Interim Consolidated Financial Statements
Consolidated Statement of Income
(Unaudited) (Canadian $ in millions, except as noted) | For the three months ended | |||||||||||
January 31, 2021 | October 31, 2020 | January 31, 2020 | ||||||||||
Interest, Dividend and Fee Income | ||||||||||||
Loans | $ | 4,029 | $ | 4,089 | $ | 4,963 | ||||||
Securities (Note 2) | 990 | 1,009 | 1,359 | |||||||||
Deposits with banks | 44 | 47 | 193 | |||||||||
5,063 | 5,145 | 6,515 | ||||||||||
Interest Expense | ||||||||||||
Deposits | 921 | 1,082 | 2,127 | |||||||||
Subordinated debt | 58 | 64 | 70 | |||||||||
Other liabilities | 506 | 469 | 930 | |||||||||
1,485 | 1,615 | 3,127 | ||||||||||
Net Interest Income | 3,578 | 3,530 | 3,388 | |||||||||
Non-Interest Revenue | ||||||||||||
Securities commissions and fees | 285 | 247 | 252 | |||||||||
Deposit and payment service charges | 305 | 305 | 304 | |||||||||
Trading revenues | 212 | 23 | 141 | |||||||||
Lending fees | 356 | 339 | 325 | |||||||||
Card fees | 81 | 94 | 99 | |||||||||
Investment management and custodial fees | 482 | 466 | 456 | |||||||||
Mutual fund revenues | 374 | 355 | 366 | |||||||||
Underwriting and advisory fees | 258 | 259 | 285 | |||||||||
Securities gains, other than trading | 102 | 40 | 64 | |||||||||
Foreign exchange gains, other than trading | 24 | 38 | 47 | |||||||||
Insurance revenues | 744 | 143 | 880 | |||||||||
Investments in associates and joint ventures | 56 | 49 | 26 | |||||||||
Other | 118 | 98 | 114 | |||||||||
3,397 | 2,456 | 3,359 | ||||||||||
Total Revenue | 6,975 | 5,986 | 6,747 | |||||||||
Provision for Credit Losses (Note 3) | 156 | 432 | 349 | |||||||||
Insurance Claims, Commissions and Changes in Policy Benefit Liabilities | 601 | - | 716 | |||||||||
Non-Interest Expense | ||||||||||||
Employee compensation | 2,119 | 1,950 | 2,128 | |||||||||
Premises and equipment | 804 | 854 | 757 | |||||||||
Amortization of intangible assets | 156 | 159 | 151 | |||||||||
Travel and business development | 66 | 88 | 121 | |||||||||
Communications | 64 | 71 | 79 | |||||||||
Professional fees | 136 | 159 | 133 | |||||||||
Other | 268 | 267 | 300 | |||||||||
3,613 | 3,548 | 3,669 | ||||||||||
Income Before Provision for Income Taxes | 2,605 | 2,006 | 2,013 | |||||||||
Provision for income taxes (Note 10) | 588 | 422 | 421 | |||||||||
Net Income | $ | 2,017 | $ | 1,584 | $ | 1,592 | ||||||
Earnings Per Share (Canadian $) (Note 9) | ||||||||||||
Basic | $ | 3.03 | $ | 2.37 | $ | 2.38 | ||||||
Diluted | 3.03 | 2.37 | 2.37 | |||||||||
Dividends per common share | 1.06 | 1.06 | 1.06 |
The accompanying notes are an integral part of these interim consolidated financial statements.
BMO Financial Group First Quarter Report 2021 41
Interim Consolidated Financial Statements
Consolidated Statement of Comprehensive Income
(Unaudited) (Canadian $ in millions) | For the three months ended | |||||||||||
January 31, 2021 | October 31, 2020 | January 31, 2020 | ||||||||||
Net Income | $ | 2,017 | $ | 1,584 | $ | 1,592 | ||||||
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) | 57 | (11 | ) | 110 | ||||||||
Reclassification to earnings of (gains) in the period (2) | (9 | ) | (7 | ) | (20 | ) | ||||||
48 | (18 | ) | 90 | |||||||||
Net change in unrealized gains (losses) on cash flow hedges | ||||||||||||
Gains (losses) on derivatives designated as cash flow hedges arising during the period (3) | (131 | ) | (160 | ) | 210 | |||||||
Reclassification to earnings of (gains) losses on derivatives designated as cash flow hedges in the period (4) | (77 | ) | (55 | ) | 24 | |||||||
(208 | ) | (215 | ) | 234 | ||||||||
Net gains (losses) on translation of net foreign operations | ||||||||||||
Unrealized gains (losses) on translation of net foreign operations | (1,131 | ) | (143 | ) | 209 | |||||||
Unrealized gains (losses) on hedges of net foreign operations (5) | 221 | 49 | (47 | ) | ||||||||
(910 | ) | (94 | ) | 162 | ||||||||
Items that will not be reclassified to net income | ||||||||||||
Gains (losses) on remeasurement of pension and other employee future benefit plans (6) | 275 | (11 | ) | (128 | ) | |||||||
Gains (losses) on remeasurement of own credit risk on financial liabilities designated at fair value (7) | (245 | ) | 21 | (70 | ) | |||||||
30 | 10 | (198 | ) | |||||||||
Other Comprehensive Income (Loss), net of taxes | (1,040 | ) | (317 | ) | 288 | |||||||
Total Comprehensive Income | $ | 977 | $ | 1,267 | $ | 1,880 |
(1) | Net of income tax (provision) recovery of $(20) million, $4 million, $(38) million for the three months ended. |
(2) | Net of income tax provision of $3 million, $2 million, $7 million for the three months ended. |
(3) | Net of income tax (provision) recovery of $46 million, $59 million, $(76) million for the three months ended. |
(4) | Net of income tax provision (recovery) of $28 million, $19 million, $(9) million for the three months ended. |
(5) | Net of income tax (provision) recovery of $(80) million, $(18) million, $17 million for the three months ended. |
(6) | Net of income tax (provision) recovery of $(99) million, $3 million, $46 million for the three months ended. |
(7) | Net of income tax (provision) recovery of $89 million, $(8) million, $25 million for the three months ended. |
The accompanying notes are an integral part of these interim consolidated financial statements.
42 BMO Financial Group First Quarter Report 2021
Interim Consolidated Financial Statements
Consolidated Balance Sheet
(Unaudited) (Canadian $ in millions) | As at | |||||||||||
January 31, 2021 | October 31, 2020 | January 31, 2020 | ||||||||||
Assets | ||||||||||||
Cash and Cash Equivalents | $ | 73,091 | $ | 57,408 | $ | 45,742 | ||||||
Interest Bearing Deposits with Banks | 8,376 | 9,035 | 7,148 | |||||||||
Securities (Note 2) | ||||||||||||
Trading | 98,943 | 97,834 | 97,646 | |||||||||
Fair value through profit or loss | 13,939 | 13,568 | 13,790 | |||||||||
Fair value through other comprehensive income | 70,574 | 73,407 | 68,407 | |||||||||
Debt securities at amortized cost | 48,708 | 48,466 | 30,739 | |||||||||
Investments in associates and joint ventures | 1,026 | 985 | 877 | |||||||||
233,190 | 234,260 | 211,459 | ||||||||||
Securities Borrowed or Purchased Under Resale Agreements | 121,573 | 111,878 | 105,543 | |||||||||
Loans | ||||||||||||
Residential mortgages | 128,170 | 127,024 | 124,441 | |||||||||
Consumer instalment and other personal | 70,780 | 70,148 | 68,629 | |||||||||
Credit cards | 7,342 | 7,889 | 8,763 | |||||||||
Business and government | 248,752 | 245,662 | 231,844 | |||||||||
455,044 | 450,723 | 433,677 | ||||||||||
Allowance for credit losses (Note 3) | (3,188 | ) | (3,303 | ) | (2,023 | ) | ||||||
451,856 | 447,420 | 431,654 | ||||||||||
Other Assets | ||||||||||||
Derivative instruments | 34,054 | 36,815 | 22,035 | |||||||||
Customers’ liability under acceptances | 11,878 | 13,493 | 24,362 | |||||||||
Premises and equipment | 4,202 | 4,183 | 3,957 | |||||||||
Goodwill | 6,365 | 6,535 | 6,396 | |||||||||
Intangible assets | 2,388 | 2,442 | 2,430 | |||||||||
Current tax assets | 1,434 | 1,260 | 1,705 | |||||||||
Deferred tax assets | 1,339 | 1,473 | 1,562 | |||||||||
Other | 23,465 | 23,059 | 15,727 | |||||||||
85,125 | 89,260 | 78,174 | ||||||||||
Total Assets | $ | 973,211 | $ | 949,261 | $ | 879,720 | ||||||
Liabilities and Equity | ||||||||||||
Deposits (Note 4) | $ | 672,500 | $ | 659,034 | $ | 582,288 | ||||||
Other Liabilities | ||||||||||||
Derivative instruments | 29,430 | 30,375 | 23,231 | |||||||||
Acceptances | 11,878 | 13,493 | 24,362 | |||||||||
Securities sold but not yet purchased | 34,164 | 29,376 | 27,562 | |||||||||
Securities lent or sold under repurchase agreements | 99,892 | 88,658 | 100,008 | |||||||||
Securitization and structured entities’ liabilities | 25,610 | 26,889 | 27,037 | |||||||||
Current tax liabilities | 196 | 126 | 96 | |||||||||
Deferred tax liabilities | 155 | 108 | 61 | |||||||||
Other | 35,962 | 36,193 | 35,876 | |||||||||
237,287 | 225,218 | 238,233 | ||||||||||
Subordinated Debt (Note 4) | 7,276 | 8,416 | 7,023 | |||||||||
Equity | ||||||||||||
Preferred shares and other equity instruments (Note 5) | 5,848 | 6,598 | 5,348 | |||||||||
Common shares (Note 5) | 13,501 | 13,430 | 12,998 | |||||||||
Contributed surplus | 309 | 302 | 303 | |||||||||
Retained earnings | 32,012 | 30,745 | 29,510 | |||||||||
Accumulated other comprehensive income | 4,478 | 5,518 | 4,017 | |||||||||
Total Equity | 56,148 | 56,593 | 52,176 | |||||||||
Total Liabilities and Equity | $ | 973,211 | $ | 949,261 | $ | 879,720 |
The accompanying notes are an integral part of these interim consolidated financial statements.
Certain comparative figures have been reclassified to conform with the current period’s presentation.
