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, | April 30, | July 31, | July 31, | July 31, | ||||||||||||||||
2022 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Interest, Dividend and Fee Income | ||||||||||||||||||||
Loans | $ | 5,311 | $ | 4,197 | $ | 3,916 | $ | 13,589 | $ | 11,794 | ||||||||||
Securities (Note 2) | 1,505 | 1,252 | 929 | 3,824 | 2,921 | |||||||||||||||
Deposits with banks | 228 | 74 | 50 | 360 | 144 | |||||||||||||||
7,044 | 5,523 | 4,895 | 17,773 | 14,859 | ||||||||||||||||
Interest Expense | ||||||||||||||||||||
Deposits | 1,743 | 854 | 745 | 3,302 | 2,483 | |||||||||||||||
Subordinated debt | 57 | 51 | 44 | 153 | 153 | |||||||||||||||
Other liabilities | 1,047 | 716 | 585 | 2,200 | 1,669 | |||||||||||||||
2,847 | 1,621 | 1,374 | 5,655 | 4,305 | ||||||||||||||||
Net Interest Income | 4,197 | 3,902 | 3,521 | 12,118 | 10,554 | |||||||||||||||
Non-Interest Revenue | ||||||||||||||||||||
Securities commissions and fees | 262 | 281 | 264 | 825 | 849 | |||||||||||||||
Deposit and payment service charges | 338 | 332 | 319 | 999 | 930 | |||||||||||||||
Trading revenues (Note 12) | (975) | 3,629 | 135 | 3,453 | 394 | |||||||||||||||
Lending fees | 351 | 334 | 348 | 1,070 | 1,047 | |||||||||||||||
Card fees | 131 | 143 | 113 | 405 | 316 | |||||||||||||||
Investment management and custodial fees | 432 | 441 | 502 | 1,339 | 1,460 | |||||||||||||||
Mutual fund revenues | 315 | 332 | 406 | 1,003 | 1,176 | |||||||||||||||
Underwriting and advisory fees | 220 | 308 | 411 | 962 | 1,073 | |||||||||||||||
Securities gains, other than trading (Note 2) | 85 | 86 | 198 | 309 | 411 | |||||||||||||||
Foreign exchange gains, other than trading | 47 | 59 | 41 | 128 | 128 | |||||||||||||||
Insurance revenues | 542 | (673) | 1,137 | 61 | 1,718 | |||||||||||||||
Investments in associates and joint ventures | 99 | 50 | 67 | 215 | 183 | |||||||||||||||
Other | 55 | 94 | 100 | 253 | 374 | |||||||||||||||
1,902 | 5,416 | 4,041 | 11,022 | 10,059 | ||||||||||||||||
Total Revenue | 6,099 | 9,318 | 7,562 | 23,140 | 20,613 | |||||||||||||||
Provision for (Recovery of) Credit Losses (Note 3) | 136 | 50 | (70) | 87 | 146 | |||||||||||||||
Insurance Claims, Commissions and Changes in Policy Benefit Liabilities | 413 | (808) | 984 | (314) | 1,302 | |||||||||||||||
Non-Interest Expense | ||||||||||||||||||||
Employee compensation | 2,135 | 2,087 | 2,102 | 6,521 | 6,263 | |||||||||||||||
Premises and equipment | 918 | 850 | 829 | 2,596 | 2,496 | |||||||||||||||
Amortization of intangible assets | 151 | 147 | 157 | 448 | 471 | |||||||||||||||
Advertising and business development | 135 | 115 | 101 | 356 | 264 | |||||||||||||||
Communications | 67 | 75 | 63 | 206 | 199 | |||||||||||||||
Professional fees | 182 | 180 | 140 | 517 | 423 | |||||||||||||||
Other | 271 | 259 | 292 | 774 | 1,590 | |||||||||||||||
3,859 | 3,713 | 3,684 | 11,418 | 11,706 | ||||||||||||||||
Income Before Provision for Income Taxes | 1,691 | 6,363 | 2,964 | 11,949 | 7,459 | |||||||||||||||
Provision for income taxes (Note 10) | 326 | 1,607 | 689 | 2,895 | 1,864 | |||||||||||||||
Net Income | $ | 1,365 | $ | 4,756 | $ | 2,275 | $ | 9,054 | $ | 5,595 | ||||||||||
Earnings Per Share (Canadian $) (Note 9) | ||||||||||||||||||||
Basic | $ | 1.96 | $ | 7.15 | $ | 3.42 | $ | 13.49 | $ | 8.36 | ||||||||||
Diluted | 1.95 | 7.13 | 3.41 | 13.45 | 8.35 | |||||||||||||||
Dividends per common share | 1.39 | 1.33 | 1.06 | 4.05 | 3.18 |
The accompanying notes are an integral part of these interim consolidated financial statements.
BMO Financial GroupQuarter Report 2022
Third
5
1Interim Consolidated Financial Statements
Consolidated Statement of Comprehensive Income
(Unaudited) (Canadian $ in millions) | For the three months ended | For the nine months ended | ||||||||||||||||||
July 31, 2022 | April 30, 2022 | July 31, 2021 | July 31, 2022 | July 31, 2021 | ||||||||||||||||
Net Income | $ | 1,365 | $ | 4,756 | $ | 2,275 | $ | 9,054 | $ | 5,595 | ||||||||||
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) | (2) | (238) | 22 | (302) | (10) | |||||||||||||||
Reclassification to earnings of (gains) losses in the period (2) | (8) | 6 | (5) | (30) | (33) | |||||||||||||||
(10) | (232) | 17 | (332) | (43) | ||||||||||||||||
Net change in unrealized gains (losses) on cash flow hedges | ||||||||||||||||||||
Gains (losses) on derivatives designated as cash flow hedges arising during the period (3) | 546 | (2,433) | 218 | (2,365) | (392) | |||||||||||||||
Reclassification to earnings of (gains) on derivatives designated as cash flow hedges in the period (4) | (80) | (111) | (116) | (329) | (279) | |||||||||||||||
466 | (2,544) | 102 | (2,694) | (671) | ||||||||||||||||
Net gains (losses) on translation of net foreign operations | ||||||||||||||||||||
Unrealized gains (losses) on translation of net foreign operations | (77) | 322 | 521 | 1,053 | (1,914) | |||||||||||||||
Unrealized gains (losses) on hedges of net foreign operations (5) | (25) | (64) | (139) | (217) | 398 | |||||||||||||||
Reclassification to earnings of net losses related to divestitures (Note 12) (6) | - | - | - | 29 | - | |||||||||||||||
(102) | 258 | 382 | 865 | (1,516) | ||||||||||||||||
Items that will not be reclassified to net income | ||||||||||||||||||||
Unrealized gains (losses) on fair value through OCI equity securities arising during the period (7) | (1) | - | 7 | 1 | 7 | |||||||||||||||
Gains (losses) on remeasurement of pension and other employee future benefit plans (8) | (95) | 444 | 54 | 511 | 765 | |||||||||||||||
Gains (losses) on remeasurement of own credit risk on financial liabilities designated at fair value (9) | 415 | 538 | 22 | 1,019 | (220) | |||||||||||||||
319 | 982 | 83 | 1,531 | 552 | ||||||||||||||||
Other Comprehensive Income (Loss), net of taxes | 673 | (1,536) | 584 | (630) | (1,678) | |||||||||||||||
Total Comprehensive Income | $ | 2,038 | $ | 3,220 | $ | 2,859 | $ | 8,424 | $ | 3,917 |
(1) Net of income tax
(provision)
recovery of $nil million, $84 million, $(7) million for the three months ended, and $105 million, $5 million for the nine months ended, respectively.
(2) Net of income tax provision (recovery) of $3 million, $(2) million, $2 million for the three months ended, and $11 million, $11 million for the nine months ended, respectively.
(3) Net of income tax (provision) recovery of $(208) million, $878 million, $(72) million for the three months ended, and $842 million, $147 million for the nine months ended, respectively.
(4) Net of income tax provision of $29 million, $40 million, $41 million for the three months ended, and $119 million, $100 million for the nine months ended, respectively.
(5) Net of income tax (provision) recovery of $12 million, $23 million, $50 million for the three months ended, and $83 million, $(145) million for the nine months ended, respectively.
(6) Net of income tax (provision)
recovery
of na, na
,
na
for the three months ended, and $nil million, na for the nine months ended, respectively.
(7) Net of income tax (provision
)
recovery of $1 million, $(1) million, $(2) million for the three months ended, and $nil million, $(2
) million for the nine months ended, respectively.(8) Net of income tax (provision
)
recovery of $35 million, $(160) million, $(26) million for the three months ended, and $(185) million, and
$(283) million for the nine months ended, respectively.
(9) Net of income tax (provision) recovery of $(152) million, $(194) million,
and
$(9) million
,
for the three months ended, and $(370) million, and
$79 million for the nine months ended, respectively.The accompanying notes are an integral part of these interim consolidated financial statements.
5
2Third
Interim Consolidated Financial Statements
Consolidated Balance Sheet
(Unaudited) (Canadian $ in millions) | As at | |||||||||||
July 31, 2022 | | April 30, 2022 | | October 31, 2021 | ||||||||
Assets | ||||||||||||
Cash and Cash Equivalents | $ | 69,586 | $ | 70,286 | $ | 93,261 | ||||||
Interest Bearing Deposits with Banks | 7,317 | 7,704 | 8,303 | |||||||||
Securities (Note 2) | ||||||||||||
Trading | 110,144 | 99,546 | 104,411 | |||||||||
Fair value through profit or loss | 14,036 | 13,682 | 14,210 | |||||||||
Fair value through other comprehensive income | 39,273 | 37,879 | 63,123 | |||||||||
Debt securities at amortized cost | 100,906 | 101,658 | 49,970 | |||||||||
Investments in associates and joint ventures | 1,255 | 1,303 | 1,135 | |||||||||
265,614 | 254,068 | 232,849 | ||||||||||
Securities Borrowed or Purchased Under Resale Agreements | 108,391 | 106,800 | 107,382 | |||||||||
Loans | ||||||||||||
Residential mortgages | 144,076 | 139,651 | 135,750 | |||||||||
Consumer instalment and other personal | 84,337 | 81,890 | 77,164 | |||||||||
Credit cards | 9,132 | 8,637 | 8,103 | |||||||||
Business and government | 287,669 | 274,548 | 239,809 | |||||||||
525,214 | 504,726 | 460,826 | ||||||||||
Allowance for credit losses (Note 3) | (2,412) | (2,403) | (2,564) | |||||||||
522,802 | 502,323 | 458,262 | ||||||||||
Other Assets | ||||||||||||
Derivative instruments | 39,717 | 45,820 | 36,713 | |||||||||
Customers’ liability under acceptances | 12,615 | 13,228 | 14,021 | |||||||||
Premises and equipment | 4,604 | 4,581 | 4,454 | |||||||||
Goodwill | 4,995 | 5,002 | 5,378 | |||||||||
Intangible assets | 2,130 | 2,090 | 2,266 | |||||||||
Current tax assets | 1,545 | 1,242 | 1,588 | |||||||||
Deferred tax assets | 794 | 786 | 1,287 | |||||||||
Other | 28,228 | 27,635 | 22,411 | |||||||||
94,628 | 100,384 | 88,118 | ||||||||||
Total Assets | $ | 1,068,338 | $ | 1,041,565 | $ | 988,175 | ||||||
Liabilities and Equity | ||||||||||||
Deposits (Note 4) | $ | 729,385 | $ | 713,714 | $ | 685,631 | ||||||
Other Liabilities | ||||||||||||
Derivative instruments | 43,643 | 41,763 | 30,815 | |||||||||
Acceptances | 12,615 | 13,228 | 14,021 | |||||||||
Securities sold but not yet purchased | 41,187 | 39,316 | 32,073 | |||||||||
Securities lent or sold under repurchase agreements | 100,646 | 96,798 | 97,556 | |||||||||
Securitization and structured entities’ liabilities | 25,020 | 24,692 | 25,486 | |||||||||
Current tax liabilities | 232 | 77 | 221 | |||||||||
Deferred tax liabilities | 81 | 110 | 192 | |||||||||
Other | 41,092 | 38,039 | 37,764 | |||||||||
264,516 | 254,023 | 238,128 | ||||||||||
Subordinated Debt (Note 4) | 7,443 | 8,236 | 6,893 | |||||||||
Total Liabilities | $ | 1,001,344 | $ | 975,973 | $ | 930,652 | ||||||
Equity | ||||||||||||
Preferred shares and other equity instruments (Note 5) | 5,708 | 5,708 | 5,558 | |||||||||
Common shares (Note 5) | 17,392 | 17,038 | 13,599 | |||||||||
Contributed surplus | 315 | 318 | 313 | |||||||||
Retained earnings | 41,653 | 41,275 | 35,497 | |||||||||
Accumulated other comprehensive income | 1,926 | 1,253 | 2,556 | |||||||||
Total Equity | 66,994 | 65,592 | 57,523 | |||||||||
Total Liabilities and Equity | $ | 1,068,338 | $ | 1,041,565 | $ | 988,175 |
The accompanying notes are an integral part of these interim consolidated financial statements.
