Management’s Discussion and Analysis
2018 Operating Groups
Performance Review Summary
This section includes an analysis of the financial results of our operating groups and descriptions of their operating segments, businesses, strategies, strengths, challenges, key value drivers, achievements and outlooks.
BMO’s business mix is well diversified by operating segment and by geography. This robust business mix has long been a key driver of growth, comprising the key geographies and customer segments that are critical to our strategic plans for sustaining growth and delivering value to our shareholders.
*Percentages determined excluding results in Corporate Services.
How BMO Reports Operating Group Results
Periodically, certain business lines and units within the business lines are transferred between client and corporate support groups to more closely align BMO’s organizational structure with its strategic priorities. In addition, revenue and expense allocations are updated to more accurately align with current experience. Results for prior periods are restated to conform with the current period’s presentation.
Effective the first quarter of 2018, the allocation of certain revenue items from Corporate Services to the operating groups was updated to better align with underlying business activity. Results for prior periods and related ratios have been reclassified to conform with the current presentation.
The following additional reclassifications were made effective the first quarter of 2018. Loan losses related to certain fraud costs have been reclassified from provision for credit losses to other non-interest expense in Canadian P&C and U.S. P&C. Certain fees have been reclassified from deposit and payment service charges to card fees within non-interest revenue in Canadian P&C. Also, cash collateral balances were reclassified from loans and deposits to other assets and other liabilities in BMO Capital Markets. Results for prior periods and related ratios have been reclassified to conform with the current period’s presentation.
Restructuring costs and acquisition integration costs that impact more than one operating group are included in Corporate Services.
BMO analyzes revenue at the consolidated level based on GAAP revenue as reported in the consolidated financial statements rather than on a taxable equivalent basis (teb), which is consistent with our Canadian peer group. Like many banks, we analyze revenue on a teb basis at the operating group level. Revenue and the provision for income taxes are increased on tax-exempt securities to an equivalent before-tax basis to facilitate comparisons of income between taxable and tax-exempt sources. The offset to the group teb adjustments is reflected in Corporate Services revenue and provision for income taxes.
Effective with the adoption of IFRS 9, we allocate the provision for credit losses on performing loans and the related allowance to the operating groups. In 2017 and prior years, the collective provision and allowance was held in Corporate Services.