BMO Financial Group First Quarter Report 2021 43
Interim Consolidated Financial Statements
Consolidated Statement of Changes in Equity
(Unaudited) (Canadian $ in millions) | For the three months ended | |||||||
January 31, 2021 | January 31, 2020 | |||||||
Preferred Shares and Other Equity Instruments (Note 5) | ||||||||
Balance at beginning of period | $ | 6,598 | $ | 5,348 | ||||
Redeemed during the period | (750 | ) | - | |||||
Balance at End of Period | 5,848 | 5,348 | ||||||
Common Shares (Note 5) | ||||||||
Balance at beginning of period | 13,430 | 12,971 | ||||||
Issued under the Stock Option Plan | 27 | 27 | ||||||
Treasury shares or repurchase of common shares for cancellation | 44 | - | ||||||
Balance at End of Period | 13,501 | 12,998 | ||||||
Contributed Surplus | ||||||||
Balance at beginning of period | 302 | 303 | ||||||
Stock option expense, net of options exercised | 5 | - | ||||||
Other | 2 | - | ||||||
Balance at End of Period | 309 | 303 | ||||||
Retained Earnings | ||||||||
Balance at beginning of period | 30,745 | 28,725 | ||||||
Impact from adopting IFRS 16 | na | (59 | ) | |||||
Net income | 2,017 | 1,592 | ||||||
Dividends on preferred shares and distributions payable on other equity instruments | (56 | ) | (70 | ) | ||||
Dividends on common shares | (686 | ) | (678 | ) | ||||
Equity issue expense and premium paid on redemption of preferred shares | (6 | ) | - | |||||
Net discount on sale of treasury shares | (2 | ) | - | |||||
Balance at End of Period | 32,012 | 29,510 | ||||||
Accumulated Other Comprehensive Income on Fair Value through OCI Securities, net of taxes | ||||||||
Balance at beginning of period | 355 | 26 | ||||||
Unrealized gains on fair value through OCI debt securities arising during the period | 57 | 110 | ||||||
Reclassification to earnings of (gains) in the period | (9 | ) | (20 | ) | ||||
Balance at End of Period | 403 | 116 | ||||||
Accumulated Other Comprehensive Income on Cash Flow Hedges, net of taxes | ||||||||
Balance at beginning of period | 1,979 | 513 | ||||||
Gains (losses) on derivatives designated as cash flow hedges arising during the period | (131 | ) | 210 | |||||
Reclassification to earnings of (gains) losses on derivatives designated as cash flow hedges in the period | (77 | ) | 24 | |||||
Balance at End of Period | 1,771 | 747 | ||||||
Accumulated Other Comprehensive Income on Translation of Net Foreign Operations, net of taxes | ||||||||
Balance at beginning of period | 3,980 | 3,703 | ||||||
Unrealized gains (losses) on translation of net foreign operations | (1,131 | ) | 209 | |||||
Unrealized gains (losses) on hedges of net foreign operations | 221 | (47 | ) | |||||
Balance at End of Period | 3,070 | 3,865 | ||||||
Accumulated Other Comprehensive (Loss) on Pension and Other Employee Future Benefit Plans, net of taxes | ||||||||
Balance at beginning of period | (638 | ) | (383 | ) | ||||
Gains (losses) on remeasurement of pension and other employee future benefit plans | 275 | (128 | ) | |||||
Balance at End of Period | (363 | ) | (511 | ) | ||||
Accumulated Other Comprehensive (Loss) on Own Credit Risk on Financial Liabilities Designated at Fair Value, net of taxes | ||||||||
Balance at beginning of period | (158 | ) | (130 | ) | ||||
(Losses) on remeasurement of own credit risk on financial liabilities designated at fair value | | (245 | ) | (70 | ) | |||
Balance at End of Period | (403 | ) | (200 | ) | ||||
Total Accumulated Other Comprehensive Income | 4,478 | 4,017 | ||||||
Total Equity | $ | 56,148 | $ | 52,176 |
na – not applicable due to IFRS 16 adoption on November 1, 2019.
The accompanying notes are an integral part of these interim consolidated financial statements.
44 BMO Financial Group First Quarter Report 2021
Interim Consolidated Financial Statements
Consolidated Statement of Cash Flows
(Unaudited) (Canadian $ in millions) | For the three months ended | |||||||
January 31, 2021 | January 31, 2020 | |||||||
Cash Flows from Operating Activities | ||||||||
Net Income | $ | 2,017 | $ | 1,592 | ||||
Adjustments to determine net cash flows provided by (used in) operating activities | ||||||||
Provision on securities, other than trading | (1 | ) | - | |||||
Net (gain) on securities, other than trading | (101 | ) | (64 | ) | ||||
Net (increase) in trading securities | (2,883 | ) | (11,247 | ) | ||||
Provision for credit losses (Note 3) | 156 | 349 | ||||||
Change in derivative instruments – decrease in derivative asset | 2,582 | 1,760 | ||||||
– increase (decrease) in derivative liability | 725 | (2,095 | ) | |||||
Amortization of premises and equipment | 196 | 199 | ||||||
Amortization of other assets | 41 | 54 | ||||||
Amortization of intangible assets | 156 | 151 | ||||||
Net decrease in deferred income tax asset | 105 | 13 | ||||||
Net increase in deferred income tax liability | 46 | - | ||||||
Net (increase) in current income tax asset | (270 | ) | (521 | ) | ||||
Net increase in current income tax liability | 89 | 39 | ||||||
Change in accrued interest – decrease in interest receivable | 102 | 125 | ||||||
– (decrease) in interest payable | (86 | ) | (13 | ) | ||||
Changes in other items and accruals, net | (2,706 | ) | (2,590 | ) | ||||
Net increase in deposits | 25,865 | 14,328 | ||||||
Net (increase) in loans | (11,440 | ) | (4,059 | ) | ||||
Net increase in securities sold but not yet purchased | 5,198 | 1,236 | ||||||
Net increase in securities lent or sold under repurchase agreements | 13,230 | 12,817 | ||||||
Net (increase) in securities borrowed or purchased under resale agreements | (12,135 | ) | (1,098 | ) | ||||
Net (decrease) in securitization and structured entities’ liabilities | (1,036 | ) | (160 | ) | ||||
Net Cash Provided by Operating Activities | 19,850 | 10,816 | ||||||
Cash Flows from Financing Activities | ||||||||
Net increase (decrease) in liabilities of subsidiaries | - | (2,725 | ) | |||||
Redemption/buyback of covered bonds | - | (2,201 | ) | |||||
Repayment of subordinated debt (Note 4) | (1,000 | ) | - | |||||
Redemption of preferred shares (Note 5) | (756 | ) | - | |||||
Net proceeds from issuance of common shares and sale of treasury shares (Note 5) | 68 | 25 | ||||||
Cash dividends and distributions paid | (738 | ) | (710 | ) | ||||
Repayment of lease liabilities | (75 | ) | (82 | ) | ||||
Net Cash (Used in) Financing Activities | (2,501 | ) | (5,693 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Net decrease in interest bearing deposits with banks | 337 | 880 | ||||||
Purchases of securities, other than trading | (13,483 | ) | (19,076 | ) | ||||
Maturities of securities, other than trading | 6,714 | 3,993 | ||||||
Proceeds from sales of securities, other than trading | 5,895 | 5,967 | ||||||
Premises and equipment – net (purchases) | (116 | ) | (104 | ) | ||||
Purchased and developed software – net (purchases) | (117 | ) | (151 | ) | ||||
Net Cash (Used in) Investing Activities | (770 | ) | (8,491 | ) | ||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (896 | ) | 307 | |||||
Net increase (decrease) in Cash and Cash Equivalents | 15,683 | (3,061 | ) | |||||
Cash and Cash Equivalents at Beginning of Period | 57,408 | 48,803 | ||||||
Cash and Cash Equivalents at End of Period | $ | 73,091 | $ | 45,742 | ||||
Supplemental Disclosure of Cash Flow Information | ||||||||
Net cash provided by operating activities includes: | ||||||||
Interest paid in the period | $ | 1,555 | $ | 3,137 | ||||
Income taxes paid in the period | $ | 562 | $ | 892 | ||||
Interest received in the period | $ | 4,806 | $ | 6,168 | ||||
Dividends received in the period | $ | 383 | $ | 404 |
The accompanying notes are an integral part of these interim consolidated financial statements.
Certain comparative figures have been reclassified to conform with the current period’s presentation.
BMO Financial Group First Quarter Report 2021 45
Notes to Consolidated Financial Statements
January 31, 2021 (Unaudited)
Note 1: Basis of Presentation
Bank of Montreal (the bank or BMO) is a chartered bank under the Bank Act (Canada) and is a public company incorporated in Canada. We are a highly diversified financial services company, providing a broad range of personal and commercial banking, wealth management and investment banking products and services. The bank’s head office is at 129 rue Saint Jacques, Montreal, Quebec. Our executive offices are at 100 King Street West, 1 First Canadian Place, Toronto, Ontario. Our common shares are listed on the Toronto Stock Exchange (TSX) and the New York Stock Exchange.
These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting as issued by the International Accounting Standards Board (IASB) using the same accounting policies as disclosed in our annual consolidated financial statements for the year ended October 31, 2020, with the exception of changes in accounting policy described below. These condensed interim consolidated financial statements should be read in conjunction with the notes to our annual consolidated financial statements for the year ended October 31, 2020 as set out on pages 150 to 211 of our 2020 Annual Report. We also comply with interpretations of International Financial Reporting Standards (IFRS) by our regulator, the Office of the Superintendent of Financial Institutions of Canada (OSFI). These interim consolidated financial statements were authorized for issue by the Board of Directors on February 23, 2021.
Changes in Accounting Policy
Interbank Offered Rate (IBOR) Reform
Effective November 1, 2020, we early adopted the IASB’s IBOR Phase 2 amendments to IFRS 9 Financial Instruments (IFRS 9), IAS 39 Financial Instruments: Recognition and Measurement (IAS 39), IFRS 7 Financial Instruments: Disclosures (IFRS 7), IFRS 4 Insurance Contracts as well as IFRS 16 Leases. These amendments address issues that arise from implementation of IBOR reform, where IBORs will be replaced with alternative benchmark rates.
For financial instruments at amortized cost, the amendments introduce a practical expedient such that if a change in the contractual cash flows is as a direct consequence of IBOR reform and occurs on an economically equivalent basis, the change will be accounted for by updating the effective interest rate with no immediate gain or loss recognized. The amendments also provide additional temporary relief from applying specific IAS 39 hedge accounting requirements to hedging relationships affected by IBOR reform. For example, there is an exception from the requirement to discontinue hedge accounting as a result of changes to hedge documentation required solely by IBOR reform.
As a result of the transition from IBORs to alternative reference rates (ARRs), certain benchmark rates may be subject to discontinuance, changes in methodology, increased volatility or decreased liquidity. The bank, both as a holder and an issuer of IBOR-based instruments, is exposed to increased financial, operational, legal and regulatory, and reputational risks as the rates transition. These risks arise principally from updating systems and processes to capture new ARRs, amending contracts or existing fallback clauses for new ARRs, managing the client transition to ARRs and the resulting impact on economic risk management, as well as updating hedge designations as the new ARRs emerge. In order to manage those risks, we have established an enterprise IBOR Transition Office (ITO) to coordinate and oversee the transition from IBORs to ARRs, with a focus on managing and mitigating internal risks as well as managing our client relationships. The ITO, sponsored and supported by senior management, is responsible for running the enterprise-wide program, covering all of BMO’s lines of business and corporate function areas. The ITO has a global mandate to ensure that we properly prepare for the discontinuation or unavailability of LIBOR and other IBORs. As part of its mandate, the ITO continues to address the bank’s industry and regulatory engagement, client and financial contract changes, internal and external communications, technology and operations modifications, introduction of new products, migration of existing clients, and program strategy, governance and evaluate financial reporting impacts, including for hedge accounting. In addition, the ITO continues to monitor the development and usage of ARRs across the industry, including the Secured Overnight Financing Rate. As the market continues to develop we have begun to add ARR-based products to our suite of offerings.
We adhered to the International Swaps and Derivatives Association Fallbacks Protocol (ISDA Protocol), which took effect on January 25, 2021. The ISDA Protocol provides specific fallbacks depending on whether the relevant IBOR (for example USD LIBOR or GBP LIBOR) has been permanently discontinued or is temporarily unavailable. It provides an efficient amendment mechanism for mutually adhering counterparties to incorporate these fallback provisions into legacy derivative contracts.
We are currently awaiting the outcome of the ICE Benchmark Administration consultation regarding the process and timing for the orderly wind-down of LIBOR, including the conditions under which certain US dollar LIBOR tenors may continue until June 30, 2023 instead of the current date of December 31, 2021, for legacy contracts. The ITO is currently assessing the potential impact of this proposed continuation and our project plans will be adjusted accordingly as needed.
46 BMO Financial Group First Quarter Report 2021
The following table presents quantitative information for financial instruments that referenced certain IBORs as at November 1, 2020 and are either due to mature after December 31, 2021 or demand facilities that will be subject to remediation to amend the benchmark interest rate.
