Bank of Montreal 2014 Annual Report Download - page 41

MD&A
MANAGEMENT’S DISCUSSION AND ANALYSIS
2014 Revenue by
Line of Business
(%)
BMO Nesbitt Burns 31%
BMO Insurance 12%
BMO Global Asset
Management
28%
BMO’s Private
Banking Businesses
24%
BMO InvestorLine 5%
Adjusted Net Income
($ millions)
2012 2013 2014
548
857 848
Wealth
Insurance
Assets under Management
and Administration
($ billions)
2012 2013 2014
Assets under administration
Assets under management
172.1
313.3
194.2
357.6 379.6 414.5
Invest in our people, products, technology and footprint to drive
future growth
2014 Achievements
‰Completed the acquisition of F&C Asset Management plc (F&C). This
acquisition strengthens the position of BMO Global Asset Management
as a globally significant money manager, adding scale, capabilities
and resources to its asset management platform and providing attrac-
tive cross-selling opportunities.
‰Continued to expand our sales forces in strategically important segments.
‰Leveraged investments in technology to drive sales and improve
efficiency.
2015 Focus
‰Invest in our sales force and enhance technology to drive revenue
growth.
Financial Review
Wealth Management net income was $785 million, compared to
$830 million a year ago. Adjusted net income, which excludes the
amortization of acquisition-related intangible assets and acquisition
integration costs, was $848 million, compared to $857 million a year
ago. Current year results reflect the contribution from the acquired F&C
business and the prior year results included a $121 million after-tax
security gain. Excluding the prior year security gain, Wealth Manage-
ment revenue, adjusted non-interest expense and adjusted net income
are up 18%, 19% and 15%, respectively. F&C contributed approximately
5% of the growth in each of these measures.
Adjusted net income in traditional wealth was $562 million com-
pared to $596 million a year ago, as strong growth from the businesses
of $87 million or 18%, including the contribution from the acquired F&C
business, was more than offset by the security gain in the prior year.
Adjusted net income in insurance was $286 million, up $25 million
or 9%.
Revenue of $3,833 million increased $385 million or 11%. Revenue
in traditional wealth increased $526 million or 19%, excluding the $191
million security gain in the prior year, reflecting growth in client assets
and a contribution from the F&C acquisition. Insurance revenue increased
$50 million or 12%, due to continued growth in both the underlying
creditor and life insurance businesses of 10% and the impact of benefi-
cial changes in actuarial reserves. The stronger U.S. dollar increased
revenue by $50 million or 1%.
The recovery of credit losses was $3 million as compared to a
$3 million provision a year ago.
Non-interest expense was $2,834 million, up $487 million or 21%.
Adjusted non-interest expense was $2,752 million, up $441 million or
19%. The increase was due primarily to the impact of the F&C acquis-
ition and higher revenue-based costs from organic operations. Current
year results also include costs related to the settlement of a legal
matter, as well as higher sales force investments for future revenue
growth. The stronger U.S. dollar increased expenses by $44 million
or 2%.
Wealth Management (Canadian $ in millions, except as noted)
As at or for the year ended October 31 2014 2013 2012
Net interest income 560 558 556
Non-interest revenue 3,273 2,890 2,344
Total revenue 3,833 3,448 2,900
Provision for (recovery of) credit losses (3) 322
Non-interest expense 2,834 2,347 2,215
Income before income taxes 1,002 1,098 663
Provision for income taxes 217 268 136
Reported net income 785 830 527
Acquisition integration costs (1) 16 ––
Amortization of acquisition-related
intangible assets (2) 47 27 21
Adjusted net income 848 857 548
Key Performance Metrics and Drivers
Net income growth (%) (5.4) 57.4 9.7
Adjusted net income growth (%) (1.0) 56.4 11.6
Revenue growth (%) 11.2 18.9 11.9
Non-interest expense growth (%) 20.8 6.0 13.2
Adjusted non-interest expense growth (%) 19.1 5.7 12.5
Return on equity (%) 18.6 28.5 24.2
Adjusted return on equity (%) 20.1 29.4 25.2
Operating leverage (%) (9.6) 12.9 (1.3)
Adjusted operating leverage (%) (7.9) 13.2 (0.6)
Efficiency ratio (%) 73.9 68.1 76.4
Adjusted efficiency ratio (%) 71.8 67.0 75.4
Net interest margin on average earning
assets (%) 2.65 2.87 3.11
Average common equity 4,181 2,884 2,143
Average earning assets 21,169 19,399 17,875
Average current loans and acceptances 12,897 11,909 10,833
Average deposits 24,912 23,337 21,753
Assets under administration 414,547 357,594 313,337
Assets under management 379,606 194,158 172,076
Full-time equivalent employees 6,792 6,005 6,108
U.S. Business Select Financial Data (US$ in millions)
Total revenue 720 886 701
Non-interest expense 658 585 555
Reported net income 53 199 87
Adjusted net income 73 220 102
Average earning assets 3,028 2,687 2,914
Average current loans and acceptances 2,629 2,510 2,650
Average deposits 5,834 4,947 4,960
(1) F&C acquisition integration costs of $20 million before tax in 2014 are included in non-
interest expense.
(2) Before tax amounts of: $62 million in 2014; $36 million in 2013; and $28 million in 2012 are
included in non-interest expense.
Assets under management and administration grew by $242 billion
to $794 billion, with the acquired F&C business contributing $150 billion.
Excluding F&C, assets under management and administration grew by
$92 billion, driven by market appreciation, the stronger U.S. dollar and
growth in new client assets.
Net income in Wealth Management U.S. businesses was US$53
million. Adjusted net income in Wealth Management U.S. businesses was
US$73 million, compared to US$220 million a year ago, due to the prior
year security gain, costs related to the settlement of a legal matter in the
current year and sales force investments for future revenue growth.
52 BMO Financial Group 197th Annual Report 2014