株探米国株
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false2024-07-31Q30000927971--10-31This amount is net of $63 million and $3,646 million cash and cash equivalents acquired as part of acquisitions for the three and nine months ended July 31, 2023. To mitigate changes in the Canadian dollar equivalent of the purchase price on close, we entered into forward contracts, which qualified for hedge accounting.These amounts are either supported by insured mortgages or issued by U.S. agencies and government-sponsored enterprises. NHA refers to the National Housing Act.Trading securities include interests of $11,376 million as at July 31, 2024 ($3,346 million as at October 31, 2023) in Collateralized Mortgage Obligations (CMO). We receive CMO in return for our sales of Mortgage Backed Securities (MBS) to certain structured vehicles that we do not consolidate. When we subsequently sell these CMO to third parties, but do not transfer substantially all risks and rewards of ownership to the third-party investor, or we maintain an interest in the sold instrument, we retain these CMO on our Consolidated Balance Sheet. Refer to Note 7 of our annual consolidated financial statements for the year ended October 31, 2023 for further discussion on these vehicles.Amounts are net of ACL of $3 million ($3 million as at October 31, 2023).Amounts are net of ACL of $4 million ($3 million as at October 31, 2023).The liabilities for incurred claims relating to insurance contracts in our creditor and reinsurance business were $110 million as at July 31, 2024 and $131 million as at October 31, 2023.Interest expense for liabilities carried at fair value is $726 million and $2,061 million for the three and nine months ended July 31, 2024, respectively ($650 million and $1,776 million for the three and nine months ended July 31, 2023, respectively). Interest expense for liabilities carried at amortized cost is $11,583 million and $33,030 million for the three and nine months ended July 31, 2024, respectively ($9,266 million and $24,458 million for the three and nine months ended July 31, 2023).Deposits include structured note liabilities, money market and metals deposits designated at FVTPL and certain embedded options related to structured deposits carried at amortized cost.Net of income tax (provision) of $0 million, $(14) million, $nil million for the three months ended and $0 million, $(55) million for the nine months ended, respectively.Includes dividends paid on securities sold but not yet purchased. Net of income tax (provision) recovery of $0 million, $137 million, and $42 million for the three months ended and $0 million, $114 million for the nine months ended, respectively.Net of income tax (provision) of $0 million, $(17) million, $(19) million for the three months ended and $0 million, $(19) million for the nine months ended, respectively.Net of income tax (provision) of $0 million, $nil million, $nil million for the three months ended and $0 million, $nil million for the nine months ended, respectively.Net of income tax (provision) recovery of $0 million, $103 million, $(104) million for the three months ended and $0 million, $(96) million for the nine months ended, respectively.Net of income tax (recovery) of $0 million, $(144) million, $(126) million for the three months ended and $0 million, $(223) million for the nine months ended, respectively.Net of income tax (provision) recovery of $0 million, $547 million, $635 million for the three months ended and $0 million, $367 million for the nine months ended, respectively.Net of income tax provision of $0 million, $15 million, $2 million for the three months ended and $0 million, $11 million for the nine months ended, respectively.Other assets include precious metals, segregated fund assets and investment properties in our insurance business, carbon credits, certain receivables and other items measured at fair value.Other liabilities include investment contract liabilities and segregated fund liabilities in our insurance business, as well as certain securitization and structured entities’ liabilities measured at FVTPL.Gains are net of (losses) on hedge contracts. 0000927971 2023-11-01 2024-07-31 0000927971 2024-07-31 0000927971 2023-10-31 0000927971 2024-05-01 2024-07-31 0000927971 2023-05-01 2023-07-31 0000927971 2022-11-01 2023-07-31 0000927971 2024-02-01 2024-04-30 0000927971 2024-03-08 0000927971 2024-07-17 0000927971 2022-11-01 2023-10-31 0000927971 2022-11-01 0000927971 2023-04-30 0000927971 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
6-K
Report of Foreign Private Issuer
Pursuant to Rule
13a-16
or
15d-16
of the Securities Exchange Act of 1934
 
For the month of: August, 2024
  
Commission File Number:
001-13354
BANK OF MONTREAL
(Name of Registrant)
 
100 King Street West  
1 First Canadian Place   129 rue Saint-Jacques
Toronto, Ontario   Montreal, Quebec
Canada, M5X 1A1   Canada, H2Y 1L6
(Executive Offices)
 
(Head Office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form
20-F
or Form
40-F:
Form
20-F
   Form
40-F 
 
 
Indicate by check mark if the registrant is submitting the Form
6-K
in paper as permitted by Regulation
S-T
Rule 101(b)(1): 
Indicate by check mark if the registrant is submitting the Form
6-K
in paper as permitted by Regulation
S-T
Rule 101(b)(7): 
 
 
INCORPORATION BY REFERENCE
The information contained in this Form
6-K
and any exhibits hereto shall be deemed filed with the Securities and Exchange Commission (“SEC”) solely for purposes of incorporation by reference into and as part of the following registration statements of the registrant on file with and declared effective by the SEC:
 
  1.
Registration Statement – Form
F-3
– File
No. 333-214934
 
  2.
Registration Statement – Form
F-3
– File
No. 333-264388
 
  3.
Registration Statement – Form
S-8
– File
No. 333-191591
 
  4.
Registration Statement – Form
S-8
– File
No. 333-180968
 
  5.
Registration Statement – Form
S-8
– File
No. 333-177579
 
  6.
Registration Statement – Form
S-8
– File
No. 333-177568
 
  7.
Registration Statement – Form
S-8
– File
No. 333-176479
 
  8.
Registration Statement – Form
S-8
– File
No. 333-175413
 
  9.
Registration Statement – Form
S-8
– File
No. 333-175412
 
  10.
Registration Statement – Form
S-8
– File
No. 333-113096
 
  11.
Registration Statement – Form
S-8
– File
No. 333-14260
 
  12.
Registration Statement – Form
S-8
– File
No. 33-92112
 
  13.
Registration Statement – Form
S-8
– File
No. 333-207739
 
  14.
Registration Statement – Form
S-8
– File
No. 333-237522
 
  15.
Registration Statement – Form
S-8
– File
No. 333-276007
 
 
 

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
    BANK OF MONTREAL
    By:  
/s/ Tayfun Tuzun
    Name:   Tayfun Tuzun
    Title:   Chief Financial Officer
Date
: August 27, 2024
    By:  
/s/ Paul V. Noble
    Name:   Paul V. Noble
    Title:   Corporate Secretary

EXHIBIT INDEX
 
Exhibit    Description of Exhibit
99.1
   Third Quarter 2024 Management’s Discussion and Analysis of Results of Operations and Financial Condition
99.2
   Third Quarter 2024 Consolidated Financial Statements
99.3
   Third Quarter 2024 Consolidated Capitalization of Bank of Montreal
101.
   Interactive Data File (formatted as Inline XBRL)
104.
   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

EX-99.1 2 d856288dex991.htm EX-99.1 EX-99.1

LOGO

BMO Financial Group Reports Third Quarter 2024 Results

 

 

REPORT TO SHAREHOLDERS

BMO’s Third Quarter 2024 Report to Shareholders, including the unaudited interim consolidated financial statements for the period ended July 31, 2024 are available online at www.bmo.com/investorrelations and at www.sedarplus.ca.

Financial Results Highlights

Third Quarter 2024 compared with Third Quarter 2023:

 

 

Net income of $1,865 million, compared with $1,565 million; adjusted net income1,2 of $1,981 million, compared with $2,148 million

 

 

Reported earnings per share (EPS)3 of $2.48, compared with $2.12; adjusted EPS1,2,3 of $2.64, compared with $2.94

 

 

Provision for credit losses (PCL) of $906 million, compared with $492 million

 

 

Return on equity (ROE) of 10.0%, compared with 9.0%; adjusted ROE1,2 of 10.6%, compared with 12.5%

 

 

Common Equity Tier 1 (CET1) Ratio4 of 13.0%, compared with 12.3%

Year-to-Date 2024 compared with Year-to-Date 2023:

 

 

Net income of $5,023 million, compared with $2,727 million; adjusted net income1, 2 of $5,907 million, compared with $6,492 million

 

 

Reported EPS3 of $6.57, compared with $3.56; adjusted EPS1,2,3 of $7.78, compared with $8.88

 

 

PCL of $2,238 million, compared with $1,732 million on a reported basis and $1,027 million on an adjusted basis1

 

 

ROE of 9.0%, compared with 5.1%; adjusted ROE1,2 of 10.7%, compared with 12.7%

Adjusted1,2 results in the current quarter and the prior year excluded the following items:

 

 

Acquisition and integration costs of $19 million ($25 million pre-tax) in the current quarter; $370 million ($497 million pre-tax) in the prior year.

 

 

Amortization of acquisition-related intangible assets of $79 million ($107 million pre-tax) in the current quarter; $85 million ($115 million pre-tax) in the prior year.

 

 

Impact of the U.S. Federal Deposit Insurance Corporation (FDIC) special assessment of $5 million ($6 million pre-tax) in the current quarter.

 

 

Impact of a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank, of $13 million ($18 million pre-tax) in the current quarter; a net recovery of $3 million ($4 million pre-tax) in the prior year.

 

 

A charge of $131 million ($160 million pre-tax) related to tax measures enacted by the Canadian government that amended the GST/HST definition for financial services in the prior year.

Toronto, August 27, 2024 – For the third quarter ended July 31, 2024, BMO Financial Group recorded net income of $1,865 million or $2.48 per share on a reported basis, and net income of $1,981 million or $2.64 per share on an adjusted basis.

“This quarter, BMO delivered strong pre-provision, pre-tax earnings and met our commitment to positive operating leverage for the quarter and year-to-date, reflecting good cost discipline and the sustained strength of our operating performance. While the cyclical increase in credit costs has resulted in loan loss provisions above our historical range, performance has been supported by operating momentum across our diversified businesses, including continued revenue growth in Canadian Personal and Commercial Banking and stronger client activity in our market-sensitive businesses. Across our U.S. markets, we’re adding new customers and expanding capabilities, contributing to consistent pre-provision-pre-tax earnings in our U.S. Segment,” said Darryl White, Chief Executive Officer, BMO Financial Group.

“With our strategic goals firmly in place, a strong balance sheet, robust capital and liquidity, we are well positioned to deliver sustainable returns to our shareholders. How we live our Purpose, to Boldly Grow the Good in business and life, continues to be recognized, including being named to Corporate Knights’ ranking of Canada’s Best 50 Corporate Citizens for the 23rd consecutive year,” concluded Mr. White.

Concurrent with the release of results, BMO announced a fourth quarter 2024 dividend of $1.55 per common share, unchanged from the prior quarter and an increase of $0.08 or 5% from the prior year. The quarterly dividend of $1.55 per common share is equivalent to an annual dividend of $6.20 per common share.

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 Capital Adequacy Requirements (CAR) Guideline, as set out by the Office of the Superintendent of Financial Institutions (OSFI), as applicable.

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

 

BMO Financial Group Third Quarter Report 2024 1

 


Third 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 $914 million, an increase of $33 million or 4% from the prior year, and adjusted net income was $920 million, an increase of $31 million or 3%. Results reflected a 7% increase in revenue, driven by higher net interest income due to balance growth and higher margins, higher expenses and a higher provision for credit losses.

U.S. P&C

Reported net income was $470 million, a decrease of $32 million or 6% from the prior year, and adjusted net income was $539 million, a decrease of $40 million or 7% from the prior year.

On a U.S. dollar basis, reported net income was $344 million, a decrease of $32 million or 9% from the prior year, and adjusted net income, which excludes amortization of acquisition-related intangible assets, was $395 million, a decrease of $39 million or 9%. Results reflected lower revenue driven by a decrease in non-interest revenue, lower expenses and a higher provision for credit losses.

BMO Wealth Management

Reported net income was $362 million, a decrease of $34 million or 9% from the prior year, and adjusted net income was $364 million, a decrease of $33 million or 8%. Wealth and Asset Management reported net income was $300 million, an increase of $91 million or 44%, reflecting higher revenue due to growth in client assets, including stronger global markets, partially offset by lower net interest income, as well as lower expenses. Insurance net income was $62 million, a decrease of $125 million from the prior year, primarily due to changes in portfolio positioning during the transition to IFRS 17.

BMO Capital Markets

Reported net income was $389 million, an increase of $94 million or 32% from the prior year, and adjusted net income was $394 million, an increase of $93 million or 31%. Results reflected higher revenue in both Global Markets and Investment and Corporate Banking driven by higher trading, underwriting and advisory, and corporate banking-related revenue, as well as lower expenses and a higher provision for credit losses.

Corporate Services

Reported net loss was $270 million, compared with reported net loss of $509 million in the prior year, and adjusted net loss was $236 million, compared with adjusted net loss of $18 million. Reported net loss decreased, primarily due to lower acquisition and integration costs and the impact of tax measures in the prior year. Adjusted net loss increased due to lower revenue, partially offset by lower expenses.

Capital

BMO’s Common Equity Tier 1 Ratio was 13.0% as at July 31, 2024, a decrease from 13.1% at the end of the second quarter of 2024, with internal capital generation more than offset by higher source currency risk-weighted assets.

Credit Quality

Total provision for credit losses was $906 million, compared with a provision of $492 million in the prior year. The provision for credit losses on impaired loans was $828 million, an increase of $495 million, due to higher provisions in U.S. P&C, Canadian P&C and BMO Capital Markets. The provision for credit losses on performing loans was $78 million, compared with a provision of $159 million in the prior year. The $78 million provision for credit losses on performing loans in the current quarter was primarily driven by portfolio credit migration.

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.

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.

 

 

 

2 BMO Financial Group Third Quarter Report 2024

 


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 Third 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 Third Quarter 2024 Report to Shareholders.

 

     
Topic   EDTF Disclosure  

 Page Number 

 

   2023 Annual 
 Report 
   Q3 2024 
   RTS     SFI     SRCI 
General  

1.   Risk-related information in each report, including an index for easy navigation

  78-118   4   Index   Index
 

2.   Risk terminology, measures and key parameters

  82-118,
126-128
  38   -   -
 

3.   Top and emerging risks

  78-80   6,38   -   -
 

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

  72   19   -   -
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   -   -   5-6,14
 

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   19-20   -   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   -   -   15
 

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

  73-74,87-90   -   -   15,21-48,
54-66,81-84
 

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

  -   -   -   21-48,
50-66,83-84
   

16.  Flow statement that reconciles movements in RWA by risk type

  -   -   -   49,80
   

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

  112   -   -   85
Liquidity  

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

  100-106   42,45   -   -
Funding  

19.  Encumbered and unencumbered assets disclosed by balance sheet category

  102-103   43   36   -
 

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

  107-108   47-48   -   -
 

21.  Analysis of funding sources and funding strategy

  103-104   43-44   -   -
Market Risk  

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

  99   40   -   -
 

23.  Significant trading and non-trading market risk factors

  95-99   40-41   -   -
 

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   40-41   -   -
Credit Risk  

26.  Analysis of credit risk profile, exposure and concentration

  87-94,
159-166
  16,63-67   24-33   15-79
 

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   17,63-65   -   -
 

29.  Counterparty credit risk arising from derivative transactions

  87-88,94,
178-179
  -   -   54-71
 

30.  Credit risk mitigation

  87-88,162,
170,209
  -   -   20,50-51,67
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   -   -   -

 

BMO Financial Group Third Quarter Report 2024 3

 


Management’s Discussion and Analysis

Management’s Discussion and Analysis (MD&A) commentary is as at August 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 July 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

 

  5      Caution Regarding Forward-Looking Statements
  6      Economic Developments and Outlook
  7      Financial Highlights
  8      Non-GAAP and Other Financial Measures
  13      Foreign Exchange
  13      Net Income
  14      Revenue
  16      Total Provision for Credit Losses
  17      Impaired Loans
  17      Non-Interest Expense
  17      Provision for Income Taxes
  18      Balance Sheet
  19      Capital Management
  22      Review of Operating Groups’ Performance
   23    Personal and Commercial Banking (P&C)
      24    Canadian Personal and Commercial Banking (Canadian P&C)
      26    U.S. Personal and Commercial Banking (U.S. P&C)
   28    BMO Wealth Management
   30    BMO Capital Markets
   32    Corporate Services
  34      Summary Quarterly Earnings Trends
  35      Transactions with Related Parties
  35      Off-Balance Sheet Arrangements
  36      Accounting Policies and Critical Accounting Estimates and Judgments
   36    Allowance for Credit Losses
  36      Changes in Accounting Policies
  37      Future Changes in Accounting Policies
  37      Other Regulatory Developments
  38      Risk Management
   38    Top and Emerging Risks That May Affect Future Results
   38    Real Estate Secured Lending
   39    International Exposures
   40    Market Risk
   41    Insurance Risk
   42    Liquidity and Funding Risk
   44    Credit Ratings
  49      Glossary of Financial Terms
  52      Interim Consolidated Financial Statements
   52    Consolidated Statement of Income
   53    Consolidated Statement of Comprehensive Income
   54    Consolidated Balance Sheet
   55    Consolidated Statement of Changes in Equity
   56    Consolidated Statement of Cash Flows
   57    Notes to Interim Consolidated Financial Statements
  80      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 July 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 July 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.

 

4 BMO Financial Group Third Quarter Report 2024

 


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 and changes in foreign exchange and interest rates; 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 and the Risk Management – Update on General Economic Conditions section in our Third 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 Third 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.

 

BMO Financial Group Third Quarter Report 2024 5

 


Economic Developments and Outlook (1)

Canada’s real gross domestic product (GDP) growth is estimated to have strengthened slightly to an annual rate of 2.0% in the second calendar quarter of 2024 from 1.7% in the first quarter, amid an increase in government spending, partially offset by slower consumer and business spending. Real GDP is expected to grow at a modest rate of 1.1% in 2024, before strengthening to 1.8% in 2025, in response to decreasing interest rates. The unemployment rate has risen by almost one percentage point in the past year to 6.4% in July 2024, due to a rapidly expanding labour force and slowing employment growth, and is expected to rise to 7.0% by early 2025, before falling modestly as economic growth improves. Diminished labour shortages have relieved upward pressure on inflation, reducing the year-over-year rate of the consumer price index to 2.5% in July 2024. Inflation is expected to return to the central bank’s 2.0% target in 2025. The Bank of Canada began easing its policy stance in June 2024, and is anticipated to lower the current policy rate from 4.5% to 3.75% by December 2024, and then to 3.0% by June 2025. The housing market is anticipated to strengthen in 2025, as a result of lower mortgage rates and supportive population growth. Housing market activity in Ontario and British Columbia remains depressed due to poor affordability, though other provinces have benefitted from households relocating to more affordable areas. Industry-wide growth in residential mortgage balances remained stable at 3.5% year-over-year in June 2024, but is projected to gradually strengthen as housing market activity improves in 2025. Year-over-year growth in consumer credit balances (excluding mortgages) has been restrained by high interest rates and overall growth will likely remain around 3% in 2024, before improving modestly in 2025. Growth in non-financial corporate credit balances has decelerated sharply in response to higher interest rates and repayment of pandemic-era government loans, and is expected to remain weak at under 2% in 2024.

U.S. real GDP growth strengthened to an annual rate of 2.8% in the second quarter of 2024 from 1.4% in the first quarter, due to a pickup in spending by consumers, businesses and governments. However, residential construction contracted due to elevated interest rates and restrictive lending conditions. While the economy’s expansion is anticipated to moderate in the second half of the year, growth in 2024 is expected to be similar to last year’s pace of 2.5%. With support from anticipated lower interest rates, the economy is projected to continue growing at a moderate rate of 1.7% in 2025. The unemployment rate has risen by 0.8 percentage points in the past year to 4.3% in July 2024, and is projected to rise to 4.8% by early 2025. The easing in labour market conditions has reduced pressure on inflation, resulting in the year-over-year rate of the consumer price index declining to a more than three-year low of 2.9% in July 2024. Inflation is projected to trend toward the central bank’s 2.0% target in 2025. The Federal Reserve is anticipated to begin lowering its policy rate in September 2024, and to reduce the rate by 75 basis points by December 2024, and by an additional 150 basis points before early 2026. Growth in industry-wide residential mortgage balances has slowed considerably to below 3.0% year-over-year in the first quarter of 2024 as a result of ongoing weakness in home sales, but will likely strengthen in 2025 in response to anticipated lower mortgage rates. Despite increased credit card usage, year-over-year growth in overall consumer loan balances has decelerated to approximately 2.0%, but is projected to improve in 2025 amid firmer consumer spending. Non-financial corporate credit growth has slowed to less than 1.0% year-over-year due to elevated borrowing costs and stricter lending conditions and will likely remain impacted by weakness in the office real estate market before strengthening next year in response to lower interest rates.

The economic outlook is subject to several risks that could lead to a more adverse outcome for the North American economy. These include, the economy decelerating more rapidly than central banks anticipated due to high interest rates, inflation staying above target and resulting in continued restrictive monetary policies, an increase in tensions between the United States and China relating to trade protectionism and Taiwan, and an escalation of the conflicts in Ukraine and the Middle East. In addition, economic uncertainty could increase depending on the outcome of the November 2024 presidential and congressional elections.

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.

 

6 BMO Financial Group Third Quarter Report 2024

 


Financial Highlights

 

(Canadian $ in millions, except as noted)

      Q3-2024         Q2-2024         Q3-2023        YTD-2024         YTD-2023  

Summary Income Statement (1) (2)

             

Net interest income

     4,794        4,515        4,905       14,030        13,740  

Non-interest revenue

     3,398        3,459        3,147       9,808        7,200  

Revenue

     8,192        7,974        8,052       23,838        20,940  

Provision for credit losses on impaired loans

     828        658        333       1,959        772  

Provision for credit losses on performing loans

     78        47        159       279        960  

Total provision for credit losses (PCL)

     906        705        492       2,238        1,732  

Non-interest expense

     4,839        4,844        5,572       15,072        15,455  

Provision for income taxes

     582        559        423       1,505        1,026  

Net income

     1,865        1,866        1,565       5,023        2,727  

Net income available to common shareholders

     1,814        1,719        1,522       4,783        2,516  

Adjusted net income

     1,981        2,033        2,148       5,907        6,492  

Adjusted net income available to common shareholders

     1,930        1,886        2,105       5,667        6,281  

Common Share Data ($, except as noted) (1)

             

Basic earnings per share

     2.49        2.36        2.13       6.58        3.56  

Diluted earnings per share

     2.48        2.36        2.12       6.57        3.56  

Adjusted diluted earnings per share

     2.64        2.59        2.94       7.78        8.88  

Book value per share

     102.05        97.67        92.38       102.05        92.38  

Closing share price

     116.45        122.97        122.54       116.45        122.54  

Number of common shares outstanding (in millions)

             

End of period

     729.4        729.3        716.7       729.4        716.7  

Average basic

     729.4        728.3        715.4       727.2        706.0  

Average diluted

     730.2        729.3        716.4       728.0        707.3  

Market capitalization ($ billions)

     84.9        89.7        87.8       84.9        87.8  

Dividends declared per share

     1.55        1.51        1.47       4.57        4.33  

Dividend yield (%)

     5.3        4.9        4.8       5.2        4.7  

Dividend payout ratio (%)

     62.4        64.0        69.1       69.5        121.5  

Adjusted dividend payout ratio (%)

     58.6        58.3        50.0       58.6        48.7  

Financial Measures and Ratios (%) (1) (2) (3)

             

Return on equity (ROE)

     10.0        9.9        9.0       9.0        5.1  

Adjusted return on equity

     10.6        10.9        12.5       10.7        12.7  

Return on tangible common equity (ROTCE)

     13.9        14.0        13.0       12.7        6.9  

Adjusted return on tangible common equity

     14.2        14.6        17.1       14.4        16.0  

Efficiency ratio

     59.1        60.7        69.2       63.2        73.8  

Adjusted efficiency ratio (4)

     57.3        58.0        60.3       58.7        59.4  

Operating leverage

     14.8        14.3        (12.4     16.3        (44.8

Adjusted operating leverage (4)

     5.2        3.0        (7.8     1.3        (8.4

Net interest margin on average earning assets

     1.51        1.51        1.67       1.53        1.62  

Adjusted net interest margin, excluding trading net interest income, and trading and insurance assets

     1.83        1.82        1.92       1.83        1.88  

Effective tax rate

     23.80        23.07        21.31       23.06        27.34  

Adjusted effective tax rate

     23.89        23.27        22.08       23.21        22.19  

Total PCL-to-average net loans and acceptances

     0.54        0.44        0.30       0.46        0.38  

PCL on impaired loans-to-average net loans and acceptances

     0.50        0.41        0.21       0.40        0.17  

Balance Sheet and other information (as at, $ millions, except as noted)

             

Assets

     1,400,470        1,374,053        1,293,514       1,400,470        1,293,514  

Average earning assets

     1,260,434        1,217,957        1,162,389       1,224,759        1,135,342  

Gross loans and acceptances

     677,995        664,658        644,638       677,995        644,638  

Net loans and acceptances

     673,719        660,644        641,118       673,719        641,118  

Deposits

     965,239        937,572        884,126       965,239        884,126  

Common shareholders’ equity

     74,439        71,225        66,208       74,439        66,208  

Total risk weighted assets (5)

     428,860        417,994        412,943       428,860        412,943  

Assets under administration

     750,527        725,921        774,760       750,527        774,760  

Assets under management

     409,627        385,936        340,184       409,627        340,184  

Capital and Liquidity Measures (%) (5)

             

Common Equity Tier 1 Ratio

     13.0        13.1        12.3       13.0        12.3  

Tier 1 Capital Ratio

     14.8        14.9        14.0       14.8        14.0  

Total Capital Ratio

     17.1        17.0        16.1       17.1        16.1  

Leverage Ratio

     4.3        4.3        4.2       4.3        4.2  

TLAC Ratio

     28.5        28.0        26.8       28.5        26.8  

Liquidity Coverage Ratio (LCR)

     129        128        131       129        131  

Net Stable Funding Ratio (NSFR)

     116        115        114       116        114  

Foreign Exchange Rates ($)

             

As at Canadian/U.S. dollar

     1.3795        1.3763        1.3177       1.3795        1.3177  

Average Canadian/U.S. dollar

     1.3705        1.3625        1.3331       1.3574        1.3439  

 

 (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)

PCL, ROE and ROTCE ratios are presented on an annualized basis.

 (4)

Prior to November 1, 2022, we presented adjusted revenue on a basis 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 $5,686 million in Q3-2022, $10,126 million in Q2-2022 and $7,642 million in Q1-2022. 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.

 (5)

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 the Office of the Superintendent of Financial Institutions (OSFI), as applicable.

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

 

BMO Financial Group Third Quarter Report 2024 7

 


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 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, Insurance Contracts (IFRS 17).

Caution

This Non-GAAP and Other Financial Measures section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.

 

8 BMO Financial Group Third Quarter Report 2024

 


Non-GAAP and Other Financial Measures

 

(Canadian $ in millions, except as noted)

      Q3-2024        Q2-2024        Q3-2023        YTD-2024        YTD-2023  

Reported Results

          

Net interest income

     4,794       4,515       4,905       14,030       13,740  

Non-interest revenue

     3,398       3,459       3,147       9,808       7,200  

Revenue

     8,192       7,974       8,052       23,838       20,940  

Provision for credit losses

     (906     (705     (492     (2,238     (1,732

Non-interest expense

     (4,839     (4,844     (5,572     (15,072     (15,455

Income before income taxes

     2,447       2,425       1,988       6,528       3,753  

Provision for income taxes

     (582     (559     (423     (1,505     (1,026

Net income

     1,865       1,866       1,565       5,023       2,727  

Diluted EPS ($)

     2.48       2.36       2.12       6.57       3.56  

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     (3     (42     (16

Impact of loan portfolio sale (3)

     -       -       -       (164     -  

Impact of Canadian tax measures (4)

     -       -       (138     -       (138

Impact of adjusting items on revenue (pre-tax)

     (14     (14     (141     (206     (2,165

Adjusting Items Impacting Provision for Credit Losses (Pre-tax)

          

Initial provision for credit losses on purchased performing loans (pre-tax) (5)

     -       -       -       -       (705

Adjusting Items Impacting Non-Interest Expense (Pre-tax)

          

Acquisition and integration costs (6)

     (25     (36     (497     (137     (1,463

Amortization of acquisition-related intangible assets (7)

     (107     (107     (115     (326     (238

Legal provision (including legal fees) (2)

     (4     (1     7       (6     5  

FDIC special assessment (8)

     (6     (67     -       (490     -  

Impact of Canadian tax measures (4)

     -       -       (22     -       (22

Impact of adjusting items on non-interest expense (pre-tax)

     (142     (211     (627     (959     (1,718

Impact of adjusting items on reported net income (pre-tax)

     (156     (225     (768     (1,165     (4,588

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)

     (11     (11     (2     (32     (13

Impact of loan portfolio sale (3)

     -       -       -       (136     -  

Impact of Canadian tax measures (4)

     -       -       (115     -       (115

Impact of adjusting items on revenue (after-tax)

     (11     (11     (117     (168     (1,589

Adjusting Items Impacting Provision for Credit Losses (After-tax)

          

Initial provision for credit losses on purchased performing loans (after-tax) (5)

     -       -       -       -       (517

Adjusting Items Impacting Non-Interest Expense (After-tax)

          

Acquisition and integration costs (6)

     (19     (26     (370     (102     (1,100

Amortization of acquisition-related intangible assets (7)

     (79     (79     (85     (242     (176

Legal provision (including related interest expense and legal fees) (2)

     (2     (1     5       (4     4  

FDIC special assessment (8)

     (5     (50     -       (368     -  

Impact of Canadian tax measures (4)

     -       -       (16     -       (16

Impact of adjusting items on non-interest expense (after-tax)

     (105     (156     (466     (716     (1,288

Adjusting Items Impacting Provision for Income Taxes (After-tax)

          

Impact of Canadian tax measures (4)

     -       -       -       -       (371

Impact of adjusting items on reported net income (after-tax)

     (116     (167     (583     (884     (3,765

Impact on diluted EPS ($)

     (0.16     (0.23     (0.81     (1.21     (5.32

Adjusted Results

          

Net interest income

     4,808       4,529       4,908       14,072       14,139  

Non-interest revenue

     3,398       3,459       3,285       9,972       8,966  

Revenue

     8,206       7,988       8,193       24,044       23,105  

Provision for credit losses

     (906     (705     (492     (2,238     (1,027

Non-interest expense

     (4,697     (4,633     (4,945     (14,113     (13,737

Income before income taxes

     2,603       2,650       2,756       7,693       8,341  

Provision for income taxes

     (622     (617     (608     (1,786     (1,849

Net income

     1,981       2,033       2,148       5,907       6,492  

Diluted EPS ($)

     2.64       2.59       2.94       7.78       8.88  

 

 (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, in Corporate Services.

 (2)

Reported net income included the impact of a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank: Q3-2024 included $13 million ($18 million pre-tax), comprising $14 million interest expense and non-interest expense of $4 million; Q2-2024 included $12 million ($15 million pre-tax), comprising $14 million interest expense and non-interest expense of $1 million; Q1-2024 included $11 million ($15 million pre-tax), comprising $14 million interest expense and non-interest expense of $1 million; Q3-2023 included a net recovery of $3 million ($4 million pre-tax), comprising $3 million interest expense, and a $7 million recovery of non-interest expense; Q2-2023 included $6 million ($7 million pre-tax) of interest expense; 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 Q1-2024 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.

 (4)

Reported net income included the impact of certain tax measures enacted by the Canadian government, comprising a charge of $131 million ($160 million pre-tax) related to the amended GST/HST definition for financial services in Q3-2023 and a one-time tax expense of $371 million in Q1-2023, primarily related to the Canada Recovery Dividend. These amounts were recorded in Corporate Services.

 (5)

Reported net income in Q2-2023 included an initial provision for credit losses of $517 million ($705 million pre-tax) on the purchased Bank of the West performing loan portfolio, recorded in Corporate Services.

 (6)

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: Q3-2024 included $16 million ($21 million pre-tax); Q2-2024 included $22 million ($30 million pre-tax); Q1-2024 included $46 million ($61 million pre-tax); Q3-2023 included $363 million ($487 million pre-tax); Q2-2023 included $545 million ($722 million pre-tax); and Q1-2023 included $178 million ($235 million pre-tax). Costs related to the acquisitions of Radicle and Clearpool were recorded in BMO Capital Markets: Q3-2024 included $1 million ($1 million pre-tax); Q2-2024 included $2 million ($3 million pre-tax); Q1-2024 included $10 million ($14 million pre-tax); Q3-2023 included $1 million ($2 million pre-tax); Q2-2023 included $2 million ($2 million pre-tax); and Q1-2023 included $3 million ($4 million pre-tax). Costs related to the acquisition of AIR MILES were recorded in Canadian P&C: Q3-2024 and Q2-2024 both included $2 million ($3 million pre-tax); Q1-2024 included $1 million ($1 million pre-tax); Q3-2023 included $6 million ($8 million pre-tax); and Q2-2023 included $2 million ($3 million pre-tax).

 

BMO Financial Group Third Quarter Report 2024 9

 


 (7)

Reported net income included amortization of acquisition-related intangible assets recorded in non-interest expense in the related operating group: Q3-2024 and Q2-2024 both included $79 million ($107 million pre-tax); Q1-2024 included $84 million ($112 million pre-tax); Q3-2023 and Q2-2023 both included $85 million ($115 million pre-tax); and Q1-2023 included $6 million ($8 million pre-tax).

 (8)

Reported net income included the impact of a U.S. Federal Deposit Insurance Corporation (FDIC) special assessment of $5 million ($6 million pre-tax) in Q3-2024; $50 million ($67 million pre-tax) in Q2-2024; and $313 million ($417 million pre-tax) in Q1-2024, recorded in non-interest expense in Corporate Services.

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

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)
 

Q3-2024

               

Reported net income (loss)

    914       470       1,384       362       389       (270     1,865       439  

Acquisition and integration costs

    2       -       2       -       1       16       19       11  

Amortization of acquisition-related intangible assets

    4       69       73       2       4       -       79       55  

Legal provision (including related interest expense and legal fees)

    -       -       -       -       -       13       13       10  

Impact of FDIC special assessment

    -       -       -       -       -       5       5       3  

Adjusted net income (loss) (2)

    920       539       1,459       364       394       (236     1,981       518  

Q2-2024

               

Reported net income (loss)

    872       543       1,415       320       459       (328     1,866       559  

Acquisition and integration costs

    2       -       2       -       2       22       26       17  

Amortization of acquisition-related intangible assets

    3       69       72       2       5       -       79       54  

Legal provision (including related interest expense and legal fees)

    -       -       -       -       -       12       12       9  

Impact of FDIC special assessment

    -       -       -       -       -       50       50       37  

Adjusted net income (loss) (2)

    877       612       1,489       322       466       (244     2,033       676  

Q3-2023

               

Reported net income (loss)

    881       502       1,383       396       295       (509     1,565       343  

Acquisition and integration costs

    6       -       6       -       1       363       370       275  

Amortization of acquisition-related intangible assets

    2       77       79       1       5       -       85       60  

Legal provision (including related interest expense and legal fees)

    -       -       -       -       -       (3     (3     (2

Impact of Canadian tax measures

    -       -       -       -       -       131       131       -  

Adjusted net income (loss) (2)

    889       579       1,468       397       301       (18     2,148       676  

YTD-2024

               

Reported net income (loss)

    2,707       1,573       4,280       922       1,241       (1,420     5,023       1,182  

Acquisition and integration costs

    5       -       5       -       13       84       102       67  

Amortization of acquisition-related intangible assets

    10       213       223       5       14       -       242       168  

Legal provision (including related interest expense and legal fees)

    -       -       -       -       -       36       36       27  

Impact of loan portfolio sale

    -       -       -       -       -       136       136       102  

Impact of FDIC special assessment

    -       -       -       -       -       368       368       271  

Adjusted net income (loss) (2)

    2,722       1,786       4,508       927       1,268       (796     5,907       1,817  

YTD-2023

               

Reported net income

    2,651       1,898       4,549       795       1,153       (3,770     2,727       (349

Acquisition and integration costs

    8       -       8       -       6       1,086       1,100       807  

Amortization of acquisition-related intangible assets

    3       155       158       3       15       -       176       125  

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)

    -       -       -       -       -       9       9       7  

Impact of Canadian tax measures

    -       -       -       -       -       502       502       -  

Initial provision for credit losses on purchased performing loans

    -       -       -       -       -       517       517       379  

Adjusted net income (loss) (2)

    2,662       2,053       4,715       798       1,174       (195     6,492       2,062  

 

 (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 (8) 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.