(Canadian $ in millions) | November 1, 2020 | |||||||||||
USD LIBOR | GBP LIBOR | Other (1) | ||||||||||
Non-derivative assets (2) | 98,112 | 868 | 1,225 | |||||||||
Non-derivative liabilities (2) | 7,435 | 692 | - | |||||||||
Derivative notional amounts (3)(4) | 1,570,534 | 20,972 | 6,702 | |||||||||
Authorized and committed loan commitments (5)(6) | 68,449 | 194 | 23,633 |
(1) | Includes CHF LIBOR, EONIA and JPY LIBOR |
(2) | All amounts are presented based on contractual amounts outstanding with the exception of securities, in non-derivative assets, which are disclosed based on carrying value. |
(3) | Notionals represent the amount to which a rate or price is applied in order to calculate the amount of cash that must be exchanged under the contract. Notional amounts do not represent assets or liabilities and therefore are not recorded in our Consolidated Balance Sheet. |
(4) | Includes certain cross-currency swap positions where both the pay and receive leg currently reference an IBOR. For those derivatives, the table above includes the notional for both the pay and receive legs in the relevant columns aligning with the IBOR exposure. |
(5) | Excludes personal lines of credit and credit cards that are unconditionally cancellable at our discretion. A large majority of these commitments expire without being drawn upon. As a result, the total contractual amounts may not be representative of the funding likely to be required for these commitments. |
(6) | Other includes loan commitments where our customers have the option to draw from their facility in multiple currencies. Amounts drawn will be subject to prevailing interbank offered rates for the foreign currency, including those that are in scope of IBOR reform. |
Financial instruments that reference rates in multi-rate jurisdictions, including the Canadian Dollar Offered Rate (CDOR), the EURO Interbank Offered Rate and Australian Bank Bill Swap Rate, are excluded from the table above. In the case of CDOR, financial instruments indexed to 6-month and 12-month CDOR tenors will be discontinued on May 17, 2021, while other tenors of CDOR will continue as a benchmark rate. As at November 1, 2020, we do not hold any material positions in either of these CDOR tenors.
Conceptual Framework
Effective November 1, 2020, we adopted the revised Conceptual Framework (Framework), which sets out the fundamental concepts for financial reporting to ensure consistency in standard-setting decisions and that similar transactions are treated in a similar way, so as to provide useful information to users of financial statements. The revised Framework had no impact on our accounting policies.
Use of Estimates and Judgments
The preparation of the interim consolidated financial statements requires management to use estimates and assumptions that affect the carrying amounts of certain assets and liabilities, certain amounts reported in net income and other related disclosures.
The most significant assets and liabilities for which we must make estimates and judgments include the allowance for credit losses; financial instruments measured at fair value; pension and other employee future benefits; impairment of securities; income taxes and deferred tax assets; goodwill and intangible assets; insurance-related liabilities; provisions including legal proceedings and restructuring charges; leases; and transfer of financial assets and consolidation of structured entities. If actual results were to differ from the estimates, the impact would be recorded in future periods.
The full extent of the impact that COVID-19, including government and regulatory responses to the outbreak, will have on the Canadian and US economies and the bank’s business will depend on future developments, which are highly uncertain and cannot be predicted. This includes the scope, severity and duration of the pandemic which remains uncertain and difficult to predict at this time. 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 January 31, 2021.
Allowance for Credit Losses
As detailed further in Note 1 of our annual consolidated financial statements for the year ended October 31, 2020 on page 153 of the Annual Report, 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. In cases where borrowers have opted to participate in payment deferral programs we offered as a result of the COVID-19 pandemic, deferred payments are not considered to be past due and do not on their own indicate a significant increase in credit risk consistent with OSFI guidance.
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.
BMO Financial Group First Quarter Report 2021 47
Note 2: Securities
Classification of Securities
The bank’s fair value through profit or loss (FVTPL) securities of $13,939 million ($13,568 million as at October 31, 2020) are comprised of $2,432 million mandatorily measured at fair value and $11,507 million investment securities held by insurance subsidiaries designated at fair value ($2,420 million and $11,148 million, respectively, as at October 31, 2020).
Our fair value through other comprehensive income (FVOCI) securities totalling $70,574 million ($73,407 million as at October 31, 2020), are net of an allowance for credit losses of $3 million ($4 million as at October 31, 2020).
Amortized cost securities totalling $48,708 million ($48,466 million as at October 31, 2020), are net of an allowance for credit losses of $1 million ($1 million as at October 31, 2020).
Unrealized Gains and Losses on FVOCI Securities
The following table summarizes the unrealized gains and losses:
(Canadian $ in millions) | January 31, 2021 | October 31, 2020 | ||||||||||||||||||||||||||||||
Cost/ | Gross | Gross | Cost/ | Gross | Gross | |||||||||||||||||||||||||||
Amortized cost | unrealized gains | unrealized losses | Fair value | Amortized cost | unrealized gains | unrealized losses | Fair value | |||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||
Canadian federal government | 19,934 | 210 | 1 | 20,143 | 22,240 | 211 | 1 | 22,450 | ||||||||||||||||||||||||
Canadian provincial and municipal governments | 4,058 | 110 | - | 4,168 | 4,628 | 119 | - | 4,747 | ||||||||||||||||||||||||
U.S. federal government | 16,144 | 574 | 49 | 16,669 | 16,881 | 844 | 31 | 17,694 | ||||||||||||||||||||||||
U.S. states, municipalities and agencies | 4,848 | 141 | 2 | 4,987 | 5,132 | 147 | 3 | 5,276 | ||||||||||||||||||||||||
Other governments | 8,199 | 150 | 3 | 8,346 | 7,222 | 168 | 9 | 7,381 | ||||||||||||||||||||||||
National Housing Act (NHA) mortgage-backed securities (MBS) | 1,800 | 39 | 1 | 1,838 | 1,583 | 46 | - | 1,629 | ||||||||||||||||||||||||
U.S. agency MBS and collateralized mortgage obligations (CMO) | 11,062 | 296 | 10 | 11,348 | 10,600 | 307 | 4 | 10,903 | ||||||||||||||||||||||||
Corporate debt | 2,898 | 103 | 24 | 2,977 | 3,153 | 91 | 10 | 3,234 | ||||||||||||||||||||||||
Corporate equity | 95 | 3 | - | 98 | 90 | 3 | - | 93 | ||||||||||||||||||||||||
Total | 69,038 | 1,626 | 90 | 70,574 | 71,529 | 1,936 | 58 | 73,407 |
Unrealized gains (losses) may be offset by related (losses) gains on hedge contracts.
Interest Income on Debt Securities
The following table presents interest income calculated using the effective interest method:
(Canadian $ in millions) | For the three months ended | |||||||
January 31, 2021 | January 31, 2020 | |||||||
FVOCI - Debt | 131 | 343 | ||||||
Amortized cost | 106 | 146 | ||||||
Total | 237 | 489 |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
48 BMO Financial Group First Quarter Report 2021
Note 3: Loans and Allowance for Credit Losses
Credit Risk Exposure
The following table sets out our credit risk exposure for all loans carried at amortized cost, FVOCI or FVTPL as at January 31, 2021 and October 31, 2020. Stage 1 represents those performing loans carried with up to a 12 month expected credit loss, Stage 2 represents those performing loans carried with a lifetime expected credit loss, and Stage 3 represents those loans with a lifetime credit loss that are credit impaired.
(Canadian $ in millions) | January 31, 2021 | October 31, 2020 | ||||||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||||||||||||||
Loans: Residential mortgages | ||||||||||||||||||||||||||||||||
Exceptionally low | 1 | - | - | 1 | 1 | - | - | 1 | ||||||||||||||||||||||||
Very low | 86,569 | 339 | - | 86,908 | 79,295 | 429 | - | 79,724 | ||||||||||||||||||||||||
Low | 20,496 | 2,789 | - | 23,285 | 24,490 | 2,481 | - | 26,971 | ||||||||||||||||||||||||
Medium | 11,616 | 4,141 | - | 15,757 | 11,560 | 6,461 | - | 18,021 | ||||||||||||||||||||||||
High | 174 | 399 | - | 573 | 172 | 446 | - | 618 | ||||||||||||||||||||||||
Not rated | 1,010 | 129 | - | 1,139 | 1,132 | 148 | - | 1,280 | ||||||||||||||||||||||||
Impaired | - | - | 507 | 507 | - | - | 409 | 409 | ||||||||||||||||||||||||
Allowance for credit losses | 33 | 41 | 17 | 91 | 51 | 75 | 16 | 142 | ||||||||||||||||||||||||
Carrying amount | 119,833 | 7,756 | 490 | 128,079 | 116,599 | 9,890 | 393 | 126,882 | ||||||||||||||||||||||||
Loans: Consumer instalment and other personal | ||||||||||||||||||||||||||||||||
Exceptionally low | 1,414 | 72 | - | 1,486 | 1,550 | 31 | - | 1,581 | ||||||||||||||||||||||||
Very low | 27,241 | 43 | - | 27,284 | 26,645 | 37 | - | 26,682 | ||||||||||||||||||||||||
Low | 21,088 | 504 | - | 21,592 | 20,935 | 585 | - | 21,520 | ||||||||||||||||||||||||
Medium | 10,651 | 3,808 | - | 14,459 | 10,324 | 4,334 | - | 14,658 | ||||||||||||||||||||||||
High | 474 | 1,466 | - | 1,940 | 429 | 1,470 | - | 1,899 | ||||||||||||||||||||||||
Not rated | 3,603 | 79 | - | 3,682 | 3,372 | 96 | - | 3,468 | ||||||||||||||||||||||||
Impaired | - | - | 337 | 337 | - | - | 340 | 340 | ||||||||||||||||||||||||
Allowance for credit losses | 136 | 416 | 97 | 649 | 134 | 429 | 105 | 668 | ||||||||||||||||||||||||
Carrying amount | 64,335 | 5,556 | 240 | 70,131 | 63,121 | 6,124 | 235 | 69,480 | ||||||||||||||||||||||||
Loans: Credit cards (1) | ||||||||||||||||||||||||||||||||
Exceptionally low | 1,935 | 4 | - | 1,939 | 2,252 | - | - | 2,252 | ||||||||||||||||||||||||
Very low | 343 | 1 | - | 344 | 1,106 | 15 | - | 1,121 | ||||||||||||||||||||||||
Low | 1,607 | 118 | - | 1,725 | 899 | 148 | - | 1,047 | ||||||||||||||||||||||||
Medium | 1,667 | 764 | - | 2,431 | 1,611 | 899 | - | 2,510 | ||||||||||||||||||||||||
High | 60 | 360 | - | 420 | 58 | 377 | - | 435 | ||||||||||||||||||||||||
Not rated | 483 | - | - | 483 | 524 | - | - | 524 | ||||||||||||||||||||||||
Impaired | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Allowance for credit losses | 64 | 258 | - | 322 | 61 | 272 | - | 333 | ||||||||||||||||||||||||
Carrying amount | 6,031 | 989 | - | 7,020 | 6,389 | 1,167 | - | 7,556 | ||||||||||||||||||||||||
Loans: Business and government (2) | ||||||||||||||||||||||||||||||||
Acceptable | ||||||||||||||||||||||||||||||||
Investment grade | 137,436 | 3,277 | - | 140,713 | 129,100 | 3,242 | - | 132,342 | ||||||||||||||||||||||||
Sub-investment grade | 87,677 | 22,083 | - | 109,760 | 85,197 | 30,106 | - | 115,303 | ||||||||||||||||||||||||
Watchlist | - | 7,559 | - | 7,559 | - | 8,621 | - | 8,621 | ||||||||||||||||||||||||
Impaired | - | - | 2,598 | 2,598 | - | - | 2,889 | 2,889 | ||||||||||||||||||||||||
Allowance for credit losses | 617 | 942 | 567 | 2,126 | 510 | 1,044 | 606 | 2,160 | ||||||||||||||||||||||||
Carrying amount | 224,496 | 31,977 | 2,031 | 258,504 | 213,787 | 40,925 | 2,283 | 256,995 | ||||||||||||||||||||||||
Commitments and financial guarantee contracts | ||||||||||||||||||||||||||||||||
Acceptable | ||||||||||||||||||||||||||||||||
Investment grade | 135,193 | 1,411 | - | 136,604 | 138,141 | 1,628 | - | 139,769 | ||||||||||||||||||||||||
Sub-investment grade | 45,499 | 14,866 | - | 60,365 | 41,650 | 20,421 | - | 62,071 | ||||||||||||||||||||||||
Watchlist | - | 4,064 | - | 4,064 | - | 4,861 | - | 4,861 | ||||||||||||||||||||||||
Impaired | - | - | 1,212 | 1,212 | - | - | 1,261 | 1,261 | ||||||||||||||||||||||||
Allowance for credit losses | 236 | 229 | 25 | 490 | 211 | 288 | 12 | 511 | ||||||||||||||||||||||||
Carrying amount (3)(4) | 180,456 | 20,112 | 1,187 | 201,755 | 179,580 | 26,622 | 1,249 | 207,451 |
(1) | Credit card loans are immediately written off when principal or interest payments are 180 days past due, and as a result are not reported as impaired in Stage 3. |
(2) | Includes customers’ liability under acceptances. |
(3) | Represents the total contractual amounts of undrawn credit facilities and other off-balance sheet exposures, excluding personal lines of credit and credit cards that are unconditionally cancellable at our discretion. |
(4) | Certain commercial borrower commitments are conditional and may include recourse with other parties. |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
Allowance for Credit Losses
The allowance for credit losses recorded in our Consolidated Balance Sheet is maintained at a level we consider adequate to absorb credit-related losses on our loans and other credit instruments. The allowance for credit losses amounted to $3,678 million at January 31, 2021 ($3,814 million as at October 31, 2020) of which $3,188 million ($3,303 million as at October 31, 2020) was recorded in loans and $490 million ($511 million as at October 31, 2020) was recorded in other liabilities in our Consolidated Balance Sheet.
