6-K
BANK OF MONTREAL /CAN/ (BMO)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
| For the month of: February, 2024 | Commission File Number: <br>001-13354 |
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BANK OF MONTREAL
(Name of Registrant)
| 100 King Street West | 129 rue Saint-Jacques |
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| 1 First Canadian Place | Montreal, Quebec |
| Toronto, Ontario | Canada, H2Y 1L6 |
| Canada, M5X 1A1 | |
| (Executive Offices) | (Head Office) |
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F
☐ Form 40-F
☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
INCORPORATION BY REFERENCE
The information contained in this Form 6-K and any exhibits hereto shall be deemed filed with the Securities and Exchange Commission (“SEC”) solely for purposes of incorporation by reference into and as part of the following registration statements of the registrant on file with and declared effective by the SEC:
| 1. | Registration Statement – Form <br>F-3<br> – File <br>No. 333-214934 |
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| 2. | Registration Statement – Form <br>F-3<br> – File <br>No. 333-264388 |
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| 3. | Registration Statement – Form <br>S-8<br> – File <br>No. 333-191591 |
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| 4. | Registration Statement – Form <br>S-8<br> – File <br>No. 333-180968 |
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| 5. | Registration Statement – Form <br>S-8<br> – File <br>No. 333-177579 |
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| 6. | Registration Statement – Form <br>S-8<br> – File <br>No. 333-177568 |
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| 7. | Registration Statement – Form <br>S-8<br> – File <br>No. 333-176479 |
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| 8. | Registration Statement – Form <br>S-8<br> – File <br>No. 333-175413 |
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| 9. | Registration Statement – Form <br>S-8<br> – File <br>No. 333-175412 |
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| 10. | Registration Statement – Form <br>S-8<br> – File <br>No. 333-113096 |
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| 11. | Registration Statement – Form <br>S-8<br> – File <br>No. 333-14260 |
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| 12. | Registration Statement – Form <br>S-8<br> – File <br>No. 33-92112 |
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| 13. | Registration Statement – Form <br>S-8<br> – File <br>No. 333-207739 |
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| 14. | Registration Statement – Form <br>S-8<br> – File <br>No. 333-237522 |
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| 15. | Registration Statement – Form <br>S-8<br> – File <br>No. 333-276007 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BANK OF MONTREAL | ||
|---|---|---|
| By: | /s/ Tayfun Tuzun | |
| Name: | Tayfun Tuzun | |
| Title: | Chief Financial Officer | |
| Date<br>: February 27, 2024 | By: | /s/ Paul V. Noble |
| Name: | Paul V. Noble | |
| Title: | Corporate Secretary |
EXHIBIT INDEX
| Exhibit | Description of Exhibit |
|---|---|
| 99.1 | First Quarter 2024 Management’s Discussion and Analysis of Results of Operations and Financial Condition |
| 99.2 | First Quarter 2024 Consolidated Financial Statements |
| 99.3 | First Quarter 2024 Consolidated Capitalization of Bank of Montreal |
| 101. | Interactive Data File (formatted as Inline XBRL) |
| 104. | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
EX-99.1
BMO Financial Group Reports First Quarter 2024 Results
REPORT TO SHAREHOLDERS
BMO’s First Quarter 2024 Report to Shareholders, including the unaudited interim consolidated financial statements for the period ended January 31, 2024 are available online at www.bmo.com/investorrelations and at www.sedarplus.ca.
Financial Results Highlights
First Quarter 2024 Compared with First Quarter 2023:
| • | Net income of $1,292 million, compared with $133 million; adjusted net income^1, 2^ of $1,893 million, compared with $2,158 million |
|---|---|
| • | Reported earnings per share (EPS)^3^ of<br>$1.73, compared with $0.14; adjusted EPS^1, 2, 3^ of $2.56, compared with $3.06 |
| --- | --- |
| • | Provision for credit losses (PCL) of $627 million, compared with $217 million |
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| • | Return on equity (ROE) of 7.2%, compared with 0.6%; adjusted ROE^1, 2^ of 10.6%, compared with 12.9% |
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| • | Common Equity Tier 1 (CET1) Ratio^4^<br>of 12.8%, compared with 18.2% |
| --- | --- |
Adjusted^1, 2^ results in the current quarter and the prior year excluded the following items:
| • | Impact of a U.S. Federal Deposit Insurance Corporation (FDIC) special assessment of $313 million<br>($417 million pre-tax) in the current quarter. |
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| • | A net accounting loss of $136 million ($164 million pre-tax) on<br>the sale of a $9.6 billion (US$7.2 billion) portfolio of recreational vehicle loans related to balance sheet optimization in the current quarter. |
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| • | Acquisition and integration costs of $57 million ($76 million<br>pre-tax) in the current quarter, and $181 million ($239 million pre-tax) in the prior year. |
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| • | Amortization of acquisition-related intangible assets of $84 million ($112 million pre-tax) in the current quarter, and $6 million ($8 million pre-tax) in the prior year. |
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| • | Impact of a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank, of $11 million<br>($15 million pre-tax) in the current quarter, and $6 million ($8 million pre-tax) in the prior year. |
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| • | Loss of $1,461 million ($2,011 million pre-tax) in the prior year<br>related to the management of the impact of interest rate changes between the announcement and closing of the Bank of the West acquisition on its fair value and goodwill. |
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| • | A one-time tax expense of $371 million in the prior year related to<br>certain tax measures enacted by the Canadian government. |
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Toronto, February 27, 2024 – For the first quarter ended January 31, 2024, BMO Financial Group recorded net income of $1,292 million or $1.73 per share on a reported basis, and net income of $1,893 million or $2.56 per share on an adjusted basis.
“Against an uncertain economic outlook, we continued to demonstrate the strength and resilience of our diversified businesses and the benefit of strategic acquisitions. Although the environment has constrained revenue growth in market sensitive businesses in the near term, with the strength of our personal and commercial businesses and our sharp focus on positioning the bank effectively for long-term success by reducing expenses, optimizing our balance sheet, and growing customer relationships, we are poised to create significant value for our shareholders,” said Darryl White, Chief Executive Officer, BMO Financial Group.
“With the integration of Bank of the West complete, we have achieved 100% of the US$800 million run-rate cost synergies to start the second quarter, and we’re delivering incremental operational efficiencies across the enterprise, resulting in a sequential decline in our expense base. We further strengthened our capital position, with a CET1 ratio of 12.8%. Credit quality remains well-managed and in line with our expectations, underpinned by strong underwriting and a proven track record of superior risk management through the cycle.
“BMO’s leadership in supporting a sustainable and inclusive future continued to be acknowledged, including ranking among the most sustainable companies on the Dow Jones Sustainability Indices. We are moving forward with a relentless focus on execution to drive continued client and revenue growth, bolstered by the full size and scale of our North American bank. Guided by our purpose and anchored by the strong foundation of our $1.3 trillion balance sheet, we are driving real financial progress for our customers and the communities we serve,” concluded Mr. White.
Caution
The foregoing section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
| (1) | Results and measures in this document are presented on a generally accepted accounting principles (GAAP) basis. They are<br>also presented on an adjusted basis that excludes the impact of certain specified items from reported results. Adjusted results and ratios are non-GAAP and are detailed for all reported periods in the Non-GAAP and Other Financial Measures section. For details on the composition of non-GAAP amounts, measures and ratios, as well as supplementary financial measures, refer to<br>the Glossary of Financial Terms. |
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| (2) | Effective the first quarter of 2024, the bank adopted IFRS 17, Insurance Contracts (IFRS 17), and<br>retrospectively applied it to fiscal 2023 results and opening retained earnings as at November 1, 2022. For further information, refer to the Changes in Accounting Policies section. |
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| (3) | All EPS measures in this document refer to diluted EPS, unless specified otherwise. |
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| (4) | The CET1 Ratio is disclosed in accordance with the Office of the Superintendent of Financial Institutions’<br>(OSFI’s) Capital Adequacy Requirements (CAR) Guideline. |
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Note: All ratios and percentage changes in this document are based on unrounded numbers.
| BMO Financial Group First Quarter Report 2024 1 |
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Concurrent with the release of results, BMO announced a first quarter 2024 dividend of $1.51 per common share, unchanged from the prior quarter and an increase of $0.08 or 6% from the prior year. The quarterly dividend of $1.51 per common share is equivalent to an annual dividend of $6.04 per common share. We also announced that commencing with the common share dividend declared for the second quarter of fiscal 2024, and subsequently thereafter until further notice, common shares under the dividend reinvestment and share purchase plan (DRIP) will be purchased on the open market without a discount.
Recent Acquisitions
On February 1, 2023, we completed our acquisition of Bank of the West, including its subsidiaries, from BNP Paribas. Bank of the West provides a broad range of banking products and services, primarily in the Western and Midwestern regions of the United States. The acquisition strengthens our position in North America with increased scale and greater access to growth opportunities in strategic new markets. We completed the conversion of Bank of the West customer accounts and systems to our respective BMO operating platforms in September 2023. The acquisition has been reflected in our results as a business combination, primarily in the U.S. P&C and BMO Wealth Management reporting segments.
On June 1, 2023, we completed the acquisition of the AIR MILES Reward Program (AIR MILES) business of LoyaltyOne Co. The AIR MILES business operates as a wholly-owned subsidiary of BMO. The acquisition was accounted for as a business combination, and included in our Canadian P&C reporting segment.
For more information on the acquisition of Bank of the West and AIR MILES, refer to Note 10 of the audited annual consolidated financial statements.
First Quarter 2024 Performance Review
Adjusted results and ratios in this section are on a non-GAAP basis. Refer to the Non-GAAP and Other Financial Measures section for further information on adjusting items. The order in which the impact on net income is discussed in this section follows the order of revenue, expenses and provision for credit losses, regardless of their relative impact.
Canadian P&C
Reported net income was $921 million, a decrease of $30 million from the prior year, and adjusted net income was $925 million, a decrease of $26 million, both decreasing 3% from the prior year. Results reflected a 9% increase in revenue due to higher net interest income, driven by balance growth and higher margins, and higher non-interest revenue, more than offset by higher expenses and a higher provision for credit losses.
U.S. P&C
Reported net income was $560 million, a decrease of $105 million or 16% from the prior year, and adjusted net income was $635 million, a decrease of $31 million or 5% from the prior year.
On a U.S. dollar basis, reported net income was $419 million, a decrease of $76 million or 16% from the prior year, and adjusted net income, which excluded amortization of acquisition-related intangible assets, was $475 million, a decrease of $21 million or 4%, as the inclusion of Bank of the West was offset by a muted U.S. banking environment. Reported results reflected higher revenue, more than offset by higher expenses and a higher provision for credit losses.
BMO Wealth Management
Reported net income was $240 million and adjusted net income was $241 million, both increasing $81 million or 52% from the prior year. Wealth and Asset Management reported net income was $187 million, and adjusted net income was $188 million, both decreasing $15 million or 7%, as higher revenue, driven by the inclusion of Bank of the West and growth in client assets, was more than offset by lower deposit balances and deposit margins, and higher expenses. Insurance net income was $53 million, an increase of $96 million from the prior year, primarily due to market-related impacts reflecting the transition to IFRS 17.
BMO Capital Markets
Reported net income was $393 million, a decrease of $95 million or 19% from the prior year, and adjusted net income was $408 million, a decrease of $87 million or 17%. Results primarily reflected lower Global Markets revenue, with lower trading revenue partially offset by higher underwriting and advisory fee revenue, and higher expenses, partially offset by a higher recovery of the provision for credit losses.
Corporate Services
Reported net loss was $822 million, compared with reported net loss of $2,130 million in the prior year, and adjusted net loss was $316 million, compared with adjusted net loss of $114 million in the prior year. Reported net loss decreased, primarily due to the adjusting items noted above. Adjusted net loss increased due to lower revenue, lower expenses and a higher provision for credit losses. The decrease in revenue was driven by higher earnings on the investment of unallocated capital in the prior year, in advance of the close of the Bank of the West acquisition, and the impact of treasury-related activities.
| 2 BMO Financial Group First Quarter Report 2024 |
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Capital
BMO’s Common Equity Tier 1 (CET1) Ratio was 12.8% as at January 31, 2024, an increase from 12.5% at the end of the fourth quarter of 2023, with internal capital generation, common shares issued under the dividend reinvestment and share purchase plan, lower source-currency risk-weighted assets and unrealized gains on fair value through other comprehensive income securities, partially offset by the FDIC special assessment.
Credit Quality
Total provision for credit losses was $627 million, compared with a provision of $217 million in the prior year. The provision for credit losses on impaired loans was $473 million, an increase of $277 million from the prior year due to higher provisions in all of our lines of business. The provision for credit losses on performing loans was $154 million, compared with a provision of $21 million in the prior year. The $154 million provision for credit losses on performing loans in the current quarter was primarily driven by portfolio credit migration and model updates.
Refer to the Critical Accounting Estimates and Judgments section of BMO’s 2023 Annual Report and Note 4 of our audited annual consolidated financial statements for further information on the allowance for credit losses as at October 31, 2023.
The foregoing sections contain forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
Regulatory Filings
BMO’s continuous disclosure materials, including interim filings, annual Management’s Discussion and Analysis and audited annual consolidated financial statements, Annual Information Form and Notice of Annual Meeting of Shareholders and Proxy Circular, are available on our website at www.bmo.com/investorrelations, on the Canadian Securities Administrators’ website at www.sedarplus.ca, and on the EDGAR section of the U.S. Securities and Exchange Commission’s website at www.sec.gov. Information contained in or otherwise accessible through our website (www.bmo.com), or any third-party websites mentioned herein, does not form part of this document.
Bank of Montreal uses a unified branding approach that links all of the organization’s member companies. Bank of Montreal, together with its subsidiaries, isknown as BMO Financial Group. In this document, the names BMO and BMO Financial Group, as well as the words “bank”, “we” and “our”, mean Bank of Montreal, together with its subsidiaries.
| BMO Financial Group First Quarter Report 2024 3 |
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Enhanced Disclosure Task Force
Disclosures related to recommendations from the Financial Stability Board’s Enhanced Disclosure Task Force (EDTF) to provide high-quality, transparent risk disclosures are detailed in the index below, as presented in the 2023 Annual Report, the First Quarter 2024 Report to Shareholders (RTS), Supplemental Financial Information (SFI) or Supplemental Regulatory Capital Information (SRCI). Information on BMO’s website, including information within the SFI or SRCI is not and should not be considered incorporated by reference into our First Quarter 2024 Report to Shareholders.
| Topic | EDTF Disclosure | Page Number | |||
|---|---|---|---|---|---|
| 2023 Annual<br>Report | Q1 2024 | ||||
| RTS | SFI | SRCI | |||
| General | 1. Risk-related information in each report, including an index for easy navigation | 78-118 | 5 | Index | Index |
| 2. Risk<br>terminology, measures and key parameters | 82-118,126-128 | 34 | - | - | |
| 3. Top and<br>emerging risks | 78-80 | 7,34 | - | - | |
| 4. Plans to<br>meet new key regulatory ratios once applicable rules are finalized | 72 | 18 | - | - | |
| Risk Governance, Risk Management and Business Model | 5. Risk<br>management and governance framework, processes and key functions | 82-86 | - | - | - |
| 6. Risk<br>culture, risk appetite and procedures to support the culture | 86 | - | - | - | |
| 7. Risks<br>that arise from business models and activities | 84-85 | - | - | - | |
| 8. Stress<br>testing within the risk governance and capital frameworks | 85-86 | - | - | - | |
| Capital Adequacy and Risk-Weighted Assets (RWA) | 9. Pillar 1<br>capital requirements | 70-73 | - | - | 5-6,13 |
| 10. Composition of<br>capital components and reconciliation of the accounting balance sheet to the regulatory balance sheet. A main features template can be found<br>at<br>https://www.bmo.com/main/about-bmo/investor-relations/regulatory-disclosure | 73-74 | 19 | - | 5-7,16-17 | |
| 11. Flow statement<br>of movements in regulatory capital, including changes in Common Equity Tier 1 Capital, Additional Tier 1 Capital and Tier 2 Capital | - | - | 8 | ||
| 12. Capital<br>management and strategic planning | 69,75-76 | - | - | ||
| 13. Risk-weighted<br>assets (RWA) by operating group | 74 | - | - | 14 | |
| 14. Analysis of<br>capital requirements for each method used in calculating RWA | 73-74,87-90 | - | - | 14-15,<br>22-46, 53,<br>55-66,<br>85-86 | |
| 15. Tabulate credit<br>risk in the banking book for Basel asset classes and major portfolios | - | - | - | 22-46,<br>48-53,<br>55-66,86 | |
| 16. Flow statement<br>that reconciles movements in RWA by credit risk and market risk | - | - | - | 47,84 | |
| 17. Basel<br>validation and back-testing process, including estimated and actual loss parameter information | 112 | - | - | 87 | |
| Liquidity | 18. Management of<br>liquidity needs and liquidity reserve held to meet those needs | 100-106 | 38,41 | - | - |
| Funding | 19. Encumbered and<br>unencumbered assets disclosed by balance sheet category | 102-103 | 39 | 36 | - |
| 20. Consolidated<br>total assets, liabilities and off-balance sheet commitments by remaining contractual maturity | 107-108 | 43-44 | - | - | |
| 21. Analysis of<br>funding sources and funding strategy | 103-104 | 39-40 | - | - | |
| Market Risk | 22. Linkage of<br>trading and non-trading market risk to the Consolidated Balance Sheet | 99 | 36 | - | - |
| 23. Significant<br>trading and non-trading market risk factors | 95-99 | 36-37 | - | - | |
| 24. Market risk<br>model assumptions, validation procedures and back-testing | 95-99,112 | - | - | - | |
| 25. Primary<br>techniques for risk measurement and risk assessment, including risk of loss | 95-99 | 37 | - | - | |
| Credit Risk | 26. Analysis of<br>credit risk profile, exposures and concentration | 87-94,159-166 | 15,58-61 | 24-33 | 14-83 |
| 27. Policies to<br>identify impaired loans and renegotiated loans | 159-161,166 | - | - | - | |
| 28. Reconciliation<br>of opening and closing balances of impaired loans and allowance for credit losses | 93,164 | 15,58-59 | - | - | |
| 29. Counterparty<br>credit risk arising from derivative transactions | 87-88,94,178-179 | - | - | 53-71 | |
| 30. Credit risk<br>mitigation | 87-88,162,<br>170,209 | - | - | 20,48-50,<br>67 | |
| Other Risks | 31. Discussion of<br>other risks | 82-84, 109-118 | - | - | - |
| 32. Publicly known<br>risk events involving material or potentially material loss events | 109-118 | - | - | - | |
| 4 BMO Financial Group First Quarter Report 2024 | |||||
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Management’s Discussion and Analysis
Management’s Discussion and Analysis (MD&A) commentary is as at February 27, 2024. The material that precedes this section comprises part of this MD&A. The MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the period ended January 31, 2024, as well as the 2023 annual MD&A and the audited annual consolidated financial statements for the year ended October 31, 2023, contained in BMO’s 2023 Annual Report. Unless otherwise indicated, all amounts are stated in Canadian dollars and have been derived from the unaudited interim consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board. We also comply with interpretations of IFRS by our regulator, the Office of the Superintendent of Financial Institutions (OSFI). References to generally accepted accounting principles (GAAP) mean IFRS Accounting Standards.
BMO’s 2023 Annual Report includes a comprehensive discussion of its businesses, strategies and objectives, and can be accessed on our website at www.bmo.com/investorrelations. Readers are also encouraged to visit the site to view other quarterly financial information.
Table of Contents
| 6 | Caution Regarding Forward-Looking Statements | ||
|---|---|---|---|
| 7 | Economic Developments and Outlook | ||
| 8 | Financial Highlights | ||
| 9 | Non-GAAP and Other Financial Measures | ||
| 12 | Foreign Exchange | ||
| 13 | Net Income | ||
| 13 | Revenue | ||
| 15 | Total Provision for Credit Losses | ||
| 15 | Impaired Loans | ||
| 16 | Non-Interest Expense | ||
| 16 | Provision for Income Taxes | ||
| 17 | Balance Sheet | ||
| 18 | Capital Management | ||
| 21 | Review of Operating Groups’ Performance | ||
| 22 | Personal and Commercial Banking (P&C) | ||
| 22 | Canadian Personal and Commercial Banking (Canadian P&C) | ||
| 24 | U.S. Personal and Commercial Banking (U.S. P&C) | ||
| 26 | BMO Wealth Management | ||
| 27 | BMO Capital Markets | ||
| 28 | Corporate Services | ||
| 30 | Summary Quarterly Earnings Trends | ||
| 31 | Transactions with Related Parties | ||
| 31 | Off-Balance Sheet Arrangements | ||
| 32 | Accounting Policies and Critical Accounting Estimates and Judgments | ||
| --- | --- | --- | |
| 32 | Allowance for Credit Losses | ||
| 32 | Disclosure for Global Systemically Important Banks (G-SIB) | ||
| 33 | Changes in Accounting Policies | ||
| 33 | Future Changes in Accounting Policies | ||
| 33 | Other Regulatory Developments | ||
| 34 | Risk Management | ||
| 34 | Top and Emerging Risks That May Affect Future Results | ||
| 34 | Real Estate Secured Lending | ||
| 35 | International Exposures | ||
| 36 | Market Risk | ||
| 37 | Insurance Risk | ||
| 38 | Liquidity and Funding Risk | ||
| 40 | Credit Ratings | ||
| 45 | Glossary of Financial Terms | ||
| 48 | Interim Consolidated Financial Statements | ||
| 48 | Consolidated Statement of Income | ||
| 49 | Consolidated Statement of Comprehensive Income | ||
| 50 | Consolidated Balance Sheet | ||
| 51 | Consolidated Statement of Changes in Equity | ||
| 52 | Consolidated Statement of Cash Flows | ||
| 53 | Notes to Consolidated Financial Statements | ||
| 70 | Investor and Media Information |
Bank of Montreal’s management, under the supervision of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness, as at January 31, 2024, of Bank of Montreal’s disclosure controls and procedures (as defined in the rules of the U.S. Securities and Exchange Commission and the Canadian Securities Administrators) and has concluded that such disclosure controls and procedures are effective.
There were no changes in our internal control over financial reporting during the quarter ended January 31, 2024, which materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Because of inherent limitations, disclosure controls and procedures and internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.
As in prior quarters, Bank of Montreal’s Audit and Conduct Review Committee reviewed this document and Bank of Montreal’s Board of Directors approved the document prior to its release.
| BMO Financial Group First Quarter Report 2024 5 |
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Caution Regarding Forward-Looking Statements
Bank of Montreal’s public communications often include written or oral forward-looking statements. Statements of this type are included in this document, and may be included in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made pursuant to the “safe harbor” provisions of, and are intended to be forward-looking statements under, the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. Forward-looking statements in this document may include, but are not limited to: statements with respect to our objectives and priorities for fiscal 2024 and beyond; our strategies or future actions; our targets and commitments (including with respect to net zero emissions); expectations for our financial condition, capital position, the regulatory environment in which we operate, the results of, or outlook for, our operations or the Canadian, U.S. and international economies; plans for the combined operations of BMO and Bank of the West; and include statements made by our management. Forward-looking statements are typically identified by words such as “will”, “would”, “should”, “believe”, “expect”, “anticipate”, “project”, “intend”, “estimate”, “plan”, “commit”, “target”, “may”, “schedule”, “forecast”, “outlook”, “seek” and “could” or negative or grammatical variations thereof.
By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, both general and specific in nature. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that our assumptions may not be correct, and that actual results may differ materially from such predictions, forecasts, conclusions or projections. We caution readers of this document not to place undue reliance on our forward-looking statements, as a number of factors – many of which are beyond our control and the effects of which can be difficult to predict – could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.
The future outcomes that relate to forward-looking statements may be influenced by many factors, including, but not limited to: general economic and market conditions in the countries in which we operate, including labour challenges; the anticipated benefits from acquisitions, including Bank of the West, are not realized; changes to our credit ratings; the emergence or continuation of widespread health emergencies or pandemics, and their impact on local, national or international economies, as well as their heightening of certain risks that may affect our future results; cyber and cloud security, including the threat of data breaches, hacking, identity theft and corporate espionage, as well as the possibility of denial of service resulting from efforts targeted at causing system failure and service disruption; technology resiliency; failure of third parties to comply with their obligations to us; political conditions, including changes relating to, or affecting, economic or trade matters; climate change and other environmental and social risks; the Canadian housing market and consumer leverage; inflationary pressures; global supply-chain disruptions; technological innovation and competition; changes in monetary, fiscal or economic policy; changes in laws, including tax legislation and interpretation, or in supervisory expectations or requirements, including capital, interest rate and liquidity requirements and guidance, and the effect of such changes on funding costs and capital requirements; weak, volatile or illiquid capital or credit markets; the level of competition in the geographic and business areas in which we operate; exposure to, and the resolution of, significant litigation or regulatory matters, our ability to successfully appeal adverse outcomes of such matters and the timing, determination and recovery of amounts related to such matters; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; our ability to execute our strategic plans, complete proposed acquisitions or dispositions and integrate acquisitions, including obtaining regulatory approvals; critical accounting estimates and judgments, and the effects of changes in accounting standards, rules and interpretations on these estimates; operational and infrastructure risks, including with respect to reliance on third parties; global capital markets activities; the possible effects on our business of war or terrorist activities; natural disasters and disruptions to public infrastructure, such as transportation, communications, power or water supply; and our ability to anticipate and effectively manage risks arising from all of the foregoing factors.
We caution that the foregoing list is not exhaustive of all possible factors. Other factors and risks could adversely affect our results. For more information, please refer to the discussion in the Risks That May Affect Future Results section, and the sections related to credit and counterparty, market, insurance, liquidity and funding, operational non-financial, legal and regulatory, strategic, environmental and social, and reputation risk, in the Enterprise-Wide Risk Management section of BMO’s 2023 Annual Report, and the Risk Management section in this document, all of which outline certain key factors and risks that may affect our future results. Investors and others should carefully consider these factors and risks, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. We do not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by the organization or on its behalf, except as required by law. The forward-looking information contained in this document is presented for the purpose of assisting shareholders and analysts in understanding our financial position as at and for the periods ended on the dates presented, as well as our strategic priorities and objectives, and may not be appropriate for other purposes.
Material economic assumptions underlying the forward-looking statements contained in this document include those set out in the Economic Developments and Outlook section of BMO’s 2023 Annual Report, as updated in the Economic Developments and Outlook section in our First Quarter 2024 Report to Shareholders, as well as in the Allowance for Credit Losses section of BMO’s 2023 Annual Report, as updated in the Allowance for Credit Losses section in our First Quarter 2024 Report to Shareholders. Assumptions about the performance of the Canadian and U.S. economies, as well as overall market conditions and their combined effect on our business, are material factors we consider when determining our strategic priorities, objectives and expectations for our business. In determining our expectations for economic growth, we primarily consider historical economic data, past relationships between economic and financial variables, changes in government policies, and the risks to the domestic and global economy.
| 6 BMO Financial Group First Quarter Report 2024 |
|---|
Economic Developments and Outlook ^(1)^
Canada’s real gross domestic product (GDP) is estimated to grow modestly in the fourth quarter of 2023, amid support from a resilient U.S. economy, after contracting in the prior quarter due to high interest rates. Consumer spending has weakened due to rising mortgage payments, while businesses have reduced spending amid a sluggish economic backdrop. The housing market, however, is showing signs of improvement in response to a decline in mortgage rates since the fall of 2023 and continued strong population growth. After slowing to an estimated rate of 1.1% in 2023 from 3.8% in 2022, real GDP growth is expected to moderate to 0.8% in 2024. However, activity should increase later in the year as a result of improving financial conditions and an expected decline in interest rates. A moderation in the pace of employment growth and rapid expansion of the labour force have lifted the unemployment rate to 5.7% in January 2024 from a half-century low of 4.8% in July 2022. We anticipate the unemployment rate will continue to rise to around 6.5% later this year. Poor labour market conditions, lower commodity prices and improved global supply chains have relieved upward pressure on inflation. Year-over-year growth in the consumer price index has moderated from a four-decade high of 8.1% in June 2022 to 2.9% in January 2024. Although inflation is projected to decline further, it will likely remain above the Bank of Canada’s 2% target until early 2025, due to rising rents and lingering wage pressures. After raising the policy rate by 475 basis points since March 2022, the Bank of Canada has held the rate steady at 5.0% since July 2023. With the economy and inflation slowing, the central bank will likely begin reducing policy rates starting in the middle of 2024, eventually bringing rates down to a more neutral level of around 3% by early 2026. Industry-wide growth in residential mortgage balances continues to decelerate and will likely remain low at around 3% in 2024, despite some anticipated improvement in housing market activity later this year. Year-over-year growth in consumer credit balances (excluding mortgages) has been restrained by high interest rates and elevated levels of savings, and will likely remain below 3% in 2024. Growth in non-financial corporate credit balances has decelerated sharply in response to higher interest rates, tighter lending conditions, recession fears and elevated cash balances, and will likely slow to approximately 3% in 2024.
While the U.S. economy is not benefitting from strong population growth, it has enjoyed an upswing in labour productivity and is one of the few major economies to strengthen last year, with real GDP expanding 2.5% compared to 1.9% in 2022. Growth is anticipated to moderate to 2.2% in 2024 amid less expansionary fiscal policy, elevated interest rates, tighter lending conditions and the resumption of student loan payments. However, the economy should strengthen later this year in response to projected interest rate reductions and easier financial conditions, as well as ongoing incentives from the federal government to support domestic production of electric vehicles, batteries and semiconductors. While the unemployment rate remains close to half-century lows, it is projected to rise moderately from 3.7% in January 2024 to 4.3% in December 2024. Year-over-year growth in the consumer price index has fallen from 9.1% in June 2022 to 3.1% in January 2024, and is expected to decline further this year. After cumulative increases of 525 basis points starting in March 2022, the Federal Reserve has held policy rates steady at around 5.4% since July 2023. We anticipate rates will decline starting in July 2024, by a cumulative 100 basis points in the second half of the year. Growth in industry-wide residential mortgage balances has slowed considerably as a result of weak home sales, but will likely stabilize in 2024 as housing market activity strengthens in response to lower mortgage rates. Despite an increase in credit card usage, year-over-year growth in consumer credit balances has decelerated and is projected to remain low due to expected higher unemployment and slower consumer spending growth. Non-financial corporate credit growth has slowed and will likely remain impacted by weakness in the office commercial real estate market and a continued drawdown of large deposit balances, before strengthening later this year in response to interest rate reductions.
The economic outlook is subject to several risks that could lead to a severe contraction of the North American economy, including higher inflation and delayed interest rate reductions by central banks, an increase in tensions between the United States and China relating to trade protectionism and Taiwan, and an escalation of other geopolitical risks, including the wars in Ukraine and the Middle East. The latter has recently raised tensions between the United States and Iran, and led to shipping disruptions in the Red Sea and resulting higher freight costs.
This Economic Developments and Outlook section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
| (1) | All periods in this section refer to the calendar quarter and calendar year, rather than the fiscal quarter or fiscal<br>year. |
|---|---|
| BMO Financial Group First Quarter Report 2024 7 | |
| --- |
Financial Highlights
| (Canadian in millions, except as noted) | Q4-2023 | Q1-2023 | ||||||
|---|---|---|---|---|---|---|---|---|
| Summary Income Statement (1) (2) | ||||||||
| Net interest income | 4,721 | **** | 4,941 | 4,021 | ||||
| Non-interest revenue | 2,951 | **** | 3,378 | 1,078 | ||||
| Revenue | 7,672 | **** | 8,319 | 5,099 | ||||
| Provision for credit losses on impaired loans | 473 | **** | 408 | 196 | ||||
| Provision for credit losses on performing loans | 154 | **** | 38 | 21 | ||||
| Total provision for credit losses (PCL) | 627 | **** | 446 | 217 | ||||
| Non-interest expense | 5,389 | **** | 5,679 | 4,382 | ||||
| Provision for income taxes | 364 | **** | 484 | 367 | ||||
| Net income | 1,292 | **** | 1,710 | 133 | ||||
| Net income available to common shareholders | 1,250 | **** | 1,578 | 95 | ||||
| Adjusted net income | 1,893 | **** | 2,243 | 2,158 | ||||
| Adjusted net income available to common shareholders | 1,851 | **** | 2,111 | 2,120 | ||||
| Common Share Data (, except as noted) (1) | ||||||||
| Basic earnings per share | 1.73 | **** | 2.19 | 0.14 | ||||
| Diluted earnings per share | 1.73 | **** | 2.19 | 0.14 | ||||
| Adjusted diluted earnings per share | 2.56 | **** | 2.93 | 3.06 | ||||
| Book value per share | 96.88 | **** | 95.90 | 94.23 | ||||
| Closing share price | 126.64 | **** | 104.79 | 133.90 | ||||
| Number of common shares outstanding (in millions) | ||||||||
| End of period | 725.5 | **** | 720.9 | 709.7 | ||||
| Average basic | 723.8 | **** | 719.2 | 691.3 | ||||
| Average diluted | 724.6 | **** | 720.0 | 692.6 | ||||
| Market capitalization ( billions) | 91.9 | **** | 75.5 | 95.0 | ||||
| Dividends declared per share | 1.51 | **** | 1.47 | 1.43 | ||||
| Dividend yield (%) | 4.8 | **** | 5.6 | 4.3 | ||||
| Dividend payout ratio (%) | 87.4 | **** | 67.0 | 1,048.2 | ||||
| Adjusted dividend payout ratio (%) | 59.0 | **** | 50.1 | 46.6 | ||||
| Financial Measures and Ratios (%) (1) (2) | ||||||||
| Return on equity | 7.2 | **** | 9.3 | 0.6 | ||||
| Adjusted return on equity | 10.6 | **** | 12.4 | 12.9 | ||||
| Return on tangible common equity | 10.3 | **** | 13.5 | 0.7 | ||||
| Adjusted return on tangible common equity | 14.3 | **** | 17.1 | 14.0 | ||||
| Efficiency ratio | 70.2 | **** | 68.3 | 85.9 | ||||
| Adjusted efficiency ratio (3) | 60.9 | **** | 59.7 | 58.1 | ||||
| Operating leverage | 27.5 | **** | (40.2 | ) | (47.9 | ) | ||
| Adjusted operating leverage (3) | (5.4 | ) | (5.3 | ) | (7.9 | ) | ||
| Net interest margin on average earning assets | 1.57 | **** | 1.67 | 1.47 | ||||
| Adjusted net interest margin, excluding trading net interest income, and trading and insurance<br>assets | 1.84 | **** | 1.90 | 1.81 | ||||
| Effective tax rate | 21.95 | **** | 22.07 | 73.47 | ||||
| Adjusted effective tax rate | 22.43 | **** | 22.95 | 22.01 | ||||
| Total PCL-to-average net<br>loans and acceptances | 0.38 | **** | 0.27 | 0.15 | ||||
| PCL on impaired loans-to-average net loans and acceptances | 0.29 | **** | 0.25 | 0.14 | ||||
| Balance Sheet and other information (as at, millions, except as noted) | ||||||||
| Assets | 1,324,762 | **** | 1,347,006 | 1,186,986 | ||||
| Average earning assets | 1,195,740 | **** | 1,177,114 | 1,082,623 | ||||
| Gross loans and acceptances | 652,932 | **** | 668,583 | 563,036 | ||||
| Net loans and acceptances | 649,176 | **** | 664,776 | 560,398 | ||||
| Deposits | 914,138 | **** | 910,879 | 787,327 | ||||
| Common shareholders’ equity | 70,292 | **** | 69,137 | 66,868 | ||||
| Total risk weighted assets (4) | 414,145 | **** | 424,197 | 347,454 | ||||
| Assets under administration | 724,527 | **** | 808,985 | 740,314 | ||||
| Assets under management | 360,325 | **** | 332,947 | 321,540 | ||||
| Capital and Liquidity Measures (%) (4) | ||||||||
| Common Equity Tier 1 Ratio | 12.8 | **** | 12.5 | 18.2 | ||||
| Tier 1 Capital Ratio | 14.4 | **** | 14.1 | 20.1 | ||||
| Total Capital Ratio | 16.6 | **** | 16.2 | 22.6 | ||||
| Leverage Ratio | 4.2 | **** | 4.2 | 5.9 | ||||
| TLAC Ratio | 27.6 | **** | 27.0 | 37.2 | ||||
| Liquidity Coverage Ratio (LCR) | 129 | **** | 128 | 144 | ||||
| Net Stable Funding Ratio (NSFR) | 116 | **** | 115 | 120 | ||||
| Foreign Exchange Rates () | ||||||||
| As at Canadian/U.S. dollar | 1.3404 | **** | 1.3868 | 1.3306 | ||||
| Average Canadian/U.S. dollar | 1.3392 | **** | 1.3648 | 1.3426 |
All values are in US Dollars.
| (1) | Adjusted results exclude certain items from reported results and are used to calculate our adjusted measures as presented<br>in the above table. Management assesses performance on a reported basis and an adjusted basis, and considers both to be useful. For further information, refer to the Non-GAAP and Other Financial Measures<br>section and for details on the composition of non-GAAP amounts, measures and ratios, as well as supplementary financial measures, refer to the Glossary of Financial Terms. |
|---|---|
| (2) | Effective the first quarter of 2024, the bank adopted IFRS 17, Insurance Contracts (IFRS 17), recognizing the<br>cumulative effect of adoption in opening retained earnings and applied it retrospectively to fiscal 2023 results. For further information, refer to the Changes in Accounting Policies section. |
| --- | --- |
| (3) | Prior to November 1, 2022, we presented adjusted revenue on a basis that was net of insurance claims, commissions and<br>changes in policy benefit liabilities (CCPB). Beginning the first quarter of 2023, we no longer report CCPB given the adoption and retrospective application of IFRS 17. For periods prior to November 1, 2022, efficiency ratio and operating<br>leverage were calculated based on revenue, net of CCPB. Revenue, net of CCPB, was $7,642 million in Q1-2022 and $10,939 million in Q4-2022. Measures and ratios<br>presented on a basis net of CCPB are non-GAAP amounts. For more information, refer to the Insurance Claims, Commissions and Changes in Policy Benefit Liabilities section of the 2023 Annual MD&A.<br> |
| --- | --- |
| (4) | Capital and liquidity measures are disclosed in accordance with the Capital Adequacy Requirements (CAR) Guideline and the<br>Liquidity Adequacy Requirements (LAR) Guideline, as set out by Office of the Superintendent of Financial Institutions (OSFI), as applicable. |
| --- | --- |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
| 8 BMO Financial Group First Quarter Report 2024 |
|---|
Non-GAAP and Other Financial Measures
Results and measures in this document are presented on a generally accepted accounting principles (GAAP) basis. Unless otherwise indicated, all amounts are in Canadian dollars and have been derived from our audited annual consolidated financial statements and our unaudited interim consolidated financial statements, prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board. References to GAAP mean IFRS. We use a number of financial measures to assess our performance, as well as the performance of our operating segments, including amounts, measures and ratios that are presented on a non-GAAP basis, as described below. We believe that these non-GAAP amounts, measures and ratios, read together with our GAAP results, provide readers with a better understanding of how management assesses results.
Non-GAAP amounts, measures and ratios do not have standardized meanings under GAAP. They are unlikely to be comparable to similar measures presented by other companies and should not be viewed in isolation from, or as a substitute for, GAAP results.
For further information regarding the composition of our non-GAAP and other financial measures, including supplementary financial measures, refer to the Glossary of Financial Terms.
Our non-GAAP measures broadly fall into the following categories:
Adjusted measures and ratios
Management considers both reported and adjusted results and measures to be useful in assessing underlying ongoing business performance. Adjusted results and measures remove certain specified items from revenue, non-interest expense, provision for credit losses and income taxes, as detailed in the following table. Adjusted results and measures presented in this document are non-GAAP. Presenting results on both a reported basis and an adjusted basis permits readers to assess the impact of certain items on results for the periods presented, and to better assess results excluding those items that may not be reflective of ongoing business performance. As such, the presentation may facilitate readers’ analysis of trends. Except as otherwise noted, management’s discussion of changes in reported results in this document applies equally to changes in the corresponding adjusted results.
Tangible common equity and return on tangible common equity
Tangible common equity is calculated as common shareholders’ equity, less goodwill and acquisition-related intangible assets, net of related deferred tax liabilities. Return on tangible common equity is commonly used in the North American banking industry and is meaningful because it measures the performance of businesses consistently, whether they were acquired or developed organically.
Measures net of insurance claims, commissions and changes in policy benefit liabilities
For periods prior to November 1, 2022, we presented adjusted revenue on a basis that is net of insurance claims, commissions and changes in policy benefit liabilities (CCPB), and our efficiency ratio and operating leverage were calculated on a similar basis. Measures and ratios presented on a basis net of CCPB are non-GAAP amounts. For more information, refer to the Insurance Claims, Commissions and Changes in Policy Benefit Liabilities section of the 2023 Annual MD&A. Beginning the first quarter of 2023, we no longer report CCPB given the adoption and retrospective application of IFRS 17.
Caution
This Non-GAAP and Other Financial Measures section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
| BMO Financial Group First Quarter Report 2024 9 |
|---|
Non-GAAP and Other Financial Measures
| (Canadian in millions, except as noted) | Q4-2023 | Q1-2023 | ||||||
|---|---|---|---|---|---|---|---|---|
| Reported Results | ||||||||
| Net interest income | 4,721 | **** | 4,941 | 4,021 | ||||
| Non-interest revenue | 2,951 | **** | 3,378 | 1,078 | ||||
| Revenue | 7,672 | **** | 8,319 | 5,099 | ||||
| Provision for credit losses | (627 | ) | (446 | ) | (217 | ) | ||
| Non-interest expense | (5,389 | ) | (5,679 | ) | (4,382 | ) | ||
| Income before income taxes | 1,656 | **** | 2,194 | 500 | ||||
| Provision for income taxes | (364 | ) | (484 | ) | (367 | ) | ||
| Net income | 1,292 | **** | 1,710 | 133 | ||||
| Diluted EPS () | 1.73 | **** | 2.19 | 0.14 | ||||
| Adjusting Items Impacting Revenue (Pre-tax) | ||||||||
| Management of fair value changes on the purchase of Bank of the West (1) | - | **** | - | (2,011 | ) | |||
| Legal provision (recorded in revenue) (2) | (14 | ) | (14 | ) | (6 | ) | ||
| Impact of loan portfolio sale (6) | (164 | ) | - | - | ||||
| Impact of adjusting items on revenue<br>(pre-tax) | (178 | ) | (14 | ) | (2,017 | ) | ||
| Adjusting Items Impacting Non-Interest Expense (Pre-tax) | ||||||||
| Acquisition and integration costs (4) | (76 | ) | (582 | ) | (239 | ) | ||
| Amortization of acquisition-related intangible assets (5) | (112 | ) | (119 | ) | (8 | ) | ||
| Legal provision (including legal fees) (2) | (1 | ) | (2 | ) | (2 | ) | ||
| FDIC special assessment (7) | (417 | ) | - | - | ||||
| Impact of adjusting items on<br>non-interest expense (pre-tax) | (606 | ) | (703 | ) | (249 | ) | ||
| Impact of adjusting items on reported net income (pre-tax) | (784 | ) | (717 | ) | (2,266 | ) | ||
| Adjusting Items Impacting Revenue (After-tax) | ||||||||
| Management of fair value changes on the purchase of Bank of the West (1) | - | **** | - | (1,461 | ) | |||
| Legal provision (including related interest expense and legal fees) (2) | (10 | ) | (10 | ) | (5 | ) | ||
| Impact of loan portfolio sale (6) | (136 | ) | - | - | ||||
| Impact of adjusting items on revenue<br>(after-tax) | (146 | ) | (10 | ) | (1,466 | ) | ||
| Adjusting Items Impacting Non-Interest Expense (After-tax) | ||||||||
| Acquisition and integration costs (4) | (57 | ) | (433 | ) | (181 | ) | ||
| Amortization of acquisition-related intangible assets (5) | (84 | ) | (88 | ) | (6 | ) | ||
| Legal provision (including related interest expense and legal fees) (2) | (1 | ) | (2 | ) | (1 | ) | ||
| FDIC special assessment (7) | (313 | ) | - | - | ||||
| Impact of adjusting items on<br>non-interest expense (after-tax) | (455 | ) | (523 | ) | (188 | ) | ||
| Adjusting Items Impacting Provision for Income Taxes<br>(After-tax) | ||||||||
| Impact of Canadian tax measures (3) | - | **** | - | (371 | ) | |||
| Impact of adjusting items on reported net income (after-tax) | (601 | ) | (533 | ) | (2,025 | ) | ||
| Impact on diluted EPS () | (0.83 | ) | (0.75 | ) | (2.92 | ) | ||
| Adjusted Results | ||||||||
| Net interest income | 4,735 | **** | 4,955 | 4,410 | ||||
| Non-interest revenue | 3,115 | **** | 3,378 | 2,706 | ||||
| Revenue | 7,850 | **** | 8,333 | 7,116 | ||||
| Provision for credit losses | (627 | ) | (446 | ) | (217 | ) | ||
| Non-interest expense | (4,783 | ) | (4,976 | ) | (4,133 | ) | ||
| Income before income taxes | 2,440 | **** | 2,911 | 2,766 | ||||
| Provision for income taxes | (547 | ) | (668 | ) | (608 | ) | ||
| Net income | 1,893 | **** | 2,243 | 2,158 | ||||
| Diluted EPS () | 2.56 | **** | 2.93 | 3.06 |
All values are in US Dollars.
| (1) | Reported net income in Q1-2023 included losses of $1,461 million<br>($2,011 million pre-tax) related to the acquisition of Bank of the West, comprising $1,628 million of mark-to-market<br>losses on certain interest rate swaps recorded in non-interest trading revenue and $383 million of losses on a portfolio of primarily U.S. treasuries and other balance sheet instruments recorded in net<br>interest income. |
|---|---|
| (2) | Reported net income included the impact of a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank:<br>Q1-2024 included $11 million ($15 million pre-tax), comprising $14 million interest expense and non-interest<br>expense of $1 million; Q4-2023 included $12 million ($16 million pre-tax), comprising interest expense of $14 million and non-interest expense of $2 million; and Q1-2023 included $6 million ($8 million pre-tax), comprising interest expense of<br>$6 million and a non-interest expense of $2 million. These amounts were recorded in Corporate Services. For further information, refer to the Provisions and Contingent Liabilities section in<br>Note 24 of the audited annual consolidated financial statements of BMO’s 2023 Annual Report. |
| --- | --- |
| (3) | Reported net income in Q1-2023 included a<br>one-time tax expense of $371 million related to certain tax measures enacted by the Canadian government, recorded in Corporate Services. |
| --- | --- |
| (4) | Reported net income included acquisition and integration costs, recorded in<br>non-interest expense. Costs related to the acquisition of Bank of the West were recorded in Corporate Services: Q1-2024 included $46 million ($61 million pre-tax); Q4-2023 included $434 million ($583 million pre-tax); and Q3-2023 included<br>$363 million ($487 million pre-tax). Costs related to the acquisitions of Radicle and Clearpool were recorded in BMO Capital Markets: Q1-2024 included<br>$10 million ($14 million pre-tax); Q4-2023 included a recovery of $2 million ($3 million pre-tax); and Q3-2023 included $1 million ($2 million pre-tax). Costs related to the acquisition of AIR MILES were recorded in Canadian P&C:<br>Q1-2024 included $1 million ($1 million pre-tax); Q4-2023 included $1 million ($2 million pre-tax); and Q3-2023 included $6 million ($8 million pre-tax). |
| --- | --- |
| (5) | Reported net income included amortization of acquisition-related intangible assets recorded in non-interest expense in the related operating group: Q1-2024 included $84 million ($112 million pre-tax); Q4-2023 included $88 million ($119 million pre-tax); and Q3-2023 included $85 million ($115 million pre-tax). |
| --- | --- |
| (6) | Reported net income in Q1-2024 included a net accounting loss on the sale of a<br>portfolio of recreational vehicle loans related to balance sheet optimization of $136 million ($164 million pre-tax), recorded in Corporate Services. |
| --- | --- |
| (7) | Reported net income in Q1-2024 included the impact of a U.S. Federal Deposit<br>Insurance Corporation (FDIC) special assessment of $313 million ($417 million pre-tax), recorded in non-interest expense in Corporate Services.<br> |
| --- | --- |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
| 10 BMO Financial Group First Quarter Report 2024 |
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Summary of Reported and Adjusted Results by Operating Segment
| (Canadian $ in millions, except as noted) | Canadian P&C | U.S. P&C | Total P&C | BMO WealthManagement | BMO CapitalMarkets | CorporateServices | Total Bank | U.S. Segment (1)(US in millions) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Q1-2024 | ||||||||||||||||||
| Reported net income (loss) | **** | 921 | **** | 560 | **** | 1,481 | **** | 240 | **** | 393 | **** | **** | (822 | ) | **** | 1,292 | **** | |
| Acquisition and integration costs | **** | 1 | **** | - | **** | 1 | **** | - | **** | 10 | **** | **** | 46 | **** | **** | 57 | **** | |
| Amortization of acquisition-related intangible assets | **** | 3 | **** | 75 | **** | 78 | **** | 1 | **** | 5 | **** | **** | - | **** | **** | 84 | **** | |
| Legal provision (including related interest expense and legal fees) | **** | - | **** | - | **** | - | **** | - | **** | - | **** | **** | 11 | **** | **** | 11 | **** | |
| Impact of loan portfolio sale | **** | - | **** | - | **** | - | **** | - | **** | - | **** | **** | 136 | **** | **** | 136 | **** | |
| Impact of FDIC special assessment | **** | - | **** | - | **** | - | **** | - | **** | - | **** | **** | 313 | **** | **** | 313 | **** | |
| Adjusted net income (loss) (2) | **** | 925 | **** | 635 | **** | 1,560 | **** | 241 | **** | 408 | **** | **** | (316 | ) | **** | 1,893 | **** | |
| Q4-2023 | ||||||||||||||||||
| Reported net income (loss) | 922 | 591 | 1,513 | 351 | 472 | (626 | ) | 1,710 | ||||||||||
| Acquisition and integration costs | 1 | - | 1 | - | (2 | ) | 434 | 433 | ||||||||||
| Amortization of acquisition-related intangible assets | 3 | 79 | 82 | 1 | 5 | - | 88 | |||||||||||
| Legal provision (including related interest expense and legal<br>fees) | - | - | - | - | - | 12 | 12 | |||||||||||
| Adjusted net income (loss) (2) | 926 | 670 | 1,596 | 352 | 475 | (180 | ) | 2,243 | ||||||||||
| Q1-2023 | ||||||||||||||||||
| Reported net income (loss) | 951 | 665 | 1,616 | 159 | 488 | (2,130 | ) | 133 | ) | |||||||||
| Acquisition and integration costs | - | - | - | - | 3 | 178 | 181 | |||||||||||
| Amortization of acquisition-related intangible assets | - | 1 | 1 | 1 | 4 | - | 6 | |||||||||||
| Management of fair value changes on the purchase of Bank of the West | - | - | - | - | - | 1,461 | 1,461 | |||||||||||
| Legal provision (including related interest expense and legal fees) | - | - | - | - | - | 6 | 6 | |||||||||||
| Impact of Canadian tax measures | - | - | - | - | - | 371 | 371 | |||||||||||
| Adjusted net income (loss) (2) | 951 | 666 | 1,617 | 160 | 495 | (114 | ) | 2,158 |
All values are in US Dollars.
