased US$14 million or 1.5% and non-interest expense decreased US$4 million or 0.6%. On a basis that adjusts for the impact of impaired loans, integration costs, the Visa litigation accrual and last year's gain on the sale of a portion of our investment in Visa, cash net income was US$162 million and increased US$13 million or 8.7% versus last year. On a similarly-adjusted basis, revenue increased US$81 million or 8.7% reflecting strong deposit generation, a full year of our Wisconsin acquisitions (US$33 million) and increased gains on the sale of mortgages. Expenses increased US$38 million or 5.3% largely reflecting a full year of our Wisconsin acquisitions (US$26 million).
Private Client Group net income decreased
BMO Capital Markets net income increased
Corporate Services net loss rose
Revenue
BMO analyzes consolidated revenues on a GAAP basis. However, like many banks, BMO analyzes revenue of its operating groups and associated ratios computed using revenue on a taxable equivalent basis (teb). This basis includes an adjustment that increases GAAP revenues and the GAAP provision for income taxes by an amount that would raise revenues on certain tax-exempt securities to a level equivalent to amounts that would incur tax at the statutory rate. The offset to the group teb adjustments is reflected in Corporate Services revenues and income tax provisions.
Total revenue in the current quarter increased
The weaker U.S. dollar in the current quarter decreased revenue growth by
Net Interest Income
Net interest income in the current quarter increased
Relative to the third quarter, net interest income decreased
In fiscal 2009, net interest income increased
BMO's overall net interest margin on earning assets for the fourth quarter of 2009 was 1.73%, or 2 basis points higher than in the fourth quarter of the prior year and 1 basis point lower than in the third quarter. The main drivers of the change in total bank margin are the individual group margins, the change in the magnitude of each operating group's assets and the level of net interest income recorded in Corporate Services. The year-over-year increase of 2 basis points was mainly due to higher net interest margin in P&C
Relative to a year ago, net interest margin was higher by 34 basis points in P&C
P&C
In fiscal 2009, BMO's overall net interest margin rose 8 basis points. The increase was in part due to the impact of securitizing low-spread mortgages and deposit growth outpacing loan growth in P&C
Net Interest Margin (teb)*
Increase
Increase Increase (Decrease)
(Decrease)(Decrease) vs.
vs. vs. Fiscal- Fiscal-
(In basis points) Q4-2009 Q4-2008 Q3-2009 2009 2008
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P&C Canada 322 34 5 313 29
P&C U.S. 326 26 13 312 12
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Personal and Commercial
Client Group 323 33 7 313 26
Private Client Group 291 (188) (2) 334 (144)
BMO Capital Markets 81 (2) (21) 100 31
Corporate Services,
including Technology and
Operations (T&O)(xx) nm nm nm nm nm
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Total BMO 173 2 (1) 163 8
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Total Canadian Retail(xxx) 321 19 4 317 21
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* Net interest margin is disclosed and computed with reference to
average earning assets, rather than total assets. This basis
provides a more relevant measure of margins and changes in margins.
Operating group margins are stated on a teb basis while total BMO
margin is stated on a GAAP basis.
(xx) Corporate Services net interest income is negative and lowers BMO's
overall net interest margin to a greater degree in 2009 than in
prior years.
(xxx) Total Canadian retail margin represents the net interest margin of
the combined Canadian business of P&C Canada and Private Client
Group.
nm - not meaningful
Non-Interest Revenue
Non-interest revenue increased
There was strong growth in BMO Capital Markets primarily due to reduced investment securities charges. The group also benefited from higher lending and underwriting fees, offset by reduced trading revenues as the prior year had particularly strong interest rate and foreign exchange trading revenues. Private Client Group non-interest revenue also grew strongly, due to reduced charges associated with the decision to purchase certain holdings from our U.S. clients in the difficult market environment and the contribution from the BMO Life Assurance acquisition. In addition, there were higher insurance revenues, partially offset by lower mutual fund revenues.
Securitization revenues increased
Relative to the third quarter, non-interest revenue increased
In fiscal 2009, non-interest revenue increased
Non-Interest Expense
Non-interest expense decreased
Cash operating leverage was 8.3% in the current quarter.
Non-interest expense decreased
In fiscal 2009, non-interest expense increased
Cash operating leverage was 1.3% for fiscal 2009.
Risk Management
Financial markets continued to stabilize as key economic data is showing a recovery is underway. However, the labour market remains weak and will continue to impact credit quality. Commercial and Corporate Portfolios that continue to show particular pressure, include U.S. commercial real estate, forest products and manufacturing. We anticipate that provisions will remain elevated going forward and if the economic recovery continues, could show some improvement in the latter part of 2010.
Specific provisions for credit losses for the quarter totalled
BMO employs a methodology for segmented reporting purposes whereby expected credit losses are charged to the operating groups quarterly based on their share of expected credit losses. The difference between quarterly charges based on expected losses and required quarterly provisions based on actual losses, as well as changes in the general allowance, are charged (or credited) to Corporate Services. The following paragraph outlines provisions for credit losses by operating group based on actual losses for the quarter, rather than as reported on an expected loss basis.
Based on actual credit losses, in the fourth quarter of 2009, BMO recorded a
Specific provisions this quarter represented an annualized 89 basis points of average net loans and acceptances, compared with 81 basis points in the third quarter. For fiscal 2009, the full year ratio was 85 basis points, compared with 61 basis points a year ago and a 39 basis point average over the past five fiscal years. Effective in the first quarter of 2009, we began reporting credit statistics on a basis that excludes securities borrowed or purchased under resale agreements from loans. All comparative figures have been restated.
Provisions for credit losses for fiscal 2009 totalled
New impaired loan formations totalled
The total allowance for credit losses was
BMO's loan book continues to be comprised largely of more stable consumer and commercial portfolios which represented 80.0% of the loan portfolio at the end of the quarter, up from 78.9% in the third quarter and 73.8% a year ago. The changes were mainly due to a decrease in corporate loans. In
BMO's market risk and liquidity and funding management practices and key measures are outlined on pages 77 to 82 of BMO's 2008 Annual Report. As described at the end of fiscal 2008, certain positions were transferred from our trading portfolio to our available-for-sale portfolio in the fourth quarter of 2008. These positions, however, remained in our Comprehensive VaR and Issuer Risk measures throughout the fourth quarter of fiscal 2008. The removal of these positions from our Comprehensive VaR and Issuer Risk measures in the first quarter is the primary reason for the decrease in our Trading and Underwriting Market Value Exposure (MVE) and Earnings Volatility (EV). The interest rate risk associated with these positions is captured in our Interest Rate Risk (accrual) MVE measures. A lower credit spread environment throughout the year also contributed to the decrease in MVE and EV year over year. There were no significant changes to our trading and underwriting market risk management practices over the quarter.
There was no significant change in our structural market risk management practices during the quarter. Structural earnings risk arising from interest rate and foreign exchange rate movements has increased from the prior year end, as reflected in the 12-month earnings volatility measure in the attached table. The increase from 2008 is attributable to the lower interest rate environment, as further reductions in interest rates reduce yields on assets more than rates paid on deposits. Structural interest rate sensitivity to an immediate parallel increase or decrease of 100 and 200 basis points in the yield curve is disclosed in the attached table. This sensitivity analysis is performed and disclosed by many financial institutions and facilitates comparison with our peer group. The changes in sensitivities from 2008 reflect the low interest rate environment.
There have been no significant changes to the levels of liquidity and funding risk over the quarter. We remain satisfied that our liquidity and funding management framework provides us with a sound position, even in times of stress.
This Risk Management section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.
Provisions for Credit Losses (PCL)
(Canadian $ in millions, Fiscal- Fiscal-
except as noted) Q4-2009 Q3-2009 Q4-2008 2009 2008
-------------------------------------------------------------------------
New specific provisions 448 415 361 1,765 1,242
Reversals of previously
established allowances (20) (23) (23) (77) (58)
Recoveries of loans
previously written-off (42) (35) (23) (145) (114)
-------------------------------------------------------------------------
Specific provision for
credit losses 386 357 315 1,543 1,070
Increase in the general
allowance - 60 150 60 260
-------------------------------------------------------------------------
Provision for credit
losses 386 417 465 1,603 1,330
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Specific PCL as a % of
average net loans and
acceptances (annualized) 0.89% 0.81% 0.68% 0.85% 0.61%
PCL as a % of average net
loans and acceptances
(annualized) 0.89% 0.94% 1.01% 0.88% 0.76%
Changes in Gross Impaired Loans and Acceptances (GIL)
(Canadian $ in millions,
except as noted)
-------------------------------------------------------------------------
GIL, Beginning of Period 2,913 2,972 1,798 2,387 720
Additions to impaired
loans & acceptances 735 549 806 2,690 2,506
Reductions in impaired
loans & acceptances(1) (16) (233) 170 (288) 131
Write-offs (335) (375) (387) (1,492) (970)
-------------------------------------------------------------------------
GIL, End of Period 3,297 2,913 2,387 3,297 2,387
-------------------------------------------------------------------------
-------------------------------------------------------------------------
GIL as a % of gross
loans and acceptances 1.94% 1.66% 1.26% 1.94% 1.26%
GIL as a % of equity
and allowances for
credit losses 14.06% 12.75% 11.34% 14.06% 11.34%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes impaired amounts returned to performing status, loan sales,
repayments, the impact of foreign exchange fluctuations and offsets
for consumer write-offs which have not been recognized as formations
(Q4-09 $189MM; Q3-09 $187MM; and Q4-08 $137MM).
Aggregate Market Value Exposure and Earnings Volatility for Trading and
Underwriting and Structural Positions ($ millions)*
(After-tax Canadian Market value 12-month earnings
equivalent) exposure (MVE) volatility
-------------------------------------------------------------------------
Oct. 31 July 31 Oct. 31 Oct. 31 July 31 Oct. 31
2009 2009 2008 2009 2009 2008
-------------------------------------------------------------------------
Trading and
Underwriting (18.2) (20.4) (33.4) (14.3) (12.5) (28.7)
Structural (353.1) (330.7) (267.9) (69.0) (73.3) (30.2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
* Measured at a 99% confidence interval. Losses are in brackets.
Total Trading and Underwriting MVE Summary ($ millions)*
As at As at
For the quarter ended July October
October 31, 2009 31, 2009 31, 2008
(Pre-tax
Canadian Quarter- Quarter- Quarter-
equivalent) end Average High Low end end
----------------------------------------------------- --------- ---------
Commodities
Risk (0.7) (0.7) (1.1) (0.5) (0.7) (0.9)
Equity Risk (10.2) (8.5) (12.4) (5.5) (11.0) (7.3)
Foreign
Exchange Risk (0.8) (1.9) (4.9) (0.4) (1.8) (1.4)
Interest Rate
Risk (Mark-to-
Market)(1) (18.4) (16.2) (23.7) (10.2) (11.1) (30.6)
Diversifica-
tion(2) 11.4 9.9 nm nm 9.0 6.4
--------------------------------- --------- ---------
Comprehensive
Risk (18.7) (17.4) (22.6) (13.4) (15.6) (33.8)
Interest Rate
Risk (accrual) (7.3) (10.4) (14.5) (7.3) (13.4) (11.6)
Issuer Risk (1.9) (1.8) (2.7) (1.3) (2.4) (6.1)
--------------------------------- --------- ---------
Total MVE (27.9) (29.6) (34.8) (25.1) (31.4) (51.5)
----------------------------------------------------- --------- ---------
----------------------------------------------------- --------- ---------
nm - not meaningful
* One-day measure using a 99% confidence interval. Losses are in
brackets and benefits are presented as positive numbers.
(1) In 2009, measures exclude securities transferred to the available-
for-sale portfolio in the fourth quarter of 2008.
(2) Computation of a diversification effect for the high and low is not
meaningful.
Structural Balance Sheet Earnings and Value Sensitivity to Changes in
Interest Rates ($ millions)*(xx)
(After-tax Canadian Economic value Earnings sensitivity over
equivalent) sensitivity the next 12 months
-------------------------------------------------------------------------
Oct. 31 July 31 Oct. 31 Oct. 31 July 31 Oct. 31
2009 2009 2008 2009 2009 2008
-------------------------------------------------------------------------
100 basis point
increase (229.6) (231.8) (220.8) 11.0 15.3 (4.4)
100 basis point
decrease 165.2 204.0 169.2 (75.6) (71.8) (21.0)
200 basis point
increase (506.4) (503.3) (488.6) (10.6) 6.3 (16.2)
200 basis point
decrease 255.3 411.2 328.4 (62.9) (72.2) (177.6)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
* Losses are in brackets and benefits are presented as positive
numbers.
(xx) For the Bank's Insurance businesses including BMO Life Assurance
(the acquired operations of AIG Life Insurance Company of Canada), a
100 basis point increase in interest rates results in an increase in
earnings of $58 million and an increase in economic value of
$177 million. A 100 basis point decrease in interest rates results
in a decrease in earnings of $50 million and a decrease in economic
value of $193 million. These after-tax impacts are not reflected in
the table above.
Income Taxes
As explained in the Revenue section, management assesses BMO's consolidated results and associated provisions for income taxes on a GAAP basis. We assess the performance of the operating groups and associated income taxes on a taxable equivalent basis and report accordingly.
The provision for income taxes increased
Results reflect prior periods' income tax recoveries of
The higher effective tax rate in fiscal 2009 was primarily due to reductions in the proportion of income from lower-tax-rate jurisdictions and lower recoveries of prior periods' income taxes.
BMO hedges the foreign exchange risk arising from its investments in U.S. operations by funding the investments in U.S. dollars. Under this program, the gain or loss from hedging and the unrealized gain or loss from translation of the investments in U.S. operations are charged or credited to shareholders' equity. For income tax purposes, the gain or loss on the hedging activities attracts an income tax charge or credit in the current period, which is charged or credited to shareholders' equity, while the associated unrealized gain or loss on the investments in U.S. operations does not attract income taxes until the investments are liquidated. The income tax charge/benefit arising from a hedging gain/loss is a function of the fluctuation in U.S. rates from period to period. Hedging of the investments in U.S. operations has given rise to an income tax recovery in shareholders' equity of
Capital Management
Regulatory capital requirements for the consolidated entity are determined on a
At
Tier 1 capital increased from
RWA decreased
BMO's Total Capital Ratio was 14.87% at
During the fourth quarter, 3,254,000 shares were issued due to the exercise of stock options, share exchanges and the Dividend Reinvestment and Share Purchase Plan. We did not repurchase any Bank of
On
On
Qualifying Regulatory Capital
Basel II Regulatory Capital and Risk-Weighted Assets
(Canadian $ in millions) Q4-2009 Q4-2008
-------------------------------------------------------------------------
Common shareholders' equity 17,132 15,974
Non-cumulative preferred shares 2,571 1,996
Innovative Tier 1 Capital Instruments 2,907 2,486
Non-controlling interest in subsidiaries 26 39
Goodwill and excess intangible assets (1,569) (1,635)
Accumulated net after-tax unrealized losses from
available-for-sale equity securities (2) (15)
-------------------------------------------------------------------------
Net Tier 1 Capital 21,065 18,845
Securitization-related deductions (168) (115)
Expected loss in excess of allowance - AIRB approach (61) -
Substantial investments (374) -
Other deductions - (1)
-------------------------------------------------------------------------
Adjusted Tier 1 Capital 20,462 18,729
-------------------------------------------------------------------------
Subordinated debt 4,236 4,175
Trust subordinated notes 800 800
Eligible general allowance for credit losses 296 494
-------------------------------------------------------------------------
Total Tier 2 Capital 5,332 5,469
Securitization-related deductions (7) (6)
Expected loss in excess of allowance - AIRB approach (60) -
Substantial investments/investment in insurance
subsidiaries (868) (871)
-------------------------------------------------------------------------
Adjusted Tier 2 Capital 4,397 4,592
-------------------------------------------------------------------------
Total Capital 24,859 23,321
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Risk-Weighted Assets (RWA)
(Canadian $ in millions) Q4-2009 Q4-2008
-------------------------------------------------------------------------
Credit risk 143,098 163,616
Market risk 6,578 11,293
Operational risk 17,525 16,699
-------------------------------------------------------------------------
Total risk-weighted assets 167,201 191,608
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Eligible Dividends Designation
For the purposes of the Income Tax Act (
Credit Rating
BMO's senior debt credit ratings were unchanged in the quarter. All four ratings are indicative of high-grade, high-quality issues. They remain: DBRS (AA); Fitch (AA-); Moody's (Aa1); and Standard & Poor's (A+). During the fourth quarter, Moody's placed the rating under review for downgrade, citing pressure on U.S. earnings and the potential for higher loan losses in the market environment. Moody's ratings outlook for the majority of Canada's major banks is negative. The other three ratings agencies continue to maintain their ratings with a stable outlook.
Financial Instruments in the Difficult Credit Environment
Pages 62 to 67 of BMO's 2008 annual report provided enhanced disclosure related to financial instruments that, effective in 2008, markets started to consider to be carrying higher risk. Readers are encouraged to review that disclosure to assist in understanding the nature of BMO's exposures at
Consumer Loans
In
In the
The sections below discuss subprime mortgage loans, Alt-A mortgage loans and home equity products, portfolios that are of increased investor interest in today's environment.