 

10 BMO Financial Group Third Quarter Report 2024

 


Return on Equity and Return on Tangible Common Equity

 

(Canadian $ in millions, except as noted)

      Q3-2024        Q2-2024        Q3-2023        YTD-2024        YTD-2023  

Reported net income

     1,865       1,866       1,565       5,023       2,727  

Net income attributable to non-controlling interest in subsidiaries

     -       4       2       6       5  

Net income attributable to bank shareholders

     1,865       1,862       1,563       5,017       2,722  

Dividends on preferred shares and distributions on other equity instruments

     51       143       41       234       206  

Net income available to common shareholders (A)

     1,814       1,719       1,522       4,783       2,516  

After-tax amortization of acquisition-related intangible assets

     79       79       85       242       176  

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

     1,893       1,798       1,607       5,025       2,692  

After-tax impact of other adjusting items (1)

     37       88       498       642       3,589  

Adjusted net income available to common shareholders (C)

     1,930       1,886       2,105       5,667       6,281  

Average common shareholders’ equity (D)

     72,305       70,551       66,759       70,750       66,137  

Goodwill

     (16,519     (16,431     (16,005     (16,369     (12,456

Acquisition-related intangible assets

     (2,617     (2,694     (2,965     (2,685     (1,959

Net of related deferred tax liabilities

     923       978       1,062       970       790  

Average tangible common equity (E)

     54,092       52,404       48,851       52,666       52,512  

Return on equity (%) (= A/D) (2)

     10.0       9.9       9.0       9.0       5.1  

Adjusted return on equity (%) (= C/D) (2)

     10.6       10.9       12.5       10.7       12.7  

Return on tangible common equity (%) (= B/E) (2)

     13.9       14.0       13.0       12.7       6.9  

Adjusted return on tangible common equity (%) (= C/E) (2)

     14.2       14.6       17.1       14.4       16.0  

 

 (1)

Refer to footnotes (1) to (8) 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 Third Quarter Report 2024 11

 


Return on Equity by Operating Segment (1)

 

     Q3-2024  

(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

     904        459        1,363        359        380        (288     1,814        435  

Total average common equity

     16,104        33,303        49,407        4,823        13,232        4,843       72,305        31,701  

Return on equity (%)

     22.3        5.5        11.0        29.7        11.4        na       10.0        5.5  

Adjusted (3)

                      

Net income available to common shareholders

     910        528        1,438        361        385        (254     1,930        514  

Total average common equity

     16,104        33,303        49,407        4,823        13,232        4,843       72,305        31,701  

Return on equity (%)

     22.4        6.3        11.6        29.8        11.6        na       10.6        6.5  
     Q2-2024  

(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

     861        526        1,387        318        450        (436     1,719        550  

Total average common equity

     15,750        33,078        48,828        4,736        13,008        3,979       70,551        31,544  

Return on equity (%)

     22.3        6.5        11.6        27.2        14.1        na       9.9        7.1  

Adjusted (3)

                      

Net income available to common shareholders

     866        595        1,461        320        457        (352     1,886        667  

Total average common equity

     15,750        33,078        48,828        4,736        13,008        3,979       70,551        31,544  

Return on equity (%)

     22.4        7.3        12.2        27.4        14.3        na       10.9        8.6  
     Q3-2023  

(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

     871        487        1,358        394        287        (517     1,522        333  

Total average common equity

     13,671        31,659        45,330        4,931        11,700        4,798       66,759        30,670  

Return on equity (%)

     25.3        6.1        11.9        31.7        9.7        na       9.0        4.3  

Adjusted (3)

                      

Net income available to common shareholders

     879        564        1,443        395        293        (26     2,105        666  

Total average common equity

     13,671        31,659        45,330        4,931        11,700        4,798       66,759        30,670  

Return on equity (%)

     25.5        7.1        12.6        31.7        9.9        na       12.5        8.6  
     YTD-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

     2,676        1,532        4,208        915        1,214        (1,554     4,783        1,162  

Total average common equity

     15,901        33,210        49,111        4,746        13,148        3,745       70,750        31,769  

Return on equity (%)

     22.5        6.2        11.4        25.7        12.3        na       9.0        4.9  

Adjusted (3)

                      

Net income available to common shareholders

     2,691        1,745        4,436        920        1,241        (930     5,667        1,797  

Total average common equity

     15,901        33,210        49,111        4,746        13,148        3,745       70,750        31,769  

Return on equity (%)

     22.6        7.0        12.1        25.9        12.6        na       10.7        7.6  
     YTD-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

     2,622        1,863        4,485        789        1,128        (3,886     2,516        (372

Total average common equity

     13,076        26,021        39,097        4,559        11,763        10,718       66,137        26,109  

Return on equity (%)

     26.8        9.6        15.3        23.1        12.8        na       5.1        (1.9

Adjusted (3)

                      

Net income available to common shareholders

     2,633        2,018        4,651        792        1,149        (311     6,281        2,039  

Total average common equity

     13,076        26,021        39,097        4,559        11,763        10,718       66,137        26,109  

Return on equity (%)

     26.9        10.4        15.9        23.2        13.1        na       12.7        10.4  

 

 (1)

Return on equity is based on allocated capital. For further information, refer to the How BMO Reports Operating Group Results section. Return on equity ratios are presented on an annualized basis.

 (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 (8) 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.

 

12 BMO Financial Group Third Quarter Report 2024

 


Foreign Exchange

 

     Q3-2024            YTD-2024  

(Canadian $ in millions, except as noted)

   vs. Q3-2023     vs. Q2-2024            vs. YTD-2023  

Canadian/U.S. dollar exchange rate (average)

         

Current period

     1.3705       1.3705          1.3574  

Prior period

     1.3331       1.3625          1.3439  

Effects on U.S. segment reported results

         

Increased (Decreased) net interest income

     69       12          65  

Increased (Decreased) non-interest revenue

     35       8                15  

Increased (Decreased) total revenue

     104       20          80  

Decreased (Increased) provision for credit losses

     (6     (2        (10

Decreased (Increased) non-interest expense

     (81     (13        (78

Decreased (Increased) provision for income taxes

     (4     (1              3  

Increased (Decreased) net income

     13       4                (5

Impact on earnings per share ($)

     0.02       0.01                (0.01

Effects on U.S. segment adjusted results

         

Increased (Decreased) net interest income

     69       12          69  

Increased (Decreased) non-interest revenue

     35       8                32  

Increased (Decreased) total revenue

     104       20          101  

Decreased (Increased) provision for credit losses

     (6     (2        (4

Decreased (Increased) non-interest expense

     (64     (12        (61

Decreased (Increased) provision for income taxes

     (9     (1              (8

Increased (Decreased) net income

     25       5                28  

Impact on earnings per share ($)

     0.03       0.01                0.04  

 Adjusted results in this table are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section.

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 third quarter of 2024, relative to the second quarter of 2024 and the third 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

Q3 2024 vs. Q3 2023

Reported net income was $1,865 million, an increase of $300 million or 19% from the prior year, and adjusted net income was $1,981 million, a decrease of $167 million or 8%. Reported earnings per share (EPS) was $2.48 an increase of $0.36 from the prior year, and adjusted EPS was $2.64, a decrease of $0.30.

Adjusted results in the current quarter and the prior year excluded the following items:

 

 

Acquisition and integration costs of $19 million ($25 million pre-tax) in the current quarter; $370 million ($497 million pre-tax) in the prior year.

 

 

Amortization of acquisition-related intangible assets of $79 million ($107 million pre-tax) in the current quarter; $85 million ($115 million pre-tax) in the prior year.

 

 

Impact of the U.S. Federal Deposit Insurance Corporation (FDIC) special assessment of $5 million ($6 million pre-tax) in the current quarter.

 

 

Impact of a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank, of $13 million ($18 million pre-tax) in the current quarter; a net recovery of $3 million ($4 million pre-tax) in the prior year.

 

 

A charge of $131 million ($160 million pre-tax) related to tax measures enacted by the Canadian government that amended the GST/HST definition for financial services in the prior year.

The increase in reported net income was primarily driven by lower acquisition and integration costs and the impact of tax measures in the prior year, noted above. The decrease in adjusted net income reflected a higher provision for credit losses, partially offset by lower expenses and higher revenue. Net income increased in BMO Capital Markets and Canadian P&C, and decreased in U.S. P&C and in BMO Wealth Management due to lower Insurance income. Corporate Services net loss decreased on a reported basis and increased on an adjusted basis.

 

BMO Financial Group Third Quarter Report 2024 13

 


Q3 2024 vs. Q2 2024

Reported net income was relatively unchanged from the prior quarter, and adjusted net income decreased $52 million or 3%. Reported EPS increased $0.12 from the prior quarter, and adjusted EPS increased $0.05, as lower dividends on preferred shares and distributions on other equity instruments was partially offset by lower adjusted net income.

Adjusted results in the current quarter excluded the items noted above and adjusted results in the prior quarter excluded the following items:

 

 

Impact of the U.S. Federal Deposit Insurance Corporation (FDIC) special assessment of $50 million ($67 million pre-tax).

 

 

Acquisition and integration costs of $26 million ($36 million pre-tax).

 

 

Amortization of acquisition-related intangible assets of $79 million ($107 million pre-tax).

 

 

Impact of a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank, of $12 million ($15 million pre-tax).

The decrease in adjusted net income reflected higher revenue, more than offset by a higher provision for credit losses and higher expenses. Net income decreased in U.S. P&C and BMO Capital Markets, and increased in BMO Wealth Management and Canadian P&C. Corporate Services recorded a lower net loss on a reported basis, and was relatively unchanged from the prior quarter on an adjusted basis.

Q3 YTD 2024 vs. Q3 YTD 2023

Reported net income was $5,023 million, an increase of $2,296 million from the prior year, and adjusted net income was $5,907 million, a decrease of $585 million or 9%. Reported EPS was $6.57, an increase of $3.01 from the prior year, and adjusted EPS was $7.78, a decrease of $1.10.

The current year included an additional quarter of Bank of the West results. The increase in reported results reflected the impact of fair value management actions related to the acquisition of Bank of the West, the initial provision for credit losses on the purchased Bank of the West performing loan portfolio, and the impact of certain Canadian tax measures in the prior year, as well as lower acquisition and integration-related costs, partially offset by the FDIC special assessment charge and the loss on the sale of the recreational vehicle loan portfolio in the current year. Adjusted results decreased, as higher revenue was more than offset by a higher provision for credit losses and higher expenses. Net income increased in BMO Wealth Management, BMO Capital Markets and Canadian P&C, and decreased in U.S. P&C. Corporate Services net loss decreased on a reported basis and increased on an adjusted basis.

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

Effective the first quarter of 2024, the bank adopted 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-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 we were not managing our insurance portfolio under the new standard. For additional information, refer to Note 1 of the unaudited interim consolidated financial statements.

Q3 2024 vs. Q3 2023

Reported revenue was $8,192 million, an increase of $140 million or 2% from the prior year, due to the impact of tax measures in the prior year. Adjusted revenue was $8,206 million, relatively unchanged, with lower net interest income offset by higher non-interest revenue. Revenue increased in Canadian P&C and BMO Capital Markets, and decreased in Corporate Services and BMO Wealth Management.

Reported net interest income was $4,794 million, a decrease of $111 million, and adjusted net interest income was $4,808 million, a decrease of $100 million, both decreasing 2% from the prior year, primarily driven by lower net interest income in Corporate Services due to treasury-related activities and lower net accretion of purchase accounting fair value marks, as well as lower trading-related net interest income, partially offset by higher net interest income in Canadian P&C driven by good volume growth and higher margins. Trading-related net interest income was $82 million, a decrease of $78 million from the prior year, offset in trading non-interest revenue.

BMO’s overall reported net interest margin of 1.51% decreased 16 basis points from the prior year. Adjusted net interest margin, excluding trading-related net interest income, and trading and insurance assets, was 1.83%, a decrease of 9 basis points, primarily due to lower net interest income in Corporate Services, partially offset by higher margins in Canadian P&C and BMO Capital Markets. The impact of higher interest rates on deposit pricing and deposit mix was partially offset by the reinvestment of earning assets at higher yields.

Reported non-interest revenue was $3,398 million, an increase of $251 million or 8% from the prior year. Adjusted non-interest revenue was $3,398 million, an increase of $113 million or 3%, primarily driven by higher trading revenue, underwriting and advisory fee revenue, and investment management and custodial fee revenue, partially offset by lower insurance investment results reflecting changes in portfolio positioning during the transition to IFRS 17, the impact of market volatility on hedge positions and lower lending fee revenue, largely offset in net interest income reflecting the transition of bankers acceptances exposures to loans.

 

14 BMO Financial Group Third Quarter Report 2024

 


Q3 2024 vs. Q2 2024

Reported and adjusted revenue both increased $218 million or 3% from the prior quarter. The increase reflected higher net interest income, partially offset by lower non-interest revenue.

Reported net interest income increased $279 million or 6% from the prior quarter, driven by two additional days in the current quarter, higher net interest income in our P&C businesses, higher trading-related net interest income and higher non-trading net interest income in BMO Capital Markets.

BMO’s overall reported net interest margin was unchanged from the prior quarter. Adjusted net interest margin, excluding trading-related net interest income, and trading and insurance assets, increased 1 basis point, primarily due to higher non-trading net interest income in BMO Capital Markets.

Reported and adjusted non-interest revenue decreased $61 million or 2% from the prior quarter. The decrease was primarily driven by lower underwriting and advisory fee revenue, lower lending fee revenue, and lower securities gains, other than trading, partially offset by higher investment management and custodial fee revenue.

Q3 YTD 2024 vs. Q3 YTD 2023

Reported revenue was $23,838 million, an increase of $2,898 million or 14% from the prior year. Adjusted revenue was $24,044 million, an increase of $939 million or 4%. The increase in reported revenue included the impact of fair value management actions related to the acquisition of Bank of the West, partially offset by the impact of certain Canadian tax measures, both in the prior year. The increase in adjusted revenue was primarily driven by an additional quarter of Bank of the West results, strong growth in Canadian P&C and higher revenue in BMO Wealth Management and BMO Capital Markets, partially offset by lower revenue in Corporate Services.

Reported net interest income was $14,030 million, an increase of $290 million or 2% from the prior year, and adjusted net interest income was $14,072 million, relatively unchanged. Higher net interest income in our P&C businesses was offset by a decrease in Corporate Services and lower trading-related net interest income. Trading-related net interest income was $224 million, a decrease of $463 million from the prior year, and was largely offset in trading non-interest revenue.

BMO’s overall reported net interest margin of 1.53% decreased 9 basis points from the prior year. Adjusted net interest margin, excluding trading-related net interest income, and trading and insurance assets was 1.83%, a decrease of 5 basis points, primarily due to lower net interest income and higher low-yielding assets in Corporate Services, partially offset by higher margins in Canadian P&C and BMO Capital Markets.

Reported non-interest revenue was $9,808 million, an increase of $2,608 million or 36%, due to the impact of fair value management actions related to the acquisition of Bank of the West and Canadian tax measures in the prior year. Adjusted non-interest revenue was $9,972 million, an increase of $1,006 million or 11%, primarily driven by an additional quarter of Bank of the West results, the inclusion of AIR MILES, higher trading revenue, underwriting and advisory fee revenue, investment management and custodial fee revenue and card fee revenue, partially offset by the impact of market volatility on hedge positions.

Net interest income and non-interest revenue are detailed in the unaudited interim consolidated financial statements.

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. The foregoing sections contain forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.

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)

  Q3-2024     Q2-2024     Q3-2023           Q3-2024     Q2-2024     Q3-2023           Q3-2024     Q2-2024     Q3-2023  

Canadian P&C

    2,253       2,154       2,061         323,768       312,587       297,976         277       280       274  

U.S. P&C

    2,056       1,994       1,995         219,467       215,637       209,493         373       376       378  

Personal and Commercial Banking (P&C)

    4,309       4,148       4,056         543,235       528,224       507,469         316       319       317  

All other operating groups and Corporate Services

    485       367       849         717,199       689,733       654,920         na       na       na  

Total reported

    4,794       4,515       4,905         1,260,434       1,217,957       1,162,389         151       151       167  

Total adjusted

    4,808       4,529       4,908         1,260,434       1,217,957       1,162,389         152       151       168  

Trading net interest income, trading and insurance assets

    82       14       160         232,618       206,593       183,204         na       na       na  

Total reported, excluding trading and insurance

    4,712       4,501       4,745         1,027,816       1,011,364       979,185         182       181       192  

Total adjusted, excluding trading and insurance

    4,726       4,515       4,748         1,027,816       1,011,364       979,185         183       182       192  

U.S. P&C (US$ in millions)

    1,500       1,463       1,497               160,137       158,258       157,141               373       376       378  
    Net interest income (teb) (2)           Average earning assets (3)           Net interest margin (in basis points)  

(Canadian $ in millions, except as noted)

  YTD-2024            YTD-2023           YTD-2024            YTD-2023           YTD-2024            YTD-2023  

Canadian P&C

    6,548         5,947         314,719         293,614         278         271  

U.S. P&C

    6,108               5,530         215,821               189,259         378               391  

Personal and Commercial Banking (P&C)

    12,656         11,477         530,540         482,873         319         318  

All other operating groups and Corporate Services

    1,374               2,263         694,219               652,469         na               na  

Total reported

    14,030               13,740         1,224,759               1,135,342         153               162  

Total adjusted

    14,072               14,139         1,224,759               1,135,342         153               167  

Trading net interest income, trading and insurance assets

    224               687         213,090               177,702         na               na  

Total reported, excluding trading and insurance

    13,806               13,053         1,011,669               957,640         182               182  

Total adjusted, excluding trading and insurance

    13,848               13,452         1,011,669               957,640         183               188  

U.S. P&C (US$ in millions)

    4,500               4,114               158,993               140,800               378               391  

 

 (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.

 

BMO Financial Group Third Quarter Report 2024 15

 


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  

Q3-2024

                

Provision for credit losses on impaired loans

     353        368       721        1       92       14       828  

Provision for (recovery of) credit losses on performing loans

     35        26       61        (10     36       (9     78  

Total provision for (recovery of) credit losses

     388        394       782        (9     128       5       906  

Total PCL-to-average net loans and acceptances (%) (1)

     0.48        0.76       0.59        (0.08     0.61       nm       0.54  

PCL on impaired loans-to-average net loans and acceptances (%) (1)

     0.43        0.71       0.54        0.01       0.44       nm       0.50  

Q2-2024

                

Provision for credit losses on impaired loans

     295        288       583        6       61       8       658  

Provision for (recovery of) credit losses on performing loans

     103        (7     96        (13     (9     (27     47  

Total provision for (recovery of) credit losses

     398        281       679        (7     52       (19     705  

Total PCL-to-average net loans and acceptances (%) (1)

     0.51        0.57       0.53        (0.07     0.25       nm       0.44  

PCL on impaired loans-to-average net loans and acceptances (%) (1)

     0.38        0.57       0.46        0.06       0.29       nm       0.41  

Q3-2023

                

Provision for credit losses on impaired loans

     197        117       314        1       1       17       333  

Provision for (recovery of) credit losses on performing loans

     62        87       149        6       9       (5     159  

Total provision for credit losses

     259        204       463        7       10       12       492  

Total PCL-to-average net loans and acceptances (%) (1)

     0.33        0.40       0.36        0.06       0.05       nm       0.30  

PCL on impaired loans-to-average net loans and acceptances (%) (1)

     0.25        0.23       0.24        0.01       -       nm       0.21  

YTD-2024

                

Provision for credit losses on impaired loans

     886        839       1,725        10       164       60       1,959  

Provision for (recovery of) credit losses on performing loans

     195        126       321        (13     (6     (23     279  

Total provision for credit losses

     1,081        965       2,046        (3     158       37       2,238  

Total PCL-to-average net loans and acceptances (%) (1)

     0.45        0.63       0.52        (0.01     0.25       nm       0.46  

PCL on impaired loans-to-average net loans and acceptances (%) (1)

     0.37        0.55       0.44        0.03       0.26       nm       0.40  

YTD-2023

                

Provision for (recovery of) credit losses on impaired loans

     492        221       713        3       (2     58       772  

Provision for credit losses on performing loans

     152        109       261        14       19       666       960  

Total provision for credit losses

     644        330       974        17       17       724       1,732  

Initial provision for credit losses on purchased performing loans (2)

     -        -       -        -       -       (705     (705

Adjusted total provision for credit losses (3)

     644        330       974        17       17       19       1,027  

Total PCL-to-average net loans and acceptances (%) (1)

     0.28        0.24       0.27        0.06       0.03       nm       0.38  

PCL on impaired loans-to-average net loans and acceptances (%) (1)

     0.22        0.16       0.20        0.01       -       nm       0.17  

 

 (1)

PCL ratios are presented on an annualized basis.

 (2)

Reported net income included a $705 million of provision for credit losses on performing loans related to the purchased Bank of the West performing loan portfolio.

 (3)

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.

 nm – not meaningful

Q3 2024 vs. Q3 2023

Total provision for credit losses was $906 million, compared with a provision of $492 million in the prior year. Total provision for credit losses as a percentage of average net loans and acceptances ratio was 54 basis points, compared with 30 basis points in the prior year. The provision for credit losses on impaired loans was $828 million, an increase of $495 million, due to higher provisions in U.S. P&C, Canadian P&C and BMO Capital Markets. The provision for credit losses on impaired loans as a percentage of average net loans and acceptances ratio was 50 basis points, compared with 21 basis points. There was a $78 million provision for credit losses on performing loans, compared with a provision of $159 million in the prior year. The $78 million provision for credit losses on performing loans in the current quarter was primarily driven by portfolio credit migration.

Q3 2024 vs. Q2 2024

Total provision for credit losses increased $201 million from the prior quarter. The provision for credit losses on impaired loans increased $170 million, due to higher provisions in U.S. P&C, Canadian P&C and BMO Capital Markets. The provision for credit losses on impaired loans as a percentage of average net loans and acceptances ratio was 50 basis points, compared with 41 basis points. There was a $78 million provision for credit losses on performing loans, compared with a provision of $47 million in the prior quarter.

Q3 YTD 2024 vs. Q3 YTD 2023

Total provision for credit losses was $2,238 million, compared with a reported provision of $1,732 million and an adjusted provision of $1,027 million in the prior year. Adjusted provision for credit losses in the prior year excluded the initial provision on the purchased Bank of the West performing loan portfolio. The total provision for credit losses ratio was 46 basis points, compared with 38 basis points on a reported basis and 22 basis points on an adjusted basis. The provision for credit losses on impaired loans was $1,959 million, an increase of $1,187 million due to higher provisions in U.S. P&C, Canadian P&C and BMO Capital Markets. The provision for credit losses on impaired loans ratio was 40 basis points, compared with 17 basis points in the prior year. There was a $279 million provision for credit losses on performing loans, compared with a reported provision of $960 million and an adjusted provision of $255 million in the prior year.

 

16 BMO Financial Group Third Quarter Report 2024

 


Impaired Loans

 

(Canadian $ in millions, except as noted)

     Q3-2024        Q2-2024        Q3-2023        YTD-2024        YTD-2023  

GIL, beginning of period

    5,260       4,259       2,658       3,960       1,991  

Classified as impaired during the period

    1,847       1,988       917       5,201       2,281  

Purchased credit impaired during the period

    -       -       -       -       415  

Transferred to not impaired during the period

    (269     (263     (120     (796     (361

Net repayments

    (317     (409     (384     (1,048     (966

Amounts written-off

    (451     (381     (190     (1,213     (482

Recoveries of loans and advances previously written-off

    -       -       -       -       -  

Disposals of loans

    (37     -       -       (58     -  

Foreign exchange and other movements

    8       66       (37     (5     (34

GIL, end of period

    6,041       5,260       2,844       6,041       2,844  

GIL to gross loans and acceptances (%)

    0.89       0.79       0.44       0.89       0.44  

Total gross impaired loans and acceptances (GIL) were $6,041 million, an increase from $5,260 million in the prior quarter. The increase in impaired loans was primarily in business and government lending, with the largest increases in the commercial real estate, manufacturing and transportation industries. GIL as a percentage of gross loans and acceptances increased to 0.89% from 0.79% in the prior quarter.

Loans classified as impaired during the quarter were $1,847 million, a decrease from $1,988 million in the prior quarter, reflecting lower impaired loan formations in business and government lending, partially offset by higher impaired loan formations in consumer lending.

Factors contributing to the change in GIL are outlined in the table above.

Non-Interest Expense

Q3 2024 vs. Q3 2023

Reported non-interest expense was $4,839 million, a decrease of $733 million or 13% from the prior year, and adjusted non-interest expense was $4,697 million, a decrease of $248 million or 5%.

Reported results reflected lower acquisition and integration costs, compared with the prior year. Reported and adjusted non-interest expense decreased, primarily due to our continued focus on operational efficiencies, including realized cost synergies related to Bank of the West, a decrease in employee-related expenses, including severance in the prior year, and the impact of higher legal provisions in the prior year.

Reported efficiency ratio was 59.1%, compared with 69.2% in the prior year, and adjusted efficiency ratio was 57.3%, compared with 60.3%. Reported operating leverage was positive 14.8% and adjusted operating leverage was positive 5.2%.

Q3 2024 vs. Q2 2024

Reported non-interest expense was relatively unchanged from the prior quarter, and adjusted non-interest expense increased $64 million or 1%.

Reported results reflected the impact of the higher FDIC special assessment charge in the prior quarter. Reported and adjusted non-interest expense increased, primarily due to higher employee-related costs.

Q3 YTD 2024 vs. Q3 YTD 2023

Reported non-interest expense was $15,072 million, a decrease of $383 million or 2% from the prior year, and adjusted non-interest expense was $14,113 million, an increase of $376 million or 3%.

The decrease in reported non-interest expense reflected the impact of lower acquisition and integration costs, partially offset by the FDIC special assessment charge and higher amortization of acquisition-related intangible assets. Adjusted and reported non-interest expense reflected the impact of an additional quarter of Bank of the West results, net of realized cost synergies, and the inclusion of AIR MILES, partially offset by operational efficiencies, lower severance and legal provisions, and the impact of the consolidation of certain U.S. retirement benefit plans.

The reported efficiency ratio was 63.2%, compared with 73.8% in the prior year, and the adjusted efficiency ratio was 58.7%, compared with 59.4%.

Non-interest expense is detailed in the unaudited interim consolidated financial statements.

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 reported provision for income taxes was $582 million, an increase of $159 million from the third quarter of 2023, and an increase of $23 million from the second quarter of 2024. The reported effective tax rate for the current quarter was 23.8%, compared with 21.3% in the third quarter of 2023 and 23.1% in the second quarter of 2024. The adjusted provision for income taxes was $622 million, an increase of $14 million from the third quarter of 2023 and an increase of $5 million from the second quarter of 2024. The adjusted effective tax rate was 23.9% in the current quarter, compared with 22.1% in the third quarter of 2023 and 23.3% in the second quarter of 2024.

The change in the reported effective tax rate in the current quarter, relative to the third quarter of 2023, was primarily due to earnings mix, including the impact of lower income in the third quarter of 2023 and the elimination of the deduction for certain Canadian dividends, starting January 1, 2024. The change in the adjusted effective tax rate in the current quarter, relative to the third quarter of 2023, was primarily due to earnings mix, including the impact of the elimination of the deduction for certain Canadian dividends.

 

BMO Financial Group Third Quarter Report 2024 17

 


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.

Balance Sheet (1)

 

(Canadian $ in millions)

   As at July 31, 2024      As at October 31, 2023  

Assets

     

Cash and cash equivalents and interest bearing deposits with banks

     78,323        82,043  

Securities

     387,614        321,545  

Securities borrowed or purchased under resale agreements

     118,005        115,662  

Net loans and acceptances

     673,719        664,776  

Derivative instruments

     36,834        39,976  

Other assets

     105,975        123,004  

Total assets

     1,400,470        1,347,006  

Liabilities and Equity

     

Deposits

     965,239        910,879  

Derivative instruments

     49,488        50,193  

Securities lent or sold under repurchase agreements

     125,326        106,108  

Other liabilities

     168,139        195,475  

Subordinated debt

     9,321        8,228  

Equity

     82,926        76,095  

Non-controlling interest in subsidiaries

     31        28  

Total liabilities and equity

     1,400,470        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 $1,400.5 billion as at July 31, 2024, an increase of $53.5 billion from October 31, 2023. The impact of the weaker U.S. dollar decreased assets by $3.6 billion, excluding the impact on derivative financial assets.

Cash and cash equivalents and interest bearing deposits with banks decreased $3.7 billion, primarily due to lower balances held with central banks.

Securities increased $66.1 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.

Securities borrowed or purchased under resale agreements increased $2.3 billion due to higher levels of client activity in BMO Capital Markets.

Net loans and acceptances increased $8.9 billion. Business and government loans and acceptances increased $10.5 billion, with growth across all operating groups. Consumer instalment and other personal loans decreased $11.5 billion, driven by lower balances in U.S. P&C, primarily due to the sale of the loan portfolio 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 increased $9.3 billion, driven by growth in our P&C businesses. Credit card balances increased $1.1 billion.

Derivative financial assets decreased $3.1 billion, driven by 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 an increase in the fair value of equity contracts.

Other assets decreased $17.0 billion, primarily in BMO Capital Markets, due to changes in the balance of unsettled securities transactions.

Liabilities increased $46.6 billion from October 31, 2023. The impact of the weaker U.S. dollar decreased liabilities by $3.3 billion, excluding the impact on derivative financial liabilities.

Deposits increased $54.4 billion. Customer deposits increased $49.3 billion, reflecting growth across all operating groups. Other deposits increased $5.1 billion, driven by higher balances to fund Global Markets client activity, partially offset by lower wholesale funding in Corporate Services.

Derivative financial liabilities decreased $0.7 billion, with decreases in the fair value of interest rate and foreign exchange contracts, partially offset by an increase in the fair value of equity contracts.

Securities lent or sold under repurchase agreements increased $19.2 billion due to higher levels of client activity in BMO Capital Markets.

Other liabilities decreased $27.3 billion, driven by changes in the balance of unsettled securities transactions in BMO Capital Markets, lower Federal Home Loan Bank borrowings, lower acceptances, reflecting the transition of bankers’ acceptances exposures to loans as a result of the cessation of the Canadian Dollar Offered Rate (CDOR), and a decrease in securities sold but not yet purchased due to client activity in BMO Capital Markets, partially offset by higher securitization liabilities in BMO Capital Markets.

Subordinated debt increased $1.1 billion from October 31, 2023, reflecting an issuance in the quarter.

Equity increased $6.8 billion from October 31, 2023. Common shares increased $1.0 billion, as a result of shares issued under the Dividend Shareholder Reinvestment and Share Purchase Plan (DRIP). Accumulated other comprehensive income increased $2.9 billion, primarily due to a decline in the accumulated other comprehensive loss on cash flow hedges, partially offset by losses on remeasurement of own credit risk on financial liabilities designated at fair value. Retained earnings increased $1.4 billion, as a result of net income earned in the year, partially offset by dividends and distributions on other equity instruments. Preferred shares and other equity instruments increased $1.5 billion due to the issuance of Limited Recourse Capital Notes, Series 4 and 5, in the year, net of redemptions of Preferred Shares, Series 27 and 46.

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.

 

18 BMO Financial Group Third Quarter Report 2024

 


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.

Third Quarter 2024 Regulatory Capital Review

BMO’s Common Equity Tier 1 (CET1) Ratio was 13.0% as at July 31, 2024, a decrease from 13.1% at the end of the second quarter of 2024, with internal capital generation more than offset by higher source currency risk-weighted assets (RWA).

CET1 Capital was $55.6 billion as at July 31, 2024, an increase from $54.7 billion as at April 30, 2024, primarily due to internal capital generation.

RWA were $428.9 billion as at July 31, 2024, an increase from $418.0 billion as at April 30, 2024. RWA increased, primarily due to higher asset size and market risk, as well as net asset quality changes.

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 July 31, 2024, unchanged from April 30, 2024.

The bank’s Tier 1 and Total Capital Ratios were 14.8% and 17.1%, respectively, as at July 31, 2024, compared with 14.9% and 17.0%, respectively, as at April 30, 2024. The Tier 1 Capital Ratio was lower due to the same factors impacting the CET1 Ratio and the announced $400 million preferred share redemption, partially offset by the issuance of US$750 million Limited Recourse Capital Notes, Series 5. The Total Capital Ratio was higher, as factors impacting Tier 1 Capital Ratio were more than offset by the issuance of $1 billion subordinated notes.

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 managed the impact of foreign exchange movements on our capital ratios.

Our Leverage Ratio was 4.3% as at July 31, 2024, unchanged from the second quarter of 2024, as higher Tier 1 Capital was offset by higher leverage exposures.

The bank’s risk-based Total Loss Absorbing Capacity (TLAC) Ratio and TLAC Leverage Ratio were 28.5% and 8.2%, respectively, as at July 31, 2024, compared with 28.0% and 8.0%, respectively, as at April 30, 2024.

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) on June 20, 2023. On June 18, 2024, OSFI announced that the DSB will remain unchanged at 3.5%.

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. On July 5, 2024, OSFI announced a one-year delay to the increase of the capital floor adjustment factor, to allow OSFI time to consider the timeline impact of Basel III reforms implementation in other jurisdictions. With the one-year delay, the adjustment factor will remain at the current 67.5% for fiscal 2025 and will rise by an additional 2.5% each year, beginning November 1, 2025, to reach 72.5% in fiscal 2027.

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 exceeded the minimum requirement of 21.5%.

Effective the first quarter of 2024, the bank adopted 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 on our Consolidated Balance Sheet, from cost to fair value. 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.

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 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.

 

BMO Financial Group Third Quarter Report 2024 19

 


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
July 31, 2024
 

Common Equity Tier 1 Ratio

     4.5%        3.5%        na        3.5%        11.5%        13.0%  

Tier 1 Capital Ratio

     6.0%        3.5%        na        3.5%        13.0%        14.8%  

Total Capital Ratio

     8.0%        3.5%        na        3.5%        15.0%        17.1%  

TLAC Ratio

     21.5%        na        na        3.5%        25.0%        28.5%  

Leverage Ratio

     3.0%        na        0.5%        na        3.5%        4.3%  

TLAC Leverage Ratio

     6.75%        na        0.5%        na        7.25%        8.2%  

 

 (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 quarter). 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)

       Q3-2024        Q2-2024        Q4-2023  

Gross common equity (1)

     74,439       71,225       70,051  

Regulatory adjustments applied to common equity

     (18,834     (16,499     (17,137

Common Equity Tier 1 Capital (CET1)

     55,605       54,726       52,914  

Additional Tier 1 Eligible Capital (2)

     8,087       7,464       6,958  

Regulatory adjustments applied to Tier 1 Capital

     (94     (97     (87

Additional Tier 1 Capital (AT1)

     7,993       7,367       6,871  

Tier 1 Capital (T1 = CET1 + AT1)

     63,598       62,093       59,785  

Tier 2 Eligible Capital (3)

     9,994       8,910       8,984  

Regulatory adjustments applied to Tier 2 Capital

     (62     (74     (51

Tier 2 Capital (T2)

     9,932       8,836       8,933  

Total Capital (TC = T1 + T2)

     73,530       70,929       68,718  

Other TLAC instruments (4)

     48,650       46,101       45,773  

Adjustments applied to Other TLAC

     (127     (89     (89

Other TLAC available after adjustments

     48,523       46,012       45,684  

TLAC

     122,053       116,941       114,402  

Risk-Weighted Assets (5)

     428,860       417,994       424,197  

Leverage Ratio Exposures

     1,480,736       1,453,472       1,413,036  

Capital, Leverage and TLAC Ratios (%)

    

CET1 Ratio

     13.0       13.1       12.5  

Tier 1 Capital Ratio

     14.8       14.9       14.1  

Total Capital Ratio

     17.1       17.0       16.2  

TLAC Ratio

     28.5       28.0       27.0  

Leverage Ratio

     4.3       4.3       4.2  

TLAC Leverage Ratio

     8.2       8.0       8.1  

 

 (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.

 

20 BMO Financial Group Third Quarter Report 2024

 


Outstanding Shares and Securities Convertible into Common Shares (1)

 

As at July 31, 2024

   Number of
shares
     Amount
  (in millions)
 

Common shares

     729,413,376          $23,911  

Class B Preferred shares*

     

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 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  

7.700% Limited Recourse Capital Notes, Series 4 (LRCNs)

        US$1,000  

7.300% Limited Recourse Capital Notes, Series 5 (LRCNs)

        US$750  

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  

Series M - Second Tranche

          $1,000  

Stock options

     

Vested

     3,028,132     

Non-vested

     3,698,032           

 

 *

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, Preferred Shares Series 51, Preferred Shares Series 53, and Preferred Shares 54 for Series 1, Series 2, Series 3, Series 4, and Series 5 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.

If a non-viability contingent capital (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 4.5 billion BMO common shares, assuming no accrued interest and no declared and unpaid dividends.

Capital Developments Related to BMO Financial Corp.

BMO Financial Corp. (BFC) continues to be subject to the Federal Reserve Board’s (FRB) Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test (DFAST) requirements on an annual basis.

BFC was required to participate in the FRB’s 2024 CCAR exercise. On June 26, 2024, the FRB released its 2024 CCAR and DFAST results. For BFC, the FRB determined a CET1 Ratio requirement of 10.0%, including the 4.5% minimum CET1 Ratio and a 5.5% stress capital buffer (SCB), which will be effective October 1, 2024. The FRB will formally announce individual large bank capital requirements by August 31, 2024. BFC is well capitalized, with a strong CET1 Ratio of 11.08 % as at June 30, 2024.

Other Capital Developments

During the quarter, we issued 160,277 common shares for $15 million through the exercise of stock options.

On August 25, 2024, we redeemed all of our outstanding 16 million Non-Cumulative 5-year Rate Reset Class B Preferred Shares, Series 29 (NVCC) for an aggregate total of $400 million.

On August 12, 2024, we announced our intention to redeem all of our outstanding $1,000 million 2.88% Series J Medium-Term Notes First Tranche (NVCC) at par, plus accrued and unpaid interest to, but excluding, the redemption date on September 17, 2024.

On July 17, 2024, we issued US$750 million 7.300% Limited Recourse Capital Notes, Series 5. This issuance is classified as equity and forms part of our additional Tier 1 NVCC.

On July 3, 2024, we issued $1,000 million 4.976% NVCC subordinated notes through our Canadian Medium-Term Note Program.

On May 25, 2024, we redeemed all of our outstanding 20 million Non-Cumulative 5-year Rate Reset Class B Preferred Shares, Series 27 (NVCC) for an aggregate total of $500 million and all of our outstanding 14 million Non-Cumulative 5-year Rate Reset Class B Preferred Shares, Series 46 (NVCC) for an aggregate total of $350 million.

 

BMO Financial Group Third Quarter Report 2024 21

 


Dividends

On August 27, 2024, BMO announced that the Board of Directors had declared a quarterly dividend on common shares of $1.55 per share, unchanged from the prior quarter and an increase of $0.08 or 5% from prior year. The dividend is payable on November 26, 2024, to shareholders of record on October 30, 2024. Common shareholders may elect to have their cash dividends reinvested in common shares of BMO, in accordance with the DRIP.

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.

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 reported this revenue on a teb basis. This proposed legislation was enacted in the third quarter of fiscal 2024. Refer to the Other Regulatory Developments section for further details.