| (1) | U.S. segment reported and adjusted results comprise net income recorded in U.S. P&C and our U.S. operations in BMO<br>Wealth Management, BMO Capital Markets and Corporate Services. |
|---|---|
| (2) | Refer to footnotes (1) to (7) in the Non-GAAP and Other Financial Measures<br>table for details on adjusting items. |
| --- | --- |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
Return on Equity and Return on Tangible Common Equity
| (Canadian $ in millions, except as noted) | Q1-2024 | Q4-2023 | Q1-2023 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Reported net income | **** | 1,292 | **** | 1,710 | 133 | ||||
| Net income attributable to<br>non-controlling interest in subsidiaries | **** | 2 | **** | 7 | - | ||||
| Net income attributable to bank shareholders | **** | 1,290 | **** | 1,703 | 133 | ||||
| Dividends on preferred shares and distributions on other equity<br>instruments | **** | (40 | ) | (125 | ) | (38 | ) | ||
| Net income available to common shareholders (A) | **** | 1,250 | **** | 1,578 | 95 | ||||
| After-tax amortization of<br>acquisition-related intangible assets | **** | 84 | **** | 88 | 6 | ||||
| Net income available to common shareholders after adjusting for amortization of acquisition-related<br>intangible assets (B) | **** | 1,334 | **** | 1,666 | 101 | ||||
| After-tax impact of other<br>adjusting items (1) | **** | 517 | **** | 445 | 2,019 | ||||
| Adjusted net income available to common shareholders (C) | **** | 1,851 | **** | 2,111 | 2,120 | ||||
| Average common shareholders’ equity (D) | **** | 69,391 | **** | 67,359 | 64,982 | ||||
| Goodwill | **** | (16,158 | ) | (16,462 | ) | (5,283 | ) | ||
| Acquisition-related intangible assets | **** | (2,745 | ) | (2,904 | ) | (115 | ) | ||
| Net of related deferred tax liabilities | **** | 1,007 | **** | 1,050 | 266 | ||||
| Average tangible common equity (E) | **** | 51,494 | **** | 49,044 | 59,850 | ||||
| Return on equity (%) (= A/D) (2) | **** | 7.2 | **** | 9.3 | 0.6 | ||||
| Adjusted return on equity (%) (= C/D) (2) | **** | 10.6 | **** | 12.4 | 12.9 | ||||
| Return on tangible common equity (%) (= B/E) (2) | **** | 10.3 | **** | 13.5 | 0.7 | ||||
| Adjusted return on tangible common equity (%) (= C/E) (2) | **** | 14.3 | **** | 17.1 | 14.0 | ||||
| (1) | Refer to footnotes (1) to (7) in the Non-GAAP and Other Financial Measures<br>table for details on adjusting items. | ||||||||
| --- | --- | ||||||||
| (2) | Quarterly calculations are on an annualized basis. | ||||||||
| --- | --- | ||||||||
| BMO Financial Group First Quarter Report 2024 11 | |||||||||
| --- |
Return on Equity by Operating Segment ^(1)^ ****
| Q1-2024 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Canadian $ in millions, except as noted) | Canadian P&C | U.S. P&C | Total P&C | BMO WealthManagement | BMO CapitalMarkets | CorporateServices | Total Bank | U.S. Segment (2)(US in millions) | |||||||||
| Reported | |||||||||||||||||
| Net income available to common shareholders | **** | 911 | **** | 547 | **** | 1,458 | **** | 238 | **** | 384 | **** | (830 | ) | **** | 1,250 | **** | |
| Total average common equity | **** | 15,847 | **** | 33,246 | **** | 49,093 | **** | 4,679 | **** | 13,202 | **** | 2,417 | **** | **** | 69,391 | **** | |
| Return on equity (%) | **** | 22.8 | **** | 6.5 | **** | 11.8 | **** | 20.3 | **** | 11.6 | **** | na | **** | **** | 7.2 | **** | |
| Adjusted (3) | |||||||||||||||||
| Net income available to common shareholders | **** | 915 | **** | 622 | **** | 1,537 | **** | 239 | **** | 399 | **** | (324 | ) | **** | 1,851 | **** | |
| Total average common equity | **** | 15,847 | **** | 33,246 | **** | 49,093 | **** | 4,679 | **** | 13,202 | **** | 2,417 | **** | **** | 69,391 | **** | |
| Return on equity (%) | **** | 23.0 | **** | 7.4 | **** | 12.4 | **** | 20.4 | **** | 12.0 | **** | na | **** | **** | 10.6 | **** | |
| Q4-2023 | |||||||||||||||||
| (Canadian $ in millions, except as noted) | Canadian P&C | U.S. P&C | Total P&C | BMO Wealth<br>Management | BMO Capital<br>Markets | Corporate<br>Services | Total Bank | U.S. Segment (2)(US in millions) | |||||||||
| Reported | |||||||||||||||||
| Net income available to common shareholders | 912 | 575 | 1,487 | 349 | 464 | (722 | ) | 1,578 | |||||||||
| Total average common equity | 13,840 | 32,164 | 46,004 | 4,813 | 12,041 | 4,501 | 67,359 | ||||||||||
| Return on equity (%) | 26.1 | 7.1 | 12.8 | 28.8 | 15.2 | na | 9.3 | ||||||||||
| Adjusted (3) | |||||||||||||||||
| Net income available to common shareholders | 916 | 654 | 1,570 | 350 | 467 | (276 | ) | 2,111 | |||||||||
| Total average common equity | 13,840 | 32,164 | 46,004 | 4,813 | 12,041 | 4,501 | 67,359 | ||||||||||
| Return on equity (%) | 26.3 | 8.1 | 13.5 | 28.9 | 15.3 | na | 12.4 | ||||||||||
| Q1-2023 | |||||||||||||||||
| (Canadian $ in millions, except as noted) | Canadian P&C | U.S. P&C | Total P&C | BMO Wealth<br>Management | BMO Capital<br>Markets | Corporate<br>Services | Total Bank | U.S. Segment (2)(US in millions) | |||||||||
| Reported | |||||||||||||||||
| Net income available to common shareholders | 942 | 657 | 1,599 | 157 | 479 | (2,140 | ) | 95 | ) | ||||||||
| Total average common equity | 12,083 | 13,932 | 26,015 | 4,005 | 12,091 | 22,871 | 64,982 | ||||||||||
| Return on equity (%) | 30.9 | 18.7 | 24.4 | 15.5 | 15.7 | na | 0.6 | ) | |||||||||
| Adjusted (3) | |||||||||||||||||
| Net income available to common shareholders | 942 | 658 | 1,600 | 158 | 486 | (124 | ) | 2,120 | |||||||||
| Total average common equity | 12,083 | 13,932 | 26,015 | 4,005 | 12,091 | 22,871 | 64,982 | ||||||||||
| Return on equity (%) | 30.9 | 18.7 | 24.4 | 15.6 | 15.9 | na | 12.9 |
All values are in US Dollars.
| (1) | Return on equity is based on allocated capital. For further information, refer to the How BMO Reports Operating Group<br>Results section. |
|---|---|
| (2) | U.S. segment reported and adjusted results comprise net income and allocated capital recorded in U.S. P&C and our U.S.<br>operations in BMO Wealth Management, BMO Capital Markets and Corporate Services. |
| --- | --- |
| (3) | Refer to footnotes (1) to (7) in the Non-GAAP and Other Financial Measures<br>table for details on adjusting items. |
| --- | --- |
na – not applicable
Capital is allocated to the operating segments based on the amount of regulatory capital required to support business activities. Effective the first quarter of fiscal 2024, our capital allocation rate increased to 11.5% of risk weighted assets, compared with 11.0% in 2023, to reflect increased regulatory capital requirements. Unallocated capital is reported in Corporate Services. Capital allocation methodologies are reviewed at least annually.
Foreign Exchange
| (Canadian in millions, except as noted) | vs. Q4-2023 | ||||
| Canadian/U.S. dollar exchange rate (average) | |||||
| Current period | 1.3392 | 1.3392 | |||
| Prior period | 1.3426 | 1.3648 | |||
| Effects on U.S. segment reported results | |||||
| Increased (Decreased) net interest income | (4 | ) | (46 | ) | |
| Increased (Decreased)<br>non-interest revenue | 2 | (26 | ) | ||
| Increased (Decreased) total revenue | (2 | ) | (72 | ) | |
| Decreased (Increased) provision for credit losses | - | 3 | |||
| Decreased (Increased) non-interest expense | 5 | 57 | |||
| Decreased (Increased) provision for income taxes | (1 | ) | 3 | ||
| Increased (Decreased) net income | 2 | (9 | ) | ||
| Impact on earnings per share () | - | (0.01 | ) | ||
| Effects on U.S. segment adjusted results | |||||
| Increased (Decreased) net interest income | (5 | ) | (46 | ) | |
| Increased (Decreased)<br>non-interest revenue | (2 | ) | (26 | ) | |
| Increased (Decreased) total revenue | (7 | ) | (72 | ) | |
| Decreased (Increased) provision for credit losses | - | 3 | |||
| Decreased (Increased) non-interest expense | 4 | 43 | |||
| Decreased (Increased) provision for income taxes | 1 | 7 | |||
| Increased (Decreased) net income | (2 | ) | (19 | ) | |
| Impact on earnings per share () | - | (0.03 | ) |
All values are in US Dollars.
Adjusted results in this table are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section.
| 12 BMO Financial Group First Quarter Report 2024 |
|---|
The table above indicates the relevant average Canadian/U.S. dollar exchange rates and the impact of changes in those rates on BMO’s U.S. segment reported and adjusted results.
The Canadian dollar equivalents of BMO’s U.S. segment results that are denominated in U.S. dollars increased in the first quarter of 2024 relative to both the first quarter of 2023 and the fourth quarter of 2023, due to changes in the Canadian/U.S. dollar exchange rate. References in this document to the impact of the U.S. dollar do not include U.S. dollar-denominated amounts recorded outside of BMO’s U.S. segment.
Economically, our U.S. dollar income stream was not hedged against the risk of changes in foreign exchange rates during 2024 and 2023. Changes in exchange rates will affect future results measured in Canadian dollars, and the impact on those results is a function of the periods in which revenue, expenses and provisions for (or recoveries of) credit losses and income taxes arise.
Refer to the Enterprise-Wide Capital Management section of BMO’s 2023 Annual Report for a discussion of the impact that changes in foreign exchange rates can have on BMO’s capital position.
Net Income
Q1 2024 vs. Q1 2023
Reported net income was $1,292 million, an increase of $1,159 million from the prior year, and adjusted net income was $1,893 million, a decrease of $265 million or 12%. Reported EPS was $1.73, an increase of $1.59, and adjusted EPS was $2.56, a decrease of $0.50.
Adjusted results in the current quarter and the prior year excluded the following items:
| • | Impact of a U.S. Federal Deposit Insurance Corporation (FDIC) special assessment of $313 million<br>($417 million pre-tax) in the current quarter. |
|---|---|
| • | A net accounting loss of $136 million ($164 million pre-tax) on<br>the sale of a $9.6 billion (US$7.2 billion) portfolio of recreational vehicle loans related to balance sheet optimization in the current quarter. |
| --- | --- |
| • | Acquisition and integration costs of $57 million ($76 million<br>pre-tax) in the current quarter, and $181 million ($239 million pre-tax) in the prior year. |
| --- | --- |
| • | Amortization of acquisition-related intangible assets of $84 million ($112 million pre-tax) in the current quarter, and $6 million ($8 million pre-tax) in the prior year. |
| --- | --- |
| • | Impact of a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank, of $11 million<br>($15 million pre-tax) in the current quarter, and $6 million ($8 million pre-tax) in the prior year. |
| --- | --- |
| • | Loss of $1,461 million ($2,011 million pre-tax) in the prior year<br>related to the management of the impact of interest rate changes between the announcement and closing of the Bank of the West acquisition on its fair value and goodwill. |
| --- | --- |
| • | A one-time tax expense of $371 million in the prior year related to<br>certain tax measures enacted by the Canadian government. |
| --- | --- |
The increase in reported net income reflected the items noted above and was primarily driven by the impact of the loss related to fair value management actions. Adjusted net income decreased, due to higher revenue, more than offset by higher expenses and higher provisions for credit losses. Net income increased in BMO Wealth Management and decreased in our P&C businesses and BMO Capital Markets. Corporate Services net loss decreased on a reported basis, increased on an adjusted basis from the prior year.
Q1 2024 vs. Q4 2023
Reported net income decreased $418 million or 24% from the prior quarter, and adjusted net income decreased $350 million or 16%. Reported EPS decreased $0.46 from the prior quarter, and adjusted EPS decreased $0.37.
Adjusted results in the current quarter excluded the items noted above, and adjusted results in the prior quarter excluded the following items:
| • | Acquisition and integration costs of $433 million ($582 million<br>pre-tax). |
|---|---|
| • | Amortization of acquisition-related intangible assets of $88 million ($119 million pre-tax). |
| --- | --- |
| • | Impact of a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank, of $12 million<br>($16 million pre-tax). |
| --- | --- |
The decrease in reported net income reflected the impact of the FDIC special assessment and the loss on the sale of a loan portfolio noted above, partially offset by lower acquisition and integration costs. The decrease in adjusted net income primarily reflected lower revenue and higher provisions for credit losses, partially offset by lower expenses. Net income decreased in BMO Wealth Management, BMO Capital Markets and U.S. P&C, while Canadian P&C was relatively unchanged from the prior quarter. Corporate Services recorded a higher net loss on both a reported and an adjusted basis, compared with the prior quarter.
For further information on non-GAAP amounts, measures and ratios in this Net Income section, refer to the Non-GAAP and Other Financial Measures section.
Revenue
Q1 2024 vs. Q1 2023
Effective the first quarter of 2024, the bank adopted IFRS 17, Insurance Contracts (IFRS 17) and retrospectively applied it to fiscal 2023 results. Insurance results are now presented in non-interest revenue under Insurance Service Results and Insurance Investment Results. Insurance service results include insurance revenue, insurance service expenses and reinsurance results. Insurance investment results include net returns on insurance-
| BMO Financial Group First Quarter Report 2024 13 |
|---|
related assets and the impact of the change in discount rates and financial assumptions on insurance contract liabilities. We no longer report insurance claims, commissions and changes in policy benefits as a separate line item in the Consolidated Statement of Income. Fiscal 2023 results may not be fully representative of our future earnings profile, as were not managing our insurance portfolio under the new standard. Refer to the Changes in Accounting Policies section for further details.
Reported revenue was $7,672 million, an increase of $2,573 million or 50% from the prior year, and adjusted revenue was $7,850 million, an increase of $734 million or 10%.
The increase in reported revenue primarily reflected the loss on fair value management actions in the prior year. The increase in adjusted revenue was primarily driven by the inclusion of the Bank of the West and AIR MILES acquisitions, volume growth in Canadian P&C and higher insurance revenue due to market-related impacts from the transition to IFRS, partially offset by lower revenue in Corporate Services and BMO Capital Markets.
Reported net interest income was $4,721 million, an increase of $700 million or 17% from the prior year, and adjusted net interest income was $4,735 million, an increase of $325 million or 7%. The increase in reported results reflected the impact of fair value management actions in the prior year. Net interest income increased in our P&C businesses, partially offset by lower net interest income in Corporate Services and lower trading-related net interest income. Trading-related net interest income was $128 million, a decrease of $157 million from the prior year and was largely offset in non-interest revenue.
BMO’s overall reported net interest margin of 1.57% increased 10 basis points from the prior year. Adjusted net interest margin, excluding trading-related net interest income, and trading and insurance assets was 1.84%, an increase of 3 basis points, primarily due to higher margins in our P&C businesses, partially offset by lower net interest income in Corporate Services.
Reported non-interest revenue was $2,951 million, an increase of $1,873 million from the prior year, and adjusted non-interest revenue was $3,115 million, an increase of $409 million or 15%. The increase in reported results primarily reflected the mark-to-market loss on fair value management actions in the prior year. Adjusted non-interest revenue increased due to higher underwriting and advisory fee revenue, higher insurance investment results from market-related impacts reflecting the transition to IFRS 17, higher trading revenue, and the inclusion of Bank of the West and AIR MILES, partially offset by lower security gains, other than trading.
Q1 2024 vs. Q4 2023
Reported revenue decreased $647 million or 8% from the prior quarter, and adjusted revenue decreased $483 million or 6%. The impact of the weaker U.S. dollar decreased revenue by approximately 1% on both a reported and an adjusted basis.
The decrease in reported revenue included the loss on the sale of a loan portfolio in the current quarter noted above. The decrease in reported and adjusted revenue was primarily due to lower revenue in Corporate Services, lower insurance revenue due to market-related impacts from the transition to IFRS 17, as well as lower revenue in BMO Capital Markets.
Reported net interest income decreased $220 million or 4% from the prior quarter, driven by lower net interest income in Corporate Services and lower trading-related net interest income, partially offset by an increase in Canadian P&C. Trading-related net interest income decreased $85 million from the prior quarter, and was more than offset in non-interest revenue.
BMO’s overall reported net interest margin decreased 10 basis points from the prior quarter. Adjusted net interest margin, excluding trading-related net interest income, and trading and insurance assets, decreased 6 basis points, primarily due to lower net interest income in Corporate Services.
Reported non-interest revenue decreased $427 million or 13% from the prior quarter, and adjusted non-interest revenue decreased $263 million or 8%. The decrease in reported results primarily reflected the loss on the sale of a loan portfolio in the current quarter. Adjusted non-interest revenue decreased primarily due to lower insurance investment results from market-related impacts reflecting the transition to IFRS 17, treasury-related activities in Corporate Services, including market volatility on hedge positions, lower card fee revenue, underwriting and advisory fee revenue, and security gains, other than trading, partially offset by higher trading revenue.
For further information on non-GAAP amounts, measures and ratios, and results presented on a net revenue basis in this Revenue section, refer to the Non-GAAP and Other Financial Measures section.
Change in Net Interest Income, Average Earning Assets and Net Interest Margin ^(1)^ ****
| Average earning assets (3) | Net interest margin (in basis points) | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Canadian in millions, except as noted) | Q4-2023 | Q1-2023 | Q1-2024 | Q4-2023 | Q1-2023 | Q1-2024 | Q4-2023 | Q1-2023 | |||||||||
| Canadian P&C | 2,141 | 2,096 | 1,959 | **** | 307,757 | 303,728 | 289,564 | **** | 277 | 274 | 268 | ||||||
| U.S. P&C | 2,058 | 2,077 | 1,432 | **** | 212,354 | 213,477 | 143,054 | **** | 386 | 386 | 397 | ||||||
| Personal and Commercial Banking (P&C) | 4,199 | 4,173 | 3,391 | **** | 520,111 | 517,205 | 432,618 | **** | 321 | 320 | 311 | ||||||
| All other operating groups and Corporate Services (3) | 522 | 768 | 630 | **** | 675,629 | 659,909 | 650,005 | **** | na | na | na | ||||||
| Total reported | 4,721 | 4,941 | 4,021 | **** | 1,195,740 | 1,177,114 | 1,082,623 | **** | 157 | 167 | 147 | ||||||
| Total adjusted | 4,735 | 4,955 | 4,410 | **** | 1,195,740 | 1,177,114 | 1,082,623 | **** | 158 | 167 | 162 | ||||||
| Trading net interest income, trading and insurance assets | 128 | 213 | 285 | **** | 199,919 | 186,840 | 176,940 | **** | na | na | na | ||||||
| Total reported, excluding trading and insurance | 4,593 | 4,728 | 3,736 | **** | 995,821 | 990,274 | 905,683 | **** | 183 | 189 | 164 | ||||||
| Total adjusted, excluding trading and insurance | 4,607 | 4,742 | 4,125 | **** | 995,821 | 990,274 | 905,683 | **** | 184 | 190 | 181 | ||||||
| U.S. P&C (US in millions) | 1,537 | 1,521 | 1,067 | **** | 158,570 | 156,400 | 106,544 | **** | 386 | 386 | 397 |
All values are in US Dollars.
| (1) | Adjusted results and ratios in this table are on a non-GAAP basis and are<br>discussed in the Non-GAAP and Other Financial Measures section. |
|---|---|
| (2) | Operating group revenue is presented on a taxable equivalent basis (teb) in net interest income. For further information,<br>refer to the How BMO Reports Operating Group Results section. |
| --- | --- |
| (3) | Average earning assets represents the daily average balance of deposits with central banks, deposits with other banks,<br>securities borrowed or purchased under resale agreements, securities, and loans, over a one-year period. Average earning assets, excluding trading and insurance assets, exclude trading and insurance earning<br>assets. |
| --- | --- |
na – not applicable
Certain comparative figures have been reclassified to conform with the current period’s presentation.
| 14 BMO Financial Group First Quarter Report 2024 |
|---|
Total Provision for Credit Losses
| (Canadian $ in millions) | Canadian P&C | U.S. P&C | Total P&C | BMO WealthManagement | BMO CapitalMarkets | CorporateServices | Total Bank | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Q1-2024 | |||||||||||||||||
| Provision for credit losses on impaired loans | **** | 238 | **** | 183 | **** | 421 | **** | 3 | **** | **** | 11 | **** | **** | 38 | **** | **** | 473 |
| Provision for (recovery of) credit losses on performing<br>loans | **** | 57 | **** | 107 | **** | 164 | **** | 10 | **** | **** | (33 | ) | **** | 13 | **** | **** | 154 |
| Total provision for (recovery of) credit losses | **** | 295 | **** | 290 | **** | 585 | **** | 13 | **** | **** | (22 | ) | **** | 51 | **** | **** | 627 |
| Total PCL-to-average net<br>loans and acceptances (%) (1) | **** | 0.37 | **** | 0.57 | **** | 0.45 | **** | 0.12 | **** | **** | (0.10 | ) | **** | nm | **** | **** | 0.38 |
| PCL on impaired loans-to-average net loans and acceptances (%) (1) | **** | 0.30 | **** | 0.36 | **** | 0.32 | **** | 0.02 | **** | **** | 0.06 | **** | **** | nm | **** | **** | 0.29 |
| Q4-2023 | |||||||||||||||||
| Provision for credit losses on impaired loans | 232 | 143 | 375 | 2 | 11 | 20 | 408 | ||||||||||
| Provision for (recovery of) credit losses on performing<br>loans | 33 | 33 | 66 | (1 | ) | (10 | ) | (17 | ) | 38 | |||||||
| Total provision for credit losses | 265 | 176 | 441 | 1 | 1 | 3 | 446 | ||||||||||
| Total PCL-to-average net<br>loans and acceptances (%) (1) | 0.34 | 0.34 | 0.34 | 0.01 | 0.01 | nm | 0.27 | ||||||||||
| PCL on impaired loans-to-average net loans and acceptances (%) (1) | 0.29 | 0.28 | 0.29 | 0.02 | 0.06 | nm | 0.25 | ||||||||||
| Q1-2023 | |||||||||||||||||
| Provision for (recovery of) credit losses on impaired loans | 135 | 42 | 177 | 1 | (3 | ) | 21 | 196 | |||||||||
| Provision for (recovery of) credit losses on performing<br>loans | 9 | 13 | 22 | 5 | (7 | ) | 1 | 21 | |||||||||
| Total provision for (recovery of) credit losses | 144 | 55 | 199 | 6 | (10 | ) | 22 | 217 | |||||||||
| Total PCL-to-average net<br>loans and acceptances (%) (1) | 0.19 | 0.16 | 0.18 | 0.07 | (0.05 | ) | nm | 0.15 | |||||||||
| PCL on impaired loans-to-average net loans and acceptances (%) (1) | 0.18 | 0.12 | 0.16 | - | (0.02 | ) | nm | 0.14 | |||||||||
| (1) | PCL ratios are presented on an annualized basis. | ||||||||||||||||
| --- | --- |
nm – not meaningful
Q1 2024 vs. Q1 2023
Total provision for credit losses was $627 million, compared with total provision for credit losses of $217 million in the prior year. Total provision for credit losses as a percentage of average net loans and acceptances ratio was 38 basis points, compared with 15 basis points in the prior year. The provision for credit losses on impaired loans was $473 million, an increase of $277 million from the prior year, due to normalization in credit conditions reflected in higher impaired provisions for consumer loans, credit cards and business and government loans, partially offset by benefits from risk transfer transactions. The provision for credit losses on impaired loans as a percentage of average net loans and acceptances ratio was 29 basis points, compared with 14 basis points in the prior year. The provision for credit losses on performing loans was $154 million, compared with a provision of $21 million in the prior year. The $154 million provision for credit losses on performing loans in the current quarter was primarily driven by portfolio credit migration and model updates.
Q1 2024 vs. Q4 2023
Total provision for credit losses increased $181 million from the prior quarter. The provision for credit losses on impaired loans increased $65 million from the prior quarter, due to continued normalization in credit conditions reflected in higher impaired provisions for consumer loans and business and government loans, partially offset by benefits from risk transfer transactions. The provision for credit losses on impaired loans as a percentage of average net loans and acceptances ratio was 29 basis points, compared with 25 basis points in the prior quarter. The provision for credit losses on performing loans was $154 million, compared with a provision of $38 million in the prior quarter.
Impaired Loans
| (Canadian $ in millions, except as noted) | Q1-2024 | Q4-2023 | Q1-2023 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| GIL, beginning of period | **** | 3,960 | **** | 2,844 | 1,991 | ||||
| Classified as impaired during the period | **** | 1,366 | **** | 1,766 | 521 | ||||
| Purchased credit impaired during the period | **** | - | **** | - | - | ||||
| Transferred to not impaired during the period | **** | (264 | ) | (184 | ) | (140 | ) | ||
| Net repayments | **** | (322 | ) | (248 | ) | (185 | ) | ||
| Amounts written-off | **** | (381 | ) | (271 | ) | (141 | ) | ||
| Recoveries of loans and advances previously written-off | **** | - | **** | - | - | ||||
| Disposals of loans | **** | (21 | ) | (24 | ) | - | |||
| Foreign exchange and other movements | **** | (79 | ) | 77 | (19 | ) | |||
| GIL, end of period | **** | 4,259 | **** | 3,960 | 2,027 | ||||
| GIL to gross loans and acceptances (%) | **** | 0.65 | **** | 0.59 | 0.36 |
Total gross impaired loans and acceptances (GIL) were $4,259 million, an increase from $3,960 million in the prior quarter. The increase in impaired loans was predominantly in business and government lending, with the largest increases in the service and manufacturing industries. GIL as a percentage of gross loans and acceptances increased to 0.65% from 0.59% in the prior quarter.
Loans classified as impaired during the quarter were $1,366 million, a decrease from $1,766 million in the prior quarter, reflecting lower impaired loan formations, primarily in the commercial real estate, manufacturing and service industries.
Factors contributing to the change in GIL are outlined in the table above.
| BMO Financial Group First Quarter Report 2024 15 |
|---|
Non-Interest Expense
Q1 2024 vs. Q1 2023
Reported non-interest expense was $5,389 million, an increase of $1,007 million or 23% from the prior year, and adjusted non-interest expense was $4,783 million, an increase of $650 million or 16%.
Reported and adjusted non-interest expense increased, reflecting the impact of Bank of the West and AIR MILES, partially offset by expense management and our focus on operational efficiencies. Reported results included the impact of the U.S. Federal Deposit Insurance Corporation (FDIC) special assessment and higher amortization of acquisition-related intangible assets, partially offset by lower acquisition and integration costs. Reported and adjusted non-interest expense increased across all categories, due to the inclusion of Bank of the West and AIR MILES, partially offset by cost synergies and operational efficiency initiatives, as well as the impact of the consolidation of certain U.S. retirement benefit plans.
Reported efficiency ratio was 70.2%, compared with 85.9% in the prior year, and adjusted efficiency ratio was 60.9%, compared with 58.1%. Reported operating leverage was positive 27.5%, and adjusted operating leverage was negative 5.4%.
Q1 2024 vs. Q4 2023
Reported non-interest expense decreased $290 million or 5% from the prior quarter, and adjusted non-interest expense decreased $193 million or 4%. The impact of the weaker U.S. dollar decreased non-interest expense by approximately 1% on both a reported and an adjusted basis.
Reported results reflected lower acquisition and integration costs, partially offset by the impact of the FDIC special assessment. Reported and adjusted non-interest expense decreased due to expense management and our focus on operational efficiencies, with decreases in computer and equipment costs, premises costs, including the charge related to the consolidation of BMO real estate in the prior quarter, professional fees and advertising and business development expenses, partially offset by higher employee costs, including stock-based compensation and seasonal benefits that are expensed in the first quarter of each year. The realization of Bank of the West cost synergies and enterprise operational efficiency initiatives reduced adjusted expenses by 3%.
For further information on non-GAAP amounts, measures and ratios in this Non-Interest Expense section, refer to the Non-GAAP and Other Financial Measures section.
Provision for Income Taxes
The provision for income taxes was $364 million, a decrease of $3 million from the first quarter of 2023, and a decrease of $120 million from the fourth quarter of 2023. The effective tax rate for the current quarter was 22.0%, compared with 73.5% in the first quarter of 2023, and 22.1% in the fourth quarter of 2023. The change in the reported effective tax rate in the current quarter relative to the first quarter of 2023 was primarily due to a one-time tax expense of $371 million in the prior year.
The adjusted provision for income taxes was $547 million, a decrease of $61 million from the first quarter of 2023, and a decrease of $121 million from the fourth quarter of 2023. The adjusted effective tax rate was 22.4% in the current quarter, compared with 22.0% in the first quarter of 2023, and 23.0% in the fourth quarter of 2023. The change in the adjusted effective tax rate in the current quarter relative to the fourth quarter of 2023 was primarily due to a change in earnings mix.
For further information on non-GAAP amounts, measures and ratios in this Provision for Income Taxes section, refer to the Non-GAAP and Other Financial Measures section.
| 16 BMO Financial Group First Quarter Report 2024 |
|---|
Balance Sheet ^(1)^
| (Canadian $ in millions) | As at January 31, 2024 | As at October 31, 2023 | ||
|---|---|---|---|---|
| Assets | ||||
| Cash and cash equivalents and interest bearing deposits with banks | **** | 78,862 | 82,043 | |
| Securities | **** | 348,208 | 321,545 | |
| Securities borrowed or purchased under resale agreements | **** | 115,600 | 115,662 | |
| Net loans and acceptances | **** | 649,176 | 664,776 | |
| Derivative instruments | **** | 28,746 | 39,976 | |
| Other assets | **** | 104,170 | 123,004 | |
| Total assets | **** | 1,324,762 | 1,347,006 | |
| Liabilities and Equity | ||||
| Deposits | **** | 914,138 | 910,879 | |
| Derivative instruments | **** | 38,265 | 50,193 | |
| Securities lent or sold under repurchase agreements | **** | 108,379 | 106,108 | |
| Other liabilities | **** | 178,485 | 195,475 | |
| Subordinated debt | **** | 8,216 | 8,228 | |
| Equity | **** | 77,250 | 76,095 | |
| Non-controlling interest in<br>subsidiaries | **** | 29 | 28 | |
| Total liabilities and equity | **** | 1,324,762 | 1,347,006 | |
| (1) | Effective the first quarter of 2024, we changed our accounting policy for securities transactions from settlement date to<br>trade date, resulting in an increase in other assets and other liabilities due to the earlier recognition of transactions, as well as the reclassification of certain balance sheet items. Fiscal 2023 comparatives have been reclassified to conform<br>with the current period’s methodology. For further information, refer to the Changes in Accounting Policies section. | |||
| --- | --- |
Total assets were $1,324.8 billion as at January 31, 2024, a decrease of $22.2 billion from October 31, 2023. The impact of the weaker U.S. dollar decreased assets by $22.8 billion, excluding the impact on derivative financial assets.
Cash and cash equivalents and interest bearing deposits with banks decreased $3.2 billion, primarily due to lower balances held with central banks and the impact of the weaker U.S. dollar.
Securities increased $26.7 billion, primarily due to higher levels of client activity in BMO Capital Markets, higher balances in U.S. P&C driven by the sale of a portfolio of recreational vehicle loans and the related purchase of senior securities for purposes of balance sheet optimization, and higher balances in Corporate Services, partially offset by the impact of the weaker U.S. dollar.
Securities borrowed or purchased under resale agreements were relatively unchanged from the prior quarter, with higher levels of client activity in BMO Capital Markets offset by the impact of the weaker U.S. dollar.
Net loans and acceptances decreased $15.6 billion. Business and government loans and acceptances decreased $3.1 billion, with growth in BMO Capital Markets and Canadian P&C more than offset by the impact of the weaker U.S. dollar. Consumer instalment and other personal loans decreased $12.1 billion, driven by lower balances in U.S. P&C, primarily due to the sale of a portfolio of loans noted above, and lower balances in Corporate Services reflecting the exit and wind-down of our Canadian and U.S. indirect retail auto financing business. Residential mortgages decreased $0.7 billion, primarily due to the impact of the weaker U.S. dollar. Credit card balances were relatively unchanged.
Derivative financial assets decreased $11.2 billion, primarily due to a decrease in the value of client-driven trading derivatives in BMO Capital Markets, with decreases in the fair value of foreign exchange, interest rate and commodities contracts, partially offset by an increase in the fair value of equity contracts.
Other assets decreased $18.8 billion, primarily in BMO Capital Markets, due to changes in the balance of unsettled securities transactions.
Liabilities decreased $23.4 billion from October 31, 2023. The impact of the weaker U.S. dollar decreased liabilities by $21.1 billion, excluding the impact on derivative financial liabilities.
Deposits increased $3.3 billion. Customer deposits increased $2.8 billion, reflecting growth across all operating groups, partially offset by the impact of the weaker U.S. dollar. Other deposits increased $0.5 billion, driven by higher balances to fund Global Markets client activity, partially offset by the impact of the weaker U.S. dollar.
Derivative financial liabilities decreased $11.9 billion, largely due to a decrease in the value of client-driven trading derivatives in BMO Capital Markets, with decreases in the fair value of foreign exchange and interest rate contracts, partially offset by increases in the fair value of equity and commodities contracts.
Securities lent or sold under repurchase agreements increased $2.3 billion, due to higher levels of client activity in BMO Capital Markets, partially offset by the impact of the weaker U.S. dollar.
Other liabilities decreased $17.0 billion, driven by changes in the balance of unsettled securities transactions in BMO Capital Markets, lower Federal Home Loan Bank borrowings, lower acceptances and the impact of the weaker U.S. dollar.
Subordinated debt was relatively unchanged from the prior quarter.
Equity increased $1.2 billion from October 31, 2023. Common shares increased $0.5 billion, as a result of shares issued under the dividend reinvestment and share purchase plan. Accumulated other comprehensive income increased $0.5 billion, primarily due to the impact lower interest rates on cash flow hedges, partially offset by the impact of the weaker U.S. dollar on the translation of net foreign operations and losses on remeasurement of own credit risk on financial liabilities designated at fair value. Retained earnings increased $0.2 billion, as a result of net income earned in the quarter, partially offset by dividends and distributions on other equity instruments.
Contractual obligations by year of maturity are outlined in the Contractual Maturities of Assets and Liabilities and Off-Balance Sheet Commitments table in the Risk Management section.
| BMO Financial Group First Quarter Report 2024 17 |
|---|
Capital Management
BMO continues to manage its capital within the framework described in the Enterprise-Wide Capital Management section of BMO’s 2023 Annual Report.
First Quarter 2024 Regulatory Capital Review
BMO’s Common Equity Tier 1 (CET1) Ratio was 12.8% as at January 31, 2024, an increase from 12.5% at the end of the fourth quarter of 2023, primarily due to internal capital generation, common shares issued under the dividend reinvestment and share purchase plan (DRIP), lower source currency risk-weighted assets (RWA) and unrealized gains on fair value through other comprehensive income (OCI) securities, partially offset by the U.S. Federal Deposit Insurance Corporation (FDIC) special assessment.
CET1 Capital was $52.9 billion as at January 31, 2024, unchanged from October 31, 2023, with internal capital generation, common shares issued under the DRIP and unrealized gains on fair value through OCI securities offset by the impact of foreign exchange movements and the FDIC special assessment.
RWA were $414.1 billion as at January 31, 2024, a decrease from $424.2 billion as at October 31, 2023. RWA decreased primarily due to the impact of foreign exchange movements, the sale of a portfolio of recreational vehicle loans, a reduction in asset size and the impact of methodology and model updates, partially offset by higher market and operational risks, and net asset quality changes. The regulatory capital developments effective in the first quarter of fiscal 2024, did not have a significant impact on RWA.
In calculating regulatory capital ratios, there is a requirement to increase total RWA when a capital floor amount calculated under the standardized approaches, multiplied by a capital floor adjustment factor, is higher than a similar calculation using more risk-sensitive internal modelled approaches, where applicable. The capital floor was not operative as at January 31, 2024, unchanged from October 31, 2023.
The bank’s Tier 1 and Total Capital Ratios were 14.4% and 16.6%, respectively, as at January 31, 2024, compared with 14.1% and 16.2%, respectively, as at October 31, 2023, primarily due to the same factors impacting the CET1 Ratio.
The impact of foreign exchange movements on capital ratios was largely offset. BMO’s investments in foreign operations are primarily denominated in U.S. dollars, and the foreign exchange impact of U.S.dollar-denominated RWA and capital deductions may result in variability in the bank’s capital ratios. We may manage the impact of foreign exchange movements on our capital ratios, and we did so during the current quarter. Any such activities could also impact our book value and return on equity.
Our Leverage Ratio was 4.2% as at January 31, 2024, unchanged from October 31, 2023.
The bank’s risk-based Total Loss Absorbing Capacity (TLAC) Ratio and TLAC Leverage Ratio were 27.6% and 8.1%, respectively, as at January 31, 2024, compared with 27.0% and 8.1%, respectively, as at October 31, 2023.
Regulatory Capital Developments
The Domestic Stability Buffer (DSB), applicable to domestic systemically important banks (D-SIBs), increased from 3.0% to 3.5% effective November 1, 2023, as announced by the Office of the Superintendent of Financial Institutions (OSFI) in June 2023. On December 8, 2023, OSFI announced the DSB would remain unchanged.
The revised Capital Adequacy Requirements (CAR) Guideline, published by OSFI in October 2023, was effective in the first quarter of fiscal 2024, and includes heightened regulatory capital requirements for mortgages with growing balances where payments are insufficient to cover the interest component.
The domestic implementation of the Basel III Reforms related to market risk and credit valuation adjustment risk, along with an increase in the capital floor adjustment factor from 65.0% to 67.5%, was effective in the first quarter of fiscal 2024.
The Parental Stand-Alone (Solo) TLAC Framework for D-SIBs, published by OSFI on September 12, 2023, was effective in the first quarter of fiscal 2024. We met the minimum requirement of 21.5%.
Effective the first quarter of 2024, the bank adopted IFRS 17, Insurance Contracts (IFRS 17). Upon transition to IFRS 17, we voluntarily changed our accounting policy for the measurement of investment properties under IAS 40, Investment Properties (IAS 40), recorded in insurance-related assets. These changes did not have a material impact on regulatory capital ratios. Refer to the Changes in Accounting Policies section for further details.
Refer to the Enterprise-Wide Capital Management section of BMO’s 2023 Annual Report for a more detailed discussion of regulatory developments.
| 18 BMO Financial Group First Quarter Report 2024 |
|---|
Regulatory Capital, Leverage and TLAC
Regulatory capital requirements for BMO are determined in accordance with guidelines issued by OSFI, which are based on the Basel III framework developed by the Basel Committee on Banking Supervision (BCBS), and include OSFI’s Capital Adequacy Requirements (CAR) Guideline and the Leverage Requirements (LR) Guideline. TLAC requirements are determined in accordance with OSFI’s TLAC Guideline. For more information refer to the Enterprise-Wide Capital Management section of BMO’s 2023 Annual Report.
OSFI’s capital, leverage and TLAC requirements are summarized in the following table.
| (% of risk-weighted assets or leverage exposures) | Minimum capital,<br>leverage and TLAC<br>requirements | Total Pillar 1 Capital<br>buffer (1) | Tier 1 Capital<br><br><br>buffer (2) | Domestic stability<br>buffer^^(3) | Minimum capital,<br>leverage and TLAC<br>requirements including<br>capital buffers | BMO capital, leverage<br>and TLAC ratios as at<br>January 31, 2024 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Common Equity Tier 1 Ratio | 4.5% | 3.5% | na | 3.5% | 11.5% | 12.8% | ||||||
| Tier 1 Capital Ratio | 6.0% | 3.5% | na | 3.5% | 13.0% | 14.4% | ||||||
| Total Capital Ratio | 8.0% | 3.5% | na | 3.5% | 15.0% | 16.6% | ||||||
| TLAC Ratio | 21.5% | na | na | 3.5% | 25.0% | 27.6% | ||||||
| Leverage Ratio | 3.0% | na | 0.5% | na | 3.5% | 4.2% | ||||||
| TLAC Leverage Ratio | 6.75% | na | 0.5% | na | 7.25% | 8.1% | ||||||
| (1) | The minimum CET1 Ratio requirement of 4.5% is augmented by the 3.5% Total Pillar 1 Capital buffers, which can absorb<br>losses during periods of stress. Pillar 1 Capital buffers, which will be met with CET1 Capital, include a capital conservation buffer of 2.5%, a Common Equity Tier 1 surcharge for domestic systemically important banks<br>(D-SIBs) of 1.0% and a countercyclical buffer, as prescribed by OSFI (immaterial for the first quarter of 2024). If a bank’s capital ratios fall within the range of this combined buffer, restrictions on<br>discretionary distributions of earnings (such as dividends, share repurchases and discretionary compensation) would ensue, with the degree of such restrictions varying according to the position of the bank’s ratios within the buffer range.<br> | |||||||||||
| --- | --- | |||||||||||
| (2) | D-SIBs are required to meet a 0.5% Tier 1 Capital buffer requirement for the<br>Leverage and TLAC Leverage Ratios. | |||||||||||
| --- | --- | |||||||||||
| (3) | OSFI requires all D-SIBs to hold a Domestic Stability Buffer (DSB) against Pillar<br>2 risks associated with systemic vulnerabilities. Breaches of the DSB do not result in a bank being subject to automatic constraints on capital distributions. In the event of a breach, OSFI would require a remediation plan, and would expect for the<br>plan to be executed in a timely manner. Banks may be required to hold additional buffers that are applicable to capital, leverage and TLAC ratios. | |||||||||||
| --- | --- |
na – not applicable
Regulatory Capital and TLACPosition
| (Canadian $ in millions, except as noted) | Q1-2024 | Q4-2023 | Q1-2023 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Gross common equity (1) | **** | 70,292 | **** | 70,051 | 67,956 | ||||
| Regulatory adjustments applied to common equity | **** | (17,432 | ) | (17,137 | ) | (4,841 | ) | ||
| Common Equity Tier 1 Capital (CET1) | **** | 52,860 | **** | 52,914 | 63,115 | ||||
| Additional Tier 1 Eligible Capital (2) | **** | 6,958 | **** | 6,958 | 6,958 | ||||
| Regulatory adjustments applied to Tier 1 Capital | **** | (97 | ) | (87 | ) | (85 | ) | ||
| Additional Tier 1 Capital (AT1) | **** | 6,861 | **** | 6,871 | 6,873 | ||||
| Tier 1 Capital (T1 = CET1 + AT1) | **** | 59,721 | **** | 59,785 | 69,988 | ||||
| Tier 2 Eligible Capital (3) | **** | 8,898 | **** | 8,984 | 8,447 | ||||
| Regulatory adjustments applied to Tier 2 Capital | **** | (53 | ) | (51 | ) | (79 | ) | ||
| Tier 2 Capital (T2) | **** | 8,845 | **** | 8,933 | 8,368 | ||||
| Total Capital (TC = T1 + T2) | **** | 68,566 | **** | 68,718 | 78,356 | ||||
| Other TLAC instruments (4) | **** | 45,849 | **** | 45,773 | 50,997 | ||||
| Adjustments applied to Other TLAC | **** | (153 | ) | (89 | ) | (116 | ) | ||
| Other TLAC available after adjustments | **** | 45,696 | **** | 45,684 | 50,881 | ||||
| TLAC | **** | 114,262 | **** | 114,402 | 129,237 | ||||
| Risk-Weighted Assets (5) | **** | 414,145 | **** | 424,197 | 347,454 | ||||
| Leverage Ratio Exposures | **** | 1,406,555 | **** | 1,413,036 | 1,181,914 | ||||
| Capital, Leverage and TLAC Ratios (%) | |||||||||
| CET1 Ratio | **** | 12.8 | **** | 12.5 | 18.2 | ||||
| Tier 1 Capital Ratio | **** | 14.4 | **** | 14.1 | 20.1 | ||||
| Total Capital Ratio | **** | 16.6 | **** | 16.2 | 22.6 | ||||
| TLAC Ratio | **** | 27.6 | **** | 27.0 | 37.2 | ||||
| Leverage Ratio | **** | 4.2 | **** | 4.2 | 5.9 | ||||
| TLAC Leverage Ratio | **** | 8.1 | **** | 8.1 | 10.9 | ||||
| (1) | Gross Common Equity includes issued qualifying common shares, retained earnings, accumulated other comprehensive income<br>and eligible common share capital issued by subsidiaries. | ||||||||
| --- | --- | ||||||||
| (2) | Additional Tier 1 Eligible Capital includes directly and indirectly issued qualifying Additional Tier 1 instruments.<br> | ||||||||
| --- | --- | ||||||||
| (3) | Tier 2 Eligible Capital includes subordinated debentures and may include portion of expected credit loss provisions.<br> | ||||||||
| --- | --- | ||||||||
| (4) | Other TLAC includes senior unsecured debt subject to the Canadian Bail-In Regime.<br> | ||||||||
| --- | --- | ||||||||
| (5) | Institutions using one of the internal model-based approaches for credit risk, counterparty credit risk, or market risk<br>are subject to a capital floor requirement that is applied to RWA, as prescribed in OSFI’s CAR Guideline. | ||||||||
| --- | --- | ||||||||
| BMO Financial Group First Quarter Report 2024 19 | |||||||||
| --- |
Outstanding Shares and Securities Convertible into Common Shares ^(1)^ ****
| As at January 31, 2024 | Number of<br>shares | Amount<br>(in millions) | ||
|---|---|---|---|---|
| Common shares (2) | 725,363,211 | $23,412 | ||
| Class B Preferred shares* | ||||
| Series 27 | 20,000,000 | $500 | ||
| Series 29 | 16,000,000 | $400 | ||
| Series 31 | 12,000,000 | $300 | ||
| Series 33 | 8,000,000 | $200 | ||
| Series 44 | 16,000,000 | $400 | ||
| Series 46 | 14,000,000 | $350 | ||
| Series 50 | 500,000 | $500 | ||
| Series 52 | 650,000 | $650 | ||
| Other Equity Instruments* | ||||
| 4.800% Additional Tier 1 Capital Notes | US$500 | |||
| 4.300% Limited Recourse Capital Notes, Series 1 (LRCNs) | $1,250 | |||
| 5.625% Limited Recourse Capital Notes, Series 2 (LRCNs) | $750 | |||
| 7.325% Limited Recourse Capital Notes, Series 3 (LRCNs) | $1,000 | |||
| Medium-Term Notes* | ||||
| 3.803% Subordinated Notes due 2032 | US$1,250 | |||
| Series J - First Tranche | $1,000 | |||
| Series J - Second Tranche | $1,250 | |||
| Series K - First Tranche | $1,000 | |||
| 3.088% Subordinated Notes due 2037 | US$1,250 | |||
| Series L - First Tranche | $750 | |||
| Series M - First Tranche | $1,150 | |||
| Stock options | ||||
| Vested | 3,243,150 | |||
| Non-vested | 3,792,283 | |||
| * | Convertible into common shares. For LRCNs, convertible into common shares by virtue of the recourse to the Preferred<br>Shares Series 48, Preferred Shares Series 49 and Preferred Shares Series 51 for Series 1, Series 2 and Series 3 LRCNs, respectively, issued concurrently with the LRCNs, which currently comprise the limited recourse trust<br>assets. | |||
| --- | --- | |||
| (1) | Details on the Medium-Term Notes are outlined in Note 15 of the audited consolidated financial statements of BMO’s<br>2023 Annual Report. Details on share capital and Other Equity Instruments are outlined in Note 5 of the unaudited interim consolidated financial statements and Note 16 of the audited annual consolidated financial statements of BMO’s 2023 Annual<br>Report. | |||
| --- | --- | |||
| (2) | Common Shares are net of 68,445 treasury shares. | |||
| --- | --- |
If an NVCC trigger event were to occur, our NVCC instruments would be converted into BMO common shares pursuant to automatic conversion formulas, with a conversion price based on the greater of: (i) a floor price of $5.00; and (ii) the current market price of our common shares at the time of the trigger event (calculated using a 10-day weighted average). Based on a floor price of $5.00, these NVCC capital instruments would be converted into approximately 4.0 billion BMO common shares, assuming no accrued interest and no declared and unpaid dividends.