Subprime First Mortgage Loans
In the
BMO also has net exposure of US$101 million (US$159 million at
In
Alt-A First Mortgage Loans
In the
In
Home Equity Products
In the
BMO also offered loans under two limited documentation programs within the home equity portfolio in the
We also consider home equity loans to customers with credit bureau scores above 620 but below 660 to be a higher-risk component of the loan portfolio. This component of the portfolio was US$0.3 billion and US$7 million or 2.10% of these loans were greater than 90 days in arrears (US$3 million and 0.90% at
In
Leveraged Finance
Leveraged finance loans are defined by BMO as loans to private equity businesses and mezzanine financings where our assessment indicates a higher level of credit risk. BMO has limited exposure to leveraged finance loans, representing less than 1% of our total assets, with
Monoline Insurers and Credit Derivative Product Companies
BMO's direct exposure to companies that specialize in providing default protection amounted to
Approximately 28% of the
The notional value of direct contracts involving monoline insurers and credit derivative product companies was approximately
BMO also held
BMO-Sponsored Canadian Securitization Vehicles
BMO sponsors various Canadian securitization vehicles that fund assets originated by either BMO or its customers. Of those that fund bank originated assets, two hold Canadian residential mortgage loans transferred from BMO while the third holds credit card loans transferred from BMO. BMO's investment in the asset-backed commercial paper ("ABCP") of the two residential mortgage vehicles totalled
BMO provides
We also sponsor customer securitization vehicles in
Notes issued by the market funded customer securitization vehicles are rated R-1 (high) by DBRS and Prime-1 by Moody's and account for
BMO's ABCP holdings of the market funded customer securitization vehicles totalled
BMO-Sponsored U.S. Securitization Vehicle
BMO provides committed liquidity support facilities of US$5.7 billion (US$8.2 billion at
Approximately 58% of the vehicle's commitments have been rated by Moody's or S&P, and virtually all of these are rated investment grade. Approximately US$807 million of the commitments are insured by monolines, primarily MBIA and Ambac, the ratings of which were downgraded during the third quarter. The downgrades of the monoline insurers have no impact on the performance of the underlying assets. The vehicle holds exposures secured by a variety of asset classes including mid-market and corporate loans, and commercial real estate and auto loans. The vehicle has US$4.4 billion of commercial paper outstanding (US$6.5 billion at
Credit Protection Vehicle
We also sponsor Apex Trust (Apex), a Canadian special purpose vehicle that has 12 tranches of diversified corporate credits, each of which has the benefit of first-loss protection. The 12 tranches in Apex have exposure to approximately 450 corporate credits that are diversified by geographic region and industry. Approximately 70% of the corporate credits are rated investment grade (25% rated higher than BBB, 46% rated BBB and 29% rated below investment grade). There have been minimal changes to the ratings of the corporate credits in the fourth quarter. A number of the ratings on the underlying companies are on watch or under review for downgrade.
In the third and fourth quarters, we put in place hedges that reduced BMO's risk exposure to Apex to levels that are not expected to expose BMO to significant loss. No realized losses have been experienced in the vehicle to date and the likelihood of realized losses exceeding the level of the hedges we have is considered remote given the level of first-loss protection on the tranches and the strength of the underlying corporate credits.
BMO has entered into credit default swap contracts on the net notional positions in the structure with the swap counterparties and into offsetting swaps with the vehicle. Apex has issued
A senior funding facility of
In the fourth quarter, we recorded
Two tranches have lower levels of first-loss protection than others. If losses were realized by Apex investors on the full notional amounts of
Structured Investment Vehicles
We provide senior-ranked funding support through BMO liquidity facilities for two BMO-managed Structured Investment Vehicles (SIVs), Links Finance Corporation (Links) and Parkland Finance Corporation (Parkland). At
Consistent with the strategy of selling assets in an orderly and value-sensitive manner and as a result of weak but improving market conditions, the pace of asset sales was measured during the quarter, though higher than in the previous quarter. We anticipate that the SIVs will continue the strategy of selling assets in an orderly manner based upon market conditions and that asset sales in the current quarter will be modest. The total amount drawn under the liquidity facilities is impacted by a number of factors including the pace and price of asset sales. Amounts funded are expected to decrease from current levels based on these factors. While the assets of the SIVs will mature over time, a significant portion is expected to be repaid in the period between 2010 and 2012.
The SIVs' capital noteholders will continue to bear the economic risk from actual losses up to the full amount of their investment. The book value of the subordinated capital notes in Links and Parkland at
The asset quality of Links remains high. Based on market value, approximately 51% of debt securities are rated Aa3 or better by Moody's (55% at
Caution
Given the uncertainty in the capital markets environment, our capital markets instruments could experience further valuation gains and losses due to changes in market value. This Financial Instruments in the Difficult Credit Environment section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.
The following table provides additional detail on select financial instruments that are held in our trading and available-for-sale portfolios. Most of our CDOs and CLOs are fully hedged with other large financial institutions. Net CDO exposure is minimal, at
BMO has invested only in senior and super-senior tranches of CDOs and CLOs. Tranche ratings in the table use the lowest external rating available provided by S&P, Moody's or Fitch. The difference between hedged investment amounts and carrying value of hedged investments amounts reflect mark-to-market adjustments, which are generally recoverable through total return or credit default swaps. The underlying securities are a wide range of corporate assets. Approximately 20% of hedged investment amounts have been hedged through swaps with one financial institution counterparty rated A. The value of BMO's interest in those hedges is supported by collateral held, with the exception of relatively modest amounts as permitted under counterparty agreements. Another 60% of hedged investment amounts relate to two AAA rated counterparties for which we have recorded
Amounts in the table below exclude credit default swap (CDS) protection purchases from two credit derivative product company counterparties that have a market value of US$140 million (before deduction of US$17 million of credit valuation adjustments) and corresponding US$1.5 billion notional value of CDOs' CDS protection provided to other financial institutions in our role as intermediary. One of the counterparties' credit rating is Ba1 and the subordinated notes of the other counterparty are rated BBB-/Caa1. The underlying security on the two exposures consists of three pools of broadly-diversified single name corporate and sovereign credits. Each of the pools has from 95 to 138 credits of which 64% to 81% are investment grade with first-loss protection that ranges from 7.4% to 19.2% with a weighted-average of 11.9% based on notional value.
Exposures to Other Select Financial Instruments ($ millions - Cdn)(1)
Carrying Cumul-
Value Carrying ative
of Value Loss in Net
Unhedged of Value Cumul- Losses
As at & Hedged Hedged of ative on
October Wrapped Invest- Invest- Hedged Gain Hedged
31, Tranche Invest- ment ment Invest- on Invest-
2009 Rating ments Amounts Amounts ments Hedges ments
CDO's(2) AAA 16 Sundry
securities
CCC or 258 57 (201) 201 - Hedged with
below FI rated A
-----------------------------------------------------
16 258 57 (201) 201 -
-----------------------------------------------------
-----------------------------------------------------
CLO's AAA 58 Mostly U.K.
and
European
mid-size
corporate
loans
AAA 943 855 (88) 67 (21) Hedged with
monolines
rated CC
or better
A- to 43 U.K. mid-
AA+ sized
enterprise
loans
A- to 419 360 (59) 56 (3) Hedged with
AA+ monolines
rated AAA
-----------------------------------------------------
-----------------------------------------------------
101 1,362 1,215 (147) 123 (24)
-----------------------------------------------------
-----------------------------------------------------
Residential
MBS(4)(5)
No AAA 33 Mostly U.K.
subprime and
Australian
mortgages
U.S. A- to 2 Wrapped
subprime AA+ with
- wrapped monolines
rated
AAA(3)
CCC or 15 Wrapped
below with
monoline
rated CC
or no
longer
rated
U.S. A- to 60 51 (9) 9 - Hedges with
subprime AA+ FI's rated
AA
CCC or 68 50 (18) 18 - Hedges with
below FI's rated
AA
-----------------------------------------------------
50 128 101 (27) 27 -
-----------------------------------------------------
-----------------------------------------------------
Commercial AAA 25 European,
MBS(5) U.K. and
U.S.
commercial
real
estate
loans
A- to 138 Mostly
AA+ Canadian
commercial
and
multi-use
residen-
tial loans
-----------------------------------------------------
163
-----------------------------------------------------
-----------------------------------------------------
Asset- AAA 219 Mostly
backed Canadian
Securities credit
(ABS) card
receiva-
bles and
auto loans
A- to 128 Mostly
AA+ Canadian
credit
card
receiva-
bles and
auto loans
BBB- to 70 Collateral
BBB+ notes on
Canadian
credit
card re-
ceivables
-----------------------------------------------------
417
-----------------------------------------------------
-----------------------------------------------------
FI's
=
Financial
Institutions
(1) Most of the unhedged and wrapped investments were transferred to the
available-for-sale portfolio effective August 1, 2008.
(2) CDOs include indirect exposure to approximately $49 million of U.S.
subprime residential mortgages. As noted above, this exposure is
hedged via total return swaps with a large non-monoline financial
institution.
(3) Certain ratings are under review.
(4) Wrapped MBS have an insurance guarantee attached and are rated
inclusive of the wrap protection. RMBS included in the hedged
investment amounts of $128 million have exposure to an estimated
$63 million of underlying U.S. subprime loans.
(5) Amounts exclude BMO Life Assurance holdings of $34 million of
residential MBS and $237 million of commercial MBS.
Review of Operating Groups' Performance
Operating Groups' Summary Income Statements and Statistics for Q4-2009
Q4-2009
-----------------------------------------------
(Canadian $ in Corporate
millions, except including Total
as noted) P&C PCG BMO CM T&O BMO
-------------------------------------------------------------------------
Net interest income
(teb)(1) 1,190 88 338 (174) 1,442
Non-interest revenue 465 457 556 69 1,547
-------------------------------------------------------------------------
Total revenue (teb)(1) 1,655 545 894 (105) 2,989
Provision for credit
losses 117 1 41 227 386
Non-interest expense 924 396 435 24 1,779
Income before income taxes
and non-controlling
interest in subsidiaries 614 148 418 (356) 824
Income taxes (recovery)
(teb)(1) 195 38 129 (204) 158
Non-controlling interest
in subsidiaries - - - 19 19
-------------------------------------------------------------------------
Net income Q4-2009 419 110 289 (171) 647
-------------------------------------------------------------------------
Net income Q3-2009 381 120 343 (287) 557
-------------------------------------------------------------------------
Net income Q4-2008 336 84 290 (150) 560
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other statistics
-------------------------------------------------------------------------
Net economic profit(2) 266 77 133 (317) 159
Return on equity 27.7% 34.7% 20.1% nm 14.0%
Cash return on equity(2) 28.1% 35.1% 20.1% nm 14.2%
Operating leverage 9.9% 7.5% 27.4% nm 8.5%
Cash operating leverage(2) 9.7% 7.3% 27.4% nm 8.3%
Productivity ratio (teb) 55.8% 72.6% 48.6% nm 59.5%
Cash productivity ratio
(teb)(2) 55.3% 72.5% 48.6% nm 59.2%
Net interest margin
on earning assets(1) 3.23% 2.91% 0.81% nm 1.73%
Average common equity 5,850 1,250 5,458 4,729 17,287
Average earning assets
($ billions) 146.4 12.0 166.2 6.8 331.4
Full-time equivalent
staff 19,733 4,632 2,362 9,446 36,173
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fiscal-2009
-----------------------------------------------
Corporate
including Total
P&C PCG BMO CM T&O BMO
-------------------------------------------------------------------------
Net interest income
(teb)(1) 4,630 353 1,798 (1,211) 5,570
Non-interest revenue 1,766 1,659 1,668 401 5,494
-------------------------------------------------------------------------
Total revenue (teb)(1) 6,396 2,012 3,466 (810) 11,064
Provision for credit
losses 455 5 170 973 1,603
Non-interest expense 3,738 1,536 1,875 232 7,381
Income before income taxes
and non-controlling
interest in subsidiaries 2,203 471 1,421 (2,015) 2,080
Income taxes (recovery)
(teb)(1) 702 90 361 (936) 217
Non-controlling interest
in subsidiaries - - - 76 76
-------------------------------------------------------------------------
Net income Q4-2009 1,501 381 1,060 (1,155) 1,787
-------------------------------------------------------------------------
Net income Q3-2009
-------------------------------------------------------------------------
Net income Q4-2008 1,305 452 711 (490) 1,978
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other statistics
-------------------------------------------------------------------------
Net economic profit(2) 853 255 359 (1,535) (68)
Return on equity 23.9% 31.3% 16.4% nm 9.9%
Cash return on equity(2) 24.4% 31.6% 16.4% nm 10.1%
Operating leverage 3.4% (6.5%) 34.9% nm 1.3%
Cash operating leverage(2) 3.3% (6.6%) 34.9% nm 1.3%
Productivity ratio (teb) 58.4% 76.4% 54.1% nm 66.7%
Cash productivity ratio
(teb)(2) 57.8% 76.2% 54.1% nm 66.3%
Net interest margin
on earning assets(1) 3.13% 3.34% 1.00% nm 1.63%
Average common equity 6,095 1,200 6,136 3,434 16,865
Average earning assets
($ billions) 147.9 10.6 179.3 4.0 341.8
Full-time equivalent
staff
-------------------------------------------------------------------------
-------------------------------------------------------------------------
nm - not meaningful
(1) Operating group revenues, income taxes and net interest margin are
stated on a taxable equivalent basis (teb). The group teb adjustments
are offset in Corporate, and Total BMO revenue, income taxes and net
interest margin are stated on a GAAP basis. See the Non-GAAP Measures
section.
(2) Non-GAAP Measure. See GAAP and Related Non-GAAP Measures section.
The following sections review the financial results of each of our operating segments and operating groups for the fourth quarter of 2009.
Periodically, certain business lines and units within the business lines are transferred between client groups to more closely align BMO's organizational structure and its strategic priorities. Commencing in the third quarter, the results of our insurance business are now reported in Private Client Group rather than in P&C
Note 16 to the unaudited interim consolidated financial statements outlines how income statement items requiring allocation are distributed among the operating groups, including the allocation of the provision for credit losses. Corporate Services is generally charged (or credited) with differences between the periodic provisions for credit losses charged to the client groups under our expected loss provisioning methodology and the periodic provisions required under GAAP.
Personal and Commercial Banking
(Canadian $ in Increase Increase
millions, (Decrease) (Decrease)
except as vs. vs.
noted) Q4-2009 Q4-2008 Q3-2009
-------------------------------------------------------------------------
Net interest income (teb) 1,190 83 8% 27 2%
Non-interest revenue 465 17 4% 3 -
-------------------------------------------------------------------------
Total revenue (teb) 1,655 100 6% 30 2%
Provision for credit
losses 117 16 15% 3 1%
Non-interest expense 924 (33) (4%) (28) (3%)
-------------------------------------------------------------------------
Income before income
taxes and
non-controlling
interest in subsidiaries 614 117 24% 55 10%
Income taxes (teb) 195 34 22% 17 10%
-------------------------------------------------------------------------
Net income 419 83 25% 38 10%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization of
acquisition-related
intangible assets
(after tax) 6 (2) (20%) (2) (17%)
-------------------------------------------------------------------------
Cash net income 425 81 24% 36 9%
-------------------------------------------------------------------------
Return on equity 27.7% 5.3% 3.0%
Cash return on equity 28.1% 5.1% 2.8%
Operating leverage 9.9% nm nm
Cash operating leverage 9.7% nm nm
Productivity ratio (teb) 55.8% (5.8%) (2.7%)
Cash productivity
ratio (teb) 55.3% (5.6%) (2.6%)
Net interest margin on
earning assets (teb) 3.23% 0.33% 0.07%
Average earning assets 146,374 (5,168) (3%) 433 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Increase
(Decrease)
Fiscal- vs.
2009 Fiscal-2008
-----------------------------------------------------
Net interest income (teb) 4,630 446 11%
Non-interest revenue 1,766 82 5%
-----------------------------------------------------
Total revenue (teb) 6,396 528 9%
Provision for credit
losses 455 71 18%
Non-interest expense 3,738 200 6%
-----------------------------------------------------
Income before income
taxes and
non-controlling
interest in subsidiaries 2,203 257 13%
Income taxes (teb) 702 61 10%
-----------------------------------------------------
Net income 1,501 196 15%
-----------------------------------------------------
-----------------------------------------------------
Amortization of
acquisition-related
intangible assets
(after tax) 31 1 5%
-----------------------------------------------------
Cash net income 1,532 197 15%
-----------------------------------------------------
Return on equity 23.9% 0.2%
Cash return on equity 24.4% 0.1%
Operating leverage 3.4% nm
Cash operating leverage 3.3% nm
Productivity ratio (teb) 58.4% (1.9%)
Cash productivity
ratio (teb) 57.8% (1.9%)
Net interest margin on
earning assets (teb) 3.13% 0.26%
Average earning assets 147,907 1,995 1%
-----------------------------------------------------
-----------------------------------------------------
nm - not meaningful
Personal and Commercial Banking (P&C) represents the sum of our two retail and business banking operating segments, Personal and Commercial Banking
Personal and Commercial Banking Canada (P&C Canada)
(Canadian $ Increase Increase
in millions, (Decrease) (Decrease)
except as vs. vs.
noted) Q4-2009 Q4-2008 Q3-2009
-------------------------------------------------------------------------
Net interest income (teb) 981 86 10% 28 3%
Non-interest revenue 404 14 3% 4 1%
-------------------------------------------------------------------------
Total revenue (teb) 1,385 100 8% 32 2%
Provision for credit
losses 102 13 13% 5 2%
Non-interest expense 709 (5) (1%) (28) (4%)
-------------------------------------------------------------------------
Income before income
taxes and
non-controlling
interest in subsidiaries 574 92 20% 55 11%
Income taxes (teb) 180 22 15% 17 11%
-------------------------------------------------------------------------
Net income 394 70 22% 38 11%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization of
acquisition-related
intangible assets
(after tax) - - - - -
-------------------------------------------------------------------------
Cash net income 394 70 22% 38 11%
-------------------------------------------------------------------------
Personal revenue 654 9 1% 20 3%
Commercial revenue 403 55 16% - -
Cards revenue 328 36 12% 12 4%
Operating leverage 8.6% nm nm
Cash operating leverage 8.7% nm nm
Productivity ratio (teb) 51.2% (4.5%) (3.2%)
Cash productivity
ratio (teb) 51.1% (4.5%) (3.2%)
Net interest margin on
earning assets (teb) 3.22% 0.34% 0.05%
Average earning assets 121,031 (2,397) (2%) 1,979 2%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Increase
(Decrease)
Fiscal- vs.
2009 Fiscal-2008
-----------------------------------------------------
Net interest income (teb) 3,738 302 9%
Non-interest revenue 1,525 83 6%
-----------------------------------------------------
Total revenue (teb) 5,263 385 8%
Provision for credit
losses 387 46 13%
Non-interest expense 2,843 107 4%
-----------------------------------------------------
Income before income
taxes and
non-controlling
interest in subsidiaries 2,033 232 13%
Income taxes (teb) 641 49 9%
-----------------------------------------------------
Net income 1,392 183 15%
-----------------------------------------------------
-----------------------------------------------------
Amortization of
acquisition-related
intangible assets
(after tax) 3 1 55%
-----------------------------------------------------
Cash net income 1,395 184 15%
-----------------------------------------------------
Personal revenue 2,478 51 2%
Commercial revenue 1,531 154 11%
Cards revenue 1,254 180 17%
Operating leverage 4.0% nm
Cash operating leverage 4.1% nm
Productivity ratio (teb) 54.0% (2.1%)
Cash productivity
ratio (teb) 53.9% (2.2%)
Net interest margin on
earning assets (teb) 3.13% 0.29%
Average earning assets 119,313 (1,686) (1%)
-----------------------------------------------------
-----------------------------------------------------
nm - not meaningful
Q4 2009 vs Q4 2008
Net income was a strong
Revenue rose
In the personal banking segment, revenue increased
Our mortgage loan balances declined from a year ago, due to securitization and the runoff of our broker-channel and third-party loans and, as expected, mortgage market share decreased from a year ago. Over the long-term, our goal is to grow market share and we are highly focused on improving this business through process improvements, sales force productivity gains and further expansion in order to meet our goals.
