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, 2021 | April 30, 2021 | July 31, 2020 | July 31, 2021 | July 31, 2020 | ||||||||||||||||
Interest, Dividend and Fee Income | ||||||||||||||||||||
Loans | $ | 3,916 | $ | 3,849 | $ | 4,204 | $ | 11,794 | $ | 13,856 | ||||||||||
Securities (Note 2) | 929 | 1,002 | 1,249 | 2,921 | 3,971 | |||||||||||||||
Deposits with banks | 50 | 50 | 49 | 144 | 343 | |||||||||||||||
4,895 | 4,901 | 5,502 | 14,859 | 18,170 | ||||||||||||||||
Interest Expense | ||||||||||||||||||||
Deposits | 745 | 817 | 1,292 | 2,483 | 5,157 | |||||||||||||||
Subordinated debt | 44 | 51 | 65 | 153 | 201 | |||||||||||||||
Other liabilities | 585 | 578 | 610 | 1,669 | 2,371 | |||||||||||||||
1,374 | 1,446 | 1,967 | 4,305 | 7,729 | ||||||||||||||||
Net Interest Income | 3,521 | 3,455 | 3,535 | 10,554 | 10,441 | |||||||||||||||
Non-Interest Revenue | ||||||||||||||||||||
Securities commissions and fees | 264 | 300 | 260 | 849 | 789 | |||||||||||||||
Deposit and payment service charges | 319 | 306 | 299 | 930 | 916 | |||||||||||||||
Trading revenues | 135 | 47 | 68 | 394 | (8 | ) | ||||||||||||||
Lending fees | 348 | 343 | 309 | 1,047 | 956 | |||||||||||||||
Card fees | 113 | 122 | 85 | 316 | 264 | |||||||||||||||
Investment management and custodial fees | 502 | 476 | 455 | 1,460 | 1,341 | |||||||||||||||
Mutual fund revenues | 406 | 396 | 348 | 1,176 | 1,062 | |||||||||||||||
Underwriting and advisory fees | 411 | 404 | 287 | 1,073 | 811 | |||||||||||||||
Securities gains, other than trading | 198 | 111 | 31 | 411 | 84 | |||||||||||||||
Foreign exchange gains, other than trading | 41 | 63 | 21 | 128 | 89 | |||||||||||||||
Insurance revenues | 1,137 | (163 | ) | 1,321 | 1,718 | 2,035 | ||||||||||||||
Investments in associates and joint ventures | 67 | 60 | 52 | 183 | 112 | |||||||||||||||
Other | 100 | 156 | 118 | 374 | 308 | |||||||||||||||
4,041 | 2,621 | 3,654 | 10,059 | 8,759 | ||||||||||||||||
Total Revenue | 7,562 | 6,076 | 7,189 | 20,613 | 19,200 | |||||||||||||||
Provision for Credit Losses (Note 3) | (70 | ) | 60 | 1,054 | 146 | 2,521 | ||||||||||||||
Insurance Claims, Commissions and Changes in Policy Benefit Liabilities | 984 | (283 | ) | 1,189 | 1,302 | 1,708 | ||||||||||||||
Non-Interest Expense | ||||||||||||||||||||
Employee compensation (Note 8) | 2,102 | 2,042 | 1,964 | 6,263 | 5,994 | |||||||||||||||
Premises and equipment | 829 | 863 | 785 | 2,496 | 2,348 | |||||||||||||||
Amortization of intangible assets | 157 | 158 | 154 | 471 | 461 | |||||||||||||||
Travel and business development | 101 | 97 | 57 | 264 | 296 | |||||||||||||||
Communications | 63 | 72 | 71 | 199 | 233 | |||||||||||||||
Professional fees | 140 | 147 | 135 | 423 | 396 | |||||||||||||||
Other (Note 12) | 292 | 1,030 | 278 | 1,590 | 901 | |||||||||||||||
3,684 | 4,409 | 3,444 | 11,706 | 10,629 | ||||||||||||||||
Income Before Provision for Income Taxes | 2,964 | 1,890 | 1,502 | 7,459 | 4,342 | |||||||||||||||
Provision for income taxes (Note 10) | 689 | 587 | 270 | 1,864 | 829 | |||||||||||||||
Net Income | $ | 2,275 | $ | 1,303 | $ | 1,232 | $ | 5,595 | $ | 3,513 | ||||||||||
Earnings Per Share (Canadian $) (Note 9) | ||||||||||||||||||||
Basic | $ | 3.42 | $ | 1.91 | $ | 1.81 | $ | 8.36 | $ | 5.18 | ||||||||||
Diluted | 3.41 | 1.91 | 1.81 | 8.35 | 5.18 | |||||||||||||||
Dividends per common share | 1.06 | 1.06 | 1.06 | 3.18 | 3.18 |
The accompanying notes are an integral part of these interim consolidated financial statements.
46
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, 2021 | April 30, 2021 | July 31, 2020 | July 31, 2021 | July 31, 2020 | ||||||||||||||||
Net Income | $ | 2,275 | $ | 1,303 | $ | 1,232 | $ | 5,595 | $ | 3,513 | ||||||||||
Other Comprehensive Income (Loss), net of taxes | ||||||||||||||||||||
Items that may subsequently be reclassified to net income | ||||||||||||||||||||
Net change in unrealized gains (losses) on fair value through OCI debt securities | ||||||||||||||||||||
Unrealized gains (losses) on fair value through OCI debt securities arising during the period (1) | 22 | (89 | ) | 141 | (10 | ) | 421 | |||||||||||||
Reclassification to earnings of (gains) in the period (2) | (5 | ) | (19 | ) | (18 | ) | (33 | ) | (74 | ) | ||||||||||
17 | (108 | ) | 123 | (43 | ) | 347 | ||||||||||||||
Net change in unrealized gains (losses) on cash flow hedges | ||||||||||||||||||||
Gains (losses) on derivatives designated as cash flow hedges arising during the period (3) | 218 | (479 | ) | 83 | (392 | ) | 1,673 | |||||||||||||
Reclassification to earnings of (gains) losses on derivatives designated as cash flow hedges in the period (4) | (116 | ) | (86 | ) | (37 | ) | (279 | ) | 8 | |||||||||||
102 | (565 | ) | 46 | (671 | ) | 1,681 | ||||||||||||||
Net gains (losses) on translation of net foreign operations | ||||||||||||||||||||
Unrealized gains (losses) on translation of net foreign operations | 521 | (1,304 | ) | (1,180 | ) | (1,914 | ) | 516 | ||||||||||||
Unrealized gains (losses) on hedges of net foreign operations (5) | (139 | ) | 316 | 206 | 398 | (145 | ) | |||||||||||||
382 | (988 | ) | (974 | ) | (1,516 | ) | 371 | |||||||||||||
Items that will not be reclassified to net income | ||||||||||||||||||||
Gains (losses) on remeasurement of pension and other employee future benefit plans (6) | 54 | 436 | (189 | ) | 765 | (244 | ) | |||||||||||||
Gains (losses) on remeasurement of own credit risk on financial liabilities designated at fair value (7) | 22 | 3 | (330 | ) | (220 | ) | (49 | ) | ||||||||||||
Unrealized gains on fair value through OCI equity securities arising during the period (8) | 7 | - | - | 7 | - | |||||||||||||||
83 | 439 | (519 | ) | 552 | (293 | ) | ||||||||||||||
Other Comprehensive Income (Loss), net of taxes | 584 | (1,222 | ) | (1,324 | ) | (1,678 | ) | 2,106 | ||||||||||||
Total Comprehensive Income (Loss) | $ | 2,859 | $ | 81 | $ | (92 | ) | $ | 3,917 | $ | 5,619 |
(1) | Net of income tax (provision) recovery of $(7) million, $32 million, $(47) million for the three months ended, and $5 million, $(147) million for the nine months ended, respectively. |
(2) | Net of income tax provision of $2 million, $6 million, $6 million for the three months ended, and $11 million, $23 million for the nine months ended, respectively. |
(3) | Net of income tax (provision) recovery of $(72) million, $173 million, $(27) million for the three months ended, and $147 million, $(600) million for the nine months ended, respectively. |
(4) | Net of income tax provision (recovery) of $41 million, $31 million, $13 million for the three months ended, and $100 million, $(3) million for the nine months ended, respectively. |
(5) | Net of income tax (provision) recovery of $50 million, $(115) million, $(74) million for the three months ended, and $(145) million, $53 million for the nine months ended, respectively. |
(6) | Net of income tax (provision) recovery of $(26) million, $(158) million, $65 million for the three months ended, and $(283) million, $85 million for the nine months ended, respectively. |
(7) | Net of income tax (provision) recovery of $(9) million, $(1) million, $120 million for the three months ended, and $79 million, $18 million for the nine months ended, respectively. |
(8) | Net of income tax (provision) recovery of $(2) million, $nil, $nil for the three months ended, and $(2) million, $nil for the nine months ended, respectively. |
The accompanying notes are an integral part of these interim consolidated financial statements.
BMO Financial Group Third Quarter Report 2021
47
Interim Consolidated Financial Statements
Consolidated Balance Sheet
(Unaudited) (Canadian $ in millions) | As at | |||||||||||
July 31, 2021 | April 30, 2021 | October 31, 2020 | ||||||||||
Assets | ||||||||||||
Cash and Cash Equivalents | $ | 83,825 | $ | 98,593 | $ | 57,408 | ||||||
Interest Bearing Deposits with Banks | 8,793 | 8,955 | 9,035 | |||||||||
Securities (Note 2) | ||||||||||||
Trading | 102,169 | 90,566 | 97,834 | |||||||||
Fair value through profit or loss | 14,239 | 13,331 | 13,568 | |||||||||
Fair value through other comprehensive income | 64,553 | 61,172 | 73,407 | |||||||||
Debt securities at amortized cost | 48,727 | 46,744 | 48,466 | |||||||||
Investments in associates and joint ventures | 1,088 | 1,054 | 985 | |||||||||
230,776 | 212,867 | 234,260 | ||||||||||
Securities Borrowed or Purchased Under Resale Agreements | 104,738 | 98,327 | 111,878 | |||||||||
Loans | ||||||||||||
Residential mortgages | 134,374 | 130,529 | 127,024 | |||||||||
Consumer instalment and other personal | 75,092 | 71,918 | 70,148 | |||||||||
Credit cards | 7,866 | 7,488 | 7,889 | |||||||||
Business and government | 241,108 | 237,702 | 245,662 | |||||||||
458,440 | 447,637 | 450,723 | ||||||||||
Allowance for credit losses (Note 3) | (2,824 | ) | (3,028 | ) | (3,303 | ) | ||||||
455,616 | 444,609 | 447,420 | ||||||||||
Other Assets | ||||||||||||
Derivative instruments | 36,331 | 37,998 | 36,815 | |||||||||
Customers’ liability under acceptances | 14,263 | 11,952 | 13,493 | |||||||||
Premises and equipment | 4,266 | 4,298 | 4,183 | |||||||||
Goodwill | 5,450 | 5,375 | 6,535 | |||||||||
Intangible assets | 2,298 | 2,323 | 2,442 | |||||||||
Current tax assets | 1,145 | 1,141 | 1,260 | |||||||||
Deferred tax assets | 1,209 | 1,294 | 1,473 | |||||||||
Other | 22,648 | 22,107 | 23,059 | |||||||||
87,610 | 86,488 | 89,260 | ||||||||||
Total Assets | $ | 971,358 | $ | 949,839 | $ | 949,261 | ||||||
Liabilities and Equity | ||||||||||||
Deposits (Note 4) | $ | 680,553 | $ | 657,201 | $ | 659,034 | ||||||
Other Liabilities | ||||||||||||
Derivative instruments | 29,167 | 33,218 | 30,375 | |||||||||
Acceptances | 14,263 | 11,952 | 13,493 | |||||||||
Securities sold but not yet purchased | 28,497 | 32,540 | 29,376 | |||||||||
Securities lent or sold under repurchase agreements | 92,990 | 87,703 | 88,658 | |||||||||
Securitization and structured entities’ liabilities | 23,927 | 25,657 | 26,889 | |||||||||
Current tax liabilities | 154 | 193 | 126 | |||||||||
Deferred tax liabilities | 188 | 163 | 108 | |||||||||
Other | 36,950 | 38,554 | 36,193 | |||||||||
226,136 | 229,980 | 225,218 | ||||||||||
Subordinated Debt (Note 4) | 6,973 | 7,144 | 8,416 | |||||||||
Equity | ||||||||||||
Preferred shares and other equity instruments (Note 5) | 5,848 | 5,848 | 6,598 | |||||||||
Common shares (Note 5) | 13,609 | 13,536 | 13,430 | |||||||||
Contributed surplus | 310 | 313 | 302 | |||||||||
Retained earnings | 34,089 | 32,561 | 30,745 | |||||||||
Accumulated other comprehensive income | 3,840 | 3,256 | 5,518 | |||||||||
Total Equity | 57,696 | 55,514 | 56,593 | |||||||||
Total Liabilities and Equity | $ | 971,358 | $ | 949,839 | $ | 949,261 |
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.