 

22 BMO Financial Group Third Quarter Report 2024

 


Personal and Commercial Banking (P&C) (1)

 

(Canadian $ in millions, except as noted)

      Q3-2024         Q2-2024        Q3-2023        YTD-2024        YTD-2023  

Net interest income (teb) (2)

     4,309        4,148       4,056       12,656       11,477  

Non-interest revenue

     1,052        1,060       1,074       3,145       2,978  

Total revenue (teb) (2)

     5,361        5,208       5,130       15,801       14,455  

Provision for credit losses on impaired loans

     721        583       314       1,725       713  

Provision for credit losses on performing loans

     61        96       149       321       261  

Total provision for credit losses

     782        679       463       2,046       974  

Non-interest expense

     2,752        2,657       2,795       8,085       7,354  

Income before income taxes

     1,827        1,872       1,872       5,670       6,127  

Provision for income taxes (teb) (2)

     443        457       489       1,390       1,578  

Reported net income

     1,384        1,415        1,383        4,280        4,549   

Acquisition and integration costs (3)

     2        2       6       5       8  

Amortization of acquisition-related intangible assets (4)

     73        72       79       223       158  

Adjusted net income

     1,459        1,489       1,468       4,508       4,715  

Net income available to common shareholders

     1,363        1,387       1,358       4,208       4,485  

Adjusted net income available to common shareholders

       1,438          1,461         1,443         4,436         4,651  

 

 (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 both Q3-2024 and Q2-2024, and $8 million in Q3-2023; and $27 million for YTD-2024 and $24 million for YTD-2023. These amounts 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 $1,384 million, relatively unchanged from the prior year, and a decrease of $31 million or 2% from the prior quarter. Adjusted net income was $1,459 million, a decrease of $9 million or 1% from the prior year, and a decrease of $30 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.

 

BMO Financial Group Third Quarter Report 2024 23

 


Canadian Personal and Commercial Banking (Canadian P&C) (1)

 

(Canadian $ in millions, except as noted)

      Q3-2024         Q2-2024         Q3-2023        YTD-2024         YTD-2023  

Net interest income

     2,253        2,154        2,061       6,548        5,947  

Non-interest revenue

     655        665        655       1,957        1,816  

Total revenue

     2,908        2,819        2,716       8,505        7,763  

Provision for credit losses on impaired loans

     353        295        197       886        492  

Provision for credit losses on performing loans

     35        103        62       195        152  

Total provision for credit losses (PCL)

     388        398        259       1,081        644  

Non-interest expense

     1,260        1,216        1,244       3,686        3,463  

Income before income taxes

     1,260        1,205        1,213       3,738        3,656  

Provision for income taxes

     346        333        332       1,031        1,005  

Reported net income

     914        872        881       2,707        2,651  

Acquisition and integration costs (2)

     2        2        6       5        8  

Amortization of acquisition-related intangible assets (3)

     4        3        2       10        3  

Adjusted net income

     920        877        889       2,722        2,662  

Adjusted non-interest expense

     1,252        1,208        1,233       3,665        3,448  

Net income available to common shareholders

     904        861        871       2,676        2,622  

Adjusted net income available to common shareholders

     910        866        879       2,691        2,633  

Key Performance Metrics and Drivers

             

Personal and Business Banking revenue

     2,081        2,016        1,948       6,114        5,498  

Commercial Banking revenue

     827        803        768       2,391        2,265  

Return on equity (%) (4) (5)

     22.3        22.3        25.3       22.5        26.8  

Adjusted return on equity (%) (4) (5)

     22.4        22.4        25.5       22.6        26.9  

Operating leverage (%)

     5.9        4.1        (1.3     3.2        (0.6

Adjusted operating leverage (%)

     5.6        4.5        (0.3     3.3        (0.2

Efficiency ratio (%)

     43.3        43.2        45.8       43.3        44.6  

Adjusted efficiency ratio (%)

     43.1        42.9        45.4       43.1        44.5  

PCL on impaired loans to average net loans and acceptances (%) (5)

     0.43        0.38        0.25       0.37        0.22  

Net interest margin on average earning assets (%)

     2.77        2.80        2.74       2.78        2.71  

Average earning assets

     323,768        312,587        297,976       314,719        293,614  

Average gross loans and acceptances

     326,043        319,896        308,786       321,099        304,966  

Average deposits

     306,409        297,304        276,576       297,519        268,754  

 

 (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.

 (5)

Return on equity and PCL ratios are presented on an annualized basis.

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

Q3 2024 vs. Q3 2023

Canadian P&C reported net income was $914 million, an increase of $33 million or 4% from the prior year.

Total revenue was $2,908 million, an increase of $192 million or 7% from the prior year. Net interest income increased $192 million or 9%, primarily due to higher balances and net interest margins. Non-interest revenue was relatively unchanged, as higher card-related revenue was offset by lower lending fee revenue. Net interest margin of 2.77% increased 3 basis points from the prior year, primarily due to higher loan margins and deposits growing faster than loans, partially offset by lower deposit margins. The impact of the transition of bankers’ acceptances (BA) exposures to loans in our Commercial Bank resulted in lower non-interest revenue offset in net interest income, with a modest reduction in net interest margin.

Personal and Business Banking revenue increased $133 million or 7%, due to higher net interest income and higher non-interest revenue. Commercial Banking revenue increased $59 million or 8%, due to higher net interest income, partially offset by lower non-interest revenue, largely due to the BA transition.

Total provision for credit losses was $388 million, an increase of $129 million from the prior year. The provision for credit losses on impaired loans was $353 million, an increase of $156 million due to higher provisions in Personal and Business Banking, primarily in the unsecured segments of the consumer portfolio, and in Commercial Banking. There was a $35 million provision for credit losses on performing loans in the current quarter, compared with a $62 million provision in the prior year.

Non-interest expense was $1,260 million, an increase of $16 million or 1% from the prior year, primarily due to higher operating expenses and higher technology costs, largely offset by lower employee-related expenses, including higher severance in the prior year.

Average gross loans and acceptances increased $17.3 billion or 6% from the prior year to $326.0 billion. Personal and Business Banking and Commercial Banking loan balances both increased 5%, and credit card balances increased 18%. Average deposits increased $29.8 billion or 11% to $306.4 billion. Personal and Business Banking deposits increased 9%, primarily due to strong growth in term deposits, partially offset by lower chequing and savings account deposits. Commercial Banking deposits increased 14%.

 

24 BMO Financial Group Third Quarter Report 2024

 


Q3 2024 vs. Q2 2024

Reported net income increased $42 million or 5% from the prior quarter.

Total revenue increased $89 million or 3% from the prior quarter. Net interest income increased $99 million or 5%, primarily due to higher balances and the impact of two additional days in the current quarter, partially offset by lower net interest margins. Non-interest revenue decreased $10 million or 2%, primarily due to lower lending fee revenue. Net interest margin decreased 3 basis points from the prior quarter, due to lower loan and deposit margins, partially offset by changes in business mix.

Personal and Business Banking revenue increased $65 million or 3%, due to higher net interest income and non-interest revenue. Commercial Banking revenue increased $24 million or 3%, due to higher net interest income, partially offset by lower non-interest revenue, largely due to the BA transition.

Total provision for credit losses was $388 million, a decrease of $10 million from the prior quarter. The provision for credit losses on impaired loans increased $58 million, with higher provisions in both Commercial Banking and Personal and Business Banking. There was a $35 million provision for credit losses on performing loans in the current quarter, compared with a $103 million provision in the prior quarter.

Non-interest expense increased by $44 million or 4% from the prior quarter, due to higher employee-related expenses and higher advertising costs.

Average gross loans and acceptances increased $6.1 billion or 2% from the prior quarter. Personal and Business Banking and Commercial Banking loan balances both increased 2%, and credit card balances increased 5%. Average deposits increased $9.1 billion or 3% from the prior quarter. Personal and Business Banking deposits increased 3% and Commercial Banking deposits increased 4%.

Q3 YTD 2024 vs. Q3 YTD 2023

Reported net income was $2,707 million, an increase of $56 million or 2% from the prior year.

Total revenue was $8,505 million, an increase of $742 million or 10% from the prior year. Net interest income increased $601 million or 10%, due to higher balances and net interest margins. Non-interest revenue increased $141 million or 8%, primarily due to the inclusion of AIR MILES and higher card-related revenue, partially offset by lower commercial lending fee revenue. Net interest margin of 2.78% increased 7 basis points from the prior year driven by a change in volume mix due to deposits growing faster than loans, and higher loan margins, partially offset by lower deposit margins.

Personal and Business Banking revenue increased $616 million or 11%, due to higher net interest income and non-interest revenue. Commercial Banking revenue increased $126 million or 6%, due to higher net interest income, partially offset by lower non-interest revenue, largely due to the BA transition.

Total provision for credit losses was $1,081 million, an increase of $437 million from the prior year. The provision for credit losses on impaired loans was $886 million, an increase of $394 million due to higher provisions in both Personal and Business Banking and Commercial Banking across various sectors. There was a $195 million provision for credit losses on performing loans in the current year, compared with $152 million provision in the prior year.

Non-interest expense was $3,686 million, an increase of $223 million or 6% from the prior year, reflecting the inclusion of AIR MILES, higher operating costs and higher technology costs, partially offset by lower employee-related expenses, including higher severance in the prior year.

Average gross loans and acceptances increased $16.1 billion or 5% from the prior year. Personal and Business Banking loan balances increased 5%, Commercial Banking loan balances increased 4%, and credit card balances increased 20%. Average deposits increased $28.8 billion or 11% from the prior year. Personal and Business Banking deposits increased 9% and Commercial Banking deposits increased 14%.

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 Third Quarter Report 2024 25

 


U.S. Personal and Commercial Banking (U.S. P&C) (1)

 

(Canadian $ in millions, except as noted)

   Q3-2024         Q2-2024        Q3-2023        YTD-2024        YTD-2023  

Net interest income (teb) (2)

     2,056        1,994       1,995       6,108       5,530  

Non-interest revenue

     397        395       419       1,188       1,162  

Total revenue (teb) (2)

     2,453        2,389       2,414       7,296       6,692  

Provision for credit losses on impaired loans

     368        288       117       839       221  

Provision for (recovery of) credit losses on performing loans

     26        (7     87       126       109  

Total provision for credit losses (PCL)

     394        281       204       965       330  

Non-interest expense

     1,492        1,441       1,551       4,399       3,891  

Income before income taxes

     567        667       659       1,932       2,471  

Provision for income taxes (teb) (2)

     97        124       157       359       573  

Reported net income

     470        543       502       1,573       1,898  

Amortization of acquisition-related intangible assets (3)

     69        69       77       213       155  

Adjusted net income

     539        612       579       1,786       2,053  

Adjusted non-interest expense

     1,398        1,348       1,448       4,112       3,682  

Net income available to common shareholders

     459        526       487       1,532       1,863  

Adjusted net income available to common shareholders

     528        595       564       1,745       2,018  

Average earning assets

     219,467        215,637       209,493       215,821       189,259  

Average gross loans and acceptances

     207,420        203,029       203,602       204,711       183,331  

Average net loans and acceptances

     205,897        201,562       201,703       203,123       181,720  

Average deposits

     224,575        221,216       210,097       220,310       193,000  

(US$ equivalent in millions)

                                    

Net interest income (teb) (2)

     1,500        1,463       1,497       4,500       4,114  

Non-interest revenue

     289        290       314       875       864  

Total revenue (teb) (2)

     1,789        1,753       1,811       5,375       4,978  

Provision for credit losses on impaired loans

     267        211       87       615       164  

Provision for (recovery of) credit losses on performing loans

     19        (5     67       94       83  

Total provision for credit losses

     286        206       154       709       247  

Non-interest expense

     1,089        1,058       1,164       3,241       2,895  

Income before income taxes

     414        489       493       1,425       1,836  

Provision for income taxes (teb) (2)

     70        91       117       264       426  

Reported net income

     344        398       376       1,161       1,410  

Amortization of acquisition-related intangible assets (3)

     51        51       58       158       116  

Adjusted net income

     395        449       434       1,319       1,526  

Adjusted non-interest expense

     1,020        990       1,086       3,029       2,738  

Net income available to common shareholders

     336        386       365       1,131       1,384  

Adjusted net income available to common shareholders

     385        440       425       1,290       1,502  

Key Performance Metrics (US$ basis)

           

Personal and Business Banking revenue

     689        675       732       2,081       1,886  

Commercial Banking revenue

     1,100        1,078       1,079       3,294       3,092  

Return on equity (%) (4) (5)

     5.5        6.5       6.1       6.2       9.6  

Adjusted return on equity (%) (4) (5)

     6.3        7.3       7.1       7.0       10.4  

Operating leverage (%)

     5.2        (0.6     (45.1     (4.0     (25.8

Adjusted operating leverage (%)

     4.9        (1.0     (32.4     (2.6     (17.0

Efficiency ratio (%)

     60.8        60.3       64.2       60.3       58.1  

Adjusted efficiency ratio (%)

     57.0        56.4       60.0       56.3       55.0  

Net interest margin on average earning assets (%)

     3.73        3.76       3.78       3.78       3.91  

PCL on impaired loans to average net loans and acceptances (%) (5)

     0.71        0.57       0.23       0.55       0.16  

Average earning assets

     160,137        158,258       157,141       158,993       140,800  

Average gross loans and acceptances

     151,347        149,005       152,723       150,814       136,390  

Average deposits

     163,862        162,359       157,607       162,298       143,580  

 

 (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 Q3-2024 and Q2-2024, and $8 million in Q3-2023; and $27 million for YTD-2024 and $24 million for YTD-2023. These amounts 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$6 million in Q3-2024, Q2-2024 and Q3-2023; and US$19 million for YTD-2024 and US$18 million for YTD-2023.

 (3)

Amortization of acquisition-related intangible assets, recorded in non-interest expense. On a source currency basis, pre-tax amounts were US$69 million in Q3-2024, US$68 million in Q2-2024 and US$78 million in Q3-2023; and US$212 million for YTD-2024 and US$157 million for YTD-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.

 (5)

Return on equity and PCL ratios are presented on an annualized basis.

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

Q3 2024 vs. Q3 2023

U.S. P&C reported net income was $470 million, a decrease of $32 million or 6% from the prior year. The impact of the stronger U.S. dollar increased revenue, expenses, and net income by 3%, respectively. All amounts in the remainder of this section are on a U.S. dollar basis.

Reported net income was $344 million, a decrease of $32 million or 9% from the prior year.

Total revenue was $1,789 million, a decrease of $22 million or 1% from the prior year. Net interest income was relatively unchanged, as growth in deposit and loan balances was largely offset by lower net interest margins. Non-interest revenue decreased $25 million or 8%, primarily due to lower deposit and card fee revenue. Net interest margin of 3.73% decreased 5 basis points, primarily due to lower deposit margins as customers migrated to higher cost deposits, partially offset by deposits growing faster than loans.

Personal and Business Banking revenue decreased $43 million or 6%, due to lower net interest income and non-interest revenue. Commercial Banking revenue increased $21 million or 2%, due to higher net interest income, partially offset by lower non-interest revenue.

 

26 BMO Financial Group Third Quarter Report 2024

 


Total provision for credit losses was $286 million, an increase of $132 million from the prior year. The provision for credit losses on impaired loans was $267 million, an increase of $180 million, largely due to higher provisions in Commercial Banking, primarily in the manufacturing and wholesale trade sectors. There was a $19 million provision for credit losses on performing loans in the current quarter, compared with a $67 million provision in the prior year.

Non-interest expense was $1,089 million, a decrease of $75 million or 6% from the prior year, primarily due to realized cost synergies related to the Bank of the West acquisition and our focus on operational efficiencies, including lower severance in the current year.

Average gross loans and acceptances decreased $1.4 billion or 1% from the prior year to $151.3 billion. Personal and Business Banking loan balances decreased 6%, primarily due to the sale of a portfolio of recreational vehicle loans, partially offset by an increase in Commercial Banking loan balances of 1%. Average total deposits increased $6.3 billion or 4% from the prior year. Personal and Business Banking deposits increased 10% and Commercial Banking deposits decreased 2%.

Q3 2024 vs. Q2 2024

Reported net income decreased $73 million or 13% from the prior quarter. The impact of the stronger U.S. dollar increased revenue, expenses, and net income by 1%, respectively. All amounts in the remainder of this section are on a U.S. dollar basis.

Reported net income decreased $54 million or 14% from the prior quarter.

Total revenue increased $36 million or 2% from the prior quarter. Net interest income increased $37 million or 3%, primarily due to the impact of two additional days in the current quarter and higher loan and deposit balances, partially offset by lower net interest margins. Non-interest revenue was relatively unchanged from the prior quarter. Net interest margin of 3.73% decreased 3 basis points from the prior quarter, driven by lower deposit and loan margins.

Personal and Business Banking revenue increased $14 million and Commercial Banking revenue increased $22 million, both increasing 2% due to higher net interest income.

Total provision for credit losses increased $80 million from the prior quarter. The provision for credit losses on impaired loans increased $56 million, due to higher provisions in Commercial Banking and in Personal and Business Banking. There was a $19 million provision for credit losses on performing loans in the current quarter, compared with a recovery of $5 million in the prior quarter.

Non-interest expense increased $31 million or 3% from the prior quarter, primarily due to higher employee-related expenses and higher technology and advertising costs.

Average gross loans and acceptances increased $2.3 billion or 2% from the prior quarter. Personal and Business Banking loan balances increased 4% and Commercial Banking loan balances increased 1%. Average total deposits increased $1.5 billion or 1% from the prior quarter. Personal and Business Banking deposits and Commercial Banking deposits both increased 1%.

Q3 YTD 2024 vs. Q3 YTD 2023

Reported net income was $1,573 million, a decrease of $325 million or 17% from the prior year. The impact of the stronger U.S. dollar increased revenue, expenses, and net income by 1%, respectively. All amounts in the remainder of this section are on a U.S. dollar basis.

Reported net income was $1,161 million, a decrease of $249 million or 18% from the prior year.

Total revenue was $5,375 million, an increase of $397 million or 8% from the prior year, due to the inclusion of an additional quarter of Bank of the West results. Net interest income increased $386 million or 9%, primarily due to higher deposit and loan balances, partially offset by lower net interest margins. Non-interest revenue increased $11 million or 1%, primarily due to higher deposit, lending and card fee revenue. Net interest margin of 3.78% decreased 13 basis points from prior year, primarily due to lower deposit and loan margins, partially offset by deposits growing faster than loans.

Personal and Business Banking revenue increased $195 million or 10% and Commercial Banking revenue increased $202 million or 7%, primarily due to higher net interest income, and modestly higher non-interest revenue.

Total provision for credit losses was $709 million, an increase of $462 million from the prior year. The provision for credit losses on impaired loans was $615 million, an increase of $451 million, due to higher provisions in Commercial Banking in several sectors and in Personal and Business Banking. There was a $94 million provision for credit losses on performing loans in the current year, compared with a $83 million provision in the prior year.

Non-interest expense was $3,241 million, an increase of $346 million or 12% from the prior year, primarily reflecting the impact of an additional quarter of Bank of the West, net of realized cost synergies.

Average gross loans and acceptances increased $14.4 billion or 11% from the prior year to $150.8 billion, due to the impact of an additional quarter of Bank of the West. Commercial Banking loan balances increased 7% and Personal and Business Banking loan balances increased 26%. Average total deposits increased $18.7 billion or 13% to $162.3 billion. Personal and Business Banking deposits increased 23% and Commercial Banking balances increased 5%.

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 Third Quarter Report 2024 27

 


BMO Wealth Management (1)

 

(Canadian $ in millions, except as noted)

      Q3-2024        Q2-2024        Q3-2023        YTD-2024        YTD-2023  

Net interest income

     326       322       357       973       1,027  

Non-interest revenue (2)

     1,113       1,071       1,168       3,187       2,919  

Total revenue (2)

     1,439       1,393       1,525       4,160       3,946  

Provision for credit losses on impaired loans

     1       6       1       10       3  

Provision for (recovery of) credit losses on performing loans

     (10     (13     6       (13     14  

Total provision for (recovery of) credit losses (PCL)

     (9     (7     7       (3     17  

Non-interest expense

     969       978       990       2,944       2,888  

Income before income taxes

     479       422       528       1,219       1,041  

Provision for income taxes

     117       102       132       297       246  

Reported net income

     362       320       396       922       795  

Amortization of acquisition-related intangible assets (3)

     2       2       1       5       3  

Adjusted net income

     364       322       397       927       798  

Adjusted non-interest expense

     966       975       988       2,937       2,883  

Net income available to common shareholders

     359       318       394       915       789  

Adjusted net income available to common shareholders

     361       320       395       920       792  

Key Performance Metrics

          

Wealth and Asset Management reported net income

     300       252       209       739       622  

Wealth and Asset Management adjusted net income

     302       254       210       744       625  

Insurance reported net income (loss)

     62       68       187       183       173  

Return on equity (%) (4) (5)

     29.7       27.2       31.7       25.7       23.1  

Adjusted return on equity (%) (4) (5)

     29.8       27.4       31.7       25.9       23.2  

Reported efficiency ratio (%)

     67.3       70.3       64.9       70.8       73.2  

Adjusted efficiency ratio (%) (6)

     67.1       70.1       64.8       70.6       73.1  

Operating leverage (%)

     (3.4     7.0       (22.6     3.4       1.8  

Adjusted operating leverage (%) (6)

     (3.3     7.1       6.3       3.5       (7.0

PCL on impaired loans to average net loans and acceptances (%) (5)

     0.01       0.06       0.01       0.03       0.01  

Average assets

     65,428       63,673       62,034       63,877       59,446  

Average gross loans and acceptances

     43,384       42,310       42,483       42,506       40,253  

Average deposits

     62,406       60,564       62,787       61,021       61,720  

Assets under administration (7)

     359,213       341,422       432,828       359,213       432,828  

Assets under management

     409,627       385,936       340,184       409,627       340,184  

U.S. Business Select Financial Data (US$ in millions)

          

Total revenue

     196       184       209       575       564  

Non-interest expense

     137       141       161       429       440  

Reported net income

     49       36       32       114       88  

Adjusted non-interest expense

     135       139       160       424       437  

Adjusted net income

     51       37       32       118       90  

Average gross loans and acceptances

     10,712       10,435       11,088       10,474       9,442  

Average deposits

      11,376        11,346        13,720        11,427        11,689  

 

 (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, 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)

Return on equity and PCL ratios are presented on an annualized basis.

 (6)

Prior to November 1, 2022, we presented adjusted revenue on a basis 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 $1,286 million in Q3-2022, $1,288 million in Q2-2022, and $1,321 million in Q1-2022. 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.

 (7)

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.

Q3 2024 vs. Q3 2023

BMO Wealth Management reported net income was $362 million, a decrease of $34 million or 9% from the prior year. Wealth and Asset Management reported net income was $300 million, an increase of $91 million or 44%, and Insurance net income was $62 million, a decrease of $125 million.

Total revenue was $1,439 million, a decrease of $86 million or 6% from the prior year. Revenue in Wealth and Asset Management was $1,342 million, an increase of $82 million or 7%, primarily due to growth in client assets, including the impact of stronger global markets, partially offset by lower net interest income. Insurance revenue was $97 million, a decrease of $168 million from the prior year, primarily due to changes in portfolio positioning during the transition to IFRS 17.

Total recovery of the provision for credit losses was $9 million, compared with a provision of $7 million in the prior year.

Non-interest expense was $969 million, a decrease of $21 million or 2%, primarily due to higher severance in the prior year and operational efficiencies, partially offset by higher revenue-based costs.

Assets under management increased $69.4 billion or 20% from the prior year to $409.6 billion, driven by stronger global markets, higher net client assets and favourable foreign exchange movements. Assets under administration decreased $73.6 billion or 17% to $359.2 billion, primarily due to the exit of our Institutional Trust Services operations in the first quarter of fiscal 2024, partially offset by stronger global markets and favourable foreign exchange movements. Average gross loans increased 2% and average deposits decreased 1%.

 

28 BMO Financial Group Third Quarter Report 2024

 


Q3 2024 vs. Q2 2024

Reported net income increased $42 million or 13% from the prior quarter. Wealth and Asset Management reported net income increased $48 million or 19%, and Insurance net income decreased $6 million or 8%.

Total revenue increased $46 million or 3% from the prior quarter. Wealth and Asset Management revenue increased $51 million or 4%, primarily due to growth in client assets, including stronger global markets, and the impact of two additional days in the current quarter. Insurance revenue decreased $5 million.

Total recovery of the provision for credit losses was $9 million, compared with a $7 million recovery in the prior quarter.

Non-interest expense decreased $9 million or 1%.

Assets under management increased $23.7 billion or 6% from the prior quarter, reflecting stronger global markets and higher net client assets. Assets under administration increased $17.8 billion or 5%, primarily due to stronger global markets. Average gross loans and average deposits both increased by 3%.

Q3 YTD 2024 vs. Q3 YTD 2023

Reported net income was $922 million, an increase of $127 million or 16% from the prior year. Wealth and Asset Management reported net income was $739 million, an increase of $117 million or 19%, and Insurance net income was $183 million, an increase of $10 million or 5%.

Total revenue was $4,160 million, an increase of $214 million or 5%. Revenue in Wealth and Asset Management was $3,880 million, an increase of $197 million or 5%, due the inclusion of an additional quarter of Bank of the West results, growth in client assets, including the impact of stronger global markets, and higher revenue from online brokerage transactions, partially offset by lower net interest income. Insurance revenue was $280 million, an increase of $17 million, reflecting changes in portfolio positioning during the transition to IFRS 17.

Total recovery of the provision for credit losses was $3 million, compared with a total provision of $17 million in the prior year. The provision for credit losses on impaired loans was $10 million, an increase of $7 million. There was a $13 million recovery of the provision for credit losses on performing loans, compared with a provision of $14 million in the prior year.

Non-interest expense was $2,944 million, an increase of $56 million or 2%, reflecting the impact of Bank of the West and higher revenue-based costs, partially offset by operational efficiencies and higher severance in the prior year.

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 Third Quarter Report 2024 29

 


BMO Capital Markets (1)

 

(Canadian $ in millions, except as noted)

      Q3-2024         Q2-2024        Q3-2023        YTD-2024        YTD-2023  

Net interest income (teb) (2)

     479        358       568       1,342       1,860  

Non-interest revenue

     1,187        1,303       895       3,574       2,881  

Total revenue (teb) (2)

     1,666        1,661       1,463       4,916       4,741  

Provision for (recovery of) credit losses on impaired loans

     92        61       1       164       (2

Provision for (recovery of) credit losses on performing loans

     36        (9     9       (6     19  

Total provision for credit losses (PCL)

     128        52       10       158       17  

Non-interest expense

     1,047        1,028       1,075       3,191       3,226  

Income before income taxes

     491        581       378       1,567       1,498  

Provision for income taxes (teb) (2)

     102        122       83       326       345  

Reported net income

     389        459       295       1,241       1,153  

Acquisition and integration costs (3)

     1        2       1       13       6  

Amortization of acquisition-related intangible assets (4)

     4        5       5       14       15  

Adjusted net income

     394        466       301       1,268       1,174  

Adjusted non-interest expense

     1,041        1,019       1,066       3,155       3,198  

Net income available to common shareholders

     380        450       287       1,214       1,128  

Adjusted net income available to common shareholders

     385        457       293       1,241       1,149  

Key Performance Metrics

           

Global Markets revenue

     1,000        1,008       863       2,960       2,888  

Investment and Corporate Banking revenue

     666        653       600       1,956       1,853  

Return on equity (%) (5) (6)

     11.4        14.1       9.7       12.3       12.8  

Adjusted return on equity (%) (5) (6)

     11.6        14.3       9.9       12.6       13.1  

Operating leverage (teb) (%)

     16.4        8.2       (0.1     4.8       (11.4

Adjusted operating leverage (teb) (%)

     16.2        8.1       -       5.0       (11.2

Efficiency ratio (teb) (%)

     62.9        61.9       73.5       64.9       68.0  

Adjusted efficiency ratio (teb) (%)

     62.5        61.3       72.9       64.2       67.4  

PCL on impaired loans to average net loans and acceptances (%) (6)

     0.44        0.29       -       0.26       -  

Average assets

     475,893        455,916       453,798       456,676       463,156  

Average gross loans and acceptances

     84,573        82,878       77,994       83,235       76,623  

U.S. Business Select Financial Data (US$ in millions)

           

Total revenue (teb) (2)

     552        577       504       1,719       1,450  

Non-interest expense

     398        378       398       1,205       1,205  

Reported net income

     55        121       64       307       165  

Adjusted non-interest expense

     396        374       394       1,189       1,193  

Adjusted net income

     57        124       67       319       174  

Average assets

     160,561        149,206       160,492       150,510       161,056  

Average gross loans and acceptances

     32,189        31,760       29,273       31,823       28,600  

 

 (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 received in BMO Capital Markets due to proposed legislation, and as a result, we no longer reported this revenue on a teb basis. This proposed legislation was enacted in the third quarter of fiscal 2024. For further information, refer to the Other Regulatory Developments section. Teb amounts of $1 million recovery in Q3-2024, $2 million in Q2-2024 and $81 million in Q3-2023; and $20 million for YTD-2024 and $235 million for YTD-2023 were recorded in net interest income, revenue and provision for income taxes, and were reflected in the ratios. Teb amounts for our U.S. businesses were $1 million in Q3-2024, $nil in both Q2-2024 and Q3-2023; $1 million for YTD-2024 and $nil for YTD-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.

 (6)

Return on equity and PCL ratios are presented on an annualized basis.

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

Q3 2024 vs. Q3 2023

BMO Capital Markets reported net income was $389 million, an increase of $94 million or 32% from the prior year.

Total revenue was $1,666 million, an increase of $203 million or 14% from the prior year. Global Markets revenue increased $137 million or 16%, primarily due to higher interest rate and equities trading revenue. Investment and Corporate Banking revenue increased $66 million or 11%, due to higher underwriting and advisory fee revenue and corporate banking-related revenue.

Total provision for credit losses was $128 million, an increase of $118 million from the prior year. The provision for credit losses on impaired loans was $92 million, primarily driven by one account in the service sector, compared with a provision of $1 million in the prior year. There was a $36 million provision for credit losses on performing loans, compared with a $9 million provision in the prior year.

Non-interest expense was $1,047 million, a decrease of $28 million or 3% from the prior year, primarily due to the impact of legal provisions and higher severance in the prior year, partially offset by higher performance-based and technology costs.

Average gross loans and acceptances of $84.6 billion increased $6.6 billion or 8% from the prior year, due to higher lending activity across loan portfolios.

 

30 BMO Financial Group Third Quarter Report 2024

 


Q3 2024 vs. Q2 2024

Reported net income decreased $70 million or 15% from the prior quarter.

Total revenue was relatively unchanged from the prior quarter. Global Markets revenue decreased $8 million or 1%, primarily due to lower trading revenue. Investment and Corporate Banking revenue increased $13 million or 2%, due to higher advisory fee revenue and corporate banking-related revenue, partially offset by lower underwriting fee revenue.

Total provision for credit losses was $128 million, an increase of $76 million from the prior quarter. The provision for credit losses on impaired loans increased $31 million from the prior quarter. There was a $36 million provision for credit losses on performing loans in the current quarter, compared with a recovery of $9 million in the prior quarter.

Non-interest expense increased $19 million or 2% from the prior quarter, due to higher employee-related costs, partially offset by lower operating expenses.

Average gross loans and acceptances increased $1.7 billion or 2% from the prior quarter.

Q3 YTD 2024 vs. Q3 YTD 2023

Reported net income was $1,241 million, an increase of $88 million or 8% from the prior year.

Total revenue was $4,916 million, an increase of $175 million or 4% from the prior year. Global Markets revenue increased $72 million or 2%, due to higher debt and equity issuances, partially offset by lower trading revenue, including the impact of the elimination of the deduction for certain Canadian dividends. Investment and Corporate Banking revenue increased $103 million or 6% from the prior year, due to higher underwriting fee and corporate banking-related revenue, partially offset by lower advisory fee revenue and net securities gains.

Total provision for credit losses was $158 million, an increase of $141 million from the prior year. The provision for credit losses on impaired loans was $164 million, primarily in the service, financial and manufacturing sectors, compared with a recovery of $2 million in the prior year. There was a $6 million recovery of the provision for credit losses on performing loans, compared with a provision of $19 million in the prior year.

Non-interest expense was $3,191 million, a decrease of $35 million or 1% from the prior year, due to the impact of legal provisions in the prior year and lower employee-related expenses, partially offset by higher technology costs.

Average gross loans and acceptances of $83.2 billion increased $6.6 billion or 9% from the prior year, due to higher lending activity across loan portfolios.

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 Third Quarter Report 2024 31

 


Corporate Services (1) (2) (3)

 

(Canadian $ in millions, except as noted)

      Q3-2024        Q2-2024        Q3-2023        YTD-2024        YTD-2023  

Net interest income before group teb offset

     (312     (302     13       (894     (365

Group teb offset

     (8     (11     (89     (47     (259

Net interest income (teb)

     (320     (313     (76     (941     (624

Non-interest revenue

     46       25       10       (98     (1,578

Total revenue (teb)

     (274     (288     (66     (1,039     (2,202

Provision for credit losses on impaired loans

     14       8       17       60       58  

Provision for (recovery of) credit losses on performing loans

     (9     (27     (5     (23     666  

Total provision for (recovery of) credit losses

     5       (19     12       37       724  

Non-interest expense

     71       181       712       852       1,987  

Income (loss) before income taxes

     (350     (450     (790     (1,928     (4,913

Provision for (recovery of) income taxes (teb)

     (80     (122     (281     (508     (1,143

Reported net income (loss)

     (270     (328     (509     (1,420     (3,770

Acquisition and integration costs (4)

     16       22       363       84       1,086  

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)

     13       12       (3     36       9  

Impact of Canadian tax measures (7)

     -       -       131       -       502  

Impact of loan portfolio sale (8)

     -       -       -       136       -  

FDIC special assessment (9)

     5       50       -       368       -  

Initial provision for credit losses on purchased performing loans (10)

     -       -       -       -       517  

Adjusted net loss

     (236     (244     (18     (796     (195

Adjusted total revenue (teb) (11)

     (260     (274     75       (833     (37

Adjusted total provision for (recovery of) credit losses

     5       (19     12       37       19  

Adjusted non-interest expense

     40       83       210       244       526  

Net income (loss) available to common shareholders

     (288     (436     (517     (1,554     (3,886

Adjusted net loss available to common shareholders

     (254     (352     (26     (930     (311

U.S. Business Select Financial Data (US$ in millions)

          

Total revenue

     (10     57       246       (59     (1,031

Total provision for (recovery of) credit losses

     2       (16     3       5       523  

Non-interest expense

     8       70       440       483       1,232  

Provision for (recovery of) income taxes (teb)

     (11     (1     (68     (147     (774

Reported net income (loss)

     (9     4       (129     (400     (2,012

Adjusted total revenue

     -       68       248       94       486  

Adjusted total (recovery of) provision for credit losses

     2       (16     3       5       6  

Adjusted non-interest expense

     (14     (1     77       36       164  

Adjusted net income (loss)

     15       66       143       61       272  

 

 (1)

Adjusted results are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section.

 (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 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.

 (6)

Reported net loss included the impact of a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank: Q3-2024 included $13 million ($18 million pre-tax), comprising $14 million interest expense and non-interest expense of $4 million; Q2-2024 included $12 million ($15 million pre-tax), comprising $14 million interest expense and non-interest expense of $1 million; Q1-2024 included $11 million ($15 million pre-tax), comprising $14 million interest expense and non-interest expense of $1 million; Q3-2023 included a net recovery of $3 million ($4 million pre-tax), comprising $3 million interest expense, and a $7 million recovery of non-interest expense; Q2-2023 included $6 million ($7 million pre-tax) of interest expense; and Q1-2023 included $6 million ($8 million pre-tax), comprising interest expense of $6 million and a 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 included the impact of certain tax measures enacted by the Canadian government, comprising a charge of $131 million ($160 million pre-tax) related to the amended GST/HST definition for financial services in Q3-2023 and a one-time tax expense of $371 million in Q1-2023, primarily related to the Canada Recovery Dividend.

 (8)

Reported net loss in Q1-2024 included a net accounting loss of $136 million ($164 million pre-tax) 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 Q3-2024 included a U.S. Federal Deposit Insurance Corporation (FDIC) special assessment of $5 million ($6 million pre-tax), recorded in non-interest expense; Q2-2024 included $50 million ($67 million pre-tax) and Q1-2024 included $313 million ($417 million pre-tax).

(10)

Reported net loss in Q2-2023 included an initial provision for credit losses of $517 million ($705 million pre-tax) on the purchased Bank of the West performing loan portfolio.

(11)

Group taxable equivalent basis (teb) offset amounts for our U.S. businesses were US$7 million in Q3-2024, and US$6 million in both Q2-2024 and Q3-2023, recorded in revenue and provision for (recovery of) income taxes. YTD Q3-2024 included US$20 million and YTD Q3-2023 included US$18 million.

 Adjusted results exclude the impact of the items described in footnotes (4) to (10).

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

 

32 BMO Financial Group Third Quarter Report 2024

 


Q3 2024 vs. Q3 2023

Corporate Services reported net loss was $270 million, compared with reported net loss of $509 million in the prior year, and adjusted net loss was $236 million, compared with adjusted net loss of $18 million.

The lower reported net loss was driven by lower acquisition and integration costs and the impact of tax measures in the prior year.

The higher adjusted net loss, which excluded the above items, was driven by lower revenue due to the impact of treasury-related activities and lower net accretion of purchase accounting fair value marks, partially offset by lower expenses, primarily due to lower technology costs and higher severance in the prior year.

Q3 2024 vs. Q2 2024

Reported net loss was $270 million, compared with reported net loss of $328 million in the prior quarter, and adjusted net loss was $236 million, compared with adjusted net loss of $244 million.

On a reported basis, net loss decreased due to a lower U.S. Federal Deposit Insurance Corporation (FDIC) special assessment charge in the current quarter.

Adjusted net loss excluded the above item and was relatively unchanged from the prior quarter, with higher revenue and lower expenses, partially offset by a higher provision for credit losses.

Q3 YTD 2024 vs. Q3 YTD 2023

Reported net loss was $1,420 million, compared with reported net loss of $3,770 million in the prior year. The prior year included the impact of fair value management actions related to the acquisition of Bank of the West, the initial provision for credit losses on the purchased Bank of the West performing loan portfolio, and the impact of certain Canadian tax measures enacted by the Canadian government. The current year included the FDIC special assessment charge and the loss on the sale of a portfolio of recreational vehicle loans. Both the current and prior years included acquisition and integration costs. The lower reported net loss primarily reflected the items noted above.

Adjusted net loss was $796 million, compared with adjusted net loss of $195 million in the prior year, with the higher net loss driven by lower revenue, partially offset by lower expenses.

