Bank of Montreal 2014 Annual Report Download - page 44

MD&A
Reported Net Income
2012 2013 2014
985 1,044 1,079
($ millions)
Revenue by Geography (%)
2012 2013 2014
Revenue
3,249 3,392
3,724
($ millions)
201420132012
Canada and other countries
United States
69%
31%
68%
32%
65%
35%
Continue to enhance our risk management and regulatory
compliance practices to be responsive to an evolving regulatory
environment
2014 Achievements
‰Significantly invested in our next-generation market risk infrastructure
which will generate future benefits for our risk governance structure.
‰Continued to invest and proactively position the business to meet
regulatory requirements using a cross-border approach for both
compliance and risk management.
2015 Focus
‰Continue to enhance our risk management, regulatory and compliance
practices.
Financial Review
BMO Capital Markets net income increased $35 million or 3% to
$1,079 million. The increase reflected growth in revenue across both
Investment and Corporate Banking and Trading Products, with good
contribution from our U.S. businesses, partially offset by an increase in
expenses. Return on equity of 19.2% improved by 1.2% from the
prior year.
Revenue increased $332 million or 10% to $3,724 million, driven by
higher net securities gains and increases in trading revenues, lending
revenues and investment banking fees, particularly in our U.S. platform.
The stronger U.S. dollar increased revenue by $85 million.
Investment and Corporate Banking revenue increased $203 million
or 16%, reflecting higher net securities gains and higher activity levels,
particularly in equity underwriting, as well as growth in lending revenue.
Trading Products revenue increased $129 million or 6%, reflecting
growth in trading revenues, particularly from equity trading and foreign
exchange trading related to more favourable market conditions, as well
as higher securities commissions and fees.
Our businesses continue to experience very low levels of credit
losses. The recovery of credit losses was $18 million in 2014, compared
to $36 million in 2013.
Non-interest expense increased $269 million or 13% to
$2,353 million, resulting from higher employee-related expenses and
increased support costs, both driven by a changing business and regu-
latory environment, as well as by stronger performance. The stronger U.S.
dollar increased expenses by $63 million.
Net income from U.S. operations increased US$17 million or 8% to
US$233 million. Revenue increased from the prior year, driven by
growth in investment banking fees, higher gains on securities and an
increase in commission fees, partially offset by a decline in trading rev-
enues. Recoveries of credit losses were lower compared with 2013.
Non-interest expense increased from the prior year, resulting from
higher employee-related expenses and increased support costs, both
driven by a changing business and regulatory environment.
BMO Capital Markets (Canadian $ in millions, except as noted)
As at or for the year ended October 31 2014 2013 2012
Net interest income (teb) 1,179 1,202 1,164
Non-interest revenue 2,545 2,190 2,085
Total revenue (teb) 3,724 3,392 3,249
Provision for (recovery of) credit losses (18) (36) 6
Non-interest expense 2,353 2,084 1,986
Income before income taxes 1,389 1,344 1,257
Provision for income taxes (teb) 310 300 272
Reported net income 1,079 1,044 985
Amortization of acquisition-related
intangible assets (1) 121
Adjusted net income 1,080 1,046 986
Key Performance Metrics and Drivers
Trading Products revenue 2,254 2,125 2,063
Investment and Corporate Banking revenue 1,470 1,267 1,186
Net income growth (%) 3.3 6.0 1.0
Revenue growth (%) 9.8 4.4 (2.0)
Non-interest expense growth (%) 12.9 5.0 4.7
Return on equity (%) 19.2 18.0 20.9
Operating leverage (teb) (%) (3.1) (0.6) (6.7)
Efficiency ratio (teb) (%) 63.2 61.4 61.1
Net interest margin on average earning
assets (teb) (%) 0.53 0.59 0.60
Average common equity 5,422 5,582 4,527
Average earning assets 223,677 202,960 194,198
Average assets 260,962 247,609 251,562
Average current loans and acceptances 30,125 24,874 23,441
Average deposits 133,839 121,881 103,836
Full-time equivalent employees 2,376 2,247 2,176
U.S. Business Select Financial Data (US$ in millions)
Total revenue (teb) 1,190 1,069 1,019
Non-interest expense 900 834 829
Reported net income 233 216 139
Average earning assets 81,060 77,860 72,233
Average assets 90,574 93,919 94,391
Average current loans and acceptances 9,559 8,567 8,089
Average deposits 58,151 60,788 48,776
(1) Before tax amounts of $2 million in 2014; $2 million in 2013; and $1 million in 2012 are
included in non-interest expense.
Average assets of $261.0 billion increased $13.4 billion from the
prior year. Higher levels of securities balances, increases in net loans
and acceptances related to growth in corporate banking, and higher
cash balances were partly offset by decreases in derivative financial
assets, primarily due to declines in the fair value of interest rate
contracts.
BMO Capital Markets participated in 1,496 new global issues in
2014, comprised of 666 corporate debt deals, 520 government debt
deals and 310 equity transactions, raising $3,198 billion.
BMO Financial Group 197th Annual Report 2014 55