Bank of Montreal 2014 Annual Report Download - page 49

MD&A
MANAGEMENT’S DISCUSSION AND ANALYSIS
Review of Fourth Quarter 2014 Performance
Reported net income for the fourth quarter of 2014 was $1,070 million,
down $4 million from a year ago. Adjusted net income for the fourth
quarter was $1,111 million, up $23 million or 2% from a year ago.
Adjusted results for the quarter exclude the amortization of acquisition-
related intangible assets of $42 million ($32 million after tax) and
acquisition integration costs of $11 million ($9 million after tax); or a
total impact of $0.07 per share. Summary income statements and data
for the quarter and comparative quarters are outlined on page 59.
Adjusting items are included in Corporate Services except the amor-
tization of acquisition-related intangible assets, which is charged to the
operating groups. Acquisition integration costs in 2014 related to F&C
are charged to Wealth Management.
Amounts in the rest of this Review of Fourth Quarter 2014 Perform-
ance section are stated on an adjusted basis.
Net income growth was driven by good results in Canadian P&C,
U.S. P&C and Wealth Management. Canadian P&C results were up 14%
from a year ago, driven by higher revenue from higher balance and fee
volumes across most products and lower provisions for credit losses,
partially offset by higher expenses. Wealth Management continued to
deliver good results, with growth of $56 million or 28%, excluding the
$121 million after-tax security gain in the prior year. BMO Capital Mar-
kets results decreased as higher revenue was more than offset by
higher expenses and lower loan recoveries. U.S. P&C net income was up
on a U.S. dollar basis due to lower provisions for credit losses and higher
revenue partly offset by increased expenses. Corporate Services results
were lower due to lower recoveries primarily on the purchased credit
impaired loan portfolio and higher expenses, partially offset by above
trend revenue.
Revenue increased $330 million or 8% to $4,340 million. Excluding
the impact of the stronger U.S. dollar, revenue increased by $258 million
or 6%. Canadian P&C had good revenue growth due to strong balance
and fee volume growth across most products. Wealth Management
revenue increased, excluding the $191 million security gain in the prior
year, due to the impact from the acquired F&C business, higher fee-
based revenue from strong growth in client assets and higher insurance
revenue. BMO Capital Markets revenue increased 2% year over year
with solid growth from Investment and Corporate Banking, partly offset
by lower revenues in Trading Products, in part due to the introduction of
a funding valuation adjustment which reduced revenue by $39 million.
U.S. P&C revenue increased on a U.S. dollar basis, due to strong
commercial loan and deposit growth, partially offset by lower net
interest margin. Corporate Services revenue improved primarily due to
higher net interest income and credit-related revenue on the purchased
performing loan portfolio.
Net interest income increased $178 million or 9% to $2,178 million,
principally due to volume growth, the impact of the stronger U.S. dollar
and revenue from the purchased performing loan portfolio. BMO’s
overall net interest margin was unchanged at 1.60%. Average earning
assets increased $43.8 billion or 9% to $540.0 billion, including a $13.6
billion increase as a result of the stronger U.S. dollar.
Non-interest revenue increased $152 million or 8% to $2,162 mil-
lion, with significant increases in mutual fund revenues and investment
management and custodial fees as a result of the acquisition of F&C, and
increases in all other types of non-interest revenue, with the exception
of securities gains and other.
Non-interest expense increased $349 million or 14% to $2,834
million. Excluding the impact of the stronger U.S. dollar, non-interest
expense increased by $286 million or 12%, primarily due to increased
technology and support costs related to a changing business and regu-
latory environment, the impact of the F&C acquisition, higher employee-
related expenses and costs related to the settlement of a legal matter.
The provision for credit losses of $170 million increased by $30
million from the prior year, due to lower recoveries primarily on the
purchased credit impaired loan portfolio. There was no net change to
the collective allowance in the quarter.
The provision for income taxes of $225 million decreased $72 mil-
lion from a year ago. The effective tax rate was 16.8% in the current
quarter, compared with 21.5% a year ago primarily due to a lower
proportion of income from higher tax-rate jurisdictions.
Adjusted results in this table are non-GAAP and are discussed in the Non-GAAP Measures section on page 32.
60 BMO Financial Group 197th Annual Report 2014