BMO Financial GroupQuarter Report 2022
Third
5
3Interim 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, 2022 | July 31, 2021 | July 31, 2022 | July 31, 2021 | |||||||||||||
Preferred Shares and Other Equity Instruments (Note 5) | ||||||||||||||||
Balance at beginning of period | $ | 5,708 | $ | 5,848 | $ | 5,558 | $ | 6,598 | ||||||||
Issued during the period | 500 | - | 1,250 | - | ||||||||||||
Redeemed during the period | (500) | - | (1,100) | (750) | ||||||||||||
Balance at End of Period | 5,708 | 5,848 | 5,708 | 5,848 | ||||||||||||
Common Shares (Note 5) | ||||||||||||||||
Balance at beginning of period | 17,038 | 13,536 | 13,599 | 13,430 | ||||||||||||
Issued under the Shareholder Dividend Reinvestment and Share Purchase Plan | 346 | - | 647 | - | ||||||||||||
Issued under the Stock Option Plan | 12 | 40 | 55 | 99 | ||||||||||||
Repurchased for cancellation and/or treasury shares sold/purchased | (4) | 33 | (15) | 80 | ||||||||||||
Issued to finance a portion of the announced acquisition | - | - | 3,106 | - | ||||||||||||
Balance at End of Period | 17,392 | 13,609 | 17,392 | 13,609 | ||||||||||||
Contributed Surplus | ||||||||||||||||
Balance at beginning of period | 318 | 313 | 313 | 302 | ||||||||||||
Stock option expense, net of options exercised | (3) | - | 2 | 7 | ||||||||||||
Net premium on sale of treasury shares | - | (3) | - | - | ||||||||||||
Other | - | - | - | 1 | ||||||||||||
Balance at End of Period | 315 | 310 | 315 | 310 | ||||||||||||
Retained Earnings | ||||||||||||||||
Balance at beginning of period | 41,275 | 32,561 | 35,497 | 30,745 | ||||||||||||
Net income | 1,365 | 2,275 | 9,054 | 5,595 | ||||||||||||
Dividends on preferred shares and distributions payable on other equity instruments | (47) | (61) | (154) | (185) | ||||||||||||
Dividends on common shares | (938) | (686) | (2,694) | (2,058) | ||||||||||||
Equity issue expense and premium paid on redemption of preferred shares | (2) | - | (50) | (6) | ||||||||||||
Net discount on sale of treasury shares | - | - | - | (2) | ||||||||||||
Balance at End of Period | 41,653 | 34,089 | 41,653 | 34,089 | ||||||||||||
Accumulated Other Comprehensive Income (Loss) on Fair Value through OCI Securities, net of taxes | ||||||||||||||||
Balance at beginning of period | (149) | 295 | 171 | 355 | ||||||||||||
Unrealized gains (losses) on fair value through OCI debt securities arising during the period | (2) | 22 | (302) | (10) | ||||||||||||
Unrealized gains (losses) on fair value through OCI equity securities arising during the period | (1) | 7 | 1 | 7 | ||||||||||||
Reclassification to earnings of (gains) during the period | (8) | (5) | (30) | (33) | ||||||||||||
Balance at End of Period | (160) | 319 | (160) | 319 | ||||||||||||
Accumulated Other Comprehensive Income (Loss) on Cash Flow Hedges, net of taxes | ||||||||||||||||
Balance at beginning of period | (2,975) | 1,206 | 185 | 1,979 | ||||||||||||
Gains (losses) on derivatives designated as cash flow hedges arising during the period | 546 | 218 | (2,365) | (392) | ||||||||||||
Reclassification to earnings of (gains) on derivatives designated as cash flow hedges in the period | (80) | (116) | (329) | (279) | ||||||||||||
Balance at End of Period | (2,509) | 1,308 | (2,509) | 1,308 | ||||||||||||
Accumulated Other Comprehensive Income on Translation of Net Foreign Operations, net of taxes | ||||||||||||||||
Balance at beginning of period | 3,236 | 2,082 | 2,269 | 3,980 | ||||||||||||
Unrealized gains (losses) on translation of net foreign operations | (77) | 521 | 1,053 | (1,914) | ||||||||||||
Unrealized gains (losses) on hedges of net foreign operations | (25) | (139) | (217) | 398 | ||||||||||||
Reclassification to earnings of net losses related to divestitures (Note 12) | - | - | 29 | - | ||||||||||||
Balance at End of Period | 3,134 | 2,464 | 3,134 | 2,464 | ||||||||||||
Accumulated Other Comprehensive Income on Pension and Other Employee | ||||||||||||||||
Balance at beginning of period | 891 | 73 | 285 | (638) | ||||||||||||
Gains (losses) on remeasurement of pension and other employee future benefit plans | (95) | 54 | 511 | 765 | ||||||||||||
Balance at End of Period | 796 | 127 | 796 | 127 | ||||||||||||
Accumulated Other Comprehensive Income (Loss) on Own Credit Risk on Financial Liabilities Designated at Fair Value, net of taxes | ||||||||||||||||
Balance at beginning of period | 250 | (400) | (354) | (158) | ||||||||||||
Gains (losses) on remeasurement of own credit risk on financial liabilities designated at fair value | 415 | 22 | 1,019 | (220) | ||||||||||||
Balance at End of Period | 665 | (378) | 665 | (378) | ||||||||||||
Total Accumulated Other Comprehensive Income | 1,926 | 3,840 | 1,926 | 3,840 | ||||||||||||
Total Equity | $ | $ | 57,696 | $ | $ | 57,696 |
The accompanying notes are an integral part of these interim consolidated financial statements.
5
4Third
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, 2022 | | July 31, 2021 | July 31, 2022 | | July 31, 2021 | |||||||||||
Cash Flows from Operating Activities | ||||||||||||||||
Net Income | $ | 1,365 | $ | 2,275 | $ | 9,054 | $ | 5,595 | ||||||||
Adjustments to determine net cash flows provided by (used in) operating activities | ||||||||||||||||
Provision for (recovery of) securities, other than trading | 2 | - | 3 | (1) | ||||||||||||
Net (gain) on securities, other than trading | (87) | (198) | (312) | (410) | ||||||||||||
Net (increase) in trading securities | (10,729) | (10,335) | (3,983) | (7,415) | ||||||||||||
Provision for (recovery of) credit losses (Note 3) | 136 | (70) | 87 | 146 | ||||||||||||
Change in derivative instruments – (increase) decrease in derivative asset | 4,647 | 2,648 | (4,356) | 1,779 | ||||||||||||
– increase (decrease) in derivative liability | 2,437 | (5,367) | 11,711 | (1,683) | ||||||||||||
Amortization of premises and equipment | 192 | 195 | 579 | 588 | ||||||||||||
Amortization of other assets | 24 | 32 | 74 | 110 | ||||||||||||
Amortization of intangible assets | 151 | 157 | 448 | 471 | ||||||||||||
Net loss on divestitures (Note 12) | - | - | 29 | - | ||||||||||||
Write-down of goodwill | - | 8 | - | 755 | ||||||||||||
Net (increase) decrease in deferred tax asset | (6) | 91 | 510 | 212 | ||||||||||||
Net increase (decrease) in deferred tax liability | (29) | 24 | (111) | 80 | ||||||||||||
Net (increase) decrease in current tax asset | (293) | 53 | 137 | (56) | ||||||||||||
Net increase (decrease) in current tax liability | 154 | (43) | (8) | 70 | ||||||||||||
Change in accrued interest – (increase) decrease in interest receivable | (129) | 67 | (509) | 267 | ||||||||||||
– increase (decrease) in interest payable | 380 | (32) | 490 | (434) | ||||||||||||
Changes in other items and accruals, net | (32) | (2,233) | (6,540) | (549) | ||||||||||||
Net increase in deposits | 16,443 | 17,752 | 28,736 | 45,947 | ||||||||||||
Net (increase) in loans | (20,938) | (8,222) | (58,680) | (19,737) | ||||||||||||
Net increase (decrease) in securities sold but not yet purchased | 1,968 | (4,243) | 8,896 | (159) | ||||||||||||
Net increase in securities lent or sold under repurchase agreements | 3,970 | 4,232 | 1,255 | 7,661 | ||||||||||||
Net (increase) decrease in securities borrowed or purchased under resale agreements | (1,925) | (5,480) | 255 | 2,972 | ||||||||||||
Net increase (decrease) in securitization and structured entities’ liabilities | 333 | (1,822) | (667) | (2,591) | ||||||||||||
Net Cash Provided by (Used in) Operating Activities | (1,966) | (10,511) | (12,902) | 33,618 | ||||||||||||
Cash Flows from Financing Activities | ||||||||||||||||
Net increase in liabilities of subsidiaries | 3,161 | - | 6,927 | - | ||||||||||||
Proceeds from issuance of covered bonds | 3,203 | 1,837 | 10,486 | 1,837 | ||||||||||||
Redemption/buyback of covered bonds | (2,252) | (1,860) | (4,474) | (4,074) | ||||||||||||
Proceeds from issuance of subordinated debt | - | 1,000 | 1,587 | 1,000 | ||||||||||||
Repayment of subordinated debt (Note 4) | (850) | (1,250) | (850) | (2,250) | ||||||||||||
Proceeds from issuance of preferred shares and other equity instruments, net of issuance cost (Note 5) | 498 | - | 1,247 | - | ||||||||||||
Redemption of preferred shares (Note 5) | (500) | - | (1,100) | (756) | ||||||||||||
Net proceeds from issuance of common shares and sale (purchase) of treasury shares (Note 5) | 11 | 71 | 3,097 | 172 | ||||||||||||
Cash dividends and distributions paid | (599) | (755) | (1,962) | (2,234) | ||||||||||||
Repayment of lease liabilities | (79) | (82) | (215) | (244) | ||||||||||||
Net Cash Provided by (Used in) Financing Activities | 2,593 | (1,039) | 14,743 | (6,549) | ||||||||||||
Cash Flows from Investing Activities | ||||||||||||||||
Net (increase) decrease in interest bearing deposits with banks | 376 | 300 | 1,281 | (265) | ||||||||||||
Purchases of securities, other than trading | (12,131) | (14,397) | (78,054) | (38,783) | ||||||||||||
Maturities of securities, other than trading | 4,545 | 7,266 | 16,793 | 21,530 | ||||||||||||
Proceeds from sales of securities, other than trading | 6,444 | 2,998 | 33,594 | 19,417 | ||||||||||||
Premises and equipment – net (purchases) | (175) | (124) | (476) | (327) | ||||||||||||
Purchased and developed software – net (purchases) | (188) | (118) | (484) | (358) | ||||||||||||
Net proceeds from divestitures (Note 12) | - | 63 | 1,226 | 63 | ||||||||||||
Net Cash Provided by (Used in) Investing Activities | (1,129) | (4,012) | (26,120) | 1,277 | ||||||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (198) | 794 | 604 | (1,929) | ||||||||||||
Net increase (decrease) in Cash and Cash Equivalents | (700) | (14,768) | (23,675) | 26,417 | ||||||||||||
Cash and Cash Equivalents at Beginning of Period | 70,286 | 98,593 | 93,261 | 57,408 | ||||||||||||
Cash and Cash Equivalents at End of Period | $ | 69,586 | $ | 83,825 | $ | 69,586 | $ | 83,825 | ||||||||
Supplemental Disclosure of Cash Flow Information | ||||||||||||||||
Net cash provided by operating activities includes: | ||||||||||||||||
Interest paid in the period (1) | $ | 2,445 | $ | 1,373 | $ | 5,086 | $ | 4,679 | ||||||||
Income taxes paid in the period | $ | 788 | $ | 650 | $ | 1,779 | $ | 1,476 | ||||||||
Interest received in the period | $ | 6,519 | $ | 4,562 | $ | 16,013 | $ | 13,936 | ||||||||
Dividends received in the period | $ | 537 | $ | 415 | $ | 1,407 | $ | 1,255 |
(1) Includes dividends paid on securities sold but not
yet
purchased.
The accompanying notes are an integral part of these interim consolidated financial statements.
BMO Financial Group Third Quarter Report 2022
55
Notes to Interim Financial Statements
July 31, 2022 (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, 2021. 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, 2021. 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
Interim Financial Reporting
August 30, 2022.
Interbank Offered Rate (IBOR) Reform
Our IBOR Transition Office (ITO) continues to coordinate and oversee the transition from IBORs to alternative reference rates with no significant changes to the project or transition risks disclosed in Note 1 of our annual consolidated financial statements for the year ended October 31, 2021. As expected, all Sterling, Euro, Swiss franc and Japanese yen settings as well as the
1-week
and2-month
USD LIBOR settings were discontinued on December 31, 2021.There were no significant changes in our transition risk with respect to our remaining USD LIBOR exposures since October 31, 2021. Our project plan continues to be on target and in line with the supervisory guidance from the U.S. prudential regulators as we have ceased to issue new LIBOR-based instruments except in limited permitted circumstances. However, as we approach the June 30, 2023 cessation date, in the normal course of business our exposures may continue to fluctuate, including instances where customers draw down on existing LIBOR-based facilities that have not yet been remediated. The fluctuations in USD LIBOR exposures have no significant impact on our IBOR conversion plans.
On December 16, 2021, the Canadian Alternative Reference Rate working group (CARR) recommended the administrator, Refinitiv Benchmark Services UK Limited (RBSL), cease publication of Canadian Dollar Offered Rate (CDOR) settings immediately after June all new derivative contracts and securities tothe Canadian Overnight Repo Rate Average (CORRA), with the exception of derivatives that hedge or reduce CDORderivatives or securities transacted before June 30, 2023, orbefore June
28
, 2024, using atwo-stage
transition approach. By the end of the first stage on June 30, 2023,CARR expects
use
exposures of (i)
(ii) loan agreements entered into
28
, 2024. All remaining CDOR exposures should be transitioned to CORRA by June 28
, 2024, marking the end of the second stage.Following public consultation, on May 16, 2022, RBSL announced that all remaining CDOR settings will cease publication immediately after June
28
, 2024 according to the CARR recommendation. Our ITO is in the process of assessing the impact of this announcement, including CDOR-based financial instruments, hedge relationships and project plans.The following table presents quantitative information for financial instruments impacted by the RBSL announcement, including both CDOR and bankers’ acceptance (BA) rates, that either mature after June 28, 2024 or are demand facilities that will be subject to remediation to amend the benchmark interest rate.