Significant changes in the gross balances, including originations, maturities and repayments in the normal course of operations, impact the allowance for credit losses.
BMO Financial Group First Quarter Report 2021 49
The following table shows the continuity in the loss allowance by product type. Transfers represent the amount of expected credit loss (ECL) that moved between stages during the period, for example, moving from a 12-month (Stage 1) to lifetime (Stage 2) ECL measurement basis. Net remeasurements represent the ECL impact due to transfers between stages, and changes in economic forecasts and credit quality. Model changes includes new calculation models or methodologies.
(Canadian $ in millions) | ||||||||||||||||||||||||||||||||
For the three months ended | January 31, 2021 | January 31, 2020 | ||||||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||||||||||||||
Loans: Residential mortgages | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 51 | 75 | 26 | 152 | 15 | 33 | 38 | 86 | ||||||||||||||||||||||||
Transfer to Stage 1 | 25 | (18 | ) | (7 | ) | - | 6 | (6 | ) | - | - | |||||||||||||||||||||
Transfer to Stage 2 | (1 | ) | 15 | (14 | ) | - | - | 2 | (2 | ) | - | |||||||||||||||||||||
Transfer to Stage 3 | - | (7 | ) | 7 | - | - | (1 | ) | 1 | - | ||||||||||||||||||||||
Net remeasurement of loss allowance | (45 | ) | (19 | ) | 24 | (40 | ) | (9 | ) | 4 | 5 | - | ||||||||||||||||||||
Loan originations | 6 | - | - | 6 | 2 | - | - | 2 | ||||||||||||||||||||||||
Derecognitions and maturities | (2 | ) | (4 | ) | - | (6 | ) | - | (1 | ) | - | (1 | ) | |||||||||||||||||||
Model changes | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total Provision for Credit Losses (PCL) (1) | (17 | ) | (33 | ) | 10 | (40 | ) | (1 | ) | (2 | ) | 4 | 1 | |||||||||||||||||||
Write-offs (2) | - | - | (3 | ) | (3 | ) | - | - | (3 | ) | (3 | ) | ||||||||||||||||||||
Recoveries of previous write-offs | - | - | - | - | - | - | 2 | 2 | ||||||||||||||||||||||||
Foreign exchange and other | (1 | ) | - | (7 | ) | (8 | ) | - | - | (14 | ) | (14 | ) | |||||||||||||||||||
Balance as at end of period | 33 | 42 | 26 | 101 | 14 | 31 | 27 | 72 | ||||||||||||||||||||||||
Loans: Consumer instalment and other personal | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 148 | 454 | 105 | 707 | 89 | 333 | 136 | 558 | ||||||||||||||||||||||||
Transfer to Stage 1 | 65 | (62 | ) | (3 | ) | - | 41 | (38 | ) | (3 | ) | - | ||||||||||||||||||||
Transfer to Stage 2 | (7 | ) | 16 | (9 | ) | - | (4 | ) | 21 | (17 | ) | - | ||||||||||||||||||||
Transfer to Stage 3 | (1 | ) | (22 | ) | 23 | - | (2 | ) | (25 | ) | 27 | - | ||||||||||||||||||||
Net remeasurement of loss allowance | (65 | ) | 71 | 31 | 37 | (44 | ) | 62 | 45 | 63 | ||||||||||||||||||||||
Loan originations | 19 | - | - | 19 | 11 | - | - | 11 | ||||||||||||||||||||||||
Derecognitions and maturities | (7 | ) | (14 | ) | - | (21 | ) | (4 | ) | (10 | ) | - | (14 | ) | ||||||||||||||||||
Model changes | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total PCL (1) | 4 | (11 | ) | 42 | 35 | (2 | ) | 10 | 52 | 60 | ||||||||||||||||||||||
Write-offs (2) | - | - | (65 | ) | (65 | ) | - | - | (83 | ) | (83 | ) | ||||||||||||||||||||
Recoveries of previous write-offs | - | - | 22 | 22 | - | - | 23 | 23 | ||||||||||||||||||||||||
Foreign exchange and other | (2 | ) | (3 | ) | (7 | ) | (12 | ) | 1 | - | (3 | ) | (2 | ) | ||||||||||||||||||
Balance as at end of period | 150 | 440 | 97 | 687 | 88 | 343 | 125 | 556 | ||||||||||||||||||||||||
Loans: Credit cards | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 110 | 321 | - | 431 | 80 | 225 | - | 305 | ||||||||||||||||||||||||
Transfer to Stage 1 | 58 | (58 | ) | - | - | 28 | (28 | ) | - | - | ||||||||||||||||||||||
Transfer to Stage 2 | (6 | ) | 6 | - | - | (5 | ) | 5 | - | - | ||||||||||||||||||||||
Transfer to Stage 3 | - | (40 | ) | 40 | - | - | (40 | ) | 40 | - | ||||||||||||||||||||||
Net remeasurement of loss allowance | (55 | ) | 80 | 14 | 39 | (25 | ) | 64 | 23 | 62 | ||||||||||||||||||||||
Loan originations | 7 | - | - | 7 | 4 | - | - | 4 | ||||||||||||||||||||||||
Derecognitions and maturities | (1 | ) | (7 | ) | - | (8 | ) | (1 | ) | (6 | ) | - | (7 | ) | ||||||||||||||||||
Model changes | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total PCL (1) | 3 | (19 | ) | 54 | 38 | 1 | (5 | ) | 63 | 59 | ||||||||||||||||||||||
Write-offs (2) | - | - | (68 | ) | (68 | ) | - | - | (88 | ) | (88 | ) | ||||||||||||||||||||
Recoveries of previous write-offs | - | - | 20 | 20 | - | - | 26 | 26 | ||||||||||||||||||||||||
Foreign exchange and other | (1 | ) | - | (6 | ) | (7 | ) | (1 | ) | - | (1 | ) | (2 | ) | ||||||||||||||||||
Balance as at end of period | 112 | 302 | - | 414 | 80 | 220 | - | 300 | ||||||||||||||||||||||||
Loans: Business and government | ||||||||||||||||||||||||||||||||
Balance as at beginning of period | 658 | 1,258 | 608 | 2,524 | 338 | 496 | 311 | 1,145 | ||||||||||||||||||||||||
Transfer to Stage 1 | 179 | (178 | ) | (1 | ) | - | 44 | (38 | ) | (6 | ) | - | ||||||||||||||||||||
Transfer to Stage 2 | (16 | ) | 18 | (2 | ) | - | (8 | ) | 9 | (1 | ) | - | ||||||||||||||||||||
Transfer to Stage 3 | (1 | ) | (53 | ) | 54 | - | (1 | ) | (23 | ) | 24 | - | ||||||||||||||||||||
Net remeasurement of loss allowance | (72 | ) | 141 | 58 | 127 | (61 | ) | 94 | 188 | 221 | ||||||||||||||||||||||
Loan originations | 78 | - | - | 78 | 47 | - | - | 47 | ||||||||||||||||||||||||
Derecognitions and maturities | (28 | ) | (48 | ) | - | (76 | ) | (15 | ) | (25 | ) | - | (40 | ) | ||||||||||||||||||
Model changes | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total PCL (1) | 140 | (120 | ) | 109 | 129 | 6 | 17 | 205 | 228 | |||||||||||||||||||||||
Write-offs (2) | - | - | (111 | ) | (111 | ) | - | - | (41 | ) | (41 | ) | ||||||||||||||||||||
Recoveries of previous write-offs | - | - | 13 | 13 | - | - | 7 | 7 | ||||||||||||||||||||||||
Foreign exchange and other | (7 | ) | (36 | ) | (36 | ) | (79 | ) | 4 | 6 | (15 | ) | (5 | ) | ||||||||||||||||||
Balance as at end of period | 791 | 1,102 | 583 | 2,476 | 348 | 519 | 467 | 1,334 | ||||||||||||||||||||||||
Total as at end of period | 1,086 | 1,886 | 706 | 3,678 | 530 | 1,113 | 619 | 2,262 | ||||||||||||||||||||||||
Comprised of: Loans | 850 | 1,657 | 681 | 3,188 | 411 | 1,003 | 609 | 2,023 | ||||||||||||||||||||||||
Other credit instruments (3) | 236 | 229 | 25 | 490 | 119 | 110 | 10 | 239 |
(1) | Excludes PCL on other assets of $(6) million for the three months ended January 31, 2021 ($1 million for the three months ended January 31, 2020). |
(2) | Generally, we continue to seek recovery on amounts that were written off during the year, unless the loan is sold, we no longer have the right to collect or we have exhausted all reasonable efforts to collect. |
(3) | Other credit instruments, including off-balance sheet items, are recorded in other liabilities in our Consolidated Balance Sheet. |
50 BMO Financial Group First Quarter Report 2021
Loans and allowance for credit losses by geographic region as at January 31, 2021 and October 31, 2020 are as follows:
(Canadian $ in millions) | January 31, 2021 | October 31, 2020 | ||||||||||||||||||||||||||||||
| 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 | 280,128 | 340 | 1,344 | 278,444 | 276,975 | 303 | 1,323 | 275,349 | ||||||||||||||||||||||||
United States | 163,667 | 330 | 1,135 | 162,202 | 161,725 | 410 | 1,225 | 160,090 | ||||||||||||||||||||||||
Other countries | 11,249 | 11 | 28 | 11,210 | 12,023 | 14 | 28 | 11,981 | ||||||||||||||||||||||||
Total | 455,044 | 681 | 2,507 | 451,856 | 450,723 | 727 | 2,576 | 447,420 |
(1) | Geographic region is based upon country of ultimate risk. |
(2) | Excludes allowance for credit losses on impaired loans of $25 million for other credit instruments, which is included in other liabilities ($12 million as at October 31, 2020). |
(3) | Excludes allowance for credit losses on performing loans of $465 million for other credit instruments, which is included in other liabilities ($499 million as at October 31, 2020). |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
Impaired (Stage 3) loans, including the related allowances, as at January 31, 2021 and October 31, 2020 are as follows:
(Canadian $ in millions) | January 31, 2021 | October 31, 2020 | ||||||||||||||||||||||
Gross impaired amount (3) | Allowance for credit losses on impaired loans (4) | Net impaired amount (3) | Gross impaired amount (3) | Allowance for credit losses on impaired loans (4) | Net impaired amount (3) | |||||||||||||||||||
Residential mortgages | 507 | 17 | 490 | 409 | 16 | 393 | ||||||||||||||||||
Consumer instalment and other personal | 337 | 97 | 240 | 340 | 105 | 235 | ||||||||||||||||||
Business and government (1) | 2,598 | 567 | 2,031 | 2,889 | 606 | 2,283 | ||||||||||||||||||
Total | 3,442 | 681 | 2,761 | 3,638 | 727 | 2,911 | ||||||||||||||||||
By geographic region (2): | ||||||||||||||||||||||||
Canada | 1,541 | 340 | 1,201 | 1,343 | 303 | 1,040 | ||||||||||||||||||
United States | 1,830 | 330 | 1,500 | 2,211 | 410 | 1,801 | ||||||||||||||||||
Other countries | 71 | 11 | 60 | 84 | 14 | 70 | ||||||||||||||||||
Total | 3,442 | 681 | 2,761 | 3,638 | 727 | 2,911 |
(1) | Includes customers’ liability under acceptances. |
(2) | Geographic region is based upon the country of ultimate risk. |
(3) | Gross impaired loans and net impaired loans exclude purchased credit impaired loans. |
(4) | Excludes allowance for credit losses on impaired loans of $25 million for other credit instruments, which is included in other liabilities ($12 million as at October 31, 2020). |
Loans Past Due Not Impaired
Loans that are past due but not classified as impaired are loans where our customers have failed to make payments when contractually due but for which we expect the full amount of principal and interest payments to be collected, or loans which are held at fair value. The following table presents loans that are past due but not classified as impaired as at January 31, 2021 and October 31, 2020. In cases where borrowers have opted to participate in payment deferral programs we offered as a result of the COVID-19 pandemic, deferred payments are not considered past due and do not on their own indicate a significant increase in credit risk. As a result, they have not been included in the table below.
