Exhibit 99.1

 

2022 Annual Report to Shareholders BMO Financial Group 205th Annual Report

Business Review 2 Financial Performance 3 Digital Awards and Recognition Highlights 4 Chair’s Message 5 Chief Executive Officer’s Message 8 A Thriving Economy 10 A Sustainable Future 12 An Inclusive Society 14 Board of Directors and Executive Committee Financial Review 15 Enhanced Disclosure Task Force 16 Management’s Discussion and Analysis 121 Supplemental Information 134 Statement of Management’s Responsibility for Financial Information 135 Independent Auditors’ Report 138 Reports of Independent Registered Public Accounting Firm 141 Consolidated Financial Statements 146 Notes to Consolidated Financial Statements Resources and Directories 131 Glossary of Financial Terms 210 Where to Find More Information IBC Shareholder Information Who we are Established in 1817, BMO Financial Group is the eighth largest bank in North America by assets, with total assets of $1.14 trillion. We are highly diversified, providing a broad range of personal and commercial banking, wealth management, global markets and investment banking products and services. We serve twelve million customers across Canada and the United States, and in select markets globally, through three integrated operating groups. Personal and Commercial (P&C) Banking Provides financial products and services to customers across North America. Personal and Business Banking helps customers make real financial progress through a network of branches, contact centres, digital banking platforms and automated teller machines. Commercial Banking serves clients as a trusted advisor, offering industry expertise, a local presence and a comprehensive range of commercial products and services. BMO Wealth Management (WM) Serves a full range of clients, from individuals and families to business owners and institutions, offering a wide spectrum of wealth, asset management and insurance products and services aimed at helping clients plan, grow, protect and transition their wealth. Our asset management business is focused on delivering innovative client solutions and strategies. BMO Capital Markets (CM) A North America-based financial services provider offering a complete range of products and services to corporate, institutional and government clients. BMO Capital Markets has approximately 2,800 professionals in 32 locations around the world, including 18 offices in North America. ABOUT BMO

12 million customers globally $1.14 trillion in total assets 8th largest bank in North America by assets 1817 serving customers for 205 years and counting Our Purpose comprises three bold commitments: For an inclusive society Committing to zero barriers to inclusion through investments, products, services and partnerships that remove systemic barriers for under-represented customers, employees and communities – and drive inclusion and equitable growth for everyone For a thriving economy Providing access to capital and valuable financial advice – investing in businesses, supporting home ownership and strengthening the communities we serve, while driving innovation that makes banking easier For a sustainable future Being our clients’ lead partner in the transition to a net-zero world, delivering on our commitments to sustainable financing and responsible investing ABOUT BMO IN BUSINESS AND LIFE BOLDLY GROW THE GOOD    

BMO Financial Group 205th Annual Report 2022 1 Our Strategy BMO is building a digitally enabled, future-ready bank with leading efficiency, profitability and loyalty – all powered by a winning culture and driven by our Purpose. Our strategy connects our growth to driving positive, lasting change in the world. We are committed to progress for a thriving economy, a sustainable future and a more inclusive society with zero barriers.

2 BMO Financial Group 205th Annual Report 2022 1 We have established medium-term financial objectives for certain important performance measures. Medium-term is generally defined as three to five years, and performance is measured on an adjusted basis. 2 Net revenue measures and all adjusted measures are non-GAAP measures. For further information, see the Non-GAAP and Other Financial Measures section of Management’s Discussion and Analysis (MD&A). Regarding the composition of non-GAAP and other financial measures, including supplementary financial measures, refer to the Glossary of Financial Terms in the MD&A. 3 The CET1 Ratio is disclosed in accordance with OSFI’s Capital Adequacy Requirements (CAR) Guideline. 4 As of October 31, 2022. 5 Percentages determined excluding results in Corporate Services. Certain comparative figures have been reclassified to conform with the current year’s presentation. Bank of Montreal brands the organization’s member companies as BMO Financial Group. Note 26 of the consolidated financial statements lists the intercorporate relationships among Bank of Montreal and its significant subsidiaries. Earnings Per Share Growth (%) Return on Equity (%) Net Income (C$ billions) Reported Adjusted2 Reported Adjusted2 Reported Adjusted2 10.1 10.3 14.9 16.7 22.9 15.2 2020 2021 2022 13.4 8.8 9.2 7.1 1-year 3-year 5-year (4.9) (3.1) 5.1 5.2 13.5 9.0 7.8 8.7 2020 2021 2022 Reported Canada 41% 63% U.S. 58% 36% Other 1% 1% Adjusted² Canadian P&C 41% U.S. P&C 27% BMO WM 13% BMO CM 19% Reported Net Income by Operating Group5 Net Income by Geography 2022 financial performance Reported Adjusted2 EPS growth of 7% to 10% 72.7% 2.1% ROE of 15% or more 22.9% 15.2% Net operating leverage of 2% or more 29.0% 1.3% Capital ratios that exceed regulatory requirements 16.7% CET1 Ratio3 Medium-term objectives1 Total Shareholder Return4 (%) A 194-year dividend record BMO Financial Group has the longest-running dividend payout record of any company in Canada, at 194 years. BMO common shares had an annual dividend yield of 4.3% at October 31, 2022. 4.8% BMO 15-year 8.9% BMO 5-year Compound annual growth rate Financial Performance BMO S&P/TSX Composite Index 72.7 2.1 53.3 68.0 (12.8) (18.2) 2020 2021 2022 Reported Canada 41% 63% U.S. 58% 36% Other 1% 1% Adjusted²

