EX-99.1 2 d425705dex991.htm EX-99.1 EX-99.1

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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 income1, 2 of $1,893 million, compared with $2,158 million

 

 

Reported earnings per share (EPS)3 of $1.73, compared with $0.14; adjusted EPS1, 2, 3 of $2.56, compared with $3.06

 

 

Provision for credit losses (PCL) of $627 million, compared with $217 million

 

 

Return on equity (ROE) of 7.2%, compared with 0.6%; adjusted ROE1, 2 of 10.6%, compared with 12.9%

 

 

Common Equity Tier 1 (CET1) Ratio4 of 12.8%, compared with 18.2%

Adjusted1, 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 ($417 million pre-tax) in the current quarter.

 

 

A net accounting loss of $136 million ($164 million pre-tax) on 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 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 ($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 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 certain tax measures enacted by the Canadian government.

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 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 the Glossary of Financial Terms.

(2)

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. For further information, refer to the Changes in Accounting Policies section.

(3)

All EPS measures in this document refer to diluted EPS, unless specified otherwise.

(4)

The CET1 Ratio is disclosed in accordance with the Office of the Superintendent of Financial Institutions’ (OSFI’s) Capital Adequacy Requirements (CAR) Guideline.

Note: All ratios and percentage changes in this document are based on unrounded numbers.

 

BMO Financial Group First Quarter Report 2024 1


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


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, is known 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


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
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 terminology, measures and key parameters

  82-118,126-128   34   -    - 
 

3.   Top and emerging risks

  78-80   7,34   -    - 
 

4.   Plans to meet new key regulatory ratios once applicable rules are finalized

  72   18   -    - 
Risk Governance, Risk Management and Business Model  

5.   Risk management and governance framework, processes and key functions

  82-86   -    -    - 
 

6.   Risk culture, risk appetite and procedures to support the culture

  86   -    -    - 
 

7.   Risks that arise from business models and activities

  84-85   -    -    - 
 

8.   Stress testing within the risk governance and capital frameworks

  85-86   -    -    - 
Capital Adequacy and Risk-Weighted Assets (RWA)  

9.   Pillar 1 capital requirements

  70-73   -    -    5-6,13
 

10.  Composition of capital components and reconciliation of the accounting balance sheet to the regulatory balance sheet. A main features template can be found at
https://www.bmo.com/main/about-bmo/investor-relations/regulatory-disclosure

  73-74   19   -    5-7,16-17
 

11.  Flow statement of movements in regulatory capital, including changes in Common Equity Tier 1 Capital, Additional Tier 1 Capital and Tier 2 Capital

      -    -    8
 

12.  Capital management and strategic planning

  69,75-76   -    -     
 

13.  Risk-weighted assets (RWA) by operating group

  74   -    -    14
 

14.  Analysis of capital requirements for each method used in calculating RWA

  73-74,87-90   -    -    14-15,
22-46, 53,
55-66,
85-86
 

15.  Tabulate credit risk in the banking book for Basel asset classes and major portfolios

  -    -    -    22-46,
48-53,
55-66,86
   

16.  Flow statement that reconciles movements in RWA by credit risk and market risk

  -    -    -    47,84
   

17.  Basel validation and back-testing process, including estimated and actual loss parameter information

  112   -    -    87
Liquidity  

18.  Management of liquidity needs and liquidity reserve held to meet those needs

  100-106   38,41   -    - 
Funding  

19.  Encumbered and unencumbered assets disclosed by balance sheet category

  102-103   39   36   - 
 

20.  Consolidated total assets, liabilities and off-balance sheet commitments by remaining contractual maturity

  107-108   43-44   -    - 
 

21.  Analysis of funding sources and funding strategy

  103-104   39-40   -    - 
Market Risk  

22.  Linkage of trading and non-trading market risk to the Consolidated Balance Sheet

  99   36   -    - 
 

23.  Significant trading and non-trading market risk factors

  95-99   36-37   -    - 
 

24.  Market risk model assumptions, validation procedures and back-testing

  95-99,112   -    -    - 
 

25.  Primary techniques for risk measurement and risk assessment, including risk of loss

  95-99   37   -    - 
Credit Risk  

26.  Analysis of credit risk profile, exposures and concentration

  87-94,159-166   15,58-61   24-33   14-83
 

27.  Policies to identify impaired loans and renegotiated loans

  159-161,166   -    -    - 
 

28.  Reconciliation of opening and closing balances of impaired loans and allowance for credit losses

  93,164   15,58-59   -    - 
 

29.  Counterparty credit risk arising from derivative transactions

  87-88,94,178-179   -    -    53-71
 

30.  Credit risk mitigation

  87-88,162,
170,209
  -    -    20,48-50,
67
Other Risks  

31.  Discussion of other risks

  82-84, 109-118   -    -    - 
 

32.  Publicly known risk events involving material or potentially material loss events

  109-118   -    -    - 

 

4 BMO Financial Group First Quarter Report 2024


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


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 year.

