Bank of Montreal 2015 Annual Report Download - page 33

MD&A
MANAGEMENT’S DISCUSSION AND ANALYSIS
Adjusted Non-Interest Expense and Non-Interest Expense
(Canadian $ in millions, except as noted)
For the year ended October 31 2015 2014 2013
Change
from 2014
(%)
Performance-based compensation 2,087 1,939 1,682 8
Other employee compensation (1) 4,835 4,294 4,026 12
Total employee compensation 6,922 6,233 5,708 11
Premises and equipment 2,130 1,908 1,743 12
Other 2,519 2,378 2,083 6
Amortization of intangible assets 248 242 221 2
Total adjusted non-interest expense 11,819 10,761 9,755 10
Adjusting items 363 160 471 +100
Total non-interest expense 12,182 10,921 10,226 12
Adjusted non-interest expense growth (%) 9.8 10.3 3.7 na
Non-interest expense growth (%) 11.5 6.8 0.9 na
(1) Includes restructuring costs in 2015 and 2013 to align our cost structure with the environment.
na – not applicable
Efficiency Ratio by Group (teb) (%)
For the year ended October 31 2015 2014 2013
Efficiency Ratio
Canadian P&C 50.3 49.7 50.7
U.S. P&C 66.1 65.9 64.6
Wealth Management 58.3 53.2 55.8
BMO Capital Markets 64.2 63.2 61.5
Total BMO 62.8 59.9 60.8
Adjusted Efficiency Ratio
Canadian P&C 50.2 49.6 50.7
U.S. P&C 64.2 63.6 61.8
Wealth Management 55.9 51.7 54.9
Wealth Management, net of CCPB 71.5 71.9 67.1
BMO Capital Markets 64.1 63.2 61.5
Total BMO 60.9 59.1 60.4
Total BMO, net of CCPB 65.2 64.4 63.5
Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 33.
Provision for Income Taxes
The provision for income taxes reflected in the Consolidated Statement of Income is based upon transactions recorded in income, regardless of when
such transactions are subject to taxation by tax authorities, with the exception of the repatriation of retained earnings from foreign subsidiaries,as
outlined in Note 24 on page 189 of the financial statements.
Management assesses BMO’s consolidated results and associated provisions for income taxes on a GAAP basis. We assess the performance of the
operating groups and associated income taxes on a taxable equivalent basis and report accordingly.
The provision for income taxes was $936 million in 2015, compared with $903 million in 2014. The reported effective tax rate in 2015 was
17.5%, compared with 17.2% in 2014. The adjusted provision for income taxes(1) was $1,025 million in 2015, compared with $943 million in 2014.
The adjusted effective tax rate in 2015 was 18.0%, compared with 17.5% in 2014. The change in the tax rate from year to year is attributable to a
lower proportion of income from lower tax rate jurisdictions.
BMO partially hedges the foreign exchange risk arising from its foreign operations by funding the investments in the corresponding foreign
currency. The gain or loss on hedging and the unrealized gain or loss on translation of foreign operations are charged or credited to shareholders’
equity. For income tax purposes, the gain or loss on the hedging activities results in an income tax charge or credit in the current period, which is
charged or credited to shareholders’ equity, while the associated unrealized gain or loss on the foreign operations does not incur income taxes until
the investments are liquidated. The income tax charge/benefit arising from a hedging gain/loss is a function of the fluctuations in exchange rates
from period to period. Hedging of the foreign operations has given rise to an income tax recovery in shareholders’ equity of $167 million for the
year, compared with $144 million in 2014. Refer to the Consolidated Statement of Changes in Equity on page 138 of the financial statements for
further details.
Table 4 on page 121 details the $1,651 million of total net government levies and income tax expense incurred by BMO in 2015. The increase
from $1,505 million in 2014 was primarily due to higher payroll levies and sales taxes.
(1) The adjusted rate is computed using adjusted net income rather than net income in the determination of income subject to tax.
Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 33.
44 BMO Financial Group 198th Annual Report 2015