(Canadian $ in millions) | July 31, 2022 | |||
Non-derivative assets (1) | 33,008 | |||
Non-derivative liabilities (1) | 4,595 | |||
Derivative notional amounts (2) | 1,399,004 | |||
Authorized and committed loan commitments (3) | 26,298 |
(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) | Notional amounts 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. |
We continue to apply the IASB’s Phase 1 Amendments to IAS 39and IFRS 7,
Financial Instruments: Recognition and Measurement
Financial Instruments: Disclosures
which modified certain hedge accounting requirements to provide relief from the uncertainty arising from IBOR reform during the period prior to replacement of IBORs. The notional amount of cash flow hedge and fair value hedge interest rate swaps linked to BA’s that mature after June 28, 2024 and are therefore subject to CDOR transition was $39,246 million and $16,763 million, respectively, as at July 31, 2022. The notional amount of cash flow hedge total return swaps linked to CDOR that mature after June 28, 2024 and are therefore subject to CDOR transition was $658 million as at July 31, 2022. We did not have cash flow hedge or fair value hedge cross-currency swaps referencing either CDOR or BA’s as at July 31, 2022. We will apply judgment with respect to the need for new or revised CDOR hedging relationships; however, given market uncertainty, the assessment of the impact on the bank’s hedging relationships and its mitigation plans are still in progress.
5
6Use 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.
The economic outlook for Canada and the U.S. is subject to several risks that could lead to a severe downturn, including, persistent high inflation and significant further increases in interest rates, an escalation of the conflict in Ukraine, rising geopolitical tensions between the U.S. and China, and new variants of the coronavirus. A significant housing market correction could also occur if monetary policy becomes overly restrictive to control inflation. The impact on BMO’s business, results of operations, reputation, financial performance and condition, including the potential for credit, counterparty andlosses, its credit ratings and regulatory capital and liquidity ratios, as well as impacts to its customers and competitors, will depend on future developments, which remain uncertain. By their very nature, the judgments and estimates we make for the purposes of preparing our 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, 2022.
mark-to-market
Allowance for Credit Losses
As detailed further in Note 1 of our annual consolidated financial statements for the year ended October 31, 2021, 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 $14,036 million ($14,210 million as at October 31, 2021) are comprised of $4,121 million mandatorily measured at fair value and $9,915 million investment securities held by insurance subsidiaries designated at fair value ($3,038 million and $11,172 million, respectively, as at October 31, 2021).
Our fair value through other comprehensive income (FVOCI) securities totalling $39,273 million ($63,123 million as at October 31, 2021), are net of an allowance for credit losses of $4 million ($2 million as at October 31, 2021).
Amortized cost securities totalling $100,906 million ($49,970 million as at October 31, 2021), are net of an allowance for credit losses of $3 million ($1 million as at October 31, 2021).
Unrealized Gains and Losses on FVOCI Securities
The following table summarizes the unrealized gains and losses:
(Canadian $ in millions) | July 31, 2022 | October 31, 2021 | ||||||||||||||||||||||||||||||
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 | 9,546 | 47 | 162 | 9,431 | 13,087 | 62 | 84 | 13,065 | ||||||||||||||||||||||||
Canadian provincial and municipal governments | 4,502 | 27 | 75 | 4,454 | 2,973 | 29 | 15 | 2,987 | ||||||||||||||||||||||||
U.S. federal government | 3,590 | - | 183 | 3,407 | 21,041 | 282 | 297 | 21,026 | ||||||||||||||||||||||||
U.S. states, municipalities and agencies | 3,573 | 20 | 56 | 3,537 | 4,034 | 85 | 5 | 4,114 | ||||||||||||||||||||||||
Other governments | 6,317 | 9 | 71 | 6,255 | 6,476 | 55 | 29 | 6,502 | ||||||||||||||||||||||||
National Housing Act (NHA) mortgage-backed securities (MBS) | 928 | 5 | 11 | 922 | 1,122 | 6 | 3 | 1,125 | ||||||||||||||||||||||||
U.S. agency MBS and collateralized mortgage obligations (CMO) | 6,440 | 8 | 117 | 6,331 | 10,894 | 151 | 34 | 11,011 | ||||||||||||||||||||||||
Corporate debt | 4,883 | 18 | 117 | 4,784 | 3,147 | 34 | 20 | 3,161 | ||||||||||||||||||||||||
Corporate equity | 122 | 30 | - | 152 | 103 | 29 | - | 132 | ||||||||||||||||||||||||
Total | 39,901 | 164 | 792 | 39,273 | 62,877 | 733 | 487 | 63,123 |
Unrealized gains (losses) may be offset by related (losses) gains on hedge contracts.
BMO Financial Group Third Quarter Report 2022
5
7Interest 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, 2022 | July 31, 2021 | July 31, 2022 | July 31, 2021 | |||||||||||||
FVOCI - d ebt | 153 | 114 | 343 | 366 | ||||||||||||
Amortized cost | 365 | 101 | 837 | 309 | ||||||||||||
Total | 518 | 215 | 1,180 | 675 |
Non-Interest
RevenueNet gains and losses from securities, excluding gains and losses on trading securities, have been included in our Consolidated Statement of Income as follows:
(Canadian $ in millions) | For the three months ended | For the nine months ended | ||||||||||||||
July 31, 2022 | July 31, 2021 | July 31, 2022 | July 31, 2021 | |||||||||||||
FVTPL securities | 75 | 192 | 272 | 368 | ||||||||||||
FVOCI securities - realized gains (losses) (1) | 12 | 6 | 39 | 43 | ||||||||||||
Impairment losses | (2) | - | (2) | - | ||||||||||||
Securities gains , other than trading | 85 | 198 | 309 | 411 |
(1) Gains (losses) are net of (losses) gains on hedge contracts.
Interest and dividend income and gains (losses) on securities held in our Insurance business are recorded in
non-interest
revenue, insurance revenues, in our Consolidated Statement of Income. These include:● | Interest and dividend income of $103 million and $293 million for the three and nine months ended July 31, 2022, respectively ($95for the three and nine months ended July 31, 2021, respectively ). Interest income is calculated using the effective interest method; |
● | Gains (losses) from securities designated as FVTPL of $51 million and $(1,303 ) million for the three and nine months ended July 31, 2022, respectively ($429 million and $92 million for the three and nine months ended July 31, 2021, respectively); and |
● | Realized gains from FVOCI securities of $nil million and $nil million for the three and nine months ended July 31, 2022, respectively ( nil million and $1 million for the three and nine months ended July 31, 2021, respectively).$ |
5
8Note 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, 2022 and October 31, 2021. 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 expected credit loss that are credit impaired.
(Canadian $ in millions) | July 31, 2022 | October 31, 2021 | ||||||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||||||||||||||
Loans: Residential mortgages | ||||||||||||||||||||||||||||||||
Exceptionally low | 6 | - | - | 6 | 4 | - | - | 4 | ||||||||||||||||||||||||
Very low | 100,097 | 316 | - | 100,413 | 94,566 | 179 | - | 94,745 | ||||||||||||||||||||||||
Low | 23,960 | 2,816 | - | 26,776 | 23,471 | 1,293 | - | 24,764 | ||||||||||||||||||||||||
Medium | 11,976 | 2,912 | - | 14,888 | 12,066 | 2,250 | - | 14,316 | ||||||||||||||||||||||||
High | 149 | 305 | - | 454 | 167 | 306 | - | 473 | ||||||||||||||||||||||||
Not rated | 1,190 | 47 | - | 1,237 | 1,051 | 46 | - | 1,097 | ||||||||||||||||||||||||
Impaired | - | - | 302 | 302 | - | - | 351 | 351 | ||||||||||||||||||||||||
Gross residential mortgages | 137,378 | 6,396 | 302 | 144,076 | 131,325 | 4,074 | 351 | 135,750 | ||||||||||||||||||||||||
Allowance for credit losses | 42 | 41 | 8 | 91 | 46 | 39 | 12 | 97 | ||||||||||||||||||||||||
Carrying amount | 137,336 | 6,355 | 294 | 143,985 | 131,279 | 4,035 | 339 | 135,653 | ||||||||||||||||||||||||
Loans: Consumer instalment and other personal | ||||||||||||||||||||||||||||||||
Exceptionally low | 1,668 | 43 | - | 1,711 | 1,487 | 37 | - | 1,524 | ||||||||||||||||||||||||
Very low | 37,443 | 28 | - | 37,471 | 30,672 | 8 | - | 30,680 | ||||||||||||||||||||||||
Low | 21,571 | 873 | - | 22,444 | 21,660 | 534 | - | 22,194 | ||||||||||||||||||||||||
Medium | 11,531 | 4,531 | - | 16,062 | 13,336 | 3,607 | - | 16,943 | ||||||||||||||||||||||||
High | 903 | 1,334 | - | 2,237 | 661 | 1,375 | - | 2,036 | ||||||||||||||||||||||||
Not rated | 4,096 | 31 | - | 4,127 | 3,450 | 50 | - | 3,500 | ||||||||||||||||||||||||
Impaired | - | - | 285 | 285 | - | - | 287 | 287 | ||||||||||||||||||||||||
Gross consumer instalment and other personal | 77,212 | 6,840 | 285 | 84,337 | 71,266 | 5,611 | 287 | 77,164 | ||||||||||||||||||||||||
Allowance for credit losses | 101 | 282 | 94 | 477 | 113 | 333 | 91 | 537 | ||||||||||||||||||||||||
Carrying amount | 77,111 | 6,558 | 191 | 83,860 | 71,153 | 5,278 | 196 | 76,627 | ||||||||||||||||||||||||
Loans: Credit cards (1) | ||||||||||||||||||||||||||||||||
Exceptionally low | 2,844 | - | - | 2,844 | 2,532 | - | - | 2,532 | ||||||||||||||||||||||||
Very low | 530 | 1 | - | 531 | 450 | - | - | 450 | ||||||||||||||||||||||||
Low | 2,182 | 157 | - | 2,339 | 1,801 | 66 | - | 1,867 | ||||||||||||||||||||||||
Medium | 2,096 | 786 | - | 2,882 | 1,743 | 663 | - | 2,406 | ||||||||||||||||||||||||
High | 103 | 348 | - | 451 | 75 | 287 | - | 362 | ||||||||||||||||||||||||
Not rated | 85 | - | - | 85 | 486 | - | - | 486 | ||||||||||||||||||||||||
Impaired | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Gross credit cards | 7,840 | 1,292 | - | 9,132 | 7,087 | 1,016 | - | 8,103 | ||||||||||||||||||||||||
Allowance for credit losses | 65 | 186 | - | 251 | 67 | 209 | - | 276 | ||||||||||||||||||||||||
Carrying amount | 7,775 | 1,106 | - | 8,881 | 7,020 | 807 | - | 7,827 | ||||||||||||||||||||||||
Loans: Business and government (2) | ||||||||||||||||||||||||||||||||
Acceptable | ||||||||||||||||||||||||||||||||
Investment grade | 176,477 | 3,801 | - | 180,278 | 144,807 | 1,446 | - | 146,253 | ||||||||||||||||||||||||
Sub-investment grade | 92,058 | 20,852 | - | 112,910 | 85,375 | 14,534 | - | 99,909 | ||||||||||||||||||||||||
Watchlist | - | 5,729 | - | 5,729 | - | 6,137 | - | 6,137 | ||||||||||||||||||||||||
Impaired | - | - | 1,367 | 1,367 | - | - | 1,531 | 1,531 | ||||||||||||||||||||||||
Gross business and government | 268,535 | 30,382 | 1,367 | 300,284 | 230,182 | 22,117 | 1,531 | 253,830 | ||||||||||||||||||||||||
Allowance for credit losses | 627 | 586 | 380 | 1,593 | 529 | 730 | 395 | 1,654 | ||||||||||||||||||||||||
Carrying amount | 267,908 | 29,796 | 987 | 298,691 | 229,653 | 21,387 | 1,136 | 252,176 | ||||||||||||||||||||||||
Gross total loans and acceptances | 490,965 | 44,910 | 1,954 | 537,829 | 439,860 | 32,818 | 2,169 | 474,847 | ||||||||||||||||||||||||
Net total loans and acceptances | 490,130 | 43,815 | 1,472 | 535,417 | 439,105 | 31,507 | 1,671 | 472,283 | ||||||||||||||||||||||||
Commitments and financial guarantee contracts | ||||||||||||||||||||||||||||||||
Acceptable | ||||||||||||||||||||||||||||||||
Investment grade | 173,173 | 2,507 | - | 175,680 | 154,975 | 2,367 | - | 157,342 | ||||||||||||||||||||||||
Sub-investment grade | 43,680 | 14,815 | - | 58,495 | 46,827 | 8,164 | - | 54,991 | ||||||||||||||||||||||||
Watchlist | - | 1,647 | - | 1,647 | - | 2,453 | - | 2,453 | ||||||||||||||||||||||||
Impaired | - | - | 400 | 400 | - | - | 682 | 682 | ||||||||||||||||||||||||
Allowance for credit losses | 221 | 147 | 14 | 382 | 195 | 186 | 13 | 394 | ||||||||||||||||||||||||
Carrying amount (3)(4) | 216,632 | 18,822 | 386 | 235,840 | 201,607 | 12,798 | 669 | 215,074 |
(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. |
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 $2,794 million at July 31, 2022 ($2,958 million as at October 31, 2021) of which $2,412 million ($2,564 million as at October 31, 2021) was recorded in loans and $382 million ($394
loans and other credit instruments. The allowance for credit losses amounted to $2,794 million at July 31, 2022 ($2,958 million as at October 31, 2021) of which $2,412 million ($2,564 million as at October 31, 2021) was recorded in loans and $382 million ($394
million as at October 31, 2021) was recorded in other
liabilities in our Consolidated Balance Sheet.
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.