 

BMO Financial Group First Quarter Report 2024 7


Financial Highlights

 

(Canadian $ in millions, except as noted)

   Q1-2024     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 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 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  

 

 (1)

Adjusted results exclude certain items from reported results and are used to calculate our adjusted measures as presented 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 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 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 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 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 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.

 (4)

Capital and liquidity measures are disclosed in accordance with the Capital Adequacy Requirements (CAR) Guideline and the 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)

   Q1-2024     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 (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 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 (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 non-interest expense (after-tax)

     (455     (523     (188

Adjusting Items Impacting Provision for Income Taxes (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  

 

(1)

Reported net income in Q1-2023 included losses of $1,461 million ($2,011 million pre-tax) related to the acquisition of Bank of the West, comprising $1,628 million of mark-to-market 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 interest income.

 (2)

Reported net income 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 $14 million interest expense and non-interest 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 $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 Note 24 of the audited annual consolidated financial statements of BMO’s 2023 Annual Report.

 (3)

Reported net income in Q1-2023 included a 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 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 $363 million ($487 million pre-tax). Costs related to the acquisitions of Radicle and Clearpool were recorded in BMO Capital Markets: Q1-2024 included $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: 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 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 Insurance Corporation (FDIC) special assessment of $313 million ($417 million pre-tax), recorded in non-interest expense in Corporate Services.

 Certain comparative figures have been reclassified to conform with the current period’s presentation.

 

10 BMO Financial Group First Quarter Report 2024


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 Wealth
Management
    BMO Capital
Markets
    Corporate
Services
    Total Bank     U.S. Segment (1)
(US$ in millions)
 

Q1-2024

               

Reported net income (loss)

    921       560       1,481       240       393       (822     1,292       184  

Acquisition and integration costs

    1       -       1       -       10       46       57       39  

Amortization of acquisition-related intangible assets

    3       75       78       1       5       -       84       59  

Legal provision (including related interest expense and legal fees)

    -       -       -       -       -       11       11       8  

Impact of loan portfolio sale

    -       -       -       -       -       136       136       102  

Impact of FDIC special assessment

    -       -       -       -       -       313       313       231  

Adjusted net income (loss) (2)

    925       635       1,560       241       408       (316     1,893       623  

Q4-2023

               

Reported net income (loss)

    922       591       1,513       351       472       (626     1,710       364  

Acquisition and integration costs

    1       -       1       -       (2     434       433       317  

Amortization of acquisition-related intangible assets

    3       79       82       1       5       -       88       61  

Legal provision (including related interest expense and legal fees)

    -       -       -       -       -       12       12       8  

Adjusted net income (loss) (2)

    926       670       1,596       352       475       (180     2,243       750  

Q1-2023

               

Reported net income (loss)

    951       665       1,616       159       488       (2,130     133       (573

Acquisition and integration costs

    -       -       -       -       3       178       181       132  

Amortization of acquisition-related intangible assets

    -       1       1       1       4       -       6       4  

Management of fair value changes on the purchase of Bank of the West

    -       -       -       -       -       1,461       1,461       1,093  

Legal provision (including related interest expense and legal fees)

    -       -       -       -       -       6       6       5  

Impact of Canadian tax measures

    -       -       -       -       -       371       371       -  

Adjusted net income (loss) (2)

    951       666       1,617       160       495       (114     2,158       661  

 

 (1)

U.S. segment reported and adjusted results comprise net income recorded in U.S. P&C and our U.S. operations in BMO Wealth Management, BMO Capital Markets and Corporate Services.

