Bank of Montreal 2013 Annual Report Download - page 32

Non-Interest Expense
Non-interest expense increased $59 million or 1% to $10,297 million
in 2013.
Amounts in the rest of this Non-Interest Expense section are stated
on an adjusted basis, unless otherwise noted.
Adjusted non-interest expense excludes costs of the M&I
integration and amortization of acquisition-related intangible assets in
2013, 2012 and 2011; restructuring costs in 2013 and 2012 to align our
cost structure with the current and future business environment; and
M&I acquisition-related costs in 2011. The factors contributing to the
cost increases are set out in the adjacent Contribution to Growth in
Adjusted Non-Interest Expense and Non-Interest Expense table.
Adjusted non-interest expense increased $313 million or 3% to
$9,826 million. Excluding the impact of the stronger U.S. dollar, adjusted
non-interest expense increased by only 2%.
The dollar and percentage changes in expense by category are
outlined in the adjacent Adjusted Non-Interest Expense and Non-Interest
Expense table. Table 8 on page 109 provides more detail on expenses
and expense growth.
Performance-based compensation increased 2%, driven by
improved revenue in Wealth Management and BMO Capital Markets.
Other employee compensation, which includes salaries, benefits and
severance, increased 8% from 2012, due to continued investment in the
business, higher benefit costs, including pension, and higher severance
and regulatory-related costs. The stronger U.S. dollar also contributed to
the increase.
Premises and equipment costs increased $27 million or 2%, with
$16 million related to technology development initiatives.
Other expenses fell by $63 million or 3%, reflecting declines in
most other expense categories, with the exception of an increase in
travel and business development costs.
BMO’s reported efficiency ratio improved by 20 basis points to 63.3%
in 2013. The adjusted efficiency ratio remained unchanged at 63.1%.
Canadian P&C is BMO’s largest operating segment, and its reported
efficiency ratio of 51.3% was stable as modest revenue growth was
offset by continued investment in the business, net of savings from
productivity initiatives.
The efficiency ratio in Wealth Management improved by 870 basis
points to 66.7%, reflecting revenue growth across most businesses and
a continued focus on productivity.
BMO Capital Markets reported efficiency ratio of 59.8% was essen-
tially unchanged as revenue growth was offset by higher expenses
resulting from stronger revenue performance and increased technology
and support costs related to a changing business and regulatory
environment.
The efficiency ratio in U.S. P&C of 60.1% was relatively unchanged
from the prior year as lower revenue was largely offset by decreased
expenses.
The reported operating leverage was 0.2% in 2013 and adjusted
operating leverage was 0.1%. One of our medium-term financial
objectives is to generate average annual adjusted operating leverage of
2% or more, increasing the rate of adjusted revenue growth by an
average of at least two percentage points more than the rate of
adjusted non-interest expense growth. We aim to improve efficiency
and generate operating leverage by driving revenue growth through a
strong customer focus and by continuing our focus on productivity while
making selective investments.
Examples of initiatives to enhance productivity are outlined in the
2013 Review of Operating Groups Performance, which starts on page 44.
The efficiency ratio (or expense-to-revenue ratio)isakey
measure of productivity. It is calculated as non-interest expense
divided by total revenues (on a taxable equivalent basis in the
operating groups), expressed as a percentage. The adjusted effi-
ciency ratio is another key measure of productivity and is calcu-
lated in the same manner, utilizing adjusted revenue and expense.
Contribution to Growth in Adjusted Non-Interest Expense
and Non-Interest Expense (%)
For the year ended October 31 2013 2012 2011
Significant businesses acquired 0.3 10.3 5.8
Canadian/U.S. dollar translation effect,
excluding acquisitions 0.7 0.4 (1.5)
Other 2.3 1.8 7.2
Total adjusted non-interest expense growth 3.3 12.5 11.5
Impact of adjusting items (2.7) 4.6 3.2
Total non-interest expense growth 0.6 17.1 14.7
Adjusted Non-Interest Expense and Non-Interest Expense
($ millions, except as noted)
Change
from 2012
For the year ended October 31 2013 2012 2011* (%)
Performance-based compensation 1,682 1,641 1,560 2
Other employee compensation 4,011 3,725 3,253 8
Total employee compensation 5,693 5,366 4,813 6
Premises and equipment 1,787 1,760 1,557 2
Other 2,119 2,182 1,922 (3)
Amortization of intangible assets 227 205 161 11
Total adjusted non-interest expense 9,826 9,513 8,453 3
Adjusting items 471 725 288 (35)
Total non-interest expense 10,297 10,238 8,741 1
Adjusted non-interest expense
growth (%) 3.3 12.5 11.5 na
Non-interest expense growth (%) 0.6 17.1 14.7 na
* Growth rates for 2011 reflect growth based on CGAAP in 2010 and IFRS in 2011.
na – not applicable
Efficiency Ratio by Group (teb) (%)
For the year ended October 31 2013 2012 2011
Efficiency Ratio
Canadian P&C 51.3 51.2 50.6
U.S. P&C 62.6 62.9 61.6
Wealth Management 67.7 76.4 75.5
BMO Capital Markets 59.8 59.7 57.2
Total BMO 63.3 63.5 62.7
Adjusted Efficiency Ratio
Canadian P&C 51.1 51.1 50.5
U.S. P&C 60.1 59.8 59.1
Wealth Management 66.7 75.4 75.0
BMO Capital Markets 59.7 59.7 57.2
Total BMO 63.1 63.1 61.5
Caution
This Non-Interest Expense section contains forward-looking statements. Please see the Caution
Regarding Forward-Looking Statements.
MD&A
Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 34.
BMO Financial Group 196th Annual Report 2013 43