Personal deposits increased 13% year over year. The combination of improved performance management, investment in our branch network, simplified product offerings and customers' preferences for bank deposits in uncertain market conditions contributed to this growth. Market share increased year over year and we remain confident with the actions we are taking to generate growth.
In the commercial banking segment, revenue increased
Cards and Payment Services revenue increased
Non-interest expense decreased
Average loans and acceptances, including securitized loans, increased
Q4 2009 vs Q3 2009
Net income increased
Revenue increased
Non-interest expense decreased
Average loans and acceptances including securitized loans increased
Fiscal 2009 vs Fiscal 2008
Net income increased
Revenue increased
Non-interest expense increased
All comparative figures have been reclassified to reflect the third quarter 2009 transfer of BMO's insurance business to PCG from P&C
Personal and Commercial Banking U.S. (P&C U.S.)
(Canadian $ Increase Increase
in millions, (Decrease) (Decrease)
except as vs. vs.
noted) Q4-2009 Q4-2008 Q3-2009
-------------------------------------------------------------------------
Net interest income (teb) 209 (3) (2%) (1) (1%)
Non-interest revenue 61 3 6% (1) -
-------------------------------------------------------------------------
Total revenue (teb) 270 - - (2) (1%)
Provision for credit
losses 15 3 23% (2) (3%)
Non-interest expense 215 (28) (11%) - -
-------------------------------------------------------------------------
Income before income
taxes and
non-controlling
interest in subsidiaries 40 25 +100% - -
Income taxes (teb) 15 12 +100% - -
-------------------------------------------------------------------------
Net income 25 13 +100% - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization of
acquisition-related
intangible assets
(after tax) 6 (2) (27%) (2) (19%)
-------------------------------------------------------------------------
Cash net income 31 11 55% (2) (6%)
-------------------------------------------------------------------------
Operating leverage 11.4% nm nm
Cash operating leverage 10.7% nm nm
Productivity ratio (teb) 79.6% (10.2%) 0.4%
Cash productivity
ratio (teb) 77.0% (9.2%) 1.0%
Net interest margin on
earning assets (teb) 3.26% 0.26% 0.13%
Average earning assets 25,343 (2,771) (10%) (1,546) (6%)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
U.S. Select Financial
Data (US$ in millions,
except as noted)
Net interest income (teb) 192 1 1% 2 2%
Non-interest revenue 57 5 10% 2 2%
-------------------------------------------------------------------------
Total revenue (teb) 249 6 3% 4 2%
Non-interest expense 199 (18) (9%) 6 3%
Net income 23 12 +100% - -
Cash net income 29 11 56% - -
Average earning assets 23,407 (1,906) (8%) (813) (3%)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Increase
(Decrease)
Fiscal- vs.
2009 Fiscal-2008
-----------------------------------------------------
Net interest income (teb) 892 144 19%
Non-interest revenue 241 (1) (1%)
-----------------------------------------------------
Total revenue (teb) 1,133 143 14%
Provision for credit
losses 68 25 57%
Non-interest expense 895 93 12%
-----------------------------------------------------
Income before income
taxes and
non-controlling
interest in subsidiaries 170 25 17%
Income taxes (teb) 61 12 22%
-----------------------------------------------------
Net income 109 13 14%
-----------------------------------------------------
-----------------------------------------------------
Amortization of
acquisition-related
intangible assets
(after tax) 28 - -
-----------------------------------------------------
Cash net income 137 13 11%
-----------------------------------------------------
Operating leverage 2.7% nm
Cash operating leverage 2.2% nm
Productivity ratio (teb) 79.0% (2.0%)
Cash productivity
ratio (teb) 76.0% (1.5%)
Net interest margin on
earning assets (teb) 3.12% 0.12%
Average earning assets 28,594 3,681 15%
-----------------------------------------------------
-----------------------------------------------------
U.S. Select Financial
Data (US$ in millions,
except as noted)
Net interest income (teb) 765 41 6%
Non-interest revenue 208 (27) (11%)
-----------------------------------------------------
Total revenue (teb) 973 14 2%
Non-interest expense 769 (4) (1%)
Net income 94 (1) (1%)
Cash net income 118 (3) (3%)
Average earning assets 24,504 401 2%
-----------------------------------------------------
-----------------------------------------------------
nm - not meaningful
Q4 2009 vs Q4 2008
Net income increased
Cash net income was US$39 million including a severance charge of US$2.4 million after tax, on a basis that adjusts for the impact of impaired loans, integration costs and the Visa litigation accrual. This is in line with the last five quarters where cash net income on this basis had exceeded US$40 million.
On a similarly-adjusted basis, revenue grew US$12 million or 4.9%, largely driven by deposit volume growth and increased gains on the sale of mortgages, partially offset by decreased spreads. Deposit growth of US$1.5 billion or 7.7% reflects our continued commitment to provide the right products and services for our customers. We have maintained our number two ranking for retail deposit market share in our
On a similarly-adjusted basis, expenses increased US$6 million or 3.4% reflecting severance of US$3.6 million and higher marketing costs in support of sales and customer acquisition.
Q4 2009 vs Q3 2009
Net income, at
Revenue increased US$4 million or 1.9% primarily due to improved loan spreads and the impact of more days in the current quarter.
Non-interest expense grew US$6 million or 2.5% largely due to severance and increased marketing in support of sales and customer acquisition.
Fiscal 2009 vs Fiscal 2008
Net income increased
Cash net income was US$162 million, on a basis that adjusts for the impact of impaired loans, integration costs, the Visa litigation accrual and last year's gain on the sale of a portion of our investment in Visa, increasing US$13 million or 8.7% versus last year.
On a similarly-adjusted basis, revenue increased US$81 million or 8.7% reflecting strong deposit volume growth, a full year of results of our Wisconsin acquisitions (US$33 million) and increased gains on the sale of mortgages.
On a similarly-adjusted basis, expenses increased US$38 million or 5.3%, reflecting a full year of results of our Wisconsin acquisitions (US$26 million).
Private Client Group (PCG)
(Canadian $ Increase Increase
in millions, (Decrease) (Decrease)
except as vs. vs.
noted) Q4-2009 Q4-2008 Q3-2009
-------------------------------------------------------------------------
Net interest income (teb) 88 (13) (13%) 1 1%
Non-interest revenue 457 52 13% 23 5%
-------------------------------------------------------------------------
Total revenue (teb) 545 39 8% 24 5%
Provision for credit
losses 1 - - - -
Non-interest expense 396 2 - 4 1%
-------------------------------------------------------------------------
Income before income taxes 148 37 35% 20 16%
Income taxes (teb) 38 11 45% 30 +100%
-------------------------------------------------------------------------
Net income 110 26 32% (10) (7%)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization of
acquisition-related
intangible assets
(after tax) 2 - - 2 58%
-------------------------------------------------------------------------
Cash net income 112 26 31% (8) (7%)
-------------------------------------------------------------------------
Return on equity 34.7% 5.8% (1.2%)
Cash return on equity 35.1% 5.9% (1.0%)
Operating leverage 7.5% nm nm
Cash operating leverage 7.3% nm nm
Productivity ratio (teb) 72.6% (5.5%) (2.7%)
Cash productivity
ratio (teb) 72.5% (5.3%) (2.6%)
Net interest margin on
earning assets (teb) 2.91% (1.88%) (0.02%)
Average earning assets 12,048 3,656 44% 245 2%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
U.S. Select Financial
Data (US$ in millions)
Total revenue (teb) 60 26 79% 3 5%
Non-interest expense 57 (3) 3% - -
Net income 2 17 +100% 2 +100%
Cash net income 2 17 +100% 2 +100%
Average earning assets 2,203 (8) - (52) (2%)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Increase
(Decrease)
Fiscal- vs.
2009 Fiscal-2008
-----------------------------------------------------
Net interest income (teb) 353 (23) (6%)
Non-interest revenue 1,659 (111) (6%)
-----------------------------------------------------
Total revenue (teb) 2,012 (134) (6%)
Provision for credit
losses 5 1 37%
Non-interest expense 1,536 5 -
-----------------------------------------------------
Income before income taxes 471 (140) (23%)
Income taxes (teb) 90 (69) (44%)
-----------------------------------------------------
Net income 381 (71) (16%)
-----------------------------------------------------
-----------------------------------------------------
Amortization of
acquisition-related
intangible assets
(after tax) 4 - -
-----------------------------------------------------
Cash net income 385 (71) (15%)
-----------------------------------------------------
Return on equity 31.3% (8.9%)
Cash return on equity 31.6% (9.0%)
Operating leverage (6.5%) nm
Cash operating leverage (6.6%) nm
Productivity ratio (teb) 76.4% 5.0%
Cash productivity
ratio (teb) 76.2% 5.1%
Net interest margin on
earning assets (teb) 3.34% (1.44%)
Average earning assets 10,567 2,712 35%
-----------------------------------------------------
-----------------------------------------------------
U.S. Select Financial
Data (US$ in millions)
Total revenue (teb) 208 (9) (4%)
Non-interest expense 218 (12) (5%)
Net income (7) (1) (11%)
Cash net income (6) (1) (10%)
Average earning assets 2,251 109 5%
-----------------------------------------------------
-----------------------------------------------------
nm - not meaningful
Q4 2009 vs Q4 2008
Net income of
Revenue increased
Non-interest expense increased
Assets under management and administration benefited from improving market conditions, growing
Q4 2009 vs Q3 2009
Net income decreased
Revenue of
Non-interest expense increased
Assets under management and administration improved by
Fiscal 2009 vs Fiscal 2008
Net income decreased
Net income in the current year was comprised of
Revenue of
Non-interest expense increased
All comparative figures have been reclassified to reflect the third quarter 2009 transfer of BMO's insurance business to PCG from P&C
BMO Capital Markets (BMO CM)
(Canadian $ Increase Increase
in millions, (Decrease) (Decrease)
except as vs. vs.
noted) Q4-2009 Q4-2008 Q3-2009
-------------------------------------------------------------------------
Net interest income (teb) 338 (24) (7%) (102) (23%)
Non-interest revenue 556 196 54% (37) (6%)
-------------------------------------------------------------------------
Total revenue (teb) 894 172 24% (139) (14%)
Provision for credit
losses 41 11 34% (2) (4%)
Non-interest expense 435 (16) (4%) (81) (16%)
-------------------------------------------------------------------------
Income before income
taxes 418 177 74% (56) (12%)
Income taxes (teb) 129 178 +100% (2) (1%)
-------------------------------------------------------------------------
Net income 289 (1) (1%) (54) (16%)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization of
acquisition-related
intangible assets
(after tax) - - - (1) (3%)
-------------------------------------------------------------------------
Cash net income 289 (1) (1%) (55) (16%)
-------------------------------------------------------------------------
Trading Products revenue 506 272 +100% (160) (24%)
Investment and Corporate
Banking and Other
revenue 388 (100) (20%) 21 6%
Return on equity 20.1% 1.3% (1.7%)
Cash return on equity 20.1% 1.3% (1.7%)
Operating leverage 27.4% nm nm
Cash operating leverage 27.4% nm nm
Productivity ratio (teb) 48.6% (13.8%) (1.4%)
Cash productivity
ratio (teb) 48.6% (13.8%) (1.3%)
Net interest margin on
earning assets (teb) 0.81% (0.02%) (0.21%)
Average earning assets 166,151 (7,669) (4%) (4,477) (3%)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
U.S. Select Financial
Data (US$ in millions)
Total revenue (teb) 341 7 2% 6 1%
Non-interest expense 207 42 26% 31 17%
Net income 70 (29) (30%) (18) (22%)
Average earning assets 60,993 (4,076) (6%) (2,782) (4%)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Increase
(Decrease)
Fiscal- vs.
2009 Fiscal-2008
-----------------------------------------------------
Net interest income (teb) 1,798 591 49%
Non-interest revenue 1,668 435 35%
-----------------------------------------------------
Total revenue (teb) 3,466 1,026 42%
Provision for credit
losses 170 53 45%
Non-interest expense 1,875 124 7%
-----------------------------------------------------
Income before income
taxes 1,421 849 +100%
Income taxes (teb) 361 500 +100%
-----------------------------------------------------
Net income 1,060 349 49%
-----------------------------------------------------
-----------------------------------------------------
Amortization of
acquisition-related
intangible assets
(after tax) 1 - -
-----------------------------------------------------
Cash net income 1,061 349 49%
-----------------------------------------------------
Trading Products revenue 1,982 965 95%
Investment and Corporate
Banking and Other
revenue 1,484 61 4%
Return on equity 16.4% 5.0%
Cash return on equity 16.4% 4.9%
Operating leverage 34.9% nm
Cash operating leverage 34.9% nm
Productivity ratio (teb) 54.1% (17.7%)
Cash productivity
ratio (teb) 54.1% (17.6%)
Net interest margin on
earning assets (teb) 1.00% 0.31%
Average earning assets 179,372 3,292 2%
-----------------------------------------------------
-----------------------------------------------------
U.S. Select Financial
Data (US$ in millions)
Total revenue (teb) 1,505 338 29%
Non-interest expense 733 12 2%
Net income 464 190 69%
Average earning assets 64,935 (4,476) (6%)
-----------------------------------------------------
-----------------------------------------------------
nm - not meaningful
Q4 2009 vs Q4 2008
Net income was
Revenue increased
Trading Products revenue more than doubled from
Investment and Corporate Banking and Other revenue decreased by
Net interest income decreased from the prior year due to reduced revenues in our interest-rate-sensitive businesses, lower net interest income from our cash management business and increased funding costs. The effects of these decreases were partially offset by increased trading net interest income and, to a lesser extent, improved corporate banking net interest income. Net interest margin decreased 2 basis points from the prior year with reductions in interest-rate-sensitive businesses partly offset by higher trading net interest income and increased spreads in corporate lending.
No charges in respect of the capital markets environment have been designated as notable items this quarter. The net impact of the following items did not have a significant effect on our results: a charge of
Non-interest expense decreased
Q4 2009 vs Q3 2009
Net income decreased
Revenue was
Non-interest expense was
Fiscal 2009 vs Fiscal 2008
Net income increased
Revenue increased
Corporate banking revenue increased significantly from the previous year despite the reduction in lending assets due to improved spreads and higher lending fees. Conditions were mixed for our investment banking businesses. Equity underwriting revenues increased as corporate clients sought to strengthen their balance sheets. In contrast, mergers and acquisition activity decreased due to lower market activity. Commission revenue was also down.
Non-interest expense increased
Net income taxes were low in 2008 as results included
Corporate Services, Including Technology and Operations
(Canadian $ Increase Increase
in millions, (Decrease) (Decrease)
except as vs. vs.
noted) Q4-2009 Q4-2008 Q3-2009
-------------------------------------------------------------------------
Net interest income (teb) (174) (13) (8%) 50 23%
Non-interest revenue 69 (122) (64%) 46 +100%
-------------------------------------------------------------------------
Total revenue (teb) (105) (135) (+100%) 96 48%
Provision for credit
losses 227 (106) (32%) (32) (12%)
Non-interest expense 24 8 65% 11 85%
Loss before income taxes
and non-controlling
interest in subsidiaries 356 37 13% (117) (25%)
Income tax recovery (teb) 204 16 10% 1 -
Non-controlling interest
in subsidiaries 19 - - - -
-------------------------------------------------------------------------
Net loss 171 21 14% (116) (41%)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
U.S. Select Financial
Data (US$ in millions)
Total revenue (teb) (30) (21) (+100%) 7 24%
Provision for credit
losses 199 (10) (4%) 18 11%
Non-interest expense (15) 8 32% (13) (+100%)
Income tax recovery (teb) 81 10 17% (5) (3%)
Net loss 137 9 6% 2 1%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Increase
(Decrease)
Fiscal- vs.
2009 Fiscal-2008
-----------------------------------------------------
Net interest income (teb) (1,211) (516) (74%)
Non-interest revenue 401 (45) (10%)
-----------------------------------------------------
Total revenue (teb) (810) (561) (+100%)
Provision for credit
losses 973 148 18%
Non-interest expense 232 158 +100%
Loss before income taxes
and non-controlling
interest in subsidiaries 2,015 867 76%
Income tax recovery (teb) 936 204 28%
Non-controlling interest
in subsidiaries 76 2 3%
-----------------------------------------------------
Net loss 1,155 665 +100%
-----------------------------------------------------
-----------------------------------------------------
U.S. Select Financial
Data (US$ in millions)
Total revenue (teb) (265) (126) (91%)
Provision for credit
losses 766 (17) (2%)
Non-interest expense (12) 56 82%
Income tax recovery (teb) 387 61 19%
Net loss 650 104 19%
-----------------------------------------------------
-----------------------------------------------------
Corporate Services
Corporate Services consists of the corporate units that provide enterprise-wide expertise and governance support in a variety of areas, including strategic planning, risk management, corporate finance, compliance, law, communications and human resources. Operating results reflect the impact of certain securitization and asset-liability management activities, the elimination of taxable equivalent adjustments and the impact of our expected loss provisioning. Corporate Services is generally charged (or credited) with differences between the periodic provisions for credit losses charged to the client groups under our expected loss provisioning methodology and the required periodic provisions charged by the consolidated organization under GAAP, including any changes in the general allowance.
Technology and Operations
Technology and Operations (T&O) manages, maintains and provides governance over information technology, operations services, real estate and sourcing for BMO Financial Group. T&O focuses on enterprise-wide priorities that improve service quality and efficiency to deliver an excellent customer experience.
Financial Performance Review
Technology and Operations operating results are included with Corporate Services for reporting purposes. Costs of T&O's services are transferred to the client groups (P&C, PCG and BMO Capital Markets) and only relatively minor amounts are retained within T&O. As such, results in this section largely reflect the other corporate units outlined above.