BMO Financial Group Third Quarter Report 2022
5
9
The following tables show the continuity in the loss allowance by product type for the three and nine months ended July 31, 2022 and July 31, 2021. 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, as well as changes in economic forecasts and credit quality. Model changes include new calculation models or methodologies.(Canadian $ in millions) | ||||||||||||||||||||||||||||||||
For the three months ended | July 31, 2022 | July 31, 2021 | ||||||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||||||||||||||
Loans: Residential mortgages | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 37 | 36 | 16 | 89 | 60 | 53 | 22 | 135 | ||||||||||||||||||||||||
Transfer to Stage 1 | 9 | (8) | (1) | - | 14 | (13) | (1) | - | ||||||||||||||||||||||||
Transfer to Stage 2 | (1) | 2 | (1) | - | (1) | 3 | (2) | - | ||||||||||||||||||||||||
Transfer to Stage 3 | - | (1) | 1 | - | - | (2) | 2 | - | ||||||||||||||||||||||||
Net remeasurement of loss allowance | (13) | 11 | 1 | (1) | (35) | - | 3 | (32) | ||||||||||||||||||||||||
Loan originations | 9 | - | - | 9 | 15 | - | - | 15 | ||||||||||||||||||||||||
Derecognitions and maturities | (1) | (2) | - | (3) | (2) | (3) | - | (5) | ||||||||||||||||||||||||
Model changes | 2 | 5 | - | 7 | - | - | - | - | ||||||||||||||||||||||||
Total Provision for Credit Losses (PCL) (1) | 5 | 7 | - | 12 | (9) | (15) | 2 | (22) | ||||||||||||||||||||||||
Write-offs (2) | - | - | (1) | (1) | - | - | (3) | (3) | ||||||||||||||||||||||||
Recoveries of previous write-offs | - | - | 3 | 3 | - | - | 4 | 4 | ||||||||||||||||||||||||
Foreign exchange and other | - | (1) | (3) | (4) | - | - | (3) | (3) | ||||||||||||||||||||||||
Balance as at end of period | 42 | 42 | 15 | 99 | 51 | 38 | 22 | 111 | ||||||||||||||||||||||||
Loans: Consumer instalment and other personal | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 106 | 306 | 92 | 504 | 141 | 401 | 101 | 643 | ||||||||||||||||||||||||
Transfer to Stage 1 | 54 | (52) | (2) | - | 58 | (56) | (2) | - | ||||||||||||||||||||||||
Transfer to Stage 2 | (8) | 16 | (8) | - | (5) | 16 | (11) | - | ||||||||||||||||||||||||
Transfer to Stage 3 | (2) | (18) | 20 | - | (3) | (24) | 27 | - | ||||||||||||||||||||||||
Net remeasurement of loss allowance | (59) | 73 | 29 | 43 | (64) | 60 | 18 | 14 | ||||||||||||||||||||||||
Loan originations | 24 | - | - | 24 | 23 | - | - | 23 | ||||||||||||||||||||||||
Derecognitions and maturities | (4) | (9) | - | (13) | (8) | (13) | - | (21) | ||||||||||||||||||||||||
Model changes | 2 | (12) | - | (10) | - | - | - | - | ||||||||||||||||||||||||
Total PCL (1) | 7 | (2) | 39 | 44 | 1 | (17) | 32 | 16 | ||||||||||||||||||||||||
Write-offs (2) | - | - | (52) | (52) | - | - | (55) | (55) | ||||||||||||||||||||||||
Recoveries of previous write-offs | - | - | 20 | 20 | - | - | 24 | 24 | ||||||||||||||||||||||||
Foreign exchange and other | 1 | (1) | (5) | (5) | - | 2 | (4) | (2) | ||||||||||||||||||||||||
Balance as at end of period | 114 | 303 | 94 | 511 | 142 | 386 | 98 | 626 | ||||||||||||||||||||||||
Loans: Credit cards | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 98 | 203 | - | 301 | 106 | 284 | - | 390 | ||||||||||||||||||||||||
Transfer to Stage 1 | 29 | (29) | - | - | 42 | (42) | - | - | ||||||||||||||||||||||||
Transfer to Stage 2 | (8) | 8 | - | - | (6) | 6 | - | - | ||||||||||||||||||||||||
Transfer to Stage 3 | - | (27) | 27 | - | - | (47) | 47 | - | ||||||||||||||||||||||||
Net remeasurement of loss allowance | (18) | 51 | 22 | 55 | (39) | 84 | 2 | 47 | ||||||||||||||||||||||||
Loan originations | 13 | - | - | 13 | 11 | - | - | 11 | ||||||||||||||||||||||||
Derecognitions and maturities | (1) | (6) | - | (7) | (3) | (7) | - | (10) | ||||||||||||||||||||||||
Model changes | (8) | 26 | - | 18 | - | - | - | - | ||||||||||||||||||||||||
Total PCL (1) | 7 | 23 | 49 | 79 | 5 | (6) | 49 | 48 | ||||||||||||||||||||||||
Write-offs (2) | - | - | (63) | (63) | - | - | (70) | (70) | ||||||||||||||||||||||||
Recoveries of previous write-offs | - | - | 18 | 18 | - | - | 26 | 26 | ||||||||||||||||||||||||
Foreign exchange and other | 1 | (1) | (4) | (4) | (1) | (1) | (5) | (7) | ||||||||||||||||||||||||
Balance as at end of period | 106 | 225 | - | 331 | 110 | 277 | - | 387 | ||||||||||||||||||||||||
Loans: Business and government | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 736 | 752 | 412 | 1,900 | 689 | 1,075 | 541 | 2,305 | ||||||||||||||||||||||||
Transfer to Stage 1 | 59 | (51) | (8) | - | 114 | (113) | (1) | - | ||||||||||||||||||||||||
Transfer to Stage 2 | (40) | 45 | (5) | - | (23) | 63 | (40) | - | ||||||||||||||||||||||||
Transfer to Stage 3 | (1) | (8) | 9 | - | - | (17) | 17 | - | ||||||||||||||||||||||||
Net remeasurement of loss allowance | 39 | (7) | 20 | 52 | (112) | 13 | 12 | (87) | ||||||||||||||||||||||||
Loan originations | 91 | - | - | 91 | 87 | - | - | 87 | ||||||||||||||||||||||||
Derecognitions and maturities | (111) | (33) | - | (144) | (36) | (72) | - | (108) | ||||||||||||||||||||||||
Model changes | 18 | (26) | - | (8) | - | - | - | - | ||||||||||||||||||||||||
Total PCL (1) | 55 | (80) | 16 | (9) | 30 | (126) | (12) | (108) | ||||||||||||||||||||||||
Write-offs (2) | - | - | (40) | (40) | - | - | (101) | (101) | ||||||||||||||||||||||||
Recoveries of previous write-offs | - | - | 8 | 8 | - | - | 13 | 13 | ||||||||||||||||||||||||
Foreign exchange and other | 3 | - | (9) | (6) | 9 | 5 | 1 | 15 | ||||||||||||||||||||||||
Balance as at end of period | 794 | 672 | 387 | 1,853 | 728 | 954 | 442 | 2,124 | ||||||||||||||||||||||||
Total as at end of period | 1,056 | 1,242 | 496 | 2,794 | 1,031 | 1,655 | 562 | 3,248 | ||||||||||||||||||||||||
Comprised of: Loans | 835 | 1,095 | 482 | 2,412 | 822 | 1,464 | 538 | 2,824 | ||||||||||||||||||||||||
Other credit instruments (3) | 221 | 147 | 14 | 382 | 209 | 191 | 24 | 424 |
(1) Excludes PCL on other assets of $10 million for the three months ended July 31, 2022 ($(4) million for the three months ended July 31, 2021).
(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.60
Third
(Canadian $ in millions) | ||||||||||||||||||||||||||||||||
For the nine months ended | July 31, 2022 | July 31, 2021 | ||||||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||||||||||||||
Loans: Residential mortgages | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 46 | 40 | 19 | 105 | 51 | 75 | 26 | 152 | ||||||||||||||||||||||||
Transfer to Stage 1 | 29 | (27) | (2) | - | 48 | (39) | (9) | - | ||||||||||||||||||||||||
Transfer to Stage 2 | (3) | 8 | (5) | - | (3) | 20 | (17) | - | ||||||||||||||||||||||||
Transfer to Stage 3 | - | (5) | 5 | - | - | (11) | 11 | - | ||||||||||||||||||||||||
Net remeasurement of loss allowance | (51) | 27 | 5 | (19) | (68) | 5 | 29 | (34) | ||||||||||||||||||||||||
Loan originations | 24 | - | - | 24 | 28 | - | - | 28 | ||||||||||||||||||||||||
Derecognitions and maturities | (4) | (6) | - | (10) | (5) | (10) | - | (15) | ||||||||||||||||||||||||
Model changes | 2 | 5 | - | 7 | - | - | - | - | ||||||||||||||||||||||||
Total Provision for Credit Losses ( PCL ) (1) | (3) | 2 | 3 | 2 | - | (35) | 14 | (21) | ||||||||||||||||||||||||
Write-offs (2) | - | - | (5) | (5) | - | - | (9) | (9) | ||||||||||||||||||||||||
Recoveries of previous write-offs | - | - | 6 | 6 | - | - | 8 | 8 | ||||||||||||||||||||||||
Foreign exchange and other | (1) | - | (8) | (9) | - | (2) | (17) | (19) | ||||||||||||||||||||||||
Balance as at end of period | 42 | 42 | 15 | 99 | 51 | 38 | 22 | 111 | ||||||||||||||||||||||||
Loans: Consumer instalment and other personal | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 128 | 357 | 91 | 576 | 148 | 454 | 105 | 707 | ||||||||||||||||||||||||
Transfer to Stage 1 | 183 | (176) | (7) | - | 175 | (168) | (7) | - | ||||||||||||||||||||||||
Transfer to Stage 2 | (30) | 51 | (21) | - | (21) | 50 | (29) | - | ||||||||||||||||||||||||
Transfer to Stage 3 | (4) | (61) | 65 | - | (6) | (76) | 82 | - | ||||||||||||||||||||||||
Net remeasurement of loss allowance | (199) | 173 | 62 | 36 | (197) | 169 | 77 | 49 | ||||||||||||||||||||||||
Loan originations | 60 | - | - | 60 | 66 | - | - | 66 | ||||||||||||||||||||||||
Derecognitions and maturities | (16) | (30) | - | (46) | (21) | (37) | - | (58) | ||||||||||||||||||||||||
Model changes | (9) | (13) | - | (22) | - | - | - | - | ||||||||||||||||||||||||
Total PCL (1) | (15) | (56) | 99 | 28 | (4) | (62) | 123 | 57 | ||||||||||||||||||||||||
Write-offs (2) | - | - | (144) | (144) | - | - | (184) | (184) | ||||||||||||||||||||||||
Recoveries of previous write-offs | - | - | 59 | 59 | - | - | 70 | 70 | ||||||||||||||||||||||||
Foreign exchange and other | 1 | 2 | (11) | (8) | (2) | (6) | (16) | (24) | ||||||||||||||||||||||||
Balance as at end of period | 114 | 303 | 94 | 511 | 142 | 386 | 98 | 626 | ||||||||||||||||||||||||
Loans: Credit cards | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 114 | 245 | - | 359 | 110 | 321 | - | 431 | ||||||||||||||||||||||||
Transfer to Stage 1 | 114 | (114) | - | - | 141 | (141) | - | - | ||||||||||||||||||||||||
Transfer to Stage 2 | (25) | 25 | - | - | (21) | 21 | - | - | ||||||||||||||||||||||||
Transfer to Stage 3 | (1) | (83) | 84 | - | (1) | (134) | 135 | - | ||||||||||||||||||||||||
Net remeasurement of loss allowance | (125) | 151 | 48 | 74 | (139) | 234 | 22 | 117 | ||||||||||||||||||||||||
Loan originations | 38 | - | - | 38 | 28 | - | - | 28 | ||||||||||||||||||||||||
Derecognitions and maturities | (4) | (17) | - | (21) | (6) | (22) | - | (28) | ||||||||||||||||||||||||
Model changes | (6) | 18 | - | 12 | - | - | - | - | ||||||||||||||||||||||||
Total PCL (1) | (9) | (20) | 132 | 103 | 2 | (42) | 157 | 117 | ||||||||||||||||||||||||
Write-offs (2) | - | - | (177) | (177) | - | - | (212) | (212) | ||||||||||||||||||||||||
Recoveries of previous write-offs | - | - | 58 | 58 | - | - | 73 | 73 | ||||||||||||||||||||||||
Foreign exchange and other | 1 | - | (13) | (12) | (2) | (2) | (18) | (22) | ||||||||||||||||||||||||
Balance as at end of period | 106 | 225 | - | 331 | 110 | 277 | - | 387 | ||||||||||||||||||||||||
Loans: Business and government | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 662 | 855 | 401 | 1,918 | 658 | 1,258 | 608 | 2,524 | ||||||||||||||||||||||||
Transfer to Stage 1 | 226 | (188) | (38) | - | 385 | (380) | (5) | - | ||||||||||||||||||||||||
Transfer to Stage 2 | (96) | 147 | (51) | - | (86) | 138 | (52) | - | ||||||||||||||||||||||||
Transfer to Stage 3 | (1) | (40) | 41 | - | (2) | (83) | 85 | - | ||||||||||||||||||||||||
Net remeasurement of loss allowance | (266) | 23 | 124 | (119) | (327) | 268 | 119 | 60 | ||||||||||||||||||||||||
Loan originations | 383 | - | - | 383 | 232 | - | - | 232 | ||||||||||||||||||||||||
Derecognitions and maturities | (184) | (124) | - | (308) | (102) | (165) | - | (267) | ||||||||||||||||||||||||
Model changes | 19 | (32) | - | (13) | (5) | (19) | - | (24) | ||||||||||||||||||||||||
Total PCL (1) | 81 | (214) | 76 | (57) | 95 | (241) | 147 | 1 | ||||||||||||||||||||||||
Write-offs (2) | - | - | (96) | (96) | - | - | (285) | (285) | ||||||||||||||||||||||||
Recoveries of previous write-offs | - | - | 26 | 26 | - | - | 40 | 40 | ||||||||||||||||||||||||
Foreign exchange and other | 51 | 31 | (20) | 62 | (25) | (63) | (68) | (156) | ||||||||||||||||||||||||
Balance as at end of period | 794 | 672 | 387 | 1,853 | 728 | 954 | 442 | 2,124 | ||||||||||||||||||||||||
Total as at end of period | 1,056 | 1,242 | 496 | 2,794 | 1,031 | 1,655 | 562 | 3,248 | ||||||||||||||||||||||||
Comprised of: Loans | 835 | 1,095 | 482 | 2,412 | 822 | 1,464 | 538 | 2,824 | ||||||||||||||||||||||||
Other credit instruments (3) | 221 | 147 | 14 | 382 | 209 | 191 | 24 | 424 |
(1) Excludes PCL on other assets of $11 million for the nine months ended July 31, 2022 ($(8) million for the nine months ended July 31, 2021).