48
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, 2021 | July 31, 2020 | July 31, 2021 | July 31, 2020 | |||||||||||||
Preferred Shares and Other Equity Instruments (Note 5) | ||||||||||||||||
Balance at beginning of period | $ | 5,848 | $ | 5,348 | $ | 6,598 | $ | 5,348 | ||||||||
Redeemed during the period | - | - | (750 | ) | - | |||||||||||
Balance at End of Period | 5,848 | 5,348 | 5,848 | 5,348 | ||||||||||||
Common Shares (Note 5) | ||||||||||||||||
Balance at beginning of period | 13,536 | 13,000 | 13,430 | 12,971 | ||||||||||||
Issued under the Shareholder Dividend Reinvestment and Share Purchase Plan | - | 214 | - | 214 | ||||||||||||
Issued under the Stock Option Plan | 40 | 1 | 99 | 30 | ||||||||||||
Treasury shares or repurchase of common shares for cancellation | 33 | (15 | ) | 80 | (15 | ) | ||||||||||
Balance at End of Period | 13,609 | 13,200 | 13,609 | 13,200 | ||||||||||||
Contributed Surplus | ||||||||||||||||
Balance at beginning of period | 313 | 301 | 302 | 303 | ||||||||||||
Stock option expense, net of options exercised | - | 1 | 7 | (1 | ) | |||||||||||
Net premium (discount) on sale of treasury shares | (3 | ) | - | - | - | |||||||||||
Other | - | - | 1 | - | ||||||||||||
Balance at End of Period | 310 | 302 | 310 | 302 | ||||||||||||
Retained Earnings | ||||||||||||||||
Balance at beginning of period | 32,561 | 29,426 | 30,745 | 28,725 | ||||||||||||
Impact from adopting IFRS 16 | - | - | - | (59 | ) | |||||||||||
Net income | 2,275 | 1,232 | 5,595 | 3,513 | ||||||||||||
Dividends on preferred shares and distributions payable on other equity instruments | (61 | ) | (73 | ) | (185 | ) | (195 | ) | ||||||||
Dividends on common shares | (686 | ) | (682 | ) | (2,058 | ) | (2,038 | ) | ||||||||
Equity issue expense and premium paid on redemption of preferred shares | - | - | (6 | ) | - | |||||||||||
Net discount on sale of treasury shares | - | (1 | ) | (2 | ) | (44 | ) | |||||||||
Balance at End of Period | 34,089 | 29,902 | 34,089 | 29,902 | ||||||||||||
Accumulated Other Comprehensive Income on Fair Value through OCI Securities, net of taxes | ||||||||||||||||
Balance at beginning of period | 295 | 250 | 355 | 26 | ||||||||||||
Unrealized gains (losses) on fair value through OCI debt securities arising during the period | 22 | 141 | (10 | ) | 421 | |||||||||||
Unrealized gains on fair value through OCI equity securities arising during the period | 7 | - | 7 | - | ||||||||||||
Reclassification to earnings of (gains) during the period | (5 | ) | (18 | ) | (33 | ) | (74 | ) | ||||||||
Balance at End of Period | 319 | 373 | 319 | 373 | ||||||||||||
Accumulated Other Comprehensive Income on Cash Flow Hedges, net of taxes | ||||||||||||||||
Balance at beginning of period | 1,206 | 2,148 | 1,979 | 513 | ||||||||||||
Gains (losses) on derivatives designated as cash flow hedges arising during the period | 218 | 83 | (392 | ) | 1,673 | |||||||||||
Reclassification to earnings of (gains) losses on derivatives designated as cash flow hedges in the period | (116 | ) | (37 | ) | (279 | ) | 8 | |||||||||
Balance at End of Period | 1,308 | 2,194 | 1,308 | 2,194 | ||||||||||||
Accumulated Other Comprehensive Income on Translation of Net Foreign Operations, net of taxes | ||||||||||||||||
Balance at beginning of period | 2,082 | 5,048 | 3,980 | 3,703 | ||||||||||||
Unrealized gains (losses) on translation of net foreign operations | 521 | (1,180 | ) | (1,914 | ) | 516 | ||||||||||
Unrealized gains (losses) on hedges of net foreign operations | (139 | ) | 206 | 398 | (145 | ) | ||||||||||
Balance at End of Period | 2,464 | 4,074 | 2,464 | 4,074 | ||||||||||||
Accumulated Other Comprehensive Income (Loss) on Pension and Other Employee Future Benefit Plans, net of taxes | ||||||||||||||||
Balance at beginning of period | 73 | (438 | ) | (638 | ) | (383 | ) | |||||||||
Gains (losses) on remeasurement of pension and other employee future benefit plans | 54 | (189 | ) | 765 | (244 | ) | ||||||||||
Balance at End of Period | 127 | (627 | ) | 127 | (627 | ) | ||||||||||
Accumulated Other Comprehensive (Loss) on Own Credit Risk on Financial Liabilities Designated at Fair Value, net of taxes | ||||||||||||||||
Balance at beginning of period | (400 | ) | 151 | (158 | ) | (130 | ) | |||||||||
Gains (losses) on remeasurement of own credit risk on financial liabilities designated at fair value | 22 | (330 | ) | (220 | ) | (49 | ) | |||||||||
Balance at End of Period | (378 | ) | (179 | ) | (378 | ) | (179 | ) | ||||||||
Total Accumulated Other Comprehensive Income | 3,840 | 5,835 | 3,840 | 5,835 | ||||||||||||
Total Equity | $ | 57,696 | $ | 54,587 | $ | 57,696 | $ | 54,587 |
The accompanying notes are an integral part of these interim consolidated financial statements.
BMO Financial Group Third Quarter Report 2021
49
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, 2021 | July 31, 2020 | July 31, 2021 | July 31, 2020 | |||||||||||||
Cash Flows from Operating Activities | ||||||||||||||||
Net Income | $ | 2,275 | $ | 1,232 | $ | 5,595 | $ | 3,513 | ||||||||
Adjustments to determine net cash flows provided by (used in) operating activities | ||||||||||||||||
Provision on securities, other than trading | - | 1 | (1 | ) | 2 | |||||||||||
Net (gain) on securities, other than trading | (198 | ) | (32 | ) | (410 | ) | (86 | ) | ||||||||
Net (increase) in trading securities | (10,335 | ) | (7,319 | ) | (7,415 | ) | (1,624 | ) | ||||||||
Provision (recovery) for credit losses (Note 3) | (70 | ) | 1,054 | 146 | 2,521 | |||||||||||
Change in derivative instruments – (increase) decrease in derivative asset | 2,648 | 5,863 | 1,779 | (14,158 | ) | |||||||||||
– increase (decrease) in derivative liability | (5,367 | ) | (6,918 | ) | (1,683 | ) | 15,342 | |||||||||
Amortization of premises and equipment | 195 | 198 | 588 | 598 | ||||||||||||
Amortization of other assets | 32 | 48 | 110 | 152 | ||||||||||||
Amortization of intangible assets | 157 | 154 | 471 | 461 | ||||||||||||
Write-down of goodwill | 8 | - | 755 | - | ||||||||||||
Net (increase) decrease in deferred income tax asset | 91 | (90 | ) | 212 | 132 | |||||||||||
Net increase (decrease) in deferred income tax liability | 24 | 16 | 80 | (1 | ) | |||||||||||
Net (increase) decrease in current income tax asset | 53 | 90 | (56 | ) | (492 | ) | ||||||||||
Net increase (decrease) in current income tax liability | (43 | ) | (19 | ) | 70 | (9 | ) | |||||||||
Change in accrued interest – decrease in interest receivable | 67 | 242 | 267 | 319 | ||||||||||||
– increase (decrease) in interest payable | (32 | ) | 14 | (434 | ) | (198 | ) | |||||||||
Changes in other items and accruals, net | (2,233 | ) | 891 | (549 | ) | (5,623 | ) | |||||||||
Net increase in deposits | 17,752 | 19,630 | 45,947 | 85,368 | ||||||||||||
Net (increase) decrease in loans | (8,222 | ) | 13,713 | (19,737 | ) | (20,574 | ) | |||||||||
Net increase (decrease) in securities sold but not yet purchased | (4,243 | ) | 724 | (159 | ) | 4,081 | ||||||||||
Net increase (decrease) in securities lent or sold under repurchase agreements | 4,232 | (3,645 | ) | 7,661 | 11,616 | |||||||||||
Net (increase) decrease in securities borrowed or purchased under resale agreements | (5,480 | ) | (1,979 | ) | 2,972 | (13,514 | ) | |||||||||
Net increase (decrease) in securitization and structured entities’ liabilities | (1,822 | ) | (101 | ) | (2,591 | ) | 191 | |||||||||
Net Cash Provided by (Used in) Operating Activities | (10,511 | ) | 23,767 | 33,618 | 68,017 | |||||||||||
Cash Flows from Financing Activities | ||||||||||||||||
Net (decrease) in liabilities of subsidiaries | - | (5,326 | ) | - | (8,113 | ) | ||||||||||
Proceeds from issuance of covered bonds | 1,837 | - | 1,837 | 4,425 | ||||||||||||
Redemption/buyback of covered bonds | (1,860 | ) | (1,371 | ) | (4,074 | ) | (3,868 | ) | ||||||||
Proceeds from issuance of subordinated debt (Note 4) | 1,000 | 1,250 | 1,000 | 1,250 | ||||||||||||
Repayment of subordinated debt (Note 4) | (1,250 | ) | - | (2,250 | ) | - | ||||||||||
Redemption of preferred shares (Note 5) | - | - | (756 | ) | - | |||||||||||
Net proceeds from issuance of common shares and sale of treasury shares (Note 5) | 71 | (15 | ) | 172 | (48 | ) | ||||||||||
Cash dividends and distributions paid | (755 | ) | (516 | ) | (2,234 | ) | (1,974 | ) | ||||||||
Repayment of lease liabilities | (82 | ) | (82 | ) | (244 | ) | (250 | ) | ||||||||
Net Cash (Used in) Financing Activities | (1,039 | ) | (6,060 | ) | (6,549 | ) | (8,578 | ) | ||||||||
Cash Flows from Investing Activities | ||||||||||||||||
Net (increase) decrease in interest bearing deposits with banks | 300 | (950 | ) | (265 | ) | (280 | ) | |||||||||
Purchases of securities, other than trading | (14,397 | ) | (20,449 | ) | (38,783 | ) | (73,897 | ) | ||||||||
Maturities of securities, other than trading | 7,266 | 5,050 | 21,530 | 12,539 | ||||||||||||
Proceeds from sales of securities, other than trading | 2,998 | 5,223 | 19,417 | 30,556 | ||||||||||||
Premises and equipment – net (purchases) | (124 | ) | (74 | ) | (327 | ) | (273 | ) | ||||||||
Purchased and developed software – net (purchases) | (118 | ) | (125 | ) | (358 | ) | (490 | ) | ||||||||
Acquisitions | - | - | - | (186 | ) | |||||||||||
Proceeds from divestitures (Note 12) | 63 | - | 63 | - | ||||||||||||
Net Cash Provided by (Used in) Investing Activities | (4,012 | ) | (11,325 | ) | 1,277 | (32,031 | ) | |||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 794 | (1,385 | ) | (1,929 | ) | 379 | ||||||||||
Net increase (decrease) in Cash and Cash Equivalents | (14,768 | ) | 4,997 | 26,417 | 27,787 | |||||||||||
Cash and Cash Equivalents at Beginning of Period | 98,593 | 71,593 | 57,408 | 48,803 | ||||||||||||
Cash and Cash Equivalents at End of Period | $ | 83,825 | $ | 76,590 | $ | 83,825 | $ | 76,590 | ||||||||
Supplemental Disclosure of Cash Flow Information | ||||||||||||||||
Net cash provided by operating activities includes: | ||||||||||||||||
Interest paid in the period | $ | 1,373 | $ | 1,974 | $ | 4,679 | $ | 7,905 | ||||||||
Income taxes paid in the period | $ | 650 | $ | 140 | $ | 1,476 | $ | 1,732 | ||||||||
Interest received in the period | $ | 4,562 | $ | 5,241 | $ | 13,936 | $ | 16,988 | ||||||||
Dividends received in the period | $ | 415 | $ | 466 | $ | 1,255 | $ | 1,289 |
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.
50
Notes to Consolidated Financial Statements
July 31, 2021 (Unaudited)
Note 1: Basis of Presentation
Bank of Montreal (the bank or BMO) is a chartered bank under theand 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.
Bank Act (Canada)
These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34,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, 2020, with the exception of changes in accounting policy described 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, 2020. We also comply with interpretations of International Financial Reporting Standards (IFRS) by our regulator, the Office of the Superintendent of Financial Institutions of Canada (OSFI). These interim consolidated financial statements were authorized for issue by the Board of Directors on August 24, 2021.
Interim Financial Reporting
Changes in Accounting Policy
Interbank Offered Rate (IBOR) Reform
Effective November 1, 2020, we early adopted the IASB’s IBOR Phase 2 amendments to IFRS 9(IFRS 9), IAS 39(IAS 39), IFRS 7(IFRS 7), IFRS 4as well as IFRS 16. These amendments address issues that arise from implementation of IBOR reform, where IBORs will be replaced with alternative benchmark rates.
Financial Instruments
Financial Instruments: Recognition and Measurement
Financial Instruments: Disclosures
Insurance Contracts
Leases
For financial instruments at amortized cost, the amendments introduce a practical expedient such that if a change in the contractual cash flows is as a direct consequence of IBOR reform and occurs on an economically equivalent basis, the change will be accounted for by updating the effective interest rate with no immediate gain or loss recognized. The amendments also provide additional temporary relief from applying specific IAS 39 hedge accounting requirements to hedging relationships affected by IBOR reform. For example, there is an exception from the requirement to discontinue hedge accounting as a result of changes to hedge documentation required solely by IBOR reform.
As a result of the transition from IBORs to alternative reference rates (ARRs), certain benchmark rates may be subject to discontinuance, changes in methodology, increased volatility or decreased liquidity. The bank, both as a holder and an issuer of IBOR-based instruments, is exposed to increased financial, operational, legal and regulatory, and reputational risks as the rates transition. These risks arise principally from updating systems and processes to capture new ARRs, amending contracts or existing fallback clauses for new ARRs, managing the client transition to ARRs and the resulting impact on economic risk management, as well as updating hedge designations as the new ARRs emerge. In order to manage those risks, we have established an enterprise IBOR Transition Office (ITO) to coordinate and oversee the transition from IBORs to ARRs, with a focus on managing and mitigating internal risks as well as managing our client relationships. The ITO, sponsored and supported by senior management, is responsible for running the enterprise-wide program, covering all of BMO’s lines of business and corporate function areas. The ITO has a global mandate to ensure that we properly prepare for the discontinuation or unavailability of LIBOR and other IBORs. As part of its mandate, the ITO continues to address the bank’s industry and regulatory engagement, client and financial contract changes, internal and external communications, technology and operations modifications, introduction of new products, migration of existing clients, program strategy, and governance and evaluate financial reporting impacts, including for hedge accounting. In addition, the ITO continues to monitor the development and usage of ARRs across the industry, including the Alternative Reference Rate Committee’s formal recommendation of the CME Group’s forward-looking Secured Overnight Financing Rate (SOFR) Term Rates. As the market continues to develop we have begun to add
ARR-based
products to our suite of offerings.We adhered to the International Swaps and Derivatives Association Fallbacks Protocol (ISDA Protocol), which took effect on January 25, 2021. The ISDA Protocol provides specific fallbacks depending on whether the relevant IBOR (for example, USD LIBOR or GBP LIBOR) has been permanently discontinued or is temporarily unavailable. It provides an efficient amendment mechanism for mutually adhering counterparties to incorporate these fallback provisions into legacy derivative contracts. Also, we continue to incorporate contractual fallback provisions in new IBOR based cash products in order to ensure there is an alternative benchmark rate at the time of the relevant IBOR cessation.
BMO Financial Group Third Quarter Report 2021
51
The table below presents quantitative information for financial instruments that referenced certain IBORs as at November 1, 2020, the date of adoption for Phase 2 relief, and were either due to mature after December 31, 2021 or demand facilities that will be subject to remediation to amend the benchmark interest rate. Our GBP LIBOR and other LIBOR exposures have not materially changed since November 1, 2020.