(Canadian $ in millions) | January 31, 2021 | October 31, 2020 | ||||||||||||||||||||||||||||||
1 to 29 days | 30 to 89 days | 90 days or more | Total | 1 to 29 days | 30 to 89 days | 90 days or more | Total | |||||||||||||||||||||||||
Residential mortgages | 725 | 439 | 23 | 1,187 | 806 | 543 | 43 | 1,392 | ||||||||||||||||||||||||
Credit card, consumer instalment and other personal | 2,911 | 378 | 79 | 3,368 | 2,136 | 345 | 65 | 2,546 | ||||||||||||||||||||||||
Business and government | 212 | 146 | 24 | 382 | 180 | 330 | 22 | 532 | ||||||||||||||||||||||||
Total | 3,848 | 963 | 126 | 4,937 | 3,122 | 1,218 | 130 | 4,470 |
Fully secured loans with amounts past due between 90 and 180 days that we have not classified as impaired totalled $35 million and $53 million as at January 31, 2021 and October 31, 2020, respectively.
ECL Sensitivity and Key Economic Variables
The expected credit loss model requires the recognition of credit losses generally based on 12 months of expected losses for performing loans and the recognition of lifetime losses on performing loans that have experienced a significant increase in credit risk since origination.
The allowance for performing loans is sensitive to changes in both economic forecasts and the probability-weight assigned to each forecast scenario. Forecasts are developed internally by our Economics group, considering external data and our view of future economic conditions. We apply experienced credit judgment to reflect factors not captured in the ECL models, as we deem necessary. We have applied experienced credit judgment to reflect the impact of the extraordinary and highly uncertain environment on credit conditions and the economy as a result of the COVID-19 pandemic.
As at January 31, 2021, our base case economic forecast used to calculate the allowance depicts a recovering Canadian economy, with real GDP growth rebounding in 2021 as the economic recovery continues and spending returns to more normal levels. Although the near-term outlook has weakened since year end with an increase in cases and renewed restrictions on business activities, the medium-term outlook has improved relative to our outlook as at October 31, 2020. Our base case economic forecast as at October 31, 2020 depicted moderate economic growth in both Canada and the U.S. over the medium-term projection period. If we assumed a 100% base case economic forecast and included the impact of loan migration by restaging, with other assumptions held constant, including the application of experienced credit judgment, the allowance on performing loans would be approximately $2,375 million as at January 31, 2021 ($2,375 million as at October 31, 2020), compared to the reported allowance for performing loans of $2,972 million ($3,075 million as at October 31, 2020).
BMO Financial Group First Quarter Report 2021 51
As at January 31, 2021, the adverse case economic forecast depicts a contracting Canadian economy, with real GDP declining in 2021, before recovering in 2022. In our adverse case scenario, the assumed impact of COVID-19 is more severe than in the base case forecast, with aggressive restrictions on a broad range of activity leading to a sharp decline in consumer and business confidence and spending, a consistent trajectory to the scenario used as at October 31, 2020. If we assumed a 100% adverse economic forecast and included the impact of loan migration by restaging, with other assumptions held constant, including the application of experienced credit judgment, the allowance on performing loans would be approximately $4,475 million as at January 31, 2021 ($4,875 million as at October 31, 2020), compared to the reported allowance for performing loans of $2,972 million ($3,075 million as at October 31, 2020).
When we measure changes in economic performance in our forecasts, we use real GDP as the basis, which acts as the key driver for movements in many of the other economic and market variables used, including VIX equity volatility index, corporate BBB credit spreads, unemployment rates, housing price indices and consumer credit. Many of the variables have a high degree of interdependency and as such, there is no one single factor to which loan impairment allowances as a whole are sensitive. The following table shows certain key economic variables used to estimate the allowance on performing loans during the forecast period. This table is typically provided on an annual basis; however, given the significant level of uncertainty in the forward-looking information due to the impact of COVID-19, the disclosures have been provided as an update to the information in BMO’s 2020 Annual Report. The values shown represent the national annual average values for calendar 2021 and 2022 for all scenarios. While the values disclosed below are national variables, we use regional variables in our underlying models and consider factors impacting particular industries where appropriate.
As at January 31, 2021 | As at October 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||
All figures are average annual values | Benign scenario | Base scenario | Adverse scenario | Benign scenario | Base scenario | Adverse scenario | ||||||||||||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | |||||||||||||||||||||||||||||||||||||||||
Real GDP growth rates (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Canada | 7.8 | % | 5.6 | % | 5.0 | % | 4.5 | % | (1.5 | )% | 0.8 | % | 9.0 | % | 4.0 | % | 6.0 | % | 3.0 | % | (2.1 | )% | 0.8 | % | ||||||||||||||||||||||||||||
United States | 7.2 | % | 4.3 | % | 4.5 | % | 3.5 | % | (1.3 | )% | 0.8 | % | 7.0 | % | 3.7 | % | 4.0 | % | 3.0 | % | (2.9 | )% | 0.8 | % | ||||||||||||||||||||||||||||
Corporate BBB 10-year spread | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Canada | 1.7 | % | 1.9 | % | 2.2 | % | 2.2 | % | 4.2 | % | 4.2 | % | 1.8 | % | 2.0 | % | 2.2 | % | 2.2 | % | 4.5 | % | 4.0 | % | ||||||||||||||||||||||||||||
United States | 1.3 | % | 1.5 | % | 1.7 | % | 1.8 | % | 4.2 | % | 3.9 | % | 1.6 | % | 1.8 | % | 2.0 | % | 2.1 | % | 4.4 | % | 3.7 | % | ||||||||||||||||||||||||||||
Unemployment rates | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Canada | 6.4 | % | 5.6 | % | 7.5 | % | 6.5 | % | 11.2 | % | 11.4 | % | 6.4 | % | 5.9 | % | 8.0 | % | 7.1 | % | 13.8 | % | 13.9 | % | ||||||||||||||||||||||||||||
United States | 4.6 | % | 3.9 | % | 5.9 | % | 4.7 | % | 10.2 | % | 10.5 | % | 5.2 | % | 4.6 | % | 6.8 | % | 5.6 | % | 12.6 | % | 12.7 | % | ||||||||||||||||||||||||||||
Housing Price Index (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Canada (2) | 10.8 | % | 6.4 | % | 6.4 | % | 2.5 | % | (9.9 | )% | (6.4 | )% | 9.6 | % | 5.4 | % | 4.5 | % | 2.5 | % | (9.1 | )% | (4.6 | )% | ||||||||||||||||||||||||||||
United States (3) | 8.3 | % | 5.2 | % | 5.2 | % | 3.3 | % | (5.8 | )% | (4.1 | )% | 4.7 | % | 4.2 | % | 1.4 | % | 2.7 | % | (7.3 | )% | (2.2 | )% |
(1) | Real gross domestic product and housing price index are year-over-year growth rates. |
(2) | In Canada, we use the HPI Benchmark Composite. |
(3) | In the United States, we use the National Case-Shiller House Price Index. |
The ECL approach requires the recognition of credit losses generally based on 12 months of expected losses for performing loans (Stage 1) and the recognition of lifetime expected losses for performing loans that have experienced a significant increase in credit risk since origination (Stage 2). Under our current probability-weighted scenarios and based on the current risk profile of our loan exposures, if all our performing loans were in Stage 1, our allowance for performing loans would be approximately $2,150 million ($2,300 million as at October 31, 2020), compared with the reported allowance for performing loans of $2,972 million ($3,075 million as at October 31, 2020).
52 BMO Financial Group First Quarter Report 2021
Note 4: Deposits and Subordinated Debt
Deposits
Payable on demand | Payable | Payable on | ||||||||||||||||||||||||||||||||||||||
(Canadian $ in millions) | Interest bearing | Non-interest bearing | after notice | a fixed date (4)(5) | Total | |||||||||||||||||||||||||||||||||||
January 31, 2021 | October 31, 2020 | January 31, 2021 | October 31, 2020 | January 31, 2021 | October 31, 2020 | January 31, 2021 | October 31, 2020 | January 31, 2021 | October 31, 2020 | |||||||||||||||||||||||||||||||
Deposits by: | ||||||||||||||||||||||||||||||||||||||||
Banks (1) | 3,797 | 3,594 | 1,672 | 2,460 | 1,070 | 1,231 | 28,107 | 31,540 | 34,646 | 38,825 | ||||||||||||||||||||||||||||||
Business and government | 44,952 | 44,111 | 45,557 | 44,258 | 134,534 | 124,813 | 195,218 | 187,497 | 420,261 | 400,679 | ||||||||||||||||||||||||||||||
Individuals | 5,297 | 4,661 | 31,930 | 30,369 | 114,313 | 111,905 | 66,053 | 72,595 | 217,593 | 219,530 | ||||||||||||||||||||||||||||||
Total (2) (3) | 54,046 | 52,366 | 79,159 | 77,087 | 249,917 | 237,949 | 289,378 | 291,632 | 672,500 | 659,034 | ||||||||||||||||||||||||||||||
Booked in: | ||||||||||||||||||||||||||||||||||||||||
Canada | 44,155 | 41,855 | 70,822 | 67,873 | 118,543 | 112,543 | 183,790 | 185,655 | 417,310 | 407,926 | ||||||||||||||||||||||||||||||
United States | 7,971 | 8,818 | 8,276 | 9,170 | 129,977 | 124,129 | 76,974 | 78,175 | 223,198 | 220,292 | ||||||||||||||||||||||||||||||
Other countries | 1,920 | 1,693 | 61 | 44 | 1,397 | 1,277 | 28,614 | 27,802 | 31,992 | 30,816 | ||||||||||||||||||||||||||||||
Total | 54,046 | 52,366 | 79,159 | 77,087 | 249,917 | 237,949 | 289,378 | 291,632 | 672,500 | 659,034 |
(1) | Includes regulated and central banks. |
(2) | Includes structured notes designated at FVTPL (Note 6). |
(3) | Included in deposits as at January 31, 2021 and October 31, 2020 are $330,545 million and $322,951 million, respectively, of deposits denominated in U.S. dollars, and $34,411 million and $32,254 million, respectively, of deposits denominated in other foreign currencies. |
(4) | Includes $27,945 million of senior unsecured debt as at January 31, 2021 subject to the Bank Recapitalization (Bail-In) regime ($25,651 million as at October 31, 2020). The Bail-In regime provides certain statutory powers to the Canada Deposit Insurance Corporation, including the ability to convert specified eligible shares and liabilities into common shares if the bank becomes non-viable. |
(5) | Deposits totalling $24,810 million as at January 31, 2021 ($27,353 million as at October 31, 2020) can be early redeemed (either fully or partially) by customers without penalty. As we do not expect a significant amount to be redeemed before maturity, we have classified them based on their remaining contractual maturities. |
The following table presents deposits payable on a fixed date and greater than one hundred thousand dollars:
(Canadian $ in millions) | Canada | United States | Other | Total | ||||||||||||
As at January 31, 2021 | 158,270 | 71,642 | 28,612 | 258,524 | ||||||||||||
As at October 31, 2020 | 158,475 | 72,186 | 27,799 | 258,460 |
The following table presents the maturity schedule for deposits payable on a fixed date, each greater than one hundred thousand dollars, which are booked in Canada:
(Canadian $ in millions) | Less than 3 months | 3 to 6 months | 6 to 12 months | Over 12 months | Total | |||||||||||||||
As at January 31, 2021 | 37,004 | 11,938 | 27,246 | 82,082 | 158,270 | |||||||||||||||
As at October 31, 2020 | 18,081 | 29,679 | 28,109 | 82,606 | 158,475 |
Subordinated Debt
On December 8, 2020, we redeemed all of our outstanding $1,000 million subordinate debentures, Series H 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.