Adjusted revenue decreased due to the impact of treasury-related activities, including market volatility on hedge positions, lower net accretion of purchase accounting fair value marks and higher earnings on the investment of unallocated capital in the prior year, in advance of the close of the Bank of the West acquisition.

Total provision for credit losses was $37 million, compared with a reported provision of $724 million and an adjusted provision of $19 million in the prior year. The provision for credit losses on impaired loans increased $2 million. The provision for credit losses on performing loans decreased $689 million from the prior year on a reported basis, and increased $16 million on an adjusted basis.

Adjusted expenses decreased, primarily due to the impact of the consolidation of certain U.S. retirement benefit plans in the current year and higher severance in the prior year.

For further information on non-GAAP amounts in this Review of Operating Groups’ Performance section, refer to the Non-GAAP and Other Financial Measures section.

 

BMO Financial Group Third Quarter Report 2024 33

 


Summary Quarterly Earnings Trends (1)

 

(Canadian $ in millions, except as noted)

   Q3-2024     Q2-2024     Q1-2024     Q4-2023     Q3-2023     Q2-2023     Q1-2023     Q4-2022  

Revenue (2)

     8,192       7,974       7,672       8,319       8,052       7,789       5,099       10,570  

Insurance claims, commissions and changes in policy benefit liabilities (CCPB)

     -       -       -       -       -       -       -       (369

Revenue, net of CCPB (2) (3)

     8,192       7,974       7,672       8,319       8,052       7,789       5,099       10,939  

Provision for credit losses on impaired loans

     828       658       473       408       333       243       196       192  

Provision for credit losses on performing loans

     78       47       154       38       159       780       21       34  

Total provision for credit losses

     906       705       627       446       492       1,023       217       226  

Non-interest expense

     4,839       4,844       5,389       5,679       5,572       5,501       4,382       4,776  

Income before income taxes

     2,447       2,425       1,656       2,194       1,988       1,265       500       5,937  

Provision for income taxes

     582       559       364       484       423       236       367       1,454  

Reported net income

     1,865       1,866       1,292       1,710       1,565       1,029       133       4,483  

Initial provision for credit losses on purchased performing loans (4)

     -       -       -       -       -       517       -       -  

Acquisition and integration costs (5)

     19       26       57       433       370       549       181       145  

Amortization of acquisition-related intangible assets (6)

     79       79       84       88       85       85       6       6  

Impact of divestitures (7)

     -       -       -       -       -       -       -       (8

Management of fair value changes on the purchase of Bank of the West (8)

     -       -       -       -       -       -       1461       (3,336

Legal Provision (9)

     13       12       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)

     5       50       313       -       -       -       -       -  

Adjusted net income

     1,981       2,033       1,893       2,243       2,148       2,186       2,158       2,136  

Operating Group Reported and Adjusted Net Income

                

Canadian P&C reported net income (13)

     914       872       921       922       881       819       951       909  

Acquisition and integration costs (5)

     2       2       1       1       6       2       -       -  

Amortization of acquisition-related intangible assets (6)

     4       3       3       3       2       1       -       -  

Canadian P&C adjusted net income (13)

     920       877       925       926       889       822       951       909  

U.S. P&C reported net income (13)

     470       543       560       591       502       731       665       631  

Amortization of acquisition-related intangible assets (6)

     69       69       75       79       77       77       1       2  

U.S. P&C adjusted net income (13)

     539       612       635       670       579       808       666       633  

BMO Wealth Management reported net income (2) (3)

     362       320       240       351       396       240       159       294  

Amortization of acquisition-related intangible assets (6)

     2       2       1       1       1       1       1       -  

BMO Wealth Management adjusted net income (2) (3)

     364       322       241       352       397       241       160       294  

BMO Capital Markets reported net income

     389       459       393       472       295       370       488       343  

Acquisition and integration costs (5)

     1       2       10       (2     1       2       3       2  

Amortization of acquisition-related intangible assets (6)

     4       5       5       5       5       6       4       4  

BMO Capital Markets adjusted net income

     394       466       408       475       301       378       495       349  

Corporate Services reported net income (loss) (13)

     (270     (328     (822     (626     (509     (1,131     (2,130     2,306  

Initial provision for credit losses on purchased performing loans (4)

     -       -       -       -       -       517       -       -  

Acquisition and integration costs (5)

     16       22       46       434       363       545       178       143  

Impact of divestitures (7)

     -       -       -       -       -       -       -       (8

Management of fair value changes on the purchase of Bank of the West (8)

     -       -       -       -       -       -       1,461       (3,336

Legal Provision (9)

     13       12       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)

     5       50       313       -       -       -       -       -  

Corporate Services adjusted net income (loss) (13)

     (236     (244     (316     (180     (18     (63     (114     (49

Basic earnings per share ($)

     2.49       2.36       1.73       2.19       2.13       1.27       0.14       6.52  

Diluted earnings per share ($)

     2.48       2.36       1.73       2.19       2.12       1.26       0.14       6.51  

Adjusted diluted earnings per share ($)

     2.64       2.59       2.56       2.93       2.94       2.89       3.06       3.04  

 

 (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, 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 $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.

 (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 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 Q2-2024 and Q1-2024 included U.S. Federal Deposit Insurance Corporation (FDIC) special assessment charges, 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.

 

34 BMO Financial Group Third 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. Results are also impacted by foreign currency translation. Quarterly EPS is impacted by the semi-annual payment of dividends on certain equity instruments. The table above outlines summary results for the fourth quarter of 2022 through the third 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 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. The impact of the transition to IFRS 17 was retrospectively applied to fiscal 2023 results, while fiscal 2022 results were reported under the previous insurance standard.

Financial performance benefitted from the strength and diversification of our businesses. Results were impacted by a higher interest rate environment and uncertain economic conditions resulting in higher credit provisions, slower loan demand and lower levels of client activity in our market-sensitive businesses.

A number of items impacted reported results in certain quarters. Fiscal 2024 included the impact of a U.S. Federal Deposit Insurance Corporation (FDIC) special assessment in each quarter. The first quarter of 2024 included a loss on the sale of a portfolio of recreational vehicle loans related to balance sheet optimization. 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 the fourth quarter of 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. 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 growth in Canadian P&C reflected good customer acquisition and volume growth with higher loan and deposit balances, and higher net interest margins. U.S. P&C revenue performance benefitted from the inclusion of Bank of the West, but recent quarters have been impacted by a more muted U.S. banking environment, with reduced loan demand and higher deposit costs. Revenue in BMO Wealth Management benefitted from steady growth in client assets, including the impact of improved global markets in fiscal 2024, while high interest rates resulted in a shift in deposit mix to term deposits and reduced margins. Insurance revenue is subject to variability, resulting from market-related impacts, including changes in portfolio positioning during the transition to IFRS 17. BMO Capital Markets’ performance in recent quarters reflected the impact of improving market conditions, particularly in trading and underwriting activities.

Over the past eight quarters, the higher interest rate environment has had a meaningful impact on credit outcomes, resulting in increasing provisions on impaired loans from very low levels and provisions on performing loans through downward credit migration. Performing loan provisions were also impacted by balance growth, partially offset by changes in the macro-economic outlook.

Non-interest expense reflected investments in our business to drive revenue growth, the impact of inflation and acquisitions. The third quarter of fiscal 2023 included severance costs associated with accelerating operational efficiencies across the enterprise, which combined with the benefit of realized cost synergies related to Bank of the West, has reduced expense growth in recent quarters.

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 the elimination of the deduction for certain Canadian dividends in BMO Capital Markets in fiscal 2024, certain tax measures enacted by the Canadian government noted above, as well as 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 customers’ 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 Third Quarter Report 2024 35

 


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 the 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.

In establishing our allowance for performing loans, we attach probability weightings to economic scenarios which are representative of our view of economic and market conditions. In the second quarter of fiscal 2024, we added a fourth scenario reflecting a less severe downside, allowing us to improve the continuum of ranges of economic forecasts used in the allowance estimation. The base scenario represents our view of the most probable outcome, as well as upside, downside, and severe downside 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.

Our total allowance for credit losses as at July 31, 2024, was $4,750 million ($4,267 million as at October 31, 2023) and comprised an allowance on performing loans of $3,739 million and an allowance on impaired loans of $1,011 million ($3,572 million and $695 million, respectively, as at October 31, 2023). The allowance on performing loans increased $167 million from the fourth quarter of 2023, primarily driven by portfolio credit migration, model updates, uncertainty in credit conditions as well as higher balances, partially offset by a net improvement in the macro-economic outlook, including the adoption of a fourth economic scenario, and the impact of the sale of a portfolio of recreational vehicle loans.

Information on the Provision for Credit Losses for the three months and nine months ended July 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.

Changes in Accounting Policies

IFRS 17, Insurance Contracts and IAS 40, Investment Property

Effective November 1, 2023, we adopted IFRS 17, which provides a comprehensive approach to accounting for all types of insurance contracts and replaced existing IFRS 4, Insurance Contracts. 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.

 

36 BMO Financial Group Third Quarter Report 2024

 


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 June 20, 2024, the Canadian government enacted legislation that contained 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 reported this revenue related to certain Canadian dividends on a taxable equivalent basis in BMO Capital Markets.

In addition, the legislation included the Global Minimum Tax Act, which introduced a 15% global minimum tax on income earned by large multinational groups. The global minimum tax rules will be effective for our fiscal year beginning November 1, 2024.

For additional information, refer to Note 1 of the unaudited interim consolidated financial statements.

U.S. Federal Deposit Insurance Corporation Assessment

In November 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. BMO recorded a $417 million ($313 million after-tax) charge related to the FDIC special assessment in the first quarter of fiscal 2024. In February 2024, the FDIC provided an update to the special assessment on losses to the deposit insurance fund, as well as the potential recoveries expected to reduce these estimated losses. As a result, we recorded an additional charge of $50 million ($67 million pre-tax) in non-interest expense in the second quarter of fiscal 2024, and a $5 million ($6 million pre-tax) charge in the third quarter of fiscal 2024.

Interbank Offered Rate (IBOR) Reform

BMO has transitioned all Canadian Dollar Offered Rate (CDOR) settings to alternative reference rates, except for certain loans for which the interest rate will reset after July 31, 2024. For additional details 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.

 

BMO Financial Group Third Quarter Report 2024 37

 


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

Economic conditions impact BMO’s financial results, operational efficiency, strategic direction and our clients and customers. Sources of potential risk to economic conditions may include the degree of GDP growth, monetary and fiscal policies, interest rates, unemployment levels and geopolitical risk.

The current credit cycle has led to increased provisions for credit losses from historically low levels, reflecting the impact of prolonged high interest rates, shifting consumer preferences on businesses and higher insolvencies. Though easing, interest rates remain high, and our customers could be affected by higher financing costs, leading to continued credit migration, delinquencies and further increases to the bank’s provisions for loan losses in the near term. Management actively monitors the economic environment to proactively take appropriate actions to respond to uncertainties and reduce the impact on the bank’s results, as any significant changes may affect our operations, clients and customers.

The conflicts in Ukraine and the Middle East continue to pose significant geopolitical risk, giving rise to greater risk exposures in capital flows, trade and commodity markets worldwide. The potential of an escalation could have adverse impacts on the economy and inflation, including on the bank, our customers, and our third-party relationships. Additionally, the outcome of the November 2024 U.S. presidential and congressional elections could increase economic uncertainty, especially relating to trade protectionism and the budget deficit. We monitor and assess our businesses regularly, and the impact on our customers and third parties.

For further information on the North American economic outlook, refer to the Economic Developments and Outlook section.

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

            

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 July 31, 2024

     155,781           36,116        191,897           13,431           205,328  

As at April 30, 2024

     151,770                 35,683        187,453                 13,267                 200,720  

Residential Mortgages (1)

 

    As at July 31, 2024           As at April 30, 2024  

(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

    3,291       3,657       6,948       3.7%       70%         3,317       3,479       6,796       3.8%       70%  

Quebec

    9,001       13,430       22,431       12.0%       71%         9,080       12,985       22,065       12.2%       71%  

Ontario

    14,155       61,709       75,864       40.7%       70%         14,261       58,743       73,004       40.5%       71%  

Alberta

    9,484       7,885       17,369       9.3%       73%         9,654       7,520       17,174       9.5%       73%  

British Columbia

    4,556       24,811       29,367       15.8%       67%         4,599       24,323       28,922       16.0%       68%  

All other Canada

    2,191       1,611       3,802       2.0%       72%               2,244       1,565       3,809       2.1%       72%  

Total Canada

    42,678       113,103       155,781       83.5%       70%               43,155       108,615       151,770       84.1%       71%  

United States

    61       30,670       30,731       16.5%       78%               61       28,630       28,691       15.9%       76%  

Total

    42,739       143,773       186,512       100%       72%               43,216       137,245       180,461       100%       72%  

 

 (1)

Reporting methodologies are in accordance with 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.

 

38 BMO Financial Group Third Quarter Report 2024

 


Home Equity Lines of Credit (1)

 

    As at July 31, 2024           As at April 30, 2024  

(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

    1,029       1.8%       1,994       1.7%       64%         1,013       1.8%       1,965       1.7%       61%  

Quebec

    9,191       16.5%       18,502       16.0%       70%         9,133       16.5%       18,328       16.0%       68%  

Ontario

    25,124       44.9%       46,946       40.5%       61%         24,790       44.9%       46,427         40.4%       58%  

Alberta

    3,195       5.7%       7,132       6.2%       61%         3,179       5.7%       7,103       6.2%       61%  

British Columbia

    10,276       18.4%       19,614       16.9%       60%         10,102       18.3%       19,335       16.8%       58%  

All other Canada

    732       1.3%       1,488       1.3%       67%               733       1.3%       1,492       1.3%       62%  

Total Canada

    49,547       88.6%       95,676       82.6%       62%               48,950       88.5%       94,650       82.4%       60%  

United States

    6,403       11.4%       20,142       17.4%       60%               6,367       11.5%       20,193       17.6%       58%  

Total

    55,950          100%       115,818         100%       62%               55,317         100%       114,843       100%       60%  

 

 (1)

Reporting methodologies are in accordance with 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 July 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)

     0.7%        2.6%        6.5%        14.6%        32.4%        22.3%        4.1%        16.8%  

United States (4)

     0.4%        1.8%        4.3%        2.4%        9.2%        81.7%        0.1%        0.1%  

Total

     0.7%        2.5%        6.1%        12.6%        28.5%        32.1%        3.4%        14.1%  
     As at April 30, 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)

     0.7%        2.6%        6.4%        14.1%        32.2%        20.4%        2.3%        21.3%  

United States (4)

     0.4%        2.0%        4.8%        2.5%        9.5%        80.6%        0.1%        0.1%  

Total

     0.7%        2.5%        6.1%        12.2%        28.6%        30.1%        1.9%        17.9%  

 

 (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 $15.1 billion ($19.9 billion as at April 30, 2024) of variable rate mortgages in negative amortization, with all of the contractual payments in the current period 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 July 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 July 31, 2024         
As at
April 30, 2024

 

(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)

    922       3,140       -       4,062           489       49       3,527       4,065          562       300       29       891         9,018          8,750  

United Kingdom

    71       5,472       123       5,666           177       78       1,406       1,661          68       484       156       708         8,035          6,292  

Latin America

    2,339       5,947       -       8,286           -       282       -       282          4       103       -       107         8,675          8,945  

Asia-Pacific

    3,155       3,597       9       6,761           576       47       2,906       3,529          565       212       167       944         11,234          11,529  

Africa and Middle East

    1,587       845       105       2,537           2       3       18       23          -       236       1,519       1,755         4,315          3,927  

Other (1)

    -       5       -       5           35       -       3,465       3,500          7       -       1,169       1,176         4,681          5,396  

Total

    8,074       19,006       237       27,317                 1,279       459       11,322       13,060                1,206       1,335       3,040       5,581               45,958                44,839  

 

 (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 Third Quarter Report 2024 39

 


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 July 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

    74,761       -       74,761       -         77,934       -       77,934       -       Interest rate

Interest bearing deposits with banks

    3,562       178       3,384       -         4,109       236       3,873       -       Interest rate

Securities

    387,614       156,828       230,786       -         321,545       122,926       198,619       -       Interest rate, credit spread, equity

Securities borrowed or purchased under resale agreements

    118,005       -       118,005       -         115,662       -       115,662       -       Interest rate

Loans and acceptances (net of allowance for credit losses)

    673,224       6,945       666,279       -         656,665       4,412       652,253       -       Interest rate, foreign exchange 

Derivative instruments

    36,834       32,974       3,860       -         39,976       34,004       5,972       -       Interest rate, foreign exchange

Customer’s liabilities under acceptances

    495       -       495       -         8,111       -       8,111       -       Interest rate

Other assets

    105,975       9,002       59,459       37,514               123,004       4,734       80,547       37,723             Interest rate

Total assets

    1,400,470       205,927       1,157,029       37,514               1,347,006       166,312       1,142,971       37,723              

Liabilities Subject to Market Risk

                     

Deposits

    965,239       45,134       920,105       -         910,879       35,300       875,579       -       Interest rate, foreign exchange

Derivative instruments

    49,488       45,837       3,651       -         50,193       43,166       7,027       -       Interest rate, foreign exchange

Acceptances

    495       -       495       -         8,111       -       8,111       -       Interest rate

Securities sold but not yet purchased

    39,967       39,967       -       -         43,774       43,774       -       -       Interest rate

Securities lent or sold under repurchase agreements

    125,326       -       125,326       -         106,108       -       106,108       -       Interest rate

Other liabilities

    127,677       34       127,467       176         143,590       33       143,497       60       Interest rate

Subordinated debt

    9,321       -       9,321       -               8,228       -       8,228       -             Interest rate

Total liabilities

    1,317,513       130,972       1,186,365       176               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, primarily due to interest rate and equity portfolio exposure changes, partially offset by increased diversification.

Total Trading Value at Risk (1) (2)

 

     For the quarter ended July 31, 2024             April 30, 2024            July 31, 2023  

(Pre-tax Canadian $ equivalent in millions)

   Quarter-end        Average        High         Low                Average               Average  

Commodity VaR

     3.8       4.4       5.2        3.2           3.5          2.4  

Equity VaR

     15.7       16.6       21.6        12.3           15.7          12.5  

Foreign exchange VaR

     0.7       1.2       2.8        0.5           0.8          3.4  

Interest rate VaR (2)

     33.5       32.2       41.5        25.4           28.5          37.0  

Diversification

     (17.9     (19.8     nm        nm           (16.5        (24.7

Total Trading VaR

     35.8       34.6       38.9        30.9                 32.0                30.6  

 

 (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 credit spread risk.

 nm – not meaningful

 

40 BMO Financial Group Third Quarter Report 2024

 


Structural (Non-Trading) Market Risk

Our structural market risk strategy and profile remains consistent with prior periods. The net balance sheet is fully invested in an intermediate duration target interest rate profile. Structural economic value exposure to rising rates and benefit to falling rates decreased relative to April 30, 2024, primarily due to modelled deposit pricing being less rate-sensitive at lower projected interest rate levels following the increase in term market rates during the current quarter.

Structural earnings benefit to rising interest rates and exposure to falling interest rates increased modestly, relative to April 30, 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)

               

July 31,

2024

   

April 30,

2024

   

July 31,

2023

                       

July 31,

2024

   

April 30,

2024

   

July 31,

2023

 
     Canada (3)     United States     Total     Total     Total           Canada (3)     United States     Total     Total     Total  

100 basis point increase

    (796     (832     (1,629     (2,008     (1,515       107       201       309       257       308  

100 basis point decrease

    703       149       852       1,447       927               (71     (223     (294     (270     (348

 

 (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 additional information, refer to Note 1 of the unaudited interim consolidated financial statements. Additional information on Insurance Risk governance can be found in the Enterprise-Wide Risk Management section of BMO’s 2023 Annual Report.

We entered into hedging arrangements to offset the impact of changes in interest rates on our earnings. 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 July 31, 2024 (1)            As at April 30, 2024 (1)  

50 basis point increase

              5         (14

50 basis point decrease

                                            (5         14  

 

 (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.

 

    Q3 2024                  Q2 2024  
    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         2       2         (18     8         1       -  

Lapse rates (10% increase) (2)

    (162     (58       (7     (3       (158     (60       (6     (4

Expenses (5% increase) (3)

    (9     (9             -       -               (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 Third Quarter Report 2024 41

 


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 third quarter of 2024. Both customer loans and deposits increased in the quarter, due to underlying growth. Wholesale funding decreased reflecting net 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 $393.5 billion as at July 31, 2024, compared with $384.0 billion as at April 30, 2024. The increase in unencumbered liquid assets was primarily due to higher securities 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

 

     As at July 31, 2024              As at April 30, 2024  

(Canadian $ in millions)

   Bank-owned
assets
     Other cash &
securities
received
     Total gross
assets (1)
     Encumbered
assets
     Net
unencumbered
assets (2)
           

Net

unencumbered
assets (2)

 

Cash and cash equivalents

     74,761        -        74,761        85        74,676           79,795  

Deposits with other banks

     3,562        -        3,562        -        3,562           4,347  

Securities and securities borrowed or purchased under resale agreements

                    

Sovereigns/Central banks/Multilateral development banks

     175,455        112,198        287,653        152,899        134,754           121,766  

NHA mortgage-backed securities and U.S. agency mortgage-backed securities and collateralized mortgage obligations

     100,654        12,119        112,773        54,096        58,677           60,078  

Corporate and other debt

     36,852        21,927        58,779        14,003        44,776           44,567  

Corporate equity

     74,653        62,776        137,429        80,331        57,098           54,188  

Total securities and securities borrowed or purchased under resale agreements

     387,614        209,020        596,634        301,329        295,305           280,599  

NHA mortgage-backed securities (reported as loans at amortized cost) (3)

     24,727        -        24,727        4,749        19,978           19,214  

Total liquid assets

     490,664        209,020        699,684        306,163        393,521           383,955  

 

 (1)

Gross assets include bank-owned assets and cash and securities received from third parties.

 (2)

Net unencumbered assets are defined as total gross assets less encumbered assets.

 (3)

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.

 

42 BMO Financial Group Third Quarter Report 2024

 


Asset Encumbrance

 

                  Encumbered (2)            Net unencumbered  

(Canadian $ in millions)

As at July 31, 2024

   Total gross
assets (1)
            Pledged as
collateral
     Other
encumbered
            Other
unencumbered (3)
     Available as
collateral (4)
 

Cash and deposits with other banks

     78,323          -        85          -        78,238  

Securities (5)

     621,361          250,159        55,919          26,302        288,981  

Loans

     648,497          80,754        1,494          385,499        180,750  

Other assets

                  

Derivative instruments

     36,834          -        -          36,834        -  

Customers’ liability under acceptances

     495          -        -          495        -  

Premises and equipment

     6,249          -        -          6,249        -  

Goodwill

     16,641          -        -          16,641        -  

Intangible assets

     4,961          -        -          4,961        -  

Current tax assets

     1,456          -        -          1,456        -  

Deferred tax assets

     3,268          -        -          3,268        -  

Receivable from brokers, dealers and clients

     32,162          -        -          32,162        -  

Other

     41,238                10,600        -                30,638        -  

Total other assets

     143,304                10,600        -                132,704        -  

Total assets

     1,491,485                341,513        57,498                544,505        547,969  
                  Encumbered (2)            Net unencumbered  

(Canadian $ in millions)

As at April 30, 2024

   Total gross
assets (1)
            Pledged as
collateral
     Other
encumbered
            Other
unencumbered (3)
     Available as
collateral (4)
 

Cash and deposits with other banks

     84,216          -        74          -        84,142  

Securities (5)

     589,814          231,546        58,455          26,055        273,758  

Loans

     632,216          81,544        1,429          378,105        171,138  

Other assets

                  

Derivative instruments

     37,816          -        -          37,816        -  

Customers’ liability under acceptances

     3,809          -        -          3,809        -  

Premises and equipment

     6,261          -        -          6,261        -  

Goodwill

     16,603          -        -          16,603        -  

Intangible assets

     4,994          -        -          4,994        -  

Current tax assets

     1,948          -        -          1,948        -  

Deferred tax assets

     3,597          -        -          3,597        -  

Receivable from brokers, dealers and clients

     33,076          -        -          33,076        -  

Other

     38,159                9,293        -                28,866        -  

Total other assets

     146,263                9,293        -                136,970        -  

Total assets

     1,452,509                322,383        59,958                541,130        529,038  

 

 (1)

Gross assets includes on-balance sheet and off-balance sheet assets.

 (2)

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, short sales and certain U.S. agency securities that have been sold to third parties but are consolidated under IFRS.

 (3)

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 $26.3 billion as at July 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.

 (4)

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.

 (5)

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

 

(Canadian $ in millions)

   As at July 31, 2024      As at April 30, 2024  

BMO (parent)

     239,902        239,308  

BMO Bank N.A.

     128,658        121,634  

Broker dealers

     24,961        23,013  

Total net unencumbered liquid assets by legal entity

     393,521        383,955  

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 $703.6 billion as at July 31, 2024, increasing from $676.4 billion as at April 30, 2024, driven by underlying deposit growth across all business groups.

Total secured and unsecured wholesale funding outstanding, which largely consists of negotiable marketable securities, was $257.3 billion as at July 31, 2024, with $67.9 billion sourced as secured funding and $189.4 billion sourced as unsecured funding. Wholesale funding outstanding decreased from $263.8 billion as at April 30, 2024, primarily due to 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 $393.5 billion as at July 31, 2024, that can be monetized to meet potential funding requirements, as described in the Unencumbered Liquid Assets section above.

 

BMO Financial Group Third Quarter Report 2024 43

 


Wholesale Funding Maturities (1)

 

     As at July 31, 2024         As at April 30, 2024  

(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

    3,596       903       610       984       6,093       -       -       6,093         6,531  

Certificates of deposit and commercial paper

    9,801       15,545       29,578       35,562       90,486       138       -       90,624         98,925  

Bearer deposit notes

    1,717       2,426       1,332       209       5,684       -       -       5,684         3,971  

Asset-backed commercial paper (ABCP)

    1,258       2,152       2,616       1,310       7,336       -       -       7,336         6,948  

Senior unsecured medium-term notes

    194       5,468       5,654       9,168       20,484       7,831       38,245       66,560         65,681  

Senior unsecured structured notes (2)

    215       21       -       168       404       520       10,181       11,105         10,440  

Secured funding

                   

Mortgage and HELOC securitizations

    -       667       842       2,229       3,738       1,726       12,379       17,843         17,750  

Covered bonds

    -       -       -       3,449       3,449       8,602       14,612       26,663         26,196  

Other asset-backed securitizations (3)

    -       37       -       -       37       1,320       5,739       7,096         8,132  

Federal Home Loan Bank advances

    -       -       -       -       -       4,828       4,170       8,998         11,010  

Subordinated debt

    -       -       -       -       -       25       9,295       9,320         8,235  

Total

    16,781       27,219       40,632       53,079       137,711       24,990       94,621       257,322         263,819  

Of which:

                   

Secured

    1,258       2,856       3,458       6,988       14,560       16,476       36,900       67,936         70,036  

Unsecured

    15,523       24,363       37,174       46,091       123,151       8,514       57,721       189,386         193,783  

Total (4)

    16,781       27,219       40,632       53,079       137,711       24,990       94,621       257,322         263,819  

 

 (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 $53.6 billion and U.S.-dollar-denominated and other foreign-currency-denominated funding totalling $203.7 billion as at July 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. During the third quarter of fiscal 2024, Moody’s, Standard & Poor’s (S&P), Fitch and DBRS affirmed their ratings and maintained their stable outlook on BMO.

 

As at July 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 July 31, 2024, we would be required to provide additional collateral to counterparties totalling $192 million, $485 million and $1,016 million, as a result of a one-notch, two-notch and three-notch downgrade, respectively.

 

44 BMO Financial Group Third 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 July 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. 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 July 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)

     *        244.1  

Cash Outflows

     

Retail deposits and deposits from small business customers, of which:

     297.6        21.3  

Stable deposits

     138.9        4.2  

Less stable deposits

     158.7        17.1  

Unsecured wholesale funding, of which:

     304.0        137.1  

Operational deposits (all counterparties) and deposits in networks of cooperative banks

     146.6        36.2  

Non-operational deposits (all counterparties)

     134.6        78.1  

Unsecured debt

     22.8        22.8  

Secured wholesale funding

     *        22.1  

Additional requirements, of which:

     253.2        50.1  

Outflows related to derivatives exposures and other collateral requirements

     29.6        8.2  

Outflows related to loss of funding on debt products

     3.3        3.3  

Credit and liquidity facilities

     220.3        38.6  

Other contractual funding obligations

     0.9        -  

Other contingent funding obligations

     534.4        11.2  

Total cash outflows

              241.8  

Cash Inflows

     

Secured lending (e.g., reverse repos)

     158.5        25.8  

Inflows from fully performing exposures

     16.9        9.0  

Other cash inflows

     17.3        17.3  

Total cash inflows

     192.7        52.1  

For the quarter ended July 31, 2024

           Total adjusted value (4)  

Total HQLA

        244.1  

Total net cash outflows

              189.7  

Liquidity Coverage Ratio (%) (2)

              129  

For the quarter ended April 30, 2024

           Total adjusted value (4)  

Total HQLA

        241.9  

Total net cash outflows

              189.6  

Liquidity Coverage Ratio (%)

              128  

 

 *

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 64 business days in the third 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 Third Quarter Report 2024 45

 


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 July 31, 2024, equivalent to a surplus of $106 billion above the regulatory minimum. The NSFR increased from 115% in the prior quarter, as higher required stable funding was more than offset by higher available stable funding.

 

     For the quarter ended July 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:

     -        -        -        95.0        95.0  

Regulatory capital

     -        -        -        95.0        95.0  

Other capital instruments

     -        -        -        -        -  

Retail deposits and deposits from small business customers:

     222.8        69.4        43.4        73.6        374.7  

Stable deposits

     113.4        27.2        17.0        15.8        165.5  

Less stable deposits

     109.4        42.2        26.4        57.8        209.2  

Wholesale funding:

     307.2        286.2        70.4        108.4        291.4  

Operational deposits

     150.9        -        -        -        75.5  

Other wholesale funding

     156.3        286.2        70.4        108.4        215.9  

Liabilities with matching interdependent assets

     -        0.8        1.3        13.3        -  

Other liabilities:

     4.2        *        *        74.4        16.6  

NSFR derivative liabilities

     *        *        *        7.3        *  

All other liabilities and equity not included in the above categories

     4.2        50.3        0.3        16.5        16.6  

Total ASF

     *        *        *        *        777.7  

Required Stable Funding (RSF) Item

              

Total NSFR high-quality liquid assets (HQLA)

     *        *        *        *        17.6  

Deposits held at other financial institutions for operational purposes

     -        0.5        -        -        0.2  

Performing loans and securities:

     207.6        204.5        70.7        365.3        542.6  

Performing loans to financial institutions secured by Level 1 HQLA

     -        99.7        3.4        -        4.0  

Performing loans to financial institutions secured by non-Level 1 HQLA and unsecured performing loans to financial institutions

     34.5        49.8        8.6        21.0        65.7  

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:

     124.9        40.5        40.6        170.9        289.9  

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:

     13.4        11.9        15.1        144.2        125.8  

With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk

     13.4        11.9        15.1        144.2        125.8  

Securities that are not in default and do not qualify as HQLA, including exchange-traded equities

     34.8        2.6        3.0        29.2        57.2  

Assets with matching interdependent liabilities

     -        0.8        1.3        13.3        -  

Other assets:

     47.6        *        *        95.8        89.4  

Physical traded commodities, including gold

     9.0        *        *        *        7.6  

Assets posted as initial margin for derivative contracts and contributions to default funds of central clearing parties

     *        *        *        15.7        13.3  

NSFR derivative assets

     *        *        *        3.9        -  

NSFR derivative liabilities before deduction of variation margin posted

     *        *        *        15.9        0.8  

All other assets not included in the above categories

     38.6        38.9        0.4        21.0        67.7  

Off-balance sheet items

     *        *        *        613.7        21.6  

Total RSF

     *        *        *        *        671.4  

Net Stable Funding Ratio (%)

  

 

*

 

     *        *        *        116  

For the quarter ended April 30, 2024

                                   Weighted
Value (2)
 

Total ASF

                 753.5  

Total RSF

                                         653.7  

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.

 

46 BMO Financial Group Third 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)

           July 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

     72,485        -        -        -        -        -        -        -        2,276       74,761  

Interest bearing deposits with banks

     2,117        519        449        398        79        -        -        -        -       3,562  

Securities

     5,705        7,957        22,327        6,550        6,164        19,262        79,475        165,522        74,652       387,614  

Securities borrowed or purchased under resale agreements

     90,140        20,093        4,348        1,962        1,462        -        -        -        -       118,005  

Loans (1)

                            

Residential mortgages

     1,445        3,093        5,482        6,193        6,870        47,759        84,459        31,017        194       186,512  

Consumer instalment and other personal

     502        921        1,597        1,766        1,926        13,923        26,679        18,871        26,370       92,555  

Credit cards

     -        -        -        -        -        -        -        -        13,437       13,437  

Business and government

     11,580        13,735        15,453        14,248        20,653        52,430        117,043        36,315        103,539       384,996  

Allowance for credit losses

     -        -        -        -        -        -        -        -        (4,276     (4,276

Total loans, net of allowance

     13,527        17,749        22,532        22,207        29,449        114,112        228,181        86,203        139,264       673,224  

Other assets

                            

Derivative instruments

     3,326        4,248        4,788        5,208        1,387        4,623        6,812        6,442        -       36,834  

Customers’ liability under acceptances

     436        58        1        -        -        -        -        -        -       495  

Receivable from brokers, dealers and clients

     32,162        -        -        -        -        -        -        -        -       32,162  

Other

     3,734        825        617        42        12        13        14        7,755        60,801       73,813  

Total other assets

     39,658        5,131        5,406        5,250        1,399        4,636        6,826        14,197        60,801       143,304  

Total assets

     223,632        51,449        55,062        36,367        38,553        138,010        314,482        265,922        276,993       1,400,470  

(Canadian $ in millions)

           July 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)

     42,726        61,080        84,630        55,264        61,911        48,801        89,526        25,151        496,150       965,239  

Other liabilities

                            

Derivative instruments

     3,824        7,499        6,046        8,715        1,808        5,477        7,504        8,615        -       49,488  

Acceptances

     436        58        1        -        -        -        -        -        -       495  

Securities sold but not yet purchased (4)

     39,967        -        -        -        -        -        -        -        -       39,967  

Securities lent or sold under repurchase agreements (4)

     118,155        4,302        976        179        -        1,714        -        -        -       125,326  

Securitization and structured entities’ liabilities

     15        584        1,023        1,100        2,329        3,129        9,231        18,811        -       36,222  

Payable to brokers, dealers and clients

     34,525        -        -        -        -        -        -        -        -       34,525  

Other

     13,416        390        1,885        160        193        5,967        4,168        4,864        25,887       56,930  

Total other liabilities

     210,338        12,833        9,931        10,154        4,330        16,287        20,903        32,290        25,887       342,953  

Subordinated debt

     -        -        -        -        -        25        25        9,271        -       9,321  

Total equity

     -        -        -        -        -        -        -        -        82,957       82,957  

Total liabilities and equity

     253,064        73,913        94,561        65,418        66,241        65,113        110,454        66,712        604,994       1,400,470  

 

 (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 $31,363 million as at July 31, 2024, have a fixed maturity date; however, they can be redeemed early (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)

                                                                   July 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)

       2,565         6,792        10,372        10,537        19,550         45,174        127,602          6,711               -          229,303   

Letters of credit (2)

     2,972        3,759        6,882        5,309        7,285        2,445        3,450        41        -       32,143  

Backstop liquidity facilities

     -        703        419        292        3,310        4,655        7,970        815        -       18,164  

Other commitments (3)

     29        152        97        90        96        387        522        106        -       1,479  

 

 (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 Third Quarter Report 2024 47

 


(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’ liability under acceptances

     4,682        3,423        6        -        -        -        -        -        -       8,111  

Receivable from brokers, dealers and clients

     53,002        -        -        -        -        -        -        -        -       53,002  

Other

     3,580        814        336        42        4        10        19        7,629        57,568       70,002  

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 structured entities’ liabilities

     97        717        1,199        2,195        592        4,896        9,870        7,528        -       27,094  

Payable to brokers, dealers and clients

     53,754        -        -        -        -        -        -        -        -       53,754  

Other

     13,266        2,274        116        110        108        14,109        2,764        6,160        23,835       62,742  

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 redeemed early (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.

This Liquidity and Funding Risk section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.

 

48 BMO Financial Group Third 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.

Environmental and Social Risk is the potential for loss or harm directly or indirectly resulting from

 

 

BMO Financial Group Third Quarter Report 2024 49

 


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 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.

 

 

50 BMO Financial Group Third Quarter Report 2024

 


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 Third Quarter Report 2024 51

 


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, August 27, 2024, at 7:15 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 September 27, 2024, by calling 905-694-9451 (from within Toronto) or 1-800-408-3053 (toll-free outside Toronto) and entering Passcode: 4631832#.

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 2025

The next Annual Meeting of Shareholders will be held on Friday, April 11, 2025.