BMO Financial Group 205th Annual Report 2022 3 Digital Awards and Recognition Highlights Brandon Hall Group Human Capital Management Excellence Awards (2022) BMO was recognized by Brandon Hall Group’s HCM Excellence Awards in the category of Best Unique or Innovative Learning Program for its Financial Crimes Unit Academy, highlighting BMO’s commitment to employee training and developing top talent. Finovate Awards (2022) BMO is making digital banking simpler – and better – for customers. Our Innov8 program ranked first in the Best Fintech Accelerator and Incubator category at the 2022 Finovate Awards for delivering leading digital experiences to help customers make real financial progress. Keynova Group Online & Mobile Banker Scorecard (2022) BMO was listed in the top 10 banks for online and mobile banking in the Keynova Group Q4 2022 Online Banker and Q3 2022 Mobile Banker Scorecards. For online banking we were among the top 10 banks in two scorecard categories and four scorecard tasks, including account opening – for which BMO was ranked as most improved. The Forrester Digital Experience Review™ (2022) BMO was named the overall leader in The Forrester Digital Experience Review™: Canadian Mobile Banking Apps, Q4 2022, with the highest scores in the areas of money movement, self-service features, marketing/sales, content, error avoidance/recovery, and progress and workflow. Insider Intelligence: 2022 Canada Mobile Emerging Features Benchmark (2022 | 2021) In 2022, BMO ranked first overall in this prestigious benchmark, with top rankings for digital money management, account management and alerts. We also received top rankings in security and control, digital money management and alerts in 2021. Javelin Strategy & Research mobile and online banking scorecards (2022 | 2021) In 2022, Javelin ranked BMO among the top five U.S. banks for online money movement, and the top 10 for ease of use and financial fitness functionality in both mobile and online banking. BMO was also ranked as an Overall Leader in mobile banking and won three category leader awards in Javelin’s 2021 Canadian Digital Banking Scorecard. BMO is digitally enabled and ready for the future. Across our operations, we put digital first – delivering speed and scale to enable progress for our customers, unlock the power of our people, leverage data and analytics, harness the potential of emerging technologies – and drive leading loyalty, growth and efficiency. We’re proud to be consistently recognized for our leadership and achievements. It’s a testament to our employees, our innovative culture, and our ongoing commitment to creating excellent digital experiences for our customers, colleagues and communities.

4 BMO Financial Group 205th Annual Report 2022 George A. Cope Chair of the Board An effective board There were no changes to the board over the year, and none are immediately anticipated. Our 13-member board comprises six women and seven men, in keeping with our commitment to maintain a gender-balanced board, and three of our board committee chairs are women. We also continue to have balanced representation on the board from both Canada and the United States – six of our directors are American and seven are Canadian. Our adherence to age and term limits for directors ensures ongoing renewal, allowing us to plan chair selection, committee representation and board composition thoughtfully and strategically. We continually look for opportunities to shape a diverse board to ensure that we have the full benefit of the varied talents, knowledge, and work and life experiences that only diversity can bring. On behalf of you, the shareholders, we extend our thanks to all the employees of BMO who were behind our successful performance. And on behalf of the board, we extend our thanks to you, our fellow shareholders, for the trust you continue to place in us to represent your interests. The year ahead promises to be one full of opportunity. We are confident that your company has the right strategy and the right team to take full advantage of these opportunities as they present themselves. The past year has been challenging – the war in Ukraine, inflation and the lingering effects of the pandemic factored in all our lives – but 2022 was also the year that we started to get back to “normal.” As the year ended, people began to return to the workplace, and, as economic activity picked up, grew hopeful that 2023 would be a better year. I am confident that will be the case. At BMO Financial Group, there are many encouraging signs. Topping the list for the bank is our announced plan to acquire Bank of the West. Once completed, this acquisition will expand the bank’s franchise into several important U.S. markets, including California – not only the state with the largest economy in the U.S., but one with an economy larger than Canada’s as a whole. We are enthusiastic about what this means for BMO’s future, and we have great confidence in the abilities of Darryl and his team to complete a smooth integration of the two organizations. Five years of performance This past year marked the completion of Darryl’s fifth year as CEO. As a board, as we look back over Darryl’s tenure, we continue to be impressed by how well the leadership team is performing, despite the many challenges they have faced – challenges they have met thoughtfully, with deliberation and with care. The bank’s performance over the past five years, both in absolute terms and relative to its peers, has been strong – and 2022 proved to be another good year. The Board of Directors is particularly supportive of the leadership team’s focus on removing all barriers to inclusion, and on its efforts to make the bank a leader in sustainability. These are also the board’s priorities. George A. Cope Chair’s Message

