Bank of Montreal 2013 Annual Report Download - page 31

MD&A
MANAGEMENT’S DISCUSSION AND ANALYSIS
Provision for Credit Losses
The provision for credit losses (PCL) was $589 million in the current
year, down from $765 million in 2012. Adjusted PCL was $359 million,
down from $471 million in 2012. The decline in adjusted PCL reflects
decreases in provisions in all of our operating groups, offset in part by
lower recoveries on the purchased credit impaired loan portfolio.
Adjusting items this year included a $240 million specific provision
on the M&I purchased performing loan portfolio and a $10 million reduc-
tion in the collective allowance, compared to a $291 million specific
provision on the M&I purchased performing loan portfolio and a
$3 million increase in the collective allowance in 2012.
Adjusted PCL in 2013 represents 0.14% of average net loans and
acceptances, down from 0.21% in 2012. PCL as a percentage of average
net loans and acceptances also declined to 0.22% in 2013 from 0.31%
in 2012. This ratio, excluding amounts related to the purchased loan
portfolios, fell to 0.32% in 2013 from 0.42% in 2012. These positive
ratio trends reflect lower provisions across both our consumer and
commercial loan portfolios and all our operating groups, compared
to 2012.
On an operating group basis, most of our provisions relate to
Personal and Commercial Banking. In Canadian P&C, PCL decreased by
$41 million to $574 million in 2013, driven by lower provisions in the
consumer loan portfolio. U.S. P&C PCL was $223 million, down
$51 million from 2012, primarily reflecting better credit quality in the
consumer loan portfolio. Wealth Management PCL was $3 million in
2013, a decrease of $19 million from the previous year, which included
a larger than usual write-down on a single commercial account. BMO
Capital Markets recorded a net recovery of $36 million, an improvement
over the $6 million provision in 2012, as a result of higher recoveries of
previously written-off amounts. Corporate Services adjusted recoveries
of credit losses of $405 million in 2013 were down from $446 million in
2012, reflecting lower recoveries on the purchased credit impaired loan
portfolio of $410 million in 2013, compared to $509 million in the pre-
vious year, offset in part by recoveries on the impaired real estate loan
portfolio in 2013, compared to provisions in 2012.
On a geographic basis, the majority of our provisions relate to our
Canadian loan portfolio. Specific PCL in Canada and other countries
(excluding the United States) was $568 million, compared to
$611 million in 2012. Adjusted specific PCL in the United States was a
recovery of $209 million, up from a $140 million recovery in 2012,
reflecting a better credit environment, partially offset by lower recov-
eries of credit losses on the purchased credit impaired loans. Note 4 on
page 137 of the financial statements provides PCL information on a
geographic basis. Table 19 on page 118 provides further PCL segmenta-
tion information.
Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section
on page 34.
Provision for Credit Losses
For the year ended October 31
(Canadian $ in millions, except as noted) 2013 2012 2011
New specific provisions 1,638 1,860 1,495
Reversals of previously established allowances (267) (252) (128)
Recoveries of loans previously written off (772) (846) (241)
Specific provision for credit losses 599 762 1,126
Increase (decrease) in collective allowance (10) 3 86
Provision for credit losses (PCL) 589 765 1,212
Adjusted provision for credit losses (1) 359 471 1,108
PCL as a % of average net loans and
acceptances (annualized) (2) 0.22 0.31 0.56
PCL as a % of average net loans and
acceptances excluding purchased portfolios
(annualized) (2) (3) 0.32 0.42 0.55
Specific PCL as a % of average net loans and
acceptances (annualized) (2) 0.23 0.31 0.52
Adjusted specific PCL as a % of average net
loans and acceptances (annualized) (1) (2) 0.14 0.21 0.54
(1) Adjusted provision for credit losses excludes provisions related to the purchased
performing loan portfolio and changes in the collective allowance.
(2) Certain ratios for 2012 were restated in the first quarter of 2013 to reflect the reclassified
balance sheet presentation.
(3) Ratio is presented excluding purchased loan portfolios, to provide for better historical
comparisons.
This table contains adjusted results and measures, which are non-GAAP. Please refer to the
Non-GAAP Measures section on page 34.
Provision for Credit Losses by Operating Group (1)
For the year ended October 31
(Canadian $ in millions) 2013 2012 2011
Canadian P&C 574 615 664
U.S. P&C 223 274 359
Personal and Commercial Banking 797 889 1,023
Wealth Management 3 22 10
BMO Capital Markets (36) 6 32
Corporate Services, including T&O
Impaired real estate loan portfolio (43) 19 28
Interest on impaired loans 48 44 15
Purchased credit impaired loan portfolio (410) (509) –
Adjusted provision for credit losses 359 471 1,108
Specific provisions on purchased performing loans (2) 240 291 18
Change in collective allowance (10) 3 86
Provision for credit losses 589 765 1,212
(1) Effective the first quarter of 2013, provisions in the operating groups are reported on an
actual loss basis and interest on impaired loans is allocated to the operating groups.
Results for prior periods have been restated accordingly.
(2) Provisions for the purchased performing loan portfolio are reported in Corporate Services.
This table contains adjusted results and measures, which are non-GAAP. Please refer to the
Non-GAAP Measures section on page 34.
42 BMO Financial Group 196th Annual Report 2013