Bank of Montreal 2013 Annual Report Download - page 90

Review of Fourth Quarter 2013 Performance
Reported net income for the fourth quarter of 2013 was $1,088 million,
up 1% or $6 million from a year ago. Adjusted net income for the fourth
quarter was $1,102 million, down $23 million or 2% from a year ago.
Adjusted results for the quarter exclude: $30 million after-tax net benefit
for credit-related items in respect of the purchased performing loan
portfolio; $60 million pre-tax ($37 million after tax) for integration costs
of the acquired business; $26 million pre-tax ($20 million after tax)
benefit from run-off structured credit activities; $5 million for income
taxes related to the collective allowance on loans other than the -
purchased loan portfolio; and $31 million pre-tax ($22 million after tax)
of amortization of acquisition-related intangible assets. Summary
income statements and data for the quarter and comparative quarters
are outlined on page 103. Adjusting items are included in Corporate
Services except the amortization of acquisition-related intangible assets,
which is included across the operating groups.
Amounts in the rest of this Review of Fourth Quarter 2013 Perform-
ance section are stated on an adjusted basis.
There was particularly strong growth in Wealth Management,
including higher securities gains, and good growth in Canadian P&C,
offset by lower income in BMO Capital Markets and higher provisions for
credit losses in the P&C businesses. Canadian P&C had good results,
driven by strong volume growth across most products, partially offset by
lower net interest margin, higher provisions for credit losses and mod-
estly higher expenses. Wealth Management net income was up sig-
nificantly, driven by a security gain and strong performance in the other
wealth and insurance underlying businesses. BMO Capital Markets net
income declined from strong results a year ago, primarily due to lower
trading revenues reflecting market uncertainty. The prior year included
strong trading revenues and a recovery of prior periods’ income taxes.
U.S. P&C results declined primarily due to an increase in the provisions
for credit losses, which were above trend in the current quarter, and
lower revenues. Corporate Services results declined, primarily due to
lower revenues.
Revenue increased $140 million or 4% to $4,060 million. Revenue
significantly increased in Wealth Management, reflecting a $191 million
security gain and a 12% increase in the other wealth businesses, and
there were good results in Canadian P&C, with declines in the other
operating groups. The stronger U.S. dollar increased revenue growth by
$60 million, net of hedging impacts.
Net interest income increased $12 million or 1% to $1,968 million.
BMO’s overall net interest margin decreased by 9 basis points from a
year ago to 1.58%. Average earning assets increased $29.6 billion or 6%
relative to a year ago, including a $9.5 billion increase as a result of the
stronger U.S. dollar. There was strong growth in Canadian P&C and
Wealth Management, growth in BMO Capital Markets and U.S. P&C, and
a reduction in Corporate Services.
Non-interest revenue increased $128 million or 6% to $2,092 mil-
lion, mainly due to a large security gain in Wealth Management and
higher mutual fund revenues, partially offset by lower trading revenues
in BMO Capital Markets. Most other types of non-interest revenue were
also up, with the exception of insurance income, card fees and other.
The stronger U.S. dollar increased non-interest revenue growth by $27
million, net of hedging impacts.
Non-interest expense increased $66 million or 3% to $2,502
million. Excluding the impact of the stronger U.S. dollar, non-interest
expense increased by a modest $22 million or 1%, primarily due to
higher employee-related costs, including pension, and higher
regulatory-related costs.
The provision for credit losses (PCL) was $140 million, compared
with $113 million in the fourth quarter of 2012. The increase in PCL was
mainly due to above trend provisions in Canadian P&C and U.S. P&C,
coupled with lower recoveries of credit losses on the purchased credit
impaired loan portfolio in Corporate Services.
The provision for income taxes of $316 million increased
$70 million from the fourth quarter of 2012. The effective tax rate for
the quarter was 22.3%, compared with 17.9% a year ago, primarily due
to lower recoveries of prior periods’ income taxes and an increased
proportion of income from higher tax-rate jurisdictions.
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 101