 

 

® Registered trademark of Bank of Montreal

 

80 BMO Financial Group Third Quarter Report 2024

 

Interim Consolidated Financial Statements
Consolidated Statement of Income
 
(Unaudited) (Canadian $ in millions, except as noted)
  
For the three months ended
 
 
For the nine months ended
 
  
  
   July 31,
2024
 
  
   April 30,
2024
 
  
   July 31,
2023
 
 
   July 31,
2024
 
 
   July 31,
2023
 
Interest, Dividend and Fee Income
  
  
  
 
 
Loans
  
$
10,269
 
   $ 9,745      $ 9,130    
$
29,846
 
   $    24,629  
Securities (Note 2)
  
 
3,917
 
    
3,716
      
3,099
   
 
   
11,072
 
   
8,132
 
Securities borrowed or purchased under resale agreements
  
 
1,839
 
     1,672        1,563    
 
5,068
 
     4,263  
Deposits with banks
  
 
1,078
 
     1,031        1,029    
 
3,135
 
     2,950  
    
 
   17,103
 
        16,164           14,821    
 
49,121
 
     39,974  
Interest Expense
             
Deposits
  
 
8,974
 
     8,454        7,102    
 
25,812
 
     18,647  
Securities sold but not yet purchased and securities lent or sold under repurchase agreements
  
 
2,405
 
     2,282        1,985    
 
6,563
 
     5,439  
Subordinated debt
  
 
116
 
     111        109    
 
338
 
     313  
Other liabilities
  
 
814
 
     802        720    
 
2,378
 
     1,835  
    
 
12,309
 
     11,649        9,916    
 
35,091
 
     26,234  
Net Interest Income
  
 
4,794
 
     4,515        4,905    
 
14,030
 
     13,740  
Non-Interest
Revenue
             
Securities commissions and fees
  
 
278
 
     271        253    
 
818
 
     774  
Deposit and payment service charges
  
 
412
 
     398        404    
 
1,206
 
     1,115  
Trading revenues (losses)
  
 
622
 
     599        400    
 
1,681
 
     (543
Lending fees
  
 
353
 
     388        388    
 
1,126
 
     1,153  
Card fees
  
 
220
 
     212        126    
 
646
 
     446  
Investment management and custodial fees
  
 
528
 
     501        476    
 
1,512
 
     1,378  
Mutual fund revenues
  
 
339
 
     323        316    
 
977
 
     936  
Underwriting and advisory fees
  
 
332
 
     371        253    
 
1,047
 
     730  
Securities gains, other than trading (Note 2)
  
 
49
 
     81        36    
 
143
 
     146  
Foreign exchange gains, other than trading
  
 
67
 
     65        67    
 
196
 
     179  
Insurance service results (Note 1)
  
 
100
 
     99        96    
 
298
 
     285  
Insurance investment results (Note 1)
  
 
17
 
     25        193    
 
33
 
     40  
Share of profit
(
loss
)
 
in associates and joint ventures
  
 
52
 
     67        (2  
 
157
 
     133  
Other revenues (losses)
  
 
29
 
     59        141    
 
(32
)
 
     428  
    
 
3,398
 
     3,459        3,147    
 
9,808
 
     7,200  
Total Revenue
  
 
8,192
 
     7,974        8,052    
 
23,838
 
     20,940  
Provision for Credit Losses
(Note 3)
  
 
906
 
     705        492    
 
2,238
 
     1,732  
Non-Interest
Expense
             
Employee compensation
  
 
2,689
 
     2,619        3,051    
 
8,178
 
     8,565  
Premises and equipment
  
 
1,047
 
     1,032        1,215    
 
3,055
 
     3,426  
Amortization of intangible assets
  
 
277
 
     276        284    
 
832
 
     724  
Advertising and business development
  
 
217
 
     202        218    
 
610
 
     552  
Communications
  
 
98
 
     100        95    
 
299
 
     259  
Professional fees
  
 
213
 
     204        276    
 
624
 
     815  
Other
  
 
298
 
     411        433    
 
1,474
 
     1,114  
    
 
4,839
 
     4,844        5,572    
 
15,072
 
     15,455  
Income Before Provision for Income Taxes
  
 
2,447
 
     2,425        1,988    
 
6,528
 
     3,753  
Provision for income taxes (Note 10)
  
 
582
 
     559        423    
 
1,505
 
     1,026  
Net Income
  
$
1,865
 
   $ 1,866      $ 1,565    
$
5,023
 
   $ 2,727  
Attributable to:
             
Bank shareholders
  
$
1,865
 
   $ 1,862      $ 1,563    
$
5,017
 
   $ 2,722  
Non-controlling
interest in subsidiaries
  
 
-
 
     4        2    
 
6
 
     5  
Net Income
  
$
1,865
 
   $ 1,866      $ 1,565    
$
5,023
 
   $ 2,727  
Earnings Per Common Share (Canadian $)
(Note 9)
             
Basic
  
$
2.49
 
   $ 2.36      $ 2.13    
$

6.58
 
   $ 3.56  
Diluted
  
 
2.48
 
     2.36        2.12    
 
6.57
 
     3.56  
Dividends per common share
  
 
1.55
 
     1.51        1.47    
 
4.57
 
     4.33  
 The accompanying notes are an integral part of these interim consolidated financial statements.
 Certain comparative figures have been reclassified to conform with the current period’s presentation and for changes in accounting policy (Note 1).
 
5
2
BMO Financial Group Third Quarter Report 2024
 

Interim Consolidated Financial Statements
Consolidated Statement of Comprehensive Income
 
(Unaudited) (Canadian $ in millions)
  
For the three months ended
 
 
For the nine months ended
 
  
  
   July 31,
2024
 
 
   April 30,
2024
 
 
   July 31,
2023
 
 
   July 31,
2024
 
 
   July 31,
2023
 
Net Income
  
$
1,865
 
  
$
    1,866
 
 
$
    1,565
 
 
$
    5,023
 
  
$
    2,727
 
Other Comprehensive Income (Loss), net of taxes
  
  
 
 
  
Items that will subsequently be reclassified to net income
  
  
 
 
  
Net change in unrealized gains on fair value through OCI debt securities
  
  
 
 
  
Unrealized gains on fair value through OCI debt securities arising during the period (1)
  
 
56
 
  
 
40
 
 
 
4
 
 
 
367
 
  
 
169
 
Reclassification to earnings of (gains) during the period (2)
  
 
(19
)
 
  
 
(40
 
 
(4
 
 
(64
)
 
  
 
(27
 
  
 
37
 
  
 
-
 
 
 
-
 
 
 
303
 
  
 
142
 
Net change in unrealized gains (losses) on cash flow hedges
  
  
 
 
  
Gains (losses) on derivatives designated as cash flow hedges arising during the period (3)
  
 
1,829
 
  
 
(1,443
 
 
(1,722
 
 
2,300
 
  
 
(742
Reclassification to earnings/goodwill of losses on derivatives designated as
cash flow hedges during the period (4)
  
 
335
 
  
 
379
 
 
 
334
 
 
 
1,103
 
  
 
595
 
 
  
 
    2,164
 
  
 
(1,064
 
 
(1,388
 
 
3,403
 
  
 
(147
Net gains (losses) on translation of net foreign operations
  
  
 
 
  
Unrealized gains (losses) on translation of net foreign operations
  
 
154
 
  
 
1,482
 
 
 
(1,498
 
 
(244
)
  
 
(1,411
Unrealized gains (losses) on hedges of net foreign operations (5)
  
 
(41
)
  
 
(266
 
 
262
 
 
 
20
 
  
 
111
 
 
  
 
113
 
  
 
1,216
 
 
 
(1,236
 
 
(224
)
  
 
(1,300
Items that will not be subsequently reclassified to net income
  
  
 
 
  
Net unrealized gains on fair value through OCI equity securities arising during the period (6)
  
 
1
 
  
 
-
 
 
 
-
 
 
 
9
 
  
 
-
 
Net gains (losses) on remeasurement of pension and other employee future benefit plans (7)
  
 
102
 
  
 
43
 
 
 
48
 
 
 
54
 
  
 
(11
Net gains (losses) on remeasurement of own credit risk on financial liabilities
designated at fair value (8)
  
 
107
 
  
 
(356
 
 
(89
 
 
(676
)
  
 
(325
 
  
 
210
 
  
 
(313
 
 
(41
 
 
(613
)
  
 
(336
Other Comprehensive Income (Loss), net of taxes
  
 
2,524
 
  
 
(161
 
 
(2,665
 
 
2,869
 
  
 
(1,641
Total Comprehensive Income (Loss)
  
$
4,389
 
  
$
1,705
 
 
$
(1,100
 
$
7,892
 
  
$
1,086
 
Attributable to:
  
  
 
 
  
Bank shareholders
  
$
4,389
 
  
$
1,701
 
 
$
(1,102
 
$
7,886
 
  
$
1,081
 
Non-controlling
interest in subsidiaries
  
 
-
 
  
 
4
 
 
 
2
 
 
 
6
 
  
 
5
 
Total Comprehensive Income (Loss)
  
$
4,389
 
  
$
1,705
 
 
$
(1,100
 
$
7,892
 
  
$
1,086
 
 
 (1)
Net of income tax (provision) of $(21) million, $(14) million, $nil million for the three months ended and $(134) million, $(55) million for the nine months ended, respectively.
 (2)
Net of income tax provision of $7 million, $15 million, $2 million for the three months ended and $24 million, $11 million for the nine months ended, respectively.
 (3)
Net of income tax (provision) recovery of $(702) million, $547 million, $635 million for the three months ended and $(884) million, $367 million for the nine months ended, respectively.
 (4)
Net of income tax (recovery) of $(127) million, $(144) million, $(126) million for the three months ended and $(418) million, $(223) million for the nine months ended, respectively.
 (5)
Net of income tax (provision) recovery of $14 million, $103 million, $(104) million for the three months ended and $(9) million, $(96) million for the nine months ended, respectively.
 (6)
Net of income tax (provision) of $
(1) million, $nil million, $nil million for the three months ended and $(4) million, $nil million for the nine months ended, respectively.
 (7)
Net of income tax (provision) of $(40) million, $(17) million, $(19) million for the three months ended and $(22) million, $(19) million for the nine months ended, respectively.
 (8)
Net of income tax (provision) recovery of $(42) million, $137 million, and $42 million for the three months ended and $258 million, $114 million for the nine months ended, respectively.
 The accompanying notes are an integral part of these interim consolidated financial statements.
 Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
 
BMO Financial Group Third Quarter Report 2024
5
3
 

Interim Consolidated Financial Statements
Consolidated Balance Sheet
 
(Unaudited) (Canadian $ in millions)
  
  As at
 
  
  
   July 31,
2024
 
 
  October 31,
2023
 
Assets
  
 
Cash and Cash Equivalents
  
$
       74,761
 
   $        77,934  
Interest Bearing Deposits with Banks
  
 
3,562
 
     4,109  
Securities
(Note 2)
     
Trading
  
 
168,099
 
     123,718  
Fair value through profit or loss
  
 
18,537
 
     16,733  
Fair value through other comprehensive income
  
 
81,456
 
     62,819  
Debt securities at amortized cost
  
 
117,869
 
     116,814  
Investments in associates and joint ventures
  
 
1,653
 
     1,461  
    
 
387,614
 
     321,545  
Securities Borrowed or Purchased Under Resale Agreements
  
 
118,005
 
     115,662  
Loans
(Note 3)
     
Residential mortgages
  
 
186,512
 
     177,250  
Consumer instalment and other personal
  
 
92,555
 
     104,042  
Credit cards
  
 
13,437
 
     12,294  
Business and government
  
 
384,996
 
     366,886  
  
 
677,500
 
     660,472  
Allowance for credit losses (Note 3)
  
 
(4,276
)
     (3,807
    
 
673,224
 
     656,665  
Other Assets
     
Derivative instruments
  
 
36,834
 
     39,976  
Customers’ liability under acceptances
  
 
495
 
     8,111  
Premises and equipment
  
 
6,249
 
     6,241  
Goodwill
  
 
16,641
 
     16,728  
Intangible assets
  
 
4,961
 
     5,216  
Current tax assets
  
 
1,456
 
     2,052  
Deferred tax assets
  
 
3,268
 
     3,420  
Receivable from brokers, dealers and clients
  
 
32,162
 
     53,002  
Other
  
 
41,238
 
     36,345  
    
 
143,304
 
     171,091  
Total Assets
  
$
1,400,470
 
   $ 1,347,006  
Liabilities and Equity
     
Deposits
(Note 4)
  
$
965,239
 
   $ 910,879  
Other Liabilities
     
Derivative instruments
  
 
49,488
 
     50,193  
Acceptances
  
 
495
 
     8,111  
Securities sold but not yet purchased
  
 
39,967
 
     43,774  
Securities lent or sold under repurchase agreements
  
 
125,326
 
     106,108  
Securitization and structured entities’ liabilities
  
 
36,222
 
     27,094  
Payable to brokers, dealers and clients
  
 
34,525
 
     53,754  
Other
  
 
56,930
 
     62,742  
    
 
342,953
 
     351,776  
Subordinated Debt
  
 
9,321
 
     8,228  
Total Liabilities
  
 
1,317,513
 
     1,270,883  
Equity
     
Preferred shares and other equity instruments (Note 5)
  
 
8,487
 
     6,958  
Common shares (Note 5)
  
 
23,911
 
     22,941  
Contributed surplus
  
 
346
 
     328  
Retained earnings
  
 
45,451
 
     44,006  
Accumulated other comprehensive income
  
 
4,731
 
     1,862  
Total shareholders’ equity
  
 
82,926
 
     76,095  
Non-controlling
interest in subsidiaries (Note 5)
  
 
31
 
     28  
Total Equity
  
 
82,957
 
     76,123  
Total Liabilities and Equity
  
$
1,400,470
 
   $ 1,347,006  
 The accompanying notes are an integral part of these interim consolidated financial statements.
 Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
 
5
4
BMO Financial Group Third Quarter Report 2024
 

Interim Consolidated Financial Statements
Consolidated Statement of Changes in Equity
 
(Unaudited) (Canadian $ in millions)
  
For the three months ended
 
 
For the nine months ended
 
  
  
July 31,
2024
 
 
July 31,
2023
 
 
July 31,
2024
 
 
July 31,
2023
 
Preferred Shares and Other Equity Instruments
(Note 5)
  
 
 
 
Balance at beginning of period
  
$
       8,314
 
  
$
       6,958
 
 
$
6,958
 
  
$
       6,308
 
Issued during the period
  
 
1,023
 
  
 
-
 
 
 
       2,379
 
  
 
650
 
Redeemed during the period
  
 
(850
)
 
  
 
-
 
 
 
(850
)
 
  
 
-
 
Balance at End of Period
  
 
8,487
 
  
 
6,958
 
 
 
8,487
 
  
 
6,958
 
Common Shares
(Note 5)
  
  
 
  
Balance at beginning of period
  
 
23,896
 
  
 
22,062
 
 
 
22,941
 
  
 
17,744
 
Issued under the Shareholder Dividend Reinvestment and Share Purchase Plan
  
 
-
 
  
 
405
 
 
 
905
 
  
 
1,170
 
Issued under the Stock Option Plan
  
 
15
 
  
 
8
 
 
 
57
 
  
 
47
 
Treasury shares sold (purchased)
  
 
-
 
  
 
(1
 
 
8
 
  
 
-
 
Issued to align capital position with increased regulatory requirements as announced by OSFI
  
 
-
 
  
 
-
 
 
 
-
 
  
 
3,360
 
Issued for acquisitions
  
 
-
 
  
 
-
 
 
 
-
 
  
 
153
 
Balance at End of Period
  
 
23,911
 
  
 
22,474
 
 
 
23,911
 
  
 
22,474
 
Contributed Surplus
  
  
 
  
Balance at beginning of period
  
 
350
 
  
 
327
 
 
 
328
 
  
 
317
 
Stock option expense, net of options exercised
  
 
(2
)
  
 
2
 
 
 
9
 
  
 
12
 
Net premium (discount) on sale of treasury shares
  
 
(2
)
  
 
1
 
 
 
9
 
  
 
(1
Other
  
 
-
 
  
 
-
 
 
 
-
 
  
 
2
 
Balance at End of Period
  
 
346
 
  
 
330
 
 
 
346
 
  
 
330
 
Retained Earnings
  
  
 
  
Balance at beginning of period
  
 
44,772
 
  
 
43,025
 
 
 
44,006
 
  
 
45,117
 
Impact from accounting policy changes (Note 1)
  
 
-
 
  
 
-
 
 
 
-
 
  
 
(974
Net income attributable to bank shareholders
  
 
1,865
 
  
 
1,563
 
 
 
5,017
 
  
 
2,722
 
Dividends on preferred shares and distributions payable on other equity instruments
  
 
(51
)
  
 
(41
 
 
(234
)
  
 
(206
Dividends on common shares
  
 
(1,130
)
  
 
(1,054
 
 
(3,327
)
  
 
(3,089
Equity issue expense
  
 
(5
)
  
 
-
 
 
 
(11
)
  
 
(73
Net discount on sale of treasury shares
  
 
-
 
  
 
-
 
 
 
-
 
  
 
(4
Balance at End of Period
  
 
45,451
 
  
 
43,493
 
 
 
45,451
 
  
 
43,493
 
Accumulated Other Comprehensive (Loss) on Fair Value through OCI Securities, net of taxes
  
  
 
  
Balance at beginning of period
  
 
(190
)
  
 
(217
 
 
(464
)
  
 
(359
Unrealized gains on fair value through OCI debt securities arising during the period
  
 
56
 
  
 
4
 
 
 
367
 
  
 
169
 
Unrealized gains on fair value through OCI equity securities arising during the period
  
 
1
 
  
 
-
 
 
 
9
 
  
 
-
 
Reclassification to earnings of (gains) during the period
  
 
(19
)
  
 
(4
 
 
(64
)
  
 
(27
Balance at End of Period
  
 
(152
)
  
 
(217
 
 
(152
)
  
 
(217
Accumulated Other Comprehensive (Loss) on Cash Flow Hedges, net of taxes
  
  
 
  
Balance at beginning of period
  
 
(4,209
)
  
 
(3,888
 
 
(5,448
)
  
 
(5,129
Gains (losses) on derivatives designated as cash flow hedges arising during the period
  
 
1,829
 
  
 
(1,722
 
 
2,300
 
  
 
(742
Reclassification to earnings/goodwill of losses on derivatives designated as cash flow hedges during the period
  
 
335
 
  
 
334
 
 
 
1,103
 
  
 
595
 
Balance at End of Period
  
 
(2,045
)
  
 
(5,276
 
 
(2,045
)
  
 
(5,276
Accumulated Other Comprehensive Income on Translation of Net Foreign Operations, net of taxes
  
  
 
  
Balance at beginning of period
  
 
5,857
 
  
 
5,104
 
 
 
6,194
 
  
 
5,168
 
Unrealized gains (losses) on translation of net foreign operations
  
 
154
 
  
 
(1,498
 
 
(244
)
  
 
(1,411
Unrealized gains (losses) on hedges of net foreign operations
  
 
(41
)
  
 
262
 
 
 
20
 
  
 
111
 
Balance at End of Period
  
 
5,970
 
  
 
3,868
 
 
 
5,970
 
  
 
3,868
 
Accumulated Other Comprehensive Income on Pension and Other Employee Future Benefit Plans, net of taxes
  
  
 
  
Balance at beginning of period
  
 
895
 
  
 
885
 
 
 
943
 
  
 
944
 
Gains (losses) on remeasurement of pension and other employee future benefit plans
  
 
102
 
  
 
48
 
 
 
54
 
  
 
(11
Balance at End of Period
  
 
997
 
  
 
933
 
 
 
997
 
  
 
933
 
Accumulated Other Comprehensive Income (Loss) on Own Credit Risk on Financial Liabilities
Designated at Fair Value, net of taxes
  
  
 
  
Balance at beginning of period
  
 
(146
)
  
 
692
 
 
 
637
 
  
 
928
 
Gains (losses) on remeasurement of own credit risk on financial liabilities designated at fair value
  
 
107
 
  
 
(89
 
 
(676
)
  
 
(325
Balance at End of Period
  
 
(39
)
  
 
603
 
 
 
(39
)
  
 
603
 
Total Accumulated Other Comprehensive Income (Loss)
  
 
4,731
 
  
 
(89
 
 
4,731
 
  
 
(89
Total Shareholders’ Equity
  
 
82,926
 
  
 
73,166
 
 
 
82,926
 
  
 
73,166
 
Non-Controlling
Interest in Subsidiaries
(Note 5)
  
  
 
  
Balance at beginning of period
  
 
31
 
  
 
19
 
 
 
28
 
  
 
-
 
Acquisition
  
 
-
 
  
 
-
 
 
 
-
 
  
 
16
 
Net income attributable to
non-controlling
interest in subsidiaries
  
 
-
 
  
 
2
 
 
 
6
 
  
 
5
 
Dividends to
non-controlling
interest in subsidiaries
  
 
-
 
  
 
-
 
 
 
(3
)
  
 
-
 
Balance at End of Period
  
 
31
 
  
 
21
 
 
 
31
 
  
 
21
 
Total Equity
  
$
82,957
 
  
$
73,187
 
 
$
82,957
 
  
$
73,187
 
 The
accompanying notes are an integral part of these interim consolidated financial statements.
 Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
 
BMO Financial Group Third Quarter Report 2024
5
5
 

Interim Consolidated Financial Statements
Consolidated Statement of Cash Flows
 
(Unaudited) (Canadian $ in millions)
  
For the three months ended
 
 
For the nine months ended
 
  
  
July 31,
2024
 
 
July 31,
2023
 
 
July 31,
2024
 
 
July 31,
2023
 
Cash Flows from Operating Activities
  
 
 
 
Net Income
  
$
     1,865
 
   $      1,565    
$
     5,023
 
  $        2,727  
Adjustments to determine net cash flows provided by operating activities:
         
Securities (gains), other than trading (Note 2)
  
 
(49
)
 
     (36 )  
 
(143
)
 
    (146 )
Depreciation of premises and equipment
  
 
246
 
     252    
 
730
 
    724  
Depreciation of other assets
  
 
7
 
     14    
 
24
 
    50  
Amortization of intangible assets
  
 
277
 
     284    
 
832
 
    724  
Provision for credit losses (Note 3)
  
 
906
 
     492    
 
2,238
 
    1,732  
Deferred taxes
  
 
146
 
     (547 )  
 
(118
)
    (669 )
Changes in operating assets and liabilities:
         
Trading securities
  
 
(8,011
)
     (12,468 )  
 
(43,770
)
    (18,612 )
Derivative assets
  
 
1,949
 
     (564 )  
 
7,679
 
    20,820  
Derivative liabilities
  
 
762
 
     1,359    
 
(3,997
)
    (19,324 )
Current income taxes
  
 
587
 
     54    
 
711
 
    (1,032 )
Accrued interest receivable and payable
  
 
280
 
     902    
 
1,119
 
    2,254  
Brokers, dealers and clients receivable and payable
  
 
(2,841
)
     6,904    
 
1,527
 
    5,444  
Other items and accruals, net
  
 
(4,137
)
     903    
 
(5,749
)
    3,606  
Deposits
  
 
25,062
 
     19,643    
 
56,597
 
    28,645  
Loans
  
 
(16,492
)
     (4,268 )  
 
(20,644
)
    (14,455 )
Securities sold but not yet purchased
  
 
(2,263
)
     (1,055 )  
 
(3,630
)
    7,410  
Securities lent or sold under repurchase agreements
  
 
4,234
 
     (7,088 )  
 
19,285
 
    (11,734 )
Securities borrowed or purchased under resale agreements
  
 
161
 
     3,242    
 
(2,415
)
    (1,963 )
Securitization and structured entities’ liabilities
  
 
(663
)
     1,090    
 
9,024
 
    (170 )
Net Cash Provided by Operating Activities
  
 
2,026
 
     10,678    
 
24,323
 
    6,031  
Cash Flows from Financing Activities
         
Net increase (decrease) in liabilities of subsidiaries
  
 
(2,042
)
     (2,347  
 
(8,810
)
    2,456  
Proceeds from issuance of covered bonds
  
 
-
 
     2,916    
 
-
 
    8,027  
Redemption/buyback of covered bonds
  
 
-
 
     -    
 
(2,327
)
    (8,175
Proceeds from issuance of subordinated debt
  
 
1,000
 
     -    
 
1,000
 
     -  
Proceeds from issuance of preferred shares, net of issuance costs (Note 5)
  
 
1,018
 
     -    
 
2,368
 
    648  
Redemption of preferred shares (Note 5)
  
 
(850
)
     -    
 
(850
)
     -  
Net proceeds from issuance of common shares (Note 5)
  
 
17
 
     6    
 
48
 
    3,324  
Net sale (purchase) of treasury shares
  
 
-
 
     (1  
 
8
 
    -  
Cash dividends and distributions paid
  
 
(1,245
)
     (742  
 
(2,659
)
    (2,047
Cash dividends paid to
non-controlling
interest
  
 
-
 
     -    
 
(3
)
    -  
Repayment of lease liabilities
  
 
(91
)
     (92  
 
(276
)
    (259
Net Cash Provided by (Used in) Financing Activities
  
 
(2,193
)
     (260  
 
(11,501
)
    3,974  
Cash Flows from Investing Activities
         
Net decrease in interest bearing deposits with banks
  
 
791
 
     489    
 
553
 
    924  
Purchases of securities, other than trading
  
 
(21,789
)
     (7,645  
 
(62,007
)
    (35,096
Maturities of securities, other than trading
  
 
6,919
 
     5,669    
 
20,008
 
    15,595  
Proceeds from sales of securities, other than trading
  
 
9,338
 
     5,896    
 
26,605
 
    19,318  
Premises and equipment – net purchases
  
 
(196
)
     (190  
 
(576
)
    (566
Purchased and developed software – net purchases
  
 
(217
)
     (178  
 
(556
)
    (572
Acquisitions (1)
  
 
-
 
     (155  
 
-
 
    (15,107
Net Cash Provided by (Used in) Investing Activities
  
 
(5,154
)
     3,886    
 
(15,973
)
    (15,504 )
Effect of Exchange Rate Changes on Cash and Cash Equivalents
  
 
213
 
     (1,537  
 
(22
)
    (705
Net increase (decrease) in Cash and Cash Equivalents
  
 
(5,108
)
     12,767    
 
(3,173
)
    (6,204
Cash and Cash Equivalents at Beginning of Period
  
 
79,869
 
     68,495    
 
77,934
 
    87,466  
Cash and Cash Equivalents at End of Period
  
$

74,761
 
   $ 81,262    
$

74,761
 
  $ 81,262  
Supplemental Disclosure of Cash Flow Information
         
Net cash provided by operating activities includes:
         
Interest paid in the period (2)
  
$
12,083
 
   $ 9,313    
$
33,564
 
  $ 23,493  
Income taxes paid in the period
  
 
471
 
     319    
 
1,548
 
    2,302  
Interest received in the period
  
 
16,519
 
     14,571    
 
46,995
 
    37,729  
Dividends received in the period
  
 
732
 
     698    
 
1,923
 
    1,777  
 
 (1)
This amount is net of $
63
million and $3,646 million cash and cash equivalents acquired as part of acquisitions for the three and nine months ended July 31, 2023. To mitigate changes in the Canadian dollar equivalent of the purchase price on close, we entered into forward contracts, which qualified for hedge accounting. 
 (2)
Includes dividends paid on securities sold but not yet purchased.
 The accompanying notes are an integral part of these interim consolidated financial statements.
 Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
 
5
6
 BMO Financial Group Third Quarter Report 2024
 

Notes to Interim Consolidated Financial Statements
July 31, 2024 (Unaudited)
Note 1: Basis of Presentation
Bank of Montreal (the bank or BMO) is a chartered bank under the
Bank Act (Canada)
and is a public company incorporated in Canada. We are a highly diversified financial services company, providing a broad range of personal and commercial banking, wealth management and investment banking products and services. The bank’s head office is at 129 rue Saint Jacques, Montreal, Quebec. Our executive offices are at 100 King Street West, 1 First Canadian Place, Toronto, Ontario. Our common shares are listed on the Toronto Stock Exchange (TSX) and the New York Stock Exchange.
These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard (IAS) 34,
Interim Financial Reporting
as issued by the International Accounting Standards Board (IASB) using the same accounting policies as disclosed in our annual consolidated financial statements for the year ended October 31, 2023, except as outlined below. These condensed interim consolidated financial statements should be read in conjunction with the notes to our annual consolidated financial statements for the year ended October 31, 2023. We also comply with interpretations of International Financial Reporting Standards (IFRS) by our regulator, the Office of the Superintendent of Financial Institutions (OSFI). These interim consolidated financial statements were authorized for issue by the Board of Directors on August 27, 2024.
Interbank Offered Rate (IBOR) Reform
BMO has transitioned all Canadian Dollar Offered Rate settings to alternative reference rates, except for certain loans for which the interest rate will reset after July 31, 2024. For additional details regarding interest rate benchmarks, refer to Note 1 of our annual consolidated financial statements for the year ended October 31, 2023.
Use of Estimates and Judgments
The preparation of the interim consolidated financial statements requires management to use estimates and assumptions that affect the carrying amounts of certain assets and liabilities, certain amounts reported in net income and other related disclosures.
The most significant assets and liabilities for which we must make estimates and judgments include the allowance for credit losses (ACL); financial instruments measured at fair value; pension and other employee future benefits; impairment of securities; income taxes and deferred tax assets; goodwill and intangible assets; insurance-related assets and liabilities; provisions including legal proceedings and severance charges; transfer of financial assets and consolidation of structured entities. We make judgments in assessing the business model for financial assets as well as whether substantially all risks and rewards have been transferred in respect of transfers of financial assets and whether we control structured entities. If actual results were to differ from the estimates, the impact would be recorded in future periods.
The economic outlook is subject to several risks that could lead to a more adverse outcome for the North American economy, including the economy decelerating more rapidly than central banks anticipated due to higher interest rates, inflation staying above target and resulting in continued restrictive monetary policies, an escalation of geopolitical risks including wars in Ukraine and the Middle East, and an increase in tensions between the United States and China relating to trade protectionism and Taiwan. These tensions are likely to increase further if the U.S. November presidential election results in a new administration. The impact on our business, results of operations, reputation, financial performance and condition, including the potential for credit, counterparty and
mark-to-market
losses, our credit ratings and regulatory capital and liquidity ratios, as well as impacts to our customers and competitors, will depend on future developments, which remain uncertain. By their very nature, the judgments and estimates we make for the purposes of preparing our consolidated financial statements relate to matters that are inherently uncertain. However, we have detailed policies and internal controls that are intended to ensure the judgments made in estimating these amounts are well controlled and independently reviewed, and that our policies are consistently applied from period to period. We believe that our estimates of the value of our assets and liabilities are appropriate as at July 31, 2024.
Allowance for Credit Losses
As detailed further in Note 1 of our annual consolidated financial statements for the year ended October 31, 2023, ACL consists of allowances on impaired loans, which represent estimated losses related to impaired loans in the portfolio provided for but not yet written off, and allowances on performing loans, which is our best estimate of impairment in the existing portfolio for loans that have not yet been individually identified as impaired.
The expected credit losses (ECL) model requires the recognition of credit losses generally based on 12 months of expected losses for performing loans and the recognition of lifetime losses on performing loans that have experienced a significant increase in credit risk since origination.
The determination of a significant increase in credit risk takes into account many different factors and varies by product and risk segment. The bank’s methodology for determining significant increase in credit risk is based on the change in probability of default between origination, and reporting date, assessed using probability-weighted scenarios as well as certain other criteria, such as 30 days past due and watchlist status. The assessment of a significant increase in credit risk requires experienced credit judgment.
In determining whether there has been a significant increase in credit risk and in calculating the amount of ECL, we must rely on estimates and exercise judgment regarding matters for which the ultimate outcome is unknown. These judgments include changes in circumstances that may cause future assessments of credit risk to be materially different from current assessments, which could require an increase or a decrease in the ACL. The calculation of ECL includes the explicit incorporation of forecasts of future economic conditions. We have developed models incorporating specific macroeconomic variables that are relevant to each portfolio. Key economic variables for our retail portfolios include primary operating markets of Canada, the United States and regional markets, where considered significant. Forecasts are developed internally by our Economics group, considering external data and our view of future economic conditions. We exercise experienced credit judgment to incorporate multiple economic forecasts, which are probability-weighted, in the determination of the final ECL. The allowance is sensitive to changes in both economic forecasts and the probability-weight assigned to each forecast scenario.
Additional information regarding the ACL is included in Note 3.
 
BMO Financial Group Third Quarter Report 2024
5
7
 

Insurance Contract Liabilities
Insurance contract liabilities represent estimates of fulfilment cash flows, which include a risk adjustment, and the contractual service margin (CSM). Fulfillment cash flows include estimates of future cash flows related to the remaining coverage period and for already incurred claims, which are then discounted and probability-weighted. This is based on
non-financial
risk assumptions including mortality, lapse and expenses, which are based on a combination of industry and entity specific data and in the case of expenses, on historical analysis of which expenses are attributable to insurance operations. These assumptions are reviewed at least annually and updated to reflect actual experience and market conditions. In addition, we add a risk adjustment for
non-financial
risk to bring the confidence level on the sufficiency for reserves to
70-80%.
The CSM is a component of the liability representing the unearned profit we will recognize as we provide services.
Changes in Accounting Policy
IFRS 17 Insurance Contracts
Effective November 1, 2023, we adopted IFRS 17
Insurance Contracts
(IFRS 17), which provides a comprehensive approach to accounting for all types of insurance contracts and replaced existing IFRS 4
Insurance Contracts
(IFRS 4).
IFRS 17 fundamentally changes the accounting for insurance contracts, with two key changes for the bank which impact the timing of income recognition:
Firstly, IFRS 17 requires us to group insurance contracts, where contracts have similar risks, were written in the same fiscal year and have similar expected profitability. IFRS 4 had no similar grouping requirement. We then measure these groups of contracts based on our estimates of the present value of future cash flows that are expected to arise as we fulfill the contracts, plus an explicit risk adjustment for insurance-specific risk. To the extent that future cash inflows exceed the future cash outflows, a CSM is recorded, representing unearned profits that will be recognized over the duration of the insurance contracts. If a group of insurance contracts is expected to experience losses, these losses are recorded in income immediately in
non-interest
revenue, insurance service results. Changes in expected fulfilment cash outflows, risk adjustment and CSM will be recognized in the Consolidated Statement of Income in insurance service results over the term of the related insurance contracts. We will use this approach for all insurance contracts, except for creditor insurance and direct participating contracts. We will apply a modified approach to our direct participating products, including segregated funds, whereby their initial measurement is consistent with other insurance contracts, but the fee variability is factored into the remeasurement over the contract coverage period. For our creditor business, with a coverage period of one year or less, we will defer premiums received and recognize them in income over the coverage period and recognize a liability for claims only once a loss is incurred.
Under IFRS 4, gains/losses on new contracts were previously recognized in income immediately.
The second key difference under IFRS 17 compared to IFRS 4 is the rate used to discount our insurance contract liabilities. Under IFRS 17, the discount rate is comprised of a risk-free rate and an illiquidity premium that reflects the characteristics of these liabilities. Under IFRS 4, the discount rate was connected to the yield of the assets held to support insurance contract liabilities. We have elected the accounting policy choice under IFRS 17 to recognize the impact of changes in the discount rate and financial assumptions on insurance contract liabilities in our Consolidated Statement of Income in
non-interest
revenue, insurance investment results.
On transition, we were required to apply a full retrospective approach, where we restated prior periods as if we had always applied IFRS 17, unless impracticable, in which case we were to apply either the modified retrospective approach, where we applied specific modifications to the full retrospective approach, or the fair value approach, where we determined the fair value of the CSM as the difference between the fair value of a group of contracts and our fulfilment cash flows at the date of transition. We applied the full retrospective approach to our creditor business and the fair value approach to all other products written prior to November 1, 2022. The impact of adopting IFRS 17 as at November 1, 2022 is an increase in assets of $1,075 million, an increase in liabilities of $2,181 million and a decrease in shareholders’ equity of $1,106 million
after-tax.
The CSM qualifies as Tier 1 Capital. We applied the change retrospectively, as though we had always accounted for insurance contracts under IFRS 17.
IAS 40 Investment Property
On transition to IFRS 17, we voluntarily changed our accounting policy for the measurement of investment properties, included in insurance-related assets in other assets in our Consolidated Balance Sheet, from cost to fair value. This better aligns our returns on investment properties with gains and losses from our insurance business. IAS 40
Investment Property
(IAS 40) permits either measurement approach. We applied the change retrospectively, as though we had always accounted for investment properties at fair value. The result was an increase in other assets of $132 million and an increase in shareholders’ equity of $132 million
after-tax
at November 1, 2022.
 