 (2)

Refer to footnotes (1) to (7) in the Non-GAAP and Other Financial Measures 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 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 instruments

     (40     (125     (38

Net income available to common shareholders (A)

     1,250       1,578       95  

After-tax amortization of acquisition-related intangible assets

     84       88       6  

Net income available to common shareholders after adjusting for amortization of acquisition-related intangible assets (B)

     1,334       1,666       101  

After-tax impact of other 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 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 Wealth
Management
     BMO Capital
Markets
     Corporate
Services
    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        179  

Total average common equity

     15,847        33,246        49,093        4,679        13,202        2,417       69,391        32,059  

Return on equity (%)

     22.8        6.5        11.8        20.3        11.6        na       7.2        2.2  

Adjusted (3)

                      

Net income available to common shareholders

     915        622        1,537        239        399        (324     1,851        618  

Total average common equity

     15,847        33,246        49,093        4,679        13,202        2,417       69,391        32,059  

Return on equity (%)

     23.0        7.4        12.4        20.4        12.0        na       10.6        7.6  
     Q4-2023  

(Canadian $ in millions, except as noted)

   Canadian P&C      U.S. P&C      Total P&C      BMO Wealth
Management
     BMO Capital
Markets
     Corporate
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        355  

Total average common equity

     13,840        32,164        46,004        4,813        12,041        4,501       67,359        30,449  

Return on equity (%)

     26.1        7.1        12.8        28.8        15.2        na       9.3        4.6  

Adjusted (3)

                      

Net income available to common shareholders

     916        654        1,570        350        467        (276     2,111        741  

Total average common equity

     13,840        32,164        46,004        4,813        12,041        4,501       67,359        30,449  

Return on equity (%)

     26.3        8.1        13.5        28.9        15.3        na       12.4        9.6  
     Q1-2023  

(Canadian $ in millions, except as noted)

   Canadian P&C      U.S. P&C      Total P&C      BMO Wealth
Management
     BMO Capital
Markets
     Corporate
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        (581

Total average common equity

     12,083        13,932        26,015        4,005        12,091        22,871       64,982        16,916  

Return on equity (%)

     30.9        18.7        24.4        15.5        15.7        na       0.6        (13.6

Adjusted (3)

                      

Net income available to common shareholders

     942        658        1,600        158        486        (124     2,120        653  

Total average common equity

     12,083        13,932        26,015        4,005        12,091        22,871       64,982        16,916  

Return on equity (%)

     30.9        18.7        24.4        15.6        15.9        na       12.9        15.4  

 

 (1)

Return on equity is based on allocated capital. For further information, refer to the How BMO Reports Operating Group 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. 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 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

 

     Q1-2024  

(Canadian $ in millions, except as noted)

      vs. Q1-2023        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) 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) 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

 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 ($417 million pre-tax) in the current quarter.

 

 

A net accounting loss of $136 million ($164 million pre-tax) on 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 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 ($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 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 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 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 ($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)

 

    Net interest income (teb) (2)           Average earning assets (3)           Net interest margin (in basis points)  

(Canadian $ in millions, except as noted)

  Q1-2024     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  

 

 (1)

Adjusted results and ratios in this table are on a non-GAAP basis and are 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, 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, 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.

 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 Wealth
Management
    BMO Capital
Markets
    Corporate
Services
    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 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 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 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 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 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 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 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 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 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,
leverage and TLAC
requirements
     Total Pillar 1 Capital
buffer (1)
    

Tier 1 Capital

buffer (2)

     Domestic stability
buffer (3)
     Minimum capital,
leverage and TLAC
requirements including
capital buffers
     BMO capital, leverage
and TLAC ratios as at
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 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 (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 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.

 (2)

D-SIBs are required to meet a 0.5% Tier 1 Capital buffer requirement for the Leverage and TLAC Leverage Ratios.

 (3)

OSFI requires all D-SIBs to hold a Domestic Stability Buffer (DSB) against Pillar 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 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 TLAC Position

 

(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 and eligible common share capital issued by subsidiaries.

 (2)

Additional Tier 1 Eligible Capital includes directly and indirectly issued qualifying Additional Tier 1 instruments.

 (3)

Tier 2 Eligible Capital includes subordinated debentures and may include portion of expected credit loss provisions.

 (4)

Other TLAC includes senior unsecured debt subject to the Canadian Bail-In Regime.

 (5)

Institutions using one of the internal model-based approaches for credit risk, counterparty credit risk, or market risk 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
shares
     Amount
(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 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 assets.

 (1)

Details on the Medium-Term Notes are outlined in Note 15 of the audited consolidated financial statements of BMO’s 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 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 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, $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 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 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 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 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 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)

     Q1-2024       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 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 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 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 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  

 

 (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 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 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)

      Q1-2024         Q4-2023        Q1-2023  

Net interest income

     325        353       306  

Non-interest revenue (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 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 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  

 

 (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 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 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 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 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 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.

