Bank of Montreal 2013 Annual Report Download - page 48

Corporate Services, including Technology and Operations
Corporate Services consists of Corporate Units and Technology and
Operations (T&O).
Corporate Units provide enterprise-wide expertise and governance
support in a variety of areas, including strategic planning, risk manage-
ment, finance, legal and compliance, marketing, communications and
human resources.
T&O manages, maintains and provides governance over information
technology, operations services, real estate and sourcing for BMO Finan-
cial Group.
The costs of Corporate Units and T&O services are largely transferred
to the three client operating groups (P&C, Wealth Management and BMO
CM), and only relatively minor amounts are retained in Corporate Serv-
ices results. As such, Corporate Services adjusted operating results
largely reflect the impact of certain asset-liability management activ-
ities, the elimination of taxable equivalent adjustments, the results from
certain impaired asset portfolios, and the recovery of credit losses on
the M&I purchased credit impaired loan portfolio. Corporate Services
reported results also reflect a number of items and activities that are
excluded from BMO’s adjusted results to help assess BMO’s perform-
ance. These adjusting items are not reflective of core operating results.
They are itemized in the Non-GAAP Measures section on page 34. All
adjusting items are recorded in Corporate Services except the amor-
tization of acquisition-related intangible assets, which is recorded in the
client operating groups.
Corporate Services focuses on enterprise-wide priorities that
improve service quality and efficiency to deliver an excellent customer
experience. Notable achievements during the year included:
‰ Advancing the customer experience through: upgrades to our mobile
banking applications to make them compatible with the Apple tablet
and iPhone 5® devices and the launch of BMO InvestorLine’s free
mobile investing app; the launch of cross-border transfer functionality,
which allows online business banking customers to transact between
BMO and BMO Harris Bank U.S. dollar currency accounts in near-real
time; modernization of the retail branch network, which increases our
footprint by equipping smaller branches with upgraded technology;
and improved core banking processes, including mortgage, commer-
cial lending and collections processes, to drive productivity and pro-
vide an enhanced customer experience;
‰ Continuing to deliver against key performance metrics by exceeding
channel and critical facilities availability targets and increasing
straight-through processing; and
‰ Realizing significant real estate synergies from the M&I integration
and improving our U.S. operations technology capabilities in channels,
products, functions and infrastructure.
Financial Review
Corporate Services net loss for the year was $130 million, compared
with net income of $289 million a year ago.
The adjusted net loss in 2013 was $191 million, compared with
adjusted net income of $96 million in 2012. Adjusted revenue decreased
$238 million, primarily due to a group teb offset that was $78 million
higher than the prior year and a decline in treasury-related items.
Adjusted non-interest expense was $84 million higher, primarily due to
increases in pension and benefit costs, as well as regulatory-related and
technology costs. Adjusted recoveries of credit losses were $41 million
lower, reflecting lower recoveries on the purchased credit impaired loan
portfolio, offset in part by recoveries on the impaired real estate loan
portfolio in 2013, compared to provisions in 2012. The accounting policy
for purchased loans is discussed in the Purchased Loans section in
Note 4 on page 137 of the financial statements. The recoveries of credit
losses on a reported basis were $175 million in 2013.
Significant components of the recoveries are detailed in the table
below.
Corporate Services, including Technology and Operations
(Canadian $ in millions, except as noted)
Change
from 2012
As at or for the year ended October 31 2013 2012 2011 (%)
Net interest income before teb
offset 280 501 (31) (44)
Group teb offset (344) (266) (220) (29)
Net interest income (teb) (64) 235 (251) (+100)
Non-interest revenue 167 478 98 (65)
Total revenue (teb) 103 713 (153) (86)
Provision for (recovery of)
credit losses (175) (152) 147 (16)
Non-interest expense 818 979 524 (17)
Loss before income taxes (540) (114) (824) (+100)
Recovery of income taxes (teb) (410) (403) (509) (1)
Reported net income (loss) (130) 289 (315) (+100)
Adjusted total revenue (teb) (588) (350) (354) (69)
Adjusted provision for (recovery of)
credit losses (405) (446) 43 9
Adjusted non-interest expense 472 388 306 21
Adjusted net income (loss) (191) 96 (209) (+100)
Full-time equivalent employees 13,308 13,885 13,884 (4)
U.S. Business Select Financial Data (US$ millions)
Total revenue (teb) 273 613 (9) (56)
Provision for (recovery of)
credit losses (256) (168) 125 (52)
Non-interest expense 423 538 257 (21)
Recovery of income taxes (teb) (6) (6) (241) –
Reported net income (loss) 112 249 (150) (56)
Adjusted net income (loss) (29) 210 (102) (+100)
Corporate Services Provision for Credit Losses ($ millions)
For the year ended October 31 2013 2012 2011
Impaired real estate loan portfolio (43) 19 28
Purchased credit impaired loans (410) (509) –
Interest on impaired loans 48 44 15
Provision for (recovery of) credit losses,
adjusted basis (405) (446) 43
Collective provision (10) 3 86
Purchased performing loans 240 291 18
Provision for (recovery of) credit losses,
reported basis (175) (152) 147
Average loans and acceptances 972 1,847 1,267
Year end loans and acceptances 526 1,314 1,846
As explained on page 45, BMO analyzes revenues on a teb basis
at the client operating group level, with an offsetting adjustment in
Corporate Services. Results reflect teb reductions in net interest income
and related income taxes. The impact on net interest income is itemized
in the table above.
Loans and acceptances at year end were $526 million, a reduction
of $788 million from a year ago, reflecting run-off in the impaired real
estate secured loan portfolio.
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 59