BMO Financial Group First Quarter Report 2021 53
Note 5: Equity
Preferred and Common Shares Outstanding and Other Equity Instruments (1)
(Canadian $ in millions, except as noted) | January 31, 2021 | October 31, 2020 | ||||||||||||||||||||||
Number of shares | Amount | Number of shares | Amount | Convertible into… | ||||||||||||||||||||
Preferred Shares - Classified as Equity | ||||||||||||||||||||||||
Class B – Series 25 | 9,425,607 | 236 | 9,425,607 | 236 | Class B - Series 26 | (2) | ||||||||||||||||||
Class B – Series 26 | 2,174,393 | 54 | 2,174,393 | 54 | Class B - Series 25 | (2) | ||||||||||||||||||
Class B – Series 27 | 20,000,000 | 500 | 20,000,000 | 500 | Class B - Series 28 | (2)(3) | ||||||||||||||||||
Class B – Series 29 | 16,000,000 | 400 | 16,000,000 | 400 | Class B - Series 30 | (2)(3) | ||||||||||||||||||
Class B – Series 31 | 12,000,000 | 300 | 12,000,000 | 300 | Class B - Series 32 | (2)(3) | ||||||||||||||||||
Class B – Series 33 | 8,000,000 | 200 | 8,000,000 | 200 | Class B - Series 34 | (2)(3) | ||||||||||||||||||
Class B – Series 35 | - | - | 6,000,000 | 150 | Not convertible | (8) | ||||||||||||||||||
Class B – Series 36 | - | - | 600,000 | 600 | Class B - Series 37 | (8) | ||||||||||||||||||
Class B – Series 38 | 24,000,000 | 600 | 24,000,000 | 600 | Class B - Series 39 | (2)(3) | ||||||||||||||||||
Class B – Series 40 | 20,000,000 | 500 | 20,000,000 | 500 | Class B - Series 41 | (2)(3) | ||||||||||||||||||
Class B – Series 42 | 16,000,000 | 400 | 16,000,000 | 400 | Class B - Series 43 | (2)(3) | ||||||||||||||||||
Class B – Series 44 | 16,000,000 | 400 | 16,000,000 | 400 | Class B - Series 45 | (2)(3) | ||||||||||||||||||
Class B – Series 46 | 14,000,000 | 350 | 14,000,000 | 350 | Class B - Series 47 | (2)(3) | ||||||||||||||||||
Preferred Shares - Classified as Equity | 3,940 | 4,690 | ||||||||||||||||||||||
Other Equity Instruments | ||||||||||||||||||||||||
4.8% Additional Tier 1 Capital Notes (AT1 Notes) | 658 | 658 | Common shares | (3) | ||||||||||||||||||||
4.3% Limited Recourse Capital Notes, Series 1 (LRCNs) | 1,250 | 1,250 | Common shares | (3)(4) | ||||||||||||||||||||
Other Equity Instruments | 1,908 | 1,908 | ||||||||||||||||||||||
Preferred Shares and Other Equity Instruments | 5,848 | 6,598 | ||||||||||||||||||||||
Common Shares (5) (6) (7) | 646,870,166 | 13,501 | 645,889,396 | 13,430 |
(1) | For additional information refer to Notes 16 and 20 of our annual consolidated financial statements for the year ended October 31, 2020 on pages 184 and 195 of our 2020 Annual Report. |
(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, the LRCNs (see (4) below) to qualify as regulatory capital under Basel III. As such, they are convertible into a variable number of our common shares if OSFI announces that the bank is, or is about to become, non-viable or if a federal or provincial government in Canada publicly announces that the bank has accepted or agreed to accept a capital injection, or equivalent support, to avoid non-viability. In such an event, each preferred share, including Preferred Shares Series 48, and AT1 Note is convertible into common shares pursuant to an automatic conversion formula and a conversion price based on the greater of: (i) a floor price of $5.00 and (ii) the current market price of our common shares based on the volume weighted average trading price of our common shares on the TSX. The number of common shares issued is determined by dividing the value of the preferred share or other equity instrument, including declared and unpaid dividends, by the conversion price and then applying the multiplier. |
(4) | Non-deferrable interest is payable semi-annually on the LRCNs at the bank’s discretion. Non-payment of interest will result in a recourse event, with the noteholders’ sole remedy being the holders’ proportionate share of trust assets comprised of our NVCC Preferred Shares Series 48, which are eliminated on consolidation. In such an event, the delivery of the trust assets will represent the full and complete extinguishment of our obligations under the LRCNs. In circumstances under which NVCC, including the Preferred Shares Series 48, would be converted into common shares of the bank, the LRCNs would be redeemed and the noteholders sole remedy would be their proportionate share of trust assets, then comprised of common shares of the bank received by the trust on conversion of the Preferred Share Series 48. |
(5) | The stock options issued under the Stock Option Plan are convertible into 7,009,590 common shares as at January 31, 2021 (6,446,110 common shares as at October 31, 2020). |
(6) | During the three months ended January 31, 2021, we did not issue common shares under the Shareholder Dividend Reinvestment and Share Purchase Plan and we issued 407,360 common shares under the Stock Option Plan. |
(7) | Common shares are net of 79,320 treasury shares as at January 31, 2021 (652,730 treasury shares as at October 31, 2020). |
(8) | Series 35 and Series 36 were redeemed and final dividends were paid on November 25, 2020. |
54 BMO Financial Group First Quarter Report 2021
Other Equity Instruments
The bank’s US$500 million (CAD $658 million) 4.8% Additional Tier 1 Capital Notes (AT1 Notes) and $1,250 million 4.3% Limited Recourse Capital Notes Series 1 (LRCNs) are classified as equity and form part of our additional Tier 1 non-viability contingent capital (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 November 25, 2020, we redeemed all of our 6 million issued and outstanding Non-Cumulative Perpetual Class B Preferred Shares, Series 35 (NVCC) for an aggregate total of $156 million and all of our 600,000 issued and outstanding Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 36 (NVCC) for an aggregate total of $600 million.
Normal Course Issuer Bid
Our previous normal course issuer bid (NCIB) expired on June 2, 2020. Our plan, subject to approval of OSFI and the Toronto Stock Exchange, was to establish a new NCIB over a 12- month period, commencing on or about June 3, 2020. The renewal process was put on hold in light of OSFI’s announcement on March 13, 2020 that all share buybacks by federally regulated financial institutions should be halted for the time being, and we did not renew our NCIB. We expect to proceed with the new NCIB following an announcement from OSFI that the restriction is no longer in effect.
Shareholder Dividend Reinvestment and Share Purchase Plan
Until further notice, common shares under the Shareholder Dividend Reinvestment and Share Purchase Plan are purchased on the open market without a discount.
Note 6: Fair Value of Financial Instruments
Fair Value of Financial Instruments Not Carried at Fair Value on the Balance Sheet
Set out in the following table are the amounts that would be reported if all financial assets and liabilities not currently carried at fair value were reported at their fair values. Refer to Note 17 to our annual consolidated financial statements for the year ended October 31, 2020 on pages 186 to 193 for further discussion on the determination of fair value.
(Canadian $ in millions) |
| January 31, 2021 |
|
| October 31, 2020 |
| ||||||||||
Carrying value | Fair value | Carrying value | Fair value | |||||||||||||
Securities (1) | ||||||||||||||||
Amortized cost | 48,708 | 49,297 | 48,466 | 49,009 | ||||||||||||
Loans (1) | ||||||||||||||||
Residential mortgages | 128,079 | 129,709 | 126,882 | 128,815 | ||||||||||||
Consumer instalment and other personal | 70,131 | 70,879 | 69,480 | 70,192 | ||||||||||||
Credit cards | 7,020 | 7,020 | 7,556 | 7,556 | ||||||||||||
Business and government (2) | 239,737 | 241,307 | 238,239 | 239,929 | ||||||||||||
444,967 | 448,915 | 442,157 | 446,492 | |||||||||||||
Deposits (3) | 652,203 | 654,285 | 640,961 | 643,156 | ||||||||||||
Securitization and structured entities’ liabilities | 25,610 | 26,227 | 26,889 | 27,506 | ||||||||||||
Subordinated debt | 7,276 | 7,695 | 8,416 | 8,727 |
This table excludes financial instruments with a carrying value approximating fair value, such as cash and cash equivalents, interest bearing deposits with banks, securities borrowed or purchased under resale agreements, customers’ liability under acceptances, other assets, acceptances, securities lent or sold under repurchase agreements and other liabilities.
(1) | Carrying value is net of allowance. |
(2) | Excludes $6,940 million of loans classified as FVTPL and $85 million of loans classified as FVOCI as at January 31, 2021, respectively ($5,306 million and $51 million, respectively, as at October 31, 2020). |
(3) | Excludes $20,297 million of structured note liabilities designated at FVTPL ($18,073 million as at October 31, 2020). |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
Fair Value Hierarchy
We use a fair value hierarchy to categorize financial instruments according to the inputs we use in valuation techniques to measure fair value.
Valuation Techniques and Significant Inputs
We determine the fair value of publicly traded fixed maturity debt and equity securities using quoted prices in active markets (Level 1) when these are available. When quoted prices in active markets are not available, we determine the fair value of financial instruments using models such as discounted cash flows with observable market data for inputs, such as yield or broker quotes and other third-party vendor quotes (Level 2). Fair value may also be determined using models where significant market inputs are not observable due to inactive markets or minimal market activity (Level 3). We maximize the use of observable market inputs to the extent possible.
Our Level 2 trading and FVOCI securities are primarily valued using discounted cash flow models with observable spreads or broker quotes and other third-party vendor quotes. Level 2 structured note liabilities are valued using models with observable market information. Level 2 derivative assets and liabilities are valued using industry standard models and observable market information.