(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 GroupQuarter Report 2022
Third
6
1Loans and allowance for credit losses by geographic region as at July 31, 2022 and October 31, 2021 are as follows:
(Canadian $ in millions) | July 31, 2022 | October 31, 2021 | ||||||||||||||||||||||||||||||
Gross amount | Allowance for credit losses on impaired loans (2) | Allowance for credit losses on performing loans (3) | Net amount | | Gross amount | | | Allowance for credit losses on impaired loans (2) | | | Allowance for credit losses on performing loans (3) | | | Net amount | | |||||||||||||||||
By geographic region (1): | ||||||||||||||||||||||||||||||||
Canada | 332,973 | 328 | 1,051 | 331,594 | 299,905 | 345 | 1,143 | 298,417 | ||||||||||||||||||||||||
United States | 181,598 | 154 | 865 | 180,579 | 153,479 | 153 | 910 | 152,416 | ||||||||||||||||||||||||
Other countries | 10,643 | - | 14 | 10,629 | 7,442 | - | 13 | 7,429 | ||||||||||||||||||||||||
Total | 525,214 | 482 | 1,930 | 522,802 | 460,826 | 498 | 2,066 | 458,262 |
(1) Geographic region is based upon country of ultimate risk.
(2) Excludes allowance for credit losses on impaired loans of $14 million for other credit instruments, which is included in other liabilities ($13 million as at October 31, 2021).
(3) Excludes allowance for credit losses on performing loans of $368 million for other credit instruments, which is included in other liabilities ($381 million as at October 31, 2021).
Impaired (Stage 3) loans, including the related allowances, as at July 31, 2022 and October 31, 2021 are as follows:
(Canadian $ in millions) | July 31, 2022 | October 31, 2021 | ||||||||||||||||||||||
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 | 302 | 8 | 294 | 351 | 12 | 339 | ||||||||||||||||||
Consumer instalment and other personal | 285 | 94 | 191 | 287 | 91 | 196 | ||||||||||||||||||
Business and government (1) | 1,367 | 380 | 987 | 1,531 | 395 | 1,136 | ||||||||||||||||||
Total | 1,954 | 482 | 1,472 | 2,169 | 498 | 1,671 | ||||||||||||||||||
By geographic region (2): | ||||||||||||||||||||||||
Canada | 1,201 | 328 | 873 | 1,195 | 345 | 850 | ||||||||||||||||||
United States | 753 | 154 | 599 | 974 | 153 | 821 | ||||||||||||||||||
Other countries | - | - | - | - | - | - | ||||||||||||||||||
Total | 1,954 | 482 | 1,472 | 2,169 | 498 | 1,671 |
(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 $14 million for other credit instruments, which is included in other liabilities ($13 million as at October 31, 2021).
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, 2022 and October 31, 2021. 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, 2022 | October 31, 2021 | ||||||||||||||||||||||
30 to 89 days | 90 days or more | Total | 30 to 89 days | 90 days or more | Total | |||||||||||||||||||
Residential mortgages | 390 | 14 | 404 | 404 | 14 | 418 | ||||||||||||||||||
Credit card, consumer instalment and other personal | 326 | 67 | 393 | 279 | 59 | 338 | ||||||||||||||||||
Business and government | 206 | 37 | 243 | 264 | 33 | 297 | ||||||||||||||||||
Total | 922 | 118 | 1,040 | 947 | 106 | 1,053 |
Fully secured loans with amounts between 90 and 180 days past due that we have not classified as impaired totalled $36 million and $36 million as at July 31, 2022 and October 31, 2021, 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 applied experienced credit judgment to reflect the continuing impact of the uncertain environment on credit conditions and the economy as a result of the
COVID-19
pandemic, as well as the impacts of high inflation and supply-chain disruptions.As at July 31, 2022, our base case scenario depicts
weaker
economic growth in both Canada and the U.S
,
as growth is tempered by
high
inflation
, rapidly-rising
interest rates
, and weaker global demand
. In contrast, our base case economic forecast as at October 31, 2021, depicted a stronger economic forecast in both Canada and the United States over the projection period. If we assumed a 100% base case economic forecast and included the impact of loan migration by restaging, with other assumptions held constant, including the application of experienced credit judgment, the allowance on performing loans would be approximately $1,750 million as at July 31, 2022 ($1,725 million as at October 31, 2021), compared to the reported allowance for performing loans of $2,298 million ($2,447 million as at October 31, 2021).
The benign scenario as at July 31, 2022 involves a materially stronger economic environment than the base case forecast, with a considerably lower unemployment rate.
As at July 31, 2022, our adverse economic scenario depicts a contracting economy, with annual average real GDP declining in both Canada and the U.S. The adverse case as at October 31, 2021 depicted a slightly weaker economic environment in Canada and the
U.S.
with higher unemployment rates. 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 $3,150 million as at July 31, 2022 ($3,825 million as at October 31, 2021), compared to the reported allowance for performing loans of $2,298 million ($2,447 million as at October 31, 2021).
6
2Third
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 equity volatility index (VIX), 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.
of the other economic and market variables used, including equity volatility index (VIX), 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 show
s
certain key economic variables used to estimate the allowance on performing loans during the forecast period. 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 also use regional variables in our underlying models where appropriate.As at July 31, 2022 | As at October 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||
All figures are average annual values | Benign scenario | Base scenario | Adverse scenario | Benign scenario | Base scenario | Adverse scenario | ||||||||||||||||||||||||||||||||||||||||||||||
First 12 Months | Subsequent 12 Months | First 12 Months | Subsequent 12 Months | First 12 Months | Subsequent 12 Months | First 12 Months | Subsequent 12 Months | First 12 Months | Subsequent 12 Months | First 12 Months | Subsequent 12 Months | |||||||||||||||||||||||||||||||||||||||||
Real GDP growth rates (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Canada | 5.4% | 3.3% | 3.1% | 1.7% | (2.0)% | (1.1)% | 6.3% | 5.5% | 4.0% | 3.9% | (2.7)% | (1.1)% | ||||||||||||||||||||||||||||||||||||||||
United States | 3.9% | 2.4% | 1.7% | 1.1% | (2.8)% | (1.1)% | 7.1% | 4.0% | 4.8% | 2.7% | (1.2)% | (1.1)% | ||||||||||||||||||||||||||||||||||||||||
Corporate BBB 10-year spread | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Canada | 1.9% | 1.8% | 2.2% | 2.1% | 3.7% | 4.4% | 1.4% | 1.7% | 1.8% | 2.0% | 3.6% | 4.4% | ||||||||||||||||||||||||||||||||||||||||
United States | 1.4% | 1.5% | 1.7% | 1.9% | 4.2% | 4.5% | 0.9% | 1.1% | 1.2% | 1.5% | 4.2% | 4.5% | ||||||||||||||||||||||||||||||||||||||||
Unemployment rates | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Canada | 4.3% | 3.7% | 5.2% | 5.5% | 7.9% | 10.0% | 6.0% | 4.9% | 6.6% | 5.7% | 10.8% | 12.7% | ||||||||||||||||||||||||||||||||||||||||
United States | 3.2% | 2.8% | 3.7% | 4.2% | 6.5% | 8.6% | 4.2% | 3.2% | 4.7% | 3.7% | 8.5% | 11.0% | ||||||||||||||||||||||||||||||||||||||||
Housing Price Index (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Canada (2) | 10.0% | (2.3)% | 6.6% | (7.2)% | (4.6)% | (18.0)% | 18.2% | 10.2% | 15.1% | 5.2% | (6.4)% | (18.0)% | ||||||||||||||||||||||||||||||||||||||||
United States (3) | 13.3% | 4.2% | 11.0% | 1.3% | (6.3)% | (15.5)% | 14.6% | 6.7% | 12.3% | 4.3% | (6.1)% | (15.5)% |
(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 $1,725 million ($1,775 million as at October 31, 2021), compared with the reported allowance for performing loans of $2,298 million ($2,447 million as at October 31, 2021).
Note 4: Deposits and Subordinated Debt
Deposits
Payable on demand | Payable on | |||||||||||||||||||||||
(Canadian $ in millions) | Interest bearing | Non-interest bearing | Payable after notice | a fixed date (4)(5) | July 31, 2022 | October 31, 2021 | ||||||||||||||||||
Deposits by: | ||||||||||||||||||||||||
Banks (1) | 4,125 | 1,784 | 1,091 | 19,553 | 26,553 | 26,611 | ||||||||||||||||||
Business and government | 49,266 | 54,397 | 145,766 | 225,052 | 474,481 | 442,248 | ||||||||||||||||||
Individuals | 4,804 | 38,816 | 120,858 | 63,873 | 228,351 | 216,772 | ||||||||||||||||||
Total (2) (3) | 58,195 | 94,997 | 267,715 | 308,478 | 729,385 | 685,631 | ||||||||||||||||||
Booked in: | ||||||||||||||||||||||||
Canada | 49,809 | 84,608 | 129,183 | 227,402 | 491,002 | 427,316 | ||||||||||||||||||
United States | 8,050 | 10,315 | 137,094 | 51,987 | 207,446 | 232,830 | ||||||||||||||||||
Other countries | 336 | 74 | 1,438 | 29,089 | 30,937 | 25,485 | ||||||||||||||||||
Total | 58,195 | 94,997 | 267,715 | 308,478 | 729,385 | 685,631 |
(1) |
(2) |
(3) | denominated in other foreign currencies. |
(4) | (Bail-In) regime ($35,959 million as at October 31, 2021). TheBail-In regime provides certain statutory powers to thenon-viable. |
(5) |
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, 2022 | 202,448 | 48,394 | 29,088 | 279,930 | ||||||||||||||||
As at October 31, 2021 | 140,002 | 72,399 | 23,921 | 236,322 |
BMO Financial GroupQuarter Report 2022
Third
6
3
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, 2022 | 26,966 | 23,794 | 54,143 | 97,545 | 202,448 | |||||||||||||||
As at October 31, 2021 | 20,626 | 12,761 | 20,933 | 85,682 | 140,002 |
Subordinated Debt
On
June 1
, 2022, we
redeemed
all of our $850 million 2.57% Series I Medium-Term Notes Second Tranche
at a redemption price of 100 percent of the principal amount plus unpaid accrued interest to, but excluding, the redemption date
.
On January 10, 2022, we issued US$1,250 million of 3.088% unsecured subordinated debt through our U.S. Medium-Term Note Program. The issue is due January 10, 2037. The notes reset to a floating rate on January 10, 2032
.
Note 5: Equity
Preferred and Common Shares Outstanding and Other Equity Instruments
(1)
(Canadian $ in millions, except as noted) | July 31, 2022 | October 31, 2021 | ||||||||||||||||||
Number | Number | |||||||||||||||||||
of shares | Amount | of shares | Amount | Convertible into | ||||||||||||||||
Preferred Shares - Classified as Equity | ||||||||||||||||||||
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 38 | - | - | 24,000,000 | 600 | Class B - Series 39 | (9) | ||||||||||||||
Class B – Series 40 | - | - | 20,000,000 | 500 | Class B - Series 41 | ( 10 ) | ||||||||||||||
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) | ||||||||||||||
Class B – Series 50 | 500,000 | 500 | - | - | - | (3)(11) | ||||||||||||||
Preferred Shares - Classified as Equity | 3,050 | 3,650 | ||||||||||||||||||
Other Equity Instruments 4.800% Additional Tier 1 Capital Notes (AT1 Notes) | 658 | 658 | Common shares | (3) | ||||||||||||||||
4.300% Limited Recourse Capital Notes, Series 1 (Series 1 LRCNs) | 1,250 | 1,250 | Common shares | (3)(4) | ||||||||||||||||
5.625% Limited Recourse Capital Notes, Series 2 (Series 2 LRCNs) | 750 | - | Common shares | (3)(4)(1 2 ) | ||||||||||||||||
Other Equity Instruments | 2,658 | 1,908 | ||||||||||||||||||
Preferred Shares and Other Equity Instruments | 5,708 | 5,558 | ||||||||||||||||||
Common Shares (5) (6) (7) (8) | 674,361,486 | 17,392 | 648,136,472 | 13,599 |
(1) | For additional information refer to Notes 16 and 20 of our annual consolidated financial statements for the year ended October 31, 2021. |
(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 non-viability contingent capital provision (NVCC), which is necessary for the preferred shares, AT1 Notes and by virtue of the recourse to Preferred Shares Series 48 and Preferred Shares Series 49 for Series 1 and Series 2 LRCNs, respectively, to qualify as regulatory capital under Basel III, 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 Preferred Shares Series 49 for Series 1 and Series 2 LRCNs, respectively, and AT1 Notes, is convertible into common shares pursuant to an automatic conversion formula and a conversion price based on the greater of: (i) a floor price of $5.00 and (ii) the current market price of our common shares based on the volume weighted average trading price of our common shares on the TSX. The number of common shares issued is determined by dividing the value of the preferred share or other equity instrument, including declared and unpaid dividends, by the conversion price and then applying the multiplier. |
(4) | Non-deferrable 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 for Series 1 LRCNs and Preferred Shares Series 49 for Series 2 LRCNs, 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 and Preferred Shares Series 49 for Series 1 and Series 2 LRCNs, respectively, 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 Shares Series 48 and Preferred Shares Series 49 for Series 1 and Series 2LCRNs |
(5) | The stock options issued under the Stock Option Plan are convertible into 5,999,564 common shares as at July 31, 2022 (5,682,206 common shares as at October 31, 2021) of which 2,671,120 are exercisable as at July 31, 2022 (2,616,750 as at October 31, 2021). |
(6) | During the three and nine months ended July 31, 2022, we issued 2,675,927 and 4,792,102 common shares , respectively, under the Shareholder Dividend Reinvestment and Share Purchase Plan and we issued 155,300 and 710,897 common shares, respectively, under the Stock Option Plan. |
(7) | On March 29, 2022, we issued 20,843,750 common shares for $3,106 million to finance a portion of the purchase price for the announced acquisition of Bank of the West. |
(8) | Common shares are net of 158,256 treasury shares as at July 31, 2022 (36,521 treasury shares as at October 31, 2021). |
(9) | Series 38 was redeemed and final dividends were paid on February 25, 2022. |
(10) | Series 40 was redeemed and final dividends were paid on May 25, 2022. |
(11) | On July 27, 2022, we issued Class B Series 50 Preferred Shares for $500 million. |
(12) | On March 15, 2022, we issued Series 2 LRCNs for $750 million. |
6
4Other Equity Instruments
On March 15, 2022, we issued $750 million 5.625% Limited Recourse Capital Notes, Series 2 (Series 2 LRCNs). This issuance, together with our US$500 million (CAD $658 million) 4.800% Additional Tier 1 Capital Notes (AT1 Notes) and $1,250 million 4.300% Limited Recourse Capital Notes Series 1 (Series 1 LRCNs) are classified as equity and form part of our additional Tier 1
non-viability
contingent capital (NVCC). 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 August 25, 2022, we redeemed all of our outstanding 16 million Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 42 (NVCC) for an aggregate total of $400 million.