There was a net loss of
The net loss decreased
The net loss for fiscal 2009 rose
Notable Items
(Canadian $ in millions, Fiscal- Fiscal-
except as noted) Q4-2009 Q3-2009 Q4-2008 2009 2008
-------------------------------------------------------------------------
Charges related to
deterioration in capital
markets environment - - 45 521 388
Related income taxes - - 18 166 128
-------------------------------------------------------------------------
Net impact of charges
related to deterioration
in capital markets
environment (a) - - 27 355 260
-------------------------------------------------------------------------
Severance costs - - - 118 -
Related income taxes - - - 38 -
-------------------------------------------------------------------------
Net impact of severance (b) - - - 80 -
-------------------------------------------------------------------------
Increase in general allowance - 60 150 60 260
Related income taxes - 21 52 21 94
-------------------------------------------------------------------------
Net impact of increase in
general allowance (c) - 39 98 39 166
-------------------------------------------------------------------------
Net impact of notable items
(a+b+c) - 39 125 474 426
-------------------------------------------------------------------------
Q4 2009
No charges in respect of the capital markets environment have been designated as notable items this quarter in light of the relative insignificance of the amounts. A charge in respect of a Canadian credit protection vehicle (Apex) and a small net charge in respect of credit default swaps (CDS) that mitigate credit exposure in the loan portfolio were largely offset by favourable credit valuation adjustments (CVA).
Q3 2009
Net income was reduced by a
Q4 2008
BMO's results in the fourth quarter of 2008 were affected by capital markets environment charges of
The above charges were all reflected in non-interest revenue. There was
Results also reflected a
Fiscal 2009
Net income for fiscal 2009 was reduced by notable items totalling
Non-interest revenue was affected by the
We have chosen to redefine notable items for fiscal 2009 (and fiscal 2008) as it became apparent that certain amounts designated as notable items in prior quarters would more appropriately be considered typical of our ongoing business activities. We have, however, retained the prior quarters' designations of notable items for consistency in analyzing quarterly comparatives in this document. As such, notable items detailed for the fiscal year do not match the sum of quarterly amounts designated as notable items.
Fiscal 2008
Net income for fiscal 2008 was reduced by
Non-interest revenue for year-to-date 2008 was affected by the
GAAP and Related Non-GAAP Measures used in the MD&A
(Canadian $ in millions, Fiscal- Fiscal-
except as noted) Q4-2009 Q3-2009 Q4-2008 2009 2008
-------------------------------------------------------------------------
Non-interest expense (a) 1,779 1,873 1,818 7,381 6,894
Amortization of
acquisition-related
intangible assets (note 1) (10) (12) (11) (44) (42)
-------------------------------------------------------------------------
Cash-based non-interest
expense (b) (note 2) 1,769 1,861 1,807 7,337 6,852
-------------------------------------------------------------------------
Net income 647 557 560 1,787 1,978
Amortization of
acquisition-related
intangible assets,
net of income taxes 8 9 10 35 35
-------------------------------------------------------------------------
Cash net income (note 2) 655 566 570 1,822 2,013
Preferred share dividends (38) (33) (25) (120) (73)
Charge for capital (note 2) (458) (454) (401) (1,770) (1,535)
-------------------------------------------------------------------------
Net economic profit (note 2) 159 79 144 (68) 405
-------------------------------------------------------------------------
Revenue (c) 2,989 2,978 2,813 11,064 10,205
Revenue growth (%) (d) 6.3 8.4 27.9 8.4 9.2
Productivity ratio (%)
((a/c) x 100) 59.5 62.9 64.6 66.7 67.6
Cash productivity ratio (%)
((b/c) x 100) (note 2) 59.2 62.5 64.2 66.3 67.1
Non-interest expense
growth (%) (e) (2.2) 5.1 9.9 7.1 4.4
Cash-based non-interest
expense growth (%) (f)
(note 2) (2.0) 5.1 9.9 7.1 4.5
Operating leverage (%) (d-e) 8.5 3.3 18.0 1.3 4.8
Cash operating leverage (%)
(d-f) (note 2) 8.3 3.3 18.0 1.3 4.7
EPS (uses net income) ($) 1.11 0.97 1.06 3.08 3.76
Cash EPS (uses cash net
income) ($) 1.13 0.98 1.08 3.14 3.83
-------------------------------------------------------------------------
Note 1: The amortization of non-acquisition-related intangible assets is
not added back in the determination of cash net income.
Note 2: These are non-GAAP amounts or non-GAAP measures.
Non-GAAP Measures
BMO uses both GAAP and certain non-GAAP measures to assess performance. Securities regulators require that companies caution readers that earnings and other measures adjusted to a basis other than GAAP do not have standardized meanings under GAAP and are unlikely to be comparable to similar measures used by other companies. The above table reconciles the non-GAAP measures, which management regularly monitors, to their GAAP counterparts.
At times, we indicate certain measures excluding the effects of items but generally do so in conjunction with disclosure of the nearest GAAP measure and provide detail of the reconciling item. Amounts and measures stated on such a basis are considered useful as they could be expected to be reflective of ongoing operating results or assist readers' understanding of performance. To assist readers, we have also provided a schedule that summarizes notable items that have affected results in the reporting periods.
Cash earnings, cash productivity and cash operating leverage measures may enhance comparisons between periods when there has been an acquisition, particularly because the purchase decision may not consider the amortization of acquisition-related intangible assets to be a relevant expense. Cash EPS measures are also disclosed because analysts often focus on this measure, and cash EPS is used by Thomson First Call to track third-party earnings estimates that are frequently reported in the media. Cash measures add the after-tax amortization of acquisition-related intangible assets to GAAP earnings to derive cash net income (and associated cash EPS) and deduct the amortization of acquisition-related intangible assets from non-interest expense to derive cash productivity and cash operating leverage measures.
Net economic profit represents cash net income available to common shareholders, less a charge for capital, and is considered an effective measure of economic value added.
INVESTOR AND MEDIA PRESENTATION
Investor Presentation Materials
Interested parties are invited to visit our website at www.bmo.com/investorrelations to review this quarterly news release, presentation materials and a supplementary financial information package online.
Quarterly Conference Call and Webcast Presentations
Interested parties are also invited to listen to our quarterly conference call on
A live webcast of the call can be accessed on our website at www.bmo.com/investorrelations. A replay can be accessed on the site until
-------------------------------------------------------------------------
Annual Meeting 2010
The next Annual Meeting of Shareholders will be held on
Tuesday, March 23, 2010, in Winnipeg, Manitoba.
-------------------------------------------------------------------------
Media Relations Contacts
Ralph Marranca, Toronto, [email protected], 416-867-3996
Ronald Monet, Montreal, [email protected], 514-877-1873
Investor Relations Contacts
Viki Lazaris, Senior Vice-President, [email protected],
416-867-6656
Steven Bonin, Director, [email protected], 416-867-5452
Andrew Chin, Senior Manager, [email protected], 416-867-7019
Chief Financial Officer
Russel Robertson, Chief Financial Officer
[email protected], 416-867-7360
Corporate Secretary
Blair Morrison, Senior Vice-President, Deputy General Counsel,
Corporate Affairs & Corporate Secretary
[email protected], 416-867-6785
-------------------------------------------------------------------------
Shareholder Dividend Reinvestment For other shareholder information,
and Share Purchase Plan please contact
Average market price Bank of Montreal
August 2009 $52.31 ($51.26*) Shareholder Services
September 2009 $53.73 Corporate Secretary's Department
October 2009 $51.23 One First Canadian Place, 21st Floor
* reflects 2% discount for Toronto, Ontario M5X 1A1
dividend reinvestment Telephone: (416) 867-6785
Fax: (416) 867-6793
For dividend information, change E-mail: [email protected]
in shareholder address
or to advise of duplicate mailings, For further information on this
please contact report, please contact
Computershare Trust Company of Bank of Montreal
Canada Investor Relations Department
100 University Avenue, 9th Floor P.O. Box 1, One First Canadian
Toronto, Ontario M5J 2Y1 Place, 18th Floor
Telephone: 1-800-340-5021 Toronto, Ontario M5X 1A1
(Canada and the United States)
Telephone: (514) 982-7800 To review financial results online,
(international) please visit our website at
Fax: 1-888-453-0330 www.bmo.com
(Canada and the United States)
Fax: (416) 263-9394
(international)
E-mail:
[email protected]
-------------------------------------------------------------------------
(R) Registered trade-mark of Bank of Montreal
Financial Highlights
(Unaudited)
(Canadian $
in millions,
except as
noted) For the three months ended
-------------------------------------------------------------------------
Change
from
October July April January October October
31, 2009 31, 2009 30, 2009 31, 2009 31, 2008 31, 2008
-------------------------------------------------------------------------
Income Statement
Highlights
Total
revenue $ 2,989 $ 2,978 $ 2,655 $ 2,442 $ 2,813 6.3%
Provision for
credit losses 386 417 372 428 465 (17.0)
Non-interest
expense 1,779 1,873 1,888 1,841 1,818 (2.2)
Net income 647 557 358 225 560 15.6
-------------------------------------------------------------------------
Net Income
by Operating
Segment
P&C Canada $ 394 $ 356 $ 334 $ 308 $ 324 21.7%
P&C U.S. 25 25 25 34 12 +100
PCG 110 120 78 73 84 31.6
BMO CM 289 343 249 179 290 (0.5)
Corporate
Services(a) (171) (287) (328) (369) (150) (14.1)
-------------------------------------------------------------------------
Common Share
Data
Diluted
earnings
per share $ 1.11 $ 0.97 $ 0.61 $ 0.39 $ 1.06 $ 0.05
Diluted cash
earnings
per share(b) 1.13 0.98 0.63 0.40 1.08 0.05
Dividends
declared
per share 0.70 0.70 0.70 0.70 0.70 0.00
Book value
per share 31.95 31.26 32.22 32.18 32.02 (0.07)
Closing share
price 50.06 54.02 39.50 33.25 43.02 7.04
Total market
value of
common shares
($ billions) 27.6 29.6 21.5 17.9 21.7 5.9
-------------------------------------------------------------------------
As at
-------------------------------------------------------------------------
Change
from
October July April January October October
31, 2009 31, 2009 30, 2009 31, 2009 31, 2008 31, 2008
-------------------------------------------------------------------------
Balance Sheet
Highlights
Assets $ 388,458 $ 415,361 $ 432,245 $ 443,174 $ 416,050 (6.6)%
Net loans and
acceptan-
ces(c) 167,829 173,558 179,650 190,099 186,962 (10.2)
Deposits 236,156 244,953 247,169 264,580 257,670 (8.3)
Common
shareholders'
equity 17,626 17,144 17,561 17,371 16,158 9.1
-------------------------------------------------------------------------
For the three months ended
-------------------------------------------------------------------------
October July April January October
31, 2009 31, 2009 30, 2009 31, 2009 31, 2008
-------------------------------------------------------------------------
Financial
Measures
(%)(d)
Average
annual five
year total
shareholder
return 1.8 4.0 (1.2) (6.9) 0.9
Diluted earnings
per share
growth 4.7 (1.0) (51.2) (17.0) 21.8
Diluted cash
earnings per
share growth(b) 4.6 (2.0) (50.0) (18.4) 21.3
Return on equity 14.0 12.1 8.1 4.9 14.0
Cash return on
equity(b) 14.2 12.3 8.4 5.2 14.3
Net economic
profit (NEP)
growth(b) 10.4 (35.1) (+100) (71.8) +100
Operating
leverage 8.5 3.3 (11.1) 6.4 18.0
Cash operating
leverage(b) 8.3 3.3 (11.0) 6.4 18.0
Revenue growth 6.3 8.4 1.3 20.5 27.9
Non-interest
expense-to-
revenue ratio 59.5 62.9 71.1 75.4 64.6
Cash non-
interest
expense-to-
revenue
ratio(b) 59.2 62.5 70.7 75.0 64.2
Provision for
credit losses-
to-average
loans and
acceptances
(annualized)(c) 0.89 0.94 0.79 0.90 1.01
Gross impaired
loans and
acceptances-
to-equity and
allowance for
credit losses 14.06 12.75 12.95 11.91 11.34
Cash and
securities-
to-total
assets ratio 31.9 30.0 28.2 28.2 29.1
Tier 1 capital
ratio -
Basel II 12.24 11.71 10.70 10.21 9.77
Credit rating
DBRS AA AA AA AA AA
Fitch AA- AA- AA- AA- AA-
Moody's Aa1 Aa1 Aa1 Aa1 Aa1
Standard &
Poor's A+ A+ A+ A+ A+
-------------------------------------------------------------------------
Financial Ratios
(% except as
noted)(d)
Twelve month
total
shareholder
return 25.1 21.4 (15.2) (37.7) (27.9)
Dividend yield 5.59 5.18 7.09 8.42 6.51
Price-to-
earnings
ratio (times) 16.3 17.8 13.0 9.0 11.4
Market-to-book
value (times) 1.57 1.73 1.23 1.03 1.34
Net economic
profit (loss)
($ millions)(b) 159 79 (87) (219) 144
Return on
average assets 0.63 0.52 0.32 0.19 0.54
Net interest
margin on
average
earning assets 1.73 1.74 1.55 1.51 1.71
Non-interest
revenue-to-
total revenue 51.7 50.8 49.7 45.6 49.9
Non-interest
expense growth (2.2) 5.1 12.4 14.1 9.9
Cash non-interest
expense
growth(b) (2.0) 5.1 12.3 14.1 9.9
Total capital
ratio -
Basel II 14.87 14.32 13.20 12.87 12.17
Equity-to-
assets ratio 5.2 4.7 4.6 4.3 4.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the twelve months ended
-------------------------------------------
Change
from
October October October
31, 2009 31, 2008 31, 2008
-------------------------------------------
Income Statement
Highlights
Total
revenue $ 11,064 $ 10,205 8.4%
Provision for
credit losses 1,603 1,330 20.5
Non-interest
expense 7,381 6,894 7.1
Net income 1,787 1,978 (9.7)
-------------------------------------------
Net Income
by Operating
Segment
P&C Canada $ 1,392 $ 1,209 15.1%
P&C U.S. 109 96 14.0
PCG 381 452 (15.6)
BMO CM 1,060 711 49.0
Corporate
Services(a) (1,155) (490) (+100)
-------------------------------------------
Common Share
Data
Diluted
earnings
per share $ 3.08 $ 3.76 $ (0.68)
Diluted cash
earnings
per share(b) 3.14 3.83 (0.69)
Dividends
declared
per share 2.80 2.80 0.00
Book value
per share 31.95 32.02 (0.07)
Closing share
price 50.06 43.02 7.04
Total market
value of
common shares
($ billions) 27.6 21.7 5.9
-------------------------------------------
For the twelve
months ended
-------------------------------------------
October October
31, 2009 31, 2008
-------------------------------------------
Financial
Measures
(%)(d)
Average
annual five
year total
shareholder
return 1.8 0.9
Diluted earnings
per share
growth (18.1) (8.5)
Diluted cash
earnings per
share growth(b) (18.0) (8.4)
Return on equity 9.9 13.0
Cash return on
equity(b) 10.1 13.3
Net economic
profit (NEP)
growth(b) (+100) (32.8)
Operating
leverage 1.3 4.8
Cash operating
leverage(b) 1.3 4.7
Revenue growth 8.4 9.2
Non-interest
expense-to-
revenue ratio 66.7 67.6
Cash non-
interest
expense-to-
revenue
ratio(b) 66.3 67.1
Provision for
credit losses-
to-average
loans and
acceptances
(annualized)(c) 0.88 0.76
Gross impaired
loans and
acceptances-
to-equity and
allowance for
credit losses 14.06 11.34
Cash and
securities-
to-total
assets ratio 31.9 29.1
Tier 1 capital
ratio -
Basel II 12.24 9.77
Credit rating
DBRS AA AA
Fitch AA- AA-
Moody's Aa1 Aa1
Standard &
Poor's A+ A+
-------------------------------------------
Financial Ratios
(% except as
noted)(d)
Twelve month
total
shareholder
return 25.1 (27.9)
Dividend yield 5.59 6.51
Price-to-
earnings
ratio (times) 16.3 11.4
Market-to-book
value (times) 1.57 1.34
Net economic
profit (loss)
($ millions)(b) (68) 405
Return on
average assets 0.41 0.50
Net interest
margin on
average
earning assets 1.63 1.55
Non-interest
revenue-to-
total revenue 49.7 50.3
Non-interest
expense growth 7.1 4.4
Cash non-interest
expense
growth(b) 7.1 4.5
Total capital
ratio -
Basel II 14.87 12.17
Equity-to-
assets ratio 5.2 4.3
-------------------------------------------
-------------------------------------------
All ratios in this report are based on unrounded numbers.
(a) Corporate Services includes Technology and Operations.
(b) Refer to the "Non-GAAP Measures" section of Management's Discussion
and Analysis for an explanation of cash results and net economic
profit. Securities regulators require that companies caution readers
that earnings and other measures adjusted to a basis other than
generally accepted accounting principles (GAAP) do not have
standardized meanings under GAAP and are unlikely to be comparable to
similar measures used by other companies.
(c) Effective in the first quarter of 2009, securities borrowed or
purchased under resale agreements are excluded from net loans and
acceptances and credit statistics. All comparative figures have been
restated.
(d) For the period ended, or as at, as appropriate.