Other Capital Developments
During the quarter, we issued $472 million common shares through the DRIP and the exercise of stock options.
Dividends
On February 27, 2024, BMO announced that the Board of Directors had declared a quarterly dividend on common shares of $1.51 per share, unchanged from the prior quarter. The dividend is payable on May 28, 2024 to shareholders of record on April 29, 2024. Common shareholders may elect to have their cash dividends reinvested in common shares of BMO, in accordance with the DRIP.
On February 27, 2024, we also announced that commencing with the common share dividend declared for the second quarter of fiscal 2024, and subsequently thereafter until further notice, common shares under the DRIP will be purchased on the open market without a discount.
For the purposes of the Income Tax Act (Canada) and any similar provincial and territorial legislation, BMO designates all dividends paid or deemed to be paid on both its common and preferred shares as “eligible dividends”, unless indicated otherwise.
This Capital Management section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
| 20 BMO Financial Group First Quarter Report 2024 |
|---|
Review of Operating Groups’ Performance
How BMO Reports Operating Group Results
BMO reports financial results for its three operating groups, one of which comprises two operating segments, all of which are supported by Corporate Units and Technology and Operations (T&O) within Corporate Services. Operating segment results include allocations from Corporate Services for treasury-related revenue, corporate and T&O costs, and capital.
BMO employs funds transfer pricing and liquidity transfer pricing between corporate treasury and the operating segments in order to assign the appropriate cost and credit to funds for the appropriate pricing of loans and deposits, and to help assess the profitability performance of each line of business. These practices also capture the cost of holding supplemental liquid assets to meet contingent liquidity requirements, as well as facilitating the management of interest rate risk and liquidity risk within our risk appetite framework and regulatory requirements. We review our transfer pricing methodologies at least annually, in order to align with our interest rate, liquidity and funding risk management practices, and update these as appropriate.
The costs of Corporate Units and T&O services are largely allocated to the four operating segments, with any remaining amounts retained in Corporate Services. Certain expenses, directly incurred to support a specific operating segment, are generally allocated to that operating segment. Other expenses are generally allocated across the operating segments in amounts that are reasonably reflective of the level of support provided to each operating segment. We review our expense allocation methodologies annually, and update these as appropriate.
Periodically, certain lines of business and units within our organizational structure are realigned within an operating group, or transferred between operating groups and Corporate Services to support our strategic priorities. Allocations of revenue, expenses, provisions for income taxes and capital from Corporate Services to the operating groups are updated to better align with these changes.
Capital is allocated to the operating segments based on the amount of regulatory capital required to support business activities. Effective fiscal 2024, our capital allocation rate increased to 11.5% of risk-weighted assets, compared with 11.0% in fiscal 2023, in order to reflect an increase in capital requirements. Unallocated capital is reported in Corporate Services. We review our capital allocation methodologies at least annually.
Effective the first quarter of 2024, the bank adopted IFRS 17, Insurance Contracts (IFRS 17), and retrospectively applied it to fiscal 2023 results and opening retained earnings as at November 1, 2022. Insurance results are now presented in non-interest revenue under Insurance Service Results and Insurance Investment Results. Insurance service results include insurance revenue, insurance service expenses and reinsurance results. Insurance investment results include net returns on insurance-related assets and the impact of the change in discount rates and financial assumptions on insurance contract liabilities. We no longer report insurance claims, commissions and changes in policy benefits as a separate line item in the Consolidated Statement of Income.
Upon transition to IFRS 17, we also voluntarily changed our accounting policy for the measurement of investment properties under IAS 40, Investment Properties (IAS 40), recorded in insurance-related assets on our Consolidated Balance Sheet from cost to fair value. This change was applied retrospectively to fiscal 2023 results and opening retained earnings as at November 1, 2022. These changes did not have a material impact on regulatory capital ratios. Refer to the Changes in Accounting Policies section for further details.
Effective the first quarter of 2024, we voluntarily changed our accounting policy for securities transactions from settlement date to trade date. This change was applied retrospectively, as if we always recorded securities transactions on trade date. As a result, there was an increase in other assets and other liabilities due to the earlier recognition of transactions, as well as the reclassification of certain balance sheet items. Fiscal 2023 comparatives have been reclassified to conform with the current period’s methodology.
Effective the first quarter of 2024, the allocation of certain items from Corporate Services to the operating groups was updated to align with the underlying business activity, including transfer pricing methodologies. Comparative results and ratios have been reclassified to conform with the current period’s presentation.
Effective the first quarter of 2024, balances and the associated revenue, expenses and provisions for credit losses related to our Canadian and U.S. indirect retail auto financing business, previously reported in Personal and Commercial Banking, are reported in Corporate Services, reflecting the exit and wind-down of this business unit. Fiscal 2023 comparatives have been reclassified to conform with the current period’s presentation.
We analyze revenue at the consolidated level based on GAAP revenue as reported in the audited annual consolidated financial statements, rather than on a taxable equivalent basis (teb), which is consistent with our Canadian banking peer group. Like many banks, BMO analyzes revenue on a teb basis at the operating segment level. Revenue and the provision for income taxes in BMO Capital Markets and U.S. P&C are increased on tax-exempt securities to equivalent pre-tax amounts that facilitate comparisons of income from taxable and tax-exempt sources. The offset to the segment teb adjustments is reflected in Corporate Services revenue and provision for (recovery of) income taxes. Beginning January 1, 2024, we did not take the deduction for certain Canadian dividends received in BMO Capital Markets due to proposed legislation, and as a result, we no longer report this revenue on a teb basis. Refer to the Other Regulatory Developments section for further details.
| BMO Financial Group First Quarter Report 2024 21 |
|---|
Personal and Commercial Banking (P&C) ^(1)^ ****
| (Canadian $ in millions, except as noted) | Q1-2024 | Q4-2023 | Q1-2023 | |||
|---|---|---|---|---|---|---|
| Net interest income (teb) (2) | **** | 4,199 | 4,173 | 3,391 | ||
| Non-interest revenue | **** | 1,033 | 1,111 | 900 | ||
| Total revenue (teb) (2) | **** | 5,232 | 5,284 | 4,291 | ||
| Provision for credit losses on impaired loans | **** | 421 | 375 | 177 | ||
| Provision for (recovery of) credit losses on performing<br>loans | **** | 164 | 66 | 22 | ||
| Total provision for credit losses | **** | 585 | 441 | 199 | ||
| Non-interest expense | **** | 2,676 | 2,813 | 1,920 | ||
| Income before income taxes | **** | 1,971 | 2,030 | 2,172 | ||
| Provision for income taxes (teb) (2) | **** | 490 | 517 | 556 | ||
| Reported net income | **** | 1,481 | 1,513 | 1,616 | ||
| Acquisition and integration costs (3) | **** | 1 | 1 | - | ||
| Amortization of acquisition-related intangible assets (4) | **** | 78 | 82 | 1 | ||
| Adjusted net income | **** | 1,560 | 1,596 | 1,617 | ||
| Net income available to common shareholders | **** | 1,458 | 1,487 | 1,599 | ||
| Adjusted net income available to common shareholders | **** | 1,537 | 1,570 | 1,600 | ||
| (1) | Adjusted results are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section. | |||||
| --- | --- | |||||
| (2) | Taxable equivalent basis (teb) amounts of $9 million in Q1-2024,<br>$9 million Q4-2023 and $8 million in Q1-2023 were recorded in net interest income, revenue and in provision for income taxes. | |||||
| --- | --- | |||||
| (3) | Acquisition and integration costs related to the acquisition of AIR MILES, recorded in<br>non-interest expense. | |||||
| --- | --- | |||||
| (4) | Amortization of acquisition-related intangible assets, recorded in non-interest expense. | |||||
| --- | --- |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
The Personal and Commercial Banking (P&C) operating group represents the sum of our two retail and commercial operating segments, Canadian Personal and Commercial Banking (Canadian P&C) and U.S. Personal and Commercial Banking (U.S. P&C). The P&C banking business reported net income was $1,481 million, a decrease of $135 million or 8% from the prior year, and a decrease of $32 million or 2% from the prior quarter. Adjusted net income was $1,560 million, a decrease of $57 million or 4% from the prior year, and a decrease of $36 million or 2% from the prior quarter. These operating segments are reviewed separately in the sections that follow.
For further information on non-GAAP amounts, measures, and ratios in this Review of Operating Groups’ Performance section, refer to the
Non-GAAP and Other Financial Measures section.
Canadian Personal and Commercial Banking (Canadian P&C)^^^(1)^^****^ ****
| (Canadian $ in millions, except as noted) | Q1-2024 | Q4-2023 | Q1-2023 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Net interest income | **** | 2,141 | **** | 2,096 | 1,959 | ||||
| Non-interest revenue | **** | 637 | **** | 700 | 598 | ||||
| Total revenue | **** | 2,778 | **** | 2,796 | 2,557 | ||||
| Provision for credit losses on impaired loans | **** | 238 | **** | 232 | 135 | ||||
| Provision for (recovery of) credit losses on performing<br>loans | **** | 57 | **** | 33 | 9 | ||||
| Total provision for credit losses | **** | 295 | **** | 265 | 144 | ||||
| Non-interest expense | **** | 1,210 | **** | 1,260 | 1,105 | ||||
| Income before income taxes | **** | 1,273 | **** | 1,271 | 1,308 | ||||
| Provision for income taxes | **** | 352 | **** | 349 | 357 | ||||
| Reported net income | **** | 921 | **** | 922 | 951 | ||||
| Acquisition and integration costs (2) | **** | 1 | **** | 1 | - | ||||
| Amortization of acquisition-related intangible assets (3) | **** | 3 | **** | 3 | - | ||||
| Adjusted net income | **** | 925 | **** | 926 | 951 | ||||
| Adjusted non-interest<br>expense | **** | 1,205 | **** | 1,254 | 1,105 | ||||
| Net income available to common shareholders | **** | 911 | **** | 912 | 942 | ||||
| Adjusted net income available to common shareholders | **** | 915 | **** | 916 | 942 | ||||
| Key Performance Metrics and Drivers | |||||||||
| Personal and Business Banking revenue | **** | 2,017 | **** | 2,039 | 1,792 | ||||
| Commercial Banking revenue | **** | 761 | **** | 757 | 765 | ||||
| Return on equity (%) (4) | **** | 22.8 | **** | 26.1 | 30.9 | ||||
| Adjusted return on equity (%) (4) | **** | 23.0 | **** | 26.3 | 30.9 | ||||
| Operating leverage (%) | **** | (1.0 | ) | (0.2 | ) | (0.7 | ) | ||
| Adjusted operating leverage (%) | **** | (0.5 | ) | 0.4 | (0.7 | ) | |||
| Efficiency ratio (%) | **** | 43.6 | **** | 45.0 | 43.2 | ||||
| PCL on impaired loans to average net loans and acceptances (%) | **** | 0.30 | **** | 0.29 | 0.18 | ||||
| Net interest margin on average earning assets (%) | **** | 2.77 | **** | 2.74 | 2.68 | ||||
| Average earning assets | **** | 307,757 | **** | 303,728 | 289,564 | ||||
| Average gross loans and acceptances | **** | 317,335 | **** | 314,209 | 301,396 | ||||
| Average deposits | **** | 288,837 | **** | 283,908 | 261,330 | ||||
| (1) | Adjusted results and ratios are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section. | ||||||||
| --- | --- | ||||||||
| (2) | Acquisition and integration costs related to AIR MILES, recorded in non-interest<br>expense. | ||||||||
| --- | --- | ||||||||
| (3) | Amortization of acquisition-related intangible assets, recorded in non-interest expense. | ||||||||
| --- | --- | ||||||||
| (4) | Return on equity is based on allocated capital. Effective fiscal 2024, the capital allocation rate increased to 11.5% of<br>risk-weighted assets, compared with 11.0% in fiscal 2023. For further information, refer to the Non-GAAP and Other Financial Measures section. | ||||||||
| --- | --- |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
| 22 BMO Financial Group First Quarter Report 2024 |
|---|
Q1 2024 vs. Q1 2023
Canadian P&C reported net income was $921 million, a decrease of $30 million or 3% from the prior year.
Total revenue was $2,778 million, an increase of $221 million or 9% from the prior year. Net interest income increased $182 million or 9%, due to higher balances and higher net interest margins. Non-interest revenue increased $39 million or 6%, primarily due to the inclusion of AIR MILES, partially offset by lower gains on investments in our commercial business relative to the prior year. Net interest margin of 2.77% increased 9 basis points from the prior year, due to deposits growing faster than loans and higher loan margins, partially offset by lower deposit margins.
Personal and Business Banking revenue increased $225 million or 13%, due to higher net interest income and non-interest revenue. Commercial Banking revenue decreased $4 million, with higher net interest income more than offset by lower non-interest revenue.
Total provision for credit losses was $295 million, an increase of $151 million from the prior year. The provision for credit losses on impaired loans was $238 million, an increase of $103 million, due to higher provisions in both Personal and Business Banking and Commercial Banking. There was a $57 million provision for credit losses on performing loans in the current quarter, primarily in Personal and Business Banking, compared with a $9 million provision in the prior year.
Non-interest expense was $1,210 million, an increase of $105 million or 10% from the prior year, reflecting the inclusion of AIR MILES and higher technology costs.
Average gross loans and acceptances increased $15.9 billion or 5% from the prior year to $317.3 billion. Personal and Business Banking loan balances increased 6%. Commercial Banking loan balances increased 3% and credit card balances increased 20%. Average deposits increased $27.5 billion or 11% to $288.8 billion. Deposits in Personal and Business Banking increased 10% and Commercial Banking increased 12%, reflecting strong growth in term deposits.
Q1 2024 vs. Q4 2023
Reported net income was relatively unchanged from the prior quarter.
Total revenue decreased $18 million or 1% from the prior quarter. Net interest income increased $45 million or 2%, due to higher balances and net interest margins. Non-interest revenue decreased $63 million or 9%, primarily due to lower card-related revenue and lower gains on investments in our commercial business relative to the prior quarter. Net interest margin of 2.77% increased 3 basis points from the prior quarter, primarily due to a change in mix with deposits growing faster than loans, and higher loan margins, partially offset by lower deposit margins.
Personal and Business Banking revenue decreased $22 million or 1%, as higher net interest income was more than offset by lower non-interest revenue. Commercial Banking revenue increased $4 million or 1%, due to higher net interest income, partially offset by lower non-interest revenue.
Total provision for credit losses was $295 million, an increase of $30 million from the prior quarter. The provision for credit losses on impaired loans increased $6 million. There was a $57 million provision for credit losses on performing loans in the current quarter, compared with a $33 million provision in the prior quarter.
Non-interest expense decreased $50 million or 4% from the prior quarter, primarily driven by lower employee-related costs and operational efficiencies.
Average gross loans and acceptances increased $3.1 billion or 1% from the prior quarter. Personal and Business Banking loan balances increased 1%, Commercial Banking loan balances were relatively unchanged and credit card balances increased 6%. Average deposits increased $4.9 billion or 2% from the prior quarter. Personal and Business Banking deposits increased 2% and Commercial Banking deposits were relatively unchanged.
For further information on non-GAAP amounts, measures, and ratios in this Review of Operating Groups’ Performance section, refer to the Non-GAAP and Other Financial Measures section.
| BMO Financial Group First Quarter Report 2024 23 |
|---|
U.S. Personal and Commercial Banking (U.S. P&C)^(1)^ ****
| (Canadian in millions, except as noted) | Q4-2023 | Q1-2023 | |||||
|---|---|---|---|---|---|---|---|
| Net interest income (teb) (2) | 2,058 | **** | 2,077 | 1,432 | |||
| Non-interest revenue | 396 | **** | 411 | 302 | |||
| Total revenue (teb) (2) | 2,454 | **** | 2,488 | 1,734 | |||
| Provision for credit losses on impaired loans | 183 | **** | 143 | 42 | |||
| Provision for (recovery of) credit losses on performing<br>loans | 107 | **** | 33 | 13 | |||
| Total provision for credit losses | 290 | **** | 176 | 55 | |||
| Non-interest expense | 1,466 | **** | 1,553 | 815 | |||
| Income before income taxes | 698 | **** | 759 | 864 | |||
| Provision for income taxes (teb) (2) | 138 | **** | 168 | 199 | |||
| Reported net income | 560 | **** | 591 | 665 | |||
| Amortization of acquisition-related intangible assets (3) | 75 | **** | 79 | 1 | |||
| Adjusted net income | 635 | **** | 670 | 666 | |||
| Adjusted non-interest<br>expense | 1,366 | **** | 1,447 | 813 | |||
| Net income available to common shareholders | 547 | **** | 575 | 657 | |||
| Adjusted net income available to common shareholders | 622 | **** | 654 | 658 | |||
| Average earning assets | 212,354 | **** | 213,477 | 143,054 | |||
| Average gross loans and acceptances | 203,644 | **** | 208,468 | 137,547 | |||
| Average net loans and acceptances | 201,874 | **** | 206,432 | 136,659 | |||
| Average deposits | 215,160 | **** | 215,670 | 148,532 | |||
| (US equivalent in millions) | |||||||
| Net interest income (teb) (2) | 1,537 | **** | 1,521 | 1,067 | |||
| Non-interest revenue | 296 | **** | 301 | 225 | |||
| Total revenue (teb) (2) | 1,833 | **** | 1,822 | 1,292 | |||
| Provision for credit losses on impaired loans | 137 | **** | 106 | 31 | |||
| Provision for (recovery of) credit losses on performing<br>loans | 80 | **** | 23 | 10 | |||
| Total provision for (recovery of) credit losses | 217 | **** | 129 | 41 | |||
| Non-interest expense | 1,094 | **** | 1,138 | 607 | |||
| Income before income taxes | 522 | **** | 555 | 644 | |||
| Provision for income taxes (teb) (2) | 103 | **** | 122 | 149 | |||
| Reported net income | 419 | **** | 433 | 495 | |||
| Amortization of acquisition-related intangible assets (3) | 56 | **** | 57 | 1 | |||
| Adjusted net income | 475 | **** | 490 | 496 | |||
| Adjusted non-interest<br>expense | 1,019 | **** | 1,062 | 606 | |||
| Net income available to common shareholders | 409 | **** | 421 | 489 | |||
| Adjusted net income available to common shareholders | 465 | **** | 481 | 490 | |||
| Key Performance Metrics (US basis) | |||||||
| Personal and Business Banking revenue | 717 | **** | 721 | 396 | |||
| Commercial Banking revenue | 1,116 | **** | 1,101 | 896 | |||
| Return on equity (%) (4) | 6.5 | **** | 7.1 | 18.7 | |||
| Adjusted return on equity (%) (4) | 7.4 | **** | 8.1 | 18.7 | |||
| Operating leverage (%) | (38.4 | ) | (43.1 | ) | 2.2 | ||
| Adjusted operating leverage (%) | (26.4 | ) | (30.6 | ) | 2.1 | ||
| Efficiency ratio (%) | 59.7 | **** | 62.4 | 47.0 | |||
| Adjusted efficiency ratio (%) | 55.6 | **** | 58.2 | 46.9 | |||
| Net interest margin on average earning assets (%) | 3.86 | **** | 3.86 | 3.97 | |||
| PCL on impaired loans to average net loans and acceptances (%) | 0.36 | **** | 0.28 | 0.12 | |||
| Average earning assets | 158,570 | **** | 156,400 | 106,544 | |||
| Average gross loans and acceptances | 152,051 | **** | 152,727 | 102,441 | |||
| Average deposits | 160,674 | **** | 158,012 | 110,628 |
All values are in US Dollars.
| (1) | Adjusted results and ratios are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section. |
|---|---|
| (2) | Taxable equivalent basis (teb) amounts of $9 million in both Q1-2024 and Q4-2023, and $8 million in Q1-2023 were recorded in net interest income revenue and provision for income taxes, and were reflected in the ratios. On a source currency<br>basis, teb amounts were US$7 million in both Q1-2024 and Q4-2023, and US$6 million in Q1-2023. |
| --- | --- |
| (3) | Amortization of acquisition-related intangible assets, recorded in non-interest expense. On a source currency basis, pre-tax amounts were US$75 million in Q1-2024, US$76 million in Q4-2023 and US$1 million in Q1-2023. |
| --- | --- |
| (4) | Return on equity is based on allocated capital. Effective fiscal 2024, the capital allocation rate increased to 11.5% of<br>risk-weighted assets, compared with 11.0% in fiscal 2023. For further information, refer to the Non-GAAP and Other Financial Measures section. |
| --- | --- |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
| 24 BMO Financial Group First Quarter Report 2024 |
|---|
Q1 2024 vs. Q1 2023
U.S. P&C reported net income was $560 million, a decrease of $105 million from the prior year. All amounts in the remainder of this section are on a U.S. dollar basis.
Reported net income was $419 million, a decrease of $76 million or 16% from the prior year.
Total revenue was $1,833 million, an increase of $541 million or 42% from the prior year, reflecting the inclusion of Bank of the West. Net interest income increased $470 million or 44%, due to higher balances, partially offset by lower net interest margins. Non-interest revenue increased $71 million or 32%, reflecting higher deposit and card fee revenue. Net interest margin of 3.86% decreased 11 basis points, primarily due to lower deposit and loan margins, partially offset by a favourable change in balance sheet mix.
Personal and Business Banking revenue increased $321 million or 81% and Commercial Banking revenue increased $220 million or 25%, both due to the inclusion of Bank of the West.
Total provision for credit losses was $217 million, an increase of $176 million from the prior year. The provision for credit losses on impaired loans was $137 million, an increase of $106 million, due to higher provisions in both Personal and Business Banking and Commercial Banking. There was an $80 million provision for credit losses on performing loans in the current quarter, primarily in Personal and Business Banking, compared with a $10 million provision in the prior year.
Non-interest expense was $1,094 million, an increase of $487 million or 80% from the prior year, primarily reflecting the impact of Bank of the West, net of realized cost synergies, partially offset by expense management and our focus on operational efficiencies.
Average gross loans and acceptances increased $49.6 billion or 48% from the prior year to $152.1 billion, due to the inclusion of Bank of the West. Commercial Banking loan balances increased $25.5 billion. Personal and Business Banking loan balances increased $24.1 billion. Average total deposits increased $50.0 billion or 45% to $160.7 billion, due to the inclusion of Bank of the West. Personal and Business Banking deposits increased $32.3 billion and Commercial Banking balances increased $17.7 billion.
Q1 2024 vs. Q4 2023
Reported net income decreased $31 million or 5% from the prior quarter. The impact of the weaker U.S. dollar decreased both revenue and expenses by 2%, and net income by 2%. All amounts in the remainder of this section are on a U.S. dollar basis.
Reported net income decreased $14 million or 3% from the prior quarter.
Total revenue increased $11 million or 1% from the prior quarter. Net interest income increased $16 million or 1%, primarily due to higher deposit balances, partially offset by a Bank of the West conversion adjustment in the prior quarter. Non-interest revenue decreased $5 million or 2%, primarily due to lower deposit and advisory fee revenue. Net interest margin of 3.86% was unchanged from the prior quarter, driven by lower deposit margins as customers migrate to higher cost deposits, offset by a favourable change in balance sheet mix as deposits have grown faster than loans.
Personal and Business Banking revenue decreased $4 million, primarily due to lower non-interest revenue. Commercial Banking revenue increased $15 million or 1%, due to higher net interest income.
Total provision for credit losses increased $88 million from the prior quarter. The provision for credit losses on impaired loans increased $31 million, due to higher provisions in both Personal and Business Banking and Commercial Banking. There was an $80 million provision for credit losses on performing loans in the current quarter, compared with a $23 million provision in the prior quarter.
Non-interest expense decreased $44 million or 4% from the prior quarter, primarily due to expense management and our focus on operational efficiencies.
Average gross loans and acceptances decreased $0.7 billion from the prior quarter. Personal and Business Banking loan balances decreased, primarily due to the sale of a portfolio of recreational vehicle loans related to balance sheet optimization, which reduced average balances by $3.5 billion. Commercial Banking loan balances increased 2%. Average total deposits increased $2.7 billion or 2% from the prior quarter, primarily due to a 3% increase in Personal and Business Banking deposits. Commercial Banking deposits were relatively unchanged.
For further information on non-GAAP amounts, measures, and ratios in this Review of Operating Groups’ Performance section, refer to the Non-GAAP and Other Financial Measures section.
| BMO Financial Group First Quarter Report 2024 25 |
|---|
BMO Wealth Management ^(1)^ ****
| (Canadian in millions, except as noted) | Q4-2023 | Q1-2023 | |||||
|---|---|---|---|---|---|---|---|
| Net interest income | 325 | 353 | 306 | ||||
| Non-interest revenue<br>(2) | 1,003 | 1,112 | 822 | ||||
| Total revenue (2) | 1,328 | 1,465 | 1,128 | ||||
| Provision for credit losses on impaired loans | 3 | 2 | 1 | ||||
| Provision for (recovery of) credit losses on performing<br>loans | 10 | (1 | ) | 5 | |||
| Total provision for (recovery of) credit losses | 13 | 1 | 6 | ||||
| Non-interest expense | 997 | 990 | 924 | ||||
| Income before income taxes | 318 | 474 | 198 | ||||
| Provision for income taxes | 78 | 123 | 39 | ||||
| Reported net income | 240 | 351 | 159 | ||||
| Amortization of acquisition-related intangible assets (3) | 1 | 1 | 1 | ||||
| Adjusted net income | 241 | 352 | 160 | ||||
| Adjusted non-interest<br>expense | 996 | 988 | 923 | ||||
| Net income available to common shareholders | 238 | 349 | 157 | ||||
| Adjusted net income available to common shareholders | 239 | 350 | 158 | ||||
| Key Performance Metrics | |||||||
| Wealth and Asset Management reported net income | 187 | 202 | 202 | ||||
| Wealth and Asset Management adjusted net income | 188 | 203 | 203 | ||||
| Insurance reported net income (loss) | 53 | 149 | (43 | ) | |||
| Return on equity (%) (4) | 20.3 | 28.8 | 15.5 | ||||
| Adjusted return on equity (%) (4) | 20.4 | 28.9 | 15.6 | ||||
| Reported efficiency ratio (%) | 75.0 | 67.7 | 82.0 | ||||
| Adjusted efficiency ratio (%) (5) | 74.9 | 67.5 | 81.9 | ||||
| Operating leverage (%) | 10.0 | 48.2 | (21.4 | ) | |||
| Adjusted operating leverage (%) (5) | 10.0 | 3.3 | (16.4 | ) | |||
| PCL on impaired loans to average net loans and acceptances (%) | 0.02 | 0.02 | - | ||||
| Average assets | 62,524 | 62,009 | 54,684 | ||||
| Average gross loans and acceptances | 41,822 | 42,643 | 36,183 | ||||
| Average deposits | 60,083 | 61,349 | 56,460 | ||||
| Assets under administration (6) | 331,615 | 416,352 | 416,745 | ||||
| Assets under management | 360,325 | 332,947 | 321,540 | ||||
| U.S. Business Select Financial Data (US in millions) | |||||||
| Total revenue | 195 | 202 | 141 | ||||
| Non-interest expense | 151 | 160 | 113 | ||||
| Reported net income | 29 | 31 | 20 | ||||
| Adjusted non-interest expense | 150 | 158 | 112 | ||||
| Adjusted net income | 30 | 33 | 21 | ||||
| Average gross loans and acceptances | 10,272 | 10,765 | 6,476 | ||||
| Average deposits | 11,556 | 12,824 | 6,759 |
All values are in US Dollars.
| (1) | Adjusted results and ratios are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section. |
|---|---|
| (2) | Effective the first quarter of 2024, the bank adopted IFRS 17, Insurance Contracts (IFRS 17), and<br>retrospectively applied it to fiscal 2023 results. For further information, refer to the Changes in Accounting Policies section. |
| --- | --- |
| (3) | Amortization of acquisition-related intangible assets, recorded in non-interest expense. |
| --- | --- |
| (4) | Return on equity is based on allocated capital. Effective fiscal 2024, the capital allocation rate increased to 11.5% of<br>risk-weighted assets, compared with 11.0% in fiscal 2023. For further information, refer to the Non-GAAP and Other Financial Measures section. |
| --- | --- |
| (5) | Prior to November 1, 2022, we presented adjusted revenue on a basis that is net of insurance claims, commissions and<br>changes in policy benefit liabilities (CCPB). Beginning the first quarter of 2023, we no longer report CCPB given the adoption and retrospective application of IFRS 17. For periods prior to November 1, 2022, operating leverage was calculated<br>based on revenue, net of CCPB. Revenue, net of CCPB, was $1,321 million in Q1-2022 and $1,295 million in Q4-2022. Measures and ratios presented on a basis net<br>of CCPB are non-GAAP amounts. For more information, refer to the Insurance Claims, Commissions and Changes in Policy Benefit Liabilities section of the 2023 Annual MD&A. |
| --- | --- |
| (6) | Certain assets under management that are also administered by the bank are included in assets under administration.<br> |
| --- | --- |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
Q1 2024 vs. Q1 2023
BMO Wealth Management reported net income was $240 million, an increase of $81 million or 52% from the prior year. Wealth and Asset Management reported net income was $187 million, a decrease of $15 million or 7%, and Insurance net income was $53 million, compared with a loss of $43 million in the prior year. During the quarter, we exited our Institutional Trust Services operations in the United States, which comprised low-yielding assets under administration, as part of our business optimization strategy. This reduced our assets under administration, with an immaterial financial impact.
Total revenue was $1,328 million, an increase of $200 million or 18%. Revenue in Wealth and Asset Management was $1,247 million, an increase of $67 million or 6%, primarily due to the inclusion of Bank of the West and growth in client assets, partially offset by lower deposit balances and net interest margins. Insurance revenue was $81 million, an increase of $133 million from the prior year, primarily due to market-related impacts reflecting the transition to IFRS 17.
Total provision for credit losses was $13 million, compared with $6 million in the prior year. The provision for credit losses on impaired loans increased $2 million and provision for credit losses on performing loans increased $5 million from the prior year.
Non-interest expense was $997 million, an increase of $73 million or 8%, primarily due to higher employee-related costs, including the impact of Bank of the West.
Assets under management increased $38.8 billion or 12% from the prior year to $360.3 billion, driven by stronger global markets and higher net client assets, including the impact of Bank of the West. Assets under administration decreased $85.1 billion or 20% to $331.6 billion, primarily due to
| 26 BMO Financial Group First Quarter Report 2024 |
|---|
the exit of our Institutional Trust Services operations noted above, partially offset by stronger global markets and the inclusion of Bank of the West. Average gross loans increased 16% and average deposits increased 6%, primarily due to the inclusion of Bank of the West.
Q1 2024 vs. Q4 2023
Reported net income decreased $111 million or 31% from the prior quarter. Wealth and Asset Management reported net income decreased $15 million or 7%, and Insurance net income decreased $96 million or 64%.
Total revenue decreased $137 million or 9% from the prior quarter. Wealth and Asset Management revenue was relatively unchanged as growth in client assets was offset by lower net interest income. Insurance revenue decreased $137 million or 63%, primarily due to market-related impacts reflecting the transition to IFRS 17.
Total provision for credit losses increased $12 million from the prior quarter. The provision for credit losses on impaired loans increased $1 million and provision for credit losses on performing loans increased $11 million from the prior quarter.
Non-interest expense increased $7 million or 1%, primarily due to higher stock-based compensation for employees eligible to retire that are expensed in the first quarter of each year, partially offset by lower technology and advertising costs.
Assets under management increased $27.4 billion or 8% from the prior quarter, reflecting stronger global markets and higher net client assets, partly offset by unfavourable foreign exchange movements. Assets under administration decreased $84.7 billion or 20%, primarily due to the exit of our Institutional Trust Services operations and unfavourable foreign exchange movements, partially offset by stronger global markets. Average gross loans and average deposits both decreased by 2%.
For further information on non-GAAP amounts, measures, and ratios in this Review of Operating Groups’ Performance section, refer to the
Non-GAAP and Other Financial Measures section.
BMO Capital Markets ^(1)^ ****
| (Canadian in millions, except as noted) | Q4-2023 | Q1-2023 | ||||||
|---|---|---|---|---|---|---|---|---|
| Net interest income (teb) (2) | 505 | **** | 630 | 701 | ||||
| Non-interest revenue | 1,084 | **** | 1,021 | 998 | ||||
| Total revenue (teb) (2) | 1,589 | **** | 1,651 | 1,699 | ||||
| Provision for (recovery of) credit losses on impaired loans | 11 | **** | 11 | (3 | ) | |||
| Provision for (recovery of) credit losses on performing<br>loans | (33 | ) | (10 | ) | (7 | ) | ||
| Total provision for (recovery of) credit losses | (22 | ) | 1 | (10 | ) | |||
| Non-interest expense | 1,116 | **** | 1,052 | 1,091 | ||||
| Income before income taxes | 495 | **** | 598 | 618 | ||||
| Provision for income taxes (teb) (2) | 102 | **** | 126 | 130 | ||||
| Reported net income | 393 | **** | 472 | 488 | ||||
| Acquisition and integration costs (3) | 10 | **** | (2 | ) | 3 | |||
| Amortization of acquisition-related intangible assets (4) | 5 | **** | 5 | 4 | ||||
| Adjusted net income | 408 | **** | 475 | 495 | ||||
| Adjusted non-interest<br>expense | 1,095 | **** | 1,048 | 1,082 | ||||
| Net income available to common shareholders | 384 | **** | 464 | 479 | ||||
| Adjusted net income available to common shareholders | 399 | **** | 467 | 486 | ||||
| Key Performance Metrics | ||||||||
| Global Markets revenue | 952 | **** | 945 | 1,093 | ||||
| Investment and Corporate Banking revenue | 637 | **** | 706 | 606 | ||||
| Return on equity (%) (5) | 11.6 | **** | 15.2 | 15.7 | ||||
| Adjusted return on equity (%) (5) | 12.0 | **** | 15.3 | 15.9 | ||||
| Operating leverage (teb) (%) | (8.8 | ) | 10.2 | (16.5 | ) | |||
| Adjusted operating leverage (teb) (%) | (7.7 | ) | 9.8 | (16.6 | ) | |||
| Efficiency ratio (teb) (%) | 70.2 | **** | 63.7 | 64.2 | ||||
| Adjusted efficiency ratio (teb) (%) | 69.0 | **** | 63.5 | 63.7 | ||||
| PCL on impaired loans to average net loans and acceptances (%) | 0.06 | **** | 0.06 | (0.02 | ) | |||
| Average assets | 438,202 | **** | 474,559 | 463,917 | ||||
| Average gross loans and acceptances | 82,245 | **** | 80,497 | 74,724 | ||||
| U.S. Business Select Financial Data (US in millions) | ||||||||
| Total revenue (teb) (2) | 590 | **** | 578 | 512 | ||||
| Non-interest expense | 429 | **** | 411 | 402 | ||||
| Reported net income | 131 | **** | 118 | 97 | ||||
| Adjusted non-interest expense | 419 | **** | 410 | 398 | ||||
| Adjusted net income | 138 | **** | 118 | 100 | ||||
| Average assets | 141,735 | **** | 163,326 | 152,436 | ||||
| Average gross loans and acceptances | 31,516 | **** | 30,196 | 28,110 |
All values are in US Dollars.
| (1) | Adjusted results and ratios are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section. |
|---|---|
| (2) | Beginning January 1, 2024, we did not take the deduction for certain Canadian dividends due to proposed legislation,<br>and as a result, we no longer report this revenue on a taxable equivalent basis (teb). For further information, refer to the Other Regulatory Developments section. Taxable equivalent amounts of $19 million in<br>Q1-2024, $86 million in Q4-2023 and $70 million in Q1-2023 were recorded in net interest income, revenue and provision<br>for income taxes, and were reflected in the ratios. For our U.S. businesses, teb amounts were US$nil in Q1-2024, Q4-2023 and<br>Q1-2023. |
| --- | --- |
| (3) | Clearpool and Radicle pre-tax acquisition and integration costs, recorded in non-interest expense. |
| --- | --- |
| (4) | Amortization of acquisition-related intangible assets, recorded in non-interest expense. |
| --- | --- |
| (5) | Return on equity is based on allocated capital. Effective fiscal 2024, the capital allocation rate increased to 11.5% of<br>risk-weighted assets, compared with 11.0% in fiscal 2023. For further information, refer to the Non-GAAP and Other Financial Measures section. |
| --- | --- |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
| BMO Financial Group First Quarter Report 2024 27 |
|---|
Q1 2024 vs. Q1 2023
BMO Capital Markets reported net income was $393 million, a decrease of $95 million or 19% from the prior year.
Total revenue was $1,589 million, a decrease of $110 million or 6% from the prior year. Global Markets revenue decreased $141 million or 13% reflecting lower trading revenue, including the impact of the proposed elimination of the tax deductibility of certain Canadian dividends, beginning January 1, 2024. Investment and Corporate Banking revenue increased $31 million or 5%, due to higher underwriting and advisory revenue from debt issuances and advisory activity, partially offset by lower net securities gains.
Total recovery of provision for credit losses was $22 million, compared with a recovery of $10 million in the prior year. The provision for credit losses on impaired loans was $11 million, compared with a recovery of $3 million in the prior year. There was a recovery of $33 million for credit losses on performing loans, compared with a recovery of $7 million in the prior year.
Non-interest expense was $1,116 million, an increase of $25 million or 2% from the prior year, driven by higher technology costs, partially offset by lower employee-related costs.
Average gross loans and acceptances of $82.2 billion increased $7.5 billion or 10% from the prior year, due to higher lending activity across loan portfolios.
Q1 2024 vs. Q4 2023
Reported net income decreased $79 million or 17% from the prior quarter.
Total revenue decreased $62 million or 4% from the prior quarter. Global Markets revenue was relatively unchanged, with higher interest rate trading revenue and higher underwriting and advisory fee revenue offset by lower equities trading revenue, including the impact of the proposed elimination of the tax deductibility of certain Canadian dividends. Investment and Corporate Banking revenue decreased $69 million or 10%, due to lower advisory revenue and lower net securities gains, partially offset by higher corporate banking-related revenue.
Total recovery of provision for credit losses was $22 million, compared with a provision of $1 million in the prior quarter. The provision for credit losses on impaired loans was $11 million, unchanged from the prior quarter. There was a recovery of $33 million for credit losses on performing loans in the current quarter, compared with a recovery of $10 million in the prior quarter.
Non-interest expense increased $64 million or 6% from the prior quarter, primarily due to higher employee-related costs, including the impact of stock-based compensation for employees eligible to retire that is expensed in the first quarter of each year, partially offset by lower performance-based compensation.
Average gross loans and acceptances increased $1.7 billion or 2% from the prior quarter.
For further information on non-GAAP amounts, measures, and ratios in this Review of Operating Groups’ Performance section, refer to the Non-GAAP and Other Financial Measures section.
Corporate Services^(1) (2) (3)^ ****
| (Canadian in millions, except as noted) | Q4-2023 | Q1-2023 | ||||||
|---|---|---|---|---|---|---|---|---|
| Net interest income before group teb offset | (280 | ) | (120 | ) | (299 | ) | ||
| Group teb offset | (28 | ) | (95 | ) | (78 | ) | ||
| Net interest income (teb) | (308 | ) | (215 | ) | (377 | ) | ||
| Non-interest revenue | (169 | ) | 134 | (1,642 | ) | |||
| Total revenue (teb) | (477 | ) | (81 | ) | (2,019 | ) | ||
| Provision for credit losses on impaired loans | 38 | **** | 20 | 21 | ||||
| Provision for (recovery of) credit losses on performing<br>loans | 13 | **** | (17 | ) | 1 | |||
| Total provision for credit losses | 51 | **** | 3 | 22 | ||||
| Non-interest expense | 600 | **** | 824 | 447 | ||||
| Income (loss) before income taxes | (1,128 | ) | (908 | ) | (2,488 | ) | ||
| Provision for (recovery of) income taxes (teb) | (306 | ) | (282 | ) | (358 | ) | ||
| Reported net income (loss) | (822 | ) | (626 | ) | (2,130 | ) | ||
| Acquisition and integration costs (4) | 46 | **** | 434 | 178 | ||||
| Management of fair value changes on the purchase of Bank of the West (5) | - | **** | - | 1,461 | ||||
| Legal provision (including related interest expense and legal fees) (6) | 11 | **** | 12 | 6 | ||||
| Impact of Canadian tax measures (7) | - | **** | - | 371 | ||||
| Impact of loan portfolio sale (8) | 136 | **** | - | - | ||||
| FDIC special assessment (9) | 313 | **** | - | - | ||||
| Adjusted net loss | (316 | ) | (180 | ) | (114 | ) | ||
| Adjusted total revenue (teb) (10) | (299 | ) | (67 | ) | (2 | ) | ||
| Adjusted total provision for (recovery of) credit losses | 51 | **** | 3 | 22 | ||||
| Adjusted non-interest<br>expense | 121 | **** | 239 | 210 | ||||
| Net income (loss) available to common shareholders | (830 | ) | (722 | ) | (2,140 | ) | ||
| Adjusted net loss available to common shareholders | (324 | ) | (276 | ) | (124 | ) | ||
| U.S. Business Select Financial Data (US in millions) | ||||||||
| Total revenue | (106 | ) | 193 | (1,399 | ) | |||
| Total provision for (recovery of) credit losses | 19 | **** | (2 | ) | 4 | |||
| Non-interest expense | 405 | **** | 499 | 236 | ||||
| Provision for (recovery of) income taxes (teb) | (135 | ) | (86 | ) | (454 | ) | ||
| Reported net income (loss) | (395 | ) | (218 | ) | (1,185 | ) | ||
| Adjusted total revenue | 26 | **** | 203 | 111 | ||||
| Adjusted total (recovery of) provision for credit losses | 19 | **** | (2 | ) | 4 | |||
| Adjusted non-interest expense | 51 | **** | 69 | 60 | ||||
| Adjusted net income (loss) | (20 | ) | 109 | 44 |
All values are in US Dollars.
| (1) | Adjusted results are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section. |
|---|---|
| 28 BMO Financial Group First Quarter Report 2024 | |
| --- | |
| (2) | Due to the increase in the bank’s investments in Low Income Housing Tax Credit (LIHTC) entities following our<br>acquisition of Bank of the West, we have updated our accounting policy related to the presentation of returns from these investments in the consolidated statement of income, effective the fourth quarter of 2023. As a result, amounts previously<br>recorded in non-interest expense and provision for income taxes are both recorded in non-interest revenue. Fiscal 2023 comparatives have been reclassified to conform<br>with the current period’s methodology. |
| --- | --- |
| (3) | Effective the first quarter of 2024, balances and the associated revenue, expenses and provisions for credit losses<br>related to our Canadian and U.S. indirect retail auto financing business, previously reported in Personal and Commercial Banking, are reported in Corporate Services, reflecting the exit and wind-down of this business unit. Fiscal 2023 comparatives<br>have been reclassified to conform with the current period’s methodology. |
| --- | --- |
| (4) | Reported net loss included acquisition and integration costs related to the acquisition of Bank of the West, recorded in non-interest expense. |
| --- | --- |
| (5) | Reported net loss included revenue (losses) related to the acquisition of Bank of the West resulting from the management<br>of the impact of interest rate changes between the announcement and closing of the acquisition on its fair value and goodwill: Q1-2023 included a loss of $1,461 million ($2,011 million pre-tax), comprising $1,628 million of pre-tax mark-to-market losses on certain interest<br>rate swaps recorded in non-interest trading revenue and $383 million of pre-tax losses on a portfolio of primarily U.S. treasuries and other balance sheet<br>instruments recorded in net interest income. |
| --- | --- |
| (6) | Reported net loss included the impact of a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank: Q1-2024 included $11 million ($15 million pre-tax), comprising interest expense of $14 million and non-interest expense<br>of $1 million; Q4-2023 included $12 million ($16 million pre-tax), comprising interest expense of $14 million and<br>non-interest expense of $2 million; and Q1-2023 included $6 million ($8 million pre-tax), comprising interest<br>expense of $6 million and non-interest expense of $2 million. For further information, refer to the Provisions and Contingent Liabilities section in Note 24 of the audited annual consolidated<br>financial statements of BMO’s 2023 Annual Report. |
| --- | --- |
| (7) | Reported net loss in Q1-2023 included a<br>one-time tax expense related to certain tax measures enacted by the Canadian government. |
| --- | --- |
| (8) | Reported net income in Q1-2024 included a net accounting loss on the sale of a<br>portfolio of recreational vehicle loans related to balance sheet optimization, recorded in non-interest revenue. |
| --- | --- |
| (9) | Reported net loss in Q1-2024 included the impact of a U.S. Federal Deposit<br>Insurance Corporation (FDIC) special assessment, recorded in non-interest expense. |
| --- | --- |
| (10) | Beginning January 1, 2024, we did not take the deduction for certain Canadian dividends received in BMO Capital<br>Markets due to proposed legislation, and as a result, we no longer report this revenue on a teb basis. Group teb offset amounts for our U.S. businesses were US$7 million in both Q1-2024 and Q4-2023, and US$6 million in Q1-2023 recorded in revenue and provision for (recovery of) income taxes. For further information, refer to the Other Regulatory Developments<br>section. |
| --- | --- |
Adjusted results exclude the impact of the items described in footnotes (4) to (9).
Certain comparative figures have been reclassified to conform with the current period’s presentation.