BMO Financial Group First Quarter Report 2021 55
The extent of our use of actively quoted market prices (Level 1), internal models using observable market information as inputs (Level 2) and models without observable market information as inputs (Level 3) in the valuation of securities, business and government loans classified as FVTPL and FVOCI, precious metals, fair value liabilities, derivative assets and derivative liabilities is presented in the following tables:
(Canadian $ in millions) | January 31, 2021 | October 31, 2020 | ||||||||||||||||||||||||||||||
Valued using quoted market prices | Valued using models (with observable inputs) | Valued using models (without observable inputs) | Total | Valued using quoted market prices | Valued using models (with observable inputs) | Valued using models (without observable inputs) | Total | |||||||||||||||||||||||||
Trading Securities | ||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||
Canadian federal government | 8,650 | 1,464 | - | 10,114 | 6,529 | 4,371 | - | 10,900 | ||||||||||||||||||||||||
Canadian provincial and municipal governments | 4,209 | 2,975 | - | 7,184 | 1,868 | 6,467 | - | 8,335 | ||||||||||||||||||||||||
U.S. federal government | 5,137 | 3,447 | - | 8,584 | 5,702 | 2,716 | - | 8,418 | ||||||||||||||||||||||||
U.S. states, municipalities and agencies | 10 | 352 | - | 362 | 16 | 487 | - | 503 | ||||||||||||||||||||||||
Other governments | 1,720 | 1,176 | - | 2,896 | 1,021 | 1,495 | - | 2,516 | ||||||||||||||||||||||||
NHA MBS, U.S. agency MBS and CMO | - | 12,155 | 703 | 12,858 | 7 | 11,487 | 803 | 12,297 | ||||||||||||||||||||||||
Corporate debt | 3,406 | 7,422 | - | 10,828 | 3,767 | 7,274 | - | 11,041 | ||||||||||||||||||||||||
Trading loans | - | 135 | - | 135 | - | 67 | - | 67 | ||||||||||||||||||||||||
Corporate equity | 45,982 | - | - | 45,982 | 43,757 | - | - | 43,757 | ||||||||||||||||||||||||
69,114 | 29,126 | 703 | 98,943 | 62,667 | 34,364 | 803 | 97,834 | |||||||||||||||||||||||||
FVTPL Securities | ||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||
Canadian federal government | 713 | 201 | - | 914 | 452 | 149 | - | 601 | ||||||||||||||||||||||||
Canadian provincial and municipal governments | 258 | 1,149 | - | 1,407 | 180 | 1,249 | - | 1,429 | ||||||||||||||||||||||||
U.S. federal government | 11 | 37 | - | 48 | - | 44 | - | 44 | ||||||||||||||||||||||||
Other governments | - | 94 | - | 94 | - | 94 | - | 94 | ||||||||||||||||||||||||
NHA MBS, U.S. agency MBS and CMO | - | 2 | - | 2 | - | 3 | - | 3 | ||||||||||||||||||||||||
Corporate debt | 100 | 7,778 | - | 7,878 | 70 | 7,827 | - | 7,897 | ||||||||||||||||||||||||
Corporate equity | 1,629 | 10 | 1,957 | 3,596 | 1,587 | 10 | 1,903 | 3,500 | ||||||||||||||||||||||||
2,711 | 9,271 | 1,957 | 13,939 | 2,289 | 9,376 | 1,903 | 13,568 | |||||||||||||||||||||||||
FVOCI Securities | ||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||
Canadian federal government | 19,210 | 933 | - | 20,143 | 20,765 | 1,685 | - | 22,450 | ||||||||||||||||||||||||
Canadian provincial and municipal governments | 2,409 | 1,759 | - | 4,168 | 2,604 | 2,143 | - | 4,747 | ||||||||||||||||||||||||
U.S. federal government | 8,327 | 8,342 | - | 16,669 | 14,852 | 2,842 | - | 17,694 | ||||||||||||||||||||||||
U.S. states, municipalities and agencies | 10 | 4,976 | 1 | 4,987 | 8 | 5,267 | 1 | 5,276 | ||||||||||||||||||||||||
Other governments | 4,373 | 3,973 | - | 8,346 | 3,643 | 3,738 | - | 7,381 | ||||||||||||||||||||||||
NHA MBS, U.S. agency MBS and CMO | - | 13,186 | - | 13,186 | - | 12,532 | - | 12,532 | ||||||||||||||||||||||||
Corporate debt | 557 | 2,420 | - | 2,977 | 792 | 2,442 | - | 3,234 | ||||||||||||||||||||||||
Corporate equity | - | - | 98 | 98 | - | - | 93 | 93 | ||||||||||||||||||||||||
34,886 | 35,589 | 99 | 70,574 | 42,664 | 30,649 | 94 | 73,407 | |||||||||||||||||||||||||
Business and government loans | - | 3,823 | 3,202 | 7,025 | - | 3,412 | 1,945 | 5,357 | ||||||||||||||||||||||||
Precious Metals (1) | 4,471 | - | - | 4,471 | 5.328 | - | - | 5,328 | ||||||||||||||||||||||||
Fair Value Liabilities | ||||||||||||||||||||||||||||||||
Securities sold but not yet purchased | 26,922 | 7,242 | - | 34,164 | 19,740 | 9,636 | - | 29,376 | ||||||||||||||||||||||||
Structured note liabilities (2) | - | 20,297 | - | 20,297 | - | 18,073 | - | 18,073 | ||||||||||||||||||||||||
Investment contract liabilities (3) | - | 1,153 | - | 1,153 | - | 1,168 | - | 1,168 | ||||||||||||||||||||||||
26,922 | 28,692 | - | 55,614 | 19,740 | 28,877 | - | 48,617 | |||||||||||||||||||||||||
Derivative Assets | ||||||||||||||||||||||||||||||||
Interest rate contracts | 9 | 12,810 | - | 12,819 | 13 | 14,916 | - | 14,929 | ||||||||||||||||||||||||
Foreign exchange contracts | 1 | 14,894 | - | 14,895 | 1 | 10,825 | - | 10,826 | ||||||||||||||||||||||||
Commodity contracts | 235 | 2,054 | - | 2,289 | 123 | 2,465 | - | 2,588 | ||||||||||||||||||||||||
Equity contracts | 1,075 | 2,970 | - | 4,045 | 750 | 7,711 | - | 8,461 | ||||||||||||||||||||||||
Credit default swaps | - | 6 | - | 6 | - | 11 | - | 11 | ||||||||||||||||||||||||
1,320 | 32,734 | - | 34,054 | 887 | 35,928 | - | 36,815 | |||||||||||||||||||||||||
Derivative Liabilities | ||||||||||||||||||||||||||||||||
Interest rate contracts | 20 | 9,375 | - | 9,395 | 22 | 10,871 | - | 10,893 | ||||||||||||||||||||||||
Foreign exchange contracts | 2 | 12,318 | - | 12,320 | 3 | 10,609 | - | 10,612 | ||||||||||||||||||||||||
Commodity contracts | 225 | 688 | - | 913 | 350 | 1,983 | - | 2,333 | ||||||||||||||||||||||||
Equity contracts | 455 | 6,333 | - | 6,788 | 456 | 6,067 | - | 6,523 | ||||||||||||||||||||||||
Credit default swaps | - | 10 | 4 | 14 | - | 10 | 4 | 14 | ||||||||||||||||||||||||
702 | 28,724 | 4 | 29,430 | 831 | 29,540 | 4 | 30,375 |
(1) | These precious metals are included in other assets, other, in our Consolidated Balance Sheet. |
(2) | These structured note liabilities included in deposits have been designated at FVTPL. |
(3) | These investment contract liabilities in our insurance business have been designated at FVTPL. |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
56 BMO Financial Group First Quarter Report 2021
Quantitative Information about Level 3 Fair Value Measurements
The table below presents the fair values of our significant Level 3 financial instruments that are measured at fair value on a recurring basis, the valuation techniques used to determine their fair values and the value ranges of significant unobservable inputs used in the valuations. We have not applied any other reasonably possible alternative assumptions to the significant Level 3 categories of private equity investments, as the net asset values are provided by the investment or fund managers.
Range of input values (1) | ||||||||||||||||||||||||
As at January 31, 2021 (Canadian $ in millions, except as noted) | Reporting line in fair value hierarchy table | Fair value of assets | Valuation techniques | Significant unobservable inputs | Low | High | ||||||||||||||||||
Private equity (2) | Corporate equity | 1,957 | Net Asset Value | Net Asset Value | na | na | ||||||||||||||||||
EV/EBITDA | Multiple | 6x | 20x | |||||||||||||||||||||
Loans (3) | Business and government loans | 3,202 | Discounted cash flows | Discount margin | 51bps | 224bps | ||||||||||||||||||
NHA MBS and U.S. agency MBS and CMO | | NHA MBS and U.S. agency MBS and CMO | | 703 | Discounted cash flows | Prepayment rate | 6 | % | 67 | % | ||||||||||||||
Market Comparable | Comparability Adjustment | (4) | (4.76 | ) | 4.65 |
(1) | The low and high input values represent the highest and lowest actual level of inputs used to value a group of financial instruments in a particular product category. These input ranges do not reflect the level of input uncertainty, but are affected by the specific underlying instruments within each product category. The input ranges will therefore vary from period to period based on the characteristics of the underlying instruments held at each balance sheet date. |
(2) | Included in private equity is $468 million of Federal Reserve Bank and U.S. Federal Home Loan Bank shares that we carry at cost as at January 31, 2021 ($487 million as at October 31, 2020), which approximates fair value, and are held to meet regulatory requirements. |
(3) | The impact of assuming a 10 basis point increase or decrease in discount margin for business and government loans is $5 million as at January 31, 2021 ($3 million as at October 31, 2020). |
(4) | Range of input values represents price per security adjustment. |
na – not applicable
Significant Transfers
Our policy is to record transfers of assets and liabilities between fair value hierarchy levels at their fair values as at the end of each reporting period, consistent with the date of the determination of fair value. Transfers between the various fair value hierarchy levels reflect changes in the availability of quoted market prices or observable market inputs that result from changes in market conditions. Transfers from Level 1 to Level 2 were due to reduced observability of the inputs used to value the securities. Transfers from Level 2 to Level 1 were due to increased availability of quoted prices in active markets.
The following table presents significant transfers between Level 1 and Level 2 for the three months ended January 31, 2021 and January 31, 2020.
(Canadian $ in millions) | ||||||||||||||||
For the three months ended | January 31, 2021 | January 31, 2020 | ||||||||||||||
Level 1 to Level 2 | Level 2 to Level 1 | Level 1 to Level 2 | Level 2 to Level 1 | |||||||||||||
Trading Securities | 2,737 | 6,702 | 1,825 | 667 | ||||||||||||
FVTPL Securities | 56 | 134 | 329 | 61 | ||||||||||||
FVOCI Securities | 4,658 | 2,109 | 3,259 | 729 | ||||||||||||
Securities sold but not yet purchased | 414 | 4,784 | 2,734 | 70 |
BMO Financial Group First Quarter Report 2021 57
Changes in Level 3 Fair Value Measurements
The table below presents a reconciliation of all changes in Level 3 financial instruments for the three months ended January 31, 2021 and January 31, 2020, including realized and unrealized gains (losses) included in earnings and other comprehensive income as well as transfers into and out of Level 3. Transfers from Level 2 into Level 3 were due to an increase in unobservable market inputs used in pricing the securities. Transfers out of Level 3 into Level 2 were due to an increase in observable market inputs used in pricing the securities.
Change in fair value | ||||||||||||||||||||||||||||||||||||||||
For the three months ended January 31, 2021 (Canadian $ in millions) |
Balance |
Included in | 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 January 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 | (75 | ) | (31 | ) | 357 | (353 | ) | - | 34 | (32 | ) | 703 | (1 | ) | |||||||||||||||||||||||||
Corporate debt | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Total trading securities | 803 | (75 | ) | (31 | ) | 357 | (353 | ) | - | 34 | (32 | ) | 703 | (1 | ) | |||||||||||||||||||||||||
FVTPL Securities | ||||||||||||||||||||||||||||||||||||||||
Corporate equity | 1,903 | 21 | (49 | ) | 113 | (27 | ) | (4 | ) | - | - | 1,957 | 47 | |||||||||||||||||||||||||||
Total FVTPL securities | 1,903 | 21 | (49 | ) | 113 | (27 | ) | (4 | ) | - | - | 1,957 | 47 | |||||||||||||||||||||||||||
FVOCI Securities | ||||||||||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||||||||||
U.S. states, municipalities and agencies | 1 | - | - | - | - | - | - | - | 1 | - | ||||||||||||||||||||||||||||||
Corporate equity | 93 | - | - | 5 | - | - | - | - | 98 | - | ||||||||||||||||||||||||||||||
Total FVOCI securities | 94 | - | - | 5 | - | - | - | - | 99 | na | ||||||||||||||||||||||||||||||
Business and government loans | 1,945 | - | (70 | ) | 1,488 | - | (161 | ) | - | - | 3,202 | - | ||||||||||||||||||||||||||||
Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 4 | - | - | - | - | - | - | - | 4 | - | ||||||||||||||||||||||||||||||
Total derivative liabilities | 4 | - | - | - | - | - | - | - | 4 | - | ||||||||||||||||||||||||||||||
Change in fair value | ||||||||||||||||||||||||||||||||||||||||
For the three months ended January 31, 2020 (Canadian $ in millions) |
Balance |
Included in | 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 January 31, 2020 | Change in unrealized gains (losses) recorded in income for instruments still held (3) | ||||||||||||||||||||||||||||||
Trading Securities | ||||||||||||||||||||||||||||||||||||||||
NHA MBS and U.S. agency MBS and CMO | 538 | (54 | ) | 2 | 273 | (165 | ) | - | 74 | (128 | ) | 540 | (37 | ) | ||||||||||||||||||||||||||
Corporate debt | 7 | - | - | 5 | (7 | ) | - | - | - | 5 | - | |||||||||||||||||||||||||||||
Total trading securities | 545 | (54 | ) | 2 | 278 | (172 | ) | - | 74 | (128 | ) | 545 | (37 | ) | ||||||||||||||||||||||||||
FVTPL Securities | ||||||||||||||||||||||||||||||||||||||||
Corporate equity | 1,984 | 4 | 8 | 78 | (164 | ) | - | 1 | - | 1,911 | 14 | |||||||||||||||||||||||||||||
Total FVTPL | 1,984 | 4 | 8 | 78 | (164 | ) | - | 1 | - | 1,911 | 14 | |||||||||||||||||||||||||||||
FVOCI Securities | ||||||||||||||||||||||||||||||||||||||||
Issued or guaranteed by: | ||||||||||||||||||||||||||||||||||||||||
U.S. states, municipalities and agencies | 1 | - | - | - | - | - | - | - | 1 | - | ||||||||||||||||||||||||||||||
Corporate equity | 81 | - | - | - | - | - | - | - | 81 | - | ||||||||||||||||||||||||||||||
Total FVOCI securities | 82 | - | - | - | - | - | - | - | 82 | na | ||||||||||||||||||||||||||||||
Business and government loans | 1,736 | - | 9 | 80 | - | (264 | ) | - | - | 1,561 | - | |||||||||||||||||||||||||||||
Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||
Credit default swaps | 1 | - | - | - | - | - | - | - | 1 | - | ||||||||||||||||||||||||||||||
Total derivative liabilities | 1 | - | - | - | - | - | - | - | 1 | - |
(1) | Foreign exchange translation on trading securities held by foreign subsidiaries is included in other comprehensive income, net foreign operations. |
(2) | Includes proceeds received on securities sold but not yet purchased. |
(3) | Changes in unrealized gains (losses) on Trading and FVTPL securities still held on January 31, 2021 and January 31, 2020 are included in earnings for the period. |
Unrealized gains (losses) recognized on Level 3 financial instruments may be offset by (losses) gains on economic hedge contracts.