Interim Consolidated Financial Statements
Consolidated Statement of Income
(Unaudited)
(Canadian $ in millions,
except as noted) For the three months ended
-------------------------------------------------------------------------
October July April January October
31, 2009 31, 2009 30, 2009 31, 2009 31, 2008
-------------------------------------------------------------------------
Interest, Dividend
and Fee Income
Loans $ 1,835 $ 1,920 $ 1,955 $ 2,250 $ 2,554
Securities 448 494 665 820 744
Deposits with banks 19 23 48 96 182
-------------------------------------------------------------------------
2,302 2,437 2,668 3,166 3,480
-------------------------------------------------------------------------
Interest Expense
Deposits 672 789 1,097 1,483 1,590
Subordinated debt 32 24 30 49 61
Capital trust securities
and preferred shares 20 20 19 21 23
Other liabilities 136 138 187 286 397
-------------------------------------------------------------------------
860 971 1,333 1,839 2,071
-------------------------------------------------------------------------
Net Interest Income 1,442 1,466 1,335 1,327 1,409
Provision for credit
losses (Note 3) 386 417 372 428 465
-------------------------------------------------------------------------
Net Interest Income
After Provision for
Credit Losses 1,056 1,049 963 899 944
-------------------------------------------------------------------------
Non-Interest Revenue
Securities commissions
and fees 250 240 235 248 270
Deposit and payment
service charges 205 206 204 205 203
Trading revenues 163 273 63 224 435
Lending fees 149 140 148 119 120
Card fees 29 35 33 24 58
Investment management
and custodial fees 87 85 84 88 87
Mutual fund revenues 128 119 106 114 140
Securitization revenues 201 202 262 264 167
Underwriting and
advisory fees 116 101 103 77 66
Securities gains
(losses), other than
trading 14 (12) (42) (314) (252)
Foreign exchange, other
than trading 14 1 25 13 (4)
Insurance income 86 85 64 60 56
Other 105 37 35 (7) 58
-------------------------------------------------------------------------
1,547 1,512 1,320 1,115 1,404
-------------------------------------------------------------------------
Net Interest Income and
Non-Interest Revenue 2,603 2,561 2,283 2,014 2,348
-------------------------------------------------------------------------
Non-Interest Expense
Employee compensation
(Note 9) 1,047 1,122 1,129 1,087 1,007
Premises and equipment
(Note 2) 302 313 339 327 338
Amortization of intangible
assets (Note 2) 50 48 54 51 48
Travel and business
development 81 73 73 82 95
Communications 58 55 57 51 57
Business and capital taxes (3) 19 13 15 11
Professional fees 97 91 82 92 113
Other 147 162 141 136 157
-------------------------------------------------------------------------
1,779 1,883 1,888 1,841 1,826
-------------------------------------------------------------------------
Restructuring Reversal
(Note 10) - (10) - - (8)
-------------------------------------------------------------------------
Income Before Provision
for (Recovery of) Income
Taxes and Non-Controlling
Interest in Subsidiaries 824 688 395 173 530
Provision for (Recovery
of) Income taxes 158 112 18 (71) (49)
-------------------------------------------------------------------------
666 576 377 244 579
Non-controlling interest
in subsidiaries 19 19 19 19 19
-------------------------------------------------------------------------
Net Income $ 647 $ 557 $ 358 $ 225 $ 560
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Preferred share
dividends $ 38 $ 33 $ 26 $ 23 $ 25
Net income available
to common
shareholders $ 609 $ 524 $ 332 $ 202 $ 535
Average common shares
(in thousands) 550,495 547,134 543,634 520,020 503,004
Average diluted common
shares (in thousands) 554,151 549,968 544,327 523,808 506,591
-------------------------------------------------------------------------
Earnings Per Share
(Canadian $)
Basic $ 1.12 $ 0.97 $ 0.61 $ 0.39 $ 1.06
Diluted 1.11 0.97 0.61 0.39 1.06
Dividends Declared
Per Common Share 0.70 0.70 0.70 0.70 0.70
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the twelve
months ended
-------------------------------------------
October October
31, 2009 31, 2008
-------------------------------------------
Interest, Dividend
and Fee Income
Loans $ 7,960 $ 10,614
Securities 2,427 3,191
Deposits with banks 186 930
-------------------------------------------
10,573 14,735
-------------------------------------------
Interest Expense
Deposits 4,041 7,341
Subordinated debt 135 222
Capital trust securities
and preferred shares 80 91
Other liabilities 747 2,009
-------------------------------------------
5,003 9,663
-------------------------------------------
Net Interest Income 5,570 5,072
Provision for credit
losses (Note 3) 1,603 1,330
-------------------------------------------
Net Interest Income
After Provision for
Credit Losses 3,967 3,742
-------------------------------------------
Non-Interest Revenue
Securities commissions
and fees 973 1,105
Deposit and payment
service charges 820 756
Trading revenues 723 546
Lending fees 556 429
Card fees 121 291
Investment management
and custodial fees 344 339
Mutual fund revenues 467 589
Securitization revenues 929 513
Underwriting and
advisory fees 397 353
Securities gains
(losses), other than
trading (354) (315)
Foreign exchange, other
than trading 53 80
Insurance income 295 237
Other 170 210
-------------------------------------------
5,494 5,133
-------------------------------------------
Net Interest Income and
Non-Interest Revenue 9,461 8,875
-------------------------------------------
Non-Interest Expense
Employee compensation
(Note 9) 4,385 3,976
Premises and equipment
(Note 2) 1,281 1,241
Amortization of intangible
assets (Note 2) 203 183
Travel and business
development 309 328
Communications 221 202
Business and capital taxes 44 42
Professional fees 362 384
Other 586 546
-------------------------------------------
7,391 6,902
-------------------------------------------
Restructuring Reversal
(Note 10) (10) (8)
-------------------------------------------
Income Before Provision
for (Recovery of) Income
Taxes and Non-Controlling
Interest in Subsidiaries 2,080 1,981
Provision for (Recovery
of) Income taxes 217 (71)
-------------------------------------------
1,863 2,052
Non-controlling interest
in subsidiaries 76 74
-------------------------------------------
Net Income $ 1,787 $ 1,978
-------------------------------------------
-------------------------------------------
Preferred share
dividends $ 120 $ 73
Net income available
to common
shareholders $ 1,667 $ 1,905
Average common shares
(in thousands) 540,294 502,062
Average diluted common
shares (in thousands) 542,313 506,697
-------------------------------------------
Earnings Per Share
(Canadian $)
Basic $ 3.09 $ 3.79
Diluted 3.08 3.76
Dividends Declared
Per Common Share 2.80 2.80
-------------------------------------------
-------------------------------------------
The accompanying notes are an integral part of these interim consolidated
financial statements.
Certain comparative figures have been reclassified to conform with the
current period's presentation.
Interim Consolidated Financial Statements
Consolidated Balance Sheet
(Unaudited)
(Canadian $ in millions) As at
-------------------------------------------------------------------------
October July April January October
31, 2009 31, 2009 30, 2009 31, 2009 31, 2008
-------------------------------------------------------------------------
Assets
Cash and Cash
Equivalents $ 9,955 $ 10,758 $ 10,247 $ 16,951 $ 9,134
-------------------------------------------------------------------------
Interest Bearing
Deposits with Banks 3,340 3,809 3,985 9,439 11,971
-------------------------------------------------------------------------
Securities
Trading 59,071 66,152 66,704 61,752 66,032
Available-for-sale 50,303 42,559 39,295 35,189 32,115
Other 1,439 1,436 1,501 1,517 1,991
-------------------------------------------------------------------------
110,813 110,147 107,500 98,458 100,138
-------------------------------------------------------------------------
Securities Borrowed
or Purchased Under
Resale Agreements 36,006 45,250 38,521 32,283 28,033
-------------------------------------------------------------------------
Loans
Residential mortgages 45,524 48,760 48,052 50,107 49,343
Consumer instalment
and other personal 45,824 44,466 44,316 44,355 43,737
Credit cards 2,574 2,383 2,100 2,105 2,120
Businesses and
governments 68,169 70,705 77,271 84,557 84,151
-------------------------------------------------------------------------
162,091 166,314 171,739 181,124 179,351
Customers' liability
under acceptances 7,640 9,042 9,736 10,716 9,358
Allowance for credit
losses (Note 3) (1,902) (1,798) (1,825) (1,741) (1,747)
-------------------------------------------------------------------------
167,829 173,558 179,650 190,099 186,962
-------------------------------------------------------------------------
Other Assets
Derivative instruments 47,898 59,580 77,473 81,985 65,586
Premises and equipment
(Note 2) 1,634 1,642 1,684 1,709 1,721
Goodwill 1,569 1,551 1,670 1,706 1,635
Intangible assets
(Note 2) 660 647 671 676 710
Other 8,754 8,419 10,844 9,868 10,160
-------------------------------------------------------------------------
60,515 71,839 92,342 95,944 79,812
-------------------------------------------------------------------------
Total Assets $ 388,458 $ 415,361 $ 432,245 $ 443,174 $ 416,050
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and
Shareholders' Equity
Deposits
Banks $ 22,973 $ 23,211 $ 27,874 $ 31,422 $ 30,346
Businesses and
governments 113,738 122,269 118,205 133,388 136,111
Individuals 99,445 99,473 101,090 99,770 91,213
-------------------------------------------------------------------------
236,156 244,953 247,169 264,580 257,670
-------------------------------------------------------------------------
Other Liabilities
Derivative instruments 44,765 58,570 75,070 77,764 60,048
Acceptances 7,640 9,042 9,736 10,716 9,358
Securities sold but
not yet purchased 12,064 12,717 14,131 16,327 18,792
Securities lent or
sold under repurchase
agreements 46,312 48,816 46,170 36,012 32,492
Other 15,938 16,149 14,708 12,969 14,071
-------------------------------------------------------------------------
126,719 145,294 159,815 153,788 134,761
-------------------------------------------------------------------------
Subordinated Debt
(Note 11) 4,236 4,249 4,379 4,389 4,315
-------------------------------------------------------------------------
Capital Trust Securities 1,150 1,150 1,150 1,150 1,150
-------------------------------------------------------------------------
Preferred Share Liability
(Note 12) - - - - 250
-------------------------------------------------------------------------
Shareholders' Equity
Share capital (Note 12) 8,769 8,626 8,099 7,676 6,454
Contributed surplus 79 78 77 76 69
Retained earnings 11,748 11,525 11,391 11,434 11,632
Accumulated other
comprehensive income
(loss) (399) (514) 165 81 (251)
-------------------------------------------------------------------------
20,197 19,715 19,732 19,267 17,904
-------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $ 388,458 $ 415,361 $ 432,245 $ 443,174 $ 416,050
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of these interim consolidated
financial statements.
Certain comparative figures have been reclassified to conform with the
current period's presentation.
Interim Consolidated Financial Statements
Consolidated Statement of Comprehensive Income
(Unaudited) For the three For the twelve
(Canadian $ in millions) months ended months ended
-------------------------------------------------------------------------
October October October October
31, 2009 31, 2008 31, 2009 31, 2008
-------------------------------------------------------------------------
Net income $ 647 $ 560 $ 1,787 $ 1,978
Other Comprehensive Income
Net change in unrealized
gains (losses) on
available-for-sale
securities 200 (133) 554 (109)
Net change in unrealized
gains (losses) on cash
flow hedges (100) 230 (244) 424
Net gain (loss) on
translation of net foreign
operations 15 696 (458) 967
-------------------------------------------------------------------------
Total Comprehensive Income $ 762 $ 1,353 $ 1,639 $ 3,260
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited) For the three For the twelve
(Canadian $ in millions) months ended months ended
-------------------------------------------------------------------------
October October October October
31, 2009 31, 2008 31, 2009 31, 2008
-------------------------------------------------------------------------
Preferred Shares
Balance at beginning of
period $ 2,571 $ 1,746 $ 1,746 $ 1,196
Issued during the period
(Note 12) - - 825 550
-------------------------------------------------------------------------
Balance at End of Period 2,571 1,746 2,571 1,746
-------------------------------------------------------------------------
Common Shares
Balance at beginning of period 6,055 4,712 4,773 4,411
Issued during the period
(Note 12) - - 1,000 -
Issued under the Shareholder
Dividend Reinvestment and
Share Purchase Plan 107 35 338 122
Issued under the Stock
Option Plan 36 26 87 60
Issued on the acquisition
of a business - - - 180
-------------------------------------------------------------------------
Balance at End of Period 6,198 4,773 6,198 4,773
-------------------------------------------------------------------------
Treasury shares (Note 12) - (65) - (65)
-------------------------------------------------------------------------
Contributed Surplus
Balance at beginning of period 78 68 69 58
Stock option expense/exercised 1 1 8 11
Premium on treasury shares - - 2 -
-------------------------------------------------------------------------
Balance at End of Period 79 69 79 69
-------------------------------------------------------------------------
Retained Earnings
Balance at beginning of period 11,525 11,471 11,632 11,166
Net income 647 560 1,787 1,978
Dividends - Preferred shares (38) (25) (120) (73)
- Common shares (386) (355) (1,530) (1,410)
Share issue expense - - (32) (10)
Treasury shares - (19) 11 (19)
-------------------------------------------------------------------------
Balance at End of Period 11,748 11,632 11,748 11,632
-------------------------------------------------------------------------
Accumulated Other
Comprehensive Income (Loss)
on Available-for-Sale
Securities
Balance at beginning of period 280 59 (74) 35
Unrealized gains (losses) on
available-for-sale securities
arising during the period
(net of income tax (provision)
recovery of $(92), $112,
$(253) and $137) 213 (226) 491 (280)
Reclassification to earnings
of (gains) losses in the
period (net of income tax
(provision) recovery of $5,
$(47), $(26) and $(84)) (13) 93 63 171
-------------------------------------------------------------------------
Balance at End of Period 480 (74) 480 (74)
-------------------------------------------------------------------------
Accumulated Other
Comprehensive Income on
Cash Flow Hedges
Balance at beginning of period 114 28 258 (166)
Gains (losses) on cash flow
hedges arising during the
period (net of income tax
(provision) recovery of $31,
$(102), $64 and $(173)) (61) 222 (153) 363
Reclassification to earnings
of (gains) losses on cash
flow hedges (net of income
tax (provision) recovery of
$18, $(6), $44 and $(31)) (39) 8 (91) 61
-------------------------------------------------------------------------
Balance at End of Period 14 258 14 258
-------------------------------------------------------------------------
Accumulated Other
Comprehensive Loss on
Translation of Net Foreign
Operations
Balance at beginning of period (908) (1,131) (435) (1,402)
Unrealized gain (loss) on
translation of net foreign
operations 42 1,926 (1,331) 2,726
Impact of hedging unrealized
gain (loss) on translation
of net foreign operations
(net of income tax (provision)
recovery of $12, $629,
$(382) and $881) (27) (1,230) 873 (1,759)
-------------------------------------------------------------------------
Balance at End of Period (893) (435) (893) (435)
-------------------------------------------------------------------------
Total Accumulated Other
Comprehensive Loss (399) (251) (399) (251)
-------------------------------------------------------------------------
Total Shareholders' Equity $ 20,197 $ 17,904 $ 20,197 $ 17,904
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of these interim consolidated
financial statements.
Interim Consolidated Financial Statements
Consolidated Statement of Cash Flows
(Unaudited) For the three For the twelve
(Canadian $ in millions) months ended months ended
-------------------------------------------------------------------------
October October October October
31, 2009 31, 2008 31, 2009 31, 2008
-------------------------------------------------------------------------
Cash Flows from Operating
Activities
Net income $ 647 $ 560 $ 1,787 $ 1,978
Adjustments to determine
net cash flows provided
by (used in) operating
activities
Impairment write-down of
securities, other than
trading 19 189 301 324
Net (gain) loss on
securities, other than
trading (33) 63 53 (9)
Net (increase) decrease in
trading securities 9,536 (1,235) 7,207 8,275
Provision for credit losses 386 465 1,603 1,330
(Gain) on sale of
securitized loans (Note 4) (146) (132) (700) (420)
Change in derivative
instruments
- (Increase) decrease in
derivative asset 11,777 (20,421) 14,010 (29,370)
- Increase (decrease) in
derivative liability (13,804) 19,174 (9,510) 20,645
Amortization of premises
and equipment 60 65 269 252
Amortization of intangible
assets 50 48 203 183
Net (increase) decrease
in future income taxes 347 (309) 186 (157)
Net (increase) decrease
in current income taxes (211) 554 296 (314)
Change in accrued interest
- (Increase) decrease in
interest receivable (150) (130) 387 303
- Increase (decrease) in
interest payable (71) 22 (492) (351)
Changes in other items and
accruals, net (2,455) 3,525 (2,796) 1,590
(Gain) on sale of land and
buildings (4) - (10) (13)
-------------------------------------------------------------------------
Net Cash Provided by
Operating Activities 5,948 2,438 12,794 4,246
-------------------------------------------------------------------------
Cash Flows from Financing
Activities
Net (decrease) in deposits (9,550) (7,336) (11,149) (1,412)
Net increase (decrease) in
securities sold but not
yet purchased (660) 711 (6,446) (7,251)
Net increase (decrease) in
securities lent or sold
under repurchase agreements (2,596) 1,155 17,467 (3,731)
Net increase (decrease) in
liabilities of subsidiaries 1 (9) (113) 2,045
Repayment of subordinated
debt (Note 11) - - (140) (150)
Proceeds from issuance of
subordinated debt (Note 11) - - - 900
Redemption of preferred
share liability (Note 12) - - (250) -
Proceeds from issuance of
preferred shares (Note 12) - - 825 550
Proceeds from issuance of
common shares (Note 12) 36 26 1,087 60
Share issue expense - - (32) (10)
Cash dividends paid (317) (345) (1,312) (1,361)
-------------------------------------------------------------------------
Net Cash (Used in)
Financing Activities (13,086) (5,798) (63) (10,360)
-------------------------------------------------------------------------
Cash Flows from Investing
Activities
Net decrease in interest
bearing deposits with banks 469 8,153 8,656 10,077
Purchases of securities,
other than trading (10,377) (4,436) (41,041) (21,303)
Maturities of securities,
other than trading 1,740 2,796 10,800 16,984
Proceeds from sales of
securities, other than trading 5,191 1,301 18,917 8,268
Net (increase) in loans (748) (12,799) (3,107) (28,507)
Proceeds from securitization
of loans (Note 4) 798 5,677 6,796 11,448
Net (increase) decrease in
securities borrowed or
purchased under resale
agreements 9,276 8,333 (10,985) 14,665
Proceeds from sales of land
and buildings 5 - 17 19
Premises and equipment
- net purchases (39) (110) (204) (285)
Purchased and developed
software - net purchases (36) (57) (176) (164)
Acquisitions (Note 8) (12) (2) (328) (155)
-------------------------------------------------------------------------
Net Cash Provided By (Used in)
Investing Activities 6,267 8,856 (10,655) 11,047
-------------------------------------------------------------------------
Effect of Exchange Rate
Changes on Cash and Cash
Equivalents 68 394 (1,255) 551
-------------------------------------------------------------------------
Net Increase (Decrease) in
Cash and Cash Equivalents (803) 5,890 821 5,484
Cash and Cash Equivalents at
Beginning of Period 10,758 3,244 9,134 3,650
-------------------------------------------------------------------------
Cash and Cash Equivalents at
End of Period $ 9,955 $ 9,134 $ 9,955 $ 9,134
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Represented by:
Cash and non-interest bearing
deposits with Bank of Canada
and other banks $ 8,656 $ 6,936 $ 8,656 $ 6,936
Cheques and other items in
transit, net 1,299 2,198 1,299 2,198
-------------------------------------------------------------------------
$ 9,955 $ 9,134 $ 9,955 $ 9,134
-------------------------------------------------------------------------
Supplemental Disclosure of
Cash Flow Information
Amount of interest paid
in the period $ 929 $ 2,001 $ 5,507 $ 9,900
Amount of income taxes paid
(refunded) in the period $ 17 $ (284) $ (232) $ 456
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of these interim consolidated
financial statements.
Certain comparative figures have been reclassified to conform with the
current period's presentation.
