Bank of Montreal 2015 Annual Report Download - page 26

MD&A
Foreign Exchange
The U.S. dollar was stronger compared to the Canadian dollar at October 31, 2015 than at October 31, 2014. BMO’s U.S.-dollar-denominated assets
and liabilities are translated at year-end rates. The average exchange rate over the course of 2015, which is used in the translation of BMO’s
U.S.-dollar-denominated revenues and expenses, was higher in 2015 than in 2014. Consequently, the Canadian dollar equivalents of BMO’s
U.S.-dollar-denominated net income, revenues, expenses, recovery of (provision for) credit losses and income taxes in 2015 increased relative to
the preceding year. The table below indicates average Canadian/U.S. dollar exchange rates in 2015, 2014 and 2013 and the impact of changes in
the average rates on our U.S. segment results. At October 31, 2015, the Canadian dollar traded at $1.3075 per U.S. dollar. It traded at $1.1271 per
U.S. dollar at October 31, 2014.
Changes in the exchange rate will affect future results measured in Canadian dollars and the impact on those results is a function of the periods
in which revenues, expenses and provisions for (recoveries of) credit losses arise. If future results are consistent with results in 2015, each one cent
increase (decrease) in the Canadian/U.S. dollar exchange rate, expressed in terms of how many Canadian dollars one U.S. dollar buys, would be
expected to increase (decrease) the Canadian dollar equivalent of U.S.-dollar-denominated adjusted net income before income taxes for the year by
$10 million in the absence of hedging transactions.
Economically, our U.S. dollar income stream was largely unhedged to changes in foreign exchange rates during the year. During 2015, we
hedged a portion of the forecasted BMO Capital Markets U.S. dollar net income. These hedges are subject to mark-to-market accounting, which
resulted in a $21 million after tax loss in 2015, which was recorded in our BMO Capital Markets business.
We regularly determine whether to execute hedging transactions to mitigate the impact of foreign exchange rate movements on net income.
Effects of Changes in Exchange Rates on BMO’s Reported and Adjusted Results
(Canadian $ in millions, except as noted)
2015 vs.
2014
2014 vs.
2013
Canadian/U.S. dollar exchange rate (average)
2015 1.2550
2014 1.0937 1.0937
2013 1.0235
Effects on reported results
Increased net interest income 409 183
Increased non-interest revenue 351 150
Increased revenues 760 333
Increased provision for credit losses (5) (1)
Increased expenses (598) (262)
Increased income taxes (33) (14)
Increased reported net income before impact of hedges 124 56
Hedging losses in current year after tax (21) (10)
Increased reported net income 103 46
Effects on adjusted results
Increased net interest income 409 183
Increased non-interest revenue 351 150
Increased revenues 760 333
Increased provision for credit losses (15) (2)
Increased expenses (578) (255)
Increased income taxes (34) (15)
Increased adjusted net income before impact of hedges 133 61
Hedging losses in current year after tax (21) (10)
Increased adjusted net income 112 51
Caution
This Foreign Exchange section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.
Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 33.
BMO Financial Group 198th Annual Report 2015 37