BMO Financial Group 205th Annual Report 2022 5 2022 marked a significant year of progress in our proud 205-year history, as we continued to Boldly Grow the Good in business and life for our clients and the communities we serve – while building a high-performing, digitally enabled, future-ready bank. Our competitive performance in 2022 was driven by our leading Winning Culture, and an empowered team aligned to achieving our strategic priorities. With their focus on helping our clients make real financial progress throughout a dynamic operating environment, our bankers are partnering across our businesses to deliver the exceptional experiences that deepen client loyalty. As global economic momentum slows in the post-pandemic recovery, our bank has a critical role in helping economies and communities to thrive and our clients to maintain – and strengthen – their progress for the future. The North American economy has faced headwinds throughout 2022, impacted by a dramatic escalation of geopolitical tensions beyond our borders, weakening financial conditions, and continued supply-chain disruptions. Looking forward, to curb high inflation growth, tightening monetary policy has increased the cost of borrowing and should dampen demand, weakening GDP growth in both Canada and the U.S. For Team BMO, this reinforces the imperative to sustain our efficiency performance and profitability that position us to best support our clients, while driving value for our shareholders. Diversified business mix built for the long run Our diversified and advantaged business mix enables us to deliver resilient revenue performance through economic cycles. With operations across personal and commercial banking, wealth management and capital markets, coupled with our geographic diversification, our bank delivered very good revenue performance again this year. We continued to execute on our strategy to strengthen and grow our businesses with targeted investments in technology to drive efficiency, speed and scale, as well as talent to deliver the award-winning customer experiences we’re known for. With robust, high-quality growth in loans and deposits, and expanding net interest margins, we met our commitments to positive operating leverage, improved efficiency and achieved above-target return on equity. Our leading risk management approach and dynamic management of capital and resources enable us to grow our businesses and support our customers in the years ahead. With the longest-running dividend payout record of any company in Canada at 194 years, we aim to deliver top-tier returns for our shareholders. North American strength BMO’s three operating groups are deeply integrated between Canada and the United States, with a supportive global presence. Our geographic diversification is a differentiator and a major source of strength – and our footprint lays the optimal foundation for the natural next step in our North American growth strategy. We’ve operated in the United States since 1818, and we’ve meaningfully grown our presence since the 1984 acquisition of Harris Bank, through strong organic growth supplemented by successive acquisitions, including M&I, GE Transportation Finance and KGS. In short order, we plan to expand our reach once again with the announced acquisition of California-based Bank of the West – the largest bank acquisition in Canadian history. This combination with Bank of the West deepens BMO’s position as a leading North American bank with a strong – and growing – U.S. franchise. Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP and Other Financial Measures section. Darryl White Chief Executive Officer Chief Executive Officer’s Message