 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)

      Q1-2024        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 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 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  

 

 (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, 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 Q1-2024, $86 million in Q4-2023 and $70 million in Q1-2023 were recorded in net interest income, revenue and provision for income taxes, and were reflected in the ratios. For our U.S. businesses, teb amounts were US$nil in Q1-2024, Q4-2023 and 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 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)

      Q1-2024        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 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 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  

 

 (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 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 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 with the current period’s methodology.

 (3)

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 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 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 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 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 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 $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 financial statements of BMO’s 2023 Annual Report.

 (7)

Reported net loss in Q1-2023 included a 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 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 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 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 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


Summary Quarterly Earnings Trends (1)

 

(Canadian $ in millions, except as noted)

   Q1-2024     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 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 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  

 

 (1)

Adjusted results exclude certain items from reported results and are used to calculate our adjusted measures as presented 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 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 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 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 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 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 acquired Bank of the West performing loan portfolio, recorded in Corporate Services.

 (5)

Reported net income included acquisition and integration costs recorded in 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 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, $88 million in Q4-2023, $85 million in both Q3-2023 and Q2-2023, $6 million in both Q1-2023 and Q4-2022, $5 million in Q3-2022 and $6 million Q2-2022.

 (7)

Reported net income in fiscal 2022 included the impact of divestitures related to the sale of our EMEA and U.S. Asset 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 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, 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 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.

 (11)

Reported net income in Q1-2024 included a net accounting loss on the sale of a 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 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 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 methodology.

 Certain comparative figures have been reclassified to conform with the current period’s presentation.

 

30 BMO Financial Group First Quarter Report 2024


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


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 liabilities

     616,848        527,644  

B. Size

  

3.   Total exposures as defined for use 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 indicator

     4,361,851        4,779,866  

E. Complexity

  

11.  Notional amount of 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 and Emerging 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

mortgages (1)

            

Amortizing

home equity

lines of credit

            

Total amortizing

real estate

secured lending

            

Non-amortizing

real estate

secured lending

            

Total Canadian

real estate

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 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 three
months ended
            Outstanding Balances     For the three
months ended
 

Region (2)

   Insured (3)      Uninsured      Total      % of total     

Average LTV

uninsured (4)

            Insured (3)      Uninsured      Total      % of total     Average LTV
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’ (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 (i.e., CMHC, Sagen MI CanadaTM).

 (4)

Mortgage loan-to-value (LTV) is the ratio 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 three
months ended
          Portfolio     For the three
months ended
 

Region (2)

  Outstanding
Balances
    %     Authorizations     %     Average LTV (3)           Outstanding
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’ (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 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 frequency. Contractual payment schedule is used in the United States.

 (2)

Reporting methodologies are in accordance with OSFI’s B-20 guideline.

 (3)

As a result of increases in interest rates, the portfolio included $23.0 billion ($29.9 billion as at 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.

 (4)

A large proportion of U.S.-based mortgages in the longer amortization band are primarily associated with modification 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
October 31, 2023
 
 

(Canadian $ in millions)

  Funded Lending and Commitments             Securities            Repo-Style Transactions and
Derivatives
         

Total Net
Exposure

          

Total Net
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


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 January 31, 2024           As at October 31, 2023            
   


Consolidated

Balance
Sheet

 

 
 

    Subject to market risk      


Not subject

to market
risk

 

 
 

           


Consolidated

Balance
Sheet

 

 
 

    Subject to market risk      


Not subject

to market
risk

 

 
 

         

Primary risk factors for

non-traded risk
balances

(Canadian $ in millions)

  Traded
risk
(1)
    Non-traded
risk
(2)
    Traded
risk (1)
    Non-traded
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              

 

 (1)

Primarily comprises balance sheet items that are subject to the trading and underwriting risk management framework and 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 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 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 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)

 

    Economic value sensitivity           Earnings sensitivity over the next 12 months  

(Pre-tax Canadian $ equivalent in millions)

               

January 31,

2024

   

October 31,

2023

   

January 31,

2023

                       

January 31,

2024

   

October 31,

2023

   

January 31,

2023

 
     Canada (3)     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

 

 (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 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 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 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.

 (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-owned
assets
     Other cash &
securities
received
     Total gross
assets
(2)
     Encumbered
assets
     Net
unencumbered
assets
(3)
            Net
unencumbered
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 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) (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 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 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 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 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)

As at January 31, 2024

   Total gross
assets 
(2)
            Pledged as
collateral
     Other
encumbered
            Other
unencumbered 
(4)
     Available as
collateral 
(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)

As at October 31, 2023

   Total gross
assets (2)
            Pledged as
collateral
     Other
encumbered
            Other
unencumbered (4)
     Available as
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 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 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 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 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, 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 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 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 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 Home Loan Bank (FHLB) advances.