Q1 2024 vs. Q1 2023
Corporate Services reported net loss was $822 million, compared with reported net loss of $2,130 million in the prior year, and adjusted net loss was $316 million, compared with adjusted net loss of $114 million. Reported results in the current quarter included the impact of a U.S. Federal Deposit Insurance Corporation (FDIC) special assessment charge of $313 million ($417 million pre-tax) and a net accounting loss of $136 million ($164 million pre-tax) related to the sale of a portfolio of recreational vehicle loans related to balance sheet optimization. Reported results in the prior year included a loss from the impact of fair value management actions related to the acquisition of Bank of the West of $1,461 million ($2,011 million pre-tax), as well as a one-time tax expense of $371 million. Reported net loss in both the current and prior year included acquisition and integration costs related to Bank of the West.
The lower reported net loss reflected the items noted above. Adjusted net loss, which excluded these items, was driven by lower revenue and a higher provision for credit losses, partially offset by lower expenses. Adjusted revenue decreased due to higher earnings on the investment of unallocated capital in the prior year, in advance of the close of the Bank of the West acquisition, and the impact of treasury-related activities. Total provision for credit losses was $51 million, compared with $22 million in the prior year. The provision for credit losses on impaired loans increased $17 million, due to higher loan losses in our indirect retail auto financing business. The provision for credit losses on performing loans increased $12 million from the prior year. Adjusted expenses were lower, primarily due to lower employee-related costs, including the impact of the consolidation of certain U.S. retirement benefit plans.
Q1 2024 vs. Q4 2023
Reported net loss was $822 million, compared with reported net loss of $626 million in the prior quarter, and adjusted net loss was $316 million, compared with $180 million.
On a reported basis, net loss increased due to the FDIC special assessment and the loss on the sale of loans noted above, partially offset by lower acquisition and integration costs related to Bank of the West.
Adjusted net loss excluded the above items and was driven by lower revenue and a higher provision for credit losses, partially offset by lower expenses and the impact of a less favourable tax rate in the prior quarter. Adjusted revenue decreased primarily due to treasury-related activities, including market volatility on hedge positions, lower net accretion of purchase accounting fair value marks and lower net securities gains. Total provision for credit losses increased $48 million from the prior quarter. The provision for credit losses on impaired loans increased $18 million, due to higher loan losses in our indirect retail auto financing business. The provision for credit losses on performing loans increased $30 million from the prior quarter. Adjusted expenses decreased primarily due to lower technology and real estate costs, including the charge related to the consolidation of BMO real estate in the prior quarter, partially offset by the seasonal impact of employee benefits.
For further information on non-GAAP amounts, measures, and ratios in this Review of Operating Groups’ Performance section, refer to the Non-GAAP and Other Financial Measures section.
| BMO Financial Group First Quarter Report 2024 29 |
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Summary Quarterly Earnings Trends^(1)^
| (Canadian in millions, except as noted) | Q4-2023 | Q3-2023 | Q2-2023 | Q1-2023 | Q4-2022 | Q3-2022 | Q2-2022 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue (2) | 7,672 | **** | 8,319 | 8,052 | 7,789 | 5,099 | 10,570 | 6,099 | 9,318 | ||||||||||||||
| Insurance claims, commissions and changes in policy benefit<br>liabilities (CCPB) | - | **** | - | - | - | - | (369 | ) | 413 | (808 | ) | ||||||||||||
| Revenue, net of CCPB (2) (3) | 7,672 | **** | 8,319 | 8,052 | 7,789 | 5,099 | 10,939 | 5,686 | 10,126 | ||||||||||||||
| Provision for credit losses on impaired loans | 473 | **** | 408 | 333 | 243 | 196 | 192 | 104 | 120 | ||||||||||||||
| Provision for (recovery of) credit losses on performing<br>loans | 154 | **** | 38 | 159 | 780 | 21 | 34 | 32 | (70 | ) | |||||||||||||
| Total provision for credit losses | 627 | **** | 446 | 492 | 1,023 | 217 | 226 | 136 | 50 | ||||||||||||||
| Non-interest expense | 5,389 | **** | 5,679 | 5,572 | 5,501 | 4,382 | 4,776 | 3,859 | 3,713 | ||||||||||||||
| Income before income taxes | 1,656 | **** | 2,194 | 1,988 | 1,265 | 500 | 5,937 | 1,691 | 6,363 | ||||||||||||||
| Provision for income taxes | 364 | **** | 484 | 423 | 236 | 367 | 1,454 | 326 | 1,607 | ||||||||||||||
| Reported net income | 1,292 | **** | 1,710 | 1,565 | 1,029 | 133 | 4,483 | 1,365 | 4,756 | ||||||||||||||
| Initial provision for credit losses on purchased performing loans (4) | - | **** | - | - | 517 | - | - | - | - | ||||||||||||||
| Acquisition and integration costs (5) | 57 | **** | 433 | 370 | 549 | 181 | 145 | 62 | 28 | ||||||||||||||
| Amortization of acquisition-related intangible assets (6) | 84 | **** | 88 | 85 | 85 | 6 | 6 | 5 | 6 | ||||||||||||||
| Impact of divestitures (5) | - | **** | - | - | - | - | (8 | ) | 6 | 9 | |||||||||||||
| Management of fair value changes on the purchase of Bank of the West (8) | - | **** | - | - | - | 1,461 | (3,336 | ) | 694 | (2,612 | ) | ||||||||||||
| Legal Provision (10) | 11 | **** | 12 | (3 | ) | 6 | 6 | 846 | - | - | |||||||||||||
| Impact of Canadian tax measures (11) | - | **** | - | 131 | - | 371 | - | - | - | ||||||||||||||
| Impact of loan portfolio sale (12) | 136 | **** | - | - | - | - | - | - | - | ||||||||||||||
| FDIC special assessment (13) | 313 | **** | - | - | - | - | - | - | - | ||||||||||||||
| Adjusted net income | 1,893 | **** | 2,243 | 2,148 | 2,186 | 2,158 | 2,136 | 2,132 | 2,187 | ||||||||||||||
| Operating group reported net income | |||||||||||||||||||||||
| Canadian P&C reported net income (13) | 921 | **** | 922 | 881 | 819 | 951 | 909 | 951 | 896 | ||||||||||||||
| Acquisition and integration costs (5) | 1 | **** | 1 | 6 | 2 | - | - | - | - | ||||||||||||||
| Amortization of acquisition-related intangible assets (6) | 3 | **** | 3 | 2 | 1 | - | - | - | 1 | ||||||||||||||
| Canadian P&C adjusted net income (13) | 925 | **** | 926 | 889 | 822 | 951 | 909 | 951 | 897 | ||||||||||||||
| U.S. P&C reported net income (13) | 560 | **** | 591 | 502 | 731 | 665 | 631 | 545 | 561 | ||||||||||||||
| Amortization of acquisition-related intangible assets (6) | 75 | **** | 79 | 77 | 77 | 1 | 2 | 1 | 1 | ||||||||||||||
| U.S. P&C adjusted net income (13) | 635 | **** | 670 | 579 | 808 | 666 | 633 | 546 | 562 | ||||||||||||||
| BMO Wealth Management reported net income (2) (3) | 240 | **** | 351 | 396 | 240 | 159 | 294 | 320 | 312 | ||||||||||||||
| Amortization of acquisition-related intangible assets (6) | 1 | **** | 1 | 1 | 1 | 1 | - | 1 | 1 | ||||||||||||||
| BMO Wealth Management adjusted net income (2) (3) | 241 | **** | 352 | 397 | 241 | 160 | 294 | 321 | 313 | ||||||||||||||
| BMO Capital Markets reported net income | 393 | **** | 472 | 295 | 370 | 488 | 343 | 253 | 438 | ||||||||||||||
| Acquisition and integration costs (5) | 10 | **** | (2 | ) | 1 | 2 | 3 | 2 | 1 | 2 | |||||||||||||
| Amortization of acquisition-related intangible assets (6) | 5 | **** | 5 | 5 | 6 | 4 | 4 | 3 | 3 | ||||||||||||||
| BMO Capital Markets adjusted net income | 408 | **** | 475 | 301 | 378 | 495 | 349 | 257 | 443 | ||||||||||||||
| Corporate Services reported net income (loss) (13) | (822 | ) | (626 | ) | (509 | ) | (1,131 | ) | (2,130 | ) | 2,306 | (704 | ) | 2,549 | |||||||||
| Initial provision for credit losses on purchased performing loans (4) | - | **** | - | - | 517 | - | - | - | - | ||||||||||||||
| Acquisition and integration costs (5) | 46 | **** | 434 | 363 | 545 | 178 | 143 | 61 | 26 | ||||||||||||||
| Impact of divestitures (7) | - | **** | - | - | - | - | (8 | ) | 6 | 9 | |||||||||||||
| Management of fair value changes on the purchase of Bank of the West (8) | - | **** | - | - | - | 1,461 | (3,336 | ) | 694 | (2,612 | ) | ||||||||||||
| Legal Provision (9) | 11 | **** | 12 | (3 | ) | 6 | 6 | 846 | - | - | |||||||||||||
| Impact of Canadian tax measures (10) | - | **** | - | 131 | - | 371 | - | - | - | ||||||||||||||
| Impact of loan portfolio sale (11) | 136 | **** | - | - | - | - | - | - | - | ||||||||||||||
| FDIC special assessment (12) | 313 | **** | - | - | - | - | - | - | - | ||||||||||||||
| Corporate Services adjusted net income (loss) (13) | (316 | ) | (180 | ) | (18 | ) | (63 | ) | (114 | ) | (49 | ) | 57 | (28 | ) | ||||||||
| Basic earnings per share () | 1.73 | **** | 2.19 | 2.13 | 1.27 | 0.14 | 6.52 | 1.96 | 7.15 | ||||||||||||||
| Diluted earnings per share () | 1.73 | **** | 2.19 | 2.12 | 1.26 | 0.14 | 6.51 | 1.95 | 7.13 | ||||||||||||||
| Adjusted diluted earnings per share () | 2.56 | **** | 2.93 | 2.94 | 2.89 | 3.06 | 3.04 | 3.09 | 3.23 |
All values are in US Dollars.
| (1) | Adjusted results exclude certain items from reported results and are used to calculate our adjusted measures as presented<br>in the above table. Management assesses performance on a reported basis and an adjusted basis, and considers both to be useful. For further information, refer to the Non-GAAP and Other Financial Measures<br>section, and for details on the composition of non-GAAP amounts, measures and ratios, as well as supplementary financial measures, refer to the Glossary of Financial Terms. |
|---|---|
| (2) | Effective the first quarter of 2024, the bank adopted IFRS 17, Insurance Contracts (IFRS 17), recognizing the<br>cumulative effect of adoption in opening retained earnings and applied it retrospectively to fiscal 2023 results. For further information, refer to the Changes in Accounting Policies section. |
| --- | --- |
| (3) | Prior to November 1, 2022, we presented adjusted revenue on a basis that is net of insurance claims, commissions and<br>changes in policy benefit liabilities (CCPB). Beginning the first quarter of 2023, we no longer report CCPB given the adoption and retrospective application of IFRS 17. Revenue, net of CCPB, was $7,642 million in<br>Q1-2022 and $10,939 million in Q4-2022. Measures and ratios presented on a basis net of CCPB are non-GAAP amounts. For more<br>information, refer to the Insurance Claims, Commissions and Changes in Policy Benefit Liabilities section of the 2023 Annual MD&A. |
| --- | --- |
| (4) | Reported net income in Q2-2023 included a provision for credit losses on the<br>acquired Bank of the West performing loan portfolio, recorded in Corporate Services. |
| --- | --- |
| (5) | Reported net income included acquisition and integration costs recorded in<br>non-interest expense, with costs related to the acquisition of Bank of the West recorded in Corporate Services, costs related to Radicle and Clearpool recorded in BMO Capital Markets, and costs related to the<br>acquisition of AIR MILES recorded in Canadian P&C. |
| --- | --- |
| (6) | Reported net income included amortization of acquisition-related intangible assets recorded in non-interest expense in the related operating group. Total amortization of acquisition-related intangible assets recorded were $84 million in Q1-2024,<br>$88 million in Q4-2023, $85 million in both Q3-2023 and Q2-2023, $6 million in both<br>Q1-2023 and Q4-2022, $5 million in Q3-2022 and $6 million Q2-2022.<br> |
| --- | --- |
| (7) | Reported net income in fiscal 2022 included the impact of divestitures related to the sale of our EMEA and U.S. Asset<br>Management businesses, recorded in Corporate Services. |
| --- | --- |
| (8) | Reported net income included revenue (losses) related to the acquisition of Bank of the West resulting from the management<br>of the impact of interest rate changes between the announcement and closing on its fair value and goodwill, recorded in Corporate Services. |
| --- | --- |
| (9) | Reported net income included the impact of a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank,<br>recorded in Corporate Services. For further information, refer to the Provisions and Contingent Liabilities section in Note 24 of the audited annual consolidated financial statements of BMO’s 2023 Annual Report. |
| --- | --- |
| (10) | Reported net income included the impact of certain tax measures enacted by the Canadian government. Q3-2023 included a charge related to the amended GST/HST definition for financial services and Q1-2023 included a one-time tax expense<br>comprising a Canada Recovery Dividend (CRD) and the pro-rated fiscal 2022 impact of the 1.5% tax rate increase, net of a deferred tax asset remeasurement. These amounts were recorded in Corporate Services.<br> |
| --- | --- |
| (11) | Reported net income in Q1-2024 included a net accounting loss on the sale of a<br>portfolio of recreational vehicle loans related to balance sheet optimization, recorded in Corporate Services. |
| --- | --- |
| (12) | Reported net income in Q1-2024 included the impact of a U.S. Federal Deposit<br>Insurance Corporation (FDIC) special assessment, recorded in non-interest expense in Corporate Services. |
| --- | --- |
| (13) | Effective the first quarter of 2024, balances and the associated revenue, expenses and provisions for credit losses<br>related to our Canadian and U.S. indirect retail auto financing business, previously reported in Personal and Commercial Banking, are reported in Corporate Services, reflecting the exit and wind-down of this business unit. Fiscal 2023 comparatives<br>have been reclassified to conform with the current period’s methodology. |
| --- | --- |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
| 30 BMO Financial Group First Quarter Report 2024 |
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Earnings in certain quarters are impacted by seasonal factors, such as higher employee expenses related to higher employee benefits and stock-based compensation for employees eligible to retire that are recorded in the first quarter of each year, as well as the impact of fewer days in the second quarter relative to other quarters. Quarterly earnings are also impacted by foreign currency translation. The table above outlines summary results for the second quarter of 2022 through the first quarter of 2024.
On February 1, 2023, we completed the acquisition of Bank of the West, which contributed to the increase in revenue, expenses and provision for credit losses beginning in the second quarter of 2023, with operating results primarily recorded in our U.S. P&C and BMO Wealth Management businesses. In addition, we completed the acquisition of AIR MILES Reward Program (AIR MILES) on June 1, 2023, which contributed to the increase in revenue and expenses in our Canadian P&C business beginning in the third quarter of 2023.
Financial performance benefitted from the strength and diversification of our businesses. Results were impacted by a higher interest rate environment resulting in an increase in net interest income, while uncertain economic conditions resulted in lower levels of client activity in our market-sensitive businesses, slowing loan demand, as well as higher provisions for credit losses.
A number of items impacted reported results in certain quarters. The first quarter of 2024 included a net accounting loss on the sale of a portfolio of recreational vehicle loans related to balance sheet optimization, and the impact of a U.S. Federal Deposit Insurance Corporation (FDIC) special assessment. Beginning January 1, 2024, we did not take the deduction for certain Canadian dividends received in BMO Capital Markets due to proposed legislation. The third quarter and first quarter of 2023 included the impact of certain tax measures enacted by the Canadian government. The second quarter of 2023 included an initial provision for credit losses on the purchased Bank of the West performing loan portfolio. The first quarter of 2023 and fiscal 2022 included revenue (losses) resulting from fair value management actions related to the impact of interest rate changes between the announcement and closing of the Bank of the West acquisition on its fair value and goodwill. The fourth quarter of 2022 included a legal provision related to a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank. Results in 2022 included the impact of divestitures related to the sale of our EMEA and U.S. Asset Management businesses. All periods included acquisition and integration costs, as well as the amortization of acquisition-related intangible assets, which increased in fiscal 2023, due to the acquisition of Bank of the West.
Revenue in our P&C businesses continues to benefit from customer acquisition and a high interest rate environment. Revenue growth in Canadian P&C reflected volume growth with higher loan and deposit balances, and higher net interest margins. U.S. P&C revenue performance was reflective of a more muted U.S. banking environment, but benefitted from the inclusion of Bank of the West, with higher net interest margins and loan growth. Revenue in BMO Wealth Management benefitted from steady growth in client assets, while the impact of weaker global markets in fiscal 2023 negatively impacted non-interest revenue, relative to fiscal 2022, and high interest rates resulted in growth in customer demand for term deposits and reduced margins. Insurance revenue is subject to variability, resulting from market-related impacts, including the transition to IFRS 17. BMO Capital Markets’ performance in recent quarters reflects modest improvements in market conditions, particularly in debt underwriting activities.
Over the past eight quarters, credit conditions have been normalizing, resulting in gradually increasing provisions on impaired loans and provisions on performing loans, primarily reflecting downward credit migration, and balance growth partially offset by reduced uncertainty related to economic outlook.
Non-interest expense growth reflected our investments in our business to drive revenue growth, the impact of inflation and acquisitions. The third quarter of fiscal 2023 included severance costs to accelerate efficiency initiatives across the enterprise. Expense growth in recent quarters has benefited from the realization of cost synergies related to Bank of the West, expense management, and our focus on operational efficiencies.
The effective tax rate has varied with legislative changes; changes in tax policy, including their interpretation by tax authorities and the courts; earnings mix, including the relative proportion of earnings attributable to the different jurisdictions in which we operate, the level of pre-tax income, and the level of investments or securities which generate tax credits, or tax-exempt income from securities. The reported effective tax rate was impacted by certain tax measures enacted or proposed to be enacted by the Canadian government noted above, and fair value management actions relating to the acquisition of Bank of the West in the first quarter of 2023 and in fiscal 2022.
For further information on non-GAAP amounts, measures and ratios in this Summary Quarterly Earnings Trends section, refer to the Non-GAAP and Other Financial Measures section.
Transactions with Related Parties
In the ordinary course of business, we provide banking services to our key management personnel on the same terms that we offer to our preferred customers for those services. Key management personnel are defined as those persons having authority and responsibility for planning, directing and/or controlling the activities of an entity, being the directors and most senior executives of the bank. We provide banking services to our joint ventures and associates on the same terms offered to our customers for these services. We also offer employees a subsidy on annual credit card fees.
The bank’s policies and procedures for related party transactions did not materially change from October 31, 2023, as described in Note 27 of the audited annual consolidated financial statements of BMO’s 2023 Annual Report.
Off-Balance Sheet Arrangements
We enter into a number of off-balance sheet arrangements in the normal course of operations. The most significant of these are structured entities, credit instruments and guarantees, which are described in the Off-Balance Sheet Arrangements section of BMO’s 2023 Annual Report. We consolidate our own securitization vehicles, certain capital and funding vehicles, and other structured entities created to meet our own, as well as our customer’s needs. We do not consolidate our customer securitization vehicles, certain capital vehicles, various BMO-managed funds or various other structured entities where investments are held. There have been no significant changes to the bank’s off-balance sheet arrangements since October 31, 2023.
| BMO Financial Group First Quarter Report 2024 31 |
|---|
Accounting Policies and Critical Accounting Estimates and Judgments
Material accounting policies are described in BMO’s 2023 Annual Report and in the notes to our annual consolidated financial statements for the year ended October 31, 2023, and in Note 1 of the unaudited interim consolidated financial statements, together with a discussion of certain accounting estimates that are considered particularly important as they require management to make significant judgments, some of which relate to matters that are inherently uncertain. Readers are encouraged to review that discussion in Note 1 of the audited annual consolidated financial statements of BMO’s 2023 Annual Report, as well as the updates provided in Note 1 of the unaudited interim consolidated financial statements.
Allowance for Credit Losses
The allowance for credit losses (ACL) consists of allowances on impaired loans, which represent estimated losses related to impaired loans provided for but not yet written off, and allowances on performing loans, which is the bank’s best estimate of impairment in the existing portfolio for loans that have not yet been individually identified as impaired. Expected credit losses (ECL) are calculated on a probability-weighted basis, based on the economic scenarios described below, and are calculated for each exposure in the portfolio as a function of the probability of default (PD), exposure at default (EAD) and loss given default (LGD), with the timing of the loss also considered. Where there has been a significant increase in credit risk, remaining lifetime ECL is recorded; otherwise, 12 months of ECL is generally recorded. A significant increase in credit risk considers many different factors and will vary by product and risk segment. The main factors considered in making this determination are the change in PD since origination and certain other criteria, such as delinquency and watchlist status. We may apply experienced credit judgment to reflect factors not captured in the results produced by the ECL models, as we deem necessary. We applied experienced credit judgment to reflect the impact of the uncertain environment on credit conditions and the economy. We have controls and processes in place to govern the ECL process, including judgments and assumptions used in determining the allowance on performing loans. These judgments and assumptions may change over time, and the impact of any such change will be recorded in future periods.
Our total allowance for credit losses as at January 31, 2024, was $4,228 million ($4,267 million as at October 31, 2023) and comprised an allowance on performing loans of $3,525 million and an allowance on impaired loans of $703 million ($3,572 million and $695 million, respectively, as at October 31, 2023). The allowance on performing loans decreased $47 million from the fourth quarter of 2023, primarily driven by the sale of a portfolio of recreational vehicles loans, movements in foreign exchange rates, reduced uncertainty in credit conditions, and improvements in macro-economic variables, partially offset by portfolio credit migration and model updates.
In establishing our allowance for performing loans, we attach probability weightings to three economic scenarios, which are representative of our view of economic and market conditions – a base scenario, which in our view represents the most probable outcome, as well as benign and adverse scenarios, all developed by our Economics group.
When changes in economic performance are assessed, we use real GDP as the basis, which acts as the key driver for movements in many of the other economic and market variables used, including equity market and volatility indices, corporate credit spreads, unemployment rates, housing prices and consumer credit. In addition, we also consider industry-specific variables, where applicable. Many of the variables have a high degree of interdependency, and as such, there is no single variable to which the allowance is sensitive.
Information on the Provision for Credit Losses for the three months ended January 31, 2024, can be found in the Total Provision for Credit Losses section.
For additional information, refer to Risk Management section, Allowance for Credit Losses section of BMO’s 2023 Annual Report, Note 4 of the audited annual consolidated financial statements, as well as Note 3 of the unaudited interim consolidated financial statements.
This Accounting Policies and Critical Accounting Estimates and Judgments section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
Disclosure for Global Systemically Important Banks (G-SIB)
As a domestic systemically important bank (D-SIB), the Office of the Superintendent of Financial Institutions (OSFI) requires that we disclose on an annual basis the 13 indicators comprising the assessment methodology of Global Systemically Important Banks (G-SIB). These indicators measure the impact a bank’s failure would have on the global financial system and wider economy. The indicators reflect the size of banks, their interconnectedness, the lack of alternative infrastructure for services banks provide, their global activity and complexity. This methodology is outlined in a paper, Global systemically important banks: Updated assessment methodology and the additional loss absorbency requirement, issued by the Basel Committee on Banking Supervision (BCBS) in July 2018. As required under the current methodology, the indicators are calculated based on specific instructions issued by the BCBS, and as a result, the measures used may not be based on the most recent version of Basel III. Therefore, values may not be consistent with other measures used in this report.
Indicator values have been reported based on regulatory requirements for consolidation and therefore, insurance and other non-banking information is only included insofar as it is included in the regulatory consolidation of the group, or as otherwise specified by the assessment methodology. This level of consolidation differs from that used in the consolidated financial statements. Results may therefore not be comparable to other disclosures in this report.
Year-over-year movements in indicators reflect normal changes in business activity.
| 32 BMO Financial Group First Quarter Report 2024 |
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Disclosure for Global Systemically Important Banks
| As at October 31 | |||||
|---|---|---|---|---|---|
| (Canadian $ in millions) | Indicators | 2023 | 2022 | ||
| A. Cross-jurisdictional activity | 1. Cross-jurisdictional claims | **** | 683,915 | 552,634 | |
| 2. Cross-jurisdictional<br>liabilities | **** | 616,848 | 527,644 | ||
| B. Size | 3. Total exposures as defined for use<br>in the Basel III leverage ratio | **** | 1,435,254 | 1,286,878 | |
| C. Interconnectedness | 4. Intra-financial system assets | **** | 174,316 | 172,647 | |
| 5. Intra-financial system liabilities | **** | 69,840 | 78,230 | ||
| 6. Securities outstanding | **** | 337,901 | 322,757 | ||
| D. Substitutability/Financial institution infrastructure | 7. Payments activity (1) | **** | 43,870,359 | 29,383,078 | |
| 8. Assets under custody | **** | 392,633 | 320,251 | ||
| 9. Underwritten transactions in debt and equity markets | **** | 94,325 | 96,507 | ||
| 10. Trading volume (includes the two sub indicators) | |||||
| Trading volume fixed income sub indicator | **** | 5,163,888 | 11,516,502 | ||
| Trading volume equities and other securities sub<br>indicator | **** | 4,361,851 | 4,779,866 | ||
| E. Complexity | 11. Notional amount of<br>over-the-counter (OTC) derivatives | **** | 11,615,227 | 7,662,199 | |
| 12. Trading, FVTPL and FVOCI securities (2) | **** | 55,793 | 54,178 | ||
| 13. Level 3 assets | **** | 6,028 | 5,289 | ||
| (1) | Includes intercompany transactions that are cleared through a correspondent bank. | ||||
| --- | --- | ||||
| (2) | FVTPL: Fair value through profit or loss; FVOCI: Fair value through other comprehensive income. | ||||
| --- | --- |
Changes in Accounting Policies
IFRS 17, Insurance Contracts and IAS 40, Investment Property
Effective November 1, 2023, we adopted IFRS 17, Insurance Contracts (IFRS 17), which provides a comprehensive approach to accounting for all types of insurance contracts and replaced existing IFRS 4, Insurance Contracts (IFRS 4). Upon transition to IFRS 17, we also voluntarily changed our accounting policy for the measurement of investment properties, included in insurance-related assets in other assets in our Consolidated Balance Sheet, from cost to fair value. These changes were applied retrospectively to fiscal 2023 results.
IFRS 9, Financial Instruments
Effective November 1, 2023, we voluntarily changed our accounting policy to account for regular way contracts to buy or sell financial assets on trade date, instead of on settlement date, and applied this change retrospectively.
IAS 12, Income Taxes
Effective November 1, 2023, we adopted an amendment to IAS 12, Income Taxes (IAS 12), which impacts note disclosures in our consolidated financial statements.
For additional information on the above changes, refer to Note 1 of the unaudited interim consolidated financial statements.
Future Changes in Accounting Policies
We monitor the potential changes proposed by the International Accounting Standards Board (IASB) and analyze the effect that changes in the standards may have on BMO’s financial reporting and accounting policies. New standards and amendments to existing standards, which are effective for the bank in the future, can be found in Note 1 of the audited annual consolidated financial statements of BMO’s 2023 Annual Report and in Note 1 of the unaudited interim consolidated financial statements.
Other Regulatory Developments
We continue to monitor and prepare for regulatory developments, including those referenced elsewhere in this document.
For a comprehensive discussion of other regulatory developments, refer to the Enterprise-Wide Capital Management section, the Risks That May Affect Future Results section, the Liquidity and Funding Risk section, and the Legal and Regulatory Risk section of BMO’s 2023 Annual Report.
New Canadian Tax Measures
On November 30, 2023, the Canadian government introduced a bill in Parliament containing a number of measures, including a rule that would, in certain circumstances, deny deductions for dividends that are received after 2023. Beginning January 1, 2024, we no longer report this revenue in BMO Capital Markets on a taxable equivalent basis.
U.S. Federal Deposit Insurance Corporation Assessment
On November 16, 2023, the U.S. Federal Deposit Insurance Corporation (FDIC) approved the final rule to implement the special assessment on depository institutions to recover the losses incurred in the deposit insurance fund that were attributable to the protection of uninsured depositors of Silicon Valley Bank and Signature Bank. The special assessment is set at an annual rate of approximately 13.4 basis points on a U.S. depository institution’s total estimated uninsured deposits for the December 31, 2022 reporting period, payable over eight quarterly assessment periods, beginning in the first assessment period in 2024. BMO recorded a $417 million ($313 million after-tax) charge related to the FDIC special assessment in the first quarter of fiscal 2024, in non-interest expense. The special assessment is expected to be higher, as a result of increases in the loss estimates. We do not expect any additional amount to be material to the bank.
| BMO Financial Group First Quarter Report 2024 33 |
|---|
Interbank Offered Rate (IBOR) Reform
The transition of Canadian Dollar Offered Rate (CDOR) settings is in progress, and it is expected to be completed before the June 28, 2024 cessation date. Our overall CDOR and bankers’ acceptance exposures continue to decline and our CDOR derivative exposures will largely transition when central counterparties convert existing CDOR trades to Canadian Overnight Repo Rate Average. For additional information regarding interest rate benchmarks, refer to Note 1 of the audited annual consolidated financial statements of BMO’s 2023 Annual Report.
This Other Regulatory Developments section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
Risk Management
BMO’s risk management policies and processes to identify, measure, manage, monitor, mitigate and report its credit and counterparty, market, insurance, liquidity and funding, operational, including technology and cyber-related risks, legal and regulatory, strategic, environmental and social, and reputation risks are outlined in the Enterprise-Wide Risk Management section of BMO’s 2023 Annual Report.
Top andEmerging Risks That May Affect Future Results
BMO’s top and emerging risks and other factors that may affect future results are described in the Enterprise-Wide Risk Management section of BMO’s 2023 Annual Report. The following is an update to the 2023 Annual Report.
Update on General Economic Conditions
BMO’s financial results, operational efficiency, strategic direction and our clients and customers have the potential to be impacted by changing economic conditions. While the U.S. economy maintains substantial resilience, Canada’s economy has weakened materially in response to higher interest rates. However, both the Bank of Canada and the Federal Reserve are expected to lower policy rates in fiscal 2024, spurring an upturn in economic growth later this year. For further information on the North American economic outlook, refer to the Economic Developments and Outlook section.
The bank’s customers could be impacted by the potential for a pronounced economic contraction in North America or if a resurgence in inflation keeps interest rates higher for longer than expected, impacting financing costs and putting further pressure on businesses and households. Management regularly monitors the economic environment to identify any significant changes and impact on our operations, clients and customers, and appropriate actions are taken to respond to uncertainties and reduce any impact on the bank’s financial results and operations.
The ongoing conflict in the Middle East continues to keep geopolitical risks heightened, particularly given the spillover into neighbouring countries and disruptions to shipping and trade flows through the Red Sea. An escalation in conflict or disruptions to shipping could impact global supply chains and trade flows and have adverse impacts on the economy and inflation, as well as on our bank, our customers, and our third parties. The bank is continuing to actively monitor and assess the impact on our operations, customers and third parties, and takes appropriate action to respond to uncertainties and reduce any impact on the bank’s financial results and operations.
Real Estate Secured Lending
Real Estate Secured Lending includes residential mortgage and home equity line of credit (HELOC) exposures. The following tables provide a breakdown of residential mortgages and home equity lines of credit by geographic region, as well as insured and uninsured balances. Residential mortgages and home equity lines of credit are secured by residential properties.
Canadian Real Estate Secured Lending
| (Canadian $ in millions, except as noted) | Residential<br><br><br>mortgages(1) | Amortizing<br><br><br>home equity<br><br><br>lines of credit | Total amortizing<br><br><br>real estate<br> <br>secured lending | Non-amortizing<br><br><br>real estate<br> <br>secured lending | Total Canadian<br><br><br>real estate<br> <br>secured lending | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| As at January 31, 2024 | **** | 150,042 | **** | 35,578 | **** | 185,620 | **** | 13,077 | **** | 198,697 |
| As at October 31, 2023 | 150,575 | 35,741 | 186,316 | 12,982 | 199,298 | |||||
| (1) | Residential mortgage balances in prior periods included certain insured multi-unit residential mortgages subsequently<br>reclassified as commercial real estate ($1.6 billion as at October 31, 2023). | |||||||||
| --- | --- |
Residential Mortgages^^^(1)^ ****
| As at January 31, 2024 | As at October 31, 2023 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Canadian $ in millions, except as noted) | Outstanding Balances | For the threemonths ended | Outstanding Balances | For the three<br>months ended | ||||||||||||||||
| Region (2) | Insured(3) | Uninsured | Total | % of total | Average LTV<br><br><br>uninsured (4) | Insured (3) | Uninsured | Total | % of total | Average LTV<br>uninsured (4) | ||||||||||
| Atlantic | **** | 3,292 | **** | 3,478 | **** | 6,770 | **** | 3.8% | **** | 70% | 3,347 | 3,452 | 6,799 | 3.8% | 71% | |||||
| Quebec | **** | 9,029 | **** | 12,950 | **** | 21,979 | **** | 12.4% | **** | 70% | 9,242 | 12,903 | 22,145 | 12.5% | 71% | |||||
| Ontario | **** | 14,195 | **** | 57,414 | **** | 71,609 | **** | 40.6% | **** | 70% | 14,643 | 56,798 | 71,441 | 40.3% | 69% | |||||
| Alberta | **** | 9,596 | **** | 7,453 | **** | 17,049 | **** | 9.7% | **** | 72% | 9,885 | 7,302 | 17,187 | 9.7% | 72% | |||||
| British Columbia | **** | 4,584 | **** | 24,241 | **** | 28,825 | **** | 16.3% | **** | 67% | 4,746 | 24,391 | 29,137 | 16.5% | 67% | |||||
| All other Canada | **** | 2,212 | **** | 1,598 | **** | 3,810 | **** | 2.2% | **** | 72% | 2,264 | 1,602 | 3,866 | 2.2% | 73% | |||||
| Total Canada | **** | 42,908 | **** | 107,134 | **** | 150,042 | **** | 85.0% | **** | 70% | 44,127 | 106,448 | 150,575 | 85.0% | 70% | |||||
| United States | **** | 58 | **** | 26,450 | **** | 26,508 | **** | 15.0% | **** | 76% | 68 | 26,607 | 26,675 | 15.0% | 76% | |||||
| Total | **** | 42,966 | **** | 133,584 | **** | 176,550 | **** | 100% | **** | 71% | 44,195 | 133,055 | 177,250 | 100% | 71% | |||||
| (1) | Reporting methodologies are in accordance with the Office of the Superintendent of Financial Institutions’<br>(OSFI’s) B-20 guideline. | |||||||||||||||||||
| --- | --- | |||||||||||||||||||
| (2) | Region is based upon address of the property mortgaged. | |||||||||||||||||||
| --- | --- | |||||||||||||||||||
| (3) | Portfolio insured mortgages are defined as mortgages that are insured individually or in bulk through an eligible insurer<br>(i.e., CMHC, Sagen MI Canada^TM^). | |||||||||||||||||||
| --- | --- | |||||||||||||||||||
| (4) | Mortgage loan-to-value (LTV) is the ratio<br>of the loan balance to the value of the property at origination. Averages are weighted by loan balance. | |||||||||||||||||||
| --- | --- | |||||||||||||||||||
| 34 BMO Financial Group First Quarter Report 2024 | ||||||||||||||||||||
| --- |
Home Equity Lines of Credit ^(1)^ ****
| As at January 31, 2024 | As at October 31, 2023 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Canadian $ in millions, except as noted) | Portfolio | For the threemonths ended | Portfolio | For the three<br>months ended | ||||||||||||||||
| Region (2) | OutstandingBalances | % | Authorizations | % | Average LTV(3) | Outstanding<br>Balances | % | Authorizations | % | Average LTV (3) | ||||||||||
| Atlantic | **** | 995 | **** | 1.8% | **** | 1,942 | **** | 1.7% | **** | 56% | 996 | 1.8% | 1,922 | 1.7% | 59% | |||||
| Quebec | **** | 9,099 | **** | 16.6% | **** | 18,210 | **** | 16.0% | **** | 65% | 9,149 | 16.6% | 18,071 | 15.9% | 68% | |||||
| Ontario | **** | 24,607 | **** | 44.9% | **** | 46,139 | **** | 40.6% | **** | 57% | 24,601 | 44.6% | 45,351 | 40.0% | 58% | |||||
| Alberta | **** | 3,181 | **** | 5.8% | **** | 7,088 | **** | 6.2% | **** | 61% | 3,203 | 5.8% | 6,970 | 6.2% | 61% | |||||
| British Columbia | **** | 10,035 | **** | 18.3% | **** | 19,181 | **** | 16.8% | **** | 57% | 10,029 | 18.2% | 18,899 | 16.7% | 58% | |||||
| All other Canada | **** | 738 | **** | 1.3% | **** | 1,489 | **** | 1.3% | **** | 65% | 745 | 1.3% | 1,474 | 1.3% | 66% | |||||
| Total Canada | **** | 48,655 | **** | 88.7% | **** | 94,049 | **** | 82.6% | **** | 59% | 48,723 | 88.3% | 92,687 | 81.8% | 60% | |||||
| United States | **** | 6,202 | **** | 11.3% | **** | 19,812 | **** | 17.4% | **** | 60% | 6,471 | 11.7% | 20,615 | 18.2% | 61% | |||||
| Total | **** | 54,857 | **** | 100% | **** | 113,861 | **** | 100% | **** | 59% | 55,194 | 100% | 113,302 | 100% | 60% | |||||
| (1) | Reporting methodologies are in accordance with the Office of the Superintendent of Financial Institutions’<br>(OSFI’s) B-20 guideline. | |||||||||||||||||||
| --- | --- | |||||||||||||||||||
| (2) | Region is based upon address of the property mortgaged. | |||||||||||||||||||
| --- | --- | |||||||||||||||||||
| (3) | HELOC loan-to-value (LTV) is the ratio of<br>the authorized amount to the value of the property at origination. Averages are weighted by authorized amount. | |||||||||||||||||||
| --- | --- |
Residential Mortgages by Remaining Term of Amortization^(1) (2)^ ****
| As at January 31, 2024 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Amortization period | ||||||||||||||||
| < 5 Years % | 6-10 Years % | 11-15 Years % | 16-20 Years % | 21-25 Years % | 26-30 Years % | 31-35 Years % | > 35 Years % | |||||||||
| Canada (3) | **** | 0.8% | **** | 2.6% | **** | 6.3% | **** | 13.9% | **** | 32.4% | **** | 19.3% | **** | 1.9% | **** | 22.8% |
| United States (4) | **** | 0.5% | **** | 2.1% | **** | 5.1% | **** | 2.7% | **** | 9.9% | **** | 79.5% | **** | 0.1% | **** | 0.1% |
| Total | **** | 0.7% | **** | 2.5% | **** | 6.1% | **** | 12.3% | **** | 29.0% | **** | 28.4% | **** | 1.6% | **** | 19.4% |
| As at October 31, 2023 | ||||||||||||||||
| Amortization period | ||||||||||||||||
| < 5 Years % | 6-10 Years % | 11-15 Years % | 16-20 Years % | 21-25 Years % | 26-30 Years % | 31-35 Years % | > 35 Years % | |||||||||
| Canada (3) | 0.7% | 2.5% | 6.1% | 13.6% | 32.1% | 18.0% | 2.1% | 24.9% | ||||||||
| United States (4) | 0.5% | 2.2% | 5.3% | 2.8% | 10.4% | 78.6% | 0.1% | 0.1% | ||||||||
| Total | 0.7% | 2.5% | 5.9% | 12.0% | 28.8% | 27.1% | 1.8% | 21.2% | ||||||||
| (1) | In Canada, the remaining amortization is based on the current balance, interest rate, customer payment amount and payment<br>frequency. Contractual payment schedule is used in the United States. | |||||||||||||||
| --- | --- | |||||||||||||||
| (2) | Reporting methodologies are in accordance with OSFI’s B-20 guideline.<br> | |||||||||||||||
| --- | --- | |||||||||||||||
| (3) | As a result of increases in interest rates, the portfolio included $23.0 billion ($29.9 billion as at<br>October 31, 2023) of variable rate mortgages in negative amortization, with all of the contractual payments currently being applied to interest, and the portion of interest due that is not met by each payment is added to the principal.<br> | |||||||||||||||
| --- | --- | |||||||||||||||
| (4) | A large proportion of U.S.-based mortgages in the longer amortization band are primarily associated with modification<br>programs for troubled borrowers and regulator-initiated mortgage refinancing programs. | |||||||||||||||
| --- | --- |
International Exposures
BMO’s geographic exposures outside of Canada and the United States are subject to a risk management framework that incorporates assessments of the economic and political risk in each region or country. These exposures are also managed within limits based on product, entity and country of ultimate risk. Our exposure to these regions as at January 31, 2024, is set out in the following table.
The table outlines total net exposure for funded lending and undrawn commitments, securities (including cash products, traded credit and credit default swap activity), repo-style transactions and derivatives. Repo-style transactions and derivatives exposure are reported as mark-to-market value. Derivatives exposure incorporates transaction netting where master netting agreements with counterparties have been entered into, and collateral offsets for counterparties where a Credit Support Annex is in effect.
Exposure by Region
| **** | As at January 31, 2024 | As at<br>October 31, 2023 | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Canadian $ in millions) | Funded Lending and Commitments | Securities | Repo-Style Transactions andDerivatives | Total NetExposure | Total Net<br>Exposure | |||||||||||||||||||||||
| Region | Bank | Corporate | Sovereign | Total | Bank | Corporate | Sovereign | Total | Bank | Corporate | Sovereign | Total | ||||||||||||||||
| Europe (excluding United Kingdom) | **** | 586 | **** | 2,617 | **** | - | **** | 3,203 | **** | 486 | **** | 96 | **** | 4,561 | **** | 5,143 | **** | 192 | **** | 144 | **** | 249 | **** | 585 | **** | 8,931 | 11,281 | |
| United Kingdom | **** | 41 | **** | 4,011 | **** | 214 | **** | 4,266 | **** | 54 | **** | 103 | **** | 685 | **** | 842 | **** | 35 | **** | 440 | **** | 26 | **** | 501 | **** | 5,609 | 6,135 | |
| Latin America | **** | 2,939 | **** | 6,437 | **** | - | **** | 9,376 | **** | 1 | **** | 54 | **** | - | **** | 55 | **** | 7 | **** | 74 | **** | 1 | **** | 82 | **** | 9,513 | 10,270 | |
| Asia-Pacific | **** | 3,984 | **** | 3,387 | **** | 146 | **** | 7,517 | **** | 449 | **** | 52 | **** | 2,796 | **** | 3,297 | **** | 131 | **** | 116 | **** | 5 | **** | 252 | **** | 11,066 | 12,289 | |
| Africa and Middle East | **** | 1,557 | **** | 321 | **** | 102 | **** | 1,980 | **** | - | **** | 1 | **** | 63 | **** | 64 | **** | 10 | **** | 168 | **** | 457 | **** | 635 | **** | 2,679 | 2,471 | |
| Other (1) | **** | - | **** | 6 | **** | 34 | **** | 40 | **** | - | **** | - | **** | 3,164 | **** | 3,164 | **** | 2 | **** | - | **** | 1,260 | **** | 1,262 | **** | 4,466 | 5,575 | |
| Total | **** | 9,107 | **** | 16,779 | **** | 496 | **** | 26,382 | **** | 990 | **** | 306 | **** | 11,269 | **** | 12,565 | **** | 377 | **** | 942 | **** | 1,998 | **** | 3,317 | **** | 42,264 | 48,021 | |
| (1) | Primarily exposure to supranational entities. | |||||||||||||||||||||||||||
| --- | --- |
This Risk Management section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
| BMO Financial Group First Quarter Report 2024 35 |
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Market Risk
BMO’s market risk management practices and key measures are outlined in the Market Risk section of BMO’s 2023 Annual Report.
Linkages between Balance Sheet Items and Market Risk Disclosures
The table below presents items reported in our Consolidated Balance Sheet that are subject to market risk, comprising balances that are subject to either traded risk or non-traded risk measurement techniques.
| As at October 31, 2023 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Consolidated<br> <br>BalanceSheet | **** | Subject to market risk | Not subject<br> <br>to marketrisk | Consolidated<br> <br>Balance<br>Sheet | Subject to market risk | Not subject<br> <br>to market<br>risk | Primary risk factors for<br><br><br>non-traded risk<br>balances | |||||||
| (Canadian in millions) | Tradedrisk (1) | Non-tradedrisk (2) | Traded<br>risk (1) | Non-traded<br>risk (2) | ||||||||||
| Assets Subject to Market Risk | ||||||||||||||
| Cash and cash equivalents | 74,659 | **** | - | **** | 74,659 | - | 77,934 | - | 77,934 | - | Interest rate | |||
| Interest bearing deposits with banks | 4,203 | **** | 214 | **** | 3,989 | - | 4,109 | 236 | 3,873 | - | Interest rate | |||
| Securities | 348,208 | **** | 138,127 | **** | 210,081 | - | 321,545 | 122,926 | 198,619 | - | Interest rate, credit spread, equity | |||
| Securities borrowed or purchased under resale agreements | 115,600 | **** | - | **** | 115,600 | - | 115,662 | - | 115,662 | - | Interest rate | |||
| Loans and acceptances (net of allowance for credit losses) | 642,053 | **** | 5,829 | **** | 636,224 | - | 656,665 | 4,412 | 652,253 | - | Interest rate, foreign exchange | |||
| Derivative instruments | 28,746 | **** | 25,131 | **** | 3,615 | - | 39,976 | 34,004 | 5,972 | - | Interest rate, foreign exchange | |||
| Customer’s liabilities under acceptances | 7,123 | **** | - | **** | 7,123 | - | 8,111 | - | 8,111 | - | Interest rate | |||
| Other assets | 104,170 | **** | 6,505 | **** | 60,868 | 36,797 | 123,004 | 4,734 | 80,547 | 37,723 | Interest rate | |||
| Total Assets | 1,324,762 | **** | 175,806 | **** | 1,112,159 | 36,797 | 1,347,006 | 166,312 | 1,142,971 | 37,723 | ||||
| Liabilities Subject to Market Risk | ||||||||||||||
| Deposits | 914,138 | **** | 39,637 | **** | 874,501 | - | 910,879 | 35,300 | 875,579 | - | Interest rate, foreign exchange | |||
| Derivative instruments | 38,265 | **** | 35,812 | **** | 2,453 | - | 50,193 | 43,166 | 7,027 | - | Interest rate, foreign exchange | |||
| Acceptances | 7,123 | **** | - | **** | 7,123 | - | 8,111 | - | 8,111 | - | Interest rate | |||
| Securities sold but not yet purchased | 43,466 | **** | 43,466 | **** | - | - | 43,774 | 43,774 | - | - | Interest rate | |||
| Securities lent or sold under repurchase agreements | 108,379 | **** | - | **** | 108,379 | - | 106,108 | - | 106,108 | - | Interest rate | |||
| Other liabilities | 127,896 | **** | 33 | **** | 127,677 | 186 | 143,590 | 33 | 143,497 | 60 | Interest rate | |||
| Subordinated debt | 8,216 | **** | - | **** | 8,216 | - | 8,228 | - | 8,228 | - | Interest rate | |||
| Total Liabilities | 1,247,483 | **** | 118,948 | **** | 1,128,349 | 186 | 1,270,883 | 122,273 | 1,148,550 | 60 |
All values are in US Dollars.
| (1) | Primarily comprises balance sheet items that are subject to the trading and underwriting risk management framework and<br>recorded at fair value through profit or loss. |
|---|---|
| (2) | Primarily comprises balance sheet items that are subject to the structural balance sheet insurance risk management<br>framework and secured financing transactions. |
| --- | --- |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
Trading Market Risk Measures
Average Total Trading Value at Risk (VaR) increased quarter-over-quarter due to interest rate portfolio changes and interest rate market volatility. Debt-specific risk has been merged into the Interest Rate VaR to align with the bank’s risk management approach.