(Canadian $ in millions) | November 1, 2020 | |||||||||||
USD LIBOR | GBP LIBOR | Other (1) | ||||||||||
Non-derivative assets (2) | 100,521 | 868 | 1,225 | |||||||||
Non-derivative liabilities (2) | 7,435 | 692 | - | |||||||||
Derivative notional amounts (3)(4) | 1,570,534 | 20,972 | 6,702 | |||||||||
Authorized and committed loan commitments (5)(6) | 68,449 | 194 | 23,633 |
(1) | Includes CHF LIBOR, EONIA and JPY LIBOR. |
(2) | All amounts are presented based on contractual amounts outstanding with the exception of securities, in non-derivative assets, which are disclosed based on carrying value. |
(3) | Notionals represent the amount to which a rate or price is applied in order to calculate the amount of cash that must be exchanged under the contract. Notional amounts do not represent assets or liabilities and therefore are not recorded in our Consolidated Balance Sheet. |
(4) | Includes certain cross-currency swap positions where both the pay and receive leg currently reference an IBOR. For those derivatives, the table above includes the notional for both the pay and receive legs in the relevant columns aligning with the IBOR exposure. |
(5) | Excludes personal lines of credit and credit cards that are unconditionally cancellable at our 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. |
(6) | Other includes loan commitments where our customers have the option to draw from their facility in multiple currencies. Amounts drawn will be subject to prevailing interbank offered rates for the foreign currency, including those that are in scope of IBOR reform. |
Financial instruments that reference rates in multi-rate jurisdictions, including the Canadian Dollar Offered Rate (CDOR), the EURO Interbank Offered Rate and Australian Bank Bill Swap Rate, are excluded from the table above. In the case of CDOR, financial instruments indexed to
6-month
and12-month
CDOR tenors were discontinued on May 17, 2021, while other tenors of CDOR will continue as a benchmark rate. As at November 1, 2020, we did not hold any material positions in either of these CDOR tenors.On March 5, 2021, the Financial Conduct Authority (FCA) confirmed that LIBOR settings will cease to be provided by any administrator immediately after December 31, 2021 for all sterling, euro, Swiss franc and Japanese yen settings as well as the
1-week
and2-month
USD LIBOR settings. The remaining USD LIBOR settings will cease to be provided immediately after June 30, 2023. The announcement followed the completion of the ICE Benchmark Administration consultation regarding the process and timing for the orderly wind-down of LIBOR contracts. US prudential regulators have issued supervisory guidance that the extension of these certain USD LIBOR settings to June 30, 2023 applies only to legacy contracts; new issuances of LIBOR-based instruments must cease by December 31, 2021. The ITO has adjusted all impacted project plans to align with these extended timelines.As a result of extending the cessation date of certain USD LIBOR settings, more contracts will expire prior to cessation and therefore the number and value of contracts that will be subject to remediation efforts has reduced. The following table presents the value of financial instruments impacted by the FCA extension as at April 30, 2023 as presented in our second quarter financial statements, that is, ones that reference USD LIBOR (with the exception of the 1 week and
2-month
settings) and either mature after June 30, 2023 or are demand facilities with no maturity date.(Canadian $ in millions) | April 30, 2021 | |||
USD LIBOR | ||||
Non-derivative assets (1) | 75,455 | |||
Non-derivative liabilities (1) | 2,933 | |||
Derivative notional amounts (2) | 1,112,747 | |||
Authorized and committed loan commitments (3)(4) | 45,794 |
(1) | All amounts are presented based on contractual amounts outstanding with the exception of securities, in non-derivative assets, which are disclosed based on carrying value. |
(2) | Notionals represent the amount to which a rate or price is applied in order to calculate the amount of cash that must be exchanged under the contract. Notional amounts do not represent assets or liabilities and therefore are not recorded in our Consolidated Balance Sheet. |
(3) | Excludes personal lines of credit and credit cards that are unconditionally cancellable at our 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. |
(4) | Excludes $8,746 million of loan commitments where the customer’s option to draw in another currency impacted by IBOR reform is limited to USD. Any amounts drawn under the option will be subject to USD LIBOR, which will be impacted by the June 30, 2023 cessation date. |
Changes in our exposures during the third quarter ended July 31, 2021, did not result in significant changes to the risks arising from transition since we previously disclosed our IBOR exposures. In the normal course of business, our exposures may continue to fluctuate with no significant impact expected to our IBOR conversion plans.
Conceptual Framework
Effective November 1, 2020, we adopted the revised Conceptual Framework (Framework), which sets out the fundamental concepts for financial reporting to ensure consistency in standard-setting decisions and that similar transactions are treated in a similar way, so as to provide useful information to users of financial statements. The revised Framework had no impact on our accounting policies.
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; 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 liabilities; provisions including legal proceedings and restructuring charges; leases; and transfer of financial assets and consolidation of structured entities. If actual results were to differ from the estimates, the impact would be recorded in future periods.
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The extent to which the
COVID-19
pandemic impacts BMO’s business, results of operations, reputation, financial performance and condition, including the potential for credit, counterparty and mark-to-market losses, its credit ratings and regulatory capital and liquidity ratios, as well as impacts to its customers and competitors will depend on future developments. Such developments are highly uncertain and cannot be predicted, including the scope, severity and duration of the pandemic and actions taken by third parties, governments, and governmental and regulatory authorities, which could vary by country and region. By their very nature, the judgments and estimates we make for the purposes of preparing our financial statements relate to matters that are inherently uncertain. However, we have detailed policies and internal controls that are intended to ensure that these judgments and estimates 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, 2021.Allowance for Credit Losses
As detailed further in Note 1 of our annual consolidated financial statements for the year ended October 31, 2020, the allowance for credit losses (ACL) consists of allowances on impaired loans, which represent estimated losses related to impaired loans in the portfolio provided for but not yet written off, and allowances on performing loans, which is our best estimate of impairment in the existing portfolio for loans that have not yet been individually identified as impaired.
The expected credit loss model requires the recognition of credit losses generally based on 12 months of expected losses for performing loans and the recognition of lifetime losses on performing loans that have experienced a significant increase in credit risk since origination.
The determination of a significant increase in credit risk takes into account many different factors and varies by product and risk segment. The bank’s methodology for determining significant increase in credit risk is based on the change in probability of default between origination, and reporting date, assessed using probability weighted scenarios as well as certain other criteria, such as
30-day
past due and watchlist status. The assessment of a significant increase in credit risk requires experienced credit judgment.The judgments we apply in determining the ACL reflect the impact of uncertainties in the economic environment on credit conditions that may cause future assessments of credit risk to be materially different from current assessments, which could require an increase or decrease in the allowance for credit losses.
Additional information regarding the allowance for credit losses is included in Note 3.
Note 2: Securities
Classification of Securities
The bank’s fair value through profit or loss (FVTPL) securities of $14,239 million ($13,568 million as at October 31, 2020) are comprised of $2,788 million mandatorily measured at fair value and $11,451 million investment securities held by insurance subsidiaries designated at fair value ($2,420 million and $11,148 million, respectively, as at October 31, 2020).
Our fair value through other comprehensive income (FVOCI) securities totalling $64,553 million ($73,407 million as at October 31, 2020), are net of an allowance for credit losses of $3 million ($4 million as at October 31, 2020).
Amortized cost securities totalling $48,727 million ($48,466 million as at October 31, 2020), are net of an allowance for credit losses of $1 million ($1 million as at October 31, 2020).
Unrealized Gains and Losses on FVOCI Securities
The following table summarizes the unrealized gains and losses:
(Canadian $ in millions) | July 31, 2021 | October 31, 2020 | ||||||||||||||||||||||||||||||
Cost/ Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Cost/ Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | |||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||
Canadian federal government | 14,503 | 124 | 17 | 14,610 | 22,240 | 211 | 1 | 22,450 | ||||||||||||||||||||||||
Canadian provincial and municipal governments | 2,630 | 45 | 1 | 2,674 | 4,628 | 119 | - | 4,747 | ||||||||||||||||||||||||
U.S. federal government | 20,183 | 590 | 77 | 20,696 | 16,881 | 844 | 31 | 17,694 | ||||||||||||||||||||||||
U.S. states, municipalities and agencies | 4,296 | 117 | 1 | 4,412 | 5,132 | 147 | 3 | 5,276 | ||||||||||||||||||||||||
Other governments | 6,520 | 88 | 11 | 6,597 | 7,222 | 168 | 9 | 7,381 | ||||||||||||||||||||||||
National Housing Act (NHA) mortgage-backed securities (MBS) | 1,287 | 13 | 1 | 1,299 | 1,583 | 46 | - | 1,629 | ||||||||||||||||||||||||
U.S. agency MBS and collateralized mortgage obligations (CMO) | 11,323 | 242 | 11 | 11,554 | 10,600 | 307 | 4 | 10,903 | ||||||||||||||||||||||||
Corporate debt | 2,561 | 43 | 6 | 2,598 | 3,153 | 91 | 10 | 3,234 | ||||||||||||||||||||||||
Corporate equity | 101 | 12 | - | 113 | 90 | 3 | - | 93 | ||||||||||||||||||||||||
Total | 63,404 | 1,274 | 125 | 64,553 | 71,529 | 1,936 | 58 | 73,407 |
Unrealized gains (losses) may be offset by related (losses) gains on hedge contracts.
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, 2021 | July 31, 2020 | July 31, 2021 | July 31, 2020 | |||||||||||||
FVOCI - Debt | 114 | 185 | 366 | 823 | ||||||||||||
Amortized cost | 101 | 144 | 309 | 455 | ||||||||||||
Total | 215 | 329 | 675 | 1,278 |
BMO Financial Group Third Quarter Report 2021
53
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, 2021 and October 31, 2020. Stage 1 represents those performing loans carried with up to a 12 month expected credit loss, Stage 2 represents those performing loans carried with a lifetime expected credit loss, and Stage 3 represents those loans with a lifetime credit loss that are credit impaired.
(Canadian $ in millions) | July 31, 2021 | October 31, 2020 | ||||||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||||||||||||||
Loans: Residential mortgages | ||||||||||||||||||||||||||||||||
Exceptionally low | 2 | - | - | 2 | 1 | - | - | 1 | ||||||||||||||||||||||||
Very low | 91,813 | 417 | - | 92,230 | 79,295 | 429 | - | 79,724 | ||||||||||||||||||||||||
Low | 22,578 | 2,605 | - | 25,183 | 24,490 | 2,481 | - | 26,971 | ||||||||||||||||||||||||
Medium | 11,544 | 3,475 | - | 15,019 | 11,560 | 6,461 | - | 18,021 | ||||||||||||||||||||||||
High | 112 | 303 | - | 415 | 172 | 446 | - | 618 | ||||||||||||||||||||||||
Not rated | 1,088 | 53 | - | 1,141 | 1,132 | 148 | - | 1,280 | ||||||||||||||||||||||||
Impaired | - | - | 384 | 384 | - | - | 409 | 409 | ||||||||||||||||||||||||
Allowance for credit losses | 51 | 37 | 13 | 101 | 51 | 75 | 16 | 142 | ||||||||||||||||||||||||
Carrying amount | 127,086 | 6,816 | 371 | 134,273 | 116,599 | 9,890 | 393 | 126,882 | ||||||||||||||||||||||||
Loans: Consumer instalment and other personal | ||||||||||||||||||||||||||||||||
Exceptionally low | 1,468 | 28 | - | 1,496 | 1,550 | 31 | - | 1,581 | ||||||||||||||||||||||||
Very low | 29,735 | 28 | - | 29,763 | 26,645 | 37 | - | 26,682 | ||||||||||||||||||||||||
Low | 23,142 | 505 | - | 23,647 | 20,935 | 585 | - | 21,520 | ||||||||||||||||||||||||
Medium | 10,953 | 3,769 | - | 14,722 | 10,324 | 4,334 | - | 14,658 | ||||||||||||||||||||||||
High | 465 | 1,288 | - | 1,753 | 429 | 1,470 | - | 1,899 | ||||||||||||||||||||||||
Not rated | 3,363 | 49 | - | 3,412 | 3,372 | 96 | - | 3,468 | ||||||||||||||||||||||||
Impaired | - | - | 299 | 299 | - | - | 340 | 340 | ||||||||||||||||||||||||
Allowance for credit losses | 127 | 362 | 98 | 587 | 134 | 429 | 105 | 668 | ||||||||||||||||||||||||
Carrying amount | 68,999 | 5,305 | 201 | 74,505 | 63,121 | 6,124 | 235 | 69,480 | ||||||||||||||||||||||||
Loans: Credit cards (1) | ||||||||||||||||||||||||||||||||
Exceptionally low | 2,468 | - | - | 2,468 | 2,252 | - | - | 2,252 | ||||||||||||||||||||||||
Very low | 412 | 1 | - | 413 | 1,106 | 15 | - | 1,121 | ||||||||||||||||||||||||
Low | 1,636 | 136 | - | 1,772 | 899 | 148 | - | 1,047 | ||||||||||||||||||||||||
Medium | 1,649 | 725 | - | 2,374 | 1,611 | 899 | - | 2,510 | ||||||||||||||||||||||||
High | 60 | 297 | - | 357 | 58 | 377 | - | 435 | ||||||||||||||||||||||||
Not rated | 482 | - | - | 482 | 524 | - | - | 524 | ||||||||||||||||||||||||
Impaired | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Allowance for credit losses | 60 | 233 | - | 293 | 61 | 272 | - | 333 | ||||||||||||||||||||||||
Carrying amount | 6,647 | 926 | - | 7,573 | 6,389 | 1,167 | - | 7,556 | ||||||||||||||||||||||||
Loans: Business and government (2) | ||||||||||||||||||||||||||||||||
Acceptable | ||||||||||||||||||||||||||||||||
Investment grade | 146,024 | 1,515 | - | 147,539 | 129,100 | 3,242 | - | 132,342 | ||||||||||||||||||||||||
Sub-investment grade | 82,986 | 16,173 | - | 99,159 | 85,197 | 30,106 | - | 115,303 | ||||||||||||||||||||||||
Watchlist | - | 6,926 | - | 6,926 | - | 8,621 | - | 8,621 | ||||||||||||||||||||||||
Impaired | - | - | 1,747 | 1,747 | - | - | 2,889 | 2,889 | ||||||||||||||||||||||||
Allowance for credit losses | 584 | 832 | 427 | 1,843 | 510 | 1,044 | 606 | 2,160 | ||||||||||||||||||||||||
Carrying amount | 228,426 | 23,782 | 1,320 | 253,528 | 213,787 | 40,925 | 2,283 | 256,995 | ||||||||||||||||||||||||
Commitments and financial guarantee contracts | ||||||||||||||||||||||||||||||||
Acceptable | ||||||||||||||||||||||||||||||||
Investment grade | 148,061 | 1,024 | - | 149,085 | 138,141 | 1,628 | - | 139,769 | ||||||||||||||||||||||||
Sub-investment grade | 44,769 | 10,139 | - | 54,908 | 41,650 | 20,421 | - | 62,071 | ||||||||||||||||||||||||
Watchlist | - | 2,979 | - | 2,979 | - | 4,861 | - | 4,861 | ||||||||||||||||||||||||
Impaired | - | - | 792 | 792 | - | - | 1,261 | 1,261 | ||||||||||||||||||||||||
Allowance for credit losses | 209 | 191 | 24 | 424 | 211 | 288 | 12 | 511 | ||||||||||||||||||||||||
Carrying amount (3)(4) | 192,621 | 13,951 | 768 | 207,340 | 179,580 | 26,622 | 1,249 | 207,451 |
(1) | 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. |
(2) | Includes customers’ liability under acceptances. |
(3) | Represents the 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. |
(4) | Certain commercial borrower commitments are conditional and may include recourse with other parties. |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
Allowance for Credit Losses
The allowance for credit losses 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 allowance for credit losses amounted to $3,248 million at July 31, 2021 ($3,814 million as at October 31, 2020) of which $2,824 million ($3,303 million as at October 31, 2020) was recorded in loans and $424 million ($511 million as at October 31, 2020) was recorded in other liabilities in our Consolidated Balance Sheet.
Significant changes in the gross balances, including originations, maturities and repayments in the normal course of operations, impact the allowance for credit losses.