5
8
BMO Financial Group Third Quarter Report 2024
 

Transition Impacts
The following table shows the impact of these combined changes at November 1, 2022:
 
(Canadian $ in millions)
  
November 1, 2022
previously reported
    
IFRS 17 impacts
    
IAS 40 accounting
policy change impacts
   
November 1, 2022
restated
 
Assets
          
Other Assets
          
Deferred tax assets
   $ 1,175      $ 418      $ (51   $ 1,542  
Other
          
Insurance-related assets
     2,575        657        183       3,415  
Total Assets
   $ 3,750      $ 1,075      $  132     $ 4,957  
Liabilities
          
Other Liabilities
          
Deferred tax liabilities
   $ 102      $ -      $ -     $ 102  
Other
          
Insurance-related liabilities
      11,201             2,181        -            13,382  
Total Liabilities
   $ 11,303      $ 2,181      $ -     $ 13,484  
The impact of these changes on our Common Equity Tier 1 (
CET1
) Ratio is not material.
Presentation of Insurance Results
Insurance results are presented in
non-interest
revenue, insurance service results and
non-interest
revenue, insurance investment results, in our Consolidated Statement of Income. Insurance service results include insurance revenue, insurance service expenses and reinsurance results. Insurance investment results include net returns on insurance-related assets and the impact of the change in discount rates and financial assumptions on insurance contract liabilities. We no longer report Insurance claims, commissions and changes in policy benefit liabilities.
Insurance service results in our Consolidated Statement of Income are as follows:
 
(Canadian $ in millions)
  
For the three months ended
 
 
For the nine months ended
 
  
  
 July 31, 2024
 
 
 July 31, 2023
 
 
 July 31, 2024
 
 
 July 31, 2023
 
Insurance revenue
  
$
440
 
   $ 415     
$
    1,307
 
  $     1,162  
Insurance service expenses
  
 
(317
)
 
     (287   
 
(919
)
    (796 )
Net expenses from reinsurance contracts
  
 
(23
)
     (32   
 
(90
)
 
    (81 )
 
Insurance service results
  
$
    100
 
   $    96     
$
298
 
  $     285  
Insurance investment results in our Consolidated Statement of Income are as follows:
 
(Canadian $ in millions)
  
For the three months ended
 
 
For the nine months ended
 
  
  
 July 31, 2024
 
 
 July 31, 2023
 
 
 July 31, 2024
 
 
 July 31, 2023
 
Investment return
  
$
    978
 
   $ (120   
$
    2,046
 
  $       871  
Insurance finance income (expense) from insurance and reinsurance contracts held
  
 
(899
)
 
     278     
 
(1,911
)
 
    (814 )
 
Movement in investment contract liabilities
  
 
(62
)
     35     
 
(102
)
    (17 )
Insurance investment results
  
$
17
 
   $   193     
$
33
 
  $ 40  
We use the following rates for discounting fulfilment cash flows for our insurance contracts, which are based on a ri
sk-fre
e yield adjusted for an illiquidity premium that reflects the liquidity characteristics of the liabilities:
 
Portfolio duration:
  
 July 31, 2024
     October 31, 2023  
1 year
  
 
4.78%
 
     6.10%  
3 years
  
 
4.26%
 
     5.83%  
5 years
  
 
4.25%
 
     5.69%  
10 years
  
 
4.69%
 
     5.82%  
20 years
  
 
5.07%
 
     5.85%  
30 years
  
 
4.96%
 
     5.81%  
Ultimate
  
 
5.00%
 
     5.00%  
 
BMO Financial Group Third Quarter Report 2024
5
9
 

Presentation of Insurance Contract Liabilities
Insurance contract liabilities by remaining coverage and incurred claims is comprised of the following:
 
(Canadian $ in millions)
  
For the nine months ended July 31, 2024
 
 
For the twelve months ended October 31, 2023
 
  
  
Liabilities for
remaining coverage
 
 
Liabilities for
incurred claims
 
 
Total
 
 
Liabilities for
remaining coverage
 
 
Liabilities for
incurred claims
 
 
Total
 
Insurance contract liabilities, beginning of period
  
$
13,114
 
  
$
235
 
  
$
13,349
 
   $ 11,850     $ 267     $ 12,117  
Insurance service results
  
 
(1,171
)
 
  
 
842
 
  
 
(329
)
 
     (1,403     979       (424
Net finance expenses from insurance contracts
  
 
2,031
 
  
 
-
 
  
 
2,031
 
     179       -       179  
Total cash flows
  
 
1,792
 
  
 
(871
)
 
  
 
921
 
     2,488       (1,013     1,475  
Other changes in the net carrying amount of the insurance contract
  
 
-
 
  
 
(1
)
  
 
(1
)
     -       2       2  
Insurance contract liabilities, end of period (1)
  
$
     15,766
 
  
$
      205
 
  
$
       15,971
 
   $     13,114     $     235     $     13,349  
 
 (1)
The liabilities for incurred claims relating to insurance contracts in our creditor and reinsurance business were $110 million as at July 31, 2024 and $131 million as at October 31, 2023.
CSM from contracts issued in 2023 was $73 million and for the nine months ended July 31, 2024 was $73 million. Total CSM as at July 31, 2024 was $1,697 million ($1,689 million as at October 31, 2023). This excludes the impact of any reinsurance held, which is not significant to the bank. Onerous contract losses in the three and nine months ended July 31, 2024 and 2023 were not material.
IFRS 9 Financial Instruments
Effective November 1, 2023, we voluntarily changed our accounting policy to account for regular way contracts to buy or sell financial assets on trade date, instead of on settlement date. This change was applied retrospectively, as is required for changes in accounting policy, as if we always recorded securities transactions on trade date. Regular way contracts are contracts which will be settled within a timeframe established by market convention or regulation. The change resulted in an increase in both assets and liabilities of $52.5 billion as at October 31, 2023.
IAS 12 Income Taxes
Effective November 1, 2023, we adopted an amendment to IAS 12
Income Taxes
(IAS 12). This amendment narrows the IAS 12 exemption to exclude transactions that give rise to equal and offsetting temporary differences (e.g. leases and asset retirement obligations). Upon adoption of the amendment, we record separate deferred tax assets and liabilities related to the assets and liabilities that give rise to these temporary differences. There was no impact on our Consolidated Balance Sheet, as the balances are eligible for offset when levied by the same tax authority. This change impacts note disclosure only.
Future Changes in IFRS
IFRS 9 Financial Instruments
In May 2024, the IASB issued amendments to IFRS 9
Financial Instruments
which introduce additional guidance in two areas. The first relates to financial assets with contingent features and when these features can be considered consistent with a basic lending arrangement, in which case the instrument can be measured at amortized cost. The second relates to the timing of derecognition of financial liabilities when payment takes place through an electronic payment system and certain conditions are met. These amendments will be effective for our fiscal year beginning November 1, 2026 and we are currently assessing their impact on our consolidated financial statements.
IAS 12 Income Taxes
In May 2023, the IASB issued an amendment to IAS 12. The amendment addresses concerns around accounting for the global minimum
top-up
tax as outlined in the
two-pillar
plan for international tax reform developed by members of the Organisation for Economic
Co-operation
and Development/G20 Inclusive Framework on Base Erosion and Profit Shifting. The amendment to IAS 12 includes temporary mandatory relief from recognizing and disclosing deferred taxes related to the
top-up
tax. We have applied the temporary mandatory relief related to deferred taxes in jurisdictions in which we operate where the
top-up
tax legislation has been enacted or substantively enacted. The minimum tax rules in these jurisdictions are not yet effective for us and we continue to assess their financial impact. The global minimum tax rules will be effective for our fiscal year beginning November 1, 2024.
IFRS 18 Presentation and Disclosure in the Financial Statements
In April 2024, the IASB issued IFRS 18
Presentation and Disclosure in Financial Statements
(IFRS 18), which will replace IAS 1
Presentation of Financial Statements
, and will be effective for our fiscal year beginning November 1, 2027. IFRS 18 requires changes to how information is grouped and presented in the financial statements, and requires that certain management performance measures be included in the financial statements. We are currently assessing the impact of the standard on the presentation of our consolidated financial statements.
 
60
BMO Financial Group Third Quarter Report 2024
 

Note 2: Securities
Classification of Securities
The following table summarizes the carrying amounts of the bank’s securities by classification:
 
(Canadian $ in millions)
  
July 31, 2024
 
  
October 31, 2023
 
Trading securities (1)
 
$
168,099
 
   $ 123,718  
Fair value through profit or loss securities (FVTPL)
     
FVTPL securities mandatorily measured at fair value
  
 
6,683
 
     6,730  
FVTPL investment securities held by Insurance subsidiaries designated at fair value
  
 
11,854
 
     10,003  
Total FVTPL securities
  
 
18,537
 
     16,733  
Fair value through other comprehensive income (FVOCI) securities (2)
  
 
81,456
 
     62,819  
Amortized cost securities (3)
  
 
117,869
 
     116,814  
Investments in associates and joint ventures
  
 
1,653
 
     1,461  
Total
  
$
    387,614
  
   $   321,545  
 
 (1)
Trading securities include interests of $11,376 million as at July 31, 2024 ($3,346 million as at October 31, 2023) in Collateralized Mortgage Obligations (CMO). We receive CMO in return for our sales of Mortgage Backed Securities (MBS) to certain structured vehicles that we do not consolidate. When we subsequently sell these CMO to third parties, but do not transfer substantially all risks and rewards of ownership to the third-party investor, or we maintain an interest in the sold instrument, we retain these CMO on our Consolidated Balance Sheet. Refer to Note 7 of our annual consolidated financial statements for the year ended October 31, 2023 for further discussion on these vehicles.
 (2)
Amounts are net of ACL of $4 million ($3 million as at October 31, 2023).
 (3)
Amounts are net of ACL of $3 million ($3 million as at October 31, 2023).
 Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
Amortized Cost Securities
The following table summarizes the carrying value and fair value of amortized cost debt
securities:
 
(Canadian $ in millions)
  
July 31, 2024
 
  
October 31, 2023
 
  
  
Carrying value
 
  
Fair value
 
  
Carrying value
 
 
Fair value
 
Issued or guaranteed by:
  
  
  
 
Canadian federal government
  
$
3,299
 
  
$
3,278
 
$
4,908
 
 
$
4,905
 
Canadian provincial and municipal governments
  
 
4,378
 
  
 
4,379
 
 
 
4,613
 
 
 
4,605
 
U.S. federal government
  
 
55,666
 
  
 
51,414
 
 
 
56,878
 
 
 
51,063
 
U.S. states, municipalities and agencies
  
 
185
 
  
 
184
 
 
 
190
 
 
 
179
 
Other governments
  
 
862
 
  
 
846
 
 
 
948
 
 
 
779
 
NHA MBS, U.S. agency MBS and CMO (1)
  
 
43,886
 
  
 
39,945
 
 
 
47,590
 
 
 
41,134
 
Corporate debt
  
 
9,593
 
  
 
9,564
 
 
 
1,687
 
 
 
1,506
 
Total
  
$
   117,869
 
  
$
       109,610
 
$
     116,814
  
 
$
  104,171
 
 
 (1)
These amounts are either supported by insured mortgages or issued by U.S. agencies and government-sponsored enterprises. NHA refers to the National Housing Act.
 The carrying value of securities that are part of fair value hedging relationships are adjusted for related gains (losses) on hedge contracts.
Unrealized Gains and Losses on FVOCI Securities
The following table summarizes the unrealized gains and losses on FVOCI securities:
 
(Canadian $ in millions)
  
July 31, 2024
 
  
October 31, 2023
 
  
  
Cost or
amortized
cost
 
  
Gross
unrealized
gains
 
  
Gross
unrealized
losses
 
 
Fair value
 
  
Cost or
amortized
cost
 
  
Gross
unrealized
gains
 
  
Gross
unrealized
losses
 
 
Fair value
 
Issued or guaranteed by:
  
  
  
  
  
  
  
 
Canadian federal government
  
$
28,029
 
  
$
 
278
 
  
$
(18
)
 
  
$
28,289
 
   $ 20,579      $ 14      $ (493   $ 20,100  
Canadian provincial and municipal governments
  
 
5,831
 
  
 
88
 
  
 
(27
)
  
 
5,892
 
     5,281        2        (228     5,055  
U.S. federal government
  
 
12,019
 
  
 
223
 
  
 
(70
)
  
 
12,172
 
     6,245        -        (365     5,880  
U.S. states, municipalities and agencies
  
 
5,050
 
  
 
23
 
  
 
(72
)
  
 
5,001
 
     5,486        5        (190     5,301  
Other governments
  
 
5,764
 
  
 
29
 
  
 
(8
)
  
 
5,785
 
     7,064        13        (108     6,969  
NHA MBS, U.S. agency MBS and CMO
  
 
19,825
 
  
 
87
 
  
 
(274
)
  
 
19,638
 
     16,421        12        (668     15,765  
Corporate debt
  
 
4,458
 
  
 
73
 
  
 
(29
)
  
 
4,502
 
     3,676        3        (90     3,589  
Corporate equity
  
 
134
 
  
 
43
 
  
 
-
 
  
 
177
 
     129        31        -       160  
Total
  
$
    81,110
 
  
$
    844
 
  
$
    (498
)
  
$
   81,456
 
   $    64,881      $       80      $     (2,142   $    62,819  
 Unrealized gains (losses) may be offset by related (losses) gains on hedge contracts.
 Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
Interest Income on Debt Securities
The following table presents interest income calculated using the effective interest
method:
 
(Canadian $ in millions)
  
For the three months ended
 
 
For the nine months ended
 
  
  
July 31, 2024
 
  
July 31, 2023
 
 
July 31, 2024
 
  
July 31, 2023
 
FVOCI securities
  
$
946
 
  
$
689
 
 
$
2,789
 
$
1,812
 
Amortized cost securities
  
 
988
 
  
 
991
 
 
 
3,017
 
 
 
2,406
 
Total
  
$
        1,934
 
  
$
    1,680
  
 
$
        5,806
 
 
$
   4,218
 
 
BMO Financial Group Third Quarter Report 2024
61
 

Non-Interest
Revenue
Net gains and losses from securities, excluding gains and losses on trading securities, have been included in our Consolidated Statement of Income as follows:

 
(Canadian $ in millions)
  
For the three months ended
 
 
For the nine months ended
 
  
  
July 31, 2024
 
  
July 31, 2023
 
 
July 31, 2024
 
 
July 31, 2023
 
FVTPL securities
  
$
23
 
   $ 34    
$
55
 
$ 111  
FVOCI securities - net realized gains (1)
  
 
26
 
     2    
 
89
 
    35  
Impairment on FVOCI and amortized cost securities
  
 
-
 
     -    
 
(1
)
 
    -  
Securities gains, other than trading
  
$
 
 
     49
 
   $        36     
$
     143
 
  $      146  
 
 (1)
Gains are net of (losses) on hedge contracts.
Interest and dividend income and gains on securities held in our Insurance business are recorded in
non-interest
revenue, insurance investment results, in our Consolidated Statement of Income as follows:
 
(Canadian $ in millions)
  
For the three months ended
 
 
For the nine months ended
 
  
  
July 31, 2024
 
  
July 31, 2023
 
 
July 31, 2024
 
 
July 31, 2023
 
Interest and dividend income
  
$
127
 
   $ 117    
$
385
  $ 334  
Gains (losses) from securities designated at FVTPL
  
 
560
 
     (280  
 
1,166
 
    329  
Realized gains from FVOCI securities
  
 
1
 
     -    
 
1
 
    1  
Total interest and dividend income and gains held in our Insurance business
  
$
     688
 
   $      (163  
$
   1,552
  $      664  
 
6
2
BMO Financial Group Third Quarter Report 2024
 

Note 3: Loans and Allowance for Credit Losses
Credit Risk Exposure
The following table sets out our credit risk exposure for all loans carried at amortized cost, FVOCI or FVTPL as at July 31, 2024 and October 31, 2023. Stage 1 represents performing loans carried with up to a
12-month
ECL, Stage 2 represents performing loans carried with a lifetime ECL, and Stage 3 represents loans with a lifetime ECL that are credit impaired.
 
(Canadian $ in millions)
  
July 31, 2024
    October 31, 2023  
     
Stage 1
   
Stage 2
   
Stage 3 
(1)
   
Total
    Stage 1     Stage 2     Stage 3 (1)     Total  
Loans: Residential mortgages
                
Exceptionally low
  
$
1
 
 
$
-
 
 
$
-
 
 
$
1
 
  $ 2     $ -     $ -     $ 2  
Very low
  
 
83,763
 
 
 
7,550
 
 
 
-
 
 
 
91,313
 
    85,423       171       -       85,594  
Low
  
 
48,857
 
 
 
15,495
 
 
 
-
 
 
 
64,352
 
    51,366       10,820       -       62,186  
Medium
  
 
6,905
 
 
 
5,250
 
 
 
-
 
 
 
12,155
 
    5,289       5,434       -       10,723  
High
  
 
263
 
 
 
2,550
 
 
 
-
 
 
 
2,813
 
    282       2,015       -       2,297  
Not rated (2)
  
 
14,292
 
 
 
969
 
 
 
-
 
 
 
15,261
 
    15,906       118       -       16,024  
Impaired
  
 
-
 
 
 
-
 
 
 
617
 
 
 
617
 
    -       -       424       424  
Gross residential mortgages
  
 
154,081
 
 
 
31,814
 
 
 
617
 
 
 
186,512
 
    158,268       18,558       424       177,250  
ACL
  
 
53
 
 
 
191
 
 
 
8
 
 
 
252
 
    73       146       5       224  
Carrying amount
  
 
154,028
 
 
 
31,623
 
 
 
609
 
 
 
186,260
 
    158,195       18,412       419       177,026  
Loans: Consumer instalment and other personal
                
Exceptionally low
  
 
8,724
 
 
 
237
 
 
 
-
 
 
 
8,961
 
    1,547       4       -       1,551  
Very low
  
 
20,269
 
 
 
1,229
 
 
 
-
 
 
 
21,498
 
    37,924       180       -       38,104  
Low
  
 
26,095
 
 
 
5,020
 
 
 
-
 
 
 
31,115
 
    21,406       1,052       -       22,458  
Medium
  
 
7,695
 
 
 
5,341
 
 
 
-
 
 
 
13,036
 
    7,971       5,686       -       13,657  
High
  
 
766
 
 
 
1,918
 
 
 
-
 
 
 
2,684
 
    759       2,127       -       2,886  
Not rated (2)
  
 
14,341
 
 
 
343
 
 
 
-
 
 
 
14,684
 
    24,426       411       -       24,837  
Impaired
  
 
-
 
 
 
-
 
 
 
577
 
 
 
577
 
    -       -       549       549  
Gross consumer instalment and other personal
  
 
77,890
 
 
 
14,088
 
 
 
577
 
 
 
92,555
 
    94,033       9,460       549       104,042  
ACL
  
 
165
 
 
 
384
 
 
 
162
 
 
 
711
 
    208       415       152       775  
Carrying amount
  
 
77,725
 
 
 
13,704
 
 
 
415
 
 
 
91,844
 
    93,825       9,045       397       103,267  
Loans: Credit cards
(3)
                
Exceptionally low
  
 
1,670
 
 
 
-
 
 
 
-
 
 
 
1,670
 
    1,605       -       -       1,605  
Very low
  
 
2,122
 
 
 
1
 
 
 
-
 
 
 
2,123
 
    1,946       1       -       1,947  
Low
  
 
2,078
 
 
 
51
 
 
 
-
 
 
 
2,129
 
    1,884       70       -       1,954  
Medium
  
 
4,514
 
 
 
801
 
 
 
-
 
 
 
5,315
 
    3,860       890       -       4,750  
High
  
 
741
 
 
 
844
 
 
 
-
 
 
 
1,585
 
    533       763       -       1,296  
Not rated (2)
  
 
466
 
 
 
149
 
 
 
-
 
 
 
615
 
    651       91       -       742  
Impaired
  
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
    -       -       -       -  
Gross credit cards
  
 
11,591
 
 
 
1,846
 
 
 
-
 
 
 
13,437
 
    10,479       1,815       -       12,294  
ACL
  
 
153
 
 
 
360
 
 
 
-
 
 
 
513
 
    134       267       -       401  
Carrying amount
  
 
11,438
 
 
 
1,486
 
 
 
-
 
 
 
12,924
 
    10,345       1,548       -       11,893  
Loans: Business and government
(4)
                
Acceptable
                
Investment grade
  
 
194,063
 
 
 
3,230
 
 
 
-
 
 
 
197,293
 
    202,731       3,886       -       206,617  
Sub-investment
grade
  
 
147,342
 
 
 
15,752
 
 
 
-
 
 
 
163,094
 
    126,535       26,260       -       152,795  
Watchlist
  
 
263
 
 
 
19,994
 
 
 
-
 
 
 
20,257
 
    1,078       11,520       -       12,598  
Impaired
  
 
-
 
 
 
-
 
 
 
4,847
 
 
 
4,847
 
    -       -       2,987       2,987  
Gross business and government
  
 
341,668
 
 
 
38,976
 
 
 
4,847
 
 
 
385,491
 
    330,344       41,666       2,987       374,997  
ACL
  
 
690
 
 
 
1,295
 
 
 
815
 
 
 
2,800
 
    849       1,031       527       2,407  
Carrying amount
  
 
340,978
 
 
 
37,681
 
 
 
4,032
 
 
 
382,691
 
    329,495       40,635       2,460       372,590  
Total gross loans and acceptances
  
 
585,230
 
 
 
86,724
 
 
 
6,041
 
 
 
677,995
 
    593,124       71,499       3,960       668,583  
Total net loans and acceptances
  
 
584,169
 
 
 
84,494
 
 
 
5,056
 
 
 
673,719
 
    591,860       69,640       3,276       664,776  
Commitments and financial guarantee contracts
                
Acceptable
                
Investment grade
  
 
195,684
 
 
 
315
 
 
 
-
 
 
 
195,999
 
    195,149       1,721       -       196,870  
Sub-investment
grade
  
 
65,476
 
 
 
6,290
 
 
 
-
 
 
 
71,766
 
    54,148       14,158       -       68,306  
Watchlist
  
 
60
 
 
 
8,214
 
 
 
-
 
 
 
8,274
 
    254       4,137       -       4,391  
Impaired
  
 
-
 
 
 
-
 
 
 
750
 
 
 
750
 
    -       -       687       687  
Gross commitments and financial guarantee contracts
  
 
261,220
 
 
 
14,819
 
 
 
750
 
 
 
276,789
 
    249,551       20,016       687       270,254  
ACL
  
 
218
 
 
 
230
 
 
 
26
 
 
 
474
 
    260       189       11       460  
Carrying amount (5) (6)
  
$
  261,002
  
 
$
   14,589
  
 
$
  724
  
 
$
  276,315
  
  $  249,291      $   19,827      $      676      $  269,794   
 
 (1)
Includes purchased credit impaired (PCI) loan balances.
 (2)
Includes purchased portfolios and certain cases where an internal risk rating is not assigned. Alternative credit risk assessments, rating methodologies, policies and tools are used to manage credit risk for these portfolios.
 (3)
Credit card loans are immediately written off when principal or interest payments are 180 days past due, and as a result are not reported as impaired in Stage 3.
 (4)
Includes customers’ liability under acceptances.
 (5)
Represents total contractual amounts of undrawn credit facilities and other
off-balance
sheet exposures, excluding personal lines of credit and credit cards that are unconditionally cancellable at our discretion.
 (6)
Certain commercial borrower commitments are conditional and may include recourse to counterparties.
 Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
Allowance for Credit Losses
The ACL recorded in our Consolidated Balance Sheet is maintained at a level we consider adequate to absorb credit-related losses on our loans and other credit instruments. The ACL amounted to $4,750 million as at July 31, 2024 ($4,267 million as at October 31, 2023) of which $4,276 million ($3,807 million as at October 31, 2023) was recorded in loans and $474 million ($460 million as at October 31, 2023) was recorded in other liabilities in our Consolidated Balance Sheet.
Significant changes in gross balances, including originations, maturities, sales, write-offs and repayments in the normal course of operations, impact the ACL.
 
BMO Financial Group Third Quarter Report 2024
63
 

The following tables show the continuity in the loss
allowance
by product type for the three and nine months ended July 31, 2024 and July 31, 2023. Transfers represent the amount of ECL that moved between stages during the period, for example, moving from a
12-month
(Stage 1) to lifetime (Stage 2) ECL measurement basis. Net remeasurements represent the ECL impact due to transfers between stages, as well as changes in economic forecasts and credit quality. Model changes include new calculation models or methodologies.
 
(Canadian $ in millions)
       
For the three months ended
  
July 31, 2024
    July 31, 2023  
     
Stage 1
   
Stage 2
   
Stage 3 
(1)
   
Total
    Stage 1     Stage 2     Stage 3 (1)     Total  
Loans: Residential mortgages
                
Balance as at beginning of period
  
$
47
 
 
$
209
 
 
$
13
 
 
$
269
 
  $ 77     $ 133     $ 8     $ 218  
Transfer to Stage 1
  
 
45
 
 
 
(46
 
 
1
 
 
 
-
 
    25       (25     -       -  
Transfer to Stage 2
  
 
(2
 
 
6
 
 
 
(4
 
 
-
 
    (4     7       (3     -  
Transfer to Stage 3
  
 
-
 
 
 
(5
 
 
5
 
 
 
-
 
    -       (2     2       -  
Net remeasurement of loss allowance
  
 
(45
 
 
31
 
 
 
12
 
 
 
(2
    (26     59       9       42  
Loan originations
  
 
7
 
 
 
-
 
 
 
-
 
 
 
7
 
    8       -       -       8  
Loan purchases
  
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
    -       -       -       -  
Derecognitions and maturities
  
 
-
 
 
 
(4
 
 
-
 
 
 
(4
    (1     (3     -       (4
Model changes
  
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
    -       -       -       -  
Total PCL (2)
  
 
5
 
 
 
(18
 
 
14
 
 
 
1
 
    2       36       8       46  
Write-offs (3)
  
 
-
 
 
 
-
 
 
 
(1
 
 
(1
    -       -       (1     (1
Recoveries of previous write-offs
  
 
-
 
 
 
-
 
 
 
1
 
 
 
1
 
    -       -       2       2  
Foreign exchange and other
  
 
1
 
 
 
1
 
 
 
(10
 
 
(8
    (1     (2     (7     (10
Balance as at end of period
  
$
53
 
 
$
192
 
 
$
17
 
 
$
262
 
  $ 78     $ 167     $ 10     $ 255  
Loans: Consumer instalment and other personal
                
Balance as at beginning of period
  
$
166
 
 
$
394
 
 
$
169
 
 
$
729
 
  $ 257     $ 364     $ 130     $ 751  
Transfer to Stage 1
  
 
66
 
 
 
(62
 
 
(4
 
 
-
 
    66       (63     (3     -  
Transfer to Stage 2
  
 
(10
 
 
24
 
 
 
(14
 
 
-
 
    (15     27       (12     -  
Transfer to Stage 3
  
 
(1
 
 
(35
 
 
36
 
 
 
-
 
    (3     (27     30       -  
Net remeasurement of loss allowance
  
 
(51
 
 
92
 
 
 
120
 
 
 
161
 
    (68     111       86       129  
Loan originations
  
 
11
 
 
 
-
 
 
 
-
 
 
 
11
 
    17       3       -       20  
Loan purchases
  
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
    -       -       -       -  
Derecognitions and maturities
  
 
(5
 
 
(9
 
 
-
 
 
 
(14
    (7     (12     -       (19
Model changes
  
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
    -       -       -       -  
Total PCL (2)
  
 
10
 
 
 
10
 
 
 
138
 
 
 
158
 
    (10     39       101       130  
Write-offs (3)
  
 
-
 
 
 
-
 
 
 
(157
 
 
(157
    -       -       (98     (98
Recoveries of previous write-offs
  
 
-
 
 
 
-
 
 
 
33
 
 
 
33
 
    -       -       19       19  
Foreign exchange and other
  
 
1
 
 
 
-
 
 
 
(15
 
 
(14
    (5     (3     (11     (19
Balance as at end of period
  
$
177
 
 
$
404
 
 
$
168
 
 
$
749
 
  $ 242     $ 400     $ 141     $ 783  
Loans: Credit cards
                
Balance as at beginning of period
  
$
207
 
 
$
383
 
 
$
-
 
 
$
590
 
  $ 156     $ 270     $ -     $ 426  
Transfer to Stage 1
  
 
56
 
 
 
(56
 
 
-
 
 
 
-
 
    41       (41     -       -  
Transfer to Stage 2
  
 
(16
 
 
16
 
 
 
-
 
 
 
-
 
    (12     12       -       -  
Transfer to Stage 3
  
 
(2
 
 
(83
 
 
85
 
 
 
-
 
    -       (43     43       -  
Net remeasurement of loss allowance
  
 
(41
 
 
149
 
 
 
73
 
 
 
181
 
    (33     88       54       109  
Loan originations
  
 
21
 
 
 
-
 
 
 
-
 
 
 
21
 
    20       1       -       21  
Loan purchases
  
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
    -       -       -       -  
Derecognitions and maturities
  
 
(2
 
 
(7
 
 
-
 
 
 
(9
    (2     (6     -       (8
Model changes
  
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
    -       -       -       -  
Total PCL (2)
  
 
16
 
 
 
19
 
 
 
158
 
 
 
193
 
    14       11       97       122  
Write-offs (3)
  
 
-
 
 
 
-
 
 
 
(192
 
 
(192
    -       -       (115     (115
Recoveries of previous write-offs
  
 
-
 
 
 
-
 
 
 
48
 
 
 
48
 
    -       -       28       28  
Foreign exchange and other
  
 
(1
 
 
1
 
 
 
(14
 
 
(14
    (2     -       (10     (12
Balance as at end of period
  
$
222
 
 
$
403
 
 
$
-
 
 
$
625
 
  $ 168     $ 281     $ -     $ 449  
Loans: Business and government
                
Balance as at beginning of period
  
$
884
 
 
$
1,353
 
 
$
653
 
 
$
2,890
 
  $ 1,162     $ 871     $ 405     $ 2,438  
Transfer to Stage 1
  
 
91
 
 
 
(86
 
 
(5
 
 
-
 
    74       (65     (9     -  
Transfer to Stage 2
  
 
(63
 
 
76
 
 
 
(13
 
 
-
 
    (52     61       (9     -  
Transfer to Stage 3
  
 
(2
 
 
(73
 
 
75
 
 
 
-
 
    (2     (58     60       -  
Net remeasurement of loss allowance
  
 
(117
 
 
242
 
 
 
461
 
 
 
586
 
    (94     236       85       227  
Loan originations
  
 
70
 
 
 
-
 
 
 
-
 
 
 
70
 
    58       -       -       58  
Loan purchases
  
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
    -       -       -       -  
Derecognitions and maturities
  
 
(35
 
 
(67
 
 
-
 
 
 
(102
    (27     (54     -       (81
Model changes
  
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
    -       -       -       -  
Total PCL (2)
  
 
(56
 
 
92
 
 
 
518
 
 
 
554
 
    (43     120       127       204  
Write-offs (3)
  
 
-
 
 
 
-
 
 
 
(293
 
 
(293
    -       -       (91     (91
Recoveries of previous write-offs
  
 
-
 
 
 
-
 
 
 
24
 
 
 
24
 
    -       -       10       10  
Foreign exchange and other
  
 
(1
 
 
16
 
 
 
(76
 
 
(61
    (42     (4     (16     (62
Balance as at end of period
  
$
827
 
 
$
1,461
 
 
$
826
 
 
$
3,114
 
  $ 1,077     $ 987     $ 435     $ 2,499  
Total as at end of period
  
$
1,279
 
 
$
2,460
 
 
$
1,011
 
 
$
4,750
 
  $ 1,565     $ 1,835     $ 586     $ 3,986  
Comprising: Loans
  
$
    1,061
 
 
$
    2,230
 
 
$
  985
 
 
$
    4,276
 
  $    1,296      $    1,648      $       576     $    3,520   
Other credit instruments (4)
  
 
218
 
 
 
230
 
 
 
26
 
 
 
474
 
    269       187       10       466  
 
 (1)
Includes changes in the allowance for PCI loans.
 (2)
Excludes PCL on other assets of $
nil
million for the three months ended July 31, 2024 ($(
10
) million for the three months ended July 31, 2023).
 (3)
Generally, we continue to seek recovery on amounts that were written off during the year, unless the loan is sold, we no longer have the right to collect or we have exhausted all reasonable efforts to collect.
 (4)
Other credit instruments, including
off-balance
sheet items, are recorded in other liabilities in our Consolidated Balance Sheet.
 
6
4
BMO Financial Group Third Quarter Report 2024
 

(Canadian $ in millions)
       
For the nine months ended
  
July 31, 2024
    July 31, 2023  
     
Stage 1
   
Stage 2
   
Stage 3
(1)
   
Total
    Stage 1     Stage 2     Stage 3 (1)     Total  
Loans: Residential mortgages
                
Balance as at beginning of period
  
$
73
 
 
$
151
 
 
$
10
 
 
$
234
 
  $ 59     $ 67     $ 16     $ 142  
Transfer to Stage 1
  
 
98
 
 
 
(98
 
 
-
 
 
 
-
 
    64       (64     -       -  
Transfer to Stage 2
  
 
(24
 
 
34
 
 
 
(10
 
 
-
 
    (15     22       (7     -  
Transfer to Stage 3
  
 
-
 
 
 
(19
 
 
19
 
 
 
-
 
    (1     (8     9       -  
Net remeasurement of loss allowance
  
 
(108
 
 
138
 
 
 
24
 
 
 
54
 
    (58     93       9       44  
Loan originations
  
 
17
 
 
 
-
 
 
 
-
 
 
 
17
 
    21       -       -       21  
Loan purchases
  
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
    31       -       -       31  
Derecognitions and maturities
  
 
(2
 
 
(9
 
 
-
 
 
 
(11
    (3     (5     -       (8
Model changes
  
 
(1
 
 
(5
 
 
-
 
 
 
(6
    (19     63       -       44  
Total PCL (2)
  
 
(20
 
 
41
 
 
 
33
 
 
 
54
 
    20       101       11       132  
Write-offs (3)
  
 
-
 
 
 
-
 
 
 
(4
 
 
(4
    -       -       (6     (6
Recoveries of previous write-offs
  
 
-
 
 
 
-
 
 
 
4
 
 
 
4
 
    -       -       5       5  
Foreign exchange and other
  
 
-
 
 
 
-
 
 
 
(26
 
 
(26
    (1     (1     (16     (18
Balance as at end of period
  
$
53
 
 
$
192
 
 
$
17
 
 
$
262
 
  $ 78     $ 167     $ 10     $ 255  
Loans: Consumer instalment and other personal
                
Balance as at beginning of period
  
$
220
 
 
$
434
 
 
$
152
 
 
$
806
 
  $ 111     $ 304     $ 102     $ 517  
Transfer to Stage 1
  
 
237
 
 
 
(225
 
 
(12
 
 
-
 
    193       (185     (8     -  
Transfer to Stage 2
  
 
(31
 
 
66
 
 
 
(35
 
 
-
 
    (40     72       (32     -  
Transfer to Stage 3
  
 
(5
 
 
(100
 
 
105
 
 
 
-
 
    (16     (71     87       -  
Net remeasurement of loss allowance
  
 
(202
 
 
209
 
 
 
322
 
 
 
329
 
    (177     313       209       345  
Loan originations
  
 
44
 
 
 
-
 
 
 
-
 
 
 
44
 
    44       4       -       48  
Loan purchases
  
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
    179       -       -       179  
Derecognitions and maturities
  
 
(12
 
 
(25
 
 
(11
 
 
(48
    (20     (26     -       (46
Model changes
  
 
15
 
 
 
46
 
 
 
-
 
 
 
61
 
    (26     (8     -       (34
Total PCL (2)
  
 
46
 
 
 
(29
 
 
369
 
 
 
386
 
    137       99       256       492  
Write-offs (3)
  
 
-
 
 
 
-
 
 
 
(472
 
 
(472
    -       -       (242     (242
Recoveries of previous write-offs
  
 
-
 
 
 
-
 
 
 
156
 
 
 
156
 
    -       -       48       48  
Foreign exchange and other
  
 
(89
 
 
(1
 
 
(37
 
 
(127
    (6     (3     (23     (32
Balance as at end of period
  
$
177
 
 
$
404
 
 
$
168
 
 
$
749
 
  $ 242     $ 400     $ 141     $ 783  
Loans: Credit cards
                
Balance as at beginning of period
  
$
188
 
 
$
308
 
 
$
-
 
 
$
496
 
  $ 115     $ 250     $ -     $ 365  
Transfer to Stage 1
  
 
172
 
 
 
(172
 
 
-
 
 
 
-
 
    126       (126     -       -  
Transfer to Stage 2
  
 
(43
 
 
43
 
 
 
-
 
 
 
-
 
    (32     32       -       -  
Transfer to Stage 3
  
 
(4
 
 
(199
 
 
203
 
 
 
-
 
    (2     (116     118       -  
Net remeasurement of loss allowance
  
 
(146
 
 
434
 
 
 
235
 
 
 
523
 
    (116     258       135       277  
Loan originations
  
 
58
 
 
 
-
 
 
 
-
 
 
 
58
 
    59       1       -       60  
Loan purchases
  
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
    25       -       -       25  
Derecognitions and maturities
  
 
(6
 
 
(20
 
 
-
 
 
 
(26
    (5     (17     -       (22
Model changes
  
 
4
 
 
 
9
 
 
 
-
 
 
 
13
 
    -       -       -       -  
Total PCL (2)
  
 
35
 
 
 
95
 
 
 
438
 
 
 
568
 
    55       32       253       340  
Write-offs (3)
  
 
-
 
 
 
-
 
 
 
(523
 
 
(523
    -       -       (299     (299
Recoveries of previous write-offs
  
 
-
 
 
 
-
 
 
 
123
 
 
 
123
 
    -       -       70       70  
Foreign exchange and other
  
 
(1
 
 
-
 
 
 
(38
 
 
(39
    (2     (1     (24     (27
Balance as at end of period
  
$
222
 
 
$
403
 
 
$
-
 
 
$
625
 
  $ 168     $ 281     $ -     $ 449  
Loans: Business and government
                
Balance as at beginning of period
  
$
1,043
 
 
$
1,155
 
 
$
533
 
 
$
2,731
 
  $ 746     $ 789     $ 439     $ 1,974  
Transfer to Stage 1
  
 
478
 
 
 
(458
 
 
(20
 
 
-
 
    212       (199     (13     -  
Transfer to Stage 2
  
 
(237
 
 
268
 
 
 
(31
 
 
-
 
    (124     180       (56     -  
Transfer to Stage 3
  
 
(6
 
 
(226
 
 
232
 
 
 
-
 
    (19     (109     128       -  
Net remeasurement of loss allowance
  
 
(551
 
 
851
 
 
 
949
 
 
 
1,249
 
    (286     449       193       356  
Loan originations
  
 
217
 
 
 
8
 
 
 
-
 
 
 
225
 
    199       3       -       202  
Loan purchases
  
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
    470       -       -       470  
Derecognitions and maturities
  
 
(119
 
 
(231
 
 
(11
 
 
(361
    (105     (147     -       (252
Model changes
  
 
53
 
 
 
57
 
 
 
-
 
 
 
110
 
    -       (1     -       (1
Total PCL (2)
  
 
(165
 
 
269
 
 
 
1,119
 
 
 
1,223
 
    347       176       252       775  
Write-offs (3)
  
 
-
 
 
 
-
 
 
 
(737
 
 
(737
    -       -       (234     (234
Recoveries of previous write-offs
  
 
-
 
 
 
-
 
 
 
114
 
 
 
114
 
    -       -       35       35  
Foreign exchange and other
  
 
(51
 
 
37
 
 
 
(203
 
 
(217
    (16     22       (57     (51
Balance as at end of period
  
$
827
 
 
$
1,461
 
 
$
826
 
 
$
3,114
 
  $ 1,077     $ 987     $ 435     $ 2,499  
Total as at end of period
  
$
1,279
 
 
$
2,460
 
 
$
1,011
 
 
$
4,750
 
  $ 1,565     $ 1,835     $ 586     $ 3,986  
Comprising: Loans
  
$
    1,061
 
 
$
    2,230
 
 
$
   985
 
 
$
    4,276
 
  $     1,296     $    1,648     $      576     $     3,520  
Other credit instruments (4)
  
 
218
 
 
 
230
 
 
 
26
 
 
 
474
 
    269       187       10       466  
 
 (1)
Includes changes in the allowance for PCI loans.
 (2)
Excludes PCL on other assets of $
7
million for the nine months ended July 31, 2024 ($(
7
) million for the nine months ended July 31, 2023).
 (3)
Generally, we continue to seek recovery on amounts that were written off during the year, unless the loan is sold, we no longer have the right to collect or we have exhausted all reasonable efforts to collect.
 (4)
Other credit instruments, including
off-balance
sheet items, are recorded in other liabilities in our Consolidated Balance Sheet.
 