Total Trading Value at Risk (VaR)^(1) (2)^ ****
| For the quarter ended January 31, 2024 | October 31, 2023 | January 31, 2023 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Pre-tax Canadian $ equivalent in<br>millions) | Quarter-end | Average | High | Low | Average | Average | ||||||||||
| Commodity VaR | **** | 2.4 | **** | **** | 3.2 | **** | **** | 5.0 | **** | 2.0 | 3.1 | 2.2 | ||||
| Equity VaR | **** | 14.6 | **** | **** | 13.6 | **** | **** | 19.0 | **** | 8.1 | 13.4 | 14.5 | ||||
| Foreign exchange VaR | **** | 2.2 | **** | **** | 1.3 | **** | **** | 2.9 | **** | 0.7 | 2.1 | 2.9 | ||||
| Interest rate VaR (2) | **** | 33.5 | **** | **** | 29.5 | **** | **** | 39.7 | **** | 22.1 | 25.2 | 44.0 | ||||
| Diversification | **** | (20.6 | ) | **** | (17.7 | ) | **** | nm | **** | nm | (16.8 | ) | (26.4 | ) | ||
| Total Trading VaR | **** | 32.1 | **** | **** | 29.9 | **** | **** | 45.5 | **** | 23.1 | 27.0 | 37.2 | ||||
| (1) | One-day measure using a 99% confidence interval. Benefits are presented in parentheses and losses are presented as<br>positive numbers. | |||||||||||||||
| --- | --- | |||||||||||||||
| (2) | Interest rate VaR includes general credit spread risk. | |||||||||||||||
| --- | --- |
nm - not meaningful
| 36 BMO Financial Group First Quarter Report 2024 |
|---|
Structural (Non-Trading) Market Risk
Structural economic value exposure to rising rates and benefit to falling rates decreased relative to October 31, 2023, primarily due to modelled deposit pricing being less rate-sensitive at lower projected interest rate levels following the decrease in term market rates during the current quarter.
Structural earnings benefit to rising interest rates and exposure to falling interest rates decreased relative to October 31, 2023, reflecting a modest extension in investment duration, as the bank took the opportunity to lock in fixed rates on a portion of planned reinvestment in 2024.
Structural Balance Sheet Earnings and Value Sensitivity to Changes in Interest Rates^(1) (2)^ ****
| Earnings sensitivity over the next 12 months | |||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Pre-tax Canadian equivalent in<br>millions) | January 31,<br><br><br>2024 | October 31,<br><br><br>2023 | January 31,<br><br><br>2023 | January 31,<br><br><br>2024 | October 31,<br><br><br>2023 | January 31,<br><br><br>2023 | |||||||||||||||||||||||
| United States | Total | Total | Total | Canada(3) | United States | Total | Total | Total | |||||||||||||||||||||
| 100 basis point increase | (832 | ) | **** | (765 | ) | **** | (1,598 | ) | (1,849 | ) | (574 | ) | **** | 61 | **** | **** | 218 | **** | **** | 278 | **** | 304 | 542 | ||||||
| 100 basis point decrease | 739 | **** | **** | 229 | **** | **** | 968 | **** | 1,492 | 84 | **** | (50 | ) | **** | (246 | ) | **** | (296 | ) | (325 | ) | (545 | ) |
All values are in US Dollars.
| (1) | Losses are presented in brackets and gains are presented as positive numbers. |
|---|---|
| (2) | Interest rate sensitivities assume an immediate and sustained parallel shift in assumed interest rates across the entire<br>yield curve as at the end of the period using a constant balance sheet. |
| --- | --- |
| (3) | Includes Canadian dollar and other currencies. |
| --- | --- |
Insurance Risk
The bank adopted IFRS 17, Insurance Contracts (IFRS 17) effective November 1, 2023. IFRS 17 changes the fundamental principles used to recognize and measure insurance contracts, including life insurance contracts, reinsurance contracts held and investment contracts with discretionary participation features.
Under IFRS 17, the discount rates used to calculate the present value of insurance liabilities are no longer based on the assets supporting those liabilities, but rather on the features of the insurance liabilities themselves. As such, insurance market risk largely includes interest rate risk arising from our insurance business activities.
For further information, refer to the Changes in Accounting Policies section. Additional information on Insurance Risk governance can be found in the Enterprise-Wide Risk Management section of BMO’s 2023 Annual Report.
We may enter into hedging arrangements to offset the impact of changes in interest rates on our earnings, and we did so during the first quarter of 2024 and the fourth quarter of 2023. The table below reflects the estimated immediate impact on, or sensitivity of, our net income to certain changes in interest rates and includes the estimated impact of the above hedging arrangements.
| (Pre-tax Canadian $ in<br>millions) | As at January 31, 2024(1) | As at October 31, 2023 (1) | ||||
|---|---|---|---|---|---|---|
| 50 basis point increase | **** | 27 | **** | 24 | ||
| 50 basis point decrease | **** | (34 | ) | (31 | ) | |
| (1) | Interest rate sensitivities assume a parallel shift in assumed interest rates across the entire yield curve as at the end<br>of the period with no change in the ultimate risk-free rate. | |||||
| --- | --- |
Insurance product risk is the risk that actual experience related to claims, benefit payments and expenses does not emerge as expected. We are exposed to various types of product risk relating to our insurance contracts including mortality, policyholder behaviour, including termination and surrender or lapse, expenses, morbidity and longevity.
The table below presents the sensitivities before and after risk mitigation by reinsurance and assumes that all other variables remain constant.
| Q1 2024 | Q4 2023 | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Contractual service margin | Profit or loss | Contractual service margin | Profit or loss | ||||||||||||||||||||
| (Canadian $ in millions) | Gross | Net | Gross | Net | Gross | Net | Gross | Net | |||||||||||||||
| Policy-related assumptions | |||||||||||||||||||||||
| Mortality rates (1% increase) (1) | **** | (19 | ) | **** | 10 | **** | **** | 1 | **** | **** | 1 | (15 | ) | 9 | - | - | |||||||
| Lapse rates (10% increase) (2) | **** | (164 | ) | **** | (62 | ) | **** | (5 | ) | **** | 3 | (162 | ) | (63 | ) | (4 | ) | (2 | ) | ||||
| Expenses (5% increase) (3) | **** | (9 | ) | **** | (9 | ) | **** | - | **** | **** | - | - | - | - | - | ||||||||
| (1) | Mortality relates to the occurrence of death and is a key assumption for our life insurance business.<br> | ||||||||||||||||||||||
| --- | --- | ||||||||||||||||||||||
| (2) | Policies are terminated through lapses and surrenders, where lapses represent the termination of policies due to non-payment of premiums and surrenders represent the voluntary termination of policies by policyholders. | ||||||||||||||||||||||
| --- | --- | ||||||||||||||||||||||
| (3) | Directly attributable operating expense assumptions reflect the projected costs of maintaining and servicing in-force policies, including associated, directly attributable overhead expenses. | ||||||||||||||||||||||
| --- | --- | ||||||||||||||||||||||
| BMO Financial Group First Quarter Report 2024 37 | |||||||||||||||||||||||
| --- |
Liquidity and Funding Risk
Liquidity and funding risk is managed under a robust risk management framework. There were no material changes in the framework during the quarter.
BMO continued to maintain a strong liquidity position in the first quarter of 2024. Customer deposits increased, with underlying deposit growth largely offset by the impact of the weaker U.S. dollar. Customer loans declined, as underlying loan growth was more than offset by the impact of the weaker U.S. dollar and from the sale of a portfolio of recreational vehicle loans. Wholesale funding decreased from the impact of the weaker U.S. dollar and net wholesale funding maturities. BMO’s liquidity metrics, including the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), remained well above internal targets and regulatory requirements.
BMO’s liquid assets are primarily held in our trading businesses, as well as in liquidity portfolios that are maintained for contingent liquidity risk management purposes and as investments of excess structural liquidity. Liquid assets include unencumbered, high-quality assets that are marketable, can be pledged as security for borrowings, and can be converted to cash in a time frame that meets our liquidity and funding requirements. BMO’s liquid assets are summarized in the table below.
In the normal course of business, we may encumber a portion of cash and securities holdings as collateral in support of trading activities and participation in clearing and payment systems in Canada, the United States and abroad. In addition, we may receive liquid assets as collateral and may re-pledge these assets in exchange for cash or as collateral in support of trading activities. Net unencumbered liquid assets, defined as on-balance sheet assets, such as BMO-owned cash and securities and securities borrowed or purchased under resale agreements, plus other off-balance sheet eligible collateral received, less assets encumbered as collateral, totalled $377.7 billion as at January 31, 2024, compared with $359.4 billion as at October 31, 2023. The increase in unencumbered liquid assets was primarily due to higher security balances, partially offset by lower cash balances.
Net unencumbered liquid assets are primarily held at the parent bank level, at BMO Bank N.A., and in our broker/dealer operations. In addition to liquid assets, BMO has access to the Bank of Canada’s lending assistance programs, the Federal Reserve Bank discount window in the United States, the Bank of England’s Sterling Monetary Framework, and European Central Bank standby liquidity facilities. We do not consider central bank facilities as a source of available liquidity when assessing the soundness of our liquidity position.
In addition to cash and securities holdings, we may also pledge other assets, including mortgages and loans, to raise long-term secured funding. BMO’s total encumbered assets and unencumbered liquid assets are summarized in the Asset Encumbrance table.
Liquid Assets ^(1)^ ****
| As at January 31, 2024 | As at October 31, 2023 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Canadian $ in millions) | Bank-ownedassets | Other cash &securitiesreceived | Total grossassets (2) | Encumberedassets | Netunencumberedassets^^(3) | Net<br>unencumbered<br>assets (3) | ||||||
| Cash and cash equivalents | **** | 74,659 | **** | - | **** | 74,659 | **** | 112 | **** | 74,547 | 77,809 | |
| Deposits with other banks | **** | 4,203 | **** | - | **** | 4,203 | **** | - | **** | 4,203 | 4,109 | |
| Securities and securities borrowed or purchased under resale agreements | ||||||||||||
| Sovereigns/Central banks/Multilateral development banks | **** | 164,880 | **** | 104,263 | **** | 269,143 | **** | 146,279 | **** | 122,864 | 122,686 | |
| NHA mortgage-backed securities and U.S. agency mortgage-backed securities and collateralized mortgage<br>obligations | **** | 84,450 | **** | 10,527 | **** | 94,977 | **** | 37,818 | **** | 57,159 | 56,729 | |
| Corporate and other debt | **** | 34,478 | **** | 21,750 | **** | 56,228 | **** | 11,025 | **** | 45,203 | 34,358 | |
| Corporate equity | **** | 64,400 | **** | 51,472 | **** | 115,872 | **** | 62,452 | **** | 53,420 | 44,177 | |
| Total securities and securities borrowed or purchased under resale agreements | **** | 348,208 | **** | 188,012 | **** | 536,220 | **** | 257,574 | **** | 278,646 | 257,950 | |
| NHA mortgage-backed securities (reported as loans at amortized cost)<br>(4) | **** | 24,735 | **** | - | **** | 24,735 | **** | 4,458 | **** | 20,277 | 19,502 | |
| Total liquid assets | **** | 451,805 | **** | 188,012 | **** | 639,817 | **** | 262,144 | **** | 377,673 | 359,370 | |
| (1) | Effective the first quarter of 2024, we changed our accounting policy for securities transactions from settlement date to<br>trade date, resulting in an increase in other assets and other liabilities due to the earlier recognition of transactions, as well as the reclassification of certain balance sheet items. Fiscal 2023 comparatives have been reclassified to conform<br>with the current period’s methodology. For further information, refer to the Changes in Accounting Policies section. | |||||||||||
| --- | --- | |||||||||||
| (2) | Gross assets include bank-owned assets and cash and securities received from third parties. | |||||||||||
| --- | --- | |||||||||||
| (3) | Net unencumbered assets are defined as total gross assets less encumbered assets. | |||||||||||
| --- | --- | |||||||||||
| (4) | Under IFRS, National Housing Act (NHA) mortgage-backed securities that include mortgages owned by BMO as the underlying<br>collateral are classified as loans. Unencumbered NHA mortgage-backed securities have liquidity value and are included as liquid assets under BMO’s Liquidity and Funding Management Framework. This amount<br>is shown as a separate line item, NHA mortgage-backed securities. | |||||||||||
| --- | --- | |||||||||||
| 38 BMO Financial Group First Quarter Report 2024 | ||||||||||||
| --- |
Asset Encumbrance ^(1)^ ****
| Encumbered(3) | Net unencumbered | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (Canadian $ in millions)<br><br><br>As at January 31, 2024 | Total grossassets(2) | Pledged ascollateral | Otherencumbered | Otherunencumbered(4) | Available ascollateral (5) | |||||
| Cash and deposits with other banks | **** | 78,862 | **** | - | **** | 112 | **** | - | **** | 78,750 |
| Securities (6) | **** | 560,955 | **** | 210,684 | **** | 51,348 | **** | 26,238 | **** | 272,685 |
| Loans | **** | 617,318 | **** | 86,435 | **** | 695 | **** | 352,733 | **** | 177,455 |
| Other assets | ||||||||||
| Derivative instruments | **** | 28,746 | **** | - | **** | - | **** | 28,746 | **** | - |
| Customers’ liability under acceptances | **** | 7,123 | **** | - | **** | - | **** | 7,123 | **** | - |
| Premises and equipment | **** | 6,205 | **** | - | **** | - | **** | 6,205 | **** | - |
| Goodwill | **** | 16,182 | **** | - | **** | - | **** | 16,182 | **** | - |
| Intangible assets | **** | 5,001 | **** | - | **** | - | **** | 5,001 | **** | - |
| Current tax assets | **** | 1,738 | **** | - | **** | - | **** | 1,738 | **** | - |
| Deferred tax assets | **** | 3,042 | **** | - | **** | - | **** | 3,042 | **** | - |
| Other | **** | 72,002 | **** | 8,153 | **** | - | **** | 63,849 | **** | - |
| Total other assets | **** | 140,039 | **** | 8,153 | **** | - | **** | 131,886 | **** | - |
| Total assets | **** | 1,397,174 | **** | 305,272 | **** | 52,155 | **** | 510,857 | **** | 528,890 |
| Encumbered (3) | Net unencumbered | |||||||||
| (Canadian $ in millions)<br><br><br>As at October 31, 2023 | Total gross<br>assets (2) | Pledged as<br>collateral | Other<br>encumbered | Other<br>unencumbered (4) | Available as<br>collateral (5) | |||||
| Cash and deposits with other banks | 82,043 | - | 125 | - | 81,918 | |||||
| Securities (6) | 536,676 | 209,091 | 50,133 | 16,073 | 261,379 | |||||
| Loans | 632,682 | 93,931 | 511 | 342,398 | 195,842 | |||||
| Other assets | ||||||||||
| Derivative instruments | 39,976 | - | - | 39,976 | - | |||||
| Customers’ liability under acceptances | 8,111 | - | - | 8,111 | - | |||||
| Premises and equipment | 6,241 | - | - | 6,241 | - | |||||
| Goodwill | 16,728 | - | - | 16,728 | - | |||||
| Intangible assets | 5,216 | - | - | 5,216 | - | |||||
| Current tax assets | 2,052 | - | - | 2,052 | - | |||||
| Deferred tax assets | 3,420 | - | - | 3,420 | - | |||||
| Other | 89,347 | 10,596 | - | 78,751 | - | |||||
| Total other assets | 171,091 | 10,596 | - | 160,495 | - | |||||
| Total assets | 1,422,492 | 313,618 | 50,769 | 518,966 | 539,139 | |||||
| (1) | Effective the first quarter of 2024, we changed our accounting policy for securities transactions from settlement date to<br>trade date, resulting in an increase in other assets and other liabilities due to the earlier recognition of transactions, as well as the reclassification of certain balance sheet items. Fiscal 2023 comparatives have been reclassified to conform<br>with the current period’s methodology. For further information, refer to the Changes in Accounting Policies section. | |||||||||
| --- | --- | |||||||||
| (2) | Gross assets included on-balance sheet and<br>off-balance sheet assets. | |||||||||
| --- | --- | |||||||||
| (3) | Pledged as collateral refers to the portion of on-balance sheet assets and other cash and securities that are pledged<br>through repurchase agreements, securities lending, derivative contracts, and requirements associated with participation in clearing houses and payment systems. Other encumbered assets include assets that are restricted for legal or other reasons,<br>such as minimum required deposits at central banks and short sales. | |||||||||
| --- | --- | |||||||||
| (4) | Other unencumbered assets include select liquid asset holdings that management believes are not readily available to<br>support BMO’s liquidity requirements. These included securities of $26.2 billion as at January 31, 2024, which include securities held at BMO’s insurance subsidiary, seller financing securities, significant equity<br>investments, and certain investments held in our merchant banking business. Other unencumbered assets also include mortgages and loans that may be securitized to access secured funding. | |||||||||
| --- | --- | |||||||||
| (5) | Loans included in available as collateral represent loans currently lodged at central banks that may be used to access<br>central bank funding. Loans available for pledging as collateral do not include other sources of additional liquidity that may be realized from BMO’s loan portfolio, such as incremental securitization, covered bond issuances and U.S. Federal<br>Home Loan Bank (FHLB) advances. | |||||||||
| --- | --- | |||||||||
| (6) | Includes securities, securities borrowed or purchased under resale agreements and NHA mortgage-backed securities (reported<br>as loans at amortized cost). | |||||||||
| --- | --- |
Net Unencumbered Liquid Assets by Legal Entity ^(1)^ ****
| (Canadian $ in millions) | As at January 31, 2024 | As at October 31, 2023 | ||
|---|---|---|---|---|
| BMO (parent) | **** | 242,100 | 227,342 | |
| BMO Bank N.A. | **** | 114,832 | 109,502 | |
| Broker dealers | **** | 20,741 | 22,526 | |
| Total net unencumbered liquid assets by legal entity | **** | 377,673 | 359,370 | |
| (1) | Effective the first quarter of 2024, we changed our accounting policy for securities transactions from settlement date to<br>trade date, resulting in an increase in other assets and other liabilities due to the earlier recognition of transactions, as well as the reclassification of certain balance sheet items. Fiscal 2023 comparatives have been reclassified to conform<br>with the current period’s methodology. For further information, refer to the Changes in Accounting Policies section. | |||
| --- | --- |
Funding Strategy
BMO’s funding strategy requires that secured and unsecured wholesale funding used to support loans and less liquid assets must have a term (typically maturing in two to ten years) that will support the effective term to maturity of these assets. Secured and unsecured wholesale funding for liquid trading assets is largely shorter term (maturing in one year or less), aligned with the liquidity of the assets being funded, and is subject to limits on aggregate maturities that are permitted across different periods. Supplemental liquidity pools are funded largely with wholesale term funding.
We maintain a large and stable base of customer deposits that, in combination with our strong capital position, is a source of strength. This supports the maintenance of a sound liquidity position and reduces reliance on wholesale funding. Customer deposits totalled $657.1 billion as at January 31, 2024, increasing from $654.3 billion as at October 31, 2023.
Total secured and unsecured wholesale funding outstanding, which largely consists of negotiable marketable securities, was $259.3 billion as at January 31, 2024, with $71.3 billion sourced as secured funding and $188.0 billion sourced as unsecured funding. Wholesale funding outstanding decreased from $269.6 billion as at October 31, 2023, primarily due to the impact of the weaker U.S. dollar and net wholesale funding maturities. The mix and maturities of BMO’s wholesale term funding are outlined in the following table. Additional information on deposit maturities can be found in the Contractual Maturities of Assets and Liabilities and Off-Balance Sheet Commitments section. We maintain a sizeable portfolio of unencumbered liquid assets, totalling $377.7 billion as at January 31, 2024, that can be monetized to meet potential funding requirements, as described in the Unencumbered Liquid Assets section above.
| BMO Financial Group First Quarter Report 2024 39 |
|---|
Wholesale Funding Maturities ^(1)^ ****
| As at January 31, 2024 | As at October 31, 2023 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Canadian $ in millions) | Less than1 month | 1 to 3 months | 3 to 6 months | 6 to 12 months | Subtotal lessthan 1 year | 1 to 2 years | Over 2 years | Total | Total | |||||||||
| Deposits from banks | **** | 3,923 | **** | 1,280 | **** | 874 | **** | 669 | **** | 6,746 | **** | - | **** | - | **** | 6,746 | 7,714 | |
| Certificates of deposit and commercial paper | **** | 9,946 | **** | 23,110 | **** | 31,636 | **** | 25,555 | **** | 90,247 | **** | 67 | **** | - | **** | 90,314 | 94,372 | |
| Bearer deposit notes | **** | 207 | **** | 1,026 | **** | 188 | **** | 561 | **** | 1,982 | **** | - | **** | - | **** | 1,982 | 954 | |
| Asset-backed commercial paper (ABCP) | **** | 666 | **** | 2,340 | **** | 2,560 | **** | 460 | **** | 6,026 | **** | - | **** | - | **** | 6,026 | 6,005 | |
| Senior unsecured medium-term notes | **** | 2,345 | **** | 5,614 | **** | 7,748 | **** | 10,999 | **** | 26,706 | **** | 11,085 | **** | 33,226 | **** | 71,017 | 70,749 | |
| Senior unsecured structured notes (2) | **** | 151 | **** | 87 | **** | 30 | **** | - | **** | 268 | **** | 597 | **** | 8,816 | **** | 9,681 | 9,415 | |
| Secured Funding | ||||||||||||||||||
| Mortgage and HELOC securitizations | **** | - | **** | 1,165 | **** | 1,205 | **** | 1,601 | **** | 3,971 | **** | 3,173 | **** | 11,188 | **** | 18,332 | 17,916 | |
| Covered bonds | **** | - | **** | - | **** | - | **** | - | **** | - | **** | 6,008 | **** | 19,859 | **** | 25,867 | 28,412 | |
| Other asset-backed securitizations (3) | **** | - | **** | - | **** | - | **** | 104 | **** | 104 | **** | 1,773 | **** | 6,078 | **** | 7,955 | 7,661 | |
| Federal Home Loan Bank advances | **** | - | **** | - | **** | - | **** | - | **** | - | **** | 9,134 | **** | 4,022 | **** | 13,156 | 18,148 | |
| Subordinated debt | **** | - | **** | - | **** | - | **** | - | **** | - | **** | 25 | **** | 8,202 | **** | 8,227 | 8,227 | |
| Total | **** | 17,238 | **** | 34,622 | **** | 44,241 | **** | 39,949 | **** | 136,050 | **** | 31,862 | **** | 91,391 | **** | 259,303 | 269,573 | |
| Of which: | ||||||||||||||||||
| Secured | **** | 666 | **** | 3,505 | **** | 3,765 | **** | 2,165 | **** | 10,101 | **** | 20,088 | **** | 41,147 | **** | 71,336 | 78,142 | |
| Unsecured | **** | 16,572 | **** | 31,117 | **** | 40,476 | **** | 37,784 | **** | 125,949 | **** | 11,774 | **** | 50,244 | **** | 187,967 | 191,431 | |
| Total (4) | **** | 17,238 | **** | 34,622 | **** | 44,241 | **** | 39,949 | **** | 136,050 | **** | 31,862 | **** | 91,391 | **** | 259,303 | 269,573 | |
| (1) | Wholesale funding primarily includes funding raised through the issuance of negotiable marketable securities. Wholesale<br>funding excludes repo transactions and bankers’ acceptances, which are disclosed in the Contractual Maturities or Assets and Liabilities and Off-Balance Sheet Commitments section, and also excludes ABCP<br>issued by certain ABCP conduits that are not consolidated for financial reporting purposes. | |||||||||||||||||
| --- | --- | |||||||||||||||||
| (2) | Primarily issued to institutional investors. | |||||||||||||||||
| --- | --- | |||||||||||||||||
| (3) | Includes credit card, auto and transportation finance loan securitizations. | |||||||||||||||||
| --- | --- | |||||||||||||||||
| (4) | Total wholesale funding consists of Canadian-dollar-denominated funding totalling $52.1 billion and<br>U.S.-dollar-denominated and other foreign-currency-denominated funding totalling $207.2 billion as at January 31, 2024. | |||||||||||||||||
| --- | --- |
Diversification of our wholesale funding sources is an important part of our overall liquidity management strategy. BMO’s wholesale funding activities are well-diversified by jurisdiction, currency, investor segment, instrument type and maturity profile. BMO maintains ready access to long-term wholesale funding through various borrowing programs, including a European Note Issuance Program, Canadian, Australian and U.S. Medium-Term Note programs, Canadian and U.S. mortgage securitizations, Canadian credit card loans, auto loans and home equity line of credit (HELOC) securitizations, covered bonds, and Canadian and U.S. senior unsecured deposits.
Our wholesale funding plan seeks to ensure sufficient funding capacity is available to execute our business strategies. The funding plan considers expected maturities, as well as asset and liability growth projected for our businesses in our forecasting and planning processes, and assesses funding needs in relation to the sources available. The funding plan is reviewed annually by the senior management committees with specific related responsibilities and approved by the Risk Review Committee, and is regularly updated to reflect actual results and incorporate updated forecast information.
Additional information on Liquidity and Funding Risk governance can be found in the Liquidity and Funding Risk section of BMO’s 2023 Annual Report. Please also see the Risk Management section.
Credit Ratings
The credit ratings assigned to BMO’s short-term and senior long-term debt securities by external rating agencies are important in raising both capital and funding to support the bank’s business operations. Maintaining strong credit ratings allows us to access the wholesale markets at competitive pricing levels. Should BMO’s credit ratings experience a downgrade, our cost of funding may increase and our access to funding and capital through the wholesale markets could be constrained. A material downgrade of BMO’s ratings could also have other consequences, including those set out in Note 8 of the audited annual consolidated financial statements of BMO’s 2023 Annual Report.
The credit ratings assigned to BMO’s senior debt by rating agencies are indicative of high-grade, high-quality issues.
| As at January 31, 2024 | |||||
|---|---|---|---|---|---|
| Rating agency | Short-term debt | Senior debt (1) | Long-term<br>deposits/Legacy<br>senior debt^^(2) | Subordinated<br> <br>debt<br>(NVCC) | Outlook |
| Moody’s | P-1 | A2 | Aa2 | Baa1 (hyb) | Stable |
| S&P | A-1 | A- | A+ | BBB+ | Stable |
| Fitch | F1+ | AA- | AA | A | Stable |
| DBRS | R-1 (high) | AA (low) | AA | A (low) | Stable |
| (1) | Subject to conversion under the Bank Recapitalization (Bail-In) Regime.<br> | ||||
| --- | --- | ||||
| (2) | Long-term deposits/Legacy senior debt includes senior debt issued prior to September 23, 2018, and senior debt issued<br>on or after September 23, 2018, that is excluded from the Bank Recapitalization (Bail-In) Regime. | ||||
| --- | --- |
We are required to deliver collateral to certain counterparties in the event of a downgrade of BMO’s current credit rating. The incremental collateral required is based on mark-to-market exposure, collateral valuations and collateral threshold arrangements, as applicable. As at January 31, 2024, we would be required to provide additional collateral to counterparties totalling $176 million, $432 million and $892 million as a result of a one-notch, two-notch and three-notch downgrade, respectively.
| 40 BMO Financial Group First Quarter Report 2024 |
|---|
Liquidity Coverage Ratio
The Liquidity Coverage Ratio (LCR) is calculated in accordance with the OSFI’s LAR Guideline and is summarized in the following table. The LCR is calculated on a daily basis as the ratio of the stock of High-Quality Liquid Assets (HQLA) held to total net stressed cash outflows over the next 30 calendar days. BMO’s HQLA primarily comprises cash, highly-rated debt issued or backed by governments, highly-rated covered bonds and non-financial corporate debt, and non-financial equities that are part of a major stock index. Net cash flows include outflows from deposits, secured and unsecured wholesale funding, commitments and potential collateral requirements, offset by permitted inflows from loans, securities lending activities and other non-HQLA debt maturing over a 30-day horizon. Weightings prescribed by OSFI are applied to cash flows and HQLA to arrive at the weighted values and the LCR. The LCR does not reflect liquidity in BMO Financial Corp. (BFC) in excess of 100%, because of limitations on the transfer of liquidity between BFC and the parent bank. Canadian domestic systemically important banks (D-SIBs), including BMO, are required to maintain a minimum LCR of 100%. The average daily LCR for the quarter ended January 31, 2024, was 129%, equivalent to a surplus of $54 billion above the regulatory minimum. The LCR increased 1% from 128% in the prior quarter, due to higher HQLA largely offset by higher net cash outflows. While banks are required to maintain an LCR of greater than 100% in normal conditions, they are also expected to be able to utilize HQLA during a period of stress, which may result in an LCR of less than 100% during such a period. The LCR is only one measure of a bank’s liquidity position and does not fully capture all of its liquid assets or the funding alternatives that may be available during a period of stress. BMO’s total liquid assets are shown in the Liquid Assets table.
| For the quarter ended January 31, 2024 | ||||
|---|---|---|---|---|
| (Canadian $ in billions, except as noted) | Total unweighted value(average) (1) (2) | Total weighted value(average) (2) (3) | ||
| High-Quality Liquid Assets | ||||
| Total high-quality liquid assets (HQLA) | **** | * | **** | 241.0 |
| Cash Outflows | ||||
| Retail deposits and deposits from small business customers, of which: | **** | 292.6 | **** | 21.3 |
| Stable deposits | **** | 137.1 | **** | 4.1 |
| Less stable deposits | **** | 155.5 | **** | 17.2 |
| Unsecured wholesale funding, of which: | **** | 300.8 | **** | 137.6 |
| Operational deposits (all counterparties) and deposits in networks of cooperative banks | **** | 143.0 | **** | 35.3 |
| Non-operational deposits (all counterparties) | **** | 133.4 | **** | 77.9 |
| Unsecured debt | **** | 24.4 | **** | 24.4 |
| Secured wholesale funding | **** | * | **** | 19.8 |
| Additional requirements, of which: | **** | 241.4 | **** | 47.9 |
| Outflows related to derivatives exposures and other collateral requirements | **** | 29.4 | **** | 8.0 |
| Outflows related to loss of funding on debt products | **** | 3.6 | **** | 3.6 |
| Credit and liquidity facilities | **** | 208.4 | **** | 36.3 |
| Other contractual funding obligations | **** | 0.9 | **** | - |
| Other contingent funding obligations | **** | 523.8 | **** | 10.7 |
| Total cash outflows | **** | * | **** | 237.3 |
| Cash Inflows | ||||
| Secured lending (e.g. reverse repos) | **** | 150.5 | **** | 27.6 |
| Inflows from fully performing exposures | **** | 18.5 | **** | 9.9 |
| Other cash inflows | **** | 12.4 | **** | 12.4 |
| Total cash inflows | **** | 181.4 | **** | 49.9 |
| For the quarter ended January 31, 2024 | Total adjusted value(4) | |||
| Total HQLA | **** | 241.0 | ||
| Total net cash outflows | **** | 187.4 | ||
| Liquidity Coverage Ratio (%) (2) | **** | 129.0 | ||
| For the quarter ended October 31, 2023 | Total adjusted value (4) | |||
| Total HQLA | 228.4 | |||
| Total net cash outflows | 178.4 | |||
| Liquidity Coverage Ratio (%) | 128.0 | |||
| * | Disclosure is not required under the LCR disclosure standard. | |||
| --- | --- | |||
| (1) | Unweighted values are calculated at market value (for HQLA) or as outstanding balances maturing or callable within 30 days<br>(for inflows and outflows). | |||
| --- | --- | |||
| (2) | Values are calculated based on the simple average of the daily LCR over 62 business days in the first quarter of 2024.<br> | |||
| --- | --- | |||
| (3) | Weighted values are calculated after the application of the weights prescribed under the OSFI Liquidity Adequacy<br>Requirements (LAR) Guideline for HQLA and cash inflows and outflows. | |||
| --- | --- | |||
| (4) | Adjusted values are calculated based on total weighted values after applicable caps as defined by the LAR Guideline.<br> | |||
| --- | --- | |||
| BMO Financial Group First Quarter Report 2024 41 | ||||
| --- |
Net Stable Funding Ratio
The Net Stable Funding Ratio (NSFR) is a regulatory liquidity metric that assesses the stability of a bank’s funding profile in relation to the liquidity value of its assets and is calculated in accordance with OSFI’s LAR Guideline. Unlike the LCR, which is a short-term metric, the NSFR assesses a bank’s medium-term and long-term resilience. The NSFR is defined as the ratio of the amount of available stable funding (ASF) to the amount of required stable funding (RSF). ASF represents the proportion of own and third-party resources that are expected to be reliably available over a one-year horizon (including customer deposits, long-term wholesale funding, and capital). The stable funding requirements for each institution are set by OSFI based on the liquidity and maturity characteristics of its on-balance sheet assets and off-balance sheet exposures. Weightings prescribed by OSFI are applied to notional asset and liability balances to determine ASF and RSF and the NSFR. Canadian domestic systemically important banks (D-SIBs), including BMO, are required to maintain a minimum NSFR of 100%. BMO’s NSFR was 116% as at January 31, 2024, equivalent to a surplus of $101 billion above the regulatory minimum. The NSFR increased from 115% in the prior quarter, due to lower required stable funding.
| For the quarter ended January 31, 2024 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Unweighted Value by Residual Maturity | Weighted<br><br><br>Value (2) | |||||||||
| (Canadian $ in billions, except as noted) | No<br><br><br>maturity(1) | Less than 6months | 6 to 12<br><br><br>months | Over 1 year | ||||||
| Available Stable Funding (ASF) Item | ||||||||||
| Capital: | **** | - | **** | - | **** | - | **** | 89.8 | **** | 89.8 |
| Regulatory capital | **** | - | **** | - | **** | - | **** | 89.8 | **** | 89.8 |
| Other capital instruments | **** | - | **** | - | **** | - | **** | - | **** | - |
| Retail deposits and deposits from small business customers: | **** | 223.5 | **** | 55.8 | **** | 39.7 | **** | 68.1 | **** | 354.8 |
| Stable deposits | **** | 113.8 | **** | 21.4 | **** | 16.5 | **** | 14.6 | **** | 158.7 |
| Less stable deposits | **** | 109.7 | **** | 34.4 | **** | 23.2 | **** | 53.5 | **** | 196.1 |
| Wholesale funding: | **** | 276.9 | **** | 267.3 | **** | 56.4 | **** | 111.0 | **** | 274.1 |
| Operational deposits | **** | 128.4 | **** | - | **** | - | **** | - | **** | 64.2 |
| Other wholesale funding | **** | 148.5 | **** | 267.3 | **** | 56.4 | **** | 111.0 | **** | 209.9 |
| Liabilities with matching interdependent assets | **** | - | **** | 1.4 | **** | 0.8 | **** | 12.6 | **** | - |
| Other liabilities: | **** | 4.3 | **** | * | **** | * | **** | 67.0 | **** | 5.3 |
| NSFR derivative liabilities | **** | * | **** | * | **** | * | **** | 7.5 | **** | * |
| All other liabilities and equity not included in the above<br>categories | **** | 4.3 | **** | 53.6 | **** | 1.2 | **** | 4.7 | **** | 5.3 |
| Total ASF | **** | * | **** | * | **** | * | **** | * | **** | 724.0 |
| Required Stable Funding (RSF) Item | ||||||||||
| Total NSFR high-quality liquid assets (HQLA) | **** | * | **** | * | **** | * | **** | * | **** | 15.7 |
| Deposits held at other financial institutions for operational purposes | **** | - | **** | 0.1 | **** | - | **** | - | **** | 0.1 |
| Performing loans and securities: | **** | 186.0 | **** | 181.9 | **** | 61.8 | **** | 361.9 | **** | 519.2 |
| Performing loans to financial institutions secured by Level 1 HQLA | **** | - | **** | 82.2 | **** | 1.1 | **** | 0.4 | **** | 3.0 |
| Performing loans to financial institutions secured by non-Level 1<br>HQLA and unsecured performing loans to financial institutions | **** | 34.2 | **** | 46.5 | **** | 7.9 | **** | 16.6 | **** | 60.1 |
| Performing loans to non-financial corporate clients, loans to retail<br>and small business customers, and loans to sovereigns, central banks and public sector entities, of which: | **** | 109.6 | **** | 42.6 | **** | 40.2 | **** | 174.4 | **** | 283.8 |
| With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit<br>risk | **** | - | **** | - | **** | - | **** | - | **** | - |
| Performing residential mortgages, of which: | **** | 13.1 | **** | 8.1 | **** | 11.5 | **** | 143.3 | **** | 122.7 |
| With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit<br>risk | **** | 13.1 | **** | 8.1 | **** | 11.5 | **** | 143.3 | **** | 122.7 |
| Securities that are not in default and do not qualify as HQLA, including exchange-traded equities | **** | 29.1 | **** | 2.5 | **** | 1.1 | **** | 27.2 | **** | 49.6 |
| Assets with matching interdependent liabilities | **** | - | **** | 1.4 | **** | 0.8 | **** | 12.6 | **** | - |
| Other assets: | **** | 42.7 | **** | * | **** | * | **** | 84.2 | **** | 67.5 |
| Physical traded commodities, including gold | **** | 6.8 | **** | * | **** | * | **** | * | **** | 5.8 |
| Assets posted as initial margin for derivative contracts and contributions to default funds of central<br>clearing parties | **** | * | **** | * | **** | * | **** | 13.8 | **** | 11.8 |
| NSFR derivative assets | **** | * | **** | * | **** | * | **** | 4.3 | **** | - |
| NSFR derivative liabilities before deduction of variation margin posted | **** | * | **** | * | **** | * | **** | 14.2 | **** | 0.7 |
| All other assets not included in the above categories | **** | 35.9 | **** | 43.7 | **** | 0.2 | **** | 8.0 | **** | 49.2 |
| Off-balance sheet<br>items | **** | * | **** | * | **** | * | **** | 584.2 | **** | 20.6 |
| Total RSF | **** | * | **** | * | **** | * | **** | * | **** | 623.1 |
| Net Stable Funding Ratio (%) | **** | * | **** | * | **** | * | **** | * | **** | 116 |
| For the quarter ended October 31, 2023 | WeightedValue (2) | |||||||||
| Total ASF | 724.1 | |||||||||
| Total RSF | 627.8 | |||||||||
| Net Stable Funding Ratio (%) | 115 | |||||||||
| * | Disclosure is not required under the NSFR disclosure standard. | |||||||||
| --- | --- | |||||||||
| (1) | Items to be reported in the “no maturity” time bucket do not have a stated maturity. These may include, but are<br>not limited to, items such as non-maturity deposits, short positions, open maturity positions, non-HQLA equities, physical traded commodities and demand loans. | |||||||||
| --- | --- | |||||||||
| (2) | Weighted values are calculated after the application of the weights prescribed under the OSFI LAR Guideline for ASF and<br>RSF. | |||||||||
| --- | --- | |||||||||
| 42 BMO Financial Group First Quarter Report 2024 | ||||||||||
| --- |
Contractual Maturities of Assets and Liabilities andOff-Balance Sheet Commitments
The tables below show the remaining contractual maturities of on-balance sheet assets and liabilities and off-balance sheet commitments. The contractual maturity of financial assets and liabilities is an input to, but is not necessarily consistent with, the expected maturity of assets and liabilities that is used in the management of liquidity and funding risk. We forecast asset and liability cash flows, under both normal market conditions and a number of stress scenarios, to manage liquidity and funding risk. Stress scenarios include assumptions for loan repayments, deposit withdrawals, and credit commitment and liquidity facility drawdowns by counterparty and product type. Stress scenarios also consider the time horizon over which liquid assets can be monetized and the related discounts (“haircuts”) and potential collateral requirements that may result from both market volatility and credit rating downgrades, among other assumptions.
| (Canadian in millions) | January 31, 2024 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 to 3months | 3 to 6months | 6 to 9months | 9 to 12months | 1 to 2years | 2 to 5years | Over 5years | Nomaturity | Total | |||||||||||||
| On-Balance Sheet Financial Instruments | |||||||||||||||||||||
| Assets | |||||||||||||||||||||
| Cash and Cash Equivalents | 72,447 | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | 2,212 | **** | **** | 74,659 | **** |
| Interest Bearing Deposits with Banks | 2,684 | **** | 743 | **** | 288 | **** | 146 | **** | 342 | **** | - | **** | - | **** | - | **** | - | **** | **** | 4,203 | **** |
| Securities | 4,809 | **** | 6,039 | **** | 6,631 | **** | 6,955 | **** | 19,115 | **** | 20,721 | **** | 77,758 | **** | 141,780 | **** | 64,400 | **** | **** | 348,208 | **** |
| Securities Borrowed or Purchased under Resale Agreements | 94,624 | **** | 12,535 | **** | 7,069 | **** | 599 | **** | 523 | **** | 250 | **** | - | **** | - | **** | - | **** | **** | 115,600 | **** |
| Loans (1) | |||||||||||||||||||||
| Residential mortgages | 924 | **** | 2,182 | **** | 4,653 | **** | 4,834 | **** | 5,426 | **** | 33,056 | **** | 98,650 | **** | 26,648 | **** | 177 | **** | **** | 176,550 | **** |
| Consumer instalment and other personal | 256 | **** | 666 | **** | 1,277 | **** | 1,462 | **** | 1,727 | **** | 9,290 | **** | 32,669 | **** | 19,152 | **** | 25,477 | **** | **** | 91,976 | **** |
| Credit cards | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | 12,522 | **** | **** | 12,522 | **** |
| Business and government | 17,255 | **** | 12,854 | **** | 16,248 | **** | 14,618 | **** | 14,898 | **** | 49,371 | **** | 107,432 | **** | 30,757 | **** | 101,328 | **** | **** | 364,761 | **** |
| Allowance for credit losses | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | (3,756 | ) | **** | (3,756 | ) |
| Total loans, net of allowance | 18,435 | **** | 15,702 | **** | 22,178 | **** | 20,914 | **** | 22,051 | **** | 91,717 | **** | 238,751 | **** | 76,557 | **** | 135,748 | **** | **** | 642,053 | **** |
| Other Assets | |||||||||||||||||||||
| Derivative instruments | 1,659 | **** | 2,099 | **** | 2,326 | **** | 1,381 | **** | 2,747 | **** | 5,449 | **** | 6,480 | **** | 6,605 | **** | - | **** | **** | 28,746 | **** |
| Customers’ liabilities under acceptances | 4,614 | **** | 2,509 | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | **** | 7,123 | **** |
| Other | 40,713 | **** | 607 | **** | 467 | **** | 20 | **** | 12 | **** | 10 | **** | 15 | **** | 7,394 | **** | 54,932 | **** | **** | 104,170 | **** |
| Total Other assets | 46,986 | **** | 5,215 | **** | 2,793 | **** | 1,401 | **** | 2,759 | **** | 5,459 | **** | 6,495 | **** | 13,999 | **** | 54,932 | **** | **** | 140,039 | **** |
| Total Assets | 239,985 | **** | 40,234 | **** | 38,959 | **** | 30,015 | **** | 44,790 | **** | 118,147 | **** | 323,004 | **** | 232,336 | **** | 257,292 | **** | **** | 1,324,762 | **** |
| (Canadian in millions) | January 31, 2024 | ||||||||||||||||||||
| 1 to 3months | 3 to 6months | 6 to 9months | 9 to 12months | 1 to 2years | 2 to 5years | Over 5years | Nomaturity | Total | |||||||||||||
| Liabilities and Equity | |||||||||||||||||||||
| Deposits (2) (3) | 44,796 | **** | 57,825 | **** | 80,367 | **** | 54,543 | **** | 54,875 | **** | 47,864 | **** | 86,397 | **** | 21,911 | **** | 465,560 | **** | **** | 914,138 | **** |
| Other Liabilities | |||||||||||||||||||||
| Derivative instruments | 2,665 | **** | 5,199 | **** | 3,651 | **** | 2,045 | **** | 3,495 | **** | 5,116 | **** | 6,816 | **** | 9,278 | **** | - | **** | **** | 38,265 | **** |
| Acceptances | 4,614 | **** | 2,509 | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | **** | 7,123 | **** |
| Securities sold but not yet purchased (4) | 43,466 | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | **** | 43,466 | **** |
| Securities lent or sold under repurchase agreements (4) | 99,899 | **** | 6,107 | **** | 342 | **** | 528 | **** | - | **** | 1,503 | **** | - | **** | - | **** | - | **** | **** | 108,379 | **** |
| Securitization and liabilities related to structured entities | 9 | **** | 1,181 | **** | 2,156 | **** | 621 | **** | 1,009 | **** | 5,901 | **** | 9,279 | **** | 9,507 | **** | - | **** | **** | 29,663 | **** |
| Other | 53,441 | **** | 257 | **** | 122 | **** | 85 | **** | 1,172 | **** | 9,962 | **** | 4,006 | **** | 4,780 | **** | 24,408 | **** | **** | 98,233 | **** |
| Total Other Liabilities | 204,094 | **** | 15,253 | **** | 6,271 | **** | 3,279 | **** | 5,676 | **** | 22,482 | **** | 20,101 | **** | 23,565 | **** | 24,408 | **** | **** | 325,129 | **** |
| Subordinated Debt | - | **** | - | **** | - | **** | - | **** | - | **** | 25 | **** | 25 | **** | 8,166 | **** | - | **** | **** | 8,216 | **** |
| Total Equity | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | - | **** | 77,279 | **** | **** | 77,279 | **** |
| Total Liabilities and Equity | 248,890 | **** | 73,078 | **** | 86,638 | **** | 57,822 | **** | 60,551 | **** | 70,371 | **** | 106,523 | **** | 53,642 | **** | 567,247 | **** | **** | 1,324,762 | **** |
All values are in US Dollars.
| (1) | Loans receivable on demand have been included under no maturity. | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (2) | Deposits payable on demand and payable after notice have been included under no maturity. | ||||||||||||||||||
| --- | --- | ||||||||||||||||||
| (3) | Deposits totalling $31,584 million as at January 31, 2024, have a fixed maturity date; however, they can be<br>early redeemed (either fully or partially) by customers without penalty. These are classified as payable on a fixed date due to their stated contractual maturity date. | ||||||||||||||||||
| --- | --- | ||||||||||||||||||
| (4) | Presented based on their earliest maturity date. | ||||||||||||||||||
| --- | --- | ||||||||||||||||||
| (Canadian in millions) | January 31, 2024 | ||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 1 to 3months | 3 to 6months | 6 to 9months | 9 to 12months | 1 to 2years | 2 to 5years | Over 5years | Nomaturity | Total | |||||||||||
| Off-Balance Sheet Commitments | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Commitments to extend credit (1) | 2,406 | **** | 6,379 | **** | 13,302 | **** | 11,055 | **** | 14,178 | **** | 39,529 | **** | 124,812 | **** | 5,893 | **** | - | **** | 217,554 |
| Letters of credit (2) | 1,858 | **** | 4,091 | **** | 5,396 | **** | 4,998 | **** | 8,249 | **** | 3,522 | **** | 3,374 | **** | 43 | **** | - | **** | 31,531 |
| Backstop liquidity facilities | 51 | **** | 357 | **** | 2,133 | **** | 1,971 | **** | 936 | **** | 10,548 | **** | 1,812 | **** | 809 | **** | - | **** | 18,617 |
| Other commitments (3) | 76 | **** | 69 | **** | 84 | **** | 181 | **** | 98 | **** | 345 | **** | 550 | **** | 83 | **** | - | **** | 1,486 |
All values are in US Dollars.