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The following tables show the continuity in the loss allowance by product type for the three and nine months ended July 31, 2021 and July 31, 2020. Transfers represent the amount of expected credit loss (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, and changes in economic forecasts and credit quality. Model changes includes new calculation models or methodologies.(Canadian $ in millions) | ||||||||||||||||||||||||||||||||
For the three months ended | July 31, 2021 | July 31, 2020 | ||||||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||||||||||||||
Loans: Residential mortgages | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 60 | 53 | 22 | 135 | 29 | 37 | 27 | 93 | ||||||||||||||||||||||||
Transfer to Stage 1 | 14 | (13 | ) | (1 | ) | - | 8 | (7 | ) | (1 | ) | - | ||||||||||||||||||||
Transfer to Stage 2 | (1 | ) | 3 | (2 | ) | - | (1 | ) | 4 | (3 | ) | - | ||||||||||||||||||||
Transfer to Stage 3 | - | (2 | ) | 2 | - | - | (1 | ) | 1 | - | ||||||||||||||||||||||
Net remeasurement of loss allowance | (35 | ) | - | 3 | (32 | ) | 27 | 30 | 10 | 67 | ||||||||||||||||||||||
Loan originations | 15 | - | - | 15 | 4 | - | - | 4 | ||||||||||||||||||||||||
Derecognitions and maturities | (2 | ) | (3 | ) | - | (5 | ) | - | (2 | ) | - | (2 | ) | |||||||||||||||||||
Model changes | - | - | - | - | (1 | ) | (3 | ) | - | (4 | ) | |||||||||||||||||||||
Total Provision for Credit Losses (PCL) (1) | (9 | ) | (15 | ) | 2 | (22 | ) | 37 | 21 | 7 | 65 | |||||||||||||||||||||
Write-offs (2) | - | - | (3 | ) | (3 | ) | - | - | (3 | ) | (3 | ) | ||||||||||||||||||||
Recoveries of previous write-offs | - | - | 4 | 4 | - | - | 2 | 2 | ||||||||||||||||||||||||
Foreign exchange and other | - | - | (3 | ) | (3 | ) | (1 | ) | - | (6 | ) | (7 | ) | |||||||||||||||||||
Balance as at end of period | 51 | 38 | 22 | 111 | 65 | 58 | 27 | 150 | ||||||||||||||||||||||||
Loans: Consumer instalment and other personal | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 141 | 401 | 101 | 643 | 116 | 407 | 125 | 648 | ||||||||||||||||||||||||
Transfer to Stage 1 | 58 | (56 | ) | (2 | ) | - | 59 | (57 | ) | (2 | ) | - | ||||||||||||||||||||
Transfer to Stage 2 | (5 | ) | 16 | (11 | ) | - | (10 | ) | 21 | (11 | ) | - | ||||||||||||||||||||
Transfer to Stage 3 | (3 | ) | (24 | ) | 27 | - | (1 | ) | (27 | ) | 28 | - | ||||||||||||||||||||
Net remeasurement of loss allowance | (64 | ) | 60 | 18 | 14 | (50 | ) | 103 | 56 | 109 | ||||||||||||||||||||||
Loan originations | 23 | - | - | 23 | 9 | - | - | 9 | ||||||||||||||||||||||||
Derecognitions and maturities | (8 | ) | (13 | ) | - | (21 | ) | (4 | ) | (9 | ) | - | (13 | ) | ||||||||||||||||||
Model changes | - | - | - | - | 11 | 8 | - | 19 | ||||||||||||||||||||||||
Total PCL (1) | 1 | (17 | ) | 32 | 16 | 14 | 39 | 71 | 124 | |||||||||||||||||||||||
Write-offs (2) | - | - | (55 | ) | (55 | ) | - | - | (81 | ) | (81 | ) | ||||||||||||||||||||
Recoveries of previous write-offs | - | - | 24 | 24 | - | - | 22 | 22 | ||||||||||||||||||||||||
Foreign exchange and other | - | 2 | (4 | ) | (2 | ) | (3 | ) | (3 | ) | (10 | ) | (16 | ) | ||||||||||||||||||
Balance as at end of period | 142 | 386 | 98 | 626 | 127 | 443 | 127 | 697 | ||||||||||||||||||||||||
Loans: Credit cards | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 106 | 284 | - | 390 | 115 | 319 | - | 434 | ||||||||||||||||||||||||
Transfer to Stage 1 | 42 | (42 | ) | - | - | 50 | (50 | ) | - | - | ||||||||||||||||||||||
Transfer to Stage 2 | (6 | ) | 6 | - | - | (9 | ) | 9 | - | - | ||||||||||||||||||||||
Transfer to Stage 3 | - | (47 | ) | 47 | - | - | (48 | ) | 48 | - | ||||||||||||||||||||||
Net remeasurement of loss allowance | (39 | ) | 84 | 2 | 47 | (44 | ) | 105 | 20 | 81 | ||||||||||||||||||||||
Loan originations | 11 | - | - | 11 | 5 | - | - | 5 | ||||||||||||||||||||||||
Derecognitions and maturities | (3 | ) | (7 | ) | - | (10 | ) | (1 | ) | (7 | ) | - | (8 | ) | ||||||||||||||||||
Model changes | - | - | - | - | (1 | ) | (10 | ) | - | (11 | ) | |||||||||||||||||||||
Total PCL (1) | 5 | (6 | ) | 49 | 48 | - | (1 | ) | 68 | 67 | ||||||||||||||||||||||
Write-offs (2) | - | - | (70 | ) | (70 | ) | - | - | (80 | ) | (80 | ) | ||||||||||||||||||||
Recoveries of previous write-offs | - | - | 26 | 26 | - | - | 19 | 19 | ||||||||||||||||||||||||
Foreign exchange and other | (1 | ) | (1 | ) | (5 | ) | (7 | ) | (3 | ) | (1 | ) | (7 | ) | (11 | ) | ||||||||||||||||
Balance as at end of period | 110 | 277 | - | 387 | 112 | 317 | - | 429 | ||||||||||||||||||||||||
Loans: Business and government | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 689 | 1,075 | 541 | 2,305 | 580 | 795 | 586 | 1,961 | ||||||||||||||||||||||||
Transfer to Stage 1 | 114 | (113 | ) | (1 | ) | - | 45 | (45 | ) | - | - | |||||||||||||||||||||
Transfer to Stage 2 | (23 | ) | 63 | (40 | ) | - | (65 | ) | 66 | (1 | ) | - | ||||||||||||||||||||
Transfer to Stage 3 | - | (17 | ) | 17 | - | (4 | ) | (163 | ) | 167 | - | |||||||||||||||||||||
Net remeasurement of loss allowance | (112 | ) | 13 | 12 | (87 | ) | 145 | 510 | 134 | 789 | ||||||||||||||||||||||
Loan originations | 87 | - | - | 87 | 53 | - | - | 53 | ||||||||||||||||||||||||
Derecognitions and maturities | (36 | ) | (72 | ) | - | (108 | ) | (21 | ) | (36 | ) | - | (57 | ) | ||||||||||||||||||
Model changes | - | - | - | - | (7 | ) | (4 | ) | - | (11 | ) | |||||||||||||||||||||
Total PCL (1) | 30 | (126 | ) | (12 | ) | (108 | ) | 146 | 328 | 300 | 774 | |||||||||||||||||||||
Write-offs (2) | - | - | (101 | ) | (101 | ) | - | - | (300 | ) | (300 | ) | ||||||||||||||||||||
Recoveries of previous write-offs | - | - | 13 | 13 | - | - | 37 | 37 | ||||||||||||||||||||||||
Foreign exchange and other | 9 | 5 | 1 | 15 | (5 | ) | 10 | (46 | ) | (41 | ) | |||||||||||||||||||||
Balance as at end of period | 728 | 954 | 442 | 2,124 | 721 | 1,133 | 577 | 2,431 | ||||||||||||||||||||||||
Total as at end of period | 1,031 | 1,655 | 562 | 3,248 | 1,025 | 1,951 | 731 | 3,707 | ||||||||||||||||||||||||
Comprised of: Loans | 822 | 1,464 | 538 | 2,824 | 813 | 1,719 | 719 | 3,251 | ||||||||||||||||||||||||
Other credit instruments (3) | 209 | 191 | 24 | 424 | 212 | 232 | 12 | 456 |
(1) | Excludes PCL on other assets of $(4) million for the three months ended July 31, 2021 ($24 million for the three months ended July 31, 2020). |
(2) | 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. |
(3) | Other credit instruments, including off-balance sheet items, are recorded in other liabilities in our Consolidated Balance Sheet. |
BMO Financial Group Third Quarter Report 2021
55
(Canadian $ in millions) | ||||||||||||||||||||||||||||||||
For the nine months ended | July 31, 2021 | July 31, 2020 | ||||||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||||||||||||||
Loans: Residential mortgages | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 51 | 75 | 26 | 152 | 15 | 33 | 38 | 86 | ||||||||||||||||||||||||
Transfer to Stage 1 | 48 | (39 | ) | (9 | ) | - | 19 | (17 | ) | (2 | ) | - | ||||||||||||||||||||
Transfer to Stage 2 | (3 | ) | 20 | (17 | ) | - | (2 | ) | 7 | (5 | ) | - | ||||||||||||||||||||
Transfer to Stage 3 | - | (11 | ) | 11 | - | - | (4 | ) | 4 | - | ||||||||||||||||||||||
Net remeasurement of loss allowance | (68 | ) | 5 | 29 | (34 | ) | 29 | 47 | 17 | 93 | ||||||||||||||||||||||
Loan originations | 28 | - | - | 28 | 8 | - | - | 8 | ||||||||||||||||||||||||
Derecognitions and maturities | (5 | ) | (10 | ) | - | (15 | ) | (1 | ) | (4 | ) | - | (5 | ) | ||||||||||||||||||
Model changes | - | - | - | - | (3 | ) | (5 | ) | - | (8 | ) | |||||||||||||||||||||
Total PCL (1) | - | (35 | ) | 14 | (21 | ) | 50 | 24 | 14 | 88 | ||||||||||||||||||||||
Write-offs (2) | - | - | (9 | ) | (9 | ) | - | - | (9 | ) | (9 | ) | ||||||||||||||||||||
Recoveries of previous write-offs | - | - | 8 | 8 | - | - | 6 | 6 | ||||||||||||||||||||||||
Foreign exchange and other | - | (2 | ) | (17 | ) | (19 | ) | - | 1 | (22 | ) | (21 | ) | |||||||||||||||||||
Balance as at end of period | 51 | 38 | 22 | 111 | 65 | 58 | 27 | 150 | ||||||||||||||||||||||||
Loans: Consumer instalment and other personal | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 148 | 454 | 105 | 707 | 89 | 333 | 136 | 558 | ||||||||||||||||||||||||
Transfer to Stage 1 | 175 | (168 | ) | (7 | ) | - | 138 | (131 | ) | (7 | ) | - | ||||||||||||||||||||
Transfer to Stage 2 | (21 | ) | 50 | (29 | ) | - | (20 | ) | 66 | (46 | ) | - | ||||||||||||||||||||
Transfer to Stage 3 | (6 | ) | (76 | ) | 82 | - | (3 | ) | (79 | ) | 82 | - | ||||||||||||||||||||
Net remeasurement of loss allowance | (197 | ) | 169 | 77 | 49 | (112 | ) | 247 | 162 | 297 | ||||||||||||||||||||||
Loan originations | 66 | - | - | 66 | 32 | - | - | 32 | ||||||||||||||||||||||||
Derecognitions and maturities | (21 | ) | (37 | ) | - | (58 | ) | (12 | ) | (27 | ) | - | (39 | ) | ||||||||||||||||||
Model changes | - | - | - | - | 16 | 33 | - | 49 | ||||||||||||||||||||||||
Total PCL (1) | (4 | ) | (62 | ) | 123 | 57 | 39 | 109 | 191 | 339 | ||||||||||||||||||||||
Write-offs (2) | - | - | (184 | ) | (184 | ) | - | - | (248 | ) | (248 | ) | ||||||||||||||||||||
Recoveries of previous write-offs | - | - | 70 | 70 | - | - | 64 | 64 | ||||||||||||||||||||||||
Foreign exchange and other | (2 | ) | (6 | ) | (16 | ) | (24 | ) | (1 | ) | 1 | (16 | ) | (16 | ) | |||||||||||||||||
Balance as at end of period | 142 | 386 | 98 | 626 | 127 | 443 | 127 | 697 | ||||||||||||||||||||||||
Loans: Credit cards | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 110 | 321 | - | 431 | 80 | 225 | - | 305 | ||||||||||||||||||||||||
Transfer to Stage 1 | 141 | (141 | ) | - | - | 107 | (107 | ) | - | - | ||||||||||||||||||||||
Transfer to Stage 2 | (21 | ) | 21 | - | - | (25 | ) | 25 | - | - | ||||||||||||||||||||||
Transfer to Stage 3 | (1 | ) | (134 | ) | 135 | - | (1 | ) | (129 | ) | 130 | - | ||||||||||||||||||||
Net remeasurement of loss allowance | (139 | ) | 234 | 22 | 117 | (57 | ) | 332 | 68 | 343 | ||||||||||||||||||||||
Loan originations | 28 | - | - | 28 | 13 | - | - | 13 | ||||||||||||||||||||||||
Derecognitions and maturities | (6 | ) | (22 | ) | - | (28 | ) | (3 | ) | (19 | ) | - | (22 | ) | ||||||||||||||||||
Model changes | - | - | - | - | (1 | ) | (10 | ) | - | (11 | ) | |||||||||||||||||||||
Total PCL (1) | 2 | (42 | ) | 157 | 117 | 33 | 92 | 198 | 323 | |||||||||||||||||||||||
Write-offs (2) | - | - | (212 | ) | (212 | ) | - | - | (257 | ) | (257 | ) | ||||||||||||||||||||
Recoveries of previous write-offs | - | - | 73 | 73 | - | - | 66 | 66 | ||||||||||||||||||||||||
Foreign exchange and other | (2 | ) | (2 | ) | (18 | ) | (22 | ) | (1 | ) | - | (7 | ) | (8 | ) | |||||||||||||||||
Balance as at end of period | 110 | 277 | - | 387 | 112 | 317 | - | 429 | ||||||||||||||||||||||||
Loans: Business and government | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 658 | 1,258 | 608 | 2,524 | 338 | 496 | 311 | 1,145 | ||||||||||||||||||||||||
Transfer to Stage 1 | 385 | (380 | ) | (5 | ) | - | 109 | (102 | ) | (7 | ) | - | ||||||||||||||||||||
Transfer to Stage 2 | (86 | ) | 138 | (52 | ) | - | (118 | ) | 121 | (3 | ) | - | ||||||||||||||||||||
Transfer to Stage 3 | (2 | ) | (83 | ) | 85 | - | (6 | ) | (226 | ) | 232 | - | ||||||||||||||||||||
Net remeasurement of loss allowance | (327 | ) | 268 | 119 | 60 | 321 | 883 | 558 | 1,762 | |||||||||||||||||||||||
Loan originations | 232 | - | - | 232 | 153 | - | - | 153 | ||||||||||||||||||||||||
Derecognitions and maturities | (102 | ) | (165 | ) | - | (267 | ) | (63 | ) | (86 | ) | - | (149 | ) | ||||||||||||||||||
Model changes | (5 | ) | (19 | ) | - | (24 | ) | (30 | ) | 8 | - | (22 | ) | |||||||||||||||||||
Total PCL (1) | 95 | (241 | ) | 147 | 1 | 366 | 598 | 780 | 1,744 | |||||||||||||||||||||||
Write-offs (2) | - | - | (285 | ) | (285 | ) | - | - | (516 | ) | (516 | ) | ||||||||||||||||||||
Recoveries of previous write-offs | - | - | 40 | 40 | - | - | 60 | 60 | ||||||||||||||||||||||||
Foreign exchange and other | (25 | ) | (63 | ) | (68 | ) | (156 | ) | 17 | 39 | (58 | ) | (2 | ) | ||||||||||||||||||
Balance as at end of period | 728 | 954 | 442 | 2,124 | 721 | 1,133 | 577 | 2,431 | ||||||||||||||||||||||||
Total as at end of period | 1,031 | 1,655 | 562 | 3,248 | 1,025 | 1,951 | 731 | 3,707 | ||||||||||||||||||||||||
Comprised of: Loans | 822 | 1,464 | 538 | 2,824 | 813 | 1,719 | 719 | 3,251 | ||||||||||||||||||||||||
Other credit instruments (3) | 209 | 191 | 24 | 424 | 212 | 232 | 12 | 456 |
(1) | Excludes PCL on other assets of $(8) million for the nine months ended July 31, 2021 ($27 million for the nine months ended July 31, 2020). |
(2) | 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. |
(3) | Other credit instruments, including off-balance sheet items, are recorded in other liabilities in our Consolidated Balance Sheet. |
56
Loans and allowance for credit losses by geographic region as at July 31, 2021 and October 31, 2020 are as follows:
(Canadian $ in millions) | July 31, 2021 | October 31, 2020 | ||||||||||||||||||||||||||||||
Gross amount | Allowance for credit losses on impaired loans (2) | Allowance for credit losses on performing loans (3) | Net a mount | Gross amount | | Allowance for credit losses on impaired loans (2) | | Allowance for credit losses on performing loans (3) | | Net a mount | | |||||||||||||||||||||
By geographic region (1): | ||||||||||||||||||||||||||||||||
Canada | 293,558 | 352 | 1,269 | 291,937 | 276,975 | 303 | 1,323 | 275,349 | ||||||||||||||||||||||||
United States | 156,332 | 186 | 996 | 155,150 | 161,725 | 410 | 1,225 | 160,090 | ||||||||||||||||||||||||
Other countries | 8,550 | - | 21 | 8,529 | 12,023 | 14 | 28 | 11,981 | ||||||||||||||||||||||||
Total | 458,440 | 538 | 2,286 | 455,616 | 450,723 | 727 | 2,576 | 447,420 |
(1) | Geographic region is based upon the country of ultimate risk. |
(2) | Excludes allowance for credit losses on impaired loans of $24 million for other credit instruments, which is included in other liabilities ($12 million as at October 31, 2020). |
(3) | Excludes allowance for credit losses on performing loans of $400 million for other credit instruments, which is included in other liabilities ($499 million as at October 31, 2020). |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
Impaired (Stage 3) loans, including the related allowances, as at July 31, 2021 and October 31, 2020 are as follows:
(Canadian $ in millions) | July 31, 2021 | October 31, 2020 | ||||||||||||||||||||||
Gross impaired amount (3) | Allowance for credit losses on impaired loans (4) | Net impaired amount (3) | Gross impaired amount (3) | Allowance for credit losses on impaired loans (4) | Net impaired amount (3) | |||||||||||||||||||
Residential mortgages | 384 | 13 | 371 | 409 | 16 | 393 | ||||||||||||||||||
Consumer instalment and other personal | 299 | 98 | 201 | 340 | 105 | 235 | ||||||||||||||||||
Business and government (1) | 1,747 | 427 | 1,320 | 2,889 | 606 | 2,283 | ||||||||||||||||||
Total | 2,430 | 538 | 1,892 | 3,638 | 727 | 2,911 | ||||||||||||||||||
By geographic region (2): | ||||||||||||||||||||||||
Canada | 1,207 | 352 | 855 | 1,343 | 303 | 1,040 | ||||||||||||||||||
United States | 1,223 | 186 | 1,037 | 2,211 | 410 | 1,801 | ||||||||||||||||||
Other countries | - | - | - | 84 | 14 | 70 | ||||||||||||||||||
Total | 2,430 | 538 | 1,892 | 3,638 | 727 | 2,911 |
(1) | Includes customers’ liability under acceptances. |
(2) | Geographic region is based upon the country of ultimate risk. |
(3) | Gross impaired loans and net impaired loans exclude purchased credit impaired loans. |
(4) | Excludes allowance for credit losses on impaired loans of $24 million for other credit instruments, which is included in other liabilities ($12 million as at October 31, 2020). |
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, 2021 and October 31, 2020. 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, 2021 | October 31, 2020 | ||||||||||||||||||||||
30 to 89 days | 90 days or more | Total | 30 to 89 days | 90 days or more | Total | |||||||||||||||||||
Residential mortgages | 341 | 16 | 357 | 543 | 43 | 586 | ||||||||||||||||||
Credit card, consumer instalment and other personal | 317 | 64 | 381 | 345 | 65 | 410 | ||||||||||||||||||
Business and government | 219 | 32 | 251 | 330 | 22 | 352 | ||||||||||||||||||
Total | 877 | 112 | 989 | 1,218 | 130 | 1,348 |
Fully secured loans with amounts past due between 90 and 180 days that we have not classified as impaired totalled $42 million and $53 million as at July 31, 2021 and October 31, 2020, respectively.