BMO Financial Group Third Quarter Report 2024
6
5
 

Purchased Loans
As part of our acquisition of Bank of the West, we identified loans purchased as either purchased performing loans or PCI loans. As at July 31, 2024, purchased performing loans recorded in our Consolidated Balance Sheet totalled $47,629 million ($68,025 million as at October 31, 2023), including a remaining fair value mark of $(1,587) million ($(2,317) million as at October 31, 2023). As at July 31, 2024, PCI loans recorded in our Consolidated Balance Sheet totalled $139 million ($219 million as at October 31, 2023), including a remaining fair value mark of $(25) million ($(61) million as at October 31, 2023).
Loans Past Due Not Impaired
Loans that are past due but not classified as impaired are loans where our customers have failed to make payments when contractually due but for which we expect the full amount of principal and interest payments to be collected, or loans which are held at fair value. The following table presents loans that are past due but not classified as impaired as at July 31, 2024 and October 31, 2023. Loans less than 30 days past due are excluded as they are not generally representative of the borrower’s ability to meet their payment
obligations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Canadian $ in millions)
  
July 31, 2024
 
  
October 31, 2023
 
  
  
30 to 89 days
 
  
90 days or more 
(1)
 
  
Total
 
  
30 to 89 days
 
  
90 days or more (1)
 
  
Total
 
Residential mortgages
  
$
763
 
  
$
8
 
  
$
771
 
  
$
707
 
  
$
9
 
  
$
716
 
Consumer instalment and other personal
  
 
724
 
  
 
160
 
  
 
884
 
  
 
1,003
 
  
 
129
 
  
 
1,132
 
Business and government
  
 
790
 
  
 
10
 
  
 
800
 
  
 
826
 
  
 
18
 
  
 
844
 
Total
  
$
   2,277
 
  
$
   178
 
  
$
  2,455
 
  
$
2,536
 
  
$
156
 
  
$
  2,692
 
 
 (1)
Fully secured loans with amounts between 90 and 180 days past due that we have not classified as impaired totalled $8 million and $10
 
million as at July 31, 2024 and October 31, 2023, respectively.
ECL Sensitivity and Key Economic Variables
The ECL model requires the recognition of credit losses generally based on 12 months of expected losses for performing loans and the recognition of lifetime losses on performing loans that have experienced a significant increase in credit risk since origination.
The allowance for performing loans is sensitive to changes in both economic forecasts and the probability-weight assigned to each forecast scenario. Many of the factors have a high degree of interdependency, although there is no single factor to which loan loss allowances as a whole are sensitive.
The upside scenario as at July 31, 2024 assumes a stronger economic environment than the base case forecast, with lower unemployment rates.
As at July 31, 2024, our base case scenario depicts a relatively weak economic environment in the near-term, largely in response to higher interest rates and tighter lending conditions, and a moderate economic recovery over the medium-term as inflation is expected to ease further and lead to lower interest rates. Our base case forecast as at October 31, 2023 broadly depicted a similar economic environment over the projection period though with generally weaker financial conditions. If we assumed a
100% weight on the base case forecast and included the impact of loan migration by restaging, with other assumptions held constant, including the application of experienced credit judgment, the allowance on performing loans would be approximately $2,225 million as at July 31, 2024 ($2,625 million as at October 31, 2023), compared to the reported allowance for performing loans of $3,739 million ($3,572 million as at October 31, 2023).
In the second quarter of fiscal 2024, we added a fourth scenario reflecting a less severe downside which improves the continuum of economic forecasts used in the allowance estimation. As at July 31, 2024, our downside scenario assumes a significant escalation of the Ukraine war and a sharp contraction in the Canadian and U.S. economies in the near-term, followed by a relatively slow recovery. Our severe downside scenario depicts a deeper contraction in the Canadian and U.S. economies than in the downside scenario. The severe downside scenario as at October 31, 2023 broadly depicted a similar economic environment over the projection period. If we assumed a 100%
severe downside economic forecast and included the impact of loan migration by restaging, with other assumptions held constant, including the application of experienced credit judgment, the allowance on performing loans would be approximately
$
6,875
million as at July 31, 2024 (
$
6,025
 
million as at October 31, 2023), compared to the reported allowance for performing loans of
$
3,739
million ($
3,572
 million as at October 31, 2023).
Actual results in a recession will differ as our portfolio will change through time due to migration, growth, risk mitigation actions and other factors. In addition, our allowance will reflect the four economic scenarios used in assessing the allowance, with often unequal weightings attached to each scenario that can change through time.
 
6
6
BMO Financial Group Third Quarter Report 2024
 

The following tables show the key economic variables used to estimate the allowance on performing loans forecast over the next 12 months or lifetime measurement period. While the values disclosed below are national variables, we use regional variables in the underlying models and consider factors impacting particular industries where
appropriate.
 
  
 
As at July 31, 2024
 
  
 
Scenarios
 
All figures are average annual values
 
Upside
 
 
Base
 
 
Downside
 
 
Severe downside
 
  
 
First 12
months
 
 
Remaining
horizon 
(1)
 
 
First 12 
months 
 
 
Remaining
horizon 
(1)
 
 
First 12 
months 
 
 
Remaining 
horizon 
(1)
 
 
First 12 
months 
 
 
Remaining 
horizon 
(1)
 
Real GDP growth rates (2)
 
 
 
 
 
 
 
 
Canada
 
 
4.4%
 
 
 
2.7%
 
 
 
1.7% 
 
 
 
1.9%
 
 
 
(2.5)%
 
 
 
1.3% 
 
 
 
(3.8)%
 
 
 
1.2% 
 
United States
 
 
4.0%
 
 
 
2.4%
 
 
 
1.6% 
 
 
 
1.9%
 
 
 
(2.3)%
 
 
 
1.4% 
 
 
 
(3.5)%
 
 
 
1.3% 
 
Corporate BBB
10-year
spread
 
 
 
 
 
 
 
 
 
 
Canada
 
 
1.3%
 
 
 
1.8%
 
 
 
1.9% 
 
 
 
2.0%
 
 
 
3.6% 
 
 
 
3.0% 
 
 
 
4.2% 
 
 
 
3.5% 
 
United States
 
 
0.7%
 
 
 
1.6%
 
 
 
1.5% 
 
 
 
2.0%
 
 
 
3.4% 
 
 
 
3.1% 
 
 
 
4.6% 
 
 
 
3.6% 
 
Unemployment rates
 
 
    
 
 
 
    
 
 
 
    
 
 
 
    
 
 
 
    
 
 
 
    
 
 
 
    
 
 
 
    
 
Canada
 
 
4.9%
 
 
 
4.4%
 
 
 
6.4% 
 
 
 
5.7%
 
 
 
8.7% 
 
 
 
9.3% 
 
 
 
9.4% 
 
 
 
10.2% 
 
United States
 
 
3.2%
 
 
 
2.8%
 
 
 
4.2% 
 
 
 
4.0%
 
 
 
6.6% 
 
 
 
7.1% 
 
 
 
7.7% 
 
 
 
8.5% 
 
Housing Price Index (2)
 
 
 
 
 
 
 
 
Canada (3)
 
 
3.9%
 
 
 
6.0%
 
 
 
(0.4)%
 
 
 
3.5%
 
 
 
(13.3)%
 
 
 
(1.0)%
 
 
 
(20.7)%
 
 
 
(5.0)%
 
United States (4)
 
 
6.1%
 
 
 
4.1%
 
 
 
3.0% 
 
 
 
2.6%
 
 
 
(9.4)%
 
 
 
(0.9)%
 
 
 
(19.1)%
 
 
 
(4.3)%
 
  
 
As at October 31, 2023
 
  
 
Scenarios
 
All figures are average annual values
 
  
 
 
  
 
 
Upside
 
 
Base
 
 
Severe downside
 
  
 
  
 
 
  
 
 
First 12 
months 
 
 
Remaining
horizon (1)
 
 
First 12 
months 
 
 
Remaining 
horizon (1) 
 
 
First 12
months
 
 
Remaining 
horizon (1) 
 
Real GDP growth rates (2)
 
 
 
 
 
 
 
 
Canada
 
 
 
 
3.2% 
 
 
 
2.6%
 
 
 
0.4% 
 
 
 
1.9% 
 
 
 
(3.9)%
 
 
 
1.2% 
 
United States
 
 
 
 
4.1% 
 
 
 
2.5%
 
 
 
1.4% 
 
 
 
2.0% 
 
 
 
(3.5)%
 
 
 
1.4% 
 
Corporate BBB
10-year
spread
 
 
 
 
 
 
 
 
Canada
 
 
 
 
1.7% 
 
 
 
1.8%
 
 
 
2.4% 
 
 
 
2.0% 
 
 
 
4.2% 
 
 
 
3.5% 
 
United States
 
 
 
 
1.4% 
 
 
 
1.7%
 
 
 
2.2% 
 
 
 
2.1% 
 
 
 
4.6% 
 
 
 
3.5% 
 
Unemployment rates
 
 
 
 
 
 
 
 
Canada
 
 
 
 
4.2% 
 
 
 
3.7%
 
 
 
5.9% 
 
 
 
5.7% 
 
 
 
9.3% 
 
 
 
10.1% 
 
United States
 
 
 
 
2.9% 
 
 
 
2.5%
 
 
 
4.2% 
 
 
 
4.1% 
 
 
 
7.5% 
 
 
 
8.3% 
 
Housing Price Index (2)
 
 
 
 
 
 
 
 
Canada (3)
 
 
 
 
9.9% 
 
 
 
6.9%
 
 
 
5.5% 
 
 
 
4.5% 
 
 
 
(20.2)%
 
 
 
(5.0)%
 
United States (4)
 
 
 
 
 
 
 
 
 
 
2.7% 
 
 
 
3.7%
 
 
 
(0.5)%
 
 
 
2.3% 
 
 
 
(19.2)%
 
 
 
(4.3)%
 
 
 (1)
The remaining forecast period is two years.
 (2)
Real gross domestic product (GDP) and housing price index are averages of quarterly year-over-year growth rates.
 (3)
In Canada, we use the Housing Price Index Benchmark Composite.
 (4)
In the United States, we use the National Case-Shiller House Price Index.
The ECL approach requires the recognition of credit losses generally based on 12 months of expected losses for performing loans (Stage 1) and the recognition of lifetime expected losses for performing loans that have experienced a significant increase in credit risk since origination (Stage 2). Under our current probability-weighted scenarios, if all our performing loans were in Stage 1, our models would generate an allowance for performing loans of approximately $2,725 million ($2,800 million as at October 31, 2023), compared to the reported allowance for performing loans of $3,739 million ($3,572 million as at October 31, 2023).
 
BMO Financial Group Third Quarter Report 2024
6
7
 

Note 4: Deposits and Subordinated Debt
Deposits
 
                  
                  
                  
                  
                  
                  
 
  
Payable on demand
 
  
 
 
 
 
 
  
 
 
  
 
 
(Canadian $ in millions)
  
 Interest bearing
 
  
Non-interest 
bearing 
 
  
Payable
after notice 
(1)
 
 
Payable on a
fixed date 
(2) (3)
 
  
July 31, 2024
 
  
October 31, 2023
 
Deposits by:
  
  
  
 
  
  
                  
                  
                  
                  
                  
                  
Banks (4)
  
$

4,185
 
  
$

1,540 
 
 
$
1,527
 
  
$
22,344
 
  
$
29,596
 
    $ 29,587  
Business and government
  
 
68,507
 
  
 
39,971 
 
 
 
204,459
 
  
 
294,326
 
  
 
607,263
 
     575,957  
Individuals
  
 
3,671
 
  
 
33,959 
 
 
 
138,331
 
  
 
152,419
 
  
 
328,380
 
     305,335  
Total (5)
  
$
 76,363
 
  
$
75,470 
 
 
$
   344,317
 
  
$
 469,089
 
  
$
     965,239
 
    $ 910,879  
Booked in:
                     
Canada
  
$
65,553
 
  
$
64,761 
 
 
$
143,334
 
  
$
    328,469
 
  
$
602,117
 
    $ 564,412  
United States
  
 
10,691
 
  
 
10,708 
 
 
 
198,739
 
  
 
95,055
 
  
 
315,193
 
     301,064  
Other countries
  
 
119
 
  
 
1 
 
 
 
2,244
 
  
 
45,565
 
  
 
47,929
 
     45,403  
Total
  
$
76,363
 
  
$
75,470 
 
 
$
344,317
 
  
$
469,089
 
  
$
965,239
 
    $      910,879  
 
 (1)
Includes $46,607 million of
non-interest
bearing deposits as at July 31, 2024 ($49,515 million as at October 31, 2023).
 (2)
Includes $64,189 million of senior unsecured debt as at July 31, 2024 subject to the Bank Recapitalization
(Bail-In)
regime ($63,925 million as at October 31, 2023). The
Bail-In
regime provides certain statutory powers to the Canada Deposit Insurance Corporation, including the ability to convert specified eligible shares and liabilities into common shares if the bank becomes
non-viable.
 (3)
Deposits totalling $31,363 million as at July 31, 2024 ($30,852 million as at October 31, 2023) can be redeemed early, either fully or partially, by customers without penalty. These are classified as payable on a fixed date, based on their remaining contractual maturities.
 (4)
Includes regulated and central banks.
 (5)
Includes $506,950 million of deposits denominated in U.S. dollars as at July 31, 2024 ($492,404 million as at October 31, 2023), and $56,436 million of deposits denominated in other foreign currencies ($55,705 million as at October 31, 2023).
 Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
The following table presents deposits payable on a fixed date and greater than one hundred thousand dollars:

 

(Canadian $ in millions)
  
  
 
  
           
 
  
Canada
 
  
United States
 
  
Other
 
  
Total
 
As at July 31, 2024
  
 
         
 
  
   
 
  
$
     277,253
 
  
$
       84,052
 
  
$
      45,562
 
 
  
 
$
406,867
 
As at October 31, 2023
 
 
 
 
 
 
 
 
     269,262        73,226        43,106             385,594  
The following table presents the maturity schedule for deposits payable on a fixed date greater than one hundred thousand dollars, which are booked in Canada:

 
(Canadian $ in millions)
  
  
 
  
Less than 3 months 
 
  
3 to 6 months
 
  
6 to 12 months
 
  
Over 12 months
 
  
Total
 
As at July 31, 2024
  
 
         
 
  
$
  51,757 
 
  
$
      39,244
 
  
$
       60,405
 
  
$
     125,847
 
 
 
$
277,253
 
As at October 31, 2023
 
 
 
 
     55,070         38,509        61,370            114,313            269,262  
Subordinated Debt
On Aug 12, 2024, we announced our intention to redeem all of our $1,000 million 2.88
% Series J Medium-Term Notes (non-viability contingent capital (NVCC)) First Tranche, at a redemption price of 100% of the principal amount plus unpaid accrued interest to, but excluding, the redemption date on
September 17, 2024.
On July 3, 2024, we issued $
1,000 million of 4.976
% Series M Medium-Term Notes (NVCC) Second Tranche through our Canadian Medium-Term Note Program. The notes will reset to a floating rate on
July 3, 2029.
 
6
8
BMO Financial Group Third Quarter Report 2024
 

Note 5: Equity
Preferred and Common Shares Outstanding and Other Equity Instruments
(1)
 
(Canadian $ in millions, except as noted)
 
July 31, 2024
 
 
October 31, 2023
 
 
  
 
 
  
 
  
 
Number
of shares
 
 
Amount
 
 
Dividends declared
per share
(2)
 
 
Number
of shares
 
 
Amount
 
 
Dividends declared
per share (2)
 
 
Convertible into
 
 
  
 
Preferred Shares - Classified as Equity
 
 
 
 
 
 
 
 
Class B – Series 27
 
 
-
 
 
$
-
 
 
$
0.48
 
    20,000,000     $ 500     $ 0.96       Class B - Series 28       (3) (4)  
Class B – Series 29
 
 
16,000,000
 
 
 
400
 
 
 
0.68
 
    16,000,000       400       0.91       Class B - Series 30       (3) (4)  
Class B – Series 31
 
 
12,000,000
 
 
 
300
 
 
 
0.72
 
    12,000,000       300       0.96       Class B - Series 32       (3) (4)  
Class B – Series 33
 
 
8,000,000
 
 
 
200
 
 
 
0.57
 
    8,000,000       200       0.76       Class B - Series 34       (3) (4)  
Class B – Series 44
 
 
16,000,000
 
 
 
400
 
 
 
1.28
 
    16,000,000       400       1.21       Class B - Series 45       (3) (4)  
Class B – Series 46
 
 
-
 
 
 
-
 
 
 
0.64
 
    14,000,000       350       1.28       Class B - Series 47       (3) (4)  
Class B – Series 50
 
 
500,000
 
 
 
500
 
 
 
36.87
 
    500,000       500       73.73       Not convertible       (4)  
Class B – Series 52
 
 
650,000
 
 
 
650
 
 
 
35.29
 
    650,000       650       57.52       Not convertible       (4)  
Preferred Shares - Classified as Equity
 
 
$
2,450
 
                  $ 3,300                          
                                               Recourse to         
Other Equity Instruments
               
4.800% Additional Tier 1 Capital Notes (AT1 Notes)
   
$
658
 
      $ 658         -       (4) (6)  
4.300% Limited Recourse Capital Notes, Series 1 (Series 1 LRCNs)
   
 
1,250
 
        1,250       Preferred Shares Series 48       (4) (5) (6)  
5.625% Limited Recourse Capital Notes, Series 2 (Series 2 LRCNs)
   
 
750
 
        750       Preferred Shares Series 49       (4) (5) (6)  
7.325% Limited Recourse Capital Notes, Series 3 (Series 3 LRCNs)
   
 
1,000
 
        1,000       Preferred Shares Series 51       (4) (5) (6)  
7.700% Limited Recourse Capital Notes, Series 4 (Series 4 LRCNs)
   
 
1,356
 
        -       Preferred Shares Series 53       (4) (5) (6)  
7.300% Limited Recourse Capital Notes, Series 5 (Series 5 LRCNs)
         
 
1,023
 
                    -       Preferred Shares Series 54       (4) (5) (6)  
Other Equity Instruments
         
 
6,037
 
                    3,658                          
Preferred Shares and Other Equity Instruments
         
 
  8,487
 
                      6,958                          
Common Shares
 
 
729,413,376
 
 
$
  23,911
 
 
$
4.57
 
    720,909,161     $ 22,941     $ 5.80               (7) (8) (9)  
 
 (1)
For additional information refer to Notes 16 and 20 of our annual consolidated financial statements for the year ended October 31, 2023.
 (2)
Represents
year-to-date
dividends declared per share as at reporting date.
Non-cumulative
dividends on preferred shares are payable quarterly as and when declared by the Board of Directors, except for Class B – Series 50 and 52 preferred share dividends, which are payable semi-annually.
 (3)
If converted, the holders have the option to convert back to the original preferred shares on subsequent redemption dates, subject to certain conditions.
 (4)
The instruments issued include a NVCC provision, which is necessary for the preferred shares, AT1 Notes and by virtue of the recourse to the Preferred Shares Series 48, Preferred Shares Series 49, Preferred Shares Series 51, Preferred Shares Series 53 and Preferred Shares Series 54 (collectively, the LRCN Preferred Shares) for Series 1, Series 2, Series 3, Series 4 and Series 5 LRCNs (collectively, the LRCNs), respectively, to qualify as regulatory capital under Basel III. As such, they are convertible into a variable number of our common shares if OSFI announces that the bank is, or is about to become,
non-viable
or if a federal or provincial government in Canada publicly announces that the bank has accepted or agreed to accept a capital injection, or equivalent support, to avoid
non-viability.
In such an event, each preferred share, including the LRCN Preferred Shares and AT1 Notes, is convertible into common shares pursuant to an automatic conversion formula and a conversion price based on the greater of: (i) a floor price of $5.00 and (ii) the current market price of our common shares based on the volume weighted average trading price of our common shares on the TSX. The number of common shares issued is determined by dividing the value of the preferred share or other equity instrument, including declared and unpaid dividends, by the conversion price and then applying the multiplier.
 (5)
Non-deferrable
interest is payable semi-annually on the Series 1, Series 2 and Series 3 LRCNs and quarterly on the Series 4 and Series 5 LRCNs at the bank’s discretion.
Non-payment
of interest will result in a recourse event, with the noteholders’ sole remedy being the holders’ proportionate share of trust assets comprised of the LRCN Preferred Shares, each series of which is issued concurrently with the corresponding LRCNs and are eliminated on consolidation. In such an event, the delivery of the trust assets will represent the full and complete extinguishment of our obligations under the LRCNs. In circumstances where the LRCN Preferred Shares are converted into common shares of the bank under the NVCC provision, the LRCNs would be redeemed and the noteholders’ sole remedy would be their proportionate share of trust assets, then comprised of common shares of the bank received by the trust on conversion.
 (6)
The rates represent the annual interest rate percentage applicable to the notes issued as at the reporting date.
 (7)
The stock options issued under the Stock Option Plan are convertible into 6,726,164 common shares as at July 31, 2024 (6,312,576 common shares as at October 31, 2023) of which 3,028,132 are exercisable as at July 31, 2024 (2,759,935 as at October 31, 2023).
 (8)
During the three and nine months ended July 31, 2024, we issued nil and 7,790,724 common shares, under the Shareholder Dividend Reinvestment and Share Purchase Plan (3,561,234 and 9,492,623 common shares during the three and nine months ended July 31, 2023) and we issued 160,277 and 639,980 common shares, under the Stock Option Plan (100,379 and 588,018 common shares during the three and nine months ended July 31, 2023).
 (9)
Common shares are net of nil treasury shares as at July 31, 2024 (73,511 treasury shares as at October 31, 2023).
Other Equity Instruments
On July 17, 2024, we issued US$750 million 7.300% Limited Recourse Capital Notes, Series 5. On March 8, 2024, we issued US$1,000 
million 7.700% Limited Recourse Capital Notes, Series 4. These issuances, together with our AT1
N
otes and existing LRCNs are classified as equity and form part of our additional Tier 1 NVCC. The AT1 Notes and LRCNs are compound financial instruments that have both equity and liability features. On the date of issuance, we assigned an insignificant value to the liability components of both instruments and, as a result, the full amount of proceeds has been classified as equity and form part of our additional Tier 1 NVCC. Distributions on the AT1 Notes and LRCNs are recognized as a reduction in equity when payable. The AT1 Notes and LRCNs are subordinate to the claims of the depositors and certain other creditors in right of payment.
Preferred Shares
On August 2
5
, 2024, we redeemed all of our outstanding 16 million
Non-Cumulative
5-year
Rate Reset Class B Preferred Shares, Series 29 (NVCC) for an aggregate total of $400 million. On May 25, 2024, we redeemed all of our outstanding 20 million
Non-Cumulative
5-year
Rate Reset Class B Preferred Shares, Series 27 (NVCC) for an aggregate total of $500 million. On May 25, 2024, we also redeemed all of our outstanding 14 million
Non-Cumulative
5-year
Rate Reset Class B Preferred Shares, Series 46 (NVCC) for an aggregate total of $350 million.
 
BMO Financial Group Third Quarter Report 2024
6
9
 

On October 19, 2023, we announced that we did not intend to exercise our right to redeem the current outstanding
Non-Cumulative
5-Year
Rate Reset Class B Preferred Shares, Series 44 (Preferred Shares Series 44) on November 25, 2023. As a result, subject to certain conditions, the holders of Preferred Shares Series 44 had the right, at their option, by November 10, 2023, to convert any or all of their Preferred Shares Series 44 on a
one-for-one
basis into
Non-Cumulative
Floating Rate Class B Preferred Shares, Series 45 (Preferred Shares Series 45). During the conversion period, which ran from October 25, 2023 to November 10, 2023, 93,870 Preferred Shares Series 44 were tendered for conversion into Preferred Shares Series 45, which is less than the minimum 1,000,000 required to give effect to the conversion, as described in the Preferred Shares Series 44 prospectus supplement dated September 10, 2018. As a result, no Preferred Shares Series 45 were issued and the holders of Preferred Shares Series 44 retained their shares. The dividend rate for the Preferred Shares Series 44 for the five-year period commencing on November 25, 2023 to, but excluding, November 25, 2028, is 6.816%.
Shareholder Dividend Reinvestment and Share Purchase Plan
In the first and second quarter of 2024, common shares under the Shareholder Dividend Reinvestment and Share Purchase Plan (the Plan) were issued by the bank from treasury with a 2% discount, calculated in accordance with the terms of the Plan.
In the third quarter of 2024 and until further notice, common shares under the Plan will be purchased on the open market without a discount.
Non-Controlling
Interest
Non-controlling
interest in subsidiaries, relating to our acquisition of Bank of the West, was $31 million as at July 31, 2024 ($28 million as at October 31, 2023).
 
 
Note 6: Fair Value Measurements
Fair Value of Financial Instruments Not Carried at Fair Value on the Balance Sheet
Set out in the following table are the amounts that would be reported if all financial instruments not currently carried at fair value were reported at their fair values. Refer to Note 17 of our annual consolidated financial statements for the year ended October 31, 2023 for further discussion on the determination of fair value.
 
(Canadian $ in millions)
  
July 31, 2024
 
  
October 31, 2023
 
  
  
Carrying value
 
  
Fair value
 
  
Carrying value
 
  
Fair value
 
Securities
(1)
  
  
  
  
Amortized cost
  
$
  117,869
 
  
$
  109,610
 
   $   116,814      $   104,171  
           
Loans
(1) (2)
           
Residential mortgages
  
 
186,183
 
  
 
183,784
 
     175,350        167,863  
Consumer instalment and other personal
  
 
91,844
 
  
 
91,102
 
     103,267        101,023  
Credit cards
  
 
12,924
 
  
 
12,924
 
     11,893        11,893  
Business and government
  
 
369,027
 
  
 
368,725
 
     358,712        357,027  
  
 
659,978
 
  
 
656,535
 
     649,222        637,806  
           
Deposits
(3)
  
 
911,856
 
  
 
911,360
 
     875,034        871,776  
Securitization and structured entities’ liabilities
(4)
  
 
22,064
 
  
 
21,769
 
     24,631        23,739  
Other liabilities
(5)
  
 
4,139
 
  
 
3,586
 
     4,160        3,287  
Subordinated debt
  
 
9,321
 
  
 
9,430
 
     8,228        7,849  
 This table excludes financial instruments with a carrying value approximating fair value, such as cash and cash equivalents, interest bearing deposits with banks, securities borrowed or purchased under resale agreements,
 customers’ liability under acceptances, certain other assets, certain other liabilities, acceptances and securities lent or sold under repurchase agreements.
 
 (1)
Carrying value is net of ACL.
 (2)
Excludes $77 million of residential mortgages classified as FVTPL, $13,112 million of business and government loans classified as FVTPL and $60 million of business and government loans classified as FVOCI ($1,676 million, $5,720 million and $58 million, respectively, as at October 31, 2023).
 (3)
Excludes $44,789 million of structured note liabilities, $7,562 million of money market deposits, $774 million of structured deposits and $258 million of metals deposits measured at fair value ($35,300 million, $nil million, $341 million and $204 million, respectively, as at October 31, 2023).
 (4)
Excludes $14,158 million of securitization and structured entities’ liabilities classified as FVTPL ($2,463 million as at October 31, 2023).
 (5)
Other liabilities include certain other liabilities of subsidiaries, other than deposits.
 Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
Fair Value Hierarchy
We use a fair value hierarchy to categorize assets and liabilities carried at fair value according to the inputs we use in valuation techniques to measure fair value.
 
70
BMO Financial Group Third Quarter Report 2024
 

Valuation Techniques and Significant Inputs
We determine the fair value of financial assets and liabilities using quoted prices in active markets (Level 1) when these are available. When quoted prices in active markets are not available, we determine the fair value of financial assets and liabilities using models such as discounted cash flows with observable market data for inputs, such as yields or broker quotes and other third-party vendor quotes (Level 2). Fair value may also be determined using models where significant market inputs are not observable due to inactive markets or minimal market activity (Level 3). We maximize the use of observable market inputs to the extent possible.
Our Level 2 trading securities are primarily valued using discounted cash flow models with observable spreads or broker quotes. The fair value of Level 2 FVOCI securities is determined using discounted cash flow models with observable spreads or third-party vendor quotes. Level 2 structured note liabilities are valued using models with observable market information. Level 2 derivative assets and liabilities are valued using industry standard models and observable market information.
 
BMO Financial Group Third Quarter Report 2024
71

The extent of our use of actively quoted market prices (Level 1), internal models using observable market information as inputs (Level 2) and models without observable market information as inputs (Level 3) in the valuation of securities, loans classified as FVTPL and FVOCI, other assets, fair value liabilities, derivative assets and derivative liabilities is presented in the following table:
 
(Canadian $ in millions)
  
July 31, 2024
 
  
October 31, 2023
 
  
  
Valued using
quoted
market
prices
 
  
Valued using
models (with
observable
inputs)
 
  
Valued using
models (without
observable
inputs)
 
  
Total
 
  
Valued using
quoted
market
prices
 
  
Valued using
models (with
observable
inputs)
 
  
Valued using
models (without
observable
inputs)
 
  
Total
 
Trading Securities
  
  
  
  
  
  
  
  
Issued or guaranteed by:
  
  
  
  
  
  
  
  
Canadian federal government
  
$

1,458
 
  
$

11,191
 
  
$

-
 
  
$
  12,649
 
   $ 1,176      $ 10,194      $ -      $   11,370  
Canadian provincial and municipal governments
  
 
-
 
  
 
7,938
 
  
 
-
 
  
 
7,938
 
     -        7,169        -        7,169  
U.S. federal government
  
 
2,546
 
  
 
22,935
 
  
 
-
 
  
 
25,481
 
     3,593        16,539        -        20,132  
U.S. states, municipalities and agencies
  
 
-
 
  
 
911
 
  
 
-
 
  
 
911
 
     -        279        -        279  
Other governments
  
 
319
 
  
 
3,077
 
  
 
-
 
  
 
3,396
 
     20        2,521        -        2,541  
NHA MBS, and U.S. agency MBS and CMO
  
 
-
 
  
 
37,067
 
  
 
41
 
  
 
37,108
 
     -        21,517        -        21,517  
Corporate debt
  
 
-
 
  
 
13,422
 
  
 
-
 
  
 
13,422
 
     -        11,933        -        11,933  
Trading loans
  
 
-
 
  
 
739
 
  
 
-
 
  
 
739
 
     -        450        -        450  
Corporate equity
  
 
66,002
 
  
 
453
 
  
 
-
 
  
 
66,455
 
     48,094        196        37        48,327  
    
 
70,325
 
  
 
97,733
 
  
 
41
 
  
 
168,099
 
       52,883          70,798        37        123,718  
FVTPL Securities
                       
Issued or guaranteed by:
                       
Canadian federal government
  
 
81

 
  
 
269
 
  
 
-
 
  
 
350
 
    
4

       212        -        216  
Canadian provincial and municipal governments
  
 
-
 
  
 
1,507
 
  
 
-
 
  
 
1,507
 
     -        1,166        -        1,166  
U.S. federal government
  
 
2

 
  
 
1,670
 
  
 
-
 
  
 
1,672
 
    
2

       2,086        -        2,088  
Other governments
  
 
-
 
  
 
25
 
  
 
-
 
  
 
25
 
     -        48        -        48  
NHA MBS, and U.S. agency MBS and CMO
  
 
-
 
  
 
21
 
  
 
-
 
  
 
21
 
     -        19        -        19  
Corporate debt
  
 
-
 
  
 
8,558
 
  
 
36
 
  
 
8,594
 
     -        7,335        27        7,362  
Corporate equity
  
 
893
 
  
 
885
 
  
 
   4,590
 
  
 
6,368
 
     821        805        4,208        5,834  
    
 
976
 
  
 
12,935
 
  
 
4,626
 
  
 
18,537
 
     827        11,671        4,235        16,733  
FVOCI Securities
                       
Issued or guaranteed by:
                       
Canadian federal government
  
 
2,381

 
  
 
25,908
 
  
 
-
 
  
 
28,289
 
    
633

       19,468        -        20,101  
Canadian provincial and municipal governments
  
 
-
 
  
 
5,892
 
  
 
-
 
  
 
5,892
 
     -        5,054        -        5,054  
U.S. federal government
  
 
5

 
  
 
12,167
 
  
 
-
 
  
 
12,172
 
     -        5,880        -        5,880  
U.S. states, municipalities and agencies
  
 
-
 
  
 
5,001
 
  
 
-
 
  
 
5,001
 
     -        5,300        -        5,300  
Other governments
  
 
-
 
  
 
5,785
 
  
 
-
 
  
 
5,785
 
     -        6,969        -        6,969  
NHA MBS, and U.S. agency MBS and CMO
  
 
-
 
  
 
  19,638
 
  
 
-
 
  
 
19,638
 
     -        15,766        -        15,766  
Corporate debt
  
 
-
 
  
 
4,502
 
  
 
-
 
  
 
4,502
 
     -        3,589        -        3,589  
Corporate equity
  
 
-
 
  
 
-
 
  
 
177
 
  
 
177
 
     -        -        160        160  
    
 
2,386

 
  
 
78,893
 
  
 
177
 
  
 
81,456
 
    
633

       62,026        160        62,819  
Loans
                       
Residential mortgages
  
 
-
 
  
 
77
 
  
 
-
 
  
 
77
 
     -        1,676        -        1,676  
Business and government loans
  
 
-
 
  
 
12,906
 
  
 
266
 
  
 
13,172
 
     -        5,592        186        5,778  
    
 
-
 
  
 
12,983
 
  
 
266
 
  
 
13,249
 
     -        7,268        186        7,454  
Other Assets
(1)
  
 
   10,630
 
  
 
34
 
  
 
1,682
 
  
 
12,346
 
     6,020        33        1,723        7,776  
Fair Value Liabilities
(2)
                       
Deposits (3)
  
 
-
 
  
 
53,383
 
  
 
-
 
  
 
53,383
 
     -        35,845        -        35,845  
Securities sold but not yet purchased
  
 
9,640
 
  
 
30,327
 
  
 
-
 
  
 
39,967
 
     12,217        31,557        -        43,774  
Other liabilities (4)
  
 
1,664
 
  
 
15,064
 
  
 
-
 
  
 
16,728
 
     1,479        3,046        5        4,530  
    
 
11,304
 
  
 
98,774
 
  
 
-
 
  
 
110,078
 
     13,696        70,448        5        84,149  
Derivative Assets
                       
Interest rate contracts
  
 
23
 
  
 
9,025
 
  
 
-
 
  
 
9,048
 
     21        13,329        -        13,350  
Foreign exchange contracts
  
 
-
 
  
 
14,511
 
  
 
-
 
  
 
14,511
 
     28        19,861        -        19,889  
Commodity contracts
  
 
176
 
  
 
1,940
 
  
 
-
 
  
 
2,116
 
     668        1,349        5        2,022  
Equity contracts
  
 
22
 
  
 
11,117
 
  
 
-
 
  
 
11,139
 
     58        4,632        -        4,690  
Credit default swaps
  
 
4
 
  
 
16
 
  
 
-
 
  
 
20
 
     -        25        -        25  
    
 
225
 
  
 
36,609
 
  
 
-
 
  
 
36,834
 
     775        39,196        5        39,976  
Derivative Liabilities
                       
Interest rate contracts
  
 
36
 
  
 
11,286
 
  
 
-
 
  
 
11,322
 
     52        17,749        -        17,801  
Foreign exchange contracts
  
 
65
 
  
 
13,872
 
  
 
-
 
  
 
13,937
 
     1        19,204        -        19,205  
Commodity contracts
  
 
229
 
  
 
1,983
 
  
 
2
 
  
 
2,214
 
     589        1,067        1        1,657  
Equity contracts
  
 
310
 
  
 
21,666
 
  
 
-
 
  
 
21,976
 
     160        11,335        8        11,503  
Credit default swaps
  
 
13
 
  
 
25
 
  
 
1
 
  
 
39
 
     -        25        2        27  
    
 
653
 
  
 
48,832
 
  
 
3
 
  
 
49,488
 
     802        49,380        11        50,193  
 
 (1)
Other assets include precious metals, segregated fund assets and investment properties in our insurance business, carbon credits, certain receivables and other items measured at fair value.
 (2)
Interest expense for liabilities carried at fair value is $726 million and $2,061 million for the three and nine months ended July 31, 2024, respectively ($650 million and $1,776 million for the three and nine months ended July 31, 2023, respectively). Interest expense for liabilities carried at amortized cost is $11,583 million and $33,030 million for the three and nine months ended July 31, 2024, respectively ($9,266 million and $24,458 million for the three and nine months ended July 31, 2023).
 (3)
Deposits include structured note liabilities, money market and metals deposits designated at FVTPL and certain embedded options related to structured deposits carried at amortized cost.
 (4)
Other liabilities include investment contract liabilities and segregated fund liabilities in our insurance business, as well as certain securitization and structured entities’ liabilities measured at FVTPL.
 Certain comparative figures have been reclassified to conform with the current period’s presentation and for changes in accounting policy (Note 1).
 
7
2
BMO Financial Group Third Quarter Report 2024
 

Quantitative Information about Level 3 Fair Value Measurements
The table below presents the fair values of our significant Level 3 financial instruments measured at fair value on a recurring basis, the valuation techniques used to determine their fair values and the value ranges of significant unobservable inputs used in the valuations. We have not applied any other reasonably possible alternative assumptions to the significant Level 3 categories of private equity investments, as the net asset values are provided by the investment or fund managers.
 