| (1) | Commitments to extend credit exclude personal lines of credit and credit cards that are unconditionally cancellable at<br>BMO’s discretion. A large majority of these commitments expire without being drawn upon. As a result, the total contractual amounts may not be representative of the funding likely to be required for these commitments. | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (2) | Letters of credit can be drawn down at any time. These are classified based on their stated contractual maturities.<br> | ||||||||||||||||||||
| --- | --- | ||||||||||||||||||||
| (3) | Other commitments comprise purchase obligations and lease commitments for leases signed but not yet commenced.<br> | ||||||||||||||||||||
| --- | --- | ||||||||||||||||||||
| BMO Financial Group First Quarter Report 2024 43 | |||||||||||||||||||||
| --- | |||||||||||||||||||||
| (Canadian in millions) | October 31, 2023 | ||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 1 to 3<br>months | 3 to 6<br>months | 6 to 9<br>months | 9 to 12<br>months | 1 to 2<br>years | 2 to 5<br>years | Over 5<br>years | No<br>maturity | Total | |||||||||||||
| On-Balance Sheet Financial Instruments | |||||||||||||||||||||
| Assets | |||||||||||||||||||||
| Cash and Cash Equivalents | 75,473 | - | - | - | - | - | - | - | 2,461 | 77,934 | |||||||||||
| Interest Bearing Deposits with Banks | 2,775 | 680 | 383 | 153 | 118 | - | - | - | - | 4,109 | |||||||||||
| Securities | 4,115 | 8,556 | 7,225 | 5,585 | 6,602 | 29,930 | 64,250 | 139,501 | 55,781 | 321,545 | |||||||||||
| Securities Borrowed or Purchased under Resale Agreements | 93,707 | 12,311 | 6,903 | 2,491 | - | 250 | - | - | - | 115,662 | |||||||||||
| Loans (1) | |||||||||||||||||||||
| Residential mortgages | 1,121 | 2,188 | 3,403 | 4,246 | 4,761 | 27,229 | 107,347 | 26,689 | 266 | 177,250 | |||||||||||
| Consumer instalment and other personal | 285 | 621 | 1,028 | 1,343 | 1,542 | 8,094 | 35,467 | 29,992 | 25,670 | 104,042 | |||||||||||
| Credit cards | - | - | - | - | - | - | - | - | 12,294 | 12,294 | |||||||||||
| Business and government | 19,671 | 10,920 | 12,550 | 16,370 | 16,953 | 49,366 | 114,289 | 27,880 | 98,887 | 366,886 | |||||||||||
| Allowance for credit losses | - | - | - | - | - | - | - | - | (3,807 | ) | (3,807 | ) | |||||||||
| Total loans, net of allowance | 21,077 | 13,729 | 16,981 | 21,959 | 23,256 | 84,689 | 257,103 | 84,561 | 133,310 | 656,665 | |||||||||||
| Other Assets | |||||||||||||||||||||
| Derivative instruments | 2,797 | 4,539 | 2,670 | 2,827 | 1,555 | 7,804 | 9,325 | 8,459 | - | 39,976 | |||||||||||
| Customers’ liabilities under acceptances | 4,682 | 3,423 | 6 | - | - | - | - | - | - | 8,111 | |||||||||||
| Other | 56,582 | 814 | 336 | 42 | 4 | 10 | 19 | 7,629 | 57,568 | 123,004 | |||||||||||
| Total Other assets | 64,061 | 8,776 | 3,012 | 2,869 | 1,559 | 7,814 | 9,344 | 16,088 | 57,568 | 171,091 | |||||||||||
| Total Assets | 261,208 | 44,052 | 34,504 | 33,057 | 31,535 | 122,683 | 330,697 | 240,150 | 249,120 | 1,347,006 | |||||||||||
| (Canadian in millions) | October 31, 2023 | ||||||||||||||||||||
| 1 to 3<br>months | 3 to 6<br>months | 6 to 9<br>months | 9 to 12<br>months | 1 to 2<br>years | 2 to 5<br>years | Over 5<br>years | No<br>maturity | Total | |||||||||||||
| Liabilities and Equity | |||||||||||||||||||||
| Deposits (2) (3) | 48,986 | 63,728 | 64,939 | 60,911 | 52,040 | 47,624 | 80,829 | 18,624 | 473,198 | 910,879 | |||||||||||
| Other Liabilities | |||||||||||||||||||||
| Derivative instruments | 3,103 | 8,450 | 3,033 | 2,278 | 2,014 | 7,694 | 11,748 | 11,873 | - | 50,193 | |||||||||||
| Acceptances | 4,682 | 3,423 | 6 | - | - | - | - | - | - | 8,111 | |||||||||||
| Securities sold but not yet purchased (4) | 43,774 | - | - | - | - | - | - | - | - | 43,774 | |||||||||||
| Securities lent or sold under repurchase agreements (4) | 99,006 | 4,751 | 476 | 539 | - | 1,336 | - | - | - | 106,108 | |||||||||||
| Securitization and liabilities related to structured entities | 97 | 717 | 1,199 | 2,195 | 592 | 4,896 | 9,870 | 7,528 | - | 27,094 | |||||||||||
| Other | 67,020 | 2,274 | 116 | 110 | 108 | 14,109 | 2,764 | 6,160 | 23,835 | 116,496 | |||||||||||
| Total Other Liabilities | 217,682 | 19,615 | 4,830 | 5,122 | 2,714 | 28,035 | 24,382 | 25,561 | 23,835 | 351,776 | |||||||||||
| Subordinated Debt | - | - | - | - | - | - | 25 | 8,203 | - | 8,228 | |||||||||||
| Total Equity | - | - | - | - | - | - | - | - | 76,123 | 76,123 | |||||||||||
| Total Liabilities and Equity | 266,668 | 83,343 | 69,769 | 66,033 | 54,754 | 75,659 | 105,236 | 52,388 | 573,156 | 1,347,006 |
All values are in US Dollars.
| (1) | Loans receivable on demand have been included under no maturity. |
|---|---|
| (2) | Deposits payable on demand and payable after notice have been included under no maturity. |
| --- | --- |
| (3) | Deposits totalling $30,852 million as at October 31, 2023, have a fixed maturity date; however, they can be<br>early redeemed (either fully or partially) by customers without penalty. These are classified as payable on a fixed date due to their stated contractual maturity date. |
| --- | --- |
| (4) | Presented based on their earliest maturity date. |
| --- | --- |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
| (Canadian in millions) | October 31, 2023 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 to 3<br>months | 3 to 6<br>months | 6 to 9<br>months | 9 to 12<br>months | 1 to 2<br>years | 2 to 5<br>years | Over 5<br>years | No<br>maturity | Total | |||||||||||
| Off-Balance Sheet Commitments | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** | **** |
| Commitments to extend credit (1) | 2,216 | 4,874 | 9,377 | 14,499 | 14,190 | 41,713 | 129,634 | 5,927 | - | 222,430 | |||||||||
| Letters of credit (2) | 1,641 | 5,088 | 5,739 | 5,397 | 6,065 | 3,663 | 3,778 | 48 | - | 31,419 | |||||||||
| Backstop liquidity facilities | 212 | 241 | 666 | 2,207 | 2,039 | 3,951 | 8,643 | 846 | - | 18,805 | |||||||||
| Other commitments (3) | 46 | 91 | 106 | 101 | 155 | 354 | 626 | 141 | - | 1,620 |
All values are in US Dollars.
| (1) | Commitments to extend credit exclude personal lines of credit and credit cards that are unconditionally cancellable at<br>BMO’s discretion. A large majority of these commitments expire without being drawn upon. As a result, the total contractual amounts may not be representative of the funding likely to be required for these commitments. |
|---|---|
| (2) | Letters of credit can be drawn down at any time. These are classified based on their stated contractual maturities.<br> |
| --- | --- |
| (3) | Other commitments comprise purchase obligations and lease commitments for leases signed but not yet commenced.<br> |
| --- | --- |
| 44 BMO Financial Group First Quarter Report 2024 | |
| --- |
Glossary of Financial Terms
Adjusted Earnings and Measures
Management considers both reported and adjusted results to be useful in assessing underlying ongoing business performance, as set out in the Non-GAAP and Other Financial Measures section.
| • | Adjusted Revenue – calculated as revenue excluding the impact of certain non-recurring items, and adjusted net revenue is adjusted revenue, net of insurance claims,<br>commissions and changes in policy benefit liabilities (CCPB). Beginning the first quarter of 2023, we no longer report CCPB given the adoption and retrospective application of IFRS 17. |
|---|---|
| • | Adjusted Provision for Credit Losses – calculated as provision for credit losses excluding the impact of certain non-recurring items. |
| --- | --- |
| • | Adjusted Non-Interest Expense – calculated as non-interest expense excluding the impact of certain non-recurring items. |
| --- | --- |
| • | Adjusted Effective Tax Rate – calculated as adjusted provision for income taxes divided by adjusted income before provision for income taxes. |
| --- | --- |
| • | Adjusted Net Income – calculated as net income excluding the impact of certain non-recurring items. |
| --- | --- |
Allowance for Credit Losses represents an amount deemed appropriate by management to absorb credit-related losses on loans and acceptances and other credit instruments, in accordance with applicable accounting standards. Allowance on Performing Loans is maintained to cover impairment in the existing portfolio for loans that have not yet been individually identified as impaired. Allowance on Impaired Loans is maintained to reduce the carrying value of individually identified impaired loans to the expected recoverable amount.
Assets under Administration andAssets under Management refers to assets administered or managed by a financial institution that are beneficially owned by clients and therefore not reported on the Consolidate Balance Sheet of the administering or managing financial institution.
Asset-Backed Commercial Paper (ABCP) is a short-term investment. The commercial paper is backed by assets such as trade receivables and is generally used for short-term financing needs.
Average Annual Total Shareholder Return (TSR) represents the average annual total return earned on an investment in BMO common shares made at the beginning of a fixed period. The return includes the change in share price and assumes dividends received were reinvested in additional common shares.
Average Earning Assets represents the daily average balance of deposits at central banks, deposits with other banks, securities borrowed or purchased under resale agreements, securities, and loans over a one-year period.
Average Earning Assets, excluding Trading and InsuranceAssets represents the daily average balance of deposits with central banks, deposits with other banks, securities borrowed or purchased under
resale agreements, securities, and loans, over a one-year period. Average earning assets, excluding trading and insurance assets, exclude trading and insurance earning assets.
Average Net Loans and Acceptances is the daily or monthly average balance of loans and customers’ liability under acceptances, net of the allowance for credit losses, over a one-year period.
Bail-In Debtis senior unsecured debt subject to the Canadian Bail-In Regime. Bail-in debt includes senior unsecured debt issued directly by the bank on or after September 23, 2018, which has an original term greater than 400 days and is marketable, subject to certain exceptions. Some or all of this debt may be statutorily converted into common shares of the bank under the Bail-In Regime if the bank enters resolution.
Bankers’ Acceptances (BAs) are bills of exchange or negotiable instruments drawn by a borrower for payment at maturity and accepted by a bank. BAs constitute a guarantee of payment by the bank and can be traded in the money market. The bank earns a “stamping fee” for providing this guarantee.
Basis Point is one one-hundredth of a percentage point.
Collateralized Mortgage Obligations (CMOs) are debt securities with multiple tranches, issued by structured entities and collateralized by a pool of mortgages. Each tranche offers different terms, interest rates, and risks.
Common Equity Tier 1 (CET1) Capital comprises common shareholders’ equity, including applicable CSM, net of deductions for goodwill, intangible assets, pension assets, certain deferred tax assets and other items, which may include a portion of expected credit loss provisions.
Common Equity Tier 1 (CET1) Ratio is calculated as CET1 Capital, which comprises common shareholders’ equity, including applicable CSM, net of deductions for goodwill, intangible assets, pension assets, certain deferred tax assets and other items (which may include a portion of expected credit loss provisions), divided by risk-weighted assets. The CET1 Ratio is calculated in accordance with OSFI’s Capital Adequacy Requirements (CAR) Guideline.
Common Shareholders’ Equity is the most permanent form of capital. For regulatory capital purposes, common shareholders’ equity comprises common shareholders’ equity, net of capital deductions.
Contractual Service Margin (CSM) represents the unearned profit of a group of insurance contracts that we expect to recognize in the income statement as services provided.
Credit and Counterparty Risk is the potential for financial loss due to the failure of an obligor (i.e., a borrower, endorser, guarantor or counterparty) to repay a loan or honour another predetermined financial obligation.
Derivatives are contracts, requiring no initial or little investment, with a value that is derived from movements in underlying interest or foreign exchange rates, equity or commodity prices or other indices. Derivatives are used to transfer, modify or reduce current or expected risks from changes in rates and prices.
Dividend Payout Ratio represents common share dividends as a percentage of net income available to common shareholders. It is computed by dividing dividends per share by basic earnings per share. Adjusted dividend payout ratio is calculated in the same manner, using adjusted net income.
Dividend Yield represents dividends per common share divided by the closing share price.
Earnings per Share (EPS) is calculated by dividing net income attributable to bank shareholders, after deducting preferred share dividends and distributions on other equity instruments, by the average number of common shares outstanding. Adjusted EPS is calculated in the same manner, using adjusted net income attributable to bank shareholders. Diluted EPS, which is BMO’s basis for measuring performance, adjusts for possible conversions of financial instruments into common shares if those conversions would reduce EPS, and is more fully explained in Note 23 of the consolidated financial statements.
Earnings Sensitivity is a measure of the impact of potential changes in interest rates on the projected 12-month pre-tax net income from a portfolio of assets, liabilities and off-balance sheet positions in response to prescribed parallel interest rate movements, with interest rates floored at zero.
Economic Capital is an expression of the enterprise’s capital demand requirement relative to its view of the economic risks in its underlying business activities. It represents management’s estimation of the likely magnitude of economic losses that could occur should severely adverse situations arise. Economic capital is calculated for various types of risk, including credit, market (trading and non-trading), operational non-financial, business and insurance, based on a one-year time horizon using a defined confidence level.
Economic Value Sensitivity is a measure of the impact of potential changes in interest rates on the market value of a portfolio of assets, liabilities and off-balance sheet positions in response to prescribed parallel interest rate movements, with interest rates floored at zero.
Effective Tax Rate is calculated as provision for income taxes divided by income before provision for income taxes.
Efficiency Ratio (or Expense-to-Revenue Ratio) is a 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.
| BMO Financial Group First Quarter Report 2024 45 |
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Environmental and Social Risk is the potential for loss or harm directly or indirectly resulting from environmental and social factors that impact BMO or its customers, and BMO’s impact on the environment and society.
Fair Value is the amount of consideration that
would be agreed upon in an arm’s-length transaction between knowledgeable, willing parties who are under no compulsion to act in an orderly market transaction.
Forwards and Futures are contractual agreements to either buy or sell a specified amount of a currency, commodity, interest-rate-sensitive financial instrument or security at a specified price and date in the future. Forwards are customized contracts transacted in the over-the-counter market. Futures are transacted in standardized amounts on regulated exchanges and are subject to daily cash margin requirements.
Gross Impaired Loans and Acceptances (GIL) is calculated as the credit impaired balance of loans and customers’ liability under acceptances.
Guarantees and Standby Letters of Credit represent our obligation to make payments to third parties on behalf of a customer if the customer is unable to make the required payments or meet other contractual requirements.
Hedging is a risk management technique used to neutralize, manage or offset interest rate, foreign currency, equity, commodity or credit risk exposures arising from normal banking activities.
Impaired Loans are loans for which there is no longer a reasonable assurance of the timely collection of principal or interest.
Insurance Investment Results include net returns on insurance-related assets and the impact of the change in discount rates and financial assumptions on insurance contract liabilities.
Insurance Revenue, net of CCPB, is insurance revenue, net of insurance claims, commissions and changes in policy benefit liabilities (CCPB). Beginning the first quarter of 2023, we no longer report CCPB given the adoption and retrospective application of IFRS 17.
Insurance Risk is the potential for loss as a result of actual experience differing from that assumed when an insurance product was designed and priced, and comprises claims risk, policyholder behaviour risk and expense risk.
Insurance Service Results include insurance revenue, insurance service expenses and reinsurance results
Legal and Regulatory Risk is the potential for loss or harm resulting from a failure to comply with laws or satisfy contractual obligations or regulatory requirements. This includes the risk of failure to: comply with the law (in letter or in spirit) or maintain standards of care; implement legal or regulatory requirements; enforce or comply with contractual terms; assert non-contractual rights; effectively manage disputes; or act in a manner so as to maintain our reputation.
Leverage Exposures (LE) consist of on-balance sheet items and specified off-balance sheet items, net of specified adjustments.
Leverage Ratio reflects Tier 1 Capital divided by LE.
Liquidity and Funding Risk is the potential for loss if we are unable to meet our financial commitments in a timely manner at reasonable prices as they become due. Financial commitments include liabilities to depositors and suppliers, as well as lending, investment and pledging commitments.
Liquidity Coverage Ratio (LCR) is a Basel III regulatory metric calculated as the ratio of high-quality liquid assets to total net stressed cash outflows over a thirty-day period under a stress scenario prescribed by OSFI.
Market Risk is the potential for adverse changes in the value of our assets and liabilities resulting from changes in market variables such as interest rates, foreign exchange rates, equity and commodity prices and their implied volatilities, and credit spreads, and includes the risk of credit migration and default in our trading book.
Mark-to-Market represents the valuation of financial instruments at fair value (as defined above) as of the balance sheet date.
Master Netting Agreements are agreements between two parties designed to reduce the credit risk of multiple derivative transactions through the provision of a legal right to offset exposure in the event of default.
Model Risk is the potential for adverse outcomes resulting from decisions that are based on incorrect or misused model results. These adverse outcomes can include financial loss, poor business decision-making and damage to reputation.
Net Interest Income comprises earnings on assets, such as loans and securities, including interest and certain dividend income, less interest expense paid on liabilities, such as deposits. Net interest income, excluding trading, is presented on a basis that excludes trading-related interest income.
Net InterestMargin is the ratio of net interest income to average earning assets, expressed as a percentage or in basis points. Net interest margin, excluding trading net interest income and trading and insurance average assets is computed in the same manner, excluding trading-related interest income, and trading and insurance earning assets.
Net Non-Interest Revenue is non-interest revenue, net of insurance claims, commissions and changes in policy benefit liabilities (CCPB). Beginning the first quarter of 2023, we no longer report CCPB given the adoption and retrospective and application of IFRS 17.
Net Promoter Score (NPS) is the percentage of customers surveyed who would recommend BMO to a friend or colleague. Data is gathered in a survey that uses a 0–10 point scale. “Detractors” are defined as those who provide a rating of 0–6, “Passives” are defined as those who provide a rating of 7 or 8, and “Promoters” are defined as those who provide a rating of 9 or 10. The score is calculated by
subtracting the percentage of “Detractors” from the percentage of “Promoters”.
NetStable Funding Ratio (NSFR) is a regulatory liquidity measure that assesses the stability of a bank’s funding profile in relation to the liquidity value of its assets and is calculated in accordance with OSFI’s Liquidity Adequacy Requirements Guideline.
Notional Amount refers to the principal amount used to calculate interest and other payments under derivative contracts. The principal amount does not change hands under the terms of a derivative contract, except in the case of cross-currency swaps.
Off-Balance Sheet Financial Instruments consist of a variety of financial arrangements offered to clients, which include credit derivatives, written put options, backstop liquidity facilities, standby letters of credit, performance guarantees, credit enhancements, commitments to extend credit, securities lending, documentary and commercial letters of credit, and other indemnifications.
Office of the Superintendent of Financial Institutions (OSFI) is the government agency responsible for regulating banks, insurance companies, trust companies, loan companies and pension plans in Canada.
Operating Leverage is the difference between the growth rates of revenue and non-interest expense. Adjusted operating leverage is the difference between the growth rates of adjusted revenue and adjusted non-interest expense.
Operating Leverage, net of CCPB, is the difference between the growth rates of revenue, net of CCPB (net revenue), and non-interest expense. Adjusted net operating leverage is the difference between the growth rates of adjusted net revenue and adjusted non-interest expense. The bank evaluates performance using adjusted revenue, net of CCPB. Beginning the first quarter of 2023, we no longer report CCPB given the adoption and retrospective application of IFRS 17.
Operational Non-Financial Risk (ONFR) encompasses a wide range of non-financial risks, including those related to business change, customer trust, reputation and data that can result in financial loss. These losses can stem from inadequate or failed internal processes or systems, human error or misconduct, and external events that may directly or indirectly impact the fair value of assets we hold in our credit or investment portfolios. Examples of these risks include cyber and cloud security risk, technology risk, fraud risk and business continuity risk, but exclude legal and regulatory risk, credit risk, market risk, liquidity risk and other types of financial risk.
Options are contractual agreements that convey to the purchaser the right but not the obligation to either buy or sell a specified amount of a currency, commodity, interest-rate-sensitive financial instrument or security at a fixed future date or at any time within a fixed future period.
Pre-Provision, Pre-Tax Earnings (PPPT) is calculated as income before the provision for income
| 46 BMO Financial Group First Quarter Report 2024 |
|---|
taxes and provision for (recovery of) credit losses. We use PPPT on both a reported and an adjusted basis to assess our ability to generate sustained earnings growth excluding credit losses, which are impacted by the cyclical nature of a credit cycle.
Provision for Credit Losses (PCL) is a charge to income that represents an amount deemed adequate by management to fully provide for impairment in a portfolio of loans and acceptances and other credit instruments, given the composition of the portfolio, the probability of default, the economic outlook and the allowance for credit losses already established. PCL can comprise both a provision for credit losses on impaired loans and a provision for credit losses on performing loans.
Provision for CreditLosses (PCL) Ratio is calculated as the annualized total provision for credit losses as a percentage of average net loans and acceptances.
PurchasedCredit Impaired (PCI) Loans are loans for which the timely collection of interest and principal is no longer reasonably assured. These loans are credit-impaired upon initial recognition.
Reputation Risk is the potential for loss or harm to the BMO brand. It can arise even if other risks are managed effectively.
Return on Equity or Return on Common Shareholders’ Equity (ROE) is calculated as net income, less preferred dividends and distributions on other equity instruments, as a percentage of average common shareholders’ equity. Common shareholders’ equity comprises common share capital, contributed surplus, accumulated other comprehensive income (loss) and retained earnings. Adjusted ROE is calculated using adjusted net income rather than net income.
Return on Tangible Common Equity (ROTCE) is calculated as net income available to common shareholders, adjusted for the amortization of acquisition-related intangible assets, as a percentage of average tangible common equity. Adjusted ROTCE is calculated using adjusted net income rather than net income.
Risk-Weighted Assets (RWA) are defined as on-balance sheet and off-balance sheet exposures that are risk-weighted based on guidelines established by OSFI. The measure is used for capital management and regulatory reporting purposes.
SecuritiesBorrowed or Purchased under Resale Agreements are low-cost, low-risk instruments, often supported by the pledge of cash collateral, which arise from transactions that involve the borrowing or purchasing of securities.
Securities Lent or Sold under Repurchase Agreements are low-cost, low-risk liabilities, often supported by cash collateral, which arise from transactions that involve the lending or selling of securities.
Securitization is the practice of selling pools of contractual debts, such as residential mortgages, auto loans and credit card debt obligations, to third parties or trusts, which then typically issue a series of asset-backed securities to investors to fund the purchase of the contractual debts.
Strategic Risk is the potential for loss due to fluctuations in the external business environment and/or failure to properly respond to these fluctuations due to inaction, ineffective strategies or poor implementation of strategies.
Stress Tests are used to determine the potential impact of low-frequency, high-severity events on the trading and underwriting portfolios. The portfolios are measured daily against a variety of hypothetical and historical event scenarios. Scenarios are continuously refined to reflect the latest market conditions and portfolio risk exposures.
Structured Entities (SEs) include entities for which voting or similar rights are not the dominant factor in determining control of the entity. BMO is required to consolidate a SE if it controls the entity by having power over the entity, exposure to variable returns as a result of its involvement and the ability to exercise power to affect the amount of those returns.
Structural (Non-Trading) Market Risk comprises interest rate risk arising from banking activities (loans and deposits) and foreign exchange risk arising from foreign currency operations and exposures.
Swaps are contractual agreements between two parties to exchange a series of cash flows. The various swap agreements that BMO enters into are as follows:
| • | Commodity swaps – counterparties generally exchange fixed-rate and floating-rate payments based on a notional value of a single commodity. |
|---|---|
| • | Credit default swaps – one counterparty pays the other a fee in exchange for an agreement by the other counterparty to make a payment if a credit event occurs, such as bankruptcy or failure to pay. |
| --- | --- |
| • | Cross-currency interest rate swaps – fixed-rate and floating-rate interest payments and principal amounts are exchanged in different currencies. |
| --- | --- |
| • | Cross-currency swaps – fixed-rate interest payments and principal amounts are exchanged in different currencies. |
| --- | --- |
| • | Equity swaps – counterparties exchange the return on an equity security or a group of equity securities for a return based on a fixed or floating interest rate or the return on another equity security or<br>group of equity securities. |
| --- | --- |
| • | Interest rate swaps – counterparties generally exchange fixed-rate and floating-rate interest payments based on a notional value in a single currency. |
| --- | --- |
| • | Total return swaps – one counterparty agrees to pay or receive from the other cash amounts based on changes in the value of a reference asset or group of assets, including any returns such as interest earned<br>on these assets, in exchange for amounts that are based on prevailing market funding rates. |
| --- | --- |
Tangible Common Equity is calculated as common shareholders’ equity, less goodwill and acquisition-related intangible assets, net of related deferred tax liabilities.
Taxable Equivalent Basis (teb): Operating segment revenue is presented on a taxable equivalent basis (teb). Revenue and the provision for income taxes in BMO Capital Markets and U.S. P&C are increased on certain tax-exempt securities to an equivalent pre-tax basis to facilitate comparisons of income between taxable and tax-exempt sources. The offset to operating segment teb adjustments is reflected in Corporate Services revenue and provision for (recovery of) income taxes.
Tier 1 Capital comprises CET1 Capital and Additional Tier 1 (AT1) Capital. AT1 Capital consists of preferred shares and other AT1 Capital instruments, less regulatory deductions.
Tier 1 Capital Ratio reflects Tier 1 Capital divided by risk-weighted assets.
Tier 2 Capital comprises subordinated debentures and may include certain credit loss provisions, less regulatory deductions.
Total Capital includes Tier 1 and Tier 2 Capital.
Total CapitalRatio reflects Total Capital divided by risk-weighted assets.
Total Loss Absorbing Capacity (TLAC) comprises Total Capital and senior unsecured debt subject to the Canadian Bail-In Regime, less regulatory deductions.
Total Loss Absorbing Capacity (TLAC) Ratioreflects TLAC divided by risk-weighted assets.
Total Loss Absorbing Capacity (TLAC) Leverage Ratio reflects TLAC divided by leverage exposures.
Total Shareholder Return: The annual total shareholder return (TSR) represents the average annual total return earned on an investment in BMO common shares made at the beginning of the respective period. The return includes the change in share price and assumes dividends received were reinvested in additional common shares.
Trading and Underwriting Market Risk is associated with buying and selling financial products in the course of meeting customer requirements, including market-making and related financing activities, and assisting clients to raise funds by way of securities issuance.
Trading-Related Revenue includes net interest income and non-interest revenue earned from on-balance sheet and off-balance sheet positions undertaken for trading purposes. The management of these positions typically includes marking them to market on a daily basis. Trading-related revenue also includes income (expense) and gains (losses) from both on-balance sheet instruments and interest rate, foreign exchange (including spot positions), equity, commodity and credit contracts.
Value-at-Risk (VaR) measures the maximum loss likely to be experienced in the trading and underwriting portfolios, measured at a 99% confidence level over a one-day holding period. VaR is calculated for specific classes of risk in BMO’s trading and underwriting activities related to interest rates, foreign exchange rates, credit spreads, equity and commodity prices and their implied volatilities.
| BMO Financial Group First Quarter Report 2024 47 |
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Investor and Media Information
Investor Presentation Materials
Interested parties are invited to visit BMO’s website at www.bmo.com/investorrelations to review the 2023 Annual MD&A and audited annual consolidated financial statements, quarterly presentation materials and supplementary financial and regulatory information package.
Quarterly Conference Call and Webcast Presentations
Interested parties are also invited to listen to our quarterly conference call on Tuesday, February 27, 2024, at 8.15 a.m. (ET). The call may be accessed by telephone at 416-340-2217 (from within Toronto) or 1-800-806-5484 (toll-free outside Toronto), entering Passcode: 9768240#. A replay of the conference call can be accessed until March 29, 2024, by calling 905-694-9451 (from within Toronto) or 1-800-408-3053 (toll-free outside Toronto) and entering Passcode: 3927329#.
A live webcast of the call can be accessed on our website at www.bmo.com/investorrelations. A replay can also be accessed on the website.
Media Relations Contact
Jeff Roman, Director, Enterprise Media Relations, jeff.roman@bmo.com, 416-867-3996
Investor Relations Contacts
Christine Viau, Head, Investor Relations, christine.viau@bmo.com, 416-867-6956
Bill Anderson, Director, Investor Relations, bill2.anderson@bmo.com, 416-867-7834
| Shareholder Dividend Reinvestment and Share Purchase Plan (DRIP)<br><br><br>Common shareholders may elect to have their cash dividends reinvested in common shares of the bank, in accordance with the bank’s Shareholder Dividend Reinvestment<br>and Share Purchase Plan. More information about the Plan and how to enrol can be found at www.bmo.com/investorrelations.<br> <br><br><br><br>For dividend information, change in shareholder address or to advise of duplicate mailings, please contact<br><br><br>Computershare Trust Company of Canada<br> <br>100 University Avenue, 8th Floor<br><br><br>Toronto, Ontario M5J 2Y1<br> <br>Telephone: 1-800-340-5021 (Canada and the United States)<br> <br>Telephone: (514) 982-7800 (international)<br> <br>Fax:<br>1-888-453-0330 (Canada and the United States)<br><br><br>Fax: (416) 263-9394 (international)<br> <br>E-mail: service@computershare.com | For other shareholder information, please contact<br><br><br>Bank of Montreal<br> <br>Shareholder Services<br><br><br>Corporate Secretary’s Department<br> <br>One First Canadian Place, 21st Floor<br><br><br>Toronto, Ontario M5X 1A1<br> <br>Telephone: (416)<br>867-6785<br> <br>E-mail: corp.secretary@bmo.com<br><br><br><br> <br>For further information on this document, please contact<br><br><br>Bank of Montreal<br> <br>Investor Relations Department<br><br><br>P.O. Box 1, One First Canadian Place, 37th Floor<br> <br>Toronto, Ontario M5X 1A1<br><br><br><br> <br>To review financial results and regulatory filings and disclosures online,please visit BMO’s website at www.bmo.com/investorrelations. |
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BMO’s 2023 Annual MD&A, audited consolidated financial statements, annual information form and annual report on Form 40-F (filed with the U.S. Securities and Exchange Commission) are available online at www.bmo.com/investorrelations and at www.sedarplus.ca. Printed copies of the bank’s complete 2023 audited consolidated financial statements are available free of charge upon request at 416-867-6785 or corp.secretary@bmo.com.
Annual Meeting 2024
The next Annual Meeting of Shareholders will be held on Tuesday, April 16, 2024.
^®^ Registered trademark of Bank of Montreal
| 70 BMO Financial Group First Quarter Report 2024 |
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EX-99.2
Interim Consolidated Financial Statements
Consolidated Statement of Income
| (Unaudited) (Canadian in millions, except as noted) | |||||||
|---|---|---|---|---|---|---|---|
| October 31,<br>2023 | January 31,<br>2023 | ||||||
| Interest, Dividend and Fee Income | |||||||
| Loans | 11,389 | $ | 11,277 | $ | 8,194 | ||
| Securities (Note 2) | 3,439 | 3,260 | 2,138 | ||||
| Deposits with banks | 1,026 | 1,063 | 1,039 | ||||
| 15,854 | 15,600 | 11,371 | |||||
| Interest Expense | |||||||
| Deposits | 8,384 | 7,900 | 5,283 | ||||
| Subordinated debt | 111 | 117 | 101 | ||||
| Other liabilities | 2,638 | 2,642 | 1,966 | ||||
| 11,133 | 10,659 | 7,350 | |||||
| Net Interest Income | 4,721 | 4,941 | 4,021 | ||||
| Non-Interest Revenue | |||||||
| Securities commissions and fees | 269 | 251 | 263 | ||||
| Deposit and payment service charges | 396 | 402 | 316 | ||||
| Trading revenues (losses) | 460 | 327 | (1,283 | ) | |||
| Lending fees | 385 | 395 | 382 | ||||
| Card fees | 214 | 254 | 147 | ||||
| Investment management and custodial fees | 483 | 473 | 439 | ||||
| Mutual fund revenues | 315 | 308 | 313 | ||||
| Underwriting and advisory fees | 344 | 377 | 208 | ||||
| Securities gains, other than trading (Note 2) | 13 | 34 | 75 | ||||
| Foreign exchange gains, other than trading | 64 | 55 | 53 | ||||
| Insurance service results (Note 1) | 99 | 104 | 88 | ||||
| Insurance investment results (Note 1) | (9 | ) | 131 | (127 | ) | ||
| Share of profit in associates and joint ventures | 38 | 52 | 69 | ||||
| Other revenues (losses) | (120 | ) | 215 | 135 | |||
| 2,951 | 3,378 | 1,078 | |||||
| Total Revenue | 7,672 | 8,319 | 5,099 | ||||
| Provision for Credit Losses (Note 3) | 627 | 446 | 217 | ||||
| Non-Interest Expense | |||||||
| Employee compensation | 2,870 | 2,895 | 2,552 | ||||
| Premises and equipment | 976 | 1,444 | 953 | ||||
| Amortization of intangible assets | 279 | 284 | 162 | ||||
| Advertising and business development | 191 | 260 | 139 | ||||
| Communications | 101 | 108 | 74 | ||||
| Professional fees | 207 | 320 | 229 | ||||
| Other | 765 | 368 | 273 | ||||
| 5,389 | 5,679 | 4,382 | |||||
| Income Before Provision for Income Taxes | 1,656 | 2,194 | 500 | ||||
| Provision for income taxes (Note 10) | 364 | 484 | 367 | ||||
| Net Income | 1,292 | $ | 1,710 | $ | 133 | ||
| Attributable to: | |||||||
| Bank shareholders | 1,290 | 1,703 | 133 | ||||
| Non-controlling interest in subsidiaries | 2 | 7 | - | ||||
| Net Income | 1,292 | $ | 1,710 | $ | 133 | ||
| Earnings Per Common Share (Canadian ) (Note 9) | |||||||
| Basic | 1.73 | $ | 2.19 | $ | 0.14 | ||
| Diluted | 1.73 | 2.19 | 0.14 | ||||
| Dividends per common share | 1.51 | 1.47 | 1.43 |
All values are in US Dollars.
The accompanying notes are an integral part of these interim consolidated financial statements.
Certain comparative figures have been reclassified to conform with the current period’s presentation and for changes in accounting policy (Note 1).
| 48<br> BMO Financial Group First Quarter Report 2024 |
|---|
Interim Consolidated Financial Statements
Consolidated Statement of Comprehensive Income
| (Unaudited) (Canadian $ in millions) | For the three months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| January 31,<br>2024 | October 31,<br>2023 | January 31,<br>2023 | |||||||
| Net Income | $ | 1,292 | $ | 1,710 | $ | 133 | |||
| Other Comprehensive Income, net of taxes | |||||||||
| Items that may subsequently be reclassified to net income | |||||||||
| Net change in unrealized gains <br>(losses)<br>on fair value through OCI debt securities | |||||||||
| Unrealized gains (losses) on fair value through OCI debt securities arising during the period (1) | 271 | (243 | ) | 142 | |||||
| Reclassification to earnings of (gains) during the period (2) | (5 | ) | (4 | ) | (6 | ) | |||
| 266 | (247 | ) | 136 | ||||||
| Net change in unrealized <br>gains<br>(losses) on cash flow hedges | |||||||||
| Gains (losses) on derivatives designated as cash flow hedges arising during the period (3) | 1,914 | (550 | ) | 1,124 | |||||
| Reclassification to earnings of losses on derivatives designated as cash flow hedges during the period (4) | 389 | 378 | 235 | ||||||
| 2,303 | (172 | ) | 1,359 | ||||||
| Net gains (losses) on translation of net foreign operations | |||||||||
| Unrealized gains (losses) on translation of net foreign operations | (1,880 | ) | 2,810 | (850 | ) | ||||
| Unrealized gains (losses) on hedges of net foreign operations (5) | 327 | (484 | ) | 23 | |||||
| (1,553 | ) | 2,326 | (827 | ) | |||||
| Items that will not be reclassified to net income | |||||||||
| Net unrealized gains on fair value through OCI equity securities arising during the period (6) | 8 | - | - | ||||||
| Net gains (losses) on remeasurement of pension and other employee future benefit plans (7) | (91 | ) | 10 | (64 | ) | ||||
| Net gains (losses) on remeasurement of own credit risk on financial liabilities designated at fair value (8) | (427 | ) | 34 | (410 | ) | ||||
| (510 | ) | 44 | (474 | ) | |||||
| Other Comprehensive Income, net of taxes | 506 | 1,951 | 194 | ||||||
| Total Comprehensive Income | $ | 1,798 | $ | 3,661 | $ | 327 | |||
| Attributable to: | |||||||||
| Bank shareholders | 1,796 | 3,654 | 327 | ||||||
| Non-controlling<br> interest in subsidiaries | 2 | 7 | - | ||||||
| Total Comprehensive Income | $ | 1,798 | $ | 3,661 | $ | 327 | |||
| (1) | Net of income tax (provision) recovery of $(99) million, $90 million, $(48) million for the three months ended. | ||||||||
| --- | --- | ||||||||
| (2) | Net of income tax provision of $2 million, $nil million, $2 million for the three months ended. | ||||||||
| --- | --- | ||||||||
| (3) | Net of income tax (provision) recovery of $(729) million, $209 million, $(317) million for the three months ended. | ||||||||
| --- | --- | ||||||||
| (4) | Net of income tax (recovery) of $(147) million, $(143) million, $(104) million for the three months ended. | ||||||||
| --- | --- | ||||||||
| (5) | Net of income tax (provision) recovery of $(126)<br><br>million, $186 million, $(59) million for the three months ended. | ||||||||
| --- | --- | ||||||||
| (6) | Net of income tax (provision) of $(3) million, $<br>nil<br>million, $nil million for the three months ended. | ||||||||
| --- | --- | ||||||||
| (7) | Net of income tax (provision) recovery of $35 million, $(5) million, $2 million for the three months ended. | ||||||||
| --- | --- | ||||||||
| (8) | Net of income tax (provision) recovery of $163 million, $(11) million, and $139 million for the three months ended. | ||||||||
| --- | --- |
The accompanying notes are an integral part of these interim consolidated financial statements.
Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
| BMO Financial Group First Quarter Report 2024 <br>49 |
|---|
Interim Consolidated Financial Statements
Consolidated Balance Sheet
| (Unaudited) (Canadian $ in millions) | As at | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| January 31,<br>2024 | October 31,<br>2023 | January 31,<br>2023 | |||||||
| Assets | |||||||||
| Cash and Cash Equivalents | $ | 74,659 | $ | 77,934 | $ | 103,342 | |||
| Interest Bearing Deposits with Banks | 4,203 | 4,109 | 5,051 | ||||||
| Securities (Note 2) | |||||||||
| Trading | 138,034 | 123,718 | 113,805 | ||||||
| Fair value through profit or loss | 18,047 | 16,733 | 14,711 | ||||||
| Fair value through other comprehensive income | 69,493 | 62,819 | 48,546 | ||||||
| Debt securities at amortized cost | 121,127 | 116,814 | 105,784 | ||||||
| Investments in associates and joint ventures | 1,507 | 1,461 | 1,411 | ||||||
| 348,208 | 321,545 | 284,257 | |||||||
| Securities Borrowed or Purchased Under Resale Agreements | 115,600 | 115,662 | 118,531 | ||||||
| Loans (Note 3) | |||||||||
| Residential mortgages | 176,550 | 177,250 | 151,294 | ||||||
| Consumer instalment and other personal | 91,976 | 104,042 | 84,184 | ||||||
| Credit cards | 12,522 | 12,294 | 9,841 | ||||||
| Business and government | 364,761 | 366,886 | 304,081 | ||||||
| 645,809 | 660,472 | 549,400 | |||||||
| Allowance for credit losses (Note 3) | (3,756 | ) | (3,807 | ) | (2,638 | ) | |||
| 642,053 | 656,665 | 546,762 | |||||||
| Other Assets | |||||||||
| Derivative instruments | 28,746 | 39,976 | 33,294 | ||||||
| Customers’ liability under acceptances | 7,123 | 8,111 | 13,636 | ||||||
| Premises and equipment | 6,205 | 6,241 | 4,865 | ||||||
| Goodwill | 16,182 | 16,728 | 5,260 | ||||||
| Intangible assets | 5,001 | 5,216 | 2,277 | ||||||
| Current tax assets | 1,738 | 2,052 | 1,815 | ||||||
| Deferred tax assets | 3,042 | 3,420 | 1,802 | ||||||
| Other | 72,002 | 89,347 | 66,094 | ||||||
| 140,039 | 171,091 | 129,043 | |||||||
| Total Assets | $ | 1,324,762 | $ | 1,347,006 | $ | 1,186,986 | |||
| Liabilities and Equity | |||||||||
| Deposits (Note 4) | $ | 914,138 | $ | 910,879 | $ | 787,327 | |||
| Other Liabilities | |||||||||
| Derivative instruments | 38,265 | 50,193 | 44,090 | ||||||
| Acceptances | 7,123 | 8,111 | 13,636 | ||||||
| Securities sold but not yet purchased | 43,466 | 43,774 | 44,531 | ||||||
| Securities lent or sold under repurchase agreements | 108,379 | 106,108 | 101,484 | ||||||
| Securitization and structured entities’ liabilities | 29,663 | 27,094 | 26,336 | ||||||
| Other | 98,233 | 116,496 | 87,600 | ||||||
| 325,129 | 351,776 | 317,677 | |||||||
| Subordinated Debt | 8,216 | 8,228 | 8,156 | ||||||
| Total Liabilities | $ | 1,247,483 | $ | 1,270,883 | $ | 1,113,160 | |||
| Equity | |||||||||
| Preferred shares and other equity instruments (Note 5) | 6,958 | 6,958 | 6,958 | ||||||
| Common shares (Note 5) | 23,412 | 22,941 | 21,637 | ||||||
| Contributed surplus | 351 | 328 | 335 | ||||||
| Retained earnings | 44,161 | 44,006 | 43,150 | ||||||
| Accumulated other comprehensive income | 2,368 | 1,862 | 1,746 | ||||||
| Total shareholders’ equity | 77,250 | 76,095 | 73,826 | ||||||
| Non-controlling<br> interest in subsidiaries (Note 5) | 29 | 28 | - | ||||||
| Total Equity | 77,279 | 76,123 | 73,826 | ||||||
| Total Liabilities and Equity | $ | 1,324,762 | $ | 1,347,006 | $ | 1,186,986 |
The accompanying notes are an integral part of these interim consolidated financial statements.
Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
| 50<br> BMO Financial Group First Quarter Report 2024 |
|---|
Interim Consolidated Financial Statements
Consolidated Statement of Changes in Equity
| (Unaudited) (Canadian $ in millions) | For the three months ended | |||||
|---|---|---|---|---|---|---|
| January 31,<br>2024 | January 31,<br>2023 | |||||
| Preferred Shares and Other Equity Instruments (Note 5) | ||||||
| Balance at beginning of period | $ | 6,958 | $ | 6,308 | ||
| Issued during the period | - | 650 | ||||
| Balance at End of Period | 6,958 | 6,958 | ||||
| Common Shares (Note 5) | ||||||
| Balance at beginning of period | 22,941 | 17,744 | ||||
| Issued under the Shareholder Dividend Reinvestment and Share Purchase Plan | 439 | 346 | ||||
| Issued under the Stock Option Plan | 33 | 23 | ||||
| Treasury shares sold (purchased) | (1 | ) | 11 | |||
| Issued to align capital position with increased regulatory requirements as announced by OSFI | - | 3,360 | ||||
| Issued for the acquisition of Radicle Group Inc. | - | 153 | ||||
| Balance at End of Period | 23,412 | 21,637 | ||||
| Contributed Surplus | ||||||
| Balance at beginning of period | 328 | 317 | ||||
| Stock option expense, net of options exercised | 12 | 14 | ||||
| Net premium on sale of treasury shares | 11 | 2 | ||||
| Other | - | 2 | ||||
| Balance at End of Period | 351 | 335 | ||||
| Retained Earnings | ||||||
| Balance at beginning of period | 44,006 | 45,117 | ||||
| Impact from accounting policy changes (Note 1) | - | (974 | ) | |||
| Net income attributable to bank shareholders | 1,290 | 133 | ||||
| Dividends on preferred shares and distributions payable on other equity instruments | (40 | ) | (38 | ) | ||
| Dividends on common shares | (1,095 | ) | (1,015 | ) | ||
| Equity issue expense and premium paid on redemption of preferred shares | - | (73 | ) | |||
| Balance at End of Period | 44,161 | 43,150 | ||||
| Accumulated Other Comprehensive (Loss) on Fair Value through OCI Securities, net of taxes | ||||||
| Balance at beginning of period | (464 | ) | (359 | ) | ||
| Unrealized <br>gains<br> on fair value through OCI debt securities arising during the period | 271 | 142 | ||||
| Unrealized gains on fair value through OCI equity securities arising during the period | 8 | - | ||||
| Reclassification to earnings of (gains) during the period | (5 | ) | (6 | ) | ||
| Balance at End of Period | (190 | ) | (223 | ) | ||
| Accumulated Other Comprehensive (Loss) on Cash Flow Hedges, net of taxes | ||||||
| Balance at beginning of period | (5,448 | ) | (5,129 | ) | ||
| Gains<br> on derivatives designated as cash flow hedges arising during the period | 1,914 | 1,124 | ||||
| Reclassification to earnings of losses on derivatives designated as cash flow hedges during the period | 389 | 235 | ||||
| Balance at End of Period | (3,145 | ) | (3,770 | ) | ||
| Accumulated Other Comprehensive Income on Translation of Net Foreign Operations, net of taxes | ||||||
| Balance at beginning of period | 6,194 | 5,168 | ||||
| Unrealized <br>(losses)<br> on translation of net foreign operations | (1,880 | ) | (850 | ) | ||
| Unrealized <br>gains<br> on hedges of net foreign operations | 327 | 23 | ||||
| Balance at End of Period | 4,641 | 4,341 | ||||
| Accumulated Other Comprehensive Income on Pension and Other Employee Future Benefit Plans, net of taxes | ||||||
| Balance at beginning of period | 943 | 944 | ||||
| (Losses) on remeasurement of pension and other employee future benefit plans | (91 | ) | (64 | ) | ||
| Balance at End of Period | 852 | 880 | ||||
| Accumulated Other Comprehensive Income on Own Credit Risk on Financial Liabilities Designated at Fair Value, net of taxes | ||||||
| Balance at beginning of period | 637 | 928 | ||||
| (Losses<br>) on remeasurement of own credit risk on financial liabilities designated at fair value | (427 | ) | (410 | ) | ||
| Balance at End of Period | 210 | 518 | ||||
| Total Accumulated Other Comprehensive Income | 2,368 | 1,746 | ||||
| Total Shareholders’ Equity | 77,250 | 73,826 | ||||
| Non-Controlling<br> Interest in Subsidiaries (Note 5) | ||||||
| Balance at beginning of period | 28 | - | ||||
| Net income attributable to <br>non-controlling<br> interest in subsidiaries | 2 | - | ||||
| Other | (1 | ) | - | |||
| Balance at End of Period | 29 | - | ||||
| Total Equity | $ | 77,279 | $ | 73,826 |
The accompanying notes are an integral part of these interim consolidated financial statements.
Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
| BMO Financial Group First Quarter Report 2024 <br>51 |
|---|
Interim Consolidated Financial Statements
Consolidated Statement of Cash Flows
| (Unaudited) (Canadian $ in millions, except as noted) | For the three months ended | |||||
|---|---|---|---|---|---|---|
| January 31,<br>2024 | January 31,<br>2023 | |||||
| Cash Flows from Operating Activities | ||||||
| Net Income | $ | 1,292 | $ | 133 | ||
| Adjustments to determine net cash flows provided by operating activities: | ||||||
| Securities (gains), other than trading (Note 2) | (13 | ) | (75 | ) | ||
| Depreciation of premises and equipment | 244 | 203 | ||||
| Depreciation of other assets | 9 | 19 | ||||
| Amortization of intangible assets | 279 | 162 | ||||
| Provision for credit losses (Note 3) | 627 | 217 | ||||
| Deferred taxes | 112 | (92 | ) | |||
| Changes in operating assets and liabilities: | ||||||
| Trading securities | (17,075 | ) | (6,446 | ) | ||
| Derivative asset | 14,927 | 17,687 | ||||
| Derivative liability | (13,948 | ) | (15,995 | ) | ||
| Current income taxes | 327 | (680 | ) | |||
| Accrued interest receivable and payable | 412 | 935 | ||||
| Other items and accruals, net | (449 | ) | 7,245 | |||
| Deposits | 21,914 | 17,486 | ||||
| Loans | 3,673 | (215 | ) | |||
| Securities sold but not yet purchased | 598 | 7,268 | ||||
| Securities lent or sold under repurchase agreements | 4,659 | (1,071 | ) | |||
| Securities borrowed or purchased under resale agreements | (2,136 | ) | (6,405 | ) | ||
| Securitization and structured entities’ liabilities | 2,857 | (552 | ) | |||
| Net Cash Provided by Operating Activities | 18,309 | 19,824 | ||||
| Cash Flows from Financing Activities | ||||||
| Net (decrease) in liabilities of subsidiaries | (4,335 | ) | - | |||
| Proceeds from issuance of covered bonds | - | 1,636 | ||||
| Redemption/buyback of covered bonds | (2,327 | ) | (2,168 | ) | ||
| Proceeds from issuance of preferred shares, net of issuance costs (Note 5) | - | 648 | ||||
| Net proceeds from issuance of common shares (Note 5) | 21 | 3,298 | ||||
| Net proceeds from the sale (purchase) of treasury shares | (1 | ) | 11 | |||
| Cash dividends and distributions paid | (745 | ) | (671 | ) | ||
| Repayment of lease liabilities | (92 | ) | (71 | ) | ||
| Net Cash Provided by (Used in) Financing Activities | (7,479 | ) | 2,683 | |||
| Cash Flows from Investing Activities | ||||||
| Net (increase) decrease in interest bearing deposits with banks | (203 | ) | 546 | |||
| Purchases of securities, other than trading | (24,301 | ) | (15,427 | ) | ||
| Maturities of securities, other than trading | 7,089 | 4,679 | ||||
| Proceeds from sales of securities, other than trading | 5,189 | 4,529 | ||||
| Premises and equipment – net (purchases) | (232 | ) | (174 | ) | ||
| Purchased and developed software – net (purchases) | (160 | ) | (193 | ) | ||
| Acquisition of Radicle Group Inc. | - | (42 | ) | |||
| Net Cash (Used in) Investing Activities | (12,618 | ) | (6,082 | ) | ||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | (1,487 | ) | (549 | ) | ||
| Net increase (decrease) in Cash and Cash Equivalents | (3,275 | ) | 15,876 | |||
| Cash and Cash Equivalents at Beginning of Period | 77,934 | 87,466 | ||||
| Cash and Cash Equivalents at End of Period | $ | 74,659 | $ | 103,342 | ||
| Supplemental Disclosure of Cash Flow Information | ||||||
| Net cash provided by operating activities includes: | ||||||
| Interest paid in the period (1) | $ | 10,673 | $ | 6,145 | ||
| Income taxes paid in the period | $ | 419 | $ | 1,326 | ||
| Interest received in the period | $ | 15,325 | $ | 10,755 | ||
| Dividends received in the period | $ | 549 | $ | 451 | ||
| (1) | Includes dividends paid on securities sold but not yet purchased. | |||||
| --- | --- |
The accompanying notes are an integral part of these interim consolidated financial statements.
Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
| 52<br> BMO Financial Group First Quarter Report 2024 |
|---|
Notes to Interim Consolidated Financial Statements
January 31, 2024 (Unaudited)
Note 1: Basis of Presentation
Bank of Montreal (the bank or BMO) is a chartered bank under the Bank Act (Canada) and is a public company incorporated in Canada. We are a highly diversified financial services company, providing a broad range of personal and commercial banking, wealth management and investment banking products and services. The bank’s head office is at 129 rue Saint Jacques, Montreal, Quebec. Our executive offices are at 100 King Street West, 1 First Canadian Place, Toronto, Ontario. Our common shares are listed on the Toronto Stock Exchange (TSX) and the New York Stock Exchange.
These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting as issued by the International Accounting Standards Board (IASB) using the same accounting policies as disclosed in our annual consolidated financial statements for the year ended October 31, 2023, except as outlined below. These condensed interim consolidated financial statements should be read in conjunction with the notes to our annual consolidated financial statements for the year ended October 31, 2023. We also comply with interpretations of International Financial Reporting Standards (IFRS) by our regulator, the Office of the Superintendent of Financial Institutions of Canada (OSFI). These interim consolidated financial statements were authorized for issue by the Board of Directors on February 27, 2024.
Interbank Offered Rate (IBOR) Reform
Transition of Canadian Dollar Offered Rate (CDOR) settings is in progress, and it is expected to be completed before the June 28, 2024 cessation date. Our overall CDOR and bankers’ acceptance (BA) exposures continue to decline and our CDOR derivative exposures will largely transition when central counterparties convert existing CDOR trades to Canadian Overnight Repo Rate Average. For additional details regarding interest rate benchmarks, refer to Note 1 of our annual consolidated financial statements for the year ended October 31, 2023.
Use of Estimates and Judgments
The preparation of the interim consolidated financial statements requires management to use estimates and assumptions that affect the carrying amounts of certain assets and liabilities, certain amounts reported in net income and other related disclosures.
The most significant assets and liabilities for which we must make estimates and judgments include the allowance for credit losses (ACL); financial instruments measured at fair value; pension and other employee future benefits; impairment of securities; income taxes and deferred tax assets; goodwill and intangible assets; insurance-related assets and liabilities; provisions including legal proceedings and severance charges; transfer of financial assets and consolidation of structured entities. We make judgments in assessing the business model for financial assets as well as whether substantially all risks and rewards have been transferred in respect of transfers of financial assets and whether we control structured entities. If actual results were to differ from the estimates, the impact would be recorded in future periods.
The economic outlook is subject to several risks that could lead to a more severe contraction of the North American economy, including higher inflation that delays expected interest rate reductions by central banks, an escalation of geopolitical risks including wars in Ukraine and the Middle East and an increase in tensions between the United States and China relating to trade protectionism and Taiwan. The impact on our business, results of operations, reputation, financial performance and condition, including the potential for credit, counterparty and mark-to-market losses, our credit ratings and regulatory capital and liquidity ratios, as well as impacts to our customers and competitors, will depend on future developments, which remain uncertain. By their very nature, the judgments and estimates we make for the purposes of preparing our consolidated financial statements relate to matters that are inherently uncertain. However, we have detailed policies and internal controls that are intended to ensure the judgments made in estimating these amounts are well controlled and independently reviewed, and that our policies are consistently applied from period to period. We believe that our estimates of the value of our assets and liabilities are appropriate as at January 31, 2024.
Allowance for Credit Losses
As detailed further in Note 1 of our annual consolidated financial statements for the year ended October 31, 2023, ACL consists of allowances on impaired loans, which represent estimated losses related to impaired loans in the portfolio provided for but not yet written off, and allowances on performing loans, which is our best estimate of impairment in the existing portfolio for loans that have not yet been individually identified as impaired.
The expected credit loss (ECL) model requires the recognition of credit losses generally based on 12 months of expected losses for performing loans and the recognition of lifetime losses on performing loans that have experienced a significant increase in credit risk since origination.
The determination of a significant increase in credit risk takes into account many different factors and varies by product and risk segment. The bank’s methodology for determining significant increase in credit risk is based on the change in probability of default between origination, and reporting date, assessed using probability-weighted scenarios as well as certain other criteria, such as 30-day past due and watchlist status. The assessment of a significant increase in credit risk requires experienced credit judgment.
In determining whether there has been a significant increase in credit risk and in calculating the amount of ECL, we must rely on estimates and exercise judgment regarding matters for which the ultimate outcome is unknown. These judgments include changes in circumstances that may cause future assessments of credit risk to be materially different from current assessments, which could require an increase or decrease in the ACL. The calculation of ECLs includes the explicit incorporation of forecasts of future economic conditions. We have developed models incorporating specific macroeconomic variables that are relevant to each portfolio. Key economic variables for our retail portfolios include primary operating markets of Canada, the United States and regional markets, where considered significant. Forecasts are developed internally by our Economics group, considering external data and our view of future economic conditions. We exercise experienced credit judgment to incorporate multiple economic forecasts, which are probability-weighted, in the determination of the final ECL. The allowance is sensitive to changes in both economic forecasts and the probability-weight assigned to each forecast scenario.
Additional information regarding the ACL is included in Note 3.
| BMO Financial Group First Quarter Report 2024 <br>53 |
|---|
Insurance Contract Liabilities
Insurance contract liabilities represent estimates of fulfilment cash flows, which include a risk adjustment, and the contractual service margin (CSM). Fulfillment cash flows include estimates of future cash flows related to the remaining coverage period and for already incurred claims, which are then discounted and probability-weighted. This is based on non-financial risk assumptions including mortality, lapse and expenses, which are based on a combination of industry and entity specific data and in the case of expenses, on historical analysis of which expenses are attributable to insurance operations. These assumptions are reviewed at least annually and updated to reflect actual experience and market conditions. In addition, we add a risk adjustment for non-financial risk to bring the confidence level on the sufficiency for reserves
to 70-80%.
The CSM is a component of the liability representing the unearned profit we will recognize as we provide services.
Changes in Accounting Policy
IFRS 17 Insurance Contracts
Effective November 1, 2023, we adopted IFRS 17 Insurance Contracts (IFRS 17), which provides a comprehensive approach to accounting for all types of insurance contracts and replaced existing IFRS 4 Insurance Contracts (IFRS 4).
IFRS 17 fundamentally changes the accounting for insurance contracts, with two key changes for the bank which impact the timing of income recognition:
Firstly, IFRS 17 requires us to group insurance contracts, where contracts have similar risks, were written in the same fiscal year and have similar expected profitability. IFRS 4 had no similar grouping requirement. We then measure these groups of contracts based on our estimates of the present value of future cash flows that are expected to arise as we fulfill the contracts, plus an explicit risk adjustment for insurance-specific risk. To the extent that future cash inflows exceed the future cash outflows, a CSM is recorded, representing unearned profits that will be recognized over the duration of the insurance contracts. If a group of insurance contracts is expected to experience losses, these losses are recorded in income immediately in non-interest revenue, insurance service results. Changes in expected fulfilment cash outflows, risk adjustment and CSM will be recognized in the Consolidated Statement of Income in insurance service results over the term of the related insurance contracts. We will use this approach for all insurance contracts, except for creditor insurance and direct participating contracts. We will apply a modified approach to our direct participating products, including segregated funds, whereby their initial measurement is consistent with other insurance contracts, but the fee variability is factored into the remeasurement over the contract coverage period. For our creditor business, with a coverage period of one year or less, we will defer premiums received and recognize them in income over the coverage period and recognize a liability for claims only once a loss is incurred.
Under IFRS 4, gains/losses on new contracts were previously recognized in income immediately.
The second key difference under IFRS 17 compared to IFRS 4 is the rate used to discount our insurance contract liabilities. Under IFRS 17, the discount rate is comprised of a risk-free rate and an illiquidity premium that reflects the characteristics of these liabilities. Under IFRS 4, the discount rate was connected to the yield of the assets held to support insurance contract liabilities. We have elected the accounting policy choice under IFRS 17 to recognize the impact of changes in the discount rate and financial assumptions on insurance contract liabilities in our Consolidated Statement of Income in non-interest revenue, insurance investment results.
On transition, we were required to apply a full retrospective approach, where we restated prior periods as if we had always applied IFRS 17, unless impracticable, in which case we were to apply either the modified retrospective approach, where we applied specific modifications to the full retrospective approach, or the fair value approach, where we determined the fair value of the CSM as the difference between the fair value of a group of contracts and our fulfilment cash flows at the date of transition. We applied the full retrospective approach to our creditor business and the fair value approach to all other products written prior to November 1, 2022. The impact of adopting IFRS 17 as at November 1, 2022 is an increase in assets
of $1,075
million, an increase in liabilities of
$2,181
million and a decrease in shareholders’ equity of
$1,106
million after-tax. The CSM qualifies as Tier 1 Capital. We applied the change retrospectively, as though we had always accounted for insurance contracts under IFRS 17.
IAS 40 Investment Property
On transition to IFRS 17, we voluntarily changed our accounting policy for the measurement of investment properties, included in insurance-related assets in other assets in our Consolidated Balance Sheet, from cost to fair value. This better aligns our returns on investment properties with gains and losses from our insurance business. IAS 40 Investment Property (IAS 40) permits either measurement approach. We applied the change retrospectively, as though we had always accounted for investment properties at fair value. The result was an increase in other assets of
$132 million and an increase in shareholders’ equity of $132 million after-tax at November 1, 2022.
| 54<br> BMO Financial Group First Quarter Report 2024 |
|---|
Transition Impacts
The following table shows the impact of these combined changes at November 1, 2022:
| (Canadian $ in millions) | November 1, 2022 | IAS 40 accounting | November 1, 2022 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| previously reported | IFRS 17 impacts | policy change impacts | restated | ||||||
| Assets | |||||||||
| Other Assets | |||||||||
| Deferred tax assets | 1,175 | 418 | (51 | ) | 1,542 | ||||
| Other | |||||||||
| Insurance-related assets | 2,575 | 657 | 183 | 3,415 | |||||
| Total Assets | 3,750 | 1,075 | 132 | 4,957 | |||||
| Liabilities | |||||||||
| Other Liabilities | |||||||||
| Deferred tax liabilities | 102 | - | - | 102 | |||||
| Other | |||||||||
| Insurance-related liabilities | 11,201 | 2,181 | - | 13,382 | |||||
| Total Liabilities | 11,303 | 2,181 | - | 13,484 |
The impact of these changes on our Common Equity Tier 1 (CET1) Ratio is not material.
Presentation of Insurance Results
Insurance results are presented in non-interest revenue, insurance service results and non-interest revenue, insurance investment results, in our Consolidated Statement of Income. Insurance service results include insurance revenue, insurance service expenses and reinsurance results. Insurance investment results include net returns on insurance-related assets and the impact of the change in discount rates and financial assumptions on insurance contract liabilities. We no longer report Insurance claims, commissions and changes in policy benefit liabilities.
Insurance service results in our Consolidated Statement of Income are as follows:
| (Canadian $ in millions) | For the three months ended | |||||
|---|---|---|---|---|---|---|
| January 31, 2024 | January 31, 2023 | |||||
| Insurance revenue | 433 | 357 | ||||
| Insurance service expenses | (297 | ) | (246 | ) | ||
| Net expenses from reinsurance contracts | (37 | ) | (23 | ) | ||
| Insurance service results | 99 | 88 |
Insurance investment results in our Consolidated Statement of Income are as follows:
| (Canadian $ in millions) | For the three months ended | |||||
|---|---|---|---|---|---|---|
| January 31, 2024 | January 31, 2023 | |||||
| Investment return | 1,283 | 794 | ||||
| Insurance finance<br><br>(expense) from insurance and reinsurance contracts held | (1,225 | ) | (880 | ) | ||
| Movement in investment contract liabilities | (67 | ) | (41 | ) | ||
| Insurance investment results | (9 | ) | (127 | ) |
We use the following rates for discounting fulfilment cash flows for our insurance contracts, which are based on a risk-free yield adjusted for an illiquidity premium that reflects the liquidity characteristics of the liabilities:
| Portfolio duration: | January 31, 2024 | October 31, 2023 | ||||
|---|---|---|---|---|---|---|
| 1 year | 5.49 | % | 6.10 | % | ||
| 3 years | 4.96 | % | 5.83 | % | ||
| 5 years | 4.75 | % | 5.69 | % | ||
| 10 years | 4.95 | % | 5.82 | % | ||
| 20 years | 5.07 | % | 5.85 | % | ||
| 30 years | 5.14 | % | 5.81 | % | ||
| Ultimate | 5.00 | % | 5.00 | % | ||
| BMO Financial Group First Quarter Report 2024 <br>55 | ||||||
| --- |
Presentation of Insurance Contract Liabilities
Insurance contract liabilities by remaining coverage and incurred claims is comprised of the following:
| For the three months ended January 31, 2024 | For the twelve months ended October 31, 2023 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Liabilities for<br>remaining coverage | Liabilities for<br>incurred claims | Total | Liabilities for<br>remaining coverage | Liabilities for<br>incurred claims | Total | |||||||||||||
| Beginning of Period: | ||||||||||||||||||
| Insurance contract liabilities | 13,114 | 235 | 13,349 | 11,850 | 267 | 12,117 | ||||||||||||
| Insurance service results | (385 | ) | 263 | (122 | ) | (1,403 | ) | 979 | (424 | ) | ||||||||
| Net finance expenses from insurance contracts | 1,267 | - | 1,267 | 179 | - | 179 | ||||||||||||
| Total cash flows | 1,037 | (270 | ) | 767 | 2,488 | (1,013 | ) | 1,475 | ||||||||||
| Other changes in the net carrying amount of the insurance contract | (1 | ) | (3 | ) | (4 | ) | - | 2 | 2 | |||||||||
| End of Period: | ||||||||||||||||||
| Insurance contract liabilities (1) | 15,032 | 225 | 15,257 | 13,114 | 235 | 13,349 |
(1) The liabilities for incurred claims relating to insurance contracts in our creditor
and reinsurance
business were $126 million as at January 31, 2024 and $131 million as at October 31, 2023.
CSM from contracts issued in 2023 and the first quarter of 2024 was $113 million at January 31, 2024. Total CSM at January 31, 2024 was $1,696 million ($1,689
million at October 31, 2023). This excludes the impact of any reinsurance held, which is not significant to the bank. Onerous contract losses in the three months ended January 31, 2024 and 2023 were not material.
IFRS 9 Financial Instruments
Effective November 1, 2023, we voluntarily changed our accounting policy to account for regular way contracts to buy or sell financial assets on trade date, instead of on settlement date. This change was applied retrospectively, as is required for changes in accounting policy, as if we always recorded securities transactions on trade date. Regular way contracts are contracts which will be settled within a timeframe established by market convention or regulation. The change resulted in an increase in both assets and liabilities of $52.5 billion as of October 31, 2023.
IAS 12 Income Taxes
Effective November 1, 2023, we adopted an amendment to IAS 12 Income Taxes (IAS 12). This amendment narrows the IAS 12 exemption to exclude transactions that give rise to equal and offsetting temporary differences (e.g. leases and asset retirement obligations). Upon adoption of the amendment, we record separate deferred tax assets and liabilities related to the assets and liabilities that give rise to these temporary differences. There was no impact on our Consolidated Balance Sheet, as the balances are eligible for offset when levied by the same tax authority. This change impacts note disclosure only.
Future Changes in IFRS
IAS 12 Income Taxes
In May 2023, the IASB issued an amendment to IAS 12. The amendment addresses concerns around accounting for the global minimum top-up tax as outlined in the two-pillar plan for international tax reform developed by members of the Organisation for Economic Co-operation and Development/G20 Inclusive Framework on Base Erosion and Profit Shifting. The objective of the tax reform is to ensure that large multinational groups are subject to a minimum tax rate of 15% on income earned in each jurisdiction that they carry on business. We will be impacted by the tax reform once the Canadian federal government, or a foreign government of a country in which we operate, passes into law the global minimum tax. The UK government has passed into law legislation that implements a minimum tax for large multinational groups. We have performed an assessment and concluded our UK operations are not materially impacted by the minimum tax. The amendment to IAS 12 includes temporary mandatory relief from recognizing and disclosing deferred taxes for the top-up tax, that will be applicable once the measures are substantively enacted.
Note 2: Securities
Classification of Securities
The following table summarizes the carrying amounts of the bank’s securities by classification :
| (Canadian $ in millions) | January 31, 2024 | October 31, 2023 | ||
|---|---|---|---|---|
| Trading securities | 138,034 | 123,718 | ||
| Fair value through profit or loss securities (FVTPL) | ||||
| FVTPL securities mandatorily measured at fair value | 6,596 | 6,730 | ||
| FVTPL investment securities held by Insurance subsidiaries designated at fair value | 11,451 | 10,003 | ||
| Total FVTPL securities | 18,047 | 16,733 | ||
| Fair value through other comprehensive income (FVOCI) securities (1) | 69,493 | 62,819 | ||
| Amortized cost securities (2) | 121,127 | 116,814 | ||
| Investments in associates and joint ventures | 1,507 | 1,461 | ||
| Total | 348,208 | 321,545 | ||
| (1) | Amounts are net of ACL of <br>$<br>3 million ($3 million as at October 31, 2023). | |||
| --- | --- | |||
| (2) | Amounts are net of ACL of $4<br><br>million ($3 million as at October 31, 2023). | |||
| --- | --- |
Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
| 56<br> BMO Financial Group First Quarter Report 2024 |
|---|
Amortized Cost Securities
The following table summarizes the carrying value and fair value for amortized cost debt securities:
| (Canadian $ in millions) | January 31, 2024 | October 31, 2023 | ||||||
|---|---|---|---|---|---|---|---|---|
| Carrying value | Fair value | Carrying value | Fair value | |||||
| Issued or guaranteed by: | ||||||||
| Canadian federal government | 4,374 | 4,373 | 4,908 | 4,905 | ||||
| Canadian provincial and municipal governments | 4,532 | 4,536 | 4,613 | 4,605 | ||||
| U.S. federal government | 55,970 | 51,268 | 56,878 | 51,063 | ||||
| U.S. states, municipalities and agencies | 184 | 182 | 190 | 179 | ||||
| Other governments | 909 | 904 | 948 | 779 | ||||
| NHA MBS, U.S. agency MBS and CMO (1) | 45,001 | 41,143 | 47,590 | 41,134 | ||||
| Corporate debt | 10,157 | 10,173 | 1,687 | 1,506 | ||||
| Total | 121,127 | 112,579 | 116,814 | 104,171 | ||||
| (1) | These amounts are either supported by insured mortgages or issued by U.S. agencies and government-sponsored enterprises. NHA refers to the National Housing Act, MBS refers to mortgage-backed securities and CMO refers to collateralized mortgage obligations. | |||||||
| --- | --- |
The carrying value of securities that are part of fair value hedging relationships are adjusted for related gains (losses) on hedge contracts.
Unrealized Gains and Losses on FVOCI Securities
The following table summarizes the unrealized gains and losses:
| (Canadian $ in millions) | January 31, 2024 | October 31, 2023 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cost or<br>amortized<br>cost | Gross<br>unrealized<br>gains | Gross<br>unrealized<br>losses | Fair value | Cost or<br>amortized<br>cost | Gross<br>unrealized<br>gains | Gross<br>unrealized<br>losses | Fair value | |||||||||
| Issued or guaranteed by: | ||||||||||||||||
| Canadian federal government | 25,767 | 69 | 150 | 25,686 | 20,579 | 14 | 493 | 20,100 | ||||||||
| Canadian provincial and municipal governments | 5,329 | 32 | 83 | 5,278 | 5,281 | 2 | 228 | 5,055 | ||||||||
| U.S. federal government | 7,048 | 106 | 147 | 7,007 | 6,245 | - | 365 | 5,880 | ||||||||
| U.S. states, municipalities and agencies | 5,159 | 23 | 74 | 5,108 | 5,486 | 5 | 190 | 5,301 | ||||||||
| Other governments | 6,439 | 21 | 26 | 6,434 | 7,064 | 13 | 108 | 6,969 | ||||||||
| NHA MBS, U.S. agency MBS and CMO | 16,221 | 50 | 326 | 15,945 | 16,421 | 12 | 668 | 15,765 | ||||||||
| Corporate debt | 3,882 | 24 | 44 | 3,862 | 3,676 | 3 | 90 | 3,589 | ||||||||
| Corporate equity | 131 | 42 | - | 173 | 129 | 31 | - | 160 | ||||||||
| Total | 69,976 | 367 | 850 | 69,493 | 64,881 | 80 | 2,142 | 62,819 |
Unrealized gains (losses) may be offset by related (losses) gains on hedge contracts.
Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
Interest Income on Debt Securities
The following table presents interest income calculated using the effective interest method:
| (Canadian $ in millions) | For the three months ended | |||
|---|---|---|---|---|
| January 31, 2024 | January 31, 2023 | |||
| FVOCI securities | 947 | 479 | ||
| Amortized cost securities | 954 | 531 | ||
| Total | 1,901 | 1,010 |
Non-Interest Revenue
Net gains and losses from securities, excluding gains and losses on trading securities, have been included in our Consolidated Statement of Income as follows:
| (Canadian $ in millions) | For the three months ended | ||||
|---|---|---|---|---|---|
| January 31, 2024 | January 31, 2023 | ||||
| FVTPL securities | 7 | 62 | |||
| FVOCI securities - net realized gains (1) | 8 | 11 | |||
| Impairment (loss) recovery | (2 | ) | 2 | ||
| Securities gains, other than trading | 13 | 75 | |||
| (1) | Gains are net of (losses) on hedge contracts. | ||||
| --- | --- |
Interest and dividend income and gains on securities held in our Insurance business are recorded in non-interest revenue, insurance investment results, in our Consolidated Statement of Income. These include:
| • | Interest and dividend income of $127 million and $108 million for the three months ended January 31, 2024 and 2023, respectively. Interest income is calculated using the effective interest method; |
|---|---|
| • | Gains<br><br>from securities designated as FVTPL of $907 million and $560 <br>million<br>for the three months ended January 31, 2024 and 2023, respectively; and |
| --- | --- |
| • | Realized gains from FVOCI securities<br><br><br>of<br> $nil million for the three months ended January 31, 2024 and 2023. |
| --- | --- |
| BMO Financial Group First Quarter Report 2024 <br>57 | |
| --- |
Note 3: Loans and Allowance for Credit Losses
Credit Risk Exposure
The following table sets out our credit risk exposure for all loans carried at amortized cost, FVOCI or FVTPL as at January 31, 2024 and October 31, 2023. Stage 1 represents performing loans carried with up to a
12-month
ECL, Stage 2 represents performing loans carried with a lifetime ECL, and Stage 3 represents loans with a lifetime ECL that are credit impaired.
| (Canadian $ in millions) | January 31, 2024 | October 31, 2023 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Stage 1 | Stage 2 | Stage 3<br>(1) | Total | Stage 1 | Stage 2 | Stage 3 (1) | Total | |||||||||
| Loans: Residential mortgages | ||||||||||||||||
| Exceptionally low | 1 | - | - | 1 | 2 | - | - | 2 | ||||||||
| Very low | 86,296 | 192 | - | 86,488 | 85,423 | 171 | - | 85,594 | ||||||||
| Low | 49,578 | 10,882 | - | 60,460 | 51,366 | 10,820 | - | 62,186 | ||||||||
| Medium | 5,655 | 5,737 | - | 11,392 | 5,289 | 5,434 | - | 10,723 | ||||||||
| High | 258 | 2,235 | - | 2,493 | 282 | 2,015 | - | 2,297 | ||||||||
| Not rated (2) | 14,370 | 853 | - | 15,223 | 15,906 | 118 | - | 16,024 | ||||||||
| Impaired | - | - | 493 | 493 | - | - | 424 | 424 | ||||||||
| Gross residential mortgages | 156,158 | 19,899 | 493 | 176,550 | 158,268 | 18,558 | 424 | 177,250 | ||||||||
| ACL | 66 | 186 | 4 | 256 | 73 | 146 | 5 | 224 | ||||||||
| Carrying amount | 156,092 | 19,713 | 489 | 176,294 | 158,195 | 18,412 | 419 | 177,026 | ||||||||
| Loans: Consumer instalment and other personal | ||||||||||||||||
| Exceptionally low | 9,148 | 8 | - | 9,156 | 1,547 | 4 | - | 1,551 | ||||||||
| Very low | 20,948 | 34 | - | 20,982 | 37,924 | 180 | - | 38,104 | ||||||||
| Low | 28,467 | 3,276 | - | 31,743 | 21,406 | 1,052 | - | 22,458 | ||||||||
| Medium | 7,551 | 5,548 | - | 13,099 | 7,971 | 5,686 | - | 13,657 | ||||||||
| High | 680 | 1,896 | - | 2,576 | 759 | 2,127 | - | 2,886 | ||||||||
| Not rated (2) | 13,054 | 780 | - | 13,834 | 24,426 | 411 | - | 24,837 | ||||||||
| Impaired | - | - | 586 | 586 | - | - | 549 | 549 | ||||||||
| Gross consumer instalment and other personal | 79,848 | 11,542 | 586 | 91,976 | 94,033 | 9,460 | 549 | 104,042 | ||||||||
| ACL | 134 | 416 | 165 | 715 | 208 | 415 | 152 | 775 | ||||||||
| Carrying amount | 79,714 | 11,126 | 421 | 91,261 | 93,825 | 9,045 | 397 | 103,267 | ||||||||
| Loans: Credit cards<br>(3) | ||||||||||||||||
| Exceptionally low | 1,453 | - | - | 1,453 | 1,605 | - | - | 1,605 | ||||||||
| Very low | 1,941 | - | - | 1,941 | 1,946 | 1 | - | 1,947 | ||||||||
| Low | 1,915 | 54 | - | 1,969 | 1,884 | 70 | - | 1,954 | ||||||||
| Medium | 4,083 | 957 | - | 5,040 | 3,860 | 890 | - | 4,750 | ||||||||
| High | 607 | 815 | - | 1,422 | 533 | 763 | - | 1,296 | ||||||||
| Not rated (2) | 553 | 144 | - | 697 | 651 | 91 | - | 742 | ||||||||
| Impaired | - | - | - | - | - | - | - | - | ||||||||
| Gross credit cards | 10,552 | 1,970 | - | 12,522 | 10,479 | 1,815 | - | 12,294 | ||||||||
| ACL | 115 | 303 | - | 418 | 134 | 267 | - | 401 | ||||||||
| Carrying amount | 10,437 | 1,667 | - | 12,104 | 10,345 | 1,548 | - | 11,893 | ||||||||
| Loans: Business and government<br>(4) | ||||||||||||||||
| Acceptable | ||||||||||||||||
| Investment grade | 194,113 | 5,532 | - | 199,645 | 202,731 | 3,886 | - | 206,617 | ||||||||
| Sub-investment<br> grade | 132,475 | 21,911 | - | 154,386 | 126,535 | 26,260 | - | 152,795 | ||||||||
| Watchlist | 288 | 14,385 | - | 14,673 | 1,078 | 11,520 | - | 12,598 | ||||||||
| Impaired | - | - | 3,180 | 3,180 | - | - | 2,987 | 2,987 | ||||||||
| Gross business and government | 326,876 | 41,828 | 3,180 | 371,884 | 330,344 | 41,666 | 2,987 | 374,997 | ||||||||
| ACL | 747 | 1,106 | 514 | 2,367 | 849 | 1,031 | 527 | 2,407 | ||||||||
| Carrying amount | 326,129 | 40,722 | 2,666 | 369,517 | 329,495 | 40,635 | 2,460 | 372,590 | ||||||||
| Total gross loans and acceptances | 573,434 | 75,239 | 4,259 | 652,932 | 593,124 | 71,499 | 3,960 | 668,583 | ||||||||
| Total net loans and acceptances | 572,372 | 73,228 | 3,576 | 649,176 | 591,860 | 69,640 | 3,276 | 664,776 | ||||||||
| Commitments and financial guarantee contracts | ||||||||||||||||
| Acceptable | ||||||||||||||||
| Investment grade | 189,154 | 1,502 | - | 190,656 | 195,149 | 1,721 | - | 196,870 | ||||||||
| Sub-investment<br> grade | 59,313 | 9,689 | - | 69,002 | 54,148 | 14,158 | - | 68,306 | ||||||||
| Watchlist | 84 | 5,212 | - | 5,296 | 254 | 4,137 | - | 4,391 | ||||||||
| Impaired | - | - | 476 | 476 | - | - | 687 | 687 | ||||||||
| Gross commitments and financial guarantee contracts | 248,551 | 16,403 | 476 | 265,430 | 249,551 | 20,016 | 687 | 270,254 | ||||||||
| ACL | 228 | 224 | 20 | 472 | 260 | 189 | 11 | 460 | ||||||||
| Carrying amount (5)(6) | 248,323 | 16,179 | 456 | 264,958 | 249,291 | 19,827 | 676 | 269,794 | ||||||||
| (1) | Includes purchased credit impaired (PCI) loan balances. | |||||||||||||||
| --- | --- | |||||||||||||||
| (2) | Includes purchased portfolios and certain cases where an internal risk rating is not assigned. Alternative credit risk assessments, rating methodologies, policies and tools are used to manage credit risk for these portfolios. | |||||||||||||||
| --- | --- | |||||||||||||||
| (3) | Credit card loans are immediately written off when principal or interest payments are 180 days past due, and as a result are not reported as impaired in Stage 3. | |||||||||||||||
| --- | --- | |||||||||||||||
| (4) | Includes customers’ liability under acceptances. | |||||||||||||||
| --- | --- | |||||||||||||||
| (5) | Represents the total contractual amounts of undrawn credit facilities and other <br>off-balance<br> sheet exposures, excluding personal lines of credit and credit cards that are unconditionally cancellable at our discretion. | |||||||||||||||
| --- | --- | |||||||||||||||
| (6) | Certain commercial borrower commitments are conditional and may include recourse to counterparties. | |||||||||||||||
| --- | --- |
Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
Allowance for Credit Losses
The
ACL recorded in our Consolidated Balance Sheet is maintained at a level we consider adequate to absorb credit-related losses on our loans and other credit instruments. The ACL amounted to $ 4,228 million at January 31, 2024 ($ 4,267 million as at October 31, 2023) of which $ 3,756 million ($ 3,807 million as at October 31, 2023) was recorded in loans and $ 472 million ($ 460 million as at October 31, 2023) was recorded in other liabilities in our Consolidated Balance Sheet.
Significant changes in gross balances, including originations, maturities, sales and repayments in the normal course of operations, impact the ACL.
| 58<br> BMO Financial Group First Quarter Report 2024 |
|---|
The following tables show the continuity in the loss allowance by product type for the three months ended January 31, 2024 and January 31, 2023. Transfers represent the amount of ECL that moved between stages during the period, for example, moving from a 12-month (Stage 1) to lifetime (Stage 2) ECL measurement basis. Net remeasurements represent the ECL impact due to transfers between stages, as well as changes in economic forecasts and credit quality. Model changes include new calculation models or methodologies.
| (Canadian in millions) | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| For the three months ended | January 31, 2023 | ||||||||||||||||||||||
| Stage 2 | Stage 3<br>(1) | Total | Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||||||
| Loans: Residential mortgages | |||||||||||||||||||||||
| Balance as at beginning of period | 73 | 151 | 10 | 234 | 59 | 67 | 16 | 142 | |||||||||||||||
| Transfer to Stage 1 | 23 | (23 | ) | - | - | 24 | (24 | ) | - | - | |||||||||||||
| Transfer to Stage 2 | (2 | ) | 5 | (3 | ) | - | (9 | ) | 10 | (1 | ) | - | |||||||||||
| Transfer to Stage 3 | - | (6 | ) | 6 | - | - | (2 | ) | 2 | - | |||||||||||||
| Net remeasurement of loss allowance | (33 | ) | 70 | 4 | 41 | (7 | ) | 30 | 2 | 25 | |||||||||||||
| Loan originations | 8 | - | - | 8 | 7 | - | - | 7 | |||||||||||||||
| Derecognitions and maturities | (1 | ) | (3 | ) | - | (4 | ) | (1 | ) | (1 | ) | - | (2 | ) | |||||||||
| Model changes | (1 | ) | (5 | ) | - | (6 | ) | (24 | ) | 17 | - | (7 | ) | ||||||||||
| Total PCL (2) | (6 | ) | 38 | 7 | 39 | (10 | ) | 30 | 3 | 23 | |||||||||||||
| Write-offs (3) | - | - | (2 | ) | (2 | ) | - | - | (3 | ) | (3 | ) | |||||||||||
| Recoveries of previous write-offs | - | - | 2 | 2 | - | - | 1 | 1 | |||||||||||||||
| Foreign exchange and other | (1 | ) | (2 | ) | (5 | ) | (8 | ) | 1 | (1 | ) | (4 | ) | (4 | ) | ||||||||
| Balance as at end of period | 66 | 187 | 12 | 265 | 50 | 96 | 13 | 159 | |||||||||||||||
| Loans: Consumer instalment and other personal | |||||||||||||||||||||||
| Balance as at beginning of period | 220 | 434 | 152 | 806 | 111 | 304 | 102 | 517 | |||||||||||||||
| Transfer to Stage 1 | 59 | (55 | ) | (4 | ) | - | 60 | (58 | ) | (2 | ) | - | |||||||||||
| Transfer to Stage 2 | (11 | ) | 22 | (11 | ) | - | (11 | ) | 20 | (9 | ) | - | |||||||||||
| Transfer to Stage 3 | (2 | ) | (29 | ) | 31 | - | (1 | ) | (22 | ) | 23 | - | |||||||||||
| Net remeasurement of loss allowance | (65 | ) | 31 | 157 | 123 | (40 | ) | 77 | 50 | 87 | |||||||||||||
| Loan originations | 24 | - | - | 24 | 12 | - | - | 12 | |||||||||||||||
| Derecognitions and maturities | (4 | ) | (8 | ) | (11 | ) | (23 | ) | (3 | ) | (7 | ) | - | (10 | ) | ||||||||
| Model changes | 15 | 46 | - | 61 | (16 | ) | 3 | - | (13 | ) | |||||||||||||
| Total PCL (2) | 16 | 7 | 162 | 185 | 1 | 13 | 62 | 76 | |||||||||||||||
| Write-offs (3) | - | - | (159 | ) | (159 | ) | - | - | (62 | ) | (62 | ) | |||||||||||
| Recoveries of previous write-offs | - | - | 25 | 25 | - | - | 15 | 15 | |||||||||||||||
| Foreign exchange and other | (92 | ) | (5 | ) | (9 | ) | (106 | ) | (1 | ) | (1 | ) | (5 | ) | (7 | ) | |||||||
| Balance as at end of period | 144 | 436 | 171 | 751 | 111 | 316 | 112 | 539 | |||||||||||||||
| Loans: Credit cards | |||||||||||||||||||||||
| Balance as at beginning of period | 188 | 308 | - | 496 | 115 | 250 | - | 365 | |||||||||||||||
| Transfer to Stage 1 | 50 | (50 | ) | - | - | 40 | (40 | ) | - | - | |||||||||||||
| Transfer to Stage 2 | (13 | ) | 13 | - | - | (9 | ) | 9 | - | - | |||||||||||||
| Transfer to Stage 3 | (1 | ) | (48 | ) | 49 | - | (1 | ) | (33 | ) | 34 | - | |||||||||||
| Net remeasurement of loss allowance | (75 | ) | 122 | 66 | 113 | (36 | ) | 90 | 34 | 88 | |||||||||||||
| Loan originations | 17 | - | - | 17 | 18 | - | - | 18 | |||||||||||||||
| Derecognitions and maturities | (2 | ) | (8 | ) | - | (10 | ) | (1 | ) | (5 | ) | - | (6 | ) | |||||||||
| Model changes | 4 | 9 | - | 13 | - | - | - | - | |||||||||||||||
| Total PCL (2) | (20 | ) | 38 | 115 | 133 | 11 | 21 | 68 | 100 | ||||||||||||||
| Write-offs (3) | - | - | (152 | ) | (152 | ) | - | - | (80 | ) | (80 | ) | |||||||||||
| Recoveries of previous write-offs | - | - | 48 | 48 | - | - | 19 | 19 | |||||||||||||||
| Foreign exchange and other | (1 | ) | (3 | ) | (11 | ) | (15 | ) | - | (2 | ) | (7 | ) | (9 | ) | ||||||||
| Balance as at end of period | 167 | 343 | - | 510 | 126 | 269 | - | 395 | |||||||||||||||
| Loans: Business and government | |||||||||||||||||||||||
| Balance as at beginning of period | 1,043 | 1,155 | 533 | 2,731 | 746 | 789 | 439 | 1,974 | |||||||||||||||
| Transfer to Stage 1 | 184 | (182 | ) | (2 | ) | - | 87 | (86 | ) | (1 | ) | - | |||||||||||
| Transfer to Stage 2 | (119 | ) | 122 | (3 | ) | - | (30 | ) | 75 | (45 | ) | - | |||||||||||
| Transfer to Stage 3 | (2 | ) | (63 | ) | 65 | - | (1 | ) | (30 | ) | 31 | - | |||||||||||
| Net remeasurement of loss allowance | (220 | ) | 295 | 140 | 215 | (114 | ) | 64 | 78 | 28 | |||||||||||||
| Loan originations | 83 | 8 | - | 91 | 81 | - | - | 81 | |||||||||||||||
| Derecognitions and maturities | (50 | ) | (92 | ) | (11 | ) | (153 | ) | (41 | ) | (51 | ) | - | (92 | ) | ||||||||
| Model changes | 53 | 57 | - | 110 | - | - | - | - | |||||||||||||||
| Total PCL (2) | (71 | ) | 145 | 189 | 263 | (18 | ) | (28 | ) | 63 | 17 | ||||||||||||
| Write-offs (3) | - | - | (220 | ) | (220 | ) | - | - | (76 | ) | (76 | ) | |||||||||||
| Recoveries of previous write-offs | - | - | 75 | 75 | - | - | 11 | 11 | |||||||||||||||
| Foreign exchange and other | (59 | ) | (31 | ) | (57 | ) | (147 | ) | 23 | 10 | (24 | ) | 9 | ||||||||||
| Balance as at end of period | 913 | 1,269 | 520 | 2,702 | 751 | 771 | 413 | 1,935 | |||||||||||||||
| Total as at end of period | 1,290 | 2,235 | 703 | 4,228 | 1,038 | 1,452 | 538 | 3,028 | |||||||||||||||
| Comprised of: Loans | 1,062 | 2,011 | 683 | 3,756 | 840 | 1,271 | 527 | 2,638 | |||||||||||||||
| Other credit instruments (4) | 228 | 224 | 20 | 472 | 198 | 181 | 11 | 390 |
All values are in US Dollars.
| (1) | Includes changes in the allowance for PCI loans. |
|---|---|
| (2) | Excludes PCL on other assets of $7 million for the three months ended January 31, 2024 ($1 million for the three months ended January 31, 2023). |
| --- | --- |
| (3) | Generally, we continue to seek recovery on amounts that were written off during the year, unless the loan is sold, we no longer have the right to collect or we have exhausted all reasonable efforts to collect. |
| --- | --- |
| (4) | Other credit instruments, including <br>off-balance<br> sheet items, are recorded in other liabilities in our Consolidated Balance Sheet. |
| --- | --- |
| BMO Financial Group First Quarter Report 2024 <br>59 | |
| --- |
Purchased Loans
As part of our acquisition of Bank of the West, we identified loans purchased as either purchased performing loans or PCI loans. As at January 31, 2024, purchased performing loans recorded in our Consolidated Balance Sheet totalled $52,727 million ($68,025 million as at October 31, 2023), including a remaining fair value mark of $(1,753) million ($(2,317) million as at October 31, 2023). As at January 31, 2024, PCI loans recorded in our Consolidated Balance Sheet totalled $168 million ($219 million as at October 31, 2023), including a remaining fair value mark of $(40) million ($(61) million as at October 31, 2023).
Loans Past Due Not Impaired
Loans that are past due but not classified as impaired are loans where our customers have failed to make payments when contractually due but for which we expect the full amount of principal and interest payments to be collected, or loans which are held at fair value. The following table presents loans that are past due but not classified as impaired as at January 31, 2024 and October 31, 2023. Loans less than 30 days past due are excluded as they are not generally representative of the borrower’s ability to meet their payment obligations.
| (Canadian $ in millions) | January 31, 2024 | October 31, 2023 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 30 to 89 days | 90 days or more<br>(1) | Total | 30 to 89 days | 90 days or more (1) | Total | |||||||
| Residential mortgages | 695 | 8 | 703 | 707 | 9 | 716 | ||||||
| Credit card, consumer instalment and other personal | 690 | 144 | 834 | 1,003 | 129 | 1,132 | ||||||
| Business and government | 692 | 29 | 721 | 826 | 18 | 844 | ||||||
| Total | 2,077 | 181 | 2,258 | 2,536 | 156 | 2,692 | ||||||
| (1) | Fully secured loans with amounts between 90 and 180 days past due that we have not classified as impaired totalled $9 million and $10 million as at January 31, 2024 and October 31, 2023, respectively. | |||||||||||
| --- | --- |
ECL Sensitivity and Key Economic Variables
The ECL model requires the recognition of credit losses generally based on 12 months of expected losses for performing loans and the recognition of lifetime losses on performing loans that have experienced a significant increase in credit risk since origination.
The allowance for performing loans is sensitive to changes in both economic forecasts and the probability-weight assigned to each forecast scenario. Many of the factors have a high degree of interdependency, although there is no single factor to which loan impairment allowances as a whole are sensitive.
The benign scenario as at January 31, 2024 involves a materially stronger economic environment than the base case forecast, with a considerably lower unemployment rate.
As at January 31, 2024, our base case scenario depicts a weaker economic environment in the near-term largely in response to higher interest rates and tighter lending conditions, and a moderate economic recovery over the medium-term as inflation is expected to ease further and lead to lower interest rates later in 2024. Our base case economic forecast as at October 31, 2023 broadly depicted a similar economic environment over the projection period.
If we assumed a 100% base case economic forecast and included the impact of loan migration by restaging, with other assumptions held constant, including the application of experienced credit judgment, the allowance on performing loans would be approximately $2,225 million as at January 31, 2024 ($2,625 million as at October 31, 2023), compared to the reported allowance for performing loans of $3,525 million ($3,572 million as at October 31, 2023).
As at January 31, 2024, our adverse economic scenario depicts a sizeable contraction in the Canadian and U.S. economy in the near-term. The adverse case as at October 31,
2023 broadly depicted a similar economic environment over the projection period.
If we assumed a 100% adverse economic forecast and included the impact of loan migration by restaging, with other assumptions held constant, including the application of experienced credit judgment, the allowance on performing loans would be approximately $5,750 million as at January 31, 2024 ($6,025 million as at October 31, 2023), compared to the reported allowance for performing loans of $3,525 million ($3,572 million as at October 31, 2023).
Actual results in a recession will differ as our portfolio will change through time due to migration, growth, risk mitigation actions and other factors. In addition, our allowance will reflect the three economic scenarios used in assessing the allowance, with weightings attached to adverse and benign scenarios often unequally weighted and the weightings will change through time.
| 60<br> BMO Financial Group First Quarter Report 2024 |
|---|
The following table shows the key economic variables used to estimate the allowance on performing loans forecast over the next 12 months or lifetime measurement period. While the values disclosed below are national variables, we use regional variables in the underlying models and consider factors impacting particular industries where appropriate.
| As at January 31, 2024 | As at October 31, 2023 | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| All figures are average annual values | Benign scenario | Base scenario | Adverse scenario | Benign scenario | Base scenario | Adverse scenario | ||||||||||||||||||
| First 12<br>months | Remaining<br>horizon<br>(1) | First 12<br>months | Remaining<br>horizon<br>(1) | First 12<br>months | Remaining<br>horizon<br>(1) | First 12<br>months | Remaining<br>horizon (1) | First 12<br>months | Remaining<br>horizon (1) | First 12<br>months | Remaining<br>horizon (1) | |||||||||||||
| Real GDP growth rates (2) | ||||||||||||||||||||||||
| Canada | 3.2% | 2.7% | 0.5% | 2.0% | (4.1)% | 1.2% | 3.2% | 2.6% | 0.4% | 1.9% | (3.9)% | 1.2% | ||||||||||||
| United States | 4.1% | 2.3% | 1.5% | 1.8% | (3.1)% | 1.4% | 4.1% | 2.5% | 1.4% | 2.0% | (3.5)% | 1.4% | ||||||||||||
| Corporate BBB <br>10-year<br> spread | ||||||||||||||||||||||||
| Canada | 1.6% | 1.8% | 2.3% | 2.0% | 4.2% | 3.5% | 1.7% | 1.8% | 2.4% | 2.0% | 4.2% | 3.5% | ||||||||||||
| United States | 1.0% | 1.6% | 1.8% | 2.0% | 4.6% | 3.6% | 1.4% | 1.7% | 2.2% | 2.1% | 4.6% | 3.5% | ||||||||||||
| Unemployment rates | ||||||||||||||||||||||||
| Canada | 4.5% | 4.0% | 6.4% | 5.9% | 9.5% | 10.3% | 4.2% | 3.7% | 5.9% | 5.7% | 9.3% | 10.1% | ||||||||||||
| United States | 3.1% | 2.6% | 4.2% | 4.2% | 7.7% | 8.5% | 2.9% | 2.5% | 4.2% | 4.1% | 7.5% | 8.3% | ||||||||||||
| Housing Price Index (2) | ||||||||||||||||||||||||
| Canada (3) | 0.4% | 5.4% | (4.0)% | 3.0% | (21.4)% | (5.0)% | 9.9% | 6.9% | 5.5% | 4.5% | (20.2)% | (5.0)% | ||||||||||||
| United States (4) | 4.9% | 4.0% | 1.8% | 2.6% | (18.6)% | (4.3)% | 2.7% | 3.7% | (0.5)% | 2.3% | (19.2)% | (4.3)% | ||||||||||||
| (1) | The remaining forecast period is two years. | |||||||||||||||||||||||
| --- | --- | |||||||||||||||||||||||
| (2) | Real gross domestic product (GDP) and housing price index are averages of quarterly year-over-year growth rates. | |||||||||||||||||||||||
| --- | --- | |||||||||||||||||||||||
| (3) | In Canada, we use the Housing Price Index Benchmark Composite. | |||||||||||||||||||||||
| --- | --- | |||||||||||||||||||||||
| (4) | In the United States, we use the National Case-Shiller House Price Index. | |||||||||||||||||||||||
| --- | --- |
The ECL approach requires the recognition of credit losses generally based on 12 months of expected losses for performing loans (Stage 1) and the recognition of lifetime expected losses for performing loans that have experienced a significant increase in credit risk since origination (Stage 2). Under our current probability-weighted scenarios, if all our performing loans were in Stage 1, our models would generate an allowance for performing loans of approximately $2,600 million ($2,800 million as at October 31, 2023), compared to the reported allowance for performing loans of $3,525 million ($3,572 million as at October 31, 2023).