ECL Sensitivity and Key Economic Variables
The expected credit loss 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. Forecasts are developed internally by our Economics group, considering external data and our view of future economic conditions. We apply experienced credit judgment to reflect factors not captured in the ECL models, as we deem necessary. We have applied experienced credit judgment to reflect the impact of the extraordinary and highly uncertain environment on credit conditions and the economy as a result of the
COVID-19
pandemic.As at July 31, 2021, our base case scenario depicts a stronger economic forecast in both Canada and the U.S. In Canada, annual real GDP growth averages 7.3% over the next 12 months and 3.9% over the following 12 months. The U.S. economy follows a similar trajectory, but with a higher level of growth compared to Canada, given a larger policy stimulus and an initially faster vaccine rollout. Our base case economic forecast as at October 31, 2020 depicted moderate economic growth in both Canada and the U.S. over the near-term projection period. If we assumed a 100% base case economic forecast and included the impact of loan migration by restaging, with other assumptions held constant, including the application of experienced credit judgment, the allowance on performing loans would be approximately $1,850 million as at July 31, 2021 ($2,375 million as at October 31, 2020), compared to the reported allowance for performing loans of $2,686 million ($3,075 million as at October 31, 2020).
BMO Financial Group Third Quarter Report 2021
57
As at July 31, 2021, the adverse case economic scenario depicts de minimis annual average real GDP growth in both Canada and the U.S. over the next 12 months, with both contracting at a rate of 1.1% in the following 12 months as shown in the table below. The adverse case scenario assumes a sustained and large increase in
COVID-19
infections, accompanied by renewed restrictions on a broad range of activities leading to a decline in consumer and business confidence. The adverse case as at October 31, 2020 depicted a less severe economic contraction in Canada and the United States compared with the adverse case as at July 31, 2021 as real GDP in Canada and the U.S. contracted about 3% over several quarters instead of 5%. However, due to the different time periods, the yearly growth rates of real GDP were weaker as at October 31, 2020 compared to July 31, 2021. If we assumed a 100% adverse economic forecast and included the impact of loan migration by restaging, with other assumptions held constant, including the application of experienced credit judgment, the allowance on performing loans would be approximately $4,225 million as at July 31, 2021 ($4,875 million as at October 31, 2020), compared to the reported allowance for performing loans of $2,686 million ($3,075 million as at October 31, 2020).When we measure changes in economic performance in our forecasts, 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 VIX equity volatility index, corporate BBB credit spreads, unemployment rates, housing price indices and consumer credit. Many of the variables have a high degree of interdependency and as such, there is no one single factor to which loan impairment allowances as a whole are sensitive. The following table shows certain key economic variables used to estimate the allowance on performing loans during the forecast period. This table is typically provided on an annual basis; however, given the continued level of uncertainty in the forward-looking information due to the impact of
COVID-19,
the disclosures have been provided as an update to the information in Note 4 of our annual consolidated financial statements for the year ended October 31, 2020. The values shown represent the national annual average levels or growth rates for the next 12 months and subsequent 12 months following each reporting period for all scenarios. While the values disclosed below are national variables, we use regional variables in our underlying models where appropriate. As at July 31, 2021 | As at October 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||
All figures are average annual values | Benign scenario | Base scenario | Adverse scenario | Benign scenario | Base scenario | Adverse scenario | ||||||||||||||||||||||||||||||||||||||||||||||
First 12 months | Second 12 months | First 12 months | Second 12 months | First 12 months | Second 12 months | First 12 months | | Second 12 months | | First 12 months | | Second 12 months | | First 12 months | | Second 12 months | | |||||||||||||||||||||||||||||||||||
Real GDP growth rates (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Canada | 9.6% | 5.5% | 7.3% | 3.9% | 0.7% | (1.1)% | 3.7% | 6.4% | 1.8% | 4.2% | (4.4)% | (1.1)% | ||||||||||||||||||||||||||||||||||||||||
United States | 10.9% | 4.6% | 8.7% | 3.3% | 0.1% | (1.1)% | 1.6% | 6.0% | (0.4)% | 4.0% | (5.1)% | (1.2)% | ||||||||||||||||||||||||||||||||||||||||
Corporate BBB 10-year spread | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Canada | 1.5% | 1.9% | 1.9% | 2.2% | 3.6% | 4.4% | 1.8% | 1.9% | 2.2% | 2.2% | 3.6% | 4.5% | ||||||||||||||||||||||||||||||||||||||||
United States | 1.0% | 1.2% | 1.3% | 1.6% | 4.2% | 4.5% | 1.7% | 1.7% | 2.0% | 2.0% | 3.9% | 4.1% | ||||||||||||||||||||||||||||||||||||||||
Unemployment rates | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Canada | 5.9% | 4.8% | 7.1% | 5.8% | 11.2% | 13.1% | 7.4% | 6.1% | 8.9% | 7.5% | 12.7% | 13.9% | ||||||||||||||||||||||||||||||||||||||||
United States | 4.3% | 3.2% | 4.9% | 3.7% | 9.1% | 11.6% | 6.4% | 4.8% | 8.0% | 6.0% | 11.5% | 12.8% | ||||||||||||||||||||||||||||||||||||||||
Housing Price Index (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Canada (2) | 24.0% | 10.9% | 20.9% | 6.0% | (8.6)% | (18.0)% | 10.3% | 7.7% | 7.2% | 2.8% | (1.2)% | (8.7)% | ||||||||||||||||||||||||||||||||||||||||
United States (3) | 13.8% | 7.0% | 11.5% | 4.5% | (7.4)% | (15.5)% | 4.6% | 4.5% | 2.4% | 2.1% | (2.4)% | (6.2)% |
(1) | Real gross domestic product and housing price index are year-over-year growth rates. |
(2) | In Canada, we use the HPI Benchmark Composite. |
(3) | 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 and based on the current risk profile of our loan exposures, if all our performing loans were in Stage 1, our allowance for performing loans would be approximately $1,925 million ($2,300 million as at October 31, 2020), compared with the reported allowance for performing loans of $2,686 million ($3,075 million as at October 31, 2020).
58
Note 4: Deposits and Subordinated Debt
Deposits
Payable on demand | Payable | Payable on | ||||||||||||||||||||||||||||||||||||||
(Canadian $ in millions) | Interest bearing | Non-interest bearing | after notice | a fixed date (4)(5) | Total | |||||||||||||||||||||||||||||||||||
July 31, 2021 | October 31, 2020 | July 31, 2021 | October 31, 2020 | July 31, 2021 | October 31, 2020 | July 31, 2021 | October 31, 2020 | July 31, 2021 | October 31, 2020 | |||||||||||||||||||||||||||||||
Deposits by: | ||||||||||||||||||||||||||||||||||||||||
Banks (1) | 5,830 | 3,594 | 1,998 | 2,460 | 769 | 1,231 | 20,630 | 31,540 | 29,227 | 38,825 | ||||||||||||||||||||||||||||||
Business and government | 50,810 | 44,111 | 50,659 | 44,258 | 144,468 | 124,813 | 188,817 | 187,497 | 434,754 | 400,679 | ||||||||||||||||||||||||||||||
Individuals | 4,934 | 4,661 | 35,927 | 30,369 | 117,314 | 111,905 | 58,397 | 72,595 | 216,572 | 219,530 | ||||||||||||||||||||||||||||||
Total (2) (3) | 61,574 | 52,366 | 88,584 | 77,087 | 262,551 | 237,949 | 267,844 | 291,632 | 680,553 | 659,034 | ||||||||||||||||||||||||||||||
Booked in: | ||||||||||||||||||||||||||||||||||||||||
Canada | 52,667 | 41,855 | 79,560 | 67,873 | 126,999 | 112,543 | 163,465 | 185,655 | 422,691 | 407,926 | ||||||||||||||||||||||||||||||
United States | 8,594 | 8,818 | 8,959 | 9,170 | 134,231 | 124,129 | 75,851 | 78,175 | 227,635 | 220,292 | ||||||||||||||||||||||||||||||
Other countries | 313 | 1,693 | 65 | 44 | 1,321 | 1,277 | 28,528 | 27,802 | 30,227 | 30,816 | ||||||||||||||||||||||||||||||
Total | 61,574 | 52,366 | 88,584 | 77,087 | 262,551 | 237,949 | 267,844 | 291,632 | 680,553 | 659,034 |
(1) | Includes regulated and central banks. |
(2) | Includes structured notes and metals deposits designated at FVTPL (Note 6). |
(3) | Included in deposits as at July 31, 2021 and October 31, 2020 are $340,368 million and $322,951 million, respectively, of deposits denominated in U.S. dollars, and $28,815 million and $32,254 million, respectively, of deposits denominated in other foreign currencies. |
(4) | Includes $31,727 million of senior unsecured debt as at July 31, 2021 subject to the Bank Recapitalization (Bail-In) regime ($25,651 million as at October 31, 2020). TheBail-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 becomesnon-viable. |
(5) | Deposits totalling $21,108 million as at July 31, 2021 ($27,353 million as at October 31, 2020) can be early redeemed (either fully or partially) by customers without penalty. As we do not expect a significant amount to be redeemed before maturity, we have classified them as payable on a fixed date. |
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, 2021 | 140,159 | 71,589 | 28,526 | 240,274 | ||||
As at October 31, 2020 | 158,475 | 72,186 | 27,799 | 258,460 |
The following table presents the maturity schedule for deposits payable on a fixed date and 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, 2021 | 22,423 | 13,274 | 23,840 | 80,622 | 140,159 | |||||||
As at October 31, 2020 | 18,081 | 29,679 | 28,109 | 82,606 | 158,475 |
Subordinated Debt
On July 22, 2021, we issued $1,000 million of 1.928% non-viability contingent capital (NVCC) subordinated notes under our Canadian Medium-Term Note Program. The Series K Medium-Term Notes are due July 22, 2031. The notes reset to a floating rate on July 22, 2026.
On June 1, 2021, we redeemed all of our $1,250 million 3.32% Series I Medium-Term Notes First Tranche (NVCC), at a redemption price of 100 percent of the principal amount plus unpaid accrued interest to, but excluding, the redemption date.
On December 8, 2020, we redeemed all of our outstanding $1,000 million, Series H Medium-Term Notes Second Tranche (NVCC), at a redemption price of 100 percent of the principal amount plus unpaid accrued interest to, but excluding, the redemption date.