Notes to Consolidated Financial Statements
October 31, 2009 (Unaudited)
-------------------------------------------------------------------------
Note 1: Basis of Presentation
These interim consolidated financial statements should be read in
conjunction with the notes to our annual consolidated financial
statements for the year ended October 31, 2008 as set out on pages 108 to
151 of our 2008 Annual Report. These interim consolidated financial
statements have been prepared in accordance with Canadian generally
accepted accounting principles ("GAAP") using the same accounting
policies and methods of computation as were used for our annual
consolidated financial statements for the year ended October 31, 2008,
except as described in Note 2.
Note 2: Change in Accounting Policy
On November 1, 2008, we adopted the Canadian Institute of Chartered
Accountants' ("CICA") new accounting requirements for goodwill and
intangible assets. We have restated prior periods' financial statements
for this change. The new rules required us to reclassify certain computer
software from premises and equipment to intangible assets.
The impact of this change in accounting policy on the current and prior
periods is as follows:
(Canadian $ in millions)
-------------------------------------------------------------------------
October July April January October
31, 2009 31, 2009 30, 2009 31, 2009 31, 2008
-------------------------------------------------------------------------
Consolidated Balance
Sheet
(Decrease) in Premises
and Equipment $ (513) $ (510) $ (510) $ (515) $ (506)
Increase in
Intangible Assets 513 510 510 515 506
-------------------------------------------------------------------------
Consolidated Statement
of Income
(Decrease) in Premises
and Equipment $ (40) $ (36) $ (42) $ (41) $ (37)
Increase in
Amortization of
Intangible Assets 40 36 42 41 37
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The following table outlines the restated software intangible assets for
the current and prior periods:
(Canadian $ in millions)
-------------------------------------------------------------------------
October July April January October
31, 2009 31, 2009 30, 2009 31, 2009 31, 2008
-------------------------------------------------------------------------
Intangible Assets
Purchased
Software(1) $ 546 $ 1,021 $ 1,006 $ 1,009 $ 1,003
Developed
Software(1)(2) 815 771 774 743 696
-------------------------------------------------------------------------
Software Intangible
Assets 1,361 1,792 1,780 1,752 1,699
-------------------------------------------------------------------------
Accumulated
Amortization (848) (1,282) (1,270) (1,237) (1,193)
-------------------------------------------------------------------------
Carrying Value $ 513 $ 510 $ 510 $ 515 $ 506
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Amortized on a straight-line basis over its useful life up to a
maximum of five years.
(2) Includes $nil as at October 31, 2009, $67 million as at July 31,
2009, $55 million as at April 30, 2009, $58 million as at January 31,
2009, and $55 million as at October 31, 2008 of software in
development which is not subject to amortization.
Note 3: Allowance for Credit Losses
The allowance for credit losses recorded in our Consolidated Balance
Sheet is maintained at a level which we consider adequate to absorb
credit-related losses on our loans, customers' liability under
acceptances and other credit instruments. The portion related to other
credit instruments is recorded in other liabilities in our Consolidated
Balance Sheet. As at October 31, 2009 and 2008, there was no allowance
for credit losses related to other credit instruments included in other
liabilities.
A continuity of our allowance for credit losses is as follows:
(Canadian $ in millions)
-------------------------------------------------------------------------
Credit card,
consumer instalment
Residential and other Business and
mortgages personal loans government loans
-------------------------------------------------------------------------
For the three October October October October October October
months ended 31, 2009 31, 2008 31, 2009 31, 2008 31, 2009 31, 2008
-------------------------------------------------------------------------
Specific
Allowance at
beginning of
period $ 29 $ 15 $ 45 $ 1 $ 426 $ 411
Provision for
credit losses 9 2 163 113 209 200
Recoveries - - 27 21 15 2
Write-offs (5) (4) (184) (133) (146) (250)
Foreign
exchange
and other - - - - 3 48
-------------------------------------------------------------------------
Specific
Allowance at
end of period 33 13 51 2 507 411
-------------------------------------------------------------------------
General
Allowance at
beginning of
period 19 8 247 349 983 661
Provision for
credit losses (1) - 19 (107) (18) 265
Foreign
exchange
and other - - - - 3 104
-------------------------------------------------------------------------
General
Allowance at
end of period 18 8 266 242 968 1,030
-------------------------------------------------------------------------
Total
Allowance $ 51 $ 21 $ 317 $ 244 $ 1,475 $ 1,441
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-----------------------------------------------------
Customers'
liability
under acceptances Total
-----------------------------------------------------
For the three October October October October
months ended 31, 2009 31, 2008 31, 2009 31, 2008
-----------------------------------------------------
Specific
Allowance at
beginning of
period $ - $ - $ 500 $ 427
Provision for
credit losses 5 - 386 315
Recoveries - - 42 23
Write-offs - - (335) (387)
Foreign
exchange
and other - - 3 48
-----------------------------------------------------
Specific
Allowance at
end of period 5 - 596 426
-----------------------------------------------------
General
Allowance at
beginning of
period 54 49 1,303 1,067
Provision for
credit losses - (8) - 150
Foreign
exchange
and other - - 3 104
-----------------------------------------------------
General
Allowance at
end of period 54 41 1,306 1,321
-----------------------------------------------------
Total
Allowance $ 59 $ 41 $ 1,902 $ 1,747
-----------------------------------------------------
-----------------------------------------------------
-------------------------------------------------------------------------
Credit card,
consumer instalment
Residential and other Business and
mortgages personal loans government loans
-------------------------------------------------------------------------
For the
twelve October October October October October October
months ended 31, 2009 31, 2008 31, 2009 31, 2008 31, 2009 31, 2008
-------------------------------------------------------------------------
Specific
Allowance at
beginning of
period $ 13 $ 14 $ 2 $ 1 $ 411 $ 142
Provision for
credit losses 26 5 624 332 888 733
Recoveries - - 104 91 41 23
Write-offs (6) (6) (679) (422) (807) (542)
Foreign
exchange
and other - - - - (26) 55
-------------------------------------------------------------------------
Specific
Allowance at
end of period 33 13 51 2 507 411
-------------------------------------------------------------------------
General
Allowance at
beginning of
period 8 11 242 327 1,030 517
Provision for
credit losses 10 (3) 24 (85) 13 350
Foreign
exchange
and other - - - - (75) 163
-------------------------------------------------------------------------
General
Allowance at
end of period 18 8 266 242 968 1,030
-------------------------------------------------------------------------
Total
Allowance $ 51 $ 21 $ 317 $ 244 $ 1,475 $ 1,441
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-----------------------------------------------------
Customers'
liability
under acceptances Total
-----------------------------------------------------
For the
twelve October October October October
months ended 31, 2009 31, 2008 31, 2009 31, 2008
-----------------------------------------------------
Specific
Allowance at
beginning of
period $ - $ - $ 426 $ 157
Provision for
credit losses 5 - 1,543 1,070
Recoveries - - 145 114
Write-offs - - (1,492) (970)
Foreign
exchange
and other - - (26) 55
-----------------------------------------------------
Specific
Allowance at
end of period 5 - 596 426
-----------------------------------------------------
General
Allowance at
beginning of
period 41 43 1,321 898
Provision for
credit losses 13 (2) 60 260
Foreign
exchange
and other - - (75) 163
-----------------------------------------------------
General
Allowance at
end of period 54 41 1,306 1,321
-----------------------------------------------------
Total
Allowance $ 59 $ 41 $ 1,902 $ 1,747
-----------------------------------------------------
-----------------------------------------------------
Note 4: Securitization
The following tables summarize our securitization activity related to our
assets and its impact on our Consolidated Statement of Income for the
three and twelve months ended October 31, 2009 and 2008:
(Canadian $ in millions)
-------------------------------------------------------------------------
Residential
mortgages Credit card loans Total
-------------------------------------------------------------------------
For the three October October October October October October
months ended 31, 2009 31, 2008 31, 2009 31, 2008 31, 2009 31, 2008
-------------------------------------------------------------------------
Net cash
proceeds(1) $ 795 $ 4,097 $ - $ 1,500 $ 795 $ 5,597
Investment in
securitization
vehicles(2) - - - 119 - 119
Deferred
purchase price 28 138 - 35 28 173
Servicing
liability (4) (27) - (8) (4) (35)
-------------------------------------------------------------------------
819 4,208 - 1,646 819 5,854
Loans sold 798 4,198 - 1,622 798 5,820
-------------------------------------------------------------------------
Gain on sale
of loans
from new
securiti-
zations $ 21 $ 10 $ - $ 24 $ 21 $ 34
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gain on sale
of loans
sold to
revolving
securiti-
zation
vehicles $ 22 $ 18 $ 103 $ 80 $ 125 $ 98
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Residential
mortgages Credit card loans Total
-------------------------------------------------------------------------
For the
twelve October October October October October October
months ended 31, 2009 31, 2008 31, 2009 31, 2008 31, 2009 31, 2008
-------------------------------------------------------------------------
Net cash
proceeds(1) $ 6,761 $ 8,330 $ - $ 3,024 $ 6,761 $ 11,354
Investment in
securitization
vehicles(2) - - - 190 - 190
Deferred
purchase price 189 331 - 73 189 404
Servicing
liability (29) (55) - (14) (29) (69)
-------------------------------------------------------------------------
6,921 8,606 - 3,273 6,921 11,879
Loans sold 6,823 8,524 - 3,219 6,823 11,743
-------------------------------------------------------------------------
Gain on sale
of loans
from new
securiti-
zations $ 98 $ 82 $ - $ 54 $ 98 $ 136
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gain on sale
of loans
sold to
revolving
securiti-
zation
vehicles $ 146 $ 72 $ 456 $ 212 $ 602 $ 284
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Net cash proceeds represent cash proceeds less issuance costs.
(2) Includes credit card securities retained on-balance sheet by the
bank.
The key weighted-average assumptions used to value the deferred purchase
price for securitizations were as follows:
-------------------------------------------------------------------------
Residential
mortgages Credit card loans
-------------------------------------------------------------------------
For the three October October October October
months ended 31, 2009 31, 2008 31, 2009(1) 31, 2008
-------------------------------------------------------------------------
Weighted-average life
(years) 3.09 4.71 - 0.27
Prepayment rate (%) 16.00 14.00 - 39.99
Interest rate (%) 4.34 5.34 - 21.37
Expected credit losses (2) - - - 2.53
Discount rate (%) 1.89 3.83 - 10.21
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Residential
mortgages Credit card loans
-------------------------------------------------------------------------
For the twelve October October October October
months ended 31, 2009 31, 2008 31, 2009(1) 31, 2008
-------------------------------------------------------------------------
Weighted-average life
(years) 3.12 4.43 - 0.36
Prepayment rate (%) 23.73 13.74 - 40.34
Interest rate (%) 4.31 5.38 - 21.32
Expected credit losses (2) - - - 2.43
Discount rate (%) 2.18 4.04 - 10.23
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) There were no credit card securitization transactions in the three
and twelve months ended October 31, 2009.
(2) As the residential mortgages are fully insured, there are no expected
credit losses.
Note 5: Variable Interest Entities
Canadian Customer Securitization Vehicles
Customer securitization vehicles (also referred to as bank-sponsored
multi-seller conduits) assist our customers with the securitization of
their assets to provide them with alternate sources of funding.
Assets held by our unconsolidated Canadian customer securitization
vehicles amounted to $5,674 million as at October 31, 2009
($11,106 million as at October 31, 2008). Our exposure to losses relates
to our investment in commercial paper issued by the vehicles, derivative
contracts we have entered into with the vehicles and the liquidity
support we provide through backstop liquidity facilities. As at
October 31, 2009, we had an exposure of $328 million from commercial
paper held ($2,139 million as at October 31, 2008) classified as trading
securities. The total undrawn backstop liquidity facilities were
$5,819 million as at October 31, 2009 ($11,040 million as at October 31,
2008). No amounts have been drawn against the facilities as at
October 31, 2009 and 2008. The fair value of derivative assets
outstanding with these Variable Interest Entities ("VIEs") was recorded
in our Consolidated Balance Sheet as $44 million as at October 31, 2009
(derivative asset of $55 million as at October 31, 2008).
Included in our Consolidated Balance Sheet as at October 31, 2009, were
a loan of $560 million and $159 million of other assets relating to
three VIEs ($265 million of other assets relating to two VIEs as at
October 31, 2008) we consolidate as we absorb the majority of the
expected losses.
U.S. Customer Securitization Vehicle
Assets held by our unconsolidated U.S. customer securitization vehicle
amounted to $4,943 million (US$4,569 million) as at October 31, 2009
($7,993 million or US$6,636 million as at October 31, 2008). Our exposure
to losses in our U.S. customer securitization vehicle relates to
liquidity support we provide through liquidity facilities. As at
October 31, 2009, our exposure related to undrawn backstop liquidity
facilities amounted to $6,214 million (US$5,744 million) ($10,015 million
or US$8,315 million as at October 31, 2008). During the year ended
October 31, 2008, we provided funding of US$851 million in accordance
with the terms of these liquidity facilities. No funding was provided
for the year ending October 31, 2009. The amount outstanding related to
this funding as at October 31, 2009 was $158 million (US$146 million)
($538 million or US$447 million as at October 31, 2008). The fair value
of derivative assets outstanding with this vehicle was recorded in our
Consolidated Balance Sheet as $2 million (US$2 million) as at
October 31, 2009 (derivative asset of $1 million or US$1 million as at
October 31, 2008). We are not required to consolidate our U.S. customer
securitization vehicle.
Bank Securitization Vehicles
We use bank securitization vehicles to securitize our Canadian mortgage
loans and Canadian credit card loans to obtain alternate sources of
funding. Total assets held by these vehicles amounted to $9,719 million
as at October 31, 2009 and 2008, all of which relate to assets in
Canada. We are not required to consolidate our bank securitization
vehicles.
We provide liquidity support to our Canadian mortgage bank securitization
vehicles for the face value of the commercial paper outstanding. The
total contract amount of the liquidity support was $5,100 million as at
October 31, 2009 and 2008. No amounts were drawn as at October 31, 2009
and 2008. As at October 31, 2009, we held $55 million of the commercial
paper issued by these vehicles ($509 million as at October 31, 2008)
which was classified as trading securities.
The fair value of derivative assets we have outstanding with these
vehicles was recorded in our Consolidated Balance Sheet at $94 million as
at October 31, 2009 (derivative asset of $121 million as at October 31,
2008).
Credit Protection Vehicle
We sponsor a credit protection vehicle, Apex Trust ("Apex"), a VIE that
provides credit protection to investors on investments in corporate debt
portfolios through credit default swaps. Assets held by Apex were
$2,322 million as at October 31, 2009 ($2,794 million as at October 31,
2008). A senior funding facility of $1,130 million is available to Apex,
of which we provide $1,030 million. As at October 31, 2009, $112 million
had been drawn against our facility ($553 million as at October 31,
2008). We have also authorized a senior demand facility for Apex of
$1 billion. No amounts have been drawn against this facility. We have
entered into credit default swaps with swap counterparties and offsetting
swaps with Apex. The fair value of the swaps with Apex was $1,236 million
as at October 31, 2009 ($2,744 million as at October 31, 2008).
As at October 31, 2009, we hold mid-term notes ("MTNs") with a face value
of $1,415 million classified as trading securities. The fair value of
these notes was $833 million as at October 31, 2009 ($1,083 million as at
October 31, 2008). A third party holds its exposure to Apex through a
total return swap with us on $600 million of these MTNs as at October 31,
2009 and 2008. As at October 31, 2009 we have hedged our exposure to the
remaining $815 million of MTNs as well as the first $515 million of
exposure under the senior funding facility with credit default swaps.
These derivatives are classified as trading securities. We are not
required to consolidate Apex.
Structured Investment Vehicles
Structured investment vehicles ("SIVs") provide investment opportunities
in customized, diversified debt portfolios in a variety of asset and
rating classes. We hold interests in two SIVs and act as asset manager.
The fair value of assets held by these SIVs were US$5,513 million and
(euro) 631 million as at October 31, 2009 (US$6,824 million and (euro)
698 million as at October 31, 2008).
Our exposure to loss relates to our investments in these vehicles,
derivative contracts we have entered into with the vehicles and senior
funding we provide through a liquidity facility in order to fund the
repayment of senior notes. Our investment in the capital notes of the
SIVs was recorded in available-for-sale securities in our Consolidated
Balance Sheet, and was written down to $nil as at October 31, 2009 and
2008. Amounts drawn on the liquidity facility provided to the SIVs were
US$5,804 million and (euro) 597 million as at October 31, 2009
(US$3,716 million and (euro) 477 million as at October 31, 2008).
Liquidity facilities were US$5,988 million and (euro) 627 million as at
October 31, 2009 (US$7,672 million and (euro) 672 million as at
October 31, 2008). The fair value of the derivative assets we have
outstanding with the SIVs was recorded in our Consolidated Balance Sheet
at $12 million as at October 31, 2009 (derivative asset of $57 million as
at October 31, 2008). We are not required to consolidate these SIVs.
Note 6: Financial Instruments
Change in Accounting Policy
On August 20, 2009, the CICA released new accounting requirements
relating to the classification and measurement of financial assets. The
new standard redefined loans and receivables to include all non-
derivative financial assets with fixed or determinable repayment terms
which are not quoted in an active market. The standard also permits
reclassification of available-for-sale securities to loans when there is
no active market. Impairment on the reclassified debt securities will be
calculated in a manner consistent with our loan portfolio, based on our
assessment of the recoverability of principal and interest.
This change in accounting does not have any impact on our results of
operations or financial position since we were not required to and did
not elect to transfer any available-for-sale securities to loans.
On August 1, 2008, we elected to transfer securities from trading to
available-for-sale for which we had a change in intent caused by current
market circumstances to hold the securities for the foreseeable future
rather than to exit or trade them in the short term.