On July 27, 2022, we issued 500,000 Non-Cumulative 5-Year Rate Reset Class B Preferred Shares Series 50 (NVCC), at a price of $1,000 per share, for gross proceeds of $500 million. For the initial five year period to the earliest redemption date of November 26, 2027, the shares pay quarterly cash dividends, if declared, at a rate of 7.373% per annum. The dividend rate will reset on the earliest redemption date and every fifth year thereafter at a rate equal to the 5-year Government of Canada bond yield plus a premium of 4.250%.
On May 25, 2022, we redeemed all of our outstanding 20 million
Non-Cumulative
5-Year
Rate Reset Class B Preferred Shares, Series 40 (NVCC) for an aggregate total of $500 million.On February 25, 2022, we redeemed all of our outstanding 24 millionfor an aggregate total of $600 million.
Non-Cumulative
5-Year
Rate Reset Class B Preferred Shares, Series 38(NVCC)
Common Shares
On March 29, 2022, we issued 20,843,750 common shares for $3,106 million to finance a portion of the purchase price for the announced acquisition of Bank of the West.
Normal Course Issuer Bid
On December 3, 2021, we announced our intention, subject to the approval of OSFI and the TSX, to purchase for cancellation up to 22.5 million of our common shares under a normal course issuer bid. Together with the announcement of the Bank of the West acquisition, we noted that we would not proceed with establishing a normal course issuer bid and do not expect to repurchase shares prior to the closing of the acquisition.
Shareholder Dividend Reinvestment and Share Purchase Plan
On January 10, 2022, we announced the offering of a 2% discount on the common shares issued from treasury under the dividend reinvestment feature of the bank’s Shareholder Dividend Reinvestment and Share Purchase Plan (the Plan). Commencing with the common share dividend declared for the first quarter of fiscal 2022, and subsequently until further notice, common shares under the Plan will be issued by the bank from treasury with a 2% discount, calculated in accordance with the terms of the Plan. The discount will not apply to common shares purchased under the “Optional Cash Payment” feature of the Plan.
We issued 2,675,927 and 4,792,102 common shares, respectively, under the Plan during the three and nine months ended July 31, 2022, respectively.
BMO Financial Group Third Quarter Report 2022
6
5Note 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 of our annual consolidated financial statements for the year ended October 31, 2021 for further discussion on the determination of fair value.
(Canadian $ in millions) | July 31, 2022 | October 31, 2021 | ||||||||||||||
Carrying value | Fair value | Carrying value | Fair value | |||||||||||||
Securities (1) | ||||||||||||||||
Amortized cost | 100,906 | 94,958 | 49,970 | 49,810 | ||||||||||||
Loans (1) (2) | ||||||||||||||||
Residential mortgages | 143,962 | 139,112 | 135,653 | 135,461 | ||||||||||||
Consumer instalment and other personal | 83,860 | 82,608 | 76,627 | 76,791 | ||||||||||||
Credit cards | 8,881 | 8,881 | 7,827 | 7,827 | ||||||||||||
Business and government | 281,900 | 280,795 | 233,066 | 233,670 | ||||||||||||
518,603 | 511,396 | 453,173 | 453,749 | |||||||||||||
Deposits (3) | 703,396 | 701,348 | 662,827 | 663,558 | ||||||||||||
Securitization and structured entities’ liabilities (4) | 23,510 | 22,992 | 24,631 | 24,809 | ||||||||||||
Other liabilities (5) | 3,844 | 3,287 | - | - | ||||||||||||
Subordinated debt | 7,443 | 7,150 | 6,893 | 7,087 |
This table excludes financial instruments with a carrying value approximating fair value, such as cash and cash equivalents, interest bearing deposits with banks, securities borrowed or purchased under resale agreements, customers’ liability under acceptances,
certain
other assets, certain other liabilities
acceptances and securities lent or sold under repurchase agreements.,
(1) |
(2) | residential mortgages classified as FVTPL, $4,161 million of business and government loans classified as FVTPL and $62 million of business and government loans classified as FVOCI nil million ,5,022 million and $134 million, respectively, as at October 31, 2021). |
(3) |
(4) | note entities’ liabilities classified as FVTPL ($855 million as at October 31, 2021). |
(5) |
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.
6
6The extent of our use of actively quoted market prices (Level 1), internal models using observable market information as inputs (Level 2) and models without observable market information as inputs (Level 3) in the valuation of securities,
residential mortgages,
business and government loans classified as FVTPL and FVOCI, other assets, fair value liabilities, derivative assets and derivative liabilities is presented in the following tables:
(Canadian $ in millions) | July 31, 2022 | October 31, 2021 | ||||||||||||||||||||||||||||||
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 | 8,536 | 1,877 | - | 10,413 | 3,123 | 4,473 | - | 7,596 | ||||||||||||||||||||||||
Canadian provincial and municipal governments | 3,739 | 3,062 | - | 6,801 | 2,183 | 3,655 | - | 5,838 | ||||||||||||||||||||||||
U.S. federal government | 7,765 | 10,092 | - | 17,857 | 6,050 | 3,532 | - | 9,582 | ||||||||||||||||||||||||
U.S. states, municipalities and agencies | 27 | 181 | - | 208 | - | 458 | - | 458 | ||||||||||||||||||||||||
Other governments | 1,377 | 1,677 | - | 3,054 | 1,307 | 591 | - | 1,898 | ||||||||||||||||||||||||
NHA MBS, U.S. agency MBS and CMO | - | 14,303 | 755 | 15,058 | - | 13,379 | 675 | 14,054 | ||||||||||||||||||||||||
Corporate debt | 1,757 | 8,467 | 5 | 10,229 | 2,231 | 7,656 | 7 | 9,894 | ||||||||||||||||||||||||
Trading loans | - | 329 | - | 329 | - | 160 | - | 160 | ||||||||||||||||||||||||
Corporate equity | 46,195 | - | - | 46,195 | 54,931 | - | - | 54,931 | ||||||||||||||||||||||||
69,396 | 39,988 | 760 | 110,144 | 69,825 | 33,904 | 682 | 104,411 | |||||||||||||||||||||||||
FVTPL Securities | ||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||
Canadian federal government | 537 | 75 | - | 612 | 704 | 159 | - | 863 | ||||||||||||||||||||||||
Canadian provincial and municipal governments | 384 | 792 | - | 1,176 | 137 | 1,243 | - | 1,380 | ||||||||||||||||||||||||
U.S. federal government | - | 4 | - | 4 | - | 38 | - | 38 | ||||||||||||||||||||||||
Other governments | - | 88 | - | 88 | - | 92 | - | 92 | ||||||||||||||||||||||||
NHA MBS, U.S. agency MBS and CMO | - | 8 | - | 8 | - | 9 | - | 9 | ||||||||||||||||||||||||
Corporate debt | 75 | 6,815 | 8 | 6,898 | 160 | 7,544 | - | 7,704 | ||||||||||||||||||||||||
Corporate equity | 1,513 | 10 | 3,727 | 5,250 | 1,670 | 12 | 2,442 | 4,124 | ||||||||||||||||||||||||
2,509 | 7,792 | 3,735 | 14,036 | 2,671 | 9,097 | 2,442 | 14,210 | |||||||||||||||||||||||||
FVOCI Securities | ||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||
Canadian federal government | 8,015 | 1,416 | - | 9,431 | 9,138 | 3,927 | - | 13,065 | ||||||||||||||||||||||||
Canadian provincial and municipal governments | 2,576 | 1,878 | - | 4,454 | 1,438 | 1,549 | - | 2,987 | ||||||||||||||||||||||||
U.S. federal government | 1,617 | 1,790 | - | 3,407 | 18,873 | 2,153 | - | 21,026 | ||||||||||||||||||||||||
U.S. states, municipalities and agencies | 1 | 3,535 | 1 | 3,537 | - | 4,113 | 1 | 4,114 | ||||||||||||||||||||||||
Other governments | 1,609 | 4,646 | - | 6,255 | 2,803 | 3,699 | - | 6,502 | ||||||||||||||||||||||||
NHA MBS, U.S. agency MBS and CMO | - | 7,253 | - | 7,253 | - | 12,136 | - | 12,136 | ||||||||||||||||||||||||
Corporate debt | 155 | 4,629 | - | 4,784 | 812 | 2,349 | - | 3,161 | ||||||||||||||||||||||||
Corporate equity | - | - | 152 | 152 | - | - | 132 | 132 | ||||||||||||||||||||||||
13,973 | 25,147 | 153 | 39,273 | 33,064 | 29,926 | 133 | 63,123 | |||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||||||
Residential mortgages | - | 23 | - | 23 | - | - | - | - | ||||||||||||||||||||||||
Business and government loans | - | 4,217 | 6 | 4,223 | - | 5,150 | 6 | 5,156 | ||||||||||||||||||||||||
- | 4,240 | 6 | 4,246 | - | 5,150 | 6 | 5,156 | |||||||||||||||||||||||||
Other Assets (1) | 4,539 | 90 | 9 | 4,638 | 4,392 | 85 | - | 4,477 | ||||||||||||||||||||||||
Fair Value Liabilities | ||||||||||||||||||||||||||||||||
Securities sold but not yet purchased | 26,042 | 15,145 | - | 41,187 | 17,424 | 14,649 | - | 32,073 | ||||||||||||||||||||||||
Structured note liabilities (2) | - | 25,766 | - | 25,766 | - | 22,665 | - | 22,665 | ||||||||||||||||||||||||
Other liabilities (3) | 1,173 | 2,639 | 1 | 3,813 | 1,106 | 2,125 | - | 3,231 | ||||||||||||||||||||||||
27,215 | 43,550 | 1 | 70,766 | 18,530 | 39,439 | - | 57,969 | |||||||||||||||||||||||||
Derivative Assets | ||||||||||||||||||||||||||||||||
Interest rate contracts | 44 | 8,106 | - | 8,150 | 6 | 8,066 | - | 8,072 | ||||||||||||||||||||||||
Foreign exchange contracts | 7 | 13,844 | - | 13,851 | 3 | 14,982 | - | 14,985 | ||||||||||||||||||||||||
Commodity contracts | 1,962 | 7,874 | - | 9,836 | 642 | 6,976 | - | 7,618 | ||||||||||||||||||||||||
Equity contracts | 427 | 7,422 | - | 7,849 | 1,381 | 4,657 | - | 6,038 | ||||||||||||||||||||||||
Credit default swaps | 3 | 28 | - | 31 | - | - | - | - | ||||||||||||||||||||||||
2,443 | 37,274 | - | 39,717 | 2,032 | 34,681 | - | 36,713 | |||||||||||||||||||||||||
Derivative Liabilities | ||||||||||||||||||||||||||||||||
Interest rate contracts | 44 | 9,987 | - | 10,031 | 6 | 6,773 | - | 6,779 | ||||||||||||||||||||||||
Foreign exchange contracts | 4 | 15,049 | - | 15,053 | 4 | 12,451 | - | 12,455 | ||||||||||||||||||||||||
Commodity contracts | 2,025 | 2,746 | - | 4,771 | 746 | 1,445 | - | 2,191 | ||||||||||||||||||||||||
Equity contracts | 287 | 13,390 | - | 13,677 | 1,581 | 7,802 | - | 9,383 | ||||||||||||||||||||||||
Credit default swaps | 3 | 104 | 4 | 111 | - | 5 | 2 | 7 | ||||||||||||||||||||||||
2,363 | 41,276 | 4 | 43,643 | 2,337 | 28,476 | 2 | 30,815 |
(1) | Other assets include precious metals, segregated fund assets in our insurance business , and certain receivables and investments measured at fair value. |
(2) | These structured note liabilities included in deposits have been designated as FVTPL. |
(3) | Other liabilities include investment contract liabilities and segregated fund liabilities in our insurance business, certain payables and metals deposits that have been designated as FVTPL as well as certain securitization and structured entities’ liabilities measured as FVTPL. |
BMO Financial Group Third Quarter Report 2022
6
7Quantitative 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, 2022 (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 | 3,727 | Net Asset Value EV/EBITDA | Net Asset Value Multiple | na 6x | na 19x | ||||||||||||||||||
NHA MBS , U.S. agency MBS and CMO | NHA MBS , | 755 | Discounted cash flows Market Comparable | | Prepayment rate Comparability Adjustment (3) | | 3% (3.71) | 46% 6.10 |
(1) | The low and high input values represent the lowest and highest actual level of inputs used to value a group of financial instruments in a particular product category. These input ranges do not reflect the level of input uncertainty, but are affected by the specific underlying instruments within each product category. The input ranges will therefore vary from period to period based on the characteristics of the underlying instruments held at each balance sheet date. |
(2) | t regulatory requirements. |
(3) |
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, 2022 and July 31, 2021.