(Canadian $ in millions, except as noted)
  
  
  
  
 
  
  
  
  
  
  
  
July 31, 2024
 
 
  
 
  
 
 
  
 
  
 
  
 
  
Range of input values 
(1)
 
  
  
Reporting line in fair
value hierarchy table
  
Fair value
of assets
 
  
Valuation techniques
  
Significant
unobservable inputs
  
  
  
Low
 
  
High
 
Private equity
   Corporate equity   
$
 4,590
 
   Net asset value    Net asset value      
 
na
 
  
 
na
 
         EV/EBITDA    Multiple      
 
4
 
  
 
23
 
Investment Properties
   Other assets - other   
 
1,381
 
   Discounted cash flows    Discount margin      
 
3%
 
  
 
7%
 
 
 (1)
The low and high input values represent the lowest and highest actual level of inputs used to value a group of financial instruments in a particular product category. These input ranges do not reflect the level of input uncertainty, but are affected by the specific underlying instruments within each product category. The input ranges will therefore vary from period to period based on the characteristics of the underlying instruments held at each balance sheet date.
 na – not applicable
Significant Transfers
Our policy is to record transfers of assets and liabilities between fair value hierarchy levels at their fair values as at the end of each reporting period, consistent with the date of the determination of fair value. Transfers between Level 1 and Level 2 are dependent on the recency of issuance and availability of quoted market prices in the active market.
During the three months ended July 31, 2024, transfers from Level 1 to Level 2 included total securities of
 
$
5,194
million and securities sold but not yet purchased of
$
1,039
million
. Transfers from Level 2 to Level 1 included total securities of
$882 million
and securities sold but not yet purchased of
$30 million.
During the nine months ended July 31, 2024, transfers from Level 1 to Level 2 included total securities of $2,253 million and securities sold but not yet purchased of $518 million. Transfers from Level 2 to Level 1 included total securities of $91 million and securities sold but not yet purchased of $11 million.
Changes in Level 3 Fair Value Measurements
The tables below present a reconciliation of all changes in Level 3 financial instruments for the three and nine months ended July 31, 2024 and July 31, 2023, including realized and unrealized gains (losses) included in earnings and other comprehensive income as well as transfers into and out of Level 3. Transfers from Level 2 into Level 3 were due to an increase in unobservable market inputs used in pricing the securities. Transfers out of Level 3 into Level 2 were due to an increase in observable market inputs used in pricing the securities.
 
BMO Financial Group Third Quarter Report 2024
7
3
 

           
Change in fair value
           
Movements
   
Transfers
                
For the three months ended July 31, 2024
(Canadian $ in millions)
   Balance
April 30,
2024
    
Included in
earnings
   
Included
in other
comprehensive
income
(1)
   
Issuances/
   Purchases
    
Sales
   
Maturities/
Settlement
   
Transfers
into
Level 3
    
Transfers
out of
Level 3
   
Fair Value
as at July 31,
2024
    
Change in
unrealized gains
(losses) recorded
in income
for instruments
still held
(2)
 
Trading Securities
                        
NHA MBS and U.S. agency MBS and CMO
   $ -     
$
      -
 
 
$
      -
 
 
$
     41
 
  
$
      -
 
 
$
      -
 
 
$
      -
 
  
$
     -
 
 
$
41
 
  
$
        -
 
Corporate equity
     -     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Total trading securities
     -     
 
-
 
 
 
-
 
 
 
41
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
41
 
  
 
-
 
FVTPL Securities
                        
Corporate debt
     35     
 
-
 
 
 
-
 
 
 
1
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
36
 
  
 
-
 
Corporate equity
     4,501     
 
(44
 
 
5
 
 
 
183
 
  
 
(54
 
 
(1
 
 
-
 
  
 
-
 
 
 
4,590
 
  
 
7
 
Total FVTPL securities
     4,536     
 
(44
 
 
5
 
 
 
184
 
  
 
(54
 
 
(1
 
 
-
 
  
 
-
 
 
 
4,626
 
  
 
7
 
FVOCI Securities
                        
Corporate equity
     174     
 
-
 
 
 
2
 
 
 
1
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
177
 
  
 
na
 
Total FVOCI securities
     174     
 
-
 
 
 
2
 
 
 
1
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
177
 
  
 
na
 
Business and Government Loans
     353     
 
-
 
   
-
   
 
1
 
  
 
-
 
 
 
(88
 
 
-
 
  
 
-
 
 
 
266
 
  
 
-
 
Other Assets
     1,622     
 
24
 
 
 
-
 
 
 
58
 
  
 
-
 
 
 
(22
 
 
-
 
  
 
-
 
 
 
    1,682
 
  
 
     24
 
Derivative Assets
                        
Foreign exchange contracts
     -     
 
-
 
   
-
   
 
-
 
    
-
   
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Commodity contracts
     -     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Equity contracts
     13     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
(13
 
 
-
 
  
 
-
 
Total derivative assets
     13     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
(13
 
 
-
 
  
 
-
 
Other Liabilities
     -     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Derivative Liabilities
                        
Foreign exchange contracts
     -     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Commodity contracts
     2     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
2
 
  
 
-
 
Equity contracts
     1     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
(1
 
 
-
 
  
 
-
 
Credit default swaps
     1     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
1
 
  
 
-
 
Total derivative liabilities
     4     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
(1
 
 
3
 
  
 
-
 
           
Change in fair value
           
Movements
   
Transfers
                
For the nine months ended July 31, 2024
(Canadian $ in millions)
   Balance
October 31,
2023
    
Included in
earnings
   
Included
in other
comprehensive
income
(1)
   
Issuances/
Purchases
    
Sales
   
Maturities/
Settlement
   
Transfers
into
Level 3
    
Transfers
out of
Level 3
   
Fair Value
as at July 31,
2024
    
Change in
unrealized gains
(losses) recorded
in income
for instruments
still held
(2)
 
Trading Securities
     
 
     
 
      
 
     
 
 
 
     
 
 
 
    
 
  
 
     
 
    
NHA MBS and U.S. agency MBS and CMO
   $    -     
$
   -
 
 
$
-
 
 
$
41
 
  
$
   -
 
 
$
    -
 
 
$
    -
 
  
$
      -
 
 
$
41
 
  
$
-
 
Corporate equity
     37     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
(37
 
 
-
 
  
 
-
 
Total trading securities
     37     
 
-
 
 
 
-
 
 
 
41
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
(37
 
 
41
 
  
 
-
 
FVTPL Securities
                        
Corporate debt
     27     
 
(9
 
 
-
 
 
 
18
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
36
 
  
 
(9
Corporate equity
       4,208     
 
(136
 
 
(5
 
 
705
 
  
 
(180
 
 
(1
 
 
-
 
  
 
(1
 
 
    4,590
 
  
 
24
 
Total FVTPL securities
     4,235     
 
(145
 
 
(5
 
 
723
 
  
 
(180
 
 
(1
 
 
-
 
  
 
(1
 
 
4,626
 
  
 
15
 
FVOCI Securities
                        
Corporate equity
     160     
 
-
 
 
 
13
 
 
 
4
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
177
 
  
 
na
 
Total FVOCI securities
     160     
 
-
 
 
 
13
 
 
 
4
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
177
 
  
 
na
 
Business and Government Loans
     186     
 
-
 
 
 
(1
 
 
47
 
  
 
-
 
 
 
(164
 
 
198
 
  
 
-
 
 
 
266
 
  
 
-
 
Other Assets
     1,723     
 
7
 
 
 
-
 
 
 
74
 
  
 
(21
 
 
(101
 
 
-
 
  
 
-
 
 
 
1,682
 
  
 
24
 
Derivative Assets
                        
Foreign exchange contracts
     -     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Commodity contracts
     5     
 
(5
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
(5
Equity contracts
     -     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
13
 
  
 
(13
 
 
-
 
  
 
-
 
Total derivative assets
     5     
 
(5
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
13
 
  
 
(13
 
 
-
 
  
 
(5
Other Liabilities
     5     
 
-
 
 
 
-
 
 
 
8
 
  
 
-
 
 
 
(13
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Derivative Liabilities
                        
Foreign exchange contracts
     -     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Commodity contracts
     1     
 
1
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
2
 
  
 
1
 
Equity contracts
     8     
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
1
 
  
 
(9
 
 
-
 
  
 
-
 
Credit default swaps
     2     
 
(2
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
1
 
  
 
-
 
 
 
1
 
  
 
(1
Total derivative liabilities
     11     
 
(1
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
2
 
  
 
(9
 
 
3
 
  
 
-
 
 
 (1)
Foreign exchange translation on assets and liabilities held by foreign operations is included in other comprehensive income, net foreign operations.
 (2)
Changes in unrealized gains (losses) on Trading and FVTPL securities still held on July 31, 2024 are included in earnings for the period.
 Unrealized gains (losses) recognized on Level 3 financial instruments may be offset by (losses) gains on economic hedge contracts.
 Certain comparative figures have been reclassified to conform with the current period’s presentation and for changes in accounting policy (Note 1).
 na – not applicable
 
7
4
BMO Financial Group Third Quarter Report 2024
 

           
Change in fair value
           
Movements
   
Transfers
                
For the three months ended July 31, 2023
(Canadian $ in millions)
  
Balance
April 30,
2023
    
Included in
earnings
   
Included
in other
comprehensive
income
(1)
   
Issuances/
   Purchases
    
Sales
   
Maturities/
Settlement
   
Transfers
into
Level 3
    
Transfers
out of
Level 3
   
Fair Value
as at July 31,
2023
    
Change in
unrealized gains
(losses) recorded
in income
for instruments
still held
(3)
 
Trading Securities
     
 
     
 
      
 
     
 
 
 
     
 
 
 
    
 
  
 
     
 
    
NHA MBS and U.S. agency MBS and CMO
  
$
    -
 
  
$
    -
 
 
$
-
 
 
$
-
 
  
$
    -
 
 
$
-
 
 
$
      -
 
  
$
    -
 
 
$
-
 
  
$
-
 
Corporate equity
  
 
-
 
  
 
-
 
 
 
       -
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Total trading securities
  
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
FVTPL Securities
                        
Corporate debt
  
 
11
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
11
 
  
 
-
 
Corporate equity
  
 
  6,089
 
  
 
(89
 
 
(45
 
 
179
 
  
 
(36
 
 
-
 
 
 
-
 
  
 
(2,097
 
 
    4,001
 
  
 
(7
Total FVTPL securities
  
 
6,100
 
  
 
(89
 
 
(45
 
 
179
 
  
 
(36
 
 
-
 
 
 
-
 
  
 
(2,097
 
 
4,012
 
  
 
(7
FVOCI Securities
                        
Corporate equity
  
 
157
 
  
 
-
 
 
 
-
 
 
 
2
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
159
 
  
 
na
 
Total FVOCI securities
  
 
157
 
  
 
-
 
 
 
-
 
 
 
     2
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
159
 
  
 
na
 
Business and Government Loans
  
 
201
 
  
 
-
 
 
 
(5
 
 
21
 
  
 
-
 
 
 
(82
 
 
-
 
  
 
-
 
 
 
135
 
  
 
-
 
Other Assets
  
 
1,300
 
  
 
(1
 
 
-
 
 
 
103
 
  
 
-
 
 
 
(1
 
 
-
 
  
 
-
 
 
 
1,401
 
  
 
(1
Derivative Assets
                        
Foreign exchange contracts
  
 
-
 
  
 
9
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
9
 
  
 
    9
 
Commodity contracts
  
 
10
 
  
 
4
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
14
 
  
 
4
 
Equity contracts
  
 
4
 
  
 
(1
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
3
 
  
 
(1
Total derivative assets
  
 
14
 
  
 
   12
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
26
 
  
 
12
 
Other Liabilities
  
 
5
 
  
 
(1
 
 
-
 
 
 
3
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
7
 
  
 
(1
Derivative Liabilities
                        
Foreign exchange contracts
  
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Commodity contracts
  
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Equity contracts
  
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Credit default swaps
  
 
2
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
2
 
  
 
-
 
Total derivative liabilities
  
 
2
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
2
 
  
 
-
 
           
Change in fair value
           
Movements
   
Transfers
                
For the nine months ended July 31, 2023
(Canadian $ in millions)
  
Balance
October 31,
2022
    
Included in
earnings
   
Included
in other
comprehensive
income
(1)
   
Issuances/
Purchases 
(2)
    
Sales
   
Maturities/
Settlement
   
Transfers
into
Level 3
    
Transfers
out of
Level 3
   
Fair Value
as at July 31,
2023
    
Change in
unrealized gains
(losses) recorded
in income
for instruments
still held
(3)
 
Trading Securities
                        
NHA MBS and U.S. agency MBS and CMO
  
$
-
 
  
$
-
 
 
$
-
 
 
$
-
 
  
$
-
 
 
$
-
 
 
$
-
 
  
$
-
 
 
$
-
 
  
$
-
 
Corporate equity
  
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Total trading securities
  
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
FVTPL Securities
                        
Corporate debt
  
 
8
 
  
 
-
 
 
 
-
 
 
 
3
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
11
 
  
 
-
 
Corporate equity
  
 
4,044
 
  
 
(127
 
 
(41
 
 
2,507
 
  
 
(284
 
 
(1
 
 
-
 
  
 
(2,097
 
 
4,001
 
  
 
28
 
Total FVTPL securities
  
 
4,052
 
  
 
(127
 
 
(41
 
 
2,510
 
  
 
(284
 
 
(1
 
 
-
 
  
 
(2,097
 
 
4,012
 
  
 
28
 
FVOCI Securities
                        
Corporate equity
  
 
153
 
  
 
-
 
 
 
-
 
 
 
7
 
  
 
(1
 
 
-
 
 
 
-
 
  
 
-
 
 
 
159
 
  
 
na
 
Total FVOCI securities
  
 
153
 
  
 
-
 
 
 
-
 
 
 
7
 
  
 
(1
 
 
-
 
 
 
-
 
  
 
-
 
 
 
159
 
  
 
na
 
Business and Government Loans
  
 
20
 
  
 
-
 
 
 
(3
 
 
215
 
  
 
-
 
 
 
(97
 
 
-
 
  
 
-
 
 
 
135
 
  
 
-
 
Other Assets
  
 
1,233
 
  
 
54
 
 
 
-
 
 
 
125
 
  
 
-
 
 
 
(11
 
 
-
 
  
 
-
 
 
 
1,401
 
  
 
54
 
Derivative Assets
                        
Foreign exchange contracts
  
 
26
 
  
 
(17
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
9
 
  
 
9
 
Commodity contracts
  
 
-
 
  
 
1
 
 
 
-
 
 
 
13
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
14
 
  
 
1
 
Equity contracts
  
 
-
 
  
 
2
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
1
 
  
 
-
 
 
 
3
 
  
 
2
 
Total derivative assets
  
 
26
 
  
 
(14
 
 
-
 
 
 
13
 
  
 
-
 
 
 
-
 
 
 
1
 
  
 
-
 
 
 
26
 
  
 
12
 
Other Liabilities
  
 
2
 
  
 
(1
 
 
-
 
 
 
6
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
7
 
  
 
(1
Derivative Liabilities
                        
Foreign exchange contracts
  
 
-
 
  
 
12
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
(12
 
 
-
 
  
 
-
 
 
 
-
 
  
 
(38
Commodity contracts
  
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Equity contracts
  
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
  
 
-
 
Credit default swaps
  
 
2
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
2
 
  
 
-
 
Total derivative liabilities
  
 
2
 
  
 
12
 
 
 
-
 
 
 
-
 
  
 
-
 
 
 
(12
 
 
-
 
  
 
-
 
 
 
2
 
  
 
(38
 
 (1)
Foreign exchange translation on assets and liabilities held by foreign operations is included in other comprehensive income, net foreign operations.
 (2)
FVTPL securities includes $969 million of Federal Home Loan Bank and Federal Reserve Bank equity and $587 million of investments in Low Income Housing Tax Credit entities, acquired as a result of our acquisition of Bank of the West.
 (3)
Changes in unrealized gains (losses) on Trading and FVTPL securities still held on July 31, 2023 are included in earnings for the period.
 Unrealized gains (losses) recognized on Level 3 financial instruments may be offset by (losses) gains on economic hedge contracts.
 Certain comparative figures have been reclassified to conform with the current period’s presentation and for changes in accounting policy (Note 1).
 na – not applicable
 
BMO Financial Group Third Quarter Report 2024
7
5
 

Note 7: Capital Management
Our objective is to maintain a strong capital position in a cost-effective structure that: is appropriate given our target regulatory capital ratios and our internal assessment of required economic capital; underpins our operating groups’ business strategies and considers the market environment; supports depositor, investor and regulator confidence, while building long-term shareholder value; and is consistent with our target credit ratings.
As at July 31, 2024, we met OSFI’s target capital ratio requirements, which include a 2.5% Capital Conservation Buffer, a 1.0% Common Equity Surcharge for Domestic Systemically Important Banks
(D-SIBs),
a Countercyclical Buffer and a 3.5% Domestic Stability Buffer (DSB) applicable to
D-SIBs.
As announced by OSFI
on
June
 20,
 2023, the DSB level was increased to 3.5% effective November 1, 2023.
On
June
18, 
2024, OSFI announced that the DSB will remain at 3.5%. Our capital position as at July 31, 2024 is further detailed in the Capital Management section of our interim Management’s Discussion and Analysis.
Regulatory Capital and Total Loss Absorbing Capacity Measures, Risk-Weighted Assets and Leverage Exposures
(1)
 
 
 
 
 
 
 
 
 
 
(Canadian $ in millions, except as noted)
  
July 31, 2024
 
  
October 31, 2023
 
CET1 Capital
  
$
 
    55,605
 
   $ 52,914  
Tier 1 Capital
  
 
63,598
 
     59,785  
Total Capital
  
 
73,530
 
     68,718  
TLAC
  
 
122,053
 
     114,402  
Risk-Weighted Assets
  
 
428,860
 
     424,197  
Leverage Exposures
  
 
1,480,736
 
     1,413,036  
CET1 Ratio
  
 
13.0%
 
     12.5%  
Tier 1 Capital Ratio
  
 
14.8%
 
     14.1%  
Total Capital Ratio
  
 
17.1%
 
     16.2%  
TLAC Ratio
  
 
28.5%
 
     27.0%  
Leverage Ratio
  
 
4.3%
 
     4.2%  
TLAC Leverage Ratio
  
 
8.2%
 
     8.1%  
 
 (1)
Calculated in accordance with OSFI’s Capital Adequacy Requirements Guideline, Leverage Requirements Guideline and Total Loss Absorbing Capacity (TLAC) Guideline.
 
 
Note 8: Employee Compensation
Stock Options
We did not grant any stock options during the three months ended July 31, 2024 or 2023. During the nine months ended July 31, 2024 we granted a total of 1,113,853 stock options (1,322,817 stock options during the nine months ended July 31, 2023) with a weighted-average fair value of $15.33 per option ($18.94 per option for the nine months ended July 31, 2023).
To determine the fair value of the stock option tranches (i.e. the portion that vests each year) on the grant date, the following ranges of values were used for each option pricing assumption:
 
 
 
 
 
 
 
 
 
 
For stock options granted during the nine months ended
  
July 31, 2024  
 
  
July 31, 2023
 
Expected dividend yield
  
 
4.5
%
  
 
    
4.5% - 4.6%
 
Expected share price volatility
  
 
17.4
% - 17.6%
  
 
     20.9%  
Risk-free rate of return
  
 
3.3% -
 
3.4%  
 
     3.2%  
Expected period until exercise (in years)
  
 
6.5 - 7.0  
 
     6.5 - 7.0  
Exercise price ($)
  
 
118.50  
 
     122.31  
 Changes to the input assumptions can result in different fair value estimates.
Pension and Other Employee Future Benefit Expenses
Pension and other employee future benefit expenses are determined as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Canadian $ in millions)
  
  
 
 
  
 
 
  
 
  
  
 
  
  
Pension benefit plans
 
 
Other employee future benefit plans
 
For the three months ended
  
July 31, 2024
 
 
July 31, 2023
 
 
July 31, 2024
 
  
July 31, 2023
 
Current service cost
  
$
39
 
   $ 40    
$
1
 
    $ 1  
Net interest (income) expense on net defined benefit (asset) liability
  
 
(16
)
 
     (17  
 
11
 
     11  
Impact of plan amendments
  
 
-
 
     -    
 
-
 
     -  
Administrative expenses
  
 
3
 
     3    
 
-
 
     -  
Benefits expense
  
 
26
 
     26    
 
12
 
     12  
Government pension plans expense (1)
  
 
93
 
     94    
 
-
 
     -  
Defined contribution expense
  
 
62
 
     63    
 
-
 
     -  
Total pension and other employee future benefit expenses
recognized in our Consolidated Statement of Income
  
$
       181
 
   $       183    
$
12
 
    $        12  
 
 (1)
Includes Canada Pension Plan, Quebec Pension Plan and U.S. Federal Insurance Contributions Act.
 
7
6
BMO Financial Group Third Quarter Report 2024
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Canadian $ in millions)
  
  
 
 
  
 
 
  
 
 
  
 
  
  
Pension benefit plans
 
 
Other employee future benefit plans
 
For the nine months ended
  
July 31, 2024
 
 
July 31, 2023
 
 
July 31, 2024
 
 
July 31, 2023
 
Current service cost
  
$
115
 
 
$
122
 
 
$
4
 
 
$
4
 
Net interest (income) expense on net defined benefit (asset) liability
  
 
(46
 
 
(49
 
 
31
 
 
 
32
 
Impact of plan amendments
  
 
-
 
 
 
(1
 
 
(84
 
 
-
 
Administrative expenses
  
 
9
 
 
 
7
 
 
 
-
 
 
 
-
 
Benefits expense
  
 
78
 
 
 
79
 
 
 
(49
 
 
36
  
Government pension plans expense (1)
  
 
302
 
 
 
291
 
 
 
-
 
 
 
-
 
Defined contribution expense
  
 
231
 
 
 
207
 
 
 
-
 
 
 
-
 
Total pension and other employee future benefit expenses (recovery)
recognized in our Consolidated Statement of Income
  
$
         611
 
 
$
          577
 
 
$
         (49
 
$
        36
 
 
 (1)
Includes Canada Pension Plan, Quebec Pension Plan and U.S. Federal Insurance Contributions Act.
We amended certain other employee future benefit plans in the first quarter of 2024. These amendments have combined the administration of a few plans. In addition, we converted one defined contribution plan into a defined benefit plan and therefore brought a net asset
onto
our Consolidated Balance Sheet equal to the surplus assets in that plan. This resulted in an $84 million benefit of plan amendments that was recognized as a reduction in employee compensation expense. When there are surplus assets, we must assess their economic benefits to the bank. Given there are no immediate economic benefits without further plan amendments, the $62 million in surplus assets of the combined plans are reduced to $nil through other comprehensive income.
 
 
Note 9: Earnings Per Share
Basic earnings per share is calculated by dividing net income, after deducting dividends payable on preferred shares and distributions payable on other equity instruments, by the daily average number of fully paid common shares outstanding throughout the period.
Diluted earnings per share is calculated in the same manner, with further adjustments made to reflect the dilutive impact of instruments convertible into our common shares.
The following tables present our basic and diluted earnings per share:
Basic Earnings Per Common Share
 
(Canadian $ in millions, except as noted)
  
For the three months ended
 
 
For the nine months ended
 
  
  
July 31, 2024
 
 
July 31, 2023
 
 
July 31, 2024
 
 
July 31, 2023
 
Net income attributable to bank shareholders
  
$
1,865
 
   $ 1,563    
$
5,017
 
   $ 2,722  
Dividends on preferred shares and distributions on other equity instruments
  
 
(51
)
 
     (41  
 
(234
)
 
     (206
Net income available to common shareholders
  
$
         1,814
 
   $ 1,522    
$
         4,783
 
   $ 2,516  
Weighted-average number of common shares outstanding (in thousands)
  
 
729,449
 
           715,432    
 
727,174
 
       706,044  
Basic earnings per common share (Canadian $)
  
$
2.49
 
   $ 2.13    
$
6.58
 
   $ 3.56  
 Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
Diluted Earnings Per Common Share
 
(Canadian $ in millions, except as noted)
   For the three months ended     For the nine months ended  
     
July 31, 2024
    July 31, 2023    
July 31, 2024
    July 31, 2023  
Net income available to common shareholders adjusted for impact of dilutive instruments
  
$
1,814
  
  $ 1,522    
$
4,783
 
  $ 2,516  
Weighted-average number of common shares outstanding (in thousands)
  
 
729,449
 
    715,432    
 
727,174
 
    706,044  
Effect of dilutive instruments
        
Stock options potentially exercisable (1)
  
 
3,473
 
    4,320    
 
3,629
 
    4,531  
Common shares potentially repurchased
  
 
(2,730
    (3,375  
 
(2,793
    (3,299
Weighted-average number of diluted common shares outstanding (in thousands)
  
 
   730,192
 
          716,377    
 
   728,010
 
       707,276  
Diluted earnings per common share (Canadian $)
  
$
          2.48
 
  $ 2.12    
$
          6.57
 
  $ 3.56  
 
 (1)
In computing diluted earnings per share, we excluded average stock options outstanding of 3,309,605 and 3,197,420 with a weighted-average exercise price of $129.73 and $130.81, respectively, for the three and nine months ended July 31, 2024 (2,270,156 and 2,178,439 with a weighted-average exercise price of $135.00 and $136.27, respectively, for the three and nine months ended July 31, 2023) as the average share pr
ice for t
he period did not exceed the exercise price.
 Certain comparative figures have been reclassified for changes in accounting policy (Note 1).
 
 
Note 10: Income Taxes
Canadian tax authorities have reassessed us for additional income tax and interest in an amount of approximately $1,465 million in respect of certain 2011-2018 Canadian corporate dividends. These reassessments denied certain dividend deductions on the basis that the dividends were received as part of a “dividend rental arrangement.” In general, the tax rules raised by the Canadian tax authorities were prospectively addressed in the 2015 and 2018 Canadian federal budgets. We filed Notices of Appeal with the Tax Court of Canada and the matter is in litigation. We remain of the view that our tax filing positions were appropriate and intend to challenge all reassessments. However, if such challenges are unsuccessful, the additional expense would negatively impact our net income.
 
BMO Financial Group Third Quarter Report 2024
7
7
 

Note 11: Operating Segmentation
Operating Groups
We conduct our business through three operating groups, each of which has a distinct mandate. Our operating groups are Personal and Commercial Banking (P&C) (comprised of Canadian Personal and Commercial Banking (Canadian P&C) and U.S. Personal and Commercial Banking (U.S. P&C)), BMO Wealth Management (BMO WM) and BMO Capital Markets (BMO CM), along with a Corporate Services unit.
For additional information refer to Note 25 of our annual consolidated financial statements for the year ended October 3
1, 2
023.
Our results and average assets, grouped by operating segment, are as follows:
 
(Canadian $ in millions)
  
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
For the three months ended July 31, 2024
  
Canadian
P&C
 
 
U.S. P&C
 
 
BMO WM
 
 
BMO CM
 
 
Corporate
Services 
(1)
 
 
Total
 
Net interest income (2)
  
$
2,253
 
 
$
2,056
 
 
$
326
 
 
$
479
 
 
$
(320
)
 
$
4,794
 
Non-interest
revenue
  
 
655
 
 
 
397
 
 
 
1,113
 
 
 
1,187
 
 
 
46
 
 
 
3,398
 
Total Revenue
  
 
2,908
 
 
 
2,453
 
 
 
1,439
 
 
 
1,666
 
 
 
(274
)
 
 
8,192
 
Provision for credit losses on impaired loans
  
 
353
 
 
 
368
 
 
 
1
 
 
 
92
 
 
 
14
 
 
 
828
 
Provision for (recovery of) credit losses on performing loans
  
 
35
 
 
 
26
 
 
 
(10
)
 
 
36
 
 
 
(9
)
 
 
78
 
Total provision for (recovery of) credit losses
  
 
388
 
 
 
394
 
 
 
(9
)
 
 
128
 
 
 
5
 
 
 
906
 
Depreciation and amortization
  
 
151
 
 
 
239
 
 
 
65
 
 
 
75
 
 
 
-
 
 
 
530
 
Non-interest
expense
  
 
1,109
 
 
 
1,253
 
 
 
904
 
 
 
972
 
 
 
71
 
 
 
4,309
 
Income (loss) before taxes and
non-controlling
interest in subsidiaries
  
 
1,260
 
 
 
567
 
 
 
479
 
 
 
491
 
 
 
(350
)
 
 
2,447
 
Provision for (recovery of) income taxes
  
 
346
 
 
 
97
 
 
 
117
 
 
 
102
 
 
 
(80
)
 
 
582
 
Reported net income (loss)
  
$
914
 
 
$
470
 
 
$
362
 
 
$
389
 
 
$
(270
)
 
$
1,865
 
Non-controlling
interest in subsidiaries
  
$
-
 
 
$
(3
)
 
$
-
 
 
$
-
 
 
$
3
 
 
$
-
 
Net income (loss) attributable to bank shareholders
  
$
914
 
 
$
473
 
 
$
362
 
 
$
389
 
 
$
(273
)
 
$
1,865
 
Average assets (3)
  
$
   329,786
 
 
$
   240,484
 
 
$
    65,428
 
 
$
   475,893
 
 
$
   274,275
 
 
$
 1,385,866
 
For the three months ended July 31, 2023
  
Canadian
P&C
    U.S. P&C     BMO WM     BMO CM     Corporate
Services (1)
    Total  
Net interest income (2)
   $ 2,061     $ 1,995     $ 357     $ 568     $ (76   $ 4,905  
Non-interest
revenue
     655       419       1,168       895       10       3,147  
Total Revenue
     2,716       2,414       1,525       1,463       (66     8,052  
Provision for credit losses on impaired loans
     197       117       1       1       17       333  
Provision for (recovery of) credit losses on performing loans
     62       87       6       9       (5     159  
Total provision for credit losses
     259       204       7       10       12       492  
Depreciation and amortization
     143       252       71       84       -       550  
Non-interest
expense
     1,101       1,299       919       991       712       5,022  
Income (loss) before taxes
     1,213       659       528       378       (790     1,988  
Provision for (recovery of) income taxes
     332       157       132       83       (281     423  
Reported net income (loss)
   $ 881     $ 502     $ 396     $ 295     $ (509   $ 1,565  
Non-controlling
interest in subsidiaries
   $ -     $ 2     $ -     $ -     $ -     $ 2  
Net income (loss) attributable to bank shareholders
   $ 881     $ 500     $ 396     $ 295     $ (509   $ 1,563  
Average assets (3)
   $    312,155      $    229,427      $     62,034      $    453,798      $    252,686      $  1,310,100   
 
 (1)
Corporate Services includes Technology and Operations.
 (2)
Operating groups report on a taxable equivalent basis (teb). Revenue and the provision for income taxes are increased on
tax-exempt
securities to an equivalent
before-tax
basis to facilitate comparisons of income between taxable and
tax-exempt
sources. The offset to the groups’ teb adjustments is reflected in Corporate Services revenue and provision for income taxes. Beginning January 1, 2024, we did not take the deduction for certain Canadian dividends received in BMO CM due to proposed legislation, and as a result, we no longer reported this revenue on a teb basis. This proposed legislation was enacted in the third quarter of fiscal 2024.
 (3)
Included within average assets are average earning assets, which are comprised of deposits with other banks, deposits at central banks, securities borrowed or purchased under resale agreements, loans and securities. Total average earning assets for three months ended July 31, 2024 are $1,260,434 million, including $323,768 million for Canadian P&C, $219,467 million for U.S. P&C, and $717,199 million for all other operating segments including Corporate Services (for three months ended July 31, 2023 - Total: $1,162,389 million, Canadian P&C: $297,976 million, U.S. P&C: $209,493 million and all other operating segments: $654,920 million).
 Certain comparative figures have been reclassified to conform with the current period’s presentation and for changes in accounting policy (Note 1).
 
7
8
BMO Financial Group Third Quarter Report 2024
 

(Canadian $ in millions)
  
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
For the nine months ended July 31, 2024
  
Canadian
P&C
 
 
U.S. P&C
 
 
BMO WM
 
 
BMO CM
 
 
Corporate
Services 
(1)
 
 
Total
 
Net interest income (2)
  
$
6,548
 
 
$
6,108
 
 
$
973
 
 
$
1,342
 
 
$
(941
)
 
$
14,030
 
Non-interest
revenue
  
 
1,957
 
 
 
1,188
 
 
 
3,187
 
 
 
3,574
 
 
 
(98
)
 
 
9,808
 
Total Revenue
  
 
8,505
 
 
 
7,296
 
 
 
4,160
 
 
 
4,916
 
 
 
(1,039
)
 
 
23,838
 
Provision for credit losses on impaired loans
  
 
886
 
 
 
839
 
 
 
10
 
 
 
164
 
 
 
60
 
 
 
1,959
 
Provision for (recovery of) credit losses on performing loans
  
 
195
 
 
 
126
 
 
 
(13
)
 
 
(6
)
 
 
(23
)
 
 
279
 
Total provision for (recovery of) credit losses
  
 
1,081
 
 
 
965
 
 
 
(3
)
 
 
158
 
 
 
37
 
 
 
2,238
 
Depreciation and amortization
  
 
439
 
 
 
723
 
 
 
198
 
 
 
226
 
 
 
-
 
 
 
1,586
 
Non-interest
expense
  
 
3,247
 
 
 
3,676
 
 
 
2,746
 
 
 
2,965
 
 
 
852
 
 
 
13,486
 
Income (loss) before taxes and
non-controlling
interest in subsidiaries
  
 
3,738
 
 
 
1,932
 
 
 
1,219
 
 
 
1,567
 
 
 
(1,928
)
 
 
6,528
 
Provision for (recovery of) income taxes
  
 
1,031
 
 
 
359
 
 
 
297
 
 
 
326
 
 
 
(508
)
 
 
1,505
 
Reported net income (loss)
  
$
2,707
 
 
$
1,573
 
 
$
922
 
 
$
1,241
 
 
$
(1,420
)
 
$
5,023
 
Non-controlling
interest in subsidiaries
  
$
-
 
 
$
1
 
 
$
-
 
 
$
-
 
 
$
5
 
 
$
6
 
Net income (loss) attributable to bank shareholders
  
$
2,707
 
 
$
1,572
 
 
$
922
 
 
$
1,241
 
 
$
(1,425
)
 
$
5,017
 
Average assets (3)
  
$
   324,846
 
 
$
   236,323
 
 
$
    63,877
 
 
$
   456,676
 
 
$
   271,060
 
 
$
 1,352,782
 
For the nine months ended July 31, 2023
  
Canadian
P&C
    U.S. P&C     BMO WM     BMO CM     Corporate
Services (1)
    Total  
Net interest income (2)
   $ 5,947     $ 5,530     $ 1,027     $ 1,860     $ (624   $ 13,740  
Non-interest
revenue
     1,816       1,162       2,919       2,881       (1,578     7,200  
Total Revenue
     7,763       6,692       3,946       4,741       (2,202     20,940  
Provision for (recovery of) credit losses on impaired loans
     492       221       3       (2     58       772  
Provision for credit losses on performing loans
     152       109       14       19       666       960  
Total provision for credit losses
     644       330       17       17       724       1,732  
Depreciation and amortization
     413       624       211       250       -       1,498  
Non-interest
expense
     3,050       3,267       2,677       2,976       1,987       13,957  
Income (loss) before taxes and
non-controlling
interest in subsidiaries
     3,656       2,471       1,041       1,498       (4,913     3,753  
Provision for (recovery of) income taxes
     1,005       573       246       345       (1,143     1,026  
Reported net income (loss)
   $ 2,651     $ 1,898     $ 795     $ 1,153     $ (3,770   $ 2,727  
Non-controlling
interest in subsidiaries
   $ -     $ 2     $ -     $ -     $ 3     $ 5  
Net income (loss) attributable to bank shareholders
   $ 2,651     $ 1,896     $ 795     $ 1,153     $ (3,773   $ 2,722  
Average assets (3)
   $    307,717      $    204,519      $     59,446      $    463,156      $    251,184      $  1,286,022   
 
 (1)
Corporate Services includes Technology and Operations.
 (2)
Operating groups report on a teb basis. Revenue and the provision for income taxes are increased on
tax-exempt
securities to an equivalent
before-tax
basis to facilitate comparisons of income between taxable and
tax-exempt
sources. The offset to the groups’ teb adjustments is reflected in Corporate Services revenue and provision for income taxes. Beginning January 1, 2024, we did not take the deduction for certain Canadian dividends received in BMO CM due to proposed legislation, and as a result, we no longer reported this revenue on a teb basis. This proposed legislation was enacted in the third quarter of fiscal 2024.
 (3)
Included within average assets are average earning assets, which are comprised of deposits with other banks, deposits at central banks, securities borrowed or purchased under resale agreements, loans and securities. Total average earning assets for nine months ended July 31, 2024 are $1,224,759 million, including $314,719 million for Canadian P&C, $215,821 million for U.S. P&C, and $694,219 million for all other operating segments including Corporate Services (for nine months ended July 31, 2023 - Total: $1,135,342 million, Canadian P&C: $293,614 million, U.S. P&C: $189,259 million and all other operating segments: $652,469 million).
 Certain comparative figures have been reclassified to conform with the current period’s presentation and for changes in accounting policy (Note 1).
 
BMO Financial Group Third Quarter Report 2024
7
9
 
EX-99.3 4 d856288dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

CONSOLIDATED CAPITALIZATION OF BANK OF MONTREAL

The following table sets forth the consolidated capitalization of the Bank as at July 31, 2024.

 

     As at
July 31, 2024
 
   (in millions of Canadian
dollars)
 

Subordinated Debt

     9,321  

Total Equity

  

Preferred Shares(1) and Other Equity Instruments(2)

     8,487  

Common Shares

     23,911  

Contributed Surplus

     346  

Retained Earnings

     45,451  

Accumulated Other Comprehensive Income

     4,731  
  

 

 

 

Total Shareholders’ Equity

     82,926  

Non-controlling Interest in Subsidiaries

     31  

Total Equity

     82,957  

Total Capitalization

     92,278  
  

 

 

 

Notes:

 

(1)

Preferred Shares classified under Total Equity consist of Class B Preferred Shares Series 29, 31, 33, 44, 50 and 52. For more information on the classification of Preferred Shares, please refer to Note 5 of the unaudited interim consolidated financial statements of Bank of Montreal for the nine-months ended July 31, 2024.

(2)

The Other Equity Instruments described under Total Equity consist of Additional Tier 1 Capital Notes and Limited Recourse Capital Notes, Series 1, 2, 3, 4 and 5. Please refer to Note 5 of the unaudited interim consolidated financial statements of Bank of Montreal for the nine-months ended July 31, 2024.