A continuity of the transferred securities is as follows:
(Canadian $ For the three For the twelve
in millions) months ended months ended
-------------------------------------------------------------------------
October July April January October October
31, 2009 31, 2009 30, 2009 31, 2009 31, 2009 31, 2008
-------------------------------------------------------------------------
Fair value of
securities
at beginning
of period $ 1,493 $ 1,732 $ 1,737 $ 1,955 $ 1,955 $ 2,078
Net (sales/
maturities)
purchases (162) (175) (54) (222) (613) (52)
Fair value
change
recorded
in Other
Comprehensive
Income 46 62 93 31 232 (183)
Other than
temporary
impairment
recorded in
income (18) (23) (8) (50) (99) (29)
Impact of
foreign
exchange 19 (103) (36) 23 (97) 141
-------------------------------------------------------------------------
Fair value of
securities
at end of
period $ 1,378 $ 1,493 $ 1,732 $ 1,737 $ 1,378 $ 1,955
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fair Value Measurement
We use a fair value hierarchy to categorize the inputs we use in
valuation techniques to measure fair value. The extent of our use of
quoted market prices (Level 1), internal models using observable market
information as inputs (Level 2) and internal models without observable
market information (Level 3) in the valuation of securities, fair value
liabilities, derivative assets and derivative liabilities were as
follows:
(Canadian $ in millions)
-------------------------------------------------------------------------
Available-for-sale Trading Fair value
securities securities liabilities
-------------------------------------------------------------------------
October October October October October October
31, 2009 31, 2008 31, 2009 31, 2008 31, 2009 31, 2008
-------------------------------------------------------------------------
Valued using
quoted market
prices $ 35,590 $ 14,560 $ 55,401 $ 62,294 $ 12,064 $ 18,792
Valued using
internal
models (with
observable
inputs) 12,271 14,655 3,184 3,258 2,473 2,493
Valued using
internal
models
(without
observable
inputs) 2,442 2,900 486 480 - -
-------------------------------------------------------------------------
Total $ 50,303 $ 32,115 $ 59,071 $ 66,032 $ 14,537 $ 21,285
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-----------------------------------------------------
Derivative Instruments
---------------------------------------
Asset Liability
-----------------------------------------------------
October October October October
31, 2009 31, 2008 31, 2009 31, 2008
-----------------------------------------------------
Valued using
quoted market
prices $ 1,881 $ 6,170 $ 813 $ 2,096
Valued using
internal
models (with
observable
inputs) 45,438 58,131 43,779 57,821
Valued using
internal
models
(without
observable
inputs) 579 1,285 173 131
-----------------------------------------------------
Total $ 47,898 $ 65,586 $ 44,765 $ 60,048
-----------------------------------------------------
-----------------------------------------------------
Sensitivity analysis for the most significant items valued using internal
models without observable inputs is described below.
Within trading securities as at October 31, 2009 was $165 million (face
value $323 million) of notes related to the Montreal Accord. The
valuation of these notes has been determined by management based on
expected discounted cash flows. The determination of the discount rate
used in the discounted cash flow model has the most significant impact on
the valuation of the notes and is impacted by changes in credit spreads
and the rating of the notes. The impact of assuming the discount rate
increased or decreased by 50 basis points would result in a change in
fair value of $(5) million and $5 million, respectively. Included in
available-for-sale securities is deferred purchase price of $727 million
related to our off-balance sheet securitization activities. The
valuation of the deferred purchase price has been determined by
management based on expected discounted cash flows that are determined
by prepayment rate and interest rate assumptions. The determination of
the interest rate (excess spread) used in the discounted cash flow model
has the most significant impact on the valuation of the deferred
purchase price. The impact of assuming a 10 percent increase or decrease
in the interest rate would result in a change in fair value of $101
million and $(101) million, respectively.
Within derivative assets and derivative liabilities as at October 31,
2009 was $568 million and $76 million, respectively, related to the mark-
to-market of credit default swaps and total return swaps on structured
products. The valuation of these derivatives has been determined by
management based on estimates of current market spreads for similar
structured products. The impact of assuming a 10 basis point increase or
decrease in that spread would result in a change in fair value of
$(4) million and $4 million, respectively.
Financial Liabilities Designated as Held for Trading
A portion of our structured note liabilities have been designated as
trading under the fair value option and are accounted for at fair value,
which better aligns the accounting result with the way the portfolio is
managed. The change in fair value of these structured notes was a
decrease in non-interest revenue, trading revenues of $39 million for the
quarter ended October 31, 2009, including a charge of $16 million
attributable to changes in our credit spread (an increase in non-
interest revenue, trading revenues of $53 million and a charge of $158
million, respectively for the twelve months ended October 31, 2009). We
recognized offsetting amounts on derivatives and other financial
instrument contracts that are held to hedge changes in the fair value of
these structured notes.
The change in fair value related to changes in our credit spread that has
been recognized since they were designated as held for trading to
October 31, 2009 was an unrealized loss of $42 million. In 2009, we
hedged the exposure to changes in our credit spreads and have recorded
$155 million of gains on these hedging instruments since inception.
The fair value and amount due at contractual maturity of structured notes
accounted for as held for trading as at October 31, 2009 were
$3,073 million and $3,377 million, respectively ($2,576 million and
$3,075 million, respectively, as at October 31, 2008).
Note 7: Guarantees
In the normal course of business we enter into a variety of guarantees.
The most significant guarantees are as follows:
Standby Letters of Credit and Guarantees
Standby letters of credit and guarantees represent our obligation to make
payments to third parties on behalf of another party if that party is
unable to make the required payments or meet other contractual
requirements. The maximum amount payable under standby letters of credit
and guarantees totalled $11,384 million as at October 31, 2009
($15,270 million as at October 31, 2008). Collateral requirements for
standby letters of credit and guarantees are consistent with our
collateral requirements for loans. A large majority of these commitments
expire without being drawn upon. As a result, the total contractual
amounts may not be representative of the funding likely to be required
for these commitments.
No amount was included in our Consolidated Balance Sheet as at
October 31, 2009 and 2008 related to these standby letters of credit and
guarantees.
Backstop and Other Liquidity Facilities
Backstop liquidity facilities are provided to Asset-Backed Commercial
Paper ("ABCP") programs administered by either us or third parties as an
alternative source of financing in the event that such programs are
unable to access ABCP markets or when predetermined performance measures
of the financial assets owned by these programs are not met. The terms of
the backstop liquidity facilities do not require us to advance money to
these programs in the event of bankruptcy of the borrower. The
facilities' terms are generally no longer than one year, but can be
several years.
The maximum amount payable under these backstop and other liquidity
facilities totalled $19,108 million as at October 31, 2009
($32,806 million as at October 31, 2008). As at October 31, 2009,
$185 million was outstanding from facilities drawn in accordance with the
terms of the backstop liquidity facilities ($656 million as at
October 31, 2008), of which $158 million (US$146 million) ($538 million
or US$447 million as at October 31, 2008) related to the U.S. customer
securitization vehicle discussed in Note 5.
Credit Enhancement Facilities
Where warranted, we provide partial credit enhancement facilities to
transactions within ABCP programs administered by either us or third
parties. Credit enhancement facilities are included in backstop liquidity
facilities. These facilities include amounts that relate to our U.S.
customer securitization vehicle discussed in Note 5.
Senior Funding Facilities
We also provide senior funding support to our SIVs and our credit
protection vehicle. The majority of these facilities support the
repayment of senior note obligations of the SIVs. As at October 31, 2009,
$7,342 million was drawn ($5,761 million as at October 31, 2008), in
accordance with the terms of the funding facilities related to the SIVs
and credit protection vehicle discussed in Note 5.
In addition to our investment in the notes subject to the Montreal
Accord, we have provided a senior loan facility of $300 million. No
amounts were drawn as at October 31, 2009.
Note 8: Acquisitions
We account for acquisitions of businesses using the purchase method. This
involves allocating the purchase price paid for a business to the assets
acquired, including identifiable intangible assets, and the liabilities
assumed, based on their fair values at the date of acquisition. Any
excess is then recorded as goodwill. The results of operations of
acquired businesses are included in our consolidated financial statements
beginning on the date of acquisition.
Integra GRS
On June 11, 2009, we announced that we had reached a definitive agreement
to purchase the record keeping business of Integra GRS ("Integra"), a
wholly owned subsidiary of Integra Capital Management Corporation for
cash consideration of $17 million, subject to a post-closing adjustment.
The acquisition of Integra will extend our existing wealth management
offering. The acquisition of Integra closed on November 23, 2009.
Integra will be part of our Private Client Group reporting segment.
Stoker Ostler Wealth Advisors, Inc.
On September 9, 2009, we completed the acquisition of all outstanding
voting shares of Stoker Ostler Wealth Advisors, Inc. ("SOWA"), for cash
consideration of $12 million, plus contingent consideration of up to
$9 million based on revenue to be generated in the future. The
acquisition of SOWA provides us with the opportunity to expand our
presence in the U.S. wealth advisory market. As part of this
acquisition, we acquired a customer relationship intangible asset which
is being amortized using an accelerated amortization method over a
period of five years. Goodwill related to this acquisition is deductible
for tax purposes. SOWA is part of our Private Client Group reporting
segment.
AIG Life Insurance Company of Canada
On April 1, 2009, we completed the acquisition of AIG Life Insurance
Company of Canada ("BMO Life Assurance"), for cash consideration of
$330 million, subject to a post-closing adjustment based on net assets.
The acquisition of BMO Life Assurance will provide our clients with a
wider range of investment, financial planning and insurance solutions. As
part of this acquisition, we acquired a customer relationship intangible
asset that is being amortized on a straight-line basis over five years, a
non-compete agreement that is being amortized on a straight-line basis
over two years, a computer software intangible asset which is being
amortized on a straight-line basis over five years, and other existing
computer software intangible assets which are being amortized on a
straight-line basis over five years. Goodwill related to this acquisition
is not deductible for tax purposes. BMO Life Assurance is part of our
Private Client Group reporting segment.
Future Acquisitions
Paloma Securities L.L.C.
On November 16, 2009, we announced that we had reached a definitive
agreement to purchase Paloma Securities L.L.C. ("Paloma") for cash
consideration of approximately $6 million, subject to a post-closing
adjustment. The acquisition of Paloma will provide us with the
opportunity to expand our securities lending operation. The acquisition
of Paloma is expected to close during the quarter ending January 31,
2010, subject to regulatory approval. Paloma will be part of our BMO
Capital Markets reporting segment.
Diners Club
On November 24, 2009, we announced that we had reached a definitive
agreement to purchase the net cardholder receivables of the Diners Club
North American franchise from Citigroup for total cash consideration of
approximately US$1 billion. The acquisition of the net cardholder
receivables of Diners Club will give us rights to issue Diners Club
cards to corporate and professional clients in the United States and
Canada and is expected to close before March 31, 2010, subject to
regulatory approval. Diners Club will be part of our Personal and
Commercial Banking Canada reporting segment.
The estimated fair values of the assets acquired and the liabilities
assumed at the date of acquisition are as follows:
(Canadian $ in millions)
-------------------------------------------------------------------------
BMO Life
SOWA Assurance
-------------------------------------------------------------------------
Cash resources $ - $ 352
Securities - 2,638
Loans - 54
Premises and equipment - 18
Goodwill 13 1
Intangible assets 8 15
Other assets - 142
-------------------------------------------------------------------------
Total assets 21 3,220
-------------------------------------------------------------------------
Other liabilities 9 2,890
-------------------------------------------------------------------------
Total liabilities 9 2,890
-------------------------------------------------------------------------
Purchase price $ 12 $ 330
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The allocation of the purchase price for SOWA and BMO Life Assurance is
subject to refinement as we complete the valuation of the assets acquired
and liabilities assumed.
Note 9: Employee Compensation
Stock Options
During the twelve months ended October 31, 2009, we granted a total of
2,220,027 stock options. The weighted-average fair value of options
granted during the twelve months ended October 31, 2009 was $5.57 per
option. The following weighted-average assumptions were used to determine
the fair value of options on the date of grant:
For stock options granted during the twelve months ended October 31, 2009
-------------------------------------------------------------------------
Expected dividend yield 5.9%
Expected share price volatility 23.8%
Risk-free rate of return 2.6%
Expected period until exercise (in years) 6.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Changes to the input assumptions can result in different fair value
estimates.
Pension and Other Employee Future Benefit Expenses
Pension and other employee future benefit expenses are determined as
follows:
(Canadian $ in millions)
-------------------------------------------------------------------------
Pension Other employee
benefit plans future benefit plans
-------------------------------------------------------------------------
October October October October
For the three months ended 31, 2009 31, 2008 31, 2009 31, 2008
-------------------------------------------------------------------------
Benefits earned by employees $ 18 $ 27 $ 4 $ 5
Interest cost on accrued
benefit liability 64 65 12 12
Actuarial loss recognized
in expense 20 2 - 4
Amortization of plan
amendment costs 6 6 (3) (4)
Expected return on plan assets (62) (80) (1) (2)
-------------------------------------------------------------------------
Benefits expense 46 20 12 15
Canada and Quebec pension
plan expense 9 9 - -
Defined contribution expense 3 (2) - -
-------------------------------------------------------------------------
Total pension and other
employee future benefit
expenses $ 58 $ 27 $ 12 $ 15
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Pension Other employee
benefit plans future benefit plans
-------------------------------------------------------------------------
October October October October
For the twelve months ended 31, 2009 31, 2008 31, 2009 31, 2008
-------------------------------------------------------------------------
Benefits earned by employees $ 115 $ 141 $ 13 $ 19
Interest cost on accrued
benefit liability 259 236 50 51
Actuarial loss recognized
in expense 76 10 - 12
Amortization of plan
amendment costs 16 14 (8) (8)
Expected return on plan assets (245) (298) (5) (6)
-------------------------------------------------------------------------
Benefits expense 221 103 50 68
Canada and Quebec pension
plan expense 58 56 - -
Defined contribution expense 8 9 - -
-------------------------------------------------------------------------
Total pension and other
employee future benefit
expenses $ 287 $ 168 $ 50 $ 68
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 10: Restructuring Charge
The continuity of our 2007 restructuring charge is as follows:
Severance-related
(Canadian $ in millions) charges
-------------------------------------------------------------------------
Balance as at November 1, 2007 $ 96
Paid in the year ended October 31, 2008 (45)
Reversal in the year ended October 31, 2008 (8)
-------------------------------------------------------------------------
Balance as at October 31, 2008 43
Paid in the quarter ended January 31, 2009 (13)
-------------------------------------------------------------------------
Balance as at January 31, 2009 30
Paid in the quarter ended April 30, 2009 (7)
-------------------------------------------------------------------------
Balance as at April 30, 2009 23
Paid in the quarter ended July 31, 2009 (5)
Reversal in the quarter ended July 31, 2009 (10)
-------------------------------------------------------------------------
Balance as at July 31, 2009 8
Paid in the quarter ended October 31, 2009 (4)
-------------------------------------------------------------------------
Balance as at October 31, 2009 $ 4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Note 11: Subordinated Debt
During the quarter ended January 31, 2009, our $140 million 10.85%
Debentures, Series 12 matured.
During the quarter ended April 30, 2008, we issued $900 million of
subordinated debt under our Canadian Medium-Term Note Program. The issue,
Series F Medium-Term Notes, First Tranche, is due March 2023. Interest on
this issue is payable semi-annually at a fixed rate of 6.17% until
March 28, 2018, and at a floating rate equal to the rate on three month
Bankers' Acceptances plus 2.50%, paid quarterly, thereafter to maturity.
During the quarter ended April 30, 2008, we redeemed all of our 5.75%
Series A Medium-Term Notes, Second Tranche, due 2013, totalling
$150 million. The notes were redeemed at a redemption price of
100 percent of the principal amount plus unpaid accrued interest to the
redemption date.
Note 12: Share Capital
During the quarter ended July 31, 2009, we issued 16,000,000 5.4%
Non-Cumulative 5-year Rate Reset Class B Preferred shares, Series 23, at
a price of $25.00 per share, representing an aggregate issue price of
$400 million.
During the quarter ended April 30, 2009, we issued 11,000,000 6.5%
Non-Cumulative 5-year Rate Reset Class B Preferred shares, Series 21, at
a price of $25.00 per share, representing an aggregate issue price of
$275 million.
During the quarter ended January 31, 2009, we issued 33,340,000 common
shares at a price of $30.00 per share, representing an aggregate issue
price of $1.0 billion.
During the quarter ended January 31, 2009, we issued 6,000,000 6.5%
Non-Cumulative 5-year Rate Reset Class B Preferred shares, Series 18, at
a price of $25.00 per share, representing an aggregate issue price of
$150 million.
During the quarter ended January 31, 2009, we redeemed all of our
10,000,000 Non-Cumulative Class B Preferred shares, Series 6 that were
classified as preferred share liabilities, at a price of $25.00 per share
plus any declared and unpaid dividends to the date of redemption. This
represents an aggregate redemption price of approximately $253 million.
During the quarter ended July 31, 2008, we issued 12,000,000 5.2%
Non-Cumulative Rate Reset Class B Preferred shares, Series 16, at a price
of $25.00 per share, representing an aggregate issue price of
$300 million.
During the quarter ended April 30, 2008, we issued 10,000,000 5.8%
Non-Cumulative Perpetual Class B Preferred shares, Series 15, at a price
of $25.00 per share, representing an aggregate issue price of
$250 million.
On November 19, 2009, we announced that we had obtained all required
approvals from the Office of Superintendent of Financial Institutions
("OSFI") and the Toronto Stock Exchange to renew our normal course
issuer bid. This will allow us to repurchase up to 15,000,000 of our
common shares during the period from December 2, 2009 to December 1,
2010.
We did not repurchase any common shares under the existing normal course
issuer bid that expired on September 7, 2009 and pursuant to which we
were permitted to purchase up to 15,000,000 common shares.
Treasury Shares
When we purchase our common shares as part of our trading business, we
record the cost of those shares as a reduction in shareholders' equity.
If those shares are resold at a value higher than their cost, the premium
is recorded as an increase in contributed surplus. If those shares are
resold at a value below their cost, the discount is recorded as a
reduction first to contributed surplus and then to retained earnings for
any amounts in excess of total contributed surplus related to treasury
shares.
Share Capital Outstanding(a)
(Canadian $ in millions,
except as noted) October 31, 2009
-------------------------------------------------------------------------
Number of shares Amount Convertible into...
-------------------------------------------------------------------------
Preferred Shares -
Classified as Equity
Class B - Series 5 8,000,000 $ 200 -
Class B - Series 10(c) 12,000,000 396 common shares(b)
Class B - Series 13 14,000,000 350 -
Class B - Series 14 10,000,000 250 -
Class B - Series 15 10,000,000 250 -
Class B - Series 16 12,000,000 300 -
Class B - Series 18 6,000,000 150 -
Class B - Series 21 11,000,000 275 -
Class B - Series 23 16,000,000 400 -
-------------------------------------------------------------------------
2,571
Common Shares 551,715,904 6,198
-------------------------------------------------------------------------
Share Capital $ 8,769
-------------------------------------------------------------------------
Stock options issued under
stock option plan n/a 18,578,613 common
shares
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(a) For additional information refer to Notes 21 and 23 to our
consolidated financial statements for the year ended October 31, 2008
on pages 135 to 138 of our 2008 Annual Report.
(b) The number of shares issuable on conversion is not determinable until
the date of conversion.