 (6)

Includes securities, securities borrowed or purchased under resale agreements and NHA mortgage-backed securities (reported 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 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 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 than
1 month
    1 to 3
  months
    3 to 6
  months
     6 to 12
  months
     Subtotal less
than 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 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 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 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
deposits/Legacy
senior debt (2)
  

Subordinated

debt (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.

 (2)

Long-term deposits/Legacy senior debt includes senior debt issued prior to September 23, 2018, and senior debt issued 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 (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.

 (3)

Weighted values are calculated after the application of the weights prescribed under the OSFI Liquidity Adequacy 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.

 

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

Value (2)

 

(Canadian $ in billions, except as noted)

 

No

maturity (1)

     Less than 6
months
    

6 to 12

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 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 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 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 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 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 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 items

    *        *        *        584.2        20.6  

Total RSF

    *        *        *        *        623.1  

Net Stable Funding Ratio (%)

    *        *        *        *        116  

For the quarter ended October 31, 2023

                                  Weighted
Value
(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 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 RSF.

 

42 BMO Financial Group First Quarter Report 2024


Contractual Maturities of Assets and Liabilities and Off-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  
      0 to 1
month
     1 to 3
months
     3 to 6
months
     6 to 9
months
     9 to 12
months
     1 to 2
years
     2 to 5
years
     Over 5
years
     No
maturity
    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  
      0 to 1
month
     1 to 3
months
     3 to 6
months
     6 to 9
months
     9 to 12
months
     1 to 2
years
     2 to 5
years
     Over 5
years
     No
maturity
    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  

 

 (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 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  
      0 to 1
month
     1 to 3
months
     3 to 6
months
     6 to 9
months
     9 to 12
months
     1 to 2
years
     2 to 5
years
     Over 5
years
     No
maturity
     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  

 

 (1)

Commitments to extend credit exclude personal lines of credit and credit cards that are unconditionally cancellable at 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.

 (3)

Other commitments comprise purchase obligations and lease commitments for leases signed but not yet commenced.

 

BMO Financial Group First Quarter Report 2024 43


(Canadian $ in millions)

                                                                   October 31, 2023  
      0 to 1
month
     1 to 3
months
     3 to 6
months
     6 to 9
months
     9 to 12
months
     1 to 2
years
     2 to 5
years
     Over 5
years
     No
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  
      0 to 1
month
     1 to 3
months
     3 to 6
months
     6 to 9
months
     9 to 12
months
     1 to 2
years
     2 to 5
years
     Over 5
years
     No
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  

 

 (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 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  
      0 to 1
month
     1 to 3
months
     3 to 6
months
     6 to 9
months
     9 to 12
months
     1 to 2
years
     2 to 5
years
     Over 5
years
     No
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  

 

 (1)

Commitments to extend credit exclude personal lines of credit and credit cards that are unconditionally cancellable at 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.

 (3)

Other commitments comprise purchase obligations and lease commitments for leases signed but not yet commenced.

 

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, 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 and Assets 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 Insurance Assets 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 Debt is 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


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 Interest Margin 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”.

Net Stable 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 Credit Losses (PCL) Ratio is calculated as the annualized total provision for credit losses as a percentage of average net loans and acceptances.

Purchased Credit 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.

Securities Borrowed 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 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 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 Capital Ratio 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) Ratio reflects 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


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)

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 and Share Purchase Plan. More information about the Plan and how to enrol can be found at www.bmo.com/investorrelations.

 

For dividend information, change in shareholder address or to advise of duplicate mailings, please contact

Computershare Trust Company of Canada

100 University Avenue, 8th Floor

Toronto, Ontario M5J 2Y1

Telephone: 1-800-340-5021 (Canada and the United States)

Telephone: (514) 982-7800 (international)

Fax: 1-888-453-0330 (Canada and the United States)

Fax: (416) 263-9394 (international)

E-mail: service@computershare.com

  

For other shareholder information, please contact

Bank of Montreal

Shareholder Services

Corporate Secretary’s Department

One First Canadian Place, 21st Floor

Toronto, Ontario M5X 1A1

Telephone: (416) 867-6785

E-mail: corp.secretary@bmo.com

 

For further information on this document, please contact

Bank of Montreal

Investor Relations Department

P.O. Box 1, One First Canadian Place, 37th Floor

Toronto, Ontario M5X 1A1

 

To review financial results and regulatory filings and disclosures online, please visit BMO’s website at www.bmo.com/investorrelations.

 

 

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