(Canadian $ in millions) | ||||||||||||||||
For the three months ended | July 31, 2022 | July 31, 2021 | ||||||||||||||
Level 1 to Level 2 | Level 2 to Level 1 | Level 1 to Level 2 | Level 2 to Level 1 | |||||||||||||
Trading Securities | 589 | 7,994 | 639 | 1,473 | ||||||||||||
FVTPL Securities | 17 | 489 | 153 | 403 | ||||||||||||
FVOCI Securities | 343 | 6,480 | 1,016 | 1,917 | ||||||||||||
Securities sold but not yet purchased | 990 | 10,845 | 197 | 648 |
(Canadian $ in millions) | ||||||||||||||||
For the nine months ended | July 31, 2022 | July 31, 2021 | ||||||||||||||
Level 1 to Level 2 | Level 2 to Level 1 | Level 1 to Level 2 | Level 2 to Level 1 | |||||||||||||
Trading Securities | 5,377 | 10,661 | 4,067 | 11,009 | ||||||||||||
FVTPL Securities | 158 | 506 | 361 | 804 | ||||||||||||
FVOCI Securities | 9,222 | 10,138 | 6,856 | 10,890 | ||||||||||||
Securities sold but not yet purchased | 2,721 | 11,999 | 1,198 | 5,905 |
6
8Changes 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, 2022 and July 31, 2021, 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 | Movements | Transfers | ||||||||||||||||||||||||||||||||||||||
For the three months ended July 31, 2022 (Canadian $ in millions) | Balance April 30, 2022 | 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, 2022 | Change in unrealized gains (losses) recorded in income for instruments still held (3) | ||||||||||||||||||||||||||||||
Trading Securities | ||||||||||||||||||||||||||||||||||||||||
NHA MBS and U.S. agency MBS and CMO | 721 | (60) | (1) | 216 | (146) | - | 95 | (70) | 755 | (11) | ||||||||||||||||||||||||||||||
Corporate debt | 4 | - | - | - | - | - | 1 | - | 5 | - | ||||||||||||||||||||||||||||||
Total trading securities | 725 | (60) | (1) | 216 | (146) | - | 96 | (70) | 760 | (11) | ||||||||||||||||||||||||||||||
FVTPL Securities | ||||||||||||||||||||||||||||||||||||||||
Corporate debt | - | - | - | 8 | - | - | - | - | 8 | - | ||||||||||||||||||||||||||||||
Corporate equity | 3,397 | 45 | (3) | 321 | (89) | - | 56 | - | 3,727 | 61 | ||||||||||||||||||||||||||||||
Total FVTPL securities | 3,397 | 45 | (3) | 329 | (89) | - | 56 | - | 3,735 | 61 | ||||||||||||||||||||||||||||||
FVOCI Securities | ||||||||||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||||||||||
U.S. states, municipalities and agencies | 1 | - | - | - | - | - | - | - | 1 | na | ||||||||||||||||||||||||||||||
Corporate equity | 151 | - | (2) | 4 | (1) | - | - | - | 152 | na | ||||||||||||||||||||||||||||||
Total FVOCI securities | 152 | - | (2) | 4 | (1) | - | - | - | 153 | na | ||||||||||||||||||||||||||||||
Business and government loans | 6 | - | - | - | - | - | - | - | 6 | - | ||||||||||||||||||||||||||||||
Other Assets | - | - | - | 9 | - | - | - | - | 9 | - | ||||||||||||||||||||||||||||||
Other Liabilities | 1 | - | - | - | - | - | - | - | 1 | - | ||||||||||||||||||||||||||||||
Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 1 | - | - | - | - | - | 3 | - | 4 | - | ||||||||||||||||||||||||||||||
Total derivative liabilities | 1 | - | - | - | - | - | 3 | - | 4 | - | ||||||||||||||||||||||||||||||
Change in fair value | Movements | Transfers | ||||||||||||||||||||||||||||||||||||||
For the nine months ended July 31, 2022 (Canadian $ in millions) | Balance October 31, 2021 | Included in earnings | Included in comprehensive income (1) | Issuances/ Purchases | Sales (2) | Maturities/ Settlement | Transfers into Level 3 | Transfers out of Level 3 | Fair Value as at July 31, 2022 | Change in unrealized gains (losses) recorded in income for instruments still held (3) | ||||||||||||||||||||||||||||||
Trading Securities | ||||||||||||||||||||||||||||||||||||||||
NHA MBS and U.S. agency MBS and CMO | 675 | (158) | 29 | 818 | (555) | - | 251 | (305) | 755 | (18) | ||||||||||||||||||||||||||||||
Corporate debt | 7 | (2) | (1) | 11 | (4) | - | 1 | (7) | 5 | (1) | ||||||||||||||||||||||||||||||
Total trading securities | 682 | (160) | 28 | 829 | (559) | - | 252 | (312) | 760 | (19) | ||||||||||||||||||||||||||||||
FVTPL Securities | ||||||||||||||||||||||||||||||||||||||||
Corporate debt | - | - | - | 8 | - | - | - | - | 8 | - | ||||||||||||||||||||||||||||||
Corporate equity | 2,442 | 197 | 50 | 1,238 | (256) | - | 56 | - | 3,727 | 223 | ||||||||||||||||||||||||||||||
Total FVTPL securities | 2,442 | 197 | 50 | 1,246 | (256) | - | 56 | - | 3,735 | 223 | ||||||||||||||||||||||||||||||
FVOCI Securities | ||||||||||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||||||||||
U.S. states, municipalities and agencies | 1 | - | - | - | - | - | - | - | 1 | na | ||||||||||||||||||||||||||||||
Corporate equity | 132 | - | - | 15 | (1) | - | 6 | - | 152 | na | ||||||||||||||||||||||||||||||
Total FVOCI securities | 133 | - | - | 15 | (1) | - | 6 | - | 153 | na | ||||||||||||||||||||||||||||||
Business and government loans | 6 | - | - | - | - | - | - | - | 6 | - | ||||||||||||||||||||||||||||||
Other Assets | - | - | - | 9 | - | - | - | - | 9 | - | ||||||||||||||||||||||||||||||
Other Liabilities | - | - | - | 1 | - | - | - | - | 1 | - | ||||||||||||||||||||||||||||||
Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 2 | - | - | - | - | - | 3 | (1) | 4 | - | ||||||||||||||||||||||||||||||
Total derivative liabilities | 2 | - | - | - | - | - | 3 | (1) | 4 | - |
(1) Foreign exchange translation on assets and liabilities held by foreign operations 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, 2022 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 2022
6
9Change in fair value | Movements | Transfers | ||||||||||||||||||||||||||||||||||||||
For the three months ended July 31, 2021 (Canadian $ in millions) | Balance April 30, 2021 | Included in earnings | Included in comprehensive income (1) | Issuances/ Purchases | Sales (2) | Maturities/ Settlement | Transfers into Level 3 | Transfers out of Level 3 | Fair Value as 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 debt | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
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 Assets | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Other Liabilities | - | - | - | - | - | - | 13 | - | 13 | - | ||||||||||||||||||||||||||||||
Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 4 | - | - | - | - | - | - | - | 4 | - | ||||||||||||||||||||||||||||||
Total derivative liabilities | 4 | - | - | - | - | - | - | - | 4 | - | ||||||||||||||||||||||||||||||
Change in fair value | Movements | Transfers | ||||||||||||||||||||||||||||||||||||||
For the nine months ended July 31, 2021 (Canadian $ in millions) | Balance October 31, 2020 | Included in earnings | Included in comprehensive income (1) | Issuances/ Purchases | Sales (2) | Maturities/ Settlement | Transfers into Level 3 | Transfers out of Level 3 | Fair Value as 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 debt | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Corporate equity | 1,903 | 217 | (81) | 453 | (193) | (4) | - | (19) | 2,276 | 262 | ||||||||||||||||||||||||||||||
Total FVTPL securities | 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 Assets | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Other Liabilities | - | - | - | - | - | - | 13 | - | 13 | - | ||||||||||||||||||||||||||||||
Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 4 | - | - | - | - | - | - | - | 4 | - | ||||||||||||||||||||||||||||||
Total derivative liabilities | 4 | - | - | - | - | - | - | - | 4 | - |
(1) Foreign exchange translation on assets and liabilities held by foreign operations 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
7
0Note 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, 2022, we met OSFI’s target capital ratio requirements, which include a
2.5
% Capital Conservation Buffer, a1.0
% Common Equity Surcharge for Domestic Systemically Important Banks(D-SIBs),
a Countercyclical Buffer and a2.5
% Domestic Stability Buffer (DSB) applicable toD-SIBs.
Our capital position as at July 31, 2022 is further detailed in the Capital Management section of our interim Management’s Discussion and Analysis.Regulatory Capital and Total Loss Absorbing Capacity Measures, Risk-Weighted Assets and Leverage Exposures
(1)
(Canadian $ in millions, except as noted) | July 31, 2022 | October 31, 2021 | ||||||
CET1 Capital | 55,464 | 44,491 | ||||||
Tier 1 Capital | 60,684 | 49,966 | ||||||
Total Capital | 68,133 | 57,201 | ||||||
Total Loss Absorbing Capacity (TLAC) | 112,534 | 90,353 | ||||||
Risk-Weighted Assets | 351,711 | 325,433 | ||||||
Leverage Exposures | 1,144,101 | 976,690 | ||||||
CET1 Ratio | 15.8% | 13.7% | ||||||
Tier 1 Capital Ratio | 17.3% | 15.4% | ||||||
Total Capital Ratio | 19.4% | 17.6% | ||||||
TLAC Ratio | 32.0% | 27.8% | ||||||
Leverage Ratio | 5.3% | 5.1% | ||||||
TLAC Leverage Ratio | 9.8% | 9.3% |
(1) | Disclosed in accordance with, as applicable, OSFI’s Capital Adequacy Requirements Guideline, Leverage Requirements Guideline and Total Loss Absorbing Capacity Guideline. |
Note 8: Employee Compensation
Stock Options
We did
not
grant any stock options during the three months ended July 31, 2022 and 2021. During the nine months ended July 31, 2022, we granted a total of 1,028,255 stock options (984,943 stock options during the nine months ended July 31, 2021). The weighted-average fair value of options granted during the nine months ended July 31, 2022 was $14.17 per option ($10.75 per option for the nine months ended July 31, 2021).To determine the fair value of the stock option tranches (i.e. the portion that vests each year) on the grant date, the following
ranges
of values were used for each option pricing assumption:For stock options granted during the nine months ended | July 31, 2022 | July 31, 2021 | ||||||
Expected dividend yield | 4.2% | 4.9% | ||||||
Expected share price volatility | 16.8% | 20.6 - 20.7% | ||||||
Risk-free rate of return | 1.8 - 1.9% | 1.0% | ||||||
Expected period until exercise (in years) | 6.5 - 7.0 | 6.5 - 7.0 | ||||||
Exercise price ($) | 135.58 | 97.14 |
Changes to the input assumptions can result in different fair value estimates.
BMO Financial Group Third Quarter Report 2022
71
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, 2022 | July 31, 2021 | July 31, 2022 | July 31, 2021 | ||||||||||||
Current service cost | 60 | 67 | 2 | 2 | ||||||||||||
Past service (income) | (1) | - | - | - | ||||||||||||
Net interest (income) expense on net defined benefit (asset) liability | (7) | 2 | 8 | 8 | ||||||||||||
(Gain) on settlement | - | - | - | - | ||||||||||||
Administrative expenses | 1 | 1 | - | - | ||||||||||||
Benefits expense | 53 | 70 | 10 | 10 | ||||||||||||
Government pension plans expense (1) | 61 | 55 | - | - | ||||||||||||
Defined contribution expense | 37 | 33 | - | - | ||||||||||||
Total pension and other employee future benefit expenses recognized in the Consolidated Statement of Income | 151 | 158 | 10 | 10 | ||||||||||||
(Canadian $ in millions) | ||||||||||||||||
Pension benefit plans | Other employee future benefit plans | |||||||||||||||
For the nine months ended | July 31, 2022 | July 31, 2021 | July 31, 2022 | July 31, 2021 | ||||||||||||
Current service cost | 178 | 201 | 6 | 6 | ||||||||||||
Past service (income) | (1) | - | - | - | ||||||||||||
Net interest (income) expense on net defined benefit (asset) liability | (21) | 6 | 26 | 23 | ||||||||||||
(Gain) on settlement | (1) | - | - | - | ||||||||||||
Administrative expenses | 3 | 3 | - | - | ||||||||||||
Benefits expense | 158 | 210 | 32 | 29 | ||||||||||||
Government pension plans expense (1) | 201 | 173 | - | - | ||||||||||||
Defined contribution expense | 138 | 126 | - | - | ||||||||||||
Total pension and other employee future benefit expenses recognized in the Consolidated Statement of Income | 497 | 509 | 32 | 29 |
(1) | Includes Canada Pension Plan, Quebec Pension Plan and U.S. Federal Insurance Contributions Act. |
Certain comparative figures have been reclassified to conform with the current period’s
presentation
.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, 2022 | July 31, 2021 | July 31, 2022 | July 31, 2021 | |||||||||||||
Net income | 1,365 | 2,275 | 9,054 | 5,595 | ||||||||||||
Dividends on preferred shares and distributions payable on other equity instruments | (47) | (61) | (154) | (185) | ||||||||||||
Net income available to common shareholders | 1,318 | 2,214 | 8,900 | 5,410 | ||||||||||||
Weighted-average number of common shares outstanding (in thousands) | 673,301 | 647,178 | 659,909 | 646,808 | ||||||||||||
Basic earnings per common share (Canadian $) | 1.96 | 3.42 | 13.49 | 8.36 |
Diluted Earnings Per Common Share
(Canadian $ in millions, except as noted) | For the three months ended | For the nine months ended | ||||||||||||||
July 31, 2022 | July 31, 2021 | July 31, 2022 | July 31, 2021 | |||||||||||||
Net income available to common shareholders adjusted for impact of dilutive instruments | 1,318 | 2,214 | 8,900 | 5,410 | ||||||||||||
Weighted-average number of common shares outstanding (in thousands) | 673,301 | 647,178 | 659,909 | 646,808 | ||||||||||||
Effect of dilutive instruments | ||||||||||||||||
Stock options potentially exercisable (1) | 5,032 | 6,213 | 5,252 | 6,585 | ||||||||||||
Common shares potentially repurchased | (3,529) | (4,394) | (3,420) | (5,229) | ||||||||||||
Weighted-average number of diluted common shares outstanding (in thousands) | 674,804 | 648,997 | 661,741 | 648,164 | ||||||||||||
Diluted earnings per common share (Canadian $) | 1.95 | 3.41 | 13.45 | 8.35 |
(1) | as the average share price for the period did not exceed the exercise price . F or the three and nine months ended July, we did not exclude any stock options outstanding as the average exceeded the exercise price. |
7
2Note 10: Income Taxes
Canadian Taxing Authorities have reassessed us for additional income tax and interest in an amount of approximately $1,425 million, to date, in respect of certain 2011-2017 Canadian corporate dividends. Those reassessments denied certain dividend deductions on the basis that the dividends were received as part of a “dividend rental arrangement”. In general, the tax rules raised by the Canadian Taxing Authorities were prospectively addressed in the 2015 and 2018 Canadian Federal Budgets. We filed Notices of Appeal with the Tax Court of Canada and the matter is in litigation. We expect to be reassessed for income tax in respect of similar activities undertaken in 2018. 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, 2021.