(c) Face value is US$300 million.
n/a - not applicable
Note 13: Capital Management
Our objective is to maintain a strong capital position in a cost-
effective structure that: meets our target regulatory capital ratios and
internal assessment of risk-based capital; is consistent with our
targeted credit ratings; underpins our operating groups' business
strategies; and builds depositor confidence and long-term shareholder
value.
We have met our capital targets as at October 31, 2009. Our capital
position as at October 31, 2009 is detailed in the Capital Management
section on pages 13 and 14 of Management's Discussion and Analysis of
the Fourth Quarter Report to Shareholders.
Note 14: Risk Management
We have an enterprise-wide approach to the identification, measurement,
monitoring and management of risks faced across the organization. The key
financial instrument risks are classified as credit and counterparty,
market, liquidity and funding risk.
Credit and Counterparty Risk
We are exposed to credit risk from the possibility that counterparties
may default on their financial obligations to us. Credit risk arises
predominantly with respect to loans, over-the-counter derivatives and
other credit instruments. This is the most significant measurable risk
that we face.
Market Risk
Market risk is the potential for a negative impact on the balance sheet
and/or statement of income resulting from adverse changes in the value of
financial instruments as a result of changes in certain market variables.
These variables include interest rates, foreign exchange rates, equity
and commodity prices and their implied volatilities, as well as credit
spreads, credit migration and default. We incur market risk in our
trading and underwriting activities and structural banking activities.
Liquidity and Funding Risk
Liquidity and funding risk is the potential for loss if we are unable to
meet financial commitments in a timely manner at reasonable prices as
they fall due. It is our policy to ensure that sufficient liquid assets
and funding capacity are available to meet financial commitments,
including liabilities to depositors and suppliers, and lending,
investment and pledging commitments, even in times of stress. Managing
liquidity and funding risk is essential to maintaining both depositor
confidence and stability in earnings.
Key measures as at October 31, 2009 are outlined in the Risk Management
section on pages 10 to 12 of Management's Discussion and Analysis of the
Fourth Quarter Report to Shareholders.
Note 15: United States Generally Accepted Accounting Principles
Reporting under United States GAAP would have resulted in the following:
(Canadian $ in millions,
except earnings per share For the three For the twelve
figures) months ended months ended
-------------------------------------------------------------------------
October October October October
31, 2009 31, 2008 31, 2009 31, 2008
-------------------------------------------------------------------------
Net Income - Canadian GAAP $ 647 $ 560 $ 1,787 $ 1,978
United States GAAP adjustments (8) (133) 120 (110)
-------------------------------------------------------------------------
Net Income - United States GAAP $ 639 $ 427 $ 1,907 $ 1,868
-------------------------------------------------------------------------
Earnings Per Share
Basic - Canadian GAAP $ 1.12 $ 1.06 $ 3.09 $ 3.79
Basic - United States GAAP 1.10 0.79 3.31 3.57
Diluted - Canadian GAAP 1.11 1.06 3.08 3.76
Diluted - United States GAAP 1.10 0.79 3.30 3.54
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other-than-Temporary Impairment
During the quarter ended July 31, 2009, we adopted new United States
guidance issued by the Financial Accounting Standards Board which amended
the impairment assessment guidance and recognition principles of other-
than-temporary impairment for debt securities and enhanced the
presentation and disclosure requirements for debt and equity securities.
Under the new guidance, if a debt security is determined to be other-
than-temporarily impaired, the amount of the impairment equal to the
credit loss will be recorded in income and the remaining impairment
charge will be recorded in other comprehensive income. Under Canadian
GAAP, all impairment is recorded in income.
As a result of the adoption of this new guidance, we recorded a
cumulative-effect adjustment to reclassify $28 million before tax ($19
million after tax) from retained earnings to other comprehensive income
as of May 1, 2009 for United States GAAP reporting purposes. There were
no impairment charges recorded in other comprehensive income subsequent
to adoption.
Note 16: Operating and Geographic Segmentation
Operating Groups
We conduct our business through operating groups, each of which has a
distinct mandate. We determine our operating groups based on our
management structure and therefore these groups, and results attributed
to them, may not be comparable with those of other financial services
companies. We evaluate the performance of our groups using measures such
as net income, revenue growth, return on equity, net economic profit and
non-interest expense-to-revenue (productivity) ratio, as well as cash
operating leverage.
Personal and Commercial Banking
Personal and Commercial Banking ("P&C") is comprised of two operating
segments: Personal and Commercial Banking Canada and Personal and
Commercial Banking U.S.
Personal and Commercial Banking Canada
Personal and Commercial Banking Canada ("P&C Canada") offers a full range
of consumer and business products and services, including: everyday
banking, financing, investing and credit cards, as well as a full suite
of commercial and capital market products and financial advisory
services, through a network of branches, telephone banking, online
banking, mortgage specialists and automated banking machines. Effective
in the third quarter of 2009, the results of our term deposits business
are included in P&C Canada rather than Private Client Group, where the
business is now better aligned with P&C Canada's retail product strategy.
Prior periods have been restated to reflect this reclassification.
Personal and Commercial Banking U.S.
Personal and Commercial Banking U.S. ("P&C U.S.") offers a full range of
products and services to personal and business clients in select U.S.
Midwest markets through branches and direct banking channels such as
telephone banking, online banking and a network of automated banking
machines.
Private Client Group
Private Client Group ("PCG") brings together all of our wealth management
businesses. Operating under the BMO brand in Canada and Harris in the
United States, PCG serves a full range of client segments, from
mainstream to ultra-high net worth, as well as select institutional
market segments. We offer our clients a broad range of wealth management
products and solutions, including full-service, online brokerage and
insurance in Canada, and private banking and investment products in
Canada and the United States. Effective in the third quarter of 2009, all
of our insurance operations are included within PCG, bringing our
insurance capabilities and skill sets together as part of our wealth
management offering. Prior periods have been restated to reflect this
reclassification.
BMO Capital Markets
BMO Capital Markets ("BMO CM") combines all of our businesses serving
corporate, institutional and government clients. In Canada and the United
States, its clients span a broad range of industry sectors. BMO CM also
serves clients in the United Kingdom, Europe, Asia and Australia. It
offers clients complete financial solutions, including equity and debt
underwriting, corporate lending and project financing, mergers and
acquisitions, advisory services, merchant banking, securitization,
treasury and market risk management, debt and equity research and
institutional sales and trading.
Corporate Services
Corporate Services includes the corporate units that provide expertise
and governance support in areas such as strategic planning, law, finance,
internal audit, risk management, corporate communications, economics,
corporate marketing, human resources and learning. Operating results
include revenues and expenses associated with certain securitization
activities, the hedging of foreign-source earnings and activities related
to the management of certain balance sheet positions and our overall
asset liability structure.
Technology and Operations ("T&O") manages, maintains and provides
governance over our information technology, operations services, real
estate and sourcing. T&O focuses on enterprise-wide priorities that
improve quality and efficiency to deliver an excellent customer
experience.
Operating results for T&O are included with Corporate Services for
reporting purposes. However, costs of T&O services are transferred to the
three operating groups. As such, results for Corporate Services largely
reflect the other corporate units outlined above.
Corporate Services also includes residual revenues and expenses
representing the differences between actual amounts earned or incurred
and the amounts allocated to operating groups.
Basis of Presentation
The results of these operating segments are based on our internal
financial reporting systems. The accounting policies used in these
segments are generally consistent with those followed in the preparation
of our consolidated financial statements as disclosed in Notes 1 and 2.
Notable accounting measurement differences are the taxable equivalent
basis adjustment and the provision for credit losses, as described below.
Taxable Equivalent Basis
We analyze net interest income on a taxable equivalent basis ("teb") at
the operating group level. This basis includes an adjustment which
increases GAAP revenues and the GAAP provision for income taxes by an
amount that would raise revenues on certain tax-exempt securities to a
level that would incur tax at the statutory rate. The operating groups'
teb adjustments are eliminated in Corporate Services.
Analysis on a teb basis neutralizes the impact of investing in tax-exempt
or tax-advantaged securities rather than fully taxable securities with
higher yields. It reduces distortions in net interest income related to
the choice of tax-advantaged and taxable investments.
Provisions for Credit Losses
Provisions for credit losses are generally allocated to each group based
on expected losses for that group over an economic cycle. Differences
between expected loss provisions and provisions required under GAAP are
included in Corporate Services.
Inter-Group Allocations
Various estimates and allocation methodologies are used in the
preparation of the operating groups' financial information. We allocate
expenses directly related to earning revenue to the groups that earned
the related revenue. Expenses not directly related to earning revenue,
such as overhead expenses, are allocated to operating groups using
allocation formulas applied on a consistent basis. Operating group net
interest income reflects internal funding charges and credits on the
groups' assets, liabilities and capital, at market rates, taking into
account relevant terms and currency considerations. The offset of the net
impact of these charges and credits is reflected in Corporate Services.
Geographic Information
We operate primarily in Canada and the United States but we also have
operations in the United Kingdom, Europe, the Caribbean and Asia, which
are grouped in Other countries. We allocate our results by geographic
region based on the location of the unit responsible for managing the
related assets, liabilities, revenues and expenses, except for the
consolidated provision for credit losses, which is allocated based upon
the country of ultimate risk.
Our results and average assets, grouped by operating segment, are as
follows:
(Canadian $ in millions)
-------------------------------------------------------------------------
For the three
months ended Corporate Total
October 31, P&C P&C Servi- (GAAP
2009(2) Canada U.S. PCG BMO CM ces(1) basis)
-------------------------------------------------------------------------
Net interest
income $ 981 $ 209 $ 88 $ 338 $ (174) $ 1,442
Non-interest
revenue 404 61 457 556 69 1,547
-------------------------------------------------------------------------
Total Revenue 1,385 270 545 894 (105) 2,989
Provision for
credit losses 102 15 1 41 227 386
Amortization 28 18 8 10 46 110
Non-interest
expense 681 197 388 425 (22) 1,669
-------------------------------------------------------------------------
Income before
taxes and
non-controlling
interest in
subsidiaries 574 40 148 418 (356) 824
Income taxes 180 15 38 129 (204) 158
Non-controlling
interest in
subsidiaries - - - - 19 19
-------------------------------------------------------------------------
Net Income $ 394 $ 25 $ 110 $ 289 $ (171) $ 647
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average
Assets $125,825 $ 27,460 $ 13,189 $227,013 $ 15,293 $408,780
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill
(As At) $ 119 $ 984 $ 358 $ 106 $ 2 $ 1,569
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three
months ended Corporate Total
October 31, P&C P&C Servi- (GAAP
2008(2) Canada U.S. PCG BMO CM ces(1) basis)
-------------------------------------------------------------------------
Net interest
income $ 895 $ 212 $ 101 $ 362 $ (161) $ 1,409
Non-interest
revenue 390 58 405 360 191 1,404
-------------------------------------------------------------------------
Total Revenue 1,285 270 506 722 30 2,813
Provision for
credit losses 89 12 1 30 333 465
Amortization 33 22 6 11 41 113
Non-interest
expense 681 221 388 440 (25) 1,705
-------------------------------------------------------------------------
Income before
taxes and
non-controlling
interest in
subsidiaries 482 15 111 241 (319) 530
Income taxes 158 3 27 (49) (188) (49)
Non-controlling
interest in
subsidiaries - - - - 19 19
-------------------------------------------------------------------------
Net Income $ 324 $ 12 $ 84 $ 290 $ (150) $ 560
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average
Assets $127,856 $ 30,438 $ 9,220 $239,380 $ 2,165 $409,059
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill
(As At) $ 105 $ 1,070 $ 349 $ 109 $ 2 $ 1,635
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the twelve
months ended Corporate Total
October 31, P&C P&C Servi- (GAAP
2009(2) Canada U.S. PCG BMO CM ces(1) basis)
-------------------------------------------------------------------------
Net interest
income $ 3,738 $ 892 $ 353 $ 1,798 $ (1,211) $ 5,570
Non-interest
revenue 1,525 241 1,659 1,668 401 5,494
-------------------------------------------------------------------------
Total Revenue 5,263 1,133 2,012 3,466 (810) 11,064
Provision for
credit losses 387 68 5 170 973 1,603
Amortization 133 79 31 44 185 472
Non-interest
expense 2,710 816 1,505 1,831 47 6,909
-------------------------------------------------------------------------
Income before
taxes and
non-controlling
interest in
subsidiaries 2,033 170 471 1,421 (2,015) 2,080
Income taxes 641 61 90 361 (936) 217
Non-controlling
interest in
subsidiaries - - - - 76 76
-------------------------------------------------------------------------
Net Income $ 1,392 $ 109 $ 381 $ 1,060 $ (1,155) $ 1,787
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average
Assets $124,313 $ 30,894 $ 11,594 $258,974 $ 12,773 $438,548
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill
(As At) $ 119 $ 984 $ 358 $ 106 $ 2 $ 1,569
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the twelve
months ended Corporate Total
October 31, P&C P&C Servi- (GAAP
2008(2) Canada U.S. PCG BMO CM ces(1) basis)
-------------------------------------------------------------------------
Net interest
income $ 3,436 $ 748 $ 376 $ 1,207 $ (695) $ 5,072
Non-interest
revenue 1,442 242 1,770 1,233 446 5,133
-------------------------------------------------------------------------
Total Revenue 4,878 990 2,146 2,440 (249) 10,205
Provision for
credit losses 341 43 4 117 825 1,330
Amortization 133 74 23 42 163 435
Non-interest
expense 2,603 728 1,508 1,709 (89) 6,459
-------------------------------------------------------------------------
Income before
taxes and
non-controlling
interest in
subsidiaries 1,801 145 611 572 (1,148) 1,981
Income taxes 592 49 159 (139) (732) (71)
Non-controlling
interest in
subsidiaries - - - - 74 74
-------------------------------------------------------------------------
Net Income $ 1,209 $ 96 $ 452 $ 711 $ (490) $ 1,978
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average
Assets $125,343 $ 26,924 $ 8,658 $233,873 $ 2,811 $397,609
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill
(As At) $ 105 $ 1,070 $ 349 $ 109 $ 2 $ 1,635
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Corporate Services includes Technology and Operations.
(2) Operating groups report on a taxable equivalent basis - see Basis of
Presentation section.
Prior periods have been restated to give effect to the current period's
organizational structure and presentation changes.
Our results and average assets, allocated by geographic region, are as
follows:
(Canadian $ in millions)
-------------------------------------------------------------------------
For the three months United Other
ended October 31, 2009 Canada States countries Total
-------------------------------------------------------------------------
Net interest income $ 1,047 $ 352 $ 43 $ 1,442
Non-interest revenue 1,135 319 93 1,547
-------------------------------------------------------------------------
Total Revenue 2,182 671 136 2,989
Provision for credit losses 125 260 1 386
Amortization 79 29 2 110
Non-interest expense 1,174 456 39 1,669
-------------------------------------------------------------------------
Income before taxes and
non-controlling interest
in subsidiaries 804 (74) 94 824
Income taxes 177 (33) 14 158
Non-controlling interest
in subsidiaries 15 4 - 19
-------------------------------------------------------------------------
Net Income $ 612 $ (45) $ 80 $ 647
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average Assets $259,419 $121,983 $ 27,378 $408,780
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill (As At) $ 436 $ 1,109 $ 24 $ 1,569
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months United Other
ended October 31, 2008 Canada States countries Total
-------------------------------------------------------------------------
Net interest income $ 968 $ 365 $ 76 $ 1,409
Non-interest revenue 1,051 313 40 1,404
-------------------------------------------------------------------------
Total Revenue 2,019 678 116 2,813
Provision for credit losses 155 269 41 465
Amortization 78 34 1 113
Non-interest expense 1,239 432 34 1,705
-------------------------------------------------------------------------
Income before taxes and
non-controlling interest
in subsidiaries 547 (57) 40 530
Income taxes 4 (32) (21) (49)
Non-controlling interest
in subsidiaries 14 5 - 19
-------------------------------------------------------------------------
Net Income $ 529 $ (30) $ 61 $ 560
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average Assets $243,736 $134,035 $ 31,288 $409,059
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill (As At) $ 424 $ 1,192 $ 19 $ 1,635
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the twelve months United Other
ended October 31, 2009 Canada States countries Total
-------------------------------------------------------------------------
Net interest income $ 3,683 $ 1,582 $ 305 $ 5,570
Non-interest revenue 4,031 1,238 225 5,494
-------------------------------------------------------------------------
Total Revenue 7,714 2,820 530 11,064
Provision for credit losses 517 1,065 21 1,603
Amortization 335 132 5 472
Non-interest expense 4,895 1,857 157 6,909
-------------------------------------------------------------------------
Income before taxes and
non-controlling interest
in subsidiaries 1,967 (234) 347 2,080
Income taxes 351 (145) 11 217
Non-controlling interest
in subsidiaries 55 21 - 76
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Net Income $ 1,561 $ (110) $ 336 $ 1,787
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Average Assets $266,649 $142,478 $ 29,421 $438,548
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Goodwill (As At) $ 436 $ 1,109 $ 24 $ 1,569
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For the twelve months United Other
ended October 31, 2008 Canada States countries Total
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Net interest income $ 3,659 $ 1,110 $ 303 $ 5,072
Non-interest revenue 3,952 1,182 (1) 5,133
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Total Revenue 7,611 2,292 302 10,205
Provision for credit losses 340 942 48 1,330
Amortization 312 119 4 435
Non-interest expense 4,699 1,591 169 6,459
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Income before taxes and
non-controlling interest
in subsidiaries 2,260 (360) 81 1,981
Income taxes 197 (195) (73) (71)
Non-controlling interest
in subsidiaries 55 19 - 74
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Net Income $ 2,008 $ (184) $ 154 $ 1,978
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Average Assets $236,495 $129,260 $ 31,854 $397,609
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Goodwill (As At) $ 424 $ 1,192 $ 19 $ 1,635
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Prior periods have been restated to give effect to the current period's
organizational structure and presentation changes.
For further information: Media Relations Contacts: Ralph Marranca, Toronto, [email protected], (416) 867-3996; Ronald Monet, Montreal, [email protected], (514) 877-1873; Investor Relations Contacts: Viki Lazaris, Senior Vice-President, [email protected], (416) 867-6656, Steven Bonin, Director, [email protected], (416) 867-5452; Andrew Chin, Senior Manager, [email protected], (416) 867-7019; Chief Financial Officer, Russel Robertson, Chief Financial Officer [email protected], (416) 867-7360; Corporate Secretary, Blair Morrison, Senior Vice-President, Deputy General Counsel, Corporate Affairs & Corporate Secretary, [email protected], (416) 867-6785
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