BMO Financial Group Third Quarter Report 2021
59
Note 5: Equity
Preferred and Common Shares Outstanding and Other Equity Instruments
(1)
(Canadian $ in millions, except as noted) | July 31, 2021 | October 31, 2020 | ||||||||||||||||||||||
Number of shares | Amount | Number of shares | Amount | Convertible into... | ||||||||||||||||||||
Preferred Shares - Classified as Equity | ||||||||||||||||||||||||
Class B – Series 25 | 9,425,607 | 236 | 9,425,607 | 236 | Class B - Series 26 | (2) | ||||||||||||||||||
Class B – Series 26 | 2,174,393 | 54 | 2,174,393 | 54 | Class B - Series 25 | (2) | ||||||||||||||||||
Class B – Series 27 | 20,000,000 | 500 | 20,000,000 | 500 | Class B - Series 28 | (2)(3) | ||||||||||||||||||
Class B – Series 29 | 16,000,000 | 400 | 16,000,000 | 400 | Class B - Series 30 | (2)(3) | ||||||||||||||||||
Class B – Series 31 | 12,000,000 | 300 | 12,000,000 | 300 | Class B - Series 32 | (2)(3) | ||||||||||||||||||
Class B – Series 33 | 8,000,000 | 200 | 8,000,000 | 200 | Class B - Series 34 | (2)(3) | ||||||||||||||||||
Class B – Series 35 | - | - | 6,000,000 | 150 | Not convertible | (8) | ||||||||||||||||||
Class B – Series 36 | - | - | 600,000 | 600 | Class B - Series 37 | (8) | ||||||||||||||||||
Class B – Series 38 | 24,000,000 | 600 | 24,000,000 | 600 | Class B - Series 39 | (2)(3) | ||||||||||||||||||
Class B – Series 40 | 20,000,000 | 500 | 20,000,000 | 500 | Class B - Series 41 | (2)(3) | ||||||||||||||||||
Class B – Series 42 | 16,000,000 | 400 | 16,000,000 | 400 | Class B - Series 43 | (2)(3) | ||||||||||||||||||
Class B – Series 44 | 16,000,000 | 400 | 16,000,000 | 400 | Class B - Series 45 | (2)(3) | ||||||||||||||||||
Class B – Series 46 | 14,000,000 | 350 | 14,000,000 | 350 | Class B - Series 47 | (2)(3) | ||||||||||||||||||
Preferred Shares - Classified as Equity | 3,940 | 4,690 | ||||||||||||||||||||||
Other Equity Instruments 4.8% Additional Tier 1 Capital Notes (AT1 Notes) | 658 | 658 | Common shares | (3) | ||||||||||||||||||||
4.3% Limited Recourse Capital Notes, Series 1 (LRCNs) | 1,250 | 1,250 | Common shares | (3)(4) | ||||||||||||||||||||
Other Equity Instruments | 1,908 | 1,908 | ||||||||||||||||||||||
Preferred Shares and Other Equity Instruments | 5,848 | 6,598 | ||||||||||||||||||||||
Common Shares (5) (6) (7) | 648,094,938 | 13,609 | 645,889,396 | 13,430 |
(1) | For additional information refer to Notes 16 and 20 of our annual consolidated financial statements for the year ended October 31, 2020. |
(2) | If converted, the holders have the option to convert back to the original preferred shares on subsequent redemption dates. |
(3) | The instruments issued include a NVCC provision, which is necessary for the preferred shares, AT1 Notes and by virtue of the recourse to Preferred Shares Series 48, the LRCNs (see (4) below) 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 avoidnon-viability. In such an event, each preferred share, including Preferred Shares Series 48, and AT1 Note is convertible into common shares pursuant to an automatic conversion formula and a conversion price based on the greater of: (i) a floor price of $5.00 and (ii) the current market price of our common shares based on the volume weighted average trading price of our common shares on the TSX. The number of common shares issued is determined by dividing the value of the preferred share or other equity instrument, including declared and unpaid dividends, by the conversion price and then applying the multiplier. |
(4) | Non-deferrable interest is payable semi-annually on the 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 our NVCC Preferred Shares Series 48, which 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 under which NVCC, including the Preferred Shares Series 48, would be converted into common shares of the bank, 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 of the Preferred Share Series 48. |
(5) | The stock options issued under the Stock Option Plan are convertible into 6,077,912 common shares as at July 31, 2021 (6,446,110 common shares as at October 31, 2020). |
(6) | During the three and nine months ended July 31, 2021, we did not issue common shares under the Shareholder Dividend Reinvestment and Share Purchase Plan and we issued 503,580 and 1,330,160 common shares, respectively, under the Stock Option Plan. |
(7) | Common shares are net of 222,652 treasury shares as at July 31, 2021 (652,730 treasury shares as at October 31, 2020). |
(8) | Series 35 and Series 36 were redeemed and final dividends were paid on November 25, 2020. |
60
Other Equity Instruments
The bank’s US$500 million (CAD $658 million) 4.8% Additional Tier 1 Capital Notes (AT1 Notes) and $1,250 million 4.3% Limited Recourse Capital Notes Series 1 (LRCNs) are classified as equity and form part of our additional
Tier 1 non-viability contingent capital.
Both 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. Semi-annual 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 July 16, 2021, we announced our intention to redeem all of our 9,425,607 outstanding Non-Cumulative 5 Year Rate Reset Class B Preferred Shares, Series 25 for an aggregate total of approximately $236 million and all of our 2,174,393 outstanding Non-Cumulative Floating Rate Class B Preferred Shares, Series 26 for an aggregate total of approximately $54 million on August 25, 2021.
On November 25, 2020, we redeemed all of our 6 million issued and outstanding
Non-Cumulative
Perpetual Class B Preferred Shares, Series 35 (NVCC) for an aggregate total of $156 million and all of our 600,000 issued and outstandingNon-Cumulative
5-Year
Rate Reset Class B Preferred Shares, Series 36 (NVCC) for an aggregate total of $600 million.Normal Course Issuer Bid
Our previous normal course issuer bid (NCIB) expired on June 2, 2020. Our plan, subject to approval of OSFI and the Toronto Stock Exchange, was to establish a new NCIB over a
12-month
period, commencing on or about June 3, 2020. The renewal process was put on hold in light of OSFI’s announcement on March 13, 2020 that all share buybacks by federally regulated financial institutions should be halted for the time being, and we did not renew our NCIB. We expect to proceed with the new NCIB following an announcement from OSFI that the restriction is no longer in effect.Shareholder Dividend Reinvestment and Share Purchase Plan
Until further notice, common shares under the Shareholder Dividend Reinvestment and Share Purchase Plan are purchased on the open market without a discount.
BMO Financial Group Third Quarter Report 2021
61
Note 6: Fair Value of Financial Instruments
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 assets and liabilities not currently carried at fair value were reported at their fair values. Refer to Note 17 to our annual consolidated financial statements for the year ended October 31, 2020 for further discussion on the determination of fair value.
(Canadian $ in millions) | July 31, 2021 | October 31, 2020 | ||||||||||||||
Carrying value | Fair value | Carrying value | Fair value | |||||||||||||
Securities (1) | ||||||||||||||||
Amortized cost | 48,727 | 49,105 | 48,466 | 49,009 | ||||||||||||
Loans (1) | ||||||||||||||||
Residential mortgages | 134,273 | 134,914 | 126,882 | 128,815 | ||||||||||||
Consumer instalment and other personal | 74,505 | 74,945 | 69,480 | 70,192 | ||||||||||||
Credit cards | 7,573 | 7,573 | 7,556 | 7,556 | ||||||||||||
Business and government (2) | 232,459 | 233,753 | 238,239 | 239,929 | ||||||||||||
448,810 | 451,185 | 442,157 | 446,492 | |||||||||||||
Deposits (3) | 658,175 | 659,636 | 640,961 | 643,156 | ||||||||||||
Securitization and structured entities’ liabilities (4) | 23,298 | 23,709 | 26,889 | 27,506 | ||||||||||||
Subordinated debt | 6,973 | 7,275 | 8,416 | 8,727 |
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, other assets, acceptances, securities lent or sold under repurchase agreements and other liabilities.
(1) | Carrying value is net of allowances for credit losses. |
(2) | Excludes $6,738 million of loans classified as FVTPL and $140 million of loans classified as FVOCI as at July 31, 2021, respectively ($5,306 million and $51 million, respectively, as at October 31, 2020). |
(3) | Excludes $22,085 million of structured note liabilities ($18,073 million as at October 31, 2020) and $293 million of metals deposits ($nil as at October 31, 2020) designated at FVTPL. |
(4) | Excludes $629 million of securitization and structured entities’ liabilities classified at FVTPL ($nil as at October 31, 2020). |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
Fair Value Hierarchy
We use a fair value hierarchy to categorize financial instruments according to the inputs we use in valuation techniques to measure fair value.
Valuation Techniques and Significant Inputs
We determine the fair value of publicly traded fixed maturity debt and equity securities using quoted prices in active markets (Level 1) when these are available. When quoted prices in active markets are not available, we determine the fair value of financial instruments using models such as discounted cash flows with observable market data for inputs, such as yield 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 and FVOCI securities are primarily valued using discounted cash flow models with observable spreads or broker quotes and other 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.
62
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, business and government loans classified as FVTPL and FVOCI, other assets, fair value liabilities, derivative assets and derivative liabilities is presented in the following tables:
(Canadian $ in millions) | July 31, 2021 | October 31, 2020 | ||||||||||||||||||||||||||||||
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 | 5,031 | 1,264 | - | 6,295 | 6,529 | 4,371 | - | 10,900 | ||||||||||||||||||||||||
Canadian provincial and municipal governments | 3,368 | 2,863 | - | 6,231 | 1,868 | 6,467 | - | 8,335 | ||||||||||||||||||||||||
U.S. federal government | 5,581 | 2,581 | - | 8,162 | 5,702 | 2,716 | - | 8,418 | ||||||||||||||||||||||||
U.S. states, municipalities and agencies | 30 | 264 | - | 294 | 16 | 487 | - | 503 | ||||||||||||||||||||||||
Other governments | 1,152 | 404 | - | 1,556 | 1,021 | 1,495 | - | 2,516 | ||||||||||||||||||||||||
NHA MBS, U.S. agency MBS and CMO | - | 13,282 | 794 | 14,076 | 7 | 11,487 | 803 | 12,297 | ||||||||||||||||||||||||
Corporate debt | 2,711 | 6,747 | 2 | 9,460 | 3,767 | 7,274 | - | 11,041 | ||||||||||||||||||||||||
Trading loans | - | 194 | - | 194 | - | 67 | - | 67 | ||||||||||||||||||||||||
Corporate equity | 55,901 | - | - | 55,901 | 43,757 | - | - | 43,757 | ||||||||||||||||||||||||
73,774 | 27,599 | 796 | 102,169 | 62,667 | 34,364 | 803 | 97,834 | |||||||||||||||||||||||||
FVTPL Securities | ||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||
Canadian federal government | 781 | 221 | - | 1,002 | 452 | 149 | - | 601 | ||||||||||||||||||||||||
Canadian provincial and municipal governments | 469 | 885 | - | 1,354 | 180 | 1,249 | - | 1,429 | ||||||||||||||||||||||||
U.S. federal government | 1 | 48 | - | 49 | - | 44 | - | 44 | ||||||||||||||||||||||||
Other governments | - | 93 | - | 93 | - | 94 | - | 94 | ||||||||||||||||||||||||
NHA MBS, U.S. agency MBS and CMO | - | 11 | - | 11 | - | 3 | - | 3 | ||||||||||||||||||||||||
Corporate debt | 141 | 7,611 | - | 7,752 | 70 | 7,827 | - | 7,897 | ||||||||||||||||||||||||
Corporate equity | 1,690 | 12 | 2,276 | 3,978 | 1,587 | 10 | 1,903 | 3,500 | ||||||||||||||||||||||||
3,082 | 8,881 | 2,276 | 14,239 | 2,289 | 9,376 | 1,903 | 13,568 | |||||||||||||||||||||||||
FVOCI Securities | ||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||
Canadian federal government | 13,627 | 983 | - | 14,610 | 20,765 | 1,685 | - | 22,450 | ||||||||||||||||||||||||
Canadian provincial and municipal governments | 1,655 | 1,019 | - | 2,674 | 2,604 | 2,143 | - | 4,747 | ||||||||||||||||||||||||
U.S. federal government | 17,166 | 3,529 | - | 20,695 | 14,852 | 2,842 | - | 17,694 | ||||||||||||||||||||||||
U.S. states, municipalities and agencies | 93 | 4,318 | 1 | 4,412 | 8 | 5,267 | 1 | 5,276 | ||||||||||||||||||||||||
Other governments | 3,126 | 3,471 | - | 6,597 | 3,643 | 3,738 | - | 7,381 | ||||||||||||||||||||||||
NHA MBS, U.S. agency MBS and CMO | - | 12,853 | - | 12,853 | - | 12,532 | - | 12,532 | ||||||||||||||||||||||||
Corporate debt | 654 | 1,945 | - | 2,599 | 792 | 2,442 | - | 3,234 | ||||||||||||||||||||||||
Corporate equity | - | - | 113 | 113 | - | - | 93 | 93 | ||||||||||||||||||||||||
36,321 | 28,118 | 114 | 64,553 | 42,664 | 30,649 | 94 | 73,407 | |||||||||||||||||||||||||
Business and government loans | - | 4,573 | 2,305 | 6,878 | - | 3,412 | 1,945 | 5,357 | ||||||||||||||||||||||||
Other Assets (1) | 3,274 | 85 | - | 3,359 | 5,328 | 117 | - | 5,445 | ||||||||||||||||||||||||
Fair Value Liabilities | ||||||||||||||||||||||||||||||||
Securities sold but not yet purchased | 21,383 | 7,114 | - | 28,497 | 19,740 | 9,636 | - | 29,376 | ||||||||||||||||||||||||
Structured note liabilities (2) | - | 22,085 | - | 22,085 | - | 18,073 | - | 18,073 | ||||||||||||||||||||||||
Other liabilities (3) | - | 2,087 | 13 | 2,100 | - | 1,285 | - | 1,285 | ||||||||||||||||||||||||
21,383 | 31,286 | 13 | 52,682 | 19,740 | 28,994 | - | 48,734 | |||||||||||||||||||||||||
Derivative Assets | ||||||||||||||||||||||||||||||||
Interest rate contracts | 12 | 10,213 | - | 10,225 | 13 | 14,916 | - | 14,929 | ||||||||||||||||||||||||
Foreign exchange contracts | 3 | 15,667 | - | 15,670 | 1 | 10,825 | - | 10,826 | ||||||||||||||||||||||||
Commodity contracts | 352 | 5,582 | - | 5,934 | 123 | 2,465 | - | 2,588 | ||||||||||||||||||||||||
Equity contracts | 965 | 3,534 | - | 4,499 | 750 | 7,711 | - | 8,461 | ||||||||||||||||||||||||
Credit default swaps | - | 3 | - | 3 | - | 11 | - | 11 | ||||||||||||||||||||||||
1,332 | 34,999 | - | 36,331 | 887 | 35,928 | - | 36,815 | |||||||||||||||||||||||||
Derivative Liabilities | ||||||||||||||||||||||||||||||||
Interest rate contracts | 6 | 7,761 | - | 7,767 | 22 | 10,871 | - | 10,893 | ||||||||||||||||||||||||
Foreign exchange contracts | 11 | 11,998 | - | 12,009 | 3 | 10,609 | - | 10,612 | ||||||||||||||||||||||||
Commodity contracts | 638 | 1,042 | - | 1,680 | 350 | 1,983 | - | 2,333 | ||||||||||||||||||||||||
Equity contracts | 565 | 7,140 | - | 7,705 | 456 | 6,067 | - | 6,523 | ||||||||||||||||||||||||
Credit default swaps | - | 2 | 4 | 6 | - | 10 | 4 | 14 | ||||||||||||||||||||||||
1,220 | 27,943 | 4 | 29,167 | 831 | 29,540 | 4 | 30,375 |
(1) | Other assets include precious metals and certain receivables measured at fair value included in other assets, other, in our Consolidated Balance Sheet. |
(2) | These structured note liabilities included in deposits have been designated at FVTPL. |
(3) | Other liabilities include investment contract liabilities in our insurance business, certain payables and metals deposits that have been designated at FVTPL, as well as certain securitization and structured entities’ liabilities measured at FVTPL. |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
BMO Financial Group Third Quarter Report 2021
63
Quantitative Information about Level 3 Fair Value Measurements
The table below presents the fair values of our significant Level 3 financial instruments that are 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.
