Bank of Montreal 2015 Annual Report Download - page 32

MD&A
Non-Interest Expense
Non-interest expense increased $1,261 million or 12% to $12,182 million in 2015. Reported results in 2015 included a $149 million charge, primarily
due to restructuring to drive operational efficiencies.
Amounts in the rest of this Non-Interest Expense section are stated on an adjusted basis, unless otherwise noted.
Adjusted non-interest expense excludes acquisition integration costs for certain significant acquisitions and amortization of acquisition-related
intangible assets in 2015, 2014 and 2013, and restructuring costs in 2015 and 2013 to align our cost structure with the environment.
Adjusted non-interest expense increased $1,058 million or 10% to $11,819 million, of which approximately 6% was due to the stronger U.S.
dollar, and 2% was due to the inclusion of F&C results for two additional quarters, excluding which adjusted non-interest expense increased by 2%
due to business growth.
The dollar and percentage changes in expense by category are outlined in the adjacent Adjusted Non-Interest Expense and Non-Interest Expense
table. Table 4 on page 121 provides more detail on expenses and expense growth.
Performance-based compensation was unchanged, excluding the impact of the stronger U.S. dollar and the inclusion of F&C’s results for two
additional quarters relative to a year ago. On the same basis, other employee compensation, which includes salaries, benefits and severance,
increased $214 million or 5%, primarily due to merit increases and higher pension costs.
Premises and equipment costs increased $143 million or 7%, excluding the impact of the stronger U.S. dollar, mainly due to higher costs related
to technology investments.
Other adjusted expenses declined $20 million or 1%, excluding the impact of the stronger U.S. dollar.
BMO’s reported efficiency ratio was 62.8% and its adjusted efficiency ratio was 60.9% in 2015. On a net revenue basis, the adjusted efficiency
ratio increased 80 basis points to 65.2% from 2014, primarily due to the currency impact of our foreign operations. On a basis that excludes the
impact of the stronger U.S. dollar and purchased loan accounting impacts, operating leverage was 0.6% and the efficiency ratio would have been
lower year over year.
Canadian P&C is BMO’s largest operating segment, and its reported efficiency ratio of 50.3% increased by 60 basis points, mainly due to lower
revenue growth.
The adjusted efficiency ratio in U.S. P&C increased by 60 basis points to 64.2% due to modestly higher expenses in a challenging revenue growth
environment for U.S. banks.
The adjusted efficiency ratio in Wealth Management on a net revenue basis improved by 40 basis points to 71.5%.
BMO Capital Markets reported efficiency ratio increased by 100 basis points to 64.2%, as the stronger U.S. dollar increased the weighting of its
higher efficiency U.S. business.
On a net revenue basis, reported operating leverage was negative 3.0% in 2015 and adjusted operating leverage was negative 1.3%. On a net
revenue basis and excluding the impact of the stronger U.S. dollar, adjusted operating leverage was negative 0.3%, and also excluding purchased
loan accounting impacts it was positive 0.5%. Our ongoing focus on improving efficiency and generating positive operating leverage, by driving
revenue growth through a strong customer focus and maintaining disciplined cost management, resulted in positive adjusted operating leverage on a
net revenue basis in each of the last two quarters of 2015.
Examples of initiatives to enhance productivity are outlined in the 2015 Operating Groups Performance Review, which starts on page 45.
(1) This ratio is calculated excluding insurance claims, commissions and changes in policy benefit liabilities (CCPB).
The efficiency ratio (or expense-to-revenue ratio) is a key measure of productivity. It is calculated as non-interest expense divided by total
revenue (on a taxable equivalent basis in the operating groups), expressed as a percentage. The adjusted efficiency ratio is another key
measure of productivity and is calculated in the same manner, utilizing adjusted revenue and expense.
Contribution to Growth in Adjusted Non-Interest Expense and Non-Interest Expense (%)
For the year ended October 31 2015 2014 2013
Significant businesses acquired 2.3 1.5 0.4
Canadian/U.S. dollar translation effect, excluding acquisitions 5.4 2.5 0.8
Other 2.1 6.3 2.5
Total adjusted non-interest expense growth 9.8 10.3 3.7
Impact of adjusting items 1.7 (3.5) (2.8)
Total non-interest expense growth 11.5 6.8 0.9
BMO Financial Group 198th Annual Report 2015 43