Our results and average assets, grouped by operating segment, are as follows:
(Canadian $ in millions) | ||||||||||||||||||||||||
For the three months ended July 31, 2022 | Canadian P&C | U.S. P&C | BMO WM | BMO CM | Corporate Services (1) | Total | ||||||||||||||||||
Net interest income (2) | 1,938 | 1,278 | 314 | 750 | (83) | 4,197 | ||||||||||||||||||
Non-interest revenue | 591 | 298 | 1,391 | 514 | (892) | 1,902 | ||||||||||||||||||
Total Revenue | 2,529 | 1,576 | 1,705 | 1,264 | (975) | 6,099 | ||||||||||||||||||
Provision for (recovery of) credit losses on impaired loans | 104 | 22 | 2 | (22) | (2) | 104 | ||||||||||||||||||
Provision for (recovery of ) credit losses on performing loans | (15) | 46 | (12) | 15 | (2) | 32 | ||||||||||||||||||
Total provision for (recovery of) credit losses | 89 | 68 | (10) | (7) | (4) | 136 | ||||||||||||||||||
Insurance claims, commissions and changes in policy benefit liabilities | - | - | 413 | - | - | 413 | ||||||||||||||||||
Depreciation and amortization | 131 | 105 | 63 | 68 | - | 367 | ||||||||||||||||||
Non-interest expense | 1,003 | 667 | 818 | 852 | 152 | 3,492 | ||||||||||||||||||
Income (loss) before taxes | 1,306 | 736 | 421 | 351 | (1,123) | 1,691 | ||||||||||||||||||
Provision for (recovery of) income taxes | 341 | 168 | 97 | 89 | (369) | 326 | ||||||||||||||||||
Reported net income (loss) | 965 | 568 | 324 | 262 | (754) | 1,365 | ||||||||||||||||||
Average Assets (3) | 296,941 | 144,043 | 50,774 | 398,282 | 178,984 | 1,069,024 | ||||||||||||||||||
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 | 580 | 305 | 2,180 | 888 | 88 | 4,041 | ||||||||||||||||||
Total Revenue | 2,240 | 1,353 | 2,427 | 1,584 | (42) | 7,562 | ||||||||||||||||||
Provision for (recovery of) credit losses on impaired loans | 100 | (9) | - | (19) | (1) | 71 | ||||||||||||||||||
Provision for (recovery of ) credit losses on performing loans | (7) | (53) | (2) | (75) | (4) | (141) | ||||||||||||||||||
Total provision for (recovery of) credit losses | 93 | (62) | (2) | (94) | (5) | (70) | ||||||||||||||||||
Insurance claims, commissions and changes in policy benefit liabilities | - | - | 984 | - | - | 984 | ||||||||||||||||||
Depreciation and amortization | 121 | 117 | 74 | 72 | - | 384 | ||||||||||||||||||
Non-interest expense | 907 | 576 | 870 | 853 | 94 | 3,300 | ||||||||||||||||||
Income (loss) before taxes | 1,119 | 722 | 501 | 753 | (131) | 2,964 | ||||||||||||||||||
Provision for (recovery of) income taxes | 291 | 172 | 122 | 200 | (96) | 689 | ||||||||||||||||||
Reported net income (loss) | 828 | 550 | 379 | 553 | (35) | 2,275 | ||||||||||||||||||
Average Assets (3) | 265,689 | 125,840 | 48,053 | 367,900 | 162,761 | 970,243 |
BMO Financial Group Third Quarter Report 2022
7
3(Canadian $ in millions) | ||||||||||||||||||||||||
For the nine months ended July 31, 2022 | Canadian P&C | U.S. P&C | BMO WM | BMO CM | Corporate Services (1) | Total | ||||||||||||||||||
Net interest income (2) | 5,488 | 3,575 | 864 | 2,419 | (228) | 12,118 | ||||||||||||||||||
Non-interest revenue | 1,833 | 974 | 2,730 | 2,348 | 3,137 | 11,022 | ||||||||||||||||||
Total Revenue | 7,321 | 4,549 | 3,594 | 4,767 | 2,909 | 23,140 | ||||||||||||||||||
Provision for (recovery of) credit losses on impaired loans | 290 | 60 | 2 | (37) | (5) | 310 | ||||||||||||||||||
Provision for (recovery of ) credit losses on performing loans | (123) | (105) | (7) | 12 | - | (223) | ||||||||||||||||||
Total provision for (recovery of) credit losses | 167 | (45) | (5) | (25) | (5) | 87 | ||||||||||||||||||
Insurance claims, commissions and changes in policy benefit liabilities | - | - | (314) | - | - | (314) | ||||||||||||||||||
Depreciation and amortization | 382 | 314 | 193 | 212 | - | 1,101 | ||||||||||||||||||
Non-interest expense | 2,836 | 1,895 | 2,470 | 2,678 | 438 | 10,317 | ||||||||||||||||||
Income before taxes | 3,936 | 2,385 | 1,250 | 1,902 | 2,476 | 11,949 | ||||||||||||||||||
Provision for income taxes | 1,027 | 548 | 297 | 487 | 536 | 2,895 | ||||||||||||||||||
Reported net income | 2,909 | 1,837 | 953 | 1,415 | 1,940 | 9,054 | ||||||||||||||||||
Average assets (3) | 287,326 | 141,294 | 50,008 | 398,394 | 178,228 | 1,055,250 | ||||||||||||||||||
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 | ||||||||||||||||||
Provision for (recovery of ) credit losses on performing loans | (22) | (133) | (10) | (126) | (4) | (295) | ||||||||||||||||||
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 | 360 | 355 | 243 | 211 | - | 1,169 | ||||||||||||||||||
Non-interest expense | 2,559 | 1,711 | 2,610 | 2,442 | 1,215 | 10,537 | ||||||||||||||||||
Income (loss) before taxes | 3,181 | 2,179 | 1,370 | 2,149 | (1,420) | 7,459 | ||||||||||||||||||
Provision for (recovery of) income taxes | 826 | 512 | 333 | 560 | (367) | 1,864 | ||||||||||||||||||
Reported net income (loss) | 2,355 | 1,667 | 1,037 | 1,589 | (1,053) | 5,595 | ||||||||||||||||||
Average Assets (3) | 259,864 | 128,722 | 47,761 | 371,046 | 166,411 | 973,804 |
(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. |
(3) | $244,893 million, U.S. P&C: $119,129 million and $121,833 million and all other operating segments: $517,122 million and $523,514 million). |
Effective the first quarter of fiscal 2022, certain expense allocations were updated within our operating segment to better align with current experience, with no impact to total bank. Comparative figures have been reclassified to conform with the current period’s presentation.
Note 12: Acquisitions and Divestitures
Acquisitions
Bank of the West
On December 20, 2021, we announced a definitive agreement with BNP Paribas to acquire Bank of the West and its subsidiaries for a cash purchase price of US$16.3 billion, or US$13.4 billion net of estimated US$2.9 billion of excess capital (at closing).
Bank of the West provides a broad range of banking products and services primarily in the Western and Midwestern parts of the U.S. Subject to customary closing conditions, including regulatory approvals, the transaction is expected to close by the end of calendar 2022 and will primarily be part of our U.S. P&C reporting segment.
When the transaction closes, the purchase price will be allocated to the identifiable assets and liabilities of Bank of the West, on the basis of their relative fair values, with the difference recorded as goodwill. The fair value of fixed rate loans and deposits is largely dependent on interest rates. If interest rates increase, the fair value of the acquired fixed rate assets (in particular, loans and securities) will decrease, resulting in higher goodwill. If interest rates decrease, the opposite would be true. Conversely, the fair value of floating rate assets (liabilities) and
non-maturity
deposits approximates par, providing no natural fair value change offset.Changes in goodwill relative to our original assumptions announced on December 20, 2021 will impact capital ratios at close, because goodwill is treated as a deduction from capital under OSFI Basel III rules. In addition, given that the purchase price of the acquisition is in U.S. dollars, any change in foreign exchange translation between the Canadian dollar relative to the U.S. dollar between the announcement and the close of the acquisition, will result in a change to the Canadian dollar equivalent goodwill.
To mitigate the impact of changes in interest rates between announcement and close, we entered into pay fixed receive float interest rate swaps and purchased a portfolio of matched duration government debt securities and other balance sheet instruments that generate interest income (impacts are recorded in Corporate Services). We recorded(losses) gains
mark-to-market
,
of $(983)
million and $2,967 million on the swaps for the three and nine months ended July 31, 2022, respectively, in our Consolidated Statement of Income in
$non-interest
revenue, trading revenues, as the swaps do not qualify for hedge accounting. The government debt securities and other instruments, which are measured at amortized cost, generated38
million and $205 million in our Consolidated Statement of Income in interest, dividend and fee income, securities, for the three and nine months ended July 31, 2022, respectively.
To mitigate changes in the Canadian dollar equivalent of the purchase price on close, we entered into forward contracts, which qualify as accounting hedges. Changes in the fair value of these forward contracts
of $(4
)
million and $(68)million for three and nine months ended July 31, 2022 are recorded in Other Comprehensive Income until close of the transaction.
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4Radicle Group Inc.
On July 20, 2022, we announced a definitive agreement to acquire Radicle Group Inc
.
(Radicle), a Calgary-based leader in sustainability advisory services and solutions, and technology-driven emissions measurement and management. The acquisition is subject to regulatory approvals and is expected to close by the end of calendar 2022. Radicle will form part of BMO Capital Markets reporting segment. The impact of this acquisition is not expected to be material to the bank.Divestitures
EMEA and U.S. Asset Management
On November 8, 2021, we completed the sale of our EMEA asset management business, part of our BMO Wealth Management operating segment, to Ameriprise Financial Inc. (Ameriprise) for £615 million (CAD$1,038 million) in anquarter with no material impact to the bank.
all-cash
transaction. On the date of sale, assets and liabilities of approximately $1,779 million and $527 million, respectively, were derecognized. In connection with completion of the EMEA portion of the sale, we recognized a before and after tax loss of $29 million relating to foreign currency translation reclassified from accumulated other comprehensive income in equity tonon-interest
revenue, foreign exchange gains, other than trading, in our Consolidated Statement of Income in the first quarter. The transaction also included the opportunity for certain BMO asset management clients in the U.S. to move to Ameriprise. These transfers were completed in the first quarter and resulted in tax expense of $22 million. Further transfers of certain U.S. Asset Management clients were completed in thesecond
Taplin, Canida & Habacht LLC
On January 27, 2022, we completed the sale of Taplin, Canida & Habacht, LLC, part of our U.S. asset management business to Loop Capital. The business sold
was
not considered material to the bank.
Note 13: Legal Proceedings
The bank and its subsidiaries are party to legal proceedings, including regulatory investigations, in the ordinary course of business. We review the status of these proceedings regularly and establish provisions when in our judgment it becomes probable that we will incur a loss and the amount can be reliably estimated. The bank’s provisions represent our best estimates based upon currently available information for proceedings for which estimates can be made. However, the bank’s provisions may differ significantly from actual losses as a result of, for example, the inherent uncertainty of the various potential outcomes of such proceedings; the varying stages of the proceedings; the existence of multiple defendants whose share of liability may not yet be determined; unresolved issues in such proceedings, some of which involve novel legal theories and interpretations; the fact that the underlying matters will change from time to time; and such proceedings may involve very large or indeterminate damages. While it is inherently difficult to predict the ultimate outcome of these proceedings, based on our current knowledge, we do 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 operations of the bank. However, because of the factors listed above, as well as other uncertainties inherent in litigation and regulatory matters, there is a possibility that the ultimate resolution of legal or regulatory investigations may be material to the bank’s consolidated financial position or its results of operations for any particular reporting period.
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). 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
Harris
denies these allegations and continues to defend itself vigorously. The Trustee seeks US$1.9
billion in compensatory damages, plus prejudgment interest, punitive damages, and attorneys’ fees. The Bankruptcy Court granted the Trustee’s motion for sanctions based on the alleged spoliation of evidence and, in July 2019, transferred the case to the U.S. District Court for the District of Minnesota (District Court) for trial. On July 18, 2022, the District Court affirmed the evidence-spoliation sanctions issued by the Bankruptcy Court. The trial is scheduled to begin in October 2022.
BMO Financial Group Third Quarter Report 2022
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