Note 4: Deposits
| Payable on demand | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Canadian $ in millions) | Interest bearing | Non-interest<br><br>bearing | Payable<br>after notice | Payable on a<br>fixed date<br>(2)(3) | January 31, 2024 | October 31, 2023 | ||||||
| Deposits by: | ||||||||||||
| Banks (1) | 4,619 | 1,626 | 1,372 | 23,070 | 30,687 | 29,587 | ||||||
| Business and government | 62,401 | 40,936 | 182,402 | 285,494 | 571,233 | 575,957 | ||||||
| Individuals | 3,501 | 33,421 | 135,282 | 140,014 | 312,218 | 305,335 | ||||||
| Total (4) | 70,521 | 75,983 | 319,056 | 448,578 | 914,138 | 910,879 | ||||||
| Booked in: | ||||||||||||
| Canada | 59,732 | 65,023 | 128,035 | 320,241 | 573,031 | 564,412 | ||||||
| United States | 10,663 | 10,943 | 188,885 | 90,236 | 300,727 | 301,064 | ||||||
| Other countries | 126 | 17 | 2,136 | 38,101 | 40,380 | 45,403 | ||||||
| Total | 70,521 | 75,983 | 319,056 | 448,578 | 914,138 | 910,879 | ||||||
| (1) | Includes regulated and central banks. | |||||||||||
| --- | --- | |||||||||||
| (2) | Includes $66,496 million of senior unsecured debt as at January 31, 2024 subject to the Bank Recapitalization <br>(Bail-In)<br> regime ($63,925 million as at October 31, 2023). The <br>Bail-In<br> regime provides certain statutory powers to the Canada Deposit Insurance Corporation, including the ability to convert specified eligible shares and liabilities into common shares if the bank becomes <br>non-viable. | |||||||||||
| --- | --- | |||||||||||
| (3) | Deposits totalling $31,584 million as at January 31, 2024 ($30,852 million as at October 31, 2023) can be early redeemed, either fully or partially, by customers without penalty. These are classified as payable on a fixed date, based on their remaining contractual maturities. | |||||||||||
| --- | --- | |||||||||||
| (4) | Includes $490,126 million of deposits denominated in U.S. dollars as at January 31, 2024 ($492,404 million as at October 31, 2023), and $49,903 million of deposits denominated in other foreign currencies ($55,705 million as at October 31, 2023). | |||||||||||
| --- | --- |
Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
The following table presents deposits payable on a fixed date and greater than one hundred thousand dollars:
| (Canadian $ in millions) | Canada | United States | Other | Total | ||||
|---|---|---|---|---|---|---|---|---|
| As at January 31, 2024 | 273,015 | 80,454 | 38,097 | 391,566 | ||||
| As at October 31, 2023 | 269,262 | 73,226 | 43,106 | 385,594 |
The following table presents the maturity schedule for deposits payable on a fixed date greater than one hundred thousand dollars, which are booked in Canada:
| (Canadian $ in millions) | Less than 3 months | 3 to 6 months | 6 to 12 months | Over 12 months | Total | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| As at January 31, 2024 | 57,733 | 41,316 | 54,408 | 119,558 | 273,015 | |||||
| As at October 31, 2023 | 55,070 | 38,509 | 61,370 | 114,313 | 269,262 | |||||
| BMO Financial Group First Quarter Report 2024 <br>61 | ||||||||||
| --- |
Note 5: Equity
Preferred and Common Shares Outstanding and Other Equity Instruments
(1)
| (Canadian in millions, except as noted) | January 31, 2024 | October 31, 2023 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Amount | Dividends declared<br><br>per share<br>(6) | Number<br>of shares | Amount | Dividends declared<br>per share (6) | Convertible into | |||||||||
| Preferred Shares - Classified as Equity | ||||||||||||||
| Class B – Series 27 | 20,000,000 | 500 | 0.24 | 20,000,000 | 500 | 0.96 | Class B - Series 28 | (2)(3) | ||||||
| Class B – Series 29 | 16,000,000 | 400 | 0.23 | 16,000,000 | 400 | 0.91 | Class B - Series 30 | (2)(3) | ||||||
| Class B – Series 31 | 12,000,000 | 300 | 0.24 | 12,000,000 | 300 | 0.96 | Class B - Series 32 | (2)(3) | ||||||
| Class B – Series 33 | 8,000,000 | 200 | 0.19 | 8,000,000 | 200 | 0.76 | Class B - Series 34 | (2)(3) | ||||||
| Class B – Series 44 | 16,000,000 | 400 | 0.43 | 16,000,000 | 400 | 1.21 | Class B - Series 45 | (2)(3) | ||||||
| Class B – Series 46 | 14,000,000 | 350 | 0.32 | 14,000,000 | 350 | 1.28 | Class B - Series 47 | (2)(3) | ||||||
| Class B – Series 50 | 500,000 | 500 | - | 500,000 | 500 | 73.73 | Not convertible | (3) | ||||||
| Class B – Series 52 | 650,000 | 650 | - | 650,000 | 650 | 57.52 | Not convertible | (3) | ||||||
| Preferred Shares - Classified as Equity | 3,300 | 3,300 | ||||||||||||
| Recourse to | ||||||||||||||
| Other Equity Instruments | ||||||||||||||
| 4.800% Additional Tier 1 Capital Notes (AT1 Notes) | 658 | 658 | - | (3)(5) | ||||||||||
| 4.300% Limited Recourse Capital Notes, Series 1 (Series 1 LRCNs) | 1,250 | 1,250 | Preferred Shares Series 48 | (3)(4)(5) | ||||||||||
| 5.625% Limited Recourse Capital Notes, Series 2 (Series 2 LRCNs) | 750 | 750 | Preferred Shares Series 49 | (3)(4)(5) | ||||||||||
| 7.325% Limited Recourse Capital Notes, Series 3 (Series 3 LRCNs) | 1,000 | 1,000 | Preferred Shares Series 51 | (3)(4)(5) | ||||||||||
| Other Equity Instruments | 3,658 | 3,658 | ||||||||||||
| Preferred Shares and Other Equity Instruments | 6,958 | 6,958 | ||||||||||||
| Common Shares (7)(8)(9) | 725,363,211 | 23,412 | 1.51 | 720,909,161 | 22,941 | 5.80 |
All values are in US Dollars.
| (1) | For additional information refer to Notes 16 and 20 of our annual consolidated financial statements for the year ended October 31, 2023. |
|---|---|
| (2) | If converted, the holders have the option to convert back to the original preferred shares on subsequent redemption dates, subject to certain conditions. |
| --- | --- |
| (3) | The instruments <br>issued include a non-viability contingent capital (NVCC) provision, which<br>is necessary for the preferred shares, AT1 Notes and by virtue of the recourse to the Preferred Shares Series 48, Preferred Shares Series 49 and Preferred Shares Series 51 (collectively, the LRCN Preferred Shares) for Series 1, Series 2 and Series 3 LRCNs (collectively, the LRCNs), respectively, to qualify as regulatory capital under Basel III, <br>(see (4) below). As such, they are convertible into a variable number of our common shares if OSFI announces that the bank is, or is about to become, <br>non-viable<br> or if a federal or provincial government in Canada publicly announces that the bank has accepted or agreed to accept a capital injection, or equivalent support, to avoid <br>non-viability.<br> In such an event, each preferred share, including the LRCN Preferred Shares and AT1 Notes, is convertible into common shares pursuant to an automatic conversion formula and a conversion price based on the greater of: (i) a floor price of $5.00 and (ii) the current market price of our common shares based on the volume weighted average trading price of our common shares on the TSX. The number of common shares issued is determined by dividing the value of the preferred share or other equity instrument, including declared and unpaid dividends, by the conversion price and then applying the multiplier. |
| --- | --- |
| (4) | Non-deferrable<br> interest is payable semi-annually on the LRCNs at the bank’s discretion. <br>Non-payment<br> of interest will result in a recourse event, with the noteholders’ sole remedy being the holders’ proportionate share of trust assets comprised of the LRCN Preferred Shares, each series of which is issued concurrently with the corresponding LRCNs and are eliminated on consolidation. In such an event, the delivery of the trust assets will represent the full and complete extinguishment of our obligations under the LRCNs. In circumstances where the LRCN Preferred Shares are converted into common shares of the bank under the NVCC provision, the LRCNs would be redeemed and the noteholders’ sole remedy would be their proportionate share of trust assets, then comprised of common shares of the bank received by the trust on conversion. |
| --- | --- |
| (5) | The rates represent the annual interest rate percentage applicable to the notes issued as at the reporting date. |
| --- | --- |
| (6) | Represents <br>year-to-date<br> dividends declared per share as at reporting date. <br>Non-cumulative<br> dividends on preferred shares are payable quarterly as and when declared by the Board of Directors, except for Class B – Series 50 and 52 preferred share dividends, which are payable semi-annually. |
| --- | --- |
| (7) | The stock options issued under the Stock Option Plan are convertible into 7,035,433 common shares as at January 31, 2024 (6,312,576 common shares as at October 31, 2023) of which 3,243,150 are exercisable as at January 31, 2024 (2,759,935 as at October 31, 2023). |
| --- | --- |
| (8) | During the three months ended January 31, 2024, we issued 4,057,988 common shares, under the Shareholder Dividend Reinvestment and Share Purchase Plan (2,676,317 common shares during the three months ended January 31, 2023) and we issued 390,996 common shares, under the Stock Option Plan (294,326 common shares during the three months ended January 31, 2023). |
| --- | --- |
| (9) | Common shares are net of 68,445 treasury shares as at January 31, 2024 (73,511 treasury shares as at October 31, 2023). |
| --- | --- |
Other Equity Instruments
The AT1 Notes and LRCNs are compound financial instruments that have both equity and liability features. On the date of issuance, we assigned an insignificant value to the liability components of both instruments and, as a result, the full amount of proceeds has been classified as equity and form part of our additional Tier 1 NVCC. Semi-annual distributions are recognized as a reduction in equity when payable. The AT1 Notes and LRCNs are subordinate to the claims of the depositors and certain other creditors in right of payment.
Preferred Shares
On October 19, 2023, we announced that we did not intend to exercise our right to redeem the current outstanding Non-Cumulative
5-Year Rate Reset Class B Preferred Shares, Series 44 (Preferred Shares Series 44) on November 25, 2023. As a result, subject to certain conditions, the holders of Preferred Shares Series 44 had the right, at their option, by November 10, 2023, to convert any or all of their Preferred Shares Series 44 on a one-for-one basis into Non-Cumulative Floating Rate Class B Preferred Shares, Series 45 (Preferred Shares Series 45). During the conversion period, which ran from October 25, 2023 to November 10, 2023, 93,870 Preferred Shares Series 44 were tendered for conversion into Preferred Shares Series 45, which is less than the minimum 1,000,000 required to give effect to the conversion, as described in the Preferred Shares Series 44 prospectus supplement dated September 10, 2018. As a result, no Preferred Shares Series 45 were issued and the holders of Preferred Shares Series 44 retained their shares. The divi d end rate for the Preferred Shares Series 44 for the five-year period commencing on November 25, 2023 to, but excluding, November 25, 2028, is 6.816 %.
| 62<br> BMO Financial Group First Quarter Report 2024 |
|---|
Shareholder Dividend Reinvestment and Share Purchase Plan
On February 27, 2024, we announced that commencing with the common share dividend declared for the second quarter of fiscal 2024, and subsequently until further notice, common shares under the Shareholder Dividend Reinvestment and Share Purchase Plan (the Plan) will be purchased on the open market without a discount.
We
issued 4,057,988 common shares under the Plan for the three months ended January 31, 2024 (2,676,317 common shares for the three months ended January 31, 2023).
Non-Controlling Interest
Non-controlling interest in subsidiaries, relating to our acquisition of Bank of the West, was $29 million as at January 31, 2024 ($28 million as at October 31, 2023).
Note 6: Fair Value Measurements
Fair Value of Financial Instruments Not Carried at Fair Value on the Balance Sheet
Set out in the following table are the amounts that would be reported if all financial instruments not currently carried at fair value were reported at their fair values. Refer to Note 17 of our annual consolidated financial statements for the year ended October 31, 2023 for further discussion on the determination of fair value.
| (Canadian $ in millions) | January 31, 2024 | October 31, 2023 | ||||||
|---|---|---|---|---|---|---|---|---|
| Carrying value | Fair value | Carrying value | Fair value | |||||
| Securities<br>(1) | ||||||||
| Amortized cost | 121,127 | 112,579 | 116,814 | 104,171 | ||||
| Loans<br>(1)(2) | ||||||||
| Residential mortgages | 176,257 | 173,157 | 175,350 | 167,863 | ||||
| Consumer instalment and other personal | 91,261 | 90,159 | 103,267 | 101,023 | ||||
| Credit cards | 12,104 | 12,104 | 11,893 | 11,893 | ||||
| Business and government | 351,923 | 350,870 | 358,712 | 357,027 | ||||
| 631,545 | 626,290 | 649,222 | 637,806 | |||||
| Deposits<br>(3) | 873,703 | 872,234 | 875,034 | 871,776 | ||||
| Securitization and structured entities’ liabilities<br>(4) | 24,752 | 24,257 | 24,631 | 23,739 | ||||
| Other liabilities<br>(5) | 4,021 | 3,431 | 4,160 | 3,287 | ||||
| Subordinated debt | 8,216 | 8,175 | 8,228 | 7,849 |
This table excludes financial instruments with a carrying value approximating fair value, such as cash and cash equivalents, interest bearing deposits with banks, securities borrowed or purchased under resale agreements,
customers’ liability under acceptances, certain other assets, certain other liabilities, acceptances and securities lent or sold under repurchase agreements.
| (1) | Carrying value is net of ACL. |
|---|---|
| (2) | Excludes $37 million of residential mortgages classified as FVTPL, $10,437 million of business and government loans classified as FVTPL and $60 million of business and government loans classified as FVOCI ($1,676 million, $5,720 million and $58 million, respectively, as at October 31, 2023). |
| --- | --- |
| (3) | Excludes $39,637 million of structured note liabilities, $556 million of structured deposits and $242 million of metals deposits measured at fair value ($35,300 million, $341 million and $204 million, respectively, as at October 31, 2023). |
| --- | --- |
| (4) | Excludes $4,911 million of securitization and structured note entities’ liabilities classified as FVTPL ($2,463 million as at October 31, 2023). |
| --- | --- |
| (5) | Other liabilities include certain other liabilities of subsidiaries, other than deposits. |
| --- | --- |
Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
Fair Value Hierarchy
We use a fair value hierarchy to categorize assets and liabilities carried at fair value according to the inputs we use in valuation techniques to measure fair value.
Valuation Techniques and Significant Inputs
We determine the fair value of publicly traded fixed maturity debt and equity securities using quoted prices in active markets (Level 1) when these are available. When quoted prices in active markets are not available, we determine the fair value of financial assets and liabilities using models such as discounted cash flows with observable market data for inputs, such as yields or broker quotes and other third-party vendor quotes (Level 2). Fair value may also be determined using models where significant market inputs are not observable due to inactive markets or minimal market activity (Level 3). We maximize the use of observable market inputs to the extent possible.
Our Level 2 trading securities are primarily valued using discounted cash flow models with observable spreads or broker quotes. The fair value of Level 2 FVOCI securities is determined using discounted cash flow models with observable spreads or third-party vendor quotes. Level 2 structured note liabilities are valued using models with observable market information. Level 2 derivative assets and liabilities are valued using industry standard models and observable market information.
| BMO Financial Group First Quarter Report 2024 <br>63 |
|---|
The extent of our use of actively quoted market prices (Level 1), internal models using observable market information as inputs (Level 2) and models without observable market information as inputs (Level 3) in the valuation of securities, residential mortgages, business and government loans classified as FVTPL and FVOCI, other assets, fair value liabilities, derivative assets and derivative liabilities is presented in the following table:
| (Canadian $ in millions) | January 31, 2024 | October 31, 2023 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Valued using<br> quoted<br> market<br> prices | Valued using<br> models (with<br> observable<br> inputs) | Valued using<br> models (without<br> observable<br> inputs) | Total | Valued using<br> quoted<br> market<br> prices | Valued using<br> models (with<br> observable<br> inputs) | Valued using<br> models (without<br> observable<br> inputs) | Total | |||||||||
| Trading Securities | ||||||||||||||||
| Issued or guaranteed by: | ||||||||||||||||
| Canadian federal government | 3,486 | 6,059 | - | 9,545 | 7,503 | 3,867 | - | 11,370 | ||||||||
| Canadian provincial and municipal governments | 835 | 6,332 | - | 7,167 | 3,680 | 3,489 | - | 7,169 | ||||||||
| U.S. federal government | 8,549 | 16,070 | - | 24,619 | 8,822 | 11,310 | - | 20,132 | ||||||||
| U.S. states, municipalities and agencies | - | 213 | - | 213 | - | 279 | - | 279 | ||||||||
| Other governments | 1,040 | 3,018 | - | 4,058 | 442 | 2,099 | - | 2,541 | ||||||||
| NHA MBS, and U.S. agency MBS and CMO | - | 22,668 | 814 | 23,482 | - | 20,620 | 897 | 21,517 | ||||||||
| Corporate debt | 2,833 | 9,084 | 26 | 11,943 | 2,648 | 9,173 | 112 | 11,933 | ||||||||
| Trading loans | 10 | 286 | - | 296 | 3 | 447 | - | 450 | ||||||||
| Corporate equity | 56,540 | 171 | - | 56,711 | 48,094 | 196 | 37 | 48,327 | ||||||||
| 73,293 | 63,901 | 840 | 138,034 | 71,192 | 51,480 | 1,046 | 123,718 | |||||||||
| FVTPL Securities | ||||||||||||||||
| Issued or guaranteed by: | ||||||||||||||||
| Canadian federal government | 394 | 200 | - | 594 | 211 | 5 | - | 216 | ||||||||
| Canadian provincial and municipal governments | 209 | 1,125 | - | 1,334 | 444 | 722 | - | 1,166 | ||||||||
| U.S. federal government | 5 | 1,816 | - | 1,821 | 5 | 2,083 | - | 2,088 | ||||||||
| Other governments | - | 49 | - | 49 | - | 48 | - | 48 | ||||||||
| NHA MBS, and U.S. agency MBS and CMO | - | 20 | - | 20 | - | 19 | - | 19 | ||||||||
| Corporate debt | 330 | 7,867 | 24 | 8,221 | 25 | 7,310 | 27 | 7,362 | ||||||||
| Corporate equity | 858 | 831 | 4,319 | 6,008 | 821 | 805 | 4,208 | 5,834 | ||||||||
| 1,796 | 11,908 | 4,343 | 18,047 | 1,506 | 10,992 | 4,235 | 16,733 | |||||||||
| FVOCI Securities | ||||||||||||||||
| Issued or guaranteed by: | ||||||||||||||||
| Canadian federal government | 12,593 | 13,093 | - | 25,686 | 13,251 | 6,850 | - | 20,101 | ||||||||
| Canadian provincial and municipal governments | 440 | 4,838 | - | 5,278 | 609 | 4,445 | - | 5,054 | ||||||||
| U.S. federal government | 930 | 6,077 | - | 7,007 | 727 | 5,153 | - | 5,880 | ||||||||
| U.S. states, municipalities and agencies | - | 5,108 | - | 5,108 | - | 5,300 | - | 5,300 | ||||||||
| Other governments | 348 | 6,086 | - | 6,434 | 480 | 6,489 | - | 6,969 | ||||||||
| NHA MBS, and U.S. agency MBS and CMO | - | 15,945 | - | 15,945 | - | 15,766 | - | 15,766 | ||||||||
| Corporate debt | 146 | 3,716 | - | 3,862 | 406 | 3,183 | - | 3,589 | ||||||||
| Corporate equity | - | - | 173 | 173 | - | - | 160 | 160 | ||||||||
| 14,457 | 54,863 | 173 | 69,493 | 15,473 | 47,186 | 160 | 62,819 | |||||||||
| Loans | ||||||||||||||||
| Residential mortgages | - | 37 | - | 37 | - | 1,676 | - | 1,676 | ||||||||
| Business and government loans | - | 10,301 | 196 | 10,497 | - | 5,592 | 186 | 5,778 | ||||||||
| - | 10,338 | 196 | 10,534 | - | 7,268 | 186 | 7,454 | |||||||||
| Other Assets<br>(1) | 7,923 | 32 | 1,671 | 9,626 | 6,020 | 33 | 1,723 | 7,776 | ||||||||
| Fair Value Liabilities | ||||||||||||||||
| Securities sold but not yet purchased | 15,996 | 27,470 | - | 43,466 | 20,989 | 22,792 | - | 43,781 | ||||||||
| Structured note liabilities (2) | - | 39,637 | - | 39,637 | - | 35,300 | - | 35,300 | ||||||||
| Structured deposits (3) | - | 556 | - | 556 | - | 341 | - | 341 | ||||||||
| Other liabilities (4) | 1,453 | 6,004 | 13 | 7,470 | 1,479 | 3,250 | 5 | 4,734 | ||||||||
| 17,449 | 73,667 | 13 | 91,129 | 22,468 | 61,683 | 5 | 84,156 | |||||||||
| Derivative Assets | ||||||||||||||||
| Interest rate contracts | 62 | 9,305 | - | 9,367 | 21 | 13,329 | - | 13,350 | ||||||||
| Foreign exchange contracts | 2 | 12,530 | - | 12,532 | 28 | 19,861 | - | 19,889 | ||||||||
| Commodity contracts | 608 | 1,182 | 7 | 1,797 | 668 | 1,349 | 5 | 2,022 | ||||||||
| Equity contracts | 401 | 4,631 | 7 | 5,039 | 58 | 4,632 | - | 4,690 | ||||||||
| Credit default swaps | - | 11 | - | 11 | - | 25 | - | 25 | ||||||||
| 1,073 | 27,659 | 14 | 28,746 | 775 | 39,196 | 5 | 39,976 | |||||||||
| Derivative Liabilities | ||||||||||||||||
| Interest rate contracts | 73 | 11,880 | - | 11,953 | 52 | 17,749 | - | 17,801 | ||||||||
| Foreign exchange contracts | 40 | 12,038 | - | 12,078 | 1 | 19,204 | - | 19,205 | ||||||||
| Commodity contracts | 527 | 1,255 | 1 | 1,783 | 589 | 1,067 | 1 | 1,657 | ||||||||
| Equity contracts | 43 | 12,397 | - | 12,440 | 160 | 11,335 | 8 | 11,503 | ||||||||
| Credit default swaps | - | 10 | 1 | 11 | - | 25 | 2 | 27 | ||||||||
| 683 | 37,580 | 2 | 38,265 | 802 | 49,380 | 11 | 50,193 | |||||||||
| (1) | Other assets include precious metals, segregated fund assets and investment properties in our insurance business, carbon credits, certain receivables and other items measured at fair value. | |||||||||||||||
| --- | --- | |||||||||||||||
| (2) | These structured note liabilities included in deposits have been designated at FVTPL. | |||||||||||||||
| --- | --- | |||||||||||||||
| (3) | This represents certain embedded options related to structured deposits carried at amortized cost, included in deposits. | |||||||||||||||
| --- | --- | |||||||||||||||
| (4) | Other liabilities include investment contract liabilities and segregated fund liabilities in our insurance business, certain payables and metals deposits <br>included<br>in deposits that have been designated at FVTPL, as well as certain securitization and structured entities’ liabilities measured at FVTPL. | |||||||||||||||
| --- | --- |
Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
| 64<br> BMO Financial Group First Quarter Report 2024 |
|---|
Quantitative Information about Level 3 Fair Value Measurements
The table below presents the fair values of our significant Level 3 financial instruments measured at fair value on a recurring basis, the valuation techniques used to determine their fair values and the value ranges of significant unobservable inputs used in the valuations. We have not applied any other reasonably possible alternative assumptions to the significant Level 3 categories of private equity investments, as the net asset values are provided by the investment or fund managers.
| (Canadian in millions, except as noted) | January 31, 2024 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Range of input values<br>(1) | ||||||||||||
| Fair value<br>of assets | Valuation techniques | Significant<br> <br>unobservable inputs | Low | High | ||||||||
| Private equity | Corporate equity | 4,319 | Net asset value | Net asset value | na | na | ||||||
| EV/EBITDA | Multiple | 5x | 23x | |||||||||
| Investment Properties | Other assets - other | 1,368 | Discounted cash flows | Discount margin | 3% | 7% | ||||||
| NHA MBS, U.S. agency MBS and CMO | NHA MBS, U.S. agency MBS and CMO | 814 | Discounted cash flows | Prepayment rate | 3% | 65% | ||||||
| Market comparable | Comparability Adjustment | (2) | 0.34 | 0.91 |
All values are in US Dollars.
| (1) | The low and high input values represent the lowest and highest actual level of inputs used to value a group of financial instruments in a particular product category. These input ranges do not reflect the level of input uncertainty, but are affected by the specific underlying instruments within each product category. The input ranges will therefore vary from period to period based on the characteristics of the underlying instruments held at each balance sheet date. |
|---|---|
| (2) | Range of input values represents price per security adjustment (Canadian $). |
| --- | --- |
na – not applicable
Significant Transfers
Our policy is to record transfers of assets and liabilities between fair value hierarchy levels at their fair values as at the end of each reporting period, consistent with the date of the determination of fair value. Transfers between the various fair value hierarchy levels reflect changes in the availability of quoted market prices or observable market inputs that result from changes in market conditions. Transfers from Level 1 to Level 2 were due to reduced observability of the inputs used to value the securities. Transfers from Level 2 to Level 1 were due to increased availability of quoted prices in active markets.
The following tables present significant transfers between Level 1 and Level 2 for the three months ended January 31, 2024 and January 31, 2023:
| (Canadian in millions) | |||||||
|---|---|---|---|---|---|---|---|
| For the three months ended | January 31, 2023 | ||||||
| Level 2 to Level 1 | Level 1 to Level 2 | Level 2 to Level 1 | |||||
| Trading securities | 6,677 | 988 | 872 | 2,188 | |||
| FVTPL securities | 535 | 294 | 17 | 298 | |||
| FVOCI securities | 5,342 | 804 | 1,643 | 1,287 | |||
| Securities sold but not yet purchased | 5,047 | 723 | 182 | 2,117 |
All values are in US Dollars.
Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
Changes in Level 3 Fair Value Measurements
The tables below present a reconciliation of all changes in Level 3 financial instruments for the three months ended January 31, 2024 and January 31, 2023, including realized and unrealized gains (losses) included in earnings and other comprehensive income as well as transfers into and out of Level 3. Transfers from Level 2 into Level 3 were due to an increase in unobservable market inputs used in pricing the securities. Transfers out of Level 3 into Level 2 were due to an increase in observable market inputs used in pricing the securities.
| BMO Financial Group First Quarter Report 2024 <br>65 |
|---|
| Change in fair value | Movements | Transfers | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| For the three months ended January 31, 2024<br> <br>(Canadian $ in millions) | Balance<br>October 31,<br>2023 | Included in<br>earnings | Included<br> <br>in other<br>comprehensive<br>income<br>(1) | Issuances/<br>Purchases | Sales | Maturities/<br>Settlement | Transfers<br>into<br>Level 3 | Transfers<br>out of<br>Level 3 | Fair Value<br> <br>as at January 31,<br>2024 | Change in<br>unrealized gains<br>(losses) recorded<br>in income<br> <br>for instruments<br>still held<br>(2) | ||||||||||||||||
| Trading Securities | ||||||||||||||||||||||||||
| NHA MBS and U.S. agency MBS and CMO | 897 | 67 | (30 | ) | 195 | (273 | ) | - | 37 | (79 | ) | 814 | 38 | |||||||||||||
| Corporate debt | 112 | 1 | (1 | ) | 10 | (14 | ) | - | 3 | (85 | ) | 26 | 1 | |||||||||||||
| Corporate equity | 37 | - | - | - | - | - | - | (37 | ) | - | - | |||||||||||||||
| Total trading securities | 1,046 | 68 | (31 | ) | 205 | (287 | ) | - | 40 | (201 | ) | 840 | 39 | |||||||||||||
| FVTPL Securities | ||||||||||||||||||||||||||
| Corporate debt | 27 | (3 | ) | - | - | - | - | - | - | 24 | (3 | ) | ||||||||||||||
| Corporate equity | 4,208 | (107 | ) | (59 | ) | 316 | (38 | ) | - | - | (1 | ) | 4,319 | (49 | ) | |||||||||||
| Total FVTPL securities | 4,235 | (110 | ) | (59 | ) | 316 | (38 | ) | - | - | (1 | ) | 4,343 | (52 | ) | |||||||||||
| FVOCI Securities | ||||||||||||||||||||||||||
| Issued or guaranteed by: | ||||||||||||||||||||||||||
| U.S. states, municipalities and agencies | - | - | - | - | - | - | - | - | - | na | ||||||||||||||||
| Corporate equity | 160 | - | 11 | 2 | - | - | - | - | 173 | na | ||||||||||||||||
| Total FVOCI securities | 160 | - | 11 | 2 | - | - | - | - | 173 | na | ||||||||||||||||
| Business and Government Loans | 186 | - | (6 | ) | 33 | - | (17 | ) | - | - | 196 | - | ||||||||||||||
| Other Assets | 1,723 | 39 | - | 4 | (21 | ) | (74 | ) | - | - | 1,671 | 65 | ||||||||||||||
| Derivative Assets | ||||||||||||||||||||||||||
| Foreign exchange contracts | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||
| Commodity contracts | 5 | 2 | - | - | - | - | - | - | 7 | 2 | ||||||||||||||||
| Equity contracts | - | - | - | - | - | - | 7 | - | 7 | - | ||||||||||||||||
| Total derivative assets | 5 | 2 | - | - | - | - | 7 | - | 14 | 2 | ||||||||||||||||
| Other Liabilities | 5 | - | - | 8 | - | - | - | - | 13 | - | ||||||||||||||||
| Derivative Liabilities | ||||||||||||||||||||||||||
| Foreign exchange contracts | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||
| Commodity contracts | 1 | - | - | - | - | - | - | - | 1 | - | ||||||||||||||||
| Equity contracts | 8 | - | - | - | - | - | - | (8 | ) | - | - | |||||||||||||||
| Credit default swaps | 2 | (1 | ) | - | - | - | - | - | - | 1 | - | |||||||||||||||
| Total derivative liabilities | 11 | (1 | ) | - | - | - | - | - | (8 | ) | 2 | - | ||||||||||||||
| Change in fair value | Movements | Transfers | ||||||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| For the three months ended January 31, 2023<br> <br>(Canadian $ in millions) | Balance<br> October 31,<br> 2022 | Included in<br> earnings | Included<br> <br>in other<br> comprehensive<br> income<br>(1) | Issuances/<br> Purchases | Sales | Maturities/<br> Settlement | Transfers<br> into<br> Level 3 | Transfers<br> out of<br> Level 3 | Fair Value<br> <br>as at January 31,<br> 2023 | Change in<br> unrealized gains<br> (losses) recorded<br> in income<br> <br>for instruments<br> still held<br>(2) | ||||||||||||||||
| Trading Securities | ||||||||||||||||||||||||||
| NHA MBS and U.S. agency MBS and CMO | 985 | (13 | ) | (22 | ) | 145 | (143 | ) | - | 17 | (374 | ) | 595 | (3 | ) | |||||||||||
| Corporate debt | 3 | - | - | 4 | - | - | - | (2 | ) | 5 | - | |||||||||||||||
| Corporate equity | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||
| Total trading securities | 988 | (13 | ) | (22 | ) | 149 | (143 | ) | - | 17 | (376 | ) | 600 | (3 | ) | |||||||||||
| FVTPL Securities | ||||||||||||||||||||||||||
| Corporate debt | 8 | - | - | 3 | - | - | - | - | 11 | - | ||||||||||||||||
| Corporate equity | 4,044 | 5 | (44 | ) | 220 | (63 | ) | (1 | ) | - | - | 4,161 | 22 | |||||||||||||
| Total FVTPL securities | 4,052 | 5 | (44 | ) | 223 | (63 | ) | (1 | ) | - | - | 4,172 | 22 | |||||||||||||
| FVOCI Securities | ||||||||||||||||||||||||||
| Issued or guaranteed by: | ||||||||||||||||||||||||||
| U.S. states, municipalities and agencies | 1 | - | - | - | - | - | - | - | 1 | na | ||||||||||||||||
| Corporate equity | 153 | - | (1 | ) | 4 | - | - | - | - | 156 | na | |||||||||||||||
| Total FVOCI securities | 154 | - | (1 | ) | 4 | - | - | - | - | 157 | na | |||||||||||||||
| Business and Government Loans | 20 | - | - | 115 | - | (15 | ) | - | - | 120 | - | |||||||||||||||
| Other Assets | 1,233 | 45 | - | 23 | - | (2 | ) | - | - | 1,299 | 48 | |||||||||||||||
| Derivative Assets | ||||||||||||||||||||||||||
| Foreign exchange contracts | 26 | (26 | ) | - | - | - | - | - | - | - | - | |||||||||||||||
| Commodity contracts | - | - | - | 13 | - | - | - | - | 13 | - | ||||||||||||||||
| Equity contracts | - | - | - | - | - | - | 1 | - | 1 | - | ||||||||||||||||
| Total derivative assets | 26 | (26 | ) | - | 13 | - | - | 1 | - | 14 | - | |||||||||||||||
| Other Liabilities | 2 | - | - | 1 | - | - | - | - | 3 | - | ||||||||||||||||
| Derivative Liabilities | ||||||||||||||||||||||||||
| Foreign exchange contracts | - | 12 | - | - | - | - | - | - | 12 | (38 | ) | |||||||||||||||
| Commodity contracts | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||
| Equity contracts | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||
| Credit default swaps | 2 | - | - | - | - | - | - | - | 2 | - | ||||||||||||||||
| Total derivative liabilities | 2 | 12 | - | - | - | - | - | - | 14 | (38 | ) | |||||||||||||||
| (1) | Foreign exchange translation on assets and liabilities held by foreign operations is included in other comprehensive income, net foreign operations. | |||||||||||||||||||||||||
| --- | --- | |||||||||||||||||||||||||
| (2) | Changes in unrealized gains (losses) on Trading and FVTPL securities still held on January 31, 2024 and 2023 are included in earnings for the period. | |||||||||||||||||||||||||
| --- | --- |
Unrealized gains (losses) recognized on Level 3 financial instruments may be offset by (losses) gains on economic hedge contracts.
Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
na – not applicable
| 66<br> BMO Financial Group First Quarter Report 2024 |
|---|
Note 7: Capital Management
Our objective is to maintain a strong capital position in a cost-effective structure that: is appropriate given our target regulatory capital ratios and our internal assessment of required economic capital; underpins our operating groups’ business strategies and considers the market environment; supports depositor, investor and regulator confidence, while building long-term shareholder value; and is consistent with our target credit ratings.
As at January 31, 2024, we met OSFI’s target capital ratio requirements, which include a 2.5% Capital Conservation Buffer, a 1.0% Common Equity Surcharge for Domestic Systemically Important Banks (D-SIBs), a Countercyclical Buffer and a 3.5% Domestic Stability Buffer (DSB) applicable to D-SIBs. As announced by OSFI in June 202 3 , the DSB level was increased to 3.5% effective November 1, 2023. Our capital position as at January 31, 2024 is further detailed in the Capital Management section of our interim Management’s Discussion and Analysis.
Regulatory Capital and Total Loss Absorbing Capacity Measures, Risk-Weighted Assets and Leverage Exposures
(1)
| (Canadian $ in millions, except as noted) | January 31, 2024 | October 31, 2023 | ||
|---|---|---|---|---|
| CET1 Capital | 52,860 | 52,914 | ||
| Tier 1 Capital | 59,721 | 59,785 | ||
| Total Capital | 68,566 | 68,718 | ||
| TLAC | 114,262 | 114,402 | ||
| Risk-Weighted Assets | 414,145 | 424,197 | ||
| Leverage Exposures | 1,406,555 | 1,413,036 | ||
| CET1 Ratio | 12.8% | 12.5% | ||
| Tier 1 Capital Ratio | 14.4% | 14.1% | ||
| Total Capital Ratio | 16.6% | 16.2% | ||
| TLAC Ratio | 27.6% | 27.0% | ||
| Leverage Ratio | 4.2% | 4.2% | ||
| TLAC Leverage Ratio | 8.1% | 8.1% | ||
| (1) | Calculated in accordance with OSFI’s Capital Adequacy Requirements Guideline, Leverage Requirements Guideline and Total Loss Absorbing Capacity (TLAC) Guideline. | |||
| --- | --- |
Note 8: Employee Compensation
Stock Options
During the three months ended January 31, 2024, we granted a total of 1,113,853 stock options (1,322,817 stock options during the three months ended January 31, 2023) with a weighted-average fair value of $15.33 per option ($18.94 per option for the three months ended January 31, 2023).
To determine the fair value of the stock option tranches (i.e. the portion that vests each year) on the grant date, the following ranges of values were used for each option pricing assumption:
| For stock options granted during the three months ended | January 31, 2023 | ||
|---|---|---|---|
| Expected dividend yield | 4.5% | 4.5% - 4.6% | |
| Expected share price volatility | 17.4% - 17.6% | 20.9% | |
| Risk-free rate of return | 3.3% - 3.4% | 3.2% | |
| Expected period until exercise (in years) | 6.5 - 7.0 | 6.5 - 7.0 | |
| Exercise price () | 118.50 | 122.31 |
All values are in US Dollars.
Changes to the input assumptions can result in different fair value estimates.
Pension and Other Employee Future Benefit Expenses
Pension and other employee future benefit expenses are determined as follows:
| (Canadian in millions) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Other employee future benefit plans | ||||||||||
| For the three months ended | January 31, 2023 | January 31, 2024 | January 31, 2023 | |||||||
| Current service cost | 38 | 41 | 1 | 1 | ||||||
| Net interest (income) expense on net defined benefit (asset) liability | (15 | ) | (17 | ) | 11 | 11 | ||||
| Impact of plan amendments | - | (1 | ) | (84 | ) | - | ||||
| Administrative expenses | 3 | 2 | - | - | ||||||
| Benefits expense | 26 | 25 | (72 | ) | 12 | |||||
| Government pension plans expense (1) | 104 | 76 | - | - | ||||||
| Defined contribution expense | 105 | 81 | - | - | ||||||
| Total pension and other employee future benefit expenses (recovery)recognized in our Consolidated Statement of Income | 235 | 182 | (72 | ) | 12 |
All values are in US Dollars.
| (1) | Includes Canada Pension Plan, Quebec Pension Plan and U.S. Federal Insurance Contributions Act. |
|---|---|
| BMO Financial Group First Quarter Report 2024 <br>67 | |
| --- |
We amended certain other employee future benefit plans in the first quarter of 202 4. Th ese amendments have combined the administration of a few plans. In addition, we converted one defined contribution plan into a defined benefit plan and therefore brought a net asset on our Consolidated Balance Sheet equal to the surplus assets in that plan. This resulted in an $84 million benefit of plan amendments that was recognized as a reduction in employee compensation expense. When there are surplus assets, we must assess their economic benefits to the bank. Given there is no immediate economic benefits without further plan amendments, the $62 million in surplus assets of the combined plans are reduced to
$ nil through other comprehensive income.
Note 9: Earnings Per Share
Basic earnings per share is calculated by dividing net income, after deducting dividends payable on preferred shares and distributions payable on other equity instruments, by the daily average number of fully paid common shares outstanding throughout the period.
Diluted earnings per share is calculated in the same manner, with further adjustments made to reflect the dilutive impact of instruments convertible into our common shares.
The following tables present our basic and diluted earnings per share:
Basic Earnings Per Common Share
| (Canadian in millions, except as noted) | |||||
|---|---|---|---|---|---|
| January 31, 2023 | |||||
| Net income attributable to bank shareholders | 1,290 | 133 | |||
| Dividends on preferred shares and distributions on other equity instruments | (40 | ) | (38 | ) | |
| Net income available to common shareholders | 1,250 | 95 | |||
| Weighted-average number of common shares outstanding (in thousands) | 723,751 | 691,259 | |||
| Basic earnings per common share (Canadian ) | 1.73 | 0.14 |
All values are in US Dollars.
Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
Diluted Earnings Per Common Share
| (Canadian in millions, except as noted) | |||||
|---|---|---|---|---|---|
| January 31, 2023 | |||||
| Net income available to common shareholders adjusted for impact of dilutive instruments | 1,250 | 95 | |||
| Weighted-average number of common shares outstanding (in thousands) | 723,751 | 691,259 | |||
| Effect of dilutive instruments | |||||
| Stock options potentially exercisable (1) | 3,816 | 4,760 | |||
| Common shares potentially repurchased | (2,981 | ) | (3,392 | ) | |
| Weighted-average number of diluted common shares outstanding (in thousands) | 724,586 | 692,627 | |||
| Diluted earnings per common share (Canadian ) | 1.73 | 0.14 |
All values are in US Dollars.
| (1) | In computing diluted earnings per share, we excluded average stock options outstanding of 2,991,066 with a weighted-average exercise price of $132.29 for the three months ended January 31, 2024 (1,919,719 with a weighted-average exercise price of $138.48 for the three months ended January 31, 2023) as the average share price for the period did not exceed the exercise price. |
|---|
Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
Note 10: Income Taxes
Canadian tax authorities have reassessed us for additional income tax and interest in an amount of approximately $1,465
million in respect of certain 2011-2018 Canadian corporate dividends. These reassessments denied certain dividend deductions on the basis that the dividends were received as part of a “dividend rental arrangement.” In general, the tax rules raised by the Canadian tax authorities were prospectively addressed in the 2015 and 2018 Canadian federal budgets. We filed Notices of Appeal with the Tax Court of Canada and the matter is in litigation. We remain of the view that our tax filing positions were appropriate and intend to challenge all reassessments. However, if such challenges are unsuccessful, the additional expense would negatively impact our net income.
| 68<br><br><br>BMO Financial Group First Quarter Report 2024 |
|---|
Note 11: Operating Segmentation
Operating Groups
We conduct our business through three operating groups, each of which has a distinct mandate. Our operating groups are Personal and Commercial Banking (P&C) (comprised of Canadian Personal and Commercial Banking (Canadian P&C) and U.S. Personal and Commercial Banking (U.S. P&C)), BMO Wealth Management (BMO WM) and BMO Capital Markets (BMO CM), along with a Corporate Services unit.
For additional information refer to Note 25 of our annual consolidated financial statements for the year ended October 31, 2023.
Our results and average assets, grouped by operating segment, are as follows:
| (Canadian in millions) | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| For the three months ended January 31, 2024 | U.S. P&C | BMO WM | BMO CM | Corporate<br>Services<br>(1) | Total | ||||||||
| Net interest income (2) | 2,141 | 2,058 | 325 | 505 | (308 | ) | 4,721 | ||||||
| Non-interest revenue | 637 | 396 | 1,003 | 1,084 | (169 | ) | 2,951 | ||||||
| Total Revenue | 2,778 | 2,454 | 1,328 | 1,589 | (477 | ) | 7,672 | ||||||
| Provision for credit losses on impaired loans | 238 | 183 | 3 | 11 | 38 | 473 | |||||||
| Provision for (recovery of) credit losses on performing loans | 57 | 107 | 10 | (33 | ) | 13 | 154 | ||||||
| Total provision for (recovery of) credit losses | 295 | 290 | 13 | (22 | ) | 51 | 627 | ||||||
| Depreciation and amortization | 143 | 246 | 66 | 77 | - | 532 | |||||||
| Non-interest expense | 1,067 | 1,220 | 931 | 1,039 | 600 | 4,857 | |||||||
| Income (loss) before taxes and non-controlling interest in subsidiaries | 1,273 | 698 | 318 | 495 | (1,128 | ) | 1,656 | ||||||
| Provision for (recovery of) income taxes | 352 | 138 | 78 | 102 | (306 | ) | 364 | ||||||
| Reported net income (loss) | 921 | 560 | 240 | 393 | (822 | ) | 1,292 | ||||||
| Non-controlling interest in subsidiaries | - | - | - | - | 2 | 2 | |||||||
| Net income (loss) attributable to bank shareholders | 921 | 560 | 240 | 393 | (824 | ) | 1,290 | ||||||
| Average assets (3) | 321,018 | 232,345 | 62,524 | 438,202 | 267,902 | 1,321,991 | |||||||
| For the three months ended January 31, 2023 | U.S. P&C | BMO WM | BMO CM | Corporate<br> Services (1) | Total | ||||||||
| Net interest income (2) | 1,959 | 1,432 | 306 | 701 | (377 | ) | 4,021 | ||||||
| Non-interest revenue | 598 | 302 | 822 | 998 | (1,642 | ) | 1,078 | ||||||
| Total Revenue | 2,557 | 1,734 | 1,128 | 1,699 | (2,019 | ) | 5,099 | ||||||
| Provision for (recovery of) credit losses on impaired loans | 135 | 42 | 1 | (3 | ) | 21 | 196 | ||||||
| Provision for (recovery of) credit losses on performing loans | 9 | 13 | 5 | (7 | ) | 1 | 21 | ||||||
| Total provision for (recovery of) credit losses | 144 | 55 | 6 | (10 | ) | 22 | 217 | ||||||
| Depreciation and amortization | 132 | 107 | 66 | 79 | - | 384 | |||||||
| Non-interest expense | 973 | 708 | 858 | 1,012 | 447 | 3,998 | |||||||
| Income (loss) before taxes | 1,308 | 864 | 198 | 618 | (2,488 | ) | 500 | ||||||
| Provision for (recovery of) income taxes | 357 | 199 | 39 | 130 | (358 | ) | 367 | ||||||
| Reported net income (loss) | 951 | 665 | 159 | 488 | (2,130 | ) | 133 | ||||||
| Average assets (3) | 303,781 | 150,264 | 54,684 | 463,917 | 241,808 | 1,214,454 |
All values are in US Dollars.
| (1) | Corporate Services includes Technology and Operations. |
|---|---|
| (2) | Operating groups report on a taxable equivalent basis (teb). Revenue and the provision for income taxes are increased on <br>tax-exempt<br> securities to an equivalent <br>before-tax<br> basis to facilitate comparisons of income between taxable and <br>tax-exempt<br> sources. The offset to the groups’ teb adjustments is reflected in Corporate Services revenue and provision for income taxes. Beginning January 1, 2024, we did not take the deduction for certain Canadian dividends received in BMO CM due to proposed legislation, and as a result, we no longer report this revenue on a taxable equivalent basis. |
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| (3) | Included within average assets are average earning assets, which are comprised of deposits with other banks, deposits at central banks, reverse repos, loans and securities. Total average earning assets for three months ended January 31, 2024 are $1,195,740 million, including $307,757 million for Canadian P&C, $212,354 million and U.S. P&C, and $675,629 million for all other operating segments including Corporate <br>Services<br>(for three months ended January 31, 2023 - Total: $1,082,623 million, Canadian P&C: $289,564 million, U.S. P&C: $143,054 million and all other operating segments: $650,005 million). |
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Certain comparative figures have been reclassified to conform with the current period’s presentation and for changes in accounting policy (Note 1).
| BMO Financial Group First Quarter Report 2024<br><br><br>69 |
|---|
EX-99.3
Exhibit 99.3
CONSOLIDATED CAPITALIZATION OF BANK OF MONTREAL
The following table sets forth the consolidated capitalization of the Bank as at January 31, 2024.
| As at<br>January 31, 2024 | ||
|---|---|---|
| (in millions of Canadian<br>dollars) | ||
| Subordinated Debt | 8,216 | |
| Total Equity | ||
| Preferred Shares^(1)^ and Other Equity Instruments^(2)^ | 6,958 | |
| Common Shares | 23,412 | |
| Contributed Surplus | 351 | |
| Retained Earnings | 44,161 | |
| Accumulated Other Comprehensive Income | 2,368 | |
| Total Shareholders’ Equity | 77,250 | |
| Non-controlling Interest in Subsidiaries | 29 | |
| Total Equity | 77,279 | |
| Total Capitalization | 85,495 |
Notes:
| (1) | Preferred Shares classified under Total Equity consist of Class B Preferred Shares Series 27, 29, 31, 33, 44, 46, 50<br>and 52. For more information on the classification of Preferred Shares, please refer to Note 5 of the unaudited interim consolidated financial statements of Bank of Montreal for the three-months ended January 31, 2024. |
|---|---|
| (2) | The Other Equity Instruments described under Total Equity consist of Additional Tier 1 Capital Notes and Limited Recourse<br>Capital Notes, Series 1, 2 and 3. Please refer to Note 5 of the unaudited interim consolidated financial statements of Bank of Montreal for the three-months ended January 31, 2024. |
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