Bank of Montreal 2013 Annual Report Download - page 23

MD&A
MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-GAAP Measures
Results and measures in this MD&A are presented on a GAAP basis. They
are also presented on an adjusted basis that excludes the impact of
certain items as set out in the following table. Management assesses
performance on a reported basis and on an adjusted basis and considers
both to be useful in assessing underlying ongoing business performance.
Presenting results on both bases provides readers with a better under-
standing of how management assesses results. It also permits readers
to assess the impact of certain specified items on results for the periods
presented and to better assess results excluding those items if they
consider the items to not be reflective of ongoing results. As such, the
(Canadian $ in millions, except as noted)
presentation may facilitate readers’ analysis of trends, as well as
comparisons with our competitors. Adjusted results and measures are
non-GAAP and as such do not have standardized meaning under GAAP.
They are unlikely to be comparable to similar measures presented by
other companies and should not be viewed in isolation from or as a
substitute for GAAP results.
Net economic profit represents net income available to common
shareholders, before deduction for the after-tax impact of the amor-
tization of acquisition-related intangible assets, less a charge for capital,
and is considered a reasonable measure of added economic value.
2013 2012 2011
Reported Results
Revenue 16,263 16,130 13,943
Provision for credit losses (589) (765) (1,212)
Non-interest expense (10,297) (10,238) (8,741)
Income before income taxes 5,377 5,127 3,990
Provision for income taxes (1,129) (938) (876)
Net income 4,248 4,189 3,114
EPS ($) 6.26 6.15 4.84
Adjusting Items (Pre-tax) (1)
Credit-related items on the M&I purchased performing loan portfolio (see below*) 406 407 173
M&I integration costs (2) (251) (402) (131)
M&I acquisition-related costs – – (87)
Hedge of foreign exchange risk on purchase of M&I (3) – – (20)
Amortization of acquisition-related intangible assets (4) (125) (134) (70)
Decrease (increase) in the collective allowance for credit losses (5) 2 82 (6)
Run-off structured credit activities (6) 40 264 (50)
Restructuring charge (7) (82) (173) –
Adjusting items included in reported pre-tax income (10) 44 (191)
Adjusting Items (After tax) (1)
Credit-related items on the M&I purchased performing loan portfolio (see below*) 250 251 107
M&I integration costs (2) (155) (250) (84)
M&I acquisition-related costs – – (62)
Hedge of foreign exchange risk on purchase of M&I (3) – – (14)
Amortization of acquisition-related intangible assets (4) (89) (96) (54)
Decrease (increase) in the collective allowance for credit losses (5) (9) 53 (4)
Run-off structured credit activities (6) 34 261 (50)
Restructuring charge (7) (59) (122) –
Adjusting items included in reported net income after tax (28) 97 (161)
Impact on EPS ($) (0.04) 0.15 (0.26)
Adjusted Results
Revenue 15,572 15,067 13,742
Provision for credit losses (359) (471) (1,108)
Non-interest expense (9,826) (9,513) (8,453)
Income before income taxes 5,387 5,083 4,181
Provision for income taxes (1,111) (991) (906)
Adjusted net income 4,276 4,092 3,275
EPS ($) 6.30 6.00 5.10
*Credit-related items on the M&I purchased performing loan portfolio are comprised of the following amounts:
Revenue (8) 638 783 271
Provision for credit losses
Specific provisions for credit losses (240) (291) (18)
Decrease (increase) in the collective allowance 8 (85) (80)
Increase in pre-tax income 406 407 173
Provision for income taxes (156) (156) (66)
Increase in reported net income after tax 250 251 107
Adjusted results and measures in this table are non-GAAP amounts or non-GAAP measures.
(1) Adjusting items are included in Corporate Services with the exception of the amortization of
acquisition-related intangible assets, which is charged to the operating groups.
(2) Included in non-interest expense, M&I integration costs in 2013 consist of amounts related
to system conversions and post-conversion activities, marketing costs in connection with
customer communications and rebranding activities, real estate costs, including write-
downs, consulting fees and restructuring charges.
(3) Recorded as a charge to net interest income.
(4) These expenses have been designated as adjusting items because the purchase decision
may not consider the amortization of acquisition-related intangible assets to be a relevant
expense. They were charged to the non-interest expense of the operating groups as follows:
– In fiscal 2013: Canadian P&C $11 million ($10 million after tax); U.S. P&C $76 million
($50 million after tax); Wealth Management $36 million ($27 million after tax); and BMO
Capital Markets $2 million before and after tax;
– In fiscal 2012: Canadian P&C $11 million ($10 million after tax); U.S. P&C $93 million
($64 million after tax); Wealth Management $29 million ($21 million after tax); and BMO
Capital Markets $1 million before and after tax;
– In fiscal 2011: Canadian P&C $9 million before and after tax; U.S. P&C $48 million
($35 million after tax); Wealth Management $12 million ($10 million after tax); and BMO
Capital Markets $1 million before and after tax.
(5) Changes in the collective allowance for credit losses on loans other than the M&I purchased
performing loan portfolio.
(6) Primarily comprised of valuation changes associated with these activities that are mainly
included in trading revenue in non-interest revenue.
(7) Restructuring charge to align our cost structure with the current and future business
environment as part of a broader effort to improve productivity that is underway.
(8) Recognition in net interest income of a portion of the credit mark on the M&I purchased
performing loan portfolio.
34 BMO Financial Group 196th Annual Report 2013