Range of input values (1) | ||||||||||||||||||||||||
As at July 31, 2021 (Canadian $ in millions, except as noted) | Reporting line in fair value hierarchy table | Fair value of assets | Valuation techniques | Significant unobservable inputs | Low | High | ||||||||||||||||||
Private equity (2) | Corporate equity | 2,276 | Net Asset Value | Net Asset Value | na | na | ||||||||||||||||||
EV/EBITDA | Multiple | 6 | 16 | |||||||||||||||||||||
Loans (3) | Business and government loans | 2,305 | Discounted cash flows | Discount margin | 50bps | 144bps | ||||||||||||||||||
NHA MBS and U.S. agency MBS and CMO | NHA MBS and U.S. agency MBS and CMO | 794 | Discounted cash flows | Prepayment rate | 4% | 38% | ||||||||||||||||||
Market Comparable | Comparability Adjustment (4) | (4.64) | 4.53 |
(1) | The low and high input values represent the highest and lowest actual level of inputs used to value a group of financial instruments in a particular product category. These input ranges do not reflect the level of input uncertainty, but are affected by the specific underlying instruments within each product category. The input ranges will therefore vary from period to period based on the characteristics of the underlying instruments held at each balance sheet date. |
(2) | Included in private equity is $457 million of Federal Reserve Bank and U.S. Federal Home Loan Bank shares that we carry at cost as at July 31, 2021 ($487 million as at October 31, 2020), which approximates fair value, and are held to meet regulatory requirements. |
(3) | The impact of assuming a 10 basis point increase or decrease in discount margin for business and government loans is $4 million as at July 31, 2021 ($3 million as at October 31, 2020). |
(4) | Range of input values represents price per security adjustment. |
na | - not applicable |
Significant Transfers
Our policy is to record transfers of assets and liabilities between fair value hierarchy levels at their fair values as at the end of each reporting period, consistent with the date of the determination of fair value. Transfers between the various fair value hierarchy levels reflect changes in the availability of quoted market prices or observable market inputs that result from changes in market conditions. Transfers from Level 1 to Level 2 were due to reduced observability of the inputs used to value the securities. Transfers from Level 2 to Level 1 were due to increased availability of quoted prices in active markets.
The following table presents significant transfers between Level 1 and Level 2 for the three and nine months ended July 31, 2021 and July 31, 2020.
(Canadian $ in millions) | ||||||||||||||||
For the three months ended | July 31, 2021 | July 31, 2020 | ||||||||||||||
Level 1 to Level 2 | Level 2 to Level 1 | Level 1 to Level 2 | Level 2 to Level 1 | |||||||||||||
Trading Securities | 639 | 1,473 | 994 | 2,682 | ||||||||||||
FVTPL Securities | 153 | 403 | 19 | 241 | ||||||||||||
FVOCI Securities | 1,016 | 1,917 | 1,768 | 4,294 | ||||||||||||
Securities sold but not yet purchased | 197 | 648 | 681 | 2,067 |
(Canadian $ in millions) | ||||||||||||||||
For the nine months ended | July 31, 2021 | July 31, 2020 | ||||||||||||||
Level 1 to Level 2 | Level 2 to Level 1 | Level 1 to Level 2 | Level 2 to Level 1 | |||||||||||||
Trading Securities | 4,067 | 11,009 | 5,761 | 3,952 | ||||||||||||
FVTPL Securities | 361 | 804 | 518 | 302 | ||||||||||||
FVOCI Securities | 6,856 | 10,890 | 9,032 | 7,012 | ||||||||||||
Securities sold but not yet purchased | 1,198 | 5,905 | 4,432 | 2,982 |
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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, 2021 and July 31, 2020, 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.
Change in fair value | ||||||||||||||||||||||||||||||||||||||||
For the three months ended July 31, 2021 (Canadian $ in millions) | Balance April 30, 2021 | Included in earnings | Included in other comprehensive income (1) | Issuances/ Purchases | Sales (2) | Maturities/ Settlement | Transfers into Level 3 | Transfers out of Level 3 | Fair Value as at July 31, 2021 | Change in unrealized gains (losses) recorded in income for instruments still held (3) | ||||||||||||||||||||||||||||||
Trading Securities | ||||||||||||||||||||||||||||||||||||||||
NHA MBS and U.S. agency MBS and CMO | 702 | (78 | ) | 11 | 441 | (255 | ) | - | 35 | (62 | ) | 794 | 5 | |||||||||||||||||||||||||||
Corporate debt | 3 | - | - | - | (1 | ) | - | - | - | 2 | - | |||||||||||||||||||||||||||||
Total trading securities | 705 | (78 | ) | 11 | 441 | (256 | ) | - | 35 | (62 | ) | 796 | 5 | |||||||||||||||||||||||||||
FVTPL Securities | ||||||||||||||||||||||||||||||||||||||||
Corporate equity | 2,048 | 158 | 20 | 175 | (106 | ) | - | - | (19 | ) | 2,276 | 149 | ||||||||||||||||||||||||||||
Total FVTPL securities | 2,048 | 158 | 20 | 175 | (106 | ) | - | - | (19 | ) | 2,276 | 149 | ||||||||||||||||||||||||||||
FVOCI Securities | ||||||||||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||||||||||
U.S. states, municipalities and agencies | 1 | - | - | - | - | - | - | - | 1 | na | ||||||||||||||||||||||||||||||
Corporate equity | 100 | - | 9 | 4 | - | - | - | - | 113 | na | ||||||||||||||||||||||||||||||
Total FVOCI securities | 101 | - | 9 | 4 | - | - | - | - | 114 | na | ||||||||||||||||||||||||||||||
Business and government loans | 2,841 | - | 45 | 113 | - | (694 | ) | - | - | 2,305 | - | |||||||||||||||||||||||||||||
Other Liabilities | - | - | - | - | - | - | 13 | - | 13 | - | ||||||||||||||||||||||||||||||
Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 4 | - | - | - | - | - | - | - | 4 | - | ||||||||||||||||||||||||||||||
Total derivative liabilities | 4 | - | - | - | - | - | - | - | 4 | - |
Change in fair value | ||||||||||||||||||||||||||||||||||||||||
For the nine months ended July 31, 2021 (Canadian $ in millions) | Balance October 31, 2020 | Included in earnings | Included in other comprehensive income (1) | Issuances/ Purchases | Sales (2) | Maturities/ Settlement | Transfers into Level 3 | Transfers out of Level 3 | Fair Value as at July 31, 2021 | Change in unrealized gains (losses) recorded in income for instruments still held (3) | ||||||||||||||||||||||||||||||
Trading Securities | ||||||||||||||||||||||||||||||||||||||||
NHA MBS and U.S. agency MBS and CMO | 803 | (172 | ) | (50 | ) | 1,206 | (938 | ) | - | 106 | (161 | ) | 794 | 24 | ||||||||||||||||||||||||||
Corporate debt | - | - | - | 3 | (1 | ) | - | - | - | 2 | - | |||||||||||||||||||||||||||||
Total trading securities | 803 | (172 | ) | (50 | ) | 1,209 | (939 | ) | - | 106 | (161 | ) | 796 | 24 | ||||||||||||||||||||||||||
FVTPL Securities | ||||||||||||||||||||||||||||||||||||||||
Corporate equity | 1,903 | 217 | (81 | ) | 453 | (193 | ) | (4 | ) | - | (19 | ) | 2,276 | 262 | ||||||||||||||||||||||||||
Total FVTPL | 1,903 | 217 | (81 | ) | 453 | (193 | ) | (4 | ) | - | (19 | ) | 2,276 | 262 | ||||||||||||||||||||||||||
FVOCI Securities | ||||||||||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||||||||||
U.S. states, municipalities and agencies | 1 | - | - | - | - | - | - | - | 1 | na | ||||||||||||||||||||||||||||||
Corporate equity | 93 | - | 9 | 11 | - | - | - | - | 113 | na | ||||||||||||||||||||||||||||||
Total FVOCI securities | 94 | - | 9 | 11 | - | - | - | - | 114 | na | ||||||||||||||||||||||||||||||
Business and government loans | 1,945 | - | (150 | ) | 1,812 | - | (1,302 | ) | - | - | 2,305 | - | ||||||||||||||||||||||||||||
Other Liabilities | - | - | - | - | - | - | 13 | - | 13 | - | ||||||||||||||||||||||||||||||
Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 4 | - | - | - | - | - | - | - | 4 | - | ||||||||||||||||||||||||||||||
Total derivative liabilities | 4 | - | - | - | - | - | - | - | 4 | - |
(1) | Foreign exchange translation on trading securities held by foreign subsidiaries is included in other comprehensive income, net foreign operations. |
(2) | Includes proceeds received on securities sold but not yet purchased. |
(3) | Changes in unrealized gains (losses) on Trading and FVTPL securities still held on July 31, 2021 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.
na – not applicable
BMO Financial Group Third Quarter Report 2021
65
Change in fair value | ||||||||||||||||||||||||||||||||||||||||
For the three months ended July 31, 2020 (Canadian $ in millions) | Balance April 30, 2020 | Included in earnings | Included in other comprehensive income (1) | Issuances/ Purchases | Sales (2) | Maturities/ Settlement | Transfers into Level 3 | Transfers out of Level 3 | Fair Value as at July 31, 2020 | Change in unrealized gains (losses) recorded in income for instruments still held (3) | ||||||||||||||||||||||||||||||
Trading Securities | ||||||||||||||||||||||||||||||||||||||||
NHA MBS and U.S. agency MBS and CMO | 487 | (115 | ) | (18 | ) | 362 | (151 | ) | - | 41 | (22 | ) | 584 | (74 | ) | |||||||||||||||||||||||||
Corporate debt | 48 | 10 | (2 | ) | - | (56 | ) | - | - | - | - | - | ||||||||||||||||||||||||||||
Total trading securities | 535 | (105 | ) | (20 | ) | 362 | (207 | ) | - | 41 | (22 | ) | 584 | (74 | ) | |||||||||||||||||||||||||
FVTPL Securities | ||||||||||||||||||||||||||||||||||||||||
Corporate equity | 2,062 | (23 | ) | (57 | ) | 58 | (233 | ) | - | - | - | 1,807 | 2 | |||||||||||||||||||||||||||
Total FVTPL | 2,062 | (23 | ) | (57 | ) | 58 | (233 | ) | - | - | - | 1,807 | 2 | |||||||||||||||||||||||||||
FVOCI Securities | ||||||||||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||||||||||
U.S. states, municipalities and agencies | 1 | - | - | - | - | - | - | - | 1 | na | ||||||||||||||||||||||||||||||
Corporate equity | 83 | - | - | 4 | - | - | - | - | 87 | na | ||||||||||||||||||||||||||||||
Total FVOCI securities | 84 | - | - | 4 | - | - | - | - | 88 | na | ||||||||||||||||||||||||||||||
Business and government loans | 2,028 | - | 95 | 765 | - | (685 | ) | - | - | 2,203 | - | |||||||||||||||||||||||||||||
Other Liabilities | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 4 | - | - | - | - | - | - | (1 | ) | 3 | - | |||||||||||||||||||||||||||||
Total derivative liabilities | 4 | - | - | - | - | - | - | (1 | ) | 3 | - |
Change in fair value | ||||||||||||||||||||||||||||||||||||||||
For the nine months ended July 31, 2020 (Canadian $ in millions) | Balance October 31, 2019 | Included in earnings | Included in other comprehensive income (1) | Issuances/ Purchases | Sales (2) | Maturities/ Settlement | Transfers into Level 3 | Transfers out of Level 3 | Fair Value as at July 31, 2020 | Change in unrealized gains (losses) recorded in income for instruments still held (3) | ||||||||||||||||||||||||||||||
Trading Securities | ||||||||||||||||||||||||||||||||||||||||
NHA MBS and U.S. agency MBS and CMO | 538 | (245 | ) | 12 | 811 | (540 | ) | - | 202 | (194 | ) | 584 | (158 | ) | ||||||||||||||||||||||||||
Corporate debt | 7 | 10 | (2 | ) | 50 | (68 | ) | - | 3 | - | - | (1 | ) | |||||||||||||||||||||||||||
Total trading securities | 545 | (235 | ) | 10 | 861 | (608 | ) | - | 205 | (194 | ) | 584 | (159 | ) | ||||||||||||||||||||||||||
FVTPL Securities | ||||||||||||||||||||||||||||||||||||||||
Corporate equity | 1,984 | (27 | ) | 23 | 244 | (418 | ) | - | 1 | - | 1,807 | 7 | ||||||||||||||||||||||||||||
Total FVTPL | 1,984 | (27 | ) | 23 | 244 | (418 | ) | - | 1 | - | 1,807 | 7 | ||||||||||||||||||||||||||||
FVOCI Securities | ||||||||||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||||||||||
U.S. states, municipalities and agencies | 1 | - | - | - | - | - | - | - | 1 | na | ||||||||||||||||||||||||||||||
Corporate equity | 81 | - | - | 6 | - | - | - | - | 87 | na | ||||||||||||||||||||||||||||||
Total FVOCI securities | 82 | - | - | 6 | - | - | - | - | 88 | na | ||||||||||||||||||||||||||||||
Business and government loans | 1,736 | (3 | ) | 183 | 1,705 | - | (1,418 | ) | - | - | 2,203 | - | ||||||||||||||||||||||||||||
Other Liabilities | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 1 | - | - | - | - | - | 3 | (1 | ) | 3 | - | |||||||||||||||||||||||||||||
Total derivative liabilities | 1 | - | - | - | - | - | 3 | (1 | ) | 3 | - |
(1) | Foreign exchange translation on trading securities held by foreign subsidiaries is included in other comprehensive income, net foreign operations. |
(2) | Includes proceeds received on securities sold but not yet purchased. |
(3) | Changes in unrealized gains (losses) on Trading and FVTPL securities still held on July 31, 2020 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.
na – not applicable
66
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 internal assessment of required economic capital; underpins our operating groups’ business strategies; supports depositor, investor and regulator confidence, while building long-term shareholder value; and is consistent with our target credit ratings.
As at July 31, 2021, 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 1.0% Domestic Stability Buffer (DSB) applicable toD-SIBs.
As announced by OSFI in June 2021, the DSB will be set at 2.5% effective October 31, 2021. Our capital position as at July 31, 2021 is further detailed in the Capital Management section of our interim Management’s Discussion and Analysis.Regulatory Capital Measures, Risk-Weighted Assets and Leverage Exposures
(Canadian $ in millions, except as noted) | July 31, 2021 | October 31, 2020 | ||||||
Common Equity Tier 1 (CET1) Capital | 43,349 | 40,077 | ||||||
Tier 1 Capital | 48,826 | 45,840 | ||||||
Total Capital | 56,203 | 54,661 | ||||||
Risk-Weighted Assets | 322,529 | 336,607 | ||||||
Leverage Exposures | 969,824 | 953,640 | ||||||
CET 1 Capital Ratio | 13.4% | 11.9% | ||||||
Tier 1 Capital Ratio | 15.1% | 13.6% | ||||||
Total Capital Ratio | 17.4% | 16.2% | ||||||
Leverage Ratio | 5.0% | 4.8% |
Note 8: Employee Compensation
Stock Options
We did not grant any stock options during the three months ended July 31, 2021 and 2020. During the nine months ended July 31, 2021, we granted a total of 984,943 stock options (976,087 stock options during the nine months ended July 31, 2020). The weighted-average fair value of options granted during the nine months ended July 31, 2021 was $10.75 per option ($9.46 per option for the nine months ended July 31, 2020).
