Bank of Montreal 2014 Annual Report Download - page 24

MD&A
2014 Financial Performance Review
This section provides a review of our enterprise financial performance for 2014 that focuses on the Consolidated Statement of Income included in our
consolidated financial statements, which begin on page 123. A review of our operating groups’ strategies and performance follows the enterprise
review. A summary of the enterprise financial performance for 2013 appears on page 61. This section contains adjusted results, which are non-GAAP
and are disclosed in more detail in the Non-GAAP Measures section on page 32.
Highlights
‰Revenue increased $655 million or 4% in 2014 to $16,718 million.
Adjusted revenue increased $1,346 million or 9% to $16,718 million.
The increase was mainly due to revenue growth in Canadian P&C,
Wealth Management and BMO Capital Markets, and continues to
demonstrate the benefits of our diversified business mix and
successful execution against our strategic priorities. The impact of
the stronger U.S. dollar increased revenue growth by $310 million.
‰RevenuegrowthinCanadianP&Creflectedstrongloananddeposit
growth. Wealth Management revenue increased $385 million or
11% to $3,833 million. Revenue growth was driven by increases
across all the businesses and a contribution from the acquired F&C
business, partly offset by a security gain in the prior year. BMO
Capital Markets revenue growth was driven by higher net securities
gains and increases in trading revenues, lending revenues and
investment banking fees, particularly in our U.S. platform. U.S. P&C
revenue decreased modestly on a U.S. dollar basis, as the benefits of
strong commercial loan growth were more than offset by the effects
of lower net interest margin and reduced mortgage banking rev-
enue. Corporate Services adjusted revenues improved from the prior
year.
‰Provisions for credit losses totalled $561 million in the current year,
down from $587 million in 2013. Adjusted provisions for credit
losses totalled $561 million, up from $357 million in 2013, primarily
due to lower recoveries on the purchased credit impaired loan
portfolio.
‰Adjusted non-interest expense increased $1,006 million or 10% to
$10,761 million primarily due to continued investment in the
business, higher employee-related costs, including severance,
increased regulatory costs, the impact of the stronger U.S. dollar
and the acquired F&C business.
‰The effective income tax rate in 2014 was 17.2%, compared with
20.1% in 2013. The adjusted effective income tax rate(1) was
17.5%, compared with 19.7% in 2013. The lower adjusted effective
rate in 2014 was mainly attributable to higher tax-exempt income
and a lower proportion of income from higher tax-rate jurisdictions.
(1) The adjusted rate is computed using adjusted net income rather than net income in the
determination of income subject to tax.
Impact of Business Acquisitions
BMO Financial Group has selectively acquired a number of businesses, as
outlined in Note 12 on page 153 of the financial statements. These
acquisitions increase revenues and expenses, affecting year-over-year
comparisons of operating results. The adjacent table outlines the impact
of these acquisitions on BMO’s adjusted revenue, non-interest expense
and net income for 2014 and 2013 to assist in analyzing changes in
results. The effect on adjusted net income includes the impact of provi-
sions for credit losses and income taxes, which are not disclosed sepa-
rately in the table.
For 2014, on an adjusted basis, the business acquisitions con-
tributed $221 million of revenues, $178 million of non-interest expense
and $34 million of net income.
Impact of Business Acquisitions on Adjusted Operating
Results (1) (Canadian $ in millions)
For the year ended October 31 2014 2013
Total revenue 221 20
Non-interest expense (2) 178 32
Net income (loss) 34 (9)
(1) Results for both 2014 and 2013 include the results of the acquired Asia-based wealth
management business, which is part of our Wealth Management reporting segment, and the
results of Aver Media LP, which is part of our Canadian P&C reporting segment. Results for
2014 also include the results of F&C Asset Management plc, which is part of our Wealth
Management reporting segment.
(2) Adjusted non-interest expense in 2013 includes acquisition and integration costs in respect
of the acquired Asia-based wealth management business and Aver Media LP.
Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 32.
BMO Financial Group 197th Annual Report 2014 35