na – Not applicable
58 BMO Financial Group First Quarter Report 2021
Note 7: Capital Management
Our objective is to maintain a strong capital position in a cost-effective structure that: is appropriate given our target regulatory capital ratios and internal assessment of required economic capital; underpins our operating groups’ business strategies; supports depositor, investor and regulator confidence, while building long-term shareholder value; and is consistent with our target credit ratings.
As at January 31, 2021, we met OSFI’s target capital ratio requirements, which include a 2.5% Capital Conservation Buffer, a 1.0% Common Equity Surcharge for Domestic Systemically Important Banks (D-SIBs), a Countercyclical Buffer and a 1.0% Domestic Stability Buffer applicable to D-SIBs. Our capital position as at January 31, 2021 is further detailed in the Capital Management section on pages 13 through 15 of our interim Management’s Discussion and Analysis.
Regulatory Capital Measures, Risk-Weighted Assets and Leverage Exposures
(Canadian $ in millions, except as noted) | January 31, 2021 | October 31, 2020 | ||||||
Common Equity Tier 1 (CET1) Capital | 40,935 | 40,077 | ||||||
Tier 1 Capital | 46,700 | 45,840 | ||||||
Total Capital | 54,584 | 54,661 | ||||||
Risk-Weighted Assets | 328,822 | 336,607 | ||||||
Leverage Exposures | 966,509 | 953,640 | ||||||
CET 1 Capital Ratio | 12.4% | 11.9% | ||||||
Tier 1 Capital Ratio | 14.2% | 13.6% | ||||||
Total Capital Ratio | 16.6% | 16.2% | ||||||
Leverage Ratio | 4.8% | 4.8% |
Note 8: Employee Compensation
Stock Options
During the three months ended January 31, 2021, we granted a total of 984,943 stock options (976,087 stock options during the three months ended January 31, 2020). The weighted-average fair value of options granted during the three months ended January 31, 2021 was $10.75 per option ($9.46 per option for the three months ended January 31, 2020).
To determine the fair value of the stock option tranches (i.e. the portion that vests each year) on the grant date, the following ranges of values were used for each option pricing assumption:
For stock options granted during the three months ended | January 31, 2021 | January 31, 2020 | ||||||
Expected dividend yield | 4.9% | 4.3% | ||||||
Expected share price volatility | 20.6% - 20.7% | 15.4% | ||||||
Risk-free rate of return | 1.0% | 1.9% - 2.0% | ||||||
Expected period until exercise (in years) | 6.5 - 7.0 | 6.5 - 7.0 | ||||||
Exercise price ($) | 97.14 | 101.47 |
Changes to the input assumptions can result in different fair value estimates.
Pension and Other Employee Future Benefit Expenses
Pension and other employee future benefit expenses are determined as follows:
(Canadian $ in millions) | ||||||||||||||||
Pension benefit plans | Other employee future benefit plans | |||||||||||||||
For the three months ended | January 31, 2021 | January 31, 2020 | January 31, 2021 | January 31, 2020 | ||||||||||||
Current service cost | 67 | 62 | 2 | 3 | ||||||||||||
Net interest (income) expense on net defined benefit (asset) liability | 2 | - | 8 | 8 | ||||||||||||
Administrative expenses | 1 | 1 | - | - | ||||||||||||
Benefits expense | 70 | 63 | 10 | 11 | ||||||||||||
Canada and Quebec pension plan expense | 23 | 24 | - | - | ||||||||||||
Defined contribution expense | 59 | 61 | - | - | ||||||||||||
Total pension and other employee future benefit expenses | 152 | 148 | 10 | 11 |
BMO Financial Group First Quarter Report 2021 59
Note 9: Earnings Per Share
Basic earnings per share is calculated by dividing net income, after deducting dividends 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 | |||||||
January 31, 2021 | January 31, 2020 | |||||||
Net income | 2,017 | 1,592 | ||||||
Dividends on preferred shares and distributions payable on other equity instruments | (56 | ) | (70) | |||||
Net income available to common shareholders | 1,961 | 1,522 | ||||||
Weighted-average number of common shares outstanding (in thousands) | 646,511 | 639,448 | ||||||
Basic earnings per common share (Canadian $) | 3.03 | 2.38 | ||||||
Diluted Earnings Per Common Share
| ||||||||
Net income available to common shareholders adjusted for impact of dilutive instruments | 1,961 | 1,522 | ||||||
Weighted-average number of common shares outstanding (in thousands) | 646,511 | 639,448 | ||||||
Effect of dilutive instruments | ||||||||
Stock options potentially exercisable (1) | 3,906 | 5,150 | ||||||
Common shares potentially repurchased | (2,994 | ) | (3,803) | |||||
Weighted-average number of diluted common shares outstanding (in thousands) | 647,423 | 640,795 | ||||||
Diluted earnings per common share (Canadian $) | 3.03 | 2.37 |
(1) | In computing diluted earnings per share we excluded average stock options outstanding of 2,916,456 with a weighted-average exercise price of $102.51 for the three months ended January 31, 2021 (1,338,832 with a weighted-average exercise price of $105.01 for the three months ended January 31, 2020) as the average share price for the period did not exceed the exercise price. |
Note 10: Income Taxes
The Canada Revenue Agency (CRA) has reassessed us for additional income tax and interest in an amount of approximately $941 million, to date, in respect of certain 2011-2015 Canadian corporate dividends. In its reassessments, the CRA denied dividend deductions on the basis that the dividends were received as part of a “dividend rental arrangement”. The tax rules raised by the CRA were prospectively addressed in the 2015 and 2018 Canadian Federal Budgets. In the future, we expect to be reassessed for significant income tax for similar activities in subsequent years. 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.
60 BMO Financial Group First Quarter Report 2021
Note 11: Operating Segmentation
Operating Groups
We conduct our business through three operating groups, each of which has a distinct mandate. Our operating groups are Personal and Commercial Banking (P&C) (comprised of Canadian Personal and Commercial Banking (Canadian P&C) and U.S. Personal and Commercial Banking (U.S. P&C)), BMO Wealth Management (BMO WM) and BMO Capital Markets (BMO CM), along with a Corporate Services unit.
For additional information refer to Note 25 of our annual consolidated financial statements for the year ended October 31, 2020 on pages 207 to 209 of the Annual Report.
Our results and average assets, grouped by operating segment, are as follows:
(Canadian $ in millions) | ||||||||||||||||||||||||
For the three months ended January 31, 2021 | Canadian P&C | U.S. P&C | BMO WM | BMO CM | Corporate Services (1) | Total | ||||||||||||||||||
Net interest income (2) | 1,608 | 1,091 | 239 | 803 | (163 | ) | 3,578 | |||||||||||||||||
Non-interest revenue | 491 | 319 | 1,738 | 771 | 78 | 3,397 | ||||||||||||||||||
Total Revenue | 2,099 | 1,410 | 1,977 | 1,574 | (85 | ) | 6,975 | |||||||||||||||||
Provision for (recovery of) credit losses on impaired loans | 149 | 20 | 2 | 45 | (1 | ) | 215 | |||||||||||||||||
Provision for (recovery of) credit losses on performing loans | (2 | ) | (51 | ) | (4 | ) | (2 | ) | - | (59 | ) | |||||||||||||
Total provision for (recovery of) credit losses | 147 | (31 | ) | (2 | ) | 43 | (1 | ) | 156 | |||||||||||||||
Insurance claims, commissions and changes in policy benefit liabilities | - | - | 601 | - | - | 601 | ||||||||||||||||||
Depreciation and amortization | 128 | 127 | 73 | 65 | - | 393 | ||||||||||||||||||
Other non-interest expense | 826 | 558 | 833 | 814 | 189 | 3,220 | ||||||||||||||||||
Income (loss) before taxes | 998 | 756 | 472 | 652 | (273 | ) | 2,605 | |||||||||||||||||
Provision for (recovery of) income taxes | 261 | 174 | 114 | 169 | (130 | ) | 588 | |||||||||||||||||
Reported net income (loss) | 737 | 582 | 358 | 483 | (143 | ) | 2,017 | |||||||||||||||||
Average Assets | 254,893 | 130,487 | 47,535 | 384,759 | 163,234 | 980,908 | ||||||||||||||||||
For the three months ended January 31, 2020 | Canadian P&C | U.S. P&C | BMO WM | BMO CM | Corporate Services (1) | Total | ||||||||||||||||||
Net interest income (2) | 1,557 | 1,051 | 231 | 696 | (147 | ) | 3,388 | |||||||||||||||||
Non-interest revenue | 525 | 305 | 1,794 | 673 | 62 | 3,359 | ||||||||||||||||||
Total Revenue | 2,082 | 1,356 | 2,025 | 1,369 | (85 | ) | 6,747 | |||||||||||||||||
Provision for credit losses on impaired loans | 138 | 132 | - | 53 | 1 | 324 | ||||||||||||||||||
Provision for (recovery of) credit losses on performing loans | 14 | 17 | 3 | (3 | ) | (6 | ) | 25 | ||||||||||||||||
Total provision for (recovery of) credit losses | 152 | 149 | 3 | 50 | (5 | ) | 349 | |||||||||||||||||
Insurance claims, commissions and changes in policy benefit liabilities | - | - | 716 | - | - | 716 | ||||||||||||||||||
Depreciation and amortization | 128 | 143 | 74 | 59 | - | 404 | ||||||||||||||||||
Other non-interest expense | 859 | 618 | 838 | 793 | 157 | 3,265 | ||||||||||||||||||
Income (loss) before taxes | 943 | 446 | 394 | 467 | (237 | ) | 2,013 | |||||||||||||||||
Provision for (recovery of) income taxes | 244 | 95 | 103 | 111 | (132 | ) | 421 | |||||||||||||||||
Reported net income (loss) | 699 | 351 | 291 | 356 | (105 | ) | 1,592 | |||||||||||||||||
Average Assets | 248,997 | 132,639 | 44,219 | 351,330 | 105,404 | 882,589 |
(1) | Corporate Services includes Technology and Operations. |
(2) | Operating groups report on a taxable equivalent basis (teb). Revenue and the provision for income taxes are increased on tax-exempt securities to an equivalent before-tax basis to facilitate comparisons of income between taxable and tax-exempt sources. The offset to the groups’ teb adjustments is reflected in Corporate Services revenue and provision for income taxes. |
Certain comparative figures have been reclassified to conform with the current period’s presentation.
Note 12: Divestitures
On December 18, 2020, we entered into an agreement to sell our Private Banking business in Hong Kong and Singapore, part of our BMO WM operating segment, to J. Safra Sarasin Group. The transaction is expected to close in the first half of calendar 2021, subject to regulatory approvals and customary closing conditions. The sale of this business is not considered material to the bank.
BMO Financial Group First Quarter Report 2021 61