To determine the fair value of the stock option tranches (i.e. the portion that vests each year) on the grant date, the following ranges of values were used for each option pricing assumption:
For stock options granted during the nine months ended | July 31, 2021 | July 31, 2020 | ||||||
Expected dividend yield | 4.9% | 4.3% | ||||||
Expected share price volatility | 20.6% - 20.7% | 15.4% | ||||||
Risk-free rate of return | 1.0% | 1.9% - 2.0% | ||||||
Expected period until exercise (in years) | 6.5 - 7.0 | 6.5 - 7.0 | ||||||
Exercise price ($) | 97.14 | 101.47 |
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, 2021 | July 31, 2020 | July 31, 2021 | July 31, 2020 | ||||||||||||
Current service cost | 67 | 62 | 2 | 2 | ||||||||||||
Net interest expense on net defined benefit (asset) liability | 2 | 1 | 8 | 8 | ||||||||||||
Administrative expenses | 1 | 1 | - | - | ||||||||||||
Benefits expense | 70 | 64 | 10 | 10 | ||||||||||||
Canada and Quebec pension plan expense | 24 | 22 | - | - | ||||||||||||
Defined contribution expense | 33 | 37 | - | - | ||||||||||||
Total pension and other employee future benefit expenses recognized in the Consolidated Statement of Income | 127 | 123 | 10 | 10 | ||||||||||||
(Canadian $ in millions) | ||||||||||||||||
Pension benefit plans | Other employee future benefit plans | |||||||||||||||
For the nine months ended | July 31, 2021 | July 31, 2020 | July 31, 2021 | July 31, 2020 | ||||||||||||
Current service cost | 201 | 187 | 6 | 8 | ||||||||||||
Net interest expense on net defined benefit (asset) liability | 6 | 1 | 23 | 24 | ||||||||||||
Administrative expenses | 3 | 3 | - | - | ||||||||||||
Benefits expense | 210 | 191 | 29 | 32 | ||||||||||||
Canada and Quebec pension plan expense | 76 | 75 | - | - | ||||||||||||
Defined contribution expense | 126 | 135 | - | - | ||||||||||||
Total pension and other employee future benefit expenses recognized in the Consolidated Statement of Income | 412 | 401 | 29 | 32 |
BMO Financial Group Third Quarter Report 2021
67
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, 2021 | July 31, 2020 | July 31, 2021 | July 31, 2020 | |||||||||||||
Net income | 2,275 | 1,232 | 5,595 | 3,513 | ||||||||||||
Dividends on preferred shares and distributions payable on other equity instruments | (61 | ) | (73 | ) | (185 | ) | (195) | |||||||||
Net income available to common shareholders | 2,214 | 1,159 | 5,410 | 3,318 | ||||||||||||
Weighted-average number of common shares outstanding (in thousands) | 647,178 | 641,300 | 646,808 | 640,129 | ||||||||||||
Basic earnings per common share (Canadian $) | 3.42 | 1.81 | 8.36 | 5.18 | ||||||||||||
Diluted Earnings Per Common Share | ||||||||||||||||
Net income available to common shareholders adjusted for impact of dilutive instruments | 2,214 | 1,159 | 5,410 | 3,318 | ||||||||||||
Weighted-average number of common shares outstanding (in thousands) | 647,178 | 641,300 | 646,808 | 640,129 | ||||||||||||
Effect of dilutive instruments | ||||||||||||||||
Stock options potentially exercisable (1) | 6,213 | 2,400 | 6,585 | 3,473 | ||||||||||||
Common shares potentially repurchased | (4,394 | ) | (2,046 | ) | (5,229 | ) | (2,721) | |||||||||
Weighted-average number of diluted common shares outstanding (in thousands) | 648,997 | 641,654 | 648,164 | 640,881 | ||||||||||||
Diluted earnings per common share (Canadian $) | 3.41 | 1.81 | 8.35 | 5.18 |
(1) | In computing diluted earnings per share, we did not exclude any stock options outstanding for the three and nine months ended July 31, 2021 as the average share price for the period exceeded the exercise price. For the three and nine months ended July 31, 2020, we excluded average stock options outstanding of 4,238,334 and 3,124,912 with a weighted-average exercise price of $94.30 and $99.72, respectively, as the average share price for the period did not exceed the exercise price. |
Note 10: Income Taxes
Canadian Taxing Authorities have reassessed us for additional income tax and interest in an amount of approximately $1,210 million, to date, in respect of certain 2011-2016 Canadian corporate dividends. Those reassessments denied certain dividend deductions on the basis that the dividends were received as part of a “dividend rental arrangement”. The tax rules raised by the Canadian Taxing Authorities were prospectively addressed in the 2015 and 2018 Canadian Federal Budgets. In the future, we expect to be reassessed for significant income tax for similar activities. 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.
Note 11: Operating Segmentation
Operating Groups
We conduct our business through three operating groups, each of which has a distinct mandate. Our operating groups are Personal and Commercial Banking (P&C) (comprised of Canadian Personal and Commercial Banking (Canadian P&C) and U.S. Personal and Commercial Banking (U.S. P&C)), BMO Wealth Management (BMO WM) and BMO Capital Markets (BMO CM), along with a Corporate Services unit.
For additional information refer to Note 25 of our annual consolidated financial statements for the year ended October 31, 2020.
68
Our results and average assets, grouped by operating segment, are as follows:
(Canadian $ in millions) | ||||||||||||||||||||||||
For the three months ended July 31, 2021 | Canadian P&C | U.S. P&C | BMO WM | BMO CM | Corporate Services (1) | Total | ||||||||||||||||||
Net interest income (2) | 1,660 | 1,048 | 247 | 696 | (130 | ) | 3,521 | |||||||||||||||||
Non-interest revenue | 581 | 304 | 2,179 | 888 | 89 | 4,041 | ||||||||||||||||||
Total Revenue | 2,241 | 1,352 | 2,426 | 1,584 | (41 | ) | 7,562 | |||||||||||||||||
Provision for (recovery of) credit losses on impaired loans | 101 | (9 | ) | - | (19 | ) | (2 | ) | 71 | |||||||||||||||
Recovery of credit losses on performing loans | (7 | ) | (53 | ) | (2 | ) | (75 | ) | (4 | ) | (141 | ) | ||||||||||||
Total provision for (recovery of) credit losses | 94 | (62 | ) | (2 | ) | (94 | ) | (6 | ) | (70 | ) | |||||||||||||
Insurance claims, commissions and changes in policy benefit liabilities | - | - | 984 | - | - | 984 | ||||||||||||||||||
Depreciation and amortization | 131 | 119 | 66 | 68 | - | 384 | ||||||||||||||||||
Other non-interest expense | 915 | 570 | 847 | 850 | 118 | 3,300 | ||||||||||||||||||
Income (loss) before taxes | 1,101 | 725 | 531 | 760 | (153 | ) | 2,964 | |||||||||||||||||
Provision for (recovery of) income taxes | 286 | 172 | 130 | 202 | (101 | ) | 689 | |||||||||||||||||
Reported net income (loss) | 815 | 553 | 401 | 558 | (52 | ) | 2,275 | |||||||||||||||||
Average Assets | 265,639 | 125,840 | 48,053 | 367,900 | 162,811 | 970,243 | ||||||||||||||||||
For the three months ended July 31, 2020 | Canadian P&C | U.S. P&C | BMO WM | BMO CM | Corporate Services (1) | Total | ||||||||||||||||||
Net interest income (2) | 1,509 | 1,107 | 229 | 952 | (262 | ) | 3,535 | |||||||||||||||||
Non-interest revenue | 453 | 292 | 2,255 | 576 | 78 | 3,654 | ||||||||||||||||||
Total Revenue | 1,962 | 1,399 | 2,484 | 1,528 | (184 | ) | 7,189 | |||||||||||||||||
Provision for credit losses on impaired loans | 257 | 109 | 1 | 79 | - | 446 | ||||||||||||||||||
Provision for credit losses on performing loans | 313 | 223 | 7 | 58 | 7 | 608 | ||||||||||||||||||
Total provision for credit losses | 570 | 332 | 8 | 137 | 7 | 1,054 | ||||||||||||||||||
Insurance claims, commissions and changes in policy benefit liabilities | - | - | 1,189 | - | - | 1,189 | ||||||||||||||||||
Depreciation and amortization | 126 | 137 | 73 | 64 | - | 400 | ||||||||||||||||||
Other non-interest expense | 835 | 615 | 764 | 761 | 69 | 3,044 | ||||||||||||||||||
Income (loss) before taxes | 431 | 315 | 450 | 566 | (260 | ) | 1,502 | |||||||||||||||||
Provision for (recovery of) income taxes | 112 | 52 | 109 | 140 | (143 | ) | 270 | |||||||||||||||||
Reported net income (loss) | 319 | 263 | 341 | 426 | (117 | ) | 1,232 | |||||||||||||||||
Average Assets | 252,028 | 140,615 | 46,308 | 379,131 | 159,682 | 977,764 | ||||||||||||||||||
(Canadian $ in millions) | ||||||||||||||||||||||||
For the nine months ended July 31, 2021 | Canadian P&C | U.S. P&C | BMO WM | BMO CM | Corporate Services (1) | Total | ||||||||||||||||||
Net interest income (2) | �� | 4,849 | 3,194 | 723 | 2,242 | (454 | ) | 10,554 | ||||||||||||||||
Non-interest revenue | 1,633 | 935 | 4,795 | 2,454 | 242 | 10,059 | ||||||||||||||||||
Total Revenue | 6,482 | 4,129 | 5,518 | 4,696 | (212 | ) | 20,613 | |||||||||||||||||
Provision for (recovery of) credit losses on impaired loans | 404 | 17 | 3 | 20 | (3 | ) | 441 | |||||||||||||||||
Recovery of credit losses on performing loans | (22 | ) | (133 | ) | (10 | ) | (126 | ) | (4 | ) | (295 | ) | ||||||||||||
Total provision for (recovery of) credit losses | 382 | (116 | ) | (7 | ) | (106 | ) | (7 | ) | 146 | ||||||||||||||
Insurance claims, commissions and changes in policy benefit liabilities | - | - | 1,302 | - | - | 1,302 | ||||||||||||||||||
Depreciation and amortization | 390 | 365 | 213 | 201 | - | 1,169 | ||||||||||||||||||
Non-interest expense | 2,582 | 1,689 | 2,547 | 2,432 | 1,287 | 10,537 | ||||||||||||||||||
Income (loss) before taxes | 3,128 | 2,191 | 1,463 | 2,169 | (1,492 | ) | 7,459 | |||||||||||||||||
Provision for (recovery of) income taxes | 812 | 514 | 358 | 565 | (385 | ) | 1,864 | |||||||||||||||||
Reported net income (loss) | 2,316 | 1,677 | 1,105 | 1,604 | (1,107 | ) | 5,595 | |||||||||||||||||
Average Assets | 259,813 | 128,722 | 47,761 | 371,046 | 166,462 | 973,804 | ||||||||||||||||||
For the nine months ended July 31, 2020 | Canadian P&C | U.S. P&C | BMO WM | BMO CM | Corporate Services (1) | Total | ||||||||||||||||||
Net interest income (2) | 4,561 | 3,287 | 672 | 2,503 | (582 | ) | 10,441 | |||||||||||||||||
Non-interest revenue | 1,443 | 912 | 4,727 | 1,445 | 232 | 8,759 | ||||||||||||||||||
Total Revenue | 6,004 | 4,199 | 5,399 | 3,948 | (350 | ) | 19,200 | |||||||||||||||||
Provision for credit losses on impaired loans | 607 | 365 | 4 | 205 | 2 | 1,183 | ||||||||||||||||||
Provision for credit losses on performing loans | 612 | 315 | 13 | 390 | 8 | 1,338 | ||||||||||||||||||
Provision for credit losses | 1,219 | 680 | 17 | 595 | 10 | 2,521 | ||||||||||||||||||
Insurance claims, commissions and changes in policy benefit liabilities | - | - | 1,708 | - | - | 1,708 | ||||||||||||||||||
Depreciation and amortization | 385 | 427 | 220 | 179 | - | 1,211 | ||||||||||||||||||
Non-interest expense | 2,539 | 1,903 | 2,417 | 2,256 | 303 | 9,418 | ||||||||||||||||||
Income (loss) before taxes | 1,861 | 1,189 | 1,037 | 918 | (663 | ) | 4,342 | |||||||||||||||||
Provision for (recovery of) income taxes | 481 | 236 | 261 | 210 | (359 | ) | 829 | |||||||||||||||||
Reported net income (loss) | 1,380 | 953 | 776 | 708 | (304 | ) | 3,513 | |||||||||||||||||
Average Assets | 251,325 | 139,196 | 45,234 | 370,363 | 129,399 | 935,517 |
(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 equivalentbefore-tax basis to facilitate comparisons of income between taxable andtax-exempt sources. The offset to the groups’ teb adjustments is reflected in Corporate Services revenue and provision for income taxes. |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
BMO Financial Group Third Quarter Report 2021
69
Note 12: Divestitures
On April 30, 2021, we completed the sale of our Private Banking business in Hong Kong and Singapore, part of our BMO WM operating segment, to J. Safra Sarasin Group. The business sold is not considered material to the bank.
On April 12, 2021, we entered into an agreement with Ameriprise Financial Inc. (Ameriprise) to sell BMO’s EMEA asset management business, part of our BMO WM operating segment, for £615 million (CAD$1,066 million) in anwhereby the assets and liabilities are measured at lower of fair value, less costs to sell, and carrying value at each reporting period end until disposal, we recognized a write-down of goodwill related to these businesses of $747 $8
all-cash
transaction. Separately, in the U.S. the transaction includes the opportunity for certain BMO asset management clients to move to Ameriprise, subject to client consent. This transaction is expected to close in the fourth quarter of calendar 2021, subject to regulatory approvals and customary closing conditions. As this transaction met the accounting requirements of assetsheld-for-sale,
million in the second quarter of 2021. In the current quarter, we recognized an additional write-down of goodwill of
million based on updated assumptions. The write-down is included in
non-interest
expense, other, in our Consolidated Statement of Income and was reported in the Corporate Services segment. This ultimate impact is subject to closing adjustments, including fair values and foreign exchange rates prevailing at the date of closing.On July 27, 2021, we entered into an agreement to sell Taplin, Canida & Habacht, LLC, part of our U.S. asset management business to Loop Capital. The transaction is expected to close in the first quarter of fiscal 2022, subject to customary closing conditions. The business sold is not considered material to the bank.
Note 13: Legal Proceedings
BMO and its subsidiaries are named as defendants or are otherwise involved in a substantial number of legal proceedings. BMO Harris Bank N.A. (BMO Harris), as successor to M&I Marshall and Ilsley Bank (M&I), has been named as the defendant in a lawsuit filed in the U.S. Bankruptcy Court for the District of Minnesota (Bankruptcy Court) in connection with a Ponzi scheme carried out by Thomas J. Petters and certain affiliated individuals and entities (collectively, Petters) between 1994 and 2008. The lawsuit, brought by a Trustee in bankruptcy proceedings for certain Petters entities, alleges that, between 1999 and 2008, M&I (and a predecessor bank) facilitated the Ponzi scheme operated by Petters. BMO denies these allegations and continues to defend itself vigorously. The Trustee seeks
US$
1.9billion in compensatory damages, plus prejudgment interest, punitive damages, and attorneys’ fees. The Bankruptcy Court: (i) denied BMO Harris’s motion for summary judgment; (ii) granted the Trustee’s motion for sanctions based on the alleged spoliation of evidence; and (iii) transferred the case to the U.S. District Court for the District of Minnesota (District Court) for trial. BMO Harris filed an objection to the spoliation sanctions, which is still pending before the District Court. BMO Harris anticipates that the trial in this case may take place in the first half of 2022. While it is inherently difficult to predict the ultimate outcome of this or other proceedings, BMO does not expect the outcome of any of these proceedings, individually or in the aggregate, to have a material adverse effect on the consolidated financial position or the results of operation of the bank
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70