6 BMO Financial Group 205th Annual Report 2022 CHIEF EXECUTIVE OFFICER’S MESSAGE Upon closing, we will significantly increase our U.S. footprint, providing access to major new markets for our commercial banking expansion, and doubling our U.S. retail branch network. We look forward to welcoming nearly 1.8 million Bank of the West commercial, retail, wealth management and business banking customers to our organization. With a shared focus on progress for our clients, communities and planet, we’ll combine our strengths and solidify our position as a leading North American bank. Digital first for speed, scale and simplicity BMO has consistently focused on meeting customers where they are with leading digital experiences that help them make real financial progress. These efforts are core to our Digital First journey and are complemented by a focus on driving efficiency and freeing up human capacity to give expert advice. Our investments over the past year have driven growth, loyalty and efficiency, enabled by new ways of working. Our newly enhanced Canadian online banking platform enables customers to navigate their digital banking more easily, while our mobile banking app is consistently recognized as best-in-class thanks to AI-powered features like BMO Insights that help customers better manage their day-to-day finances. Our Digital First mindset reaches beyond our doors and into the communities we serve. To help drive data and analytics innovation in Canada, we partnered with Next AI – a world-class program for AI-based ventures and technology commercialization. By supporting innovators and early-stage teams with the capital they need to grow and create jobs, it’s one of many ways we’re supporting businesses and accelerating progress. Our strategic priorities Our group strategic priorities align with and support our enterprise-wide strategy, positioning us well to drive competitive performance. Bold commitments for a better tomorrow By living our Purpose to Boldly Grow the Good in business and life, BMO is driving progress for a thriving economy, a sustainable future and an inclusive society. Three years ago, we committed to “Double the Good” in each of those areas by 2025 – and we’re well on our way to achieving our goals. A thriving economy is resilient and helps drive equitable financial progress. BMO helps enable that progress through lending, investing, giving and engagement in our local communities. In the past year, we announced commitments of $5 billion to support women entrepreneurs in Canada and up to $100 million to launch Business Within Reach: BMO for Black Entrepreneurs. In the U.S., we introduced BMO for Native-Owned Businesses as part of our five-year, US$5 billion BMO EMpower initiative, and achieved US$66 million in lending for our Black, Latinx and women small business pillar. Crucially, we’re focusing on the future by addressing the pressing need of climate change. To achieve net-zero emissions targets, many businesses are looking for informed advice and financing solutions. That’s why BMO collaborated with Export Development Canada to provide capital to help Canadian businesses transition away from carbon-intensive operations. It’s part of our ambition to be our clients’ lead partner in the transition to a net zero world. We’re also leading the way in the clean energy economy with initiatives like the BMO Climate Institute – a centre of expertise bridging science, policy and finance to help shape the market for climate solutions. We’re considered a trusted advisor supporting the actions being taken by companies and governments as they pursue energy transition opportunities. For our peer-leading accomplishments, we were ranked the most sustainable bank in North America for the third year in a row by Corporate Knights.

BMO Financial Group 205th Annual Report 2022 7 The passion and commitment of Team BMO are apparent in all the ways we show up for our communities. Last year, we reached a major milestone, achieving $200 million in employee pledges to United Way and other charitable causes over the course of a decade, with a remarkable recent employee participation rate of 90%. Together, we’re helping to shape the future by growing more of the good. Financial progress As we go forward, the factors that have contributed to our success for 205 years will continue to propel our growth through uncertain economic conditions. With a dedicated team, a growing U.S. footprint, and an increasingly diverse client base, we have more opportunities than ever to grow the good and support financial progress for our clients and communities. The strength of our diversified business mix and solid operational performance will see us through market cycles, as we execute on our strategy and deliver consistently strong returns for our shareholders. Darryl White BMO’s future focus is also reflected in our Zero Barriers to Inclusion strategy, which aims to actively remove barriers while helping groups that face systemic hurdles overcome them – and thrive. This past year, we launched an innovative product empowering our Canadian transgender and non-binary customers to use their preferred first name on their Mastercard. Acceptance and understanding are key to advancing an inclusive society, which is why we’re supporting grassroots Indigenous reconciliation initiatives by making our ground-breaking Indigenous e-learning platform, Nisitohtamowin á“,ᓯá‘á¦á‘•á’§áƒá§á£, free to the public for the next three years. As one of the Best Employers for Diversity, according to Forbes, we know the advantages of fielding a diverse and inclusive team. This year, BMO launched a recruitment program helping immigrants, refugees and displaced persons – including Ukrainians fleeing conflict and resettling in North America – to find new employment opportunities. We also continued to focus on increasing representation of Black, Indigenous, People of Colour, Latinx and LGBTQ2+ minority groups among our workforce, while sustaining our strong gender equity position. Our employees are the best representation of BMO in our communities, and supporting their personal and professional growth has a measurable impact on our performance. To attract and retain the best people, we offer highly competitive wellness and learning and development programs. We’ve been focused on activating our Winning Culture, and have made significant progress in a short period of time. And according to an independent third-party assessment, BMO’s performance culture now ranks among the best financial institutions surveyed globally. World-class loyalty and growth, powered by One Client leadership Winning Culture driven by alignment, empowerment and recognition Digital First for speed, scale and the elimination of complexity Lead partner in our clients’ transition to a net zero world Superior management of risk, capital and funding performance

8 BMO Financial Group 205th Annual Report 2022 A THRIVING ECONOMY Fuelling economic progress Zócalo Food Truck Park Milwaukee, Wisconsin “We wanted to build a community that allowed creativity to thrive,” says BMO customer Jesus Gonzalez. Jesus is the co-founder and operator of Milwaukee’s Zócalo, a collective of food vendors. After attending The Culinary Institute of America in Hyde Park, New York, Jesus came home eager to celebrate two passions – his hometown, and food – and opened Mazorca, a taco truck. “I started seeing like-minded people,” says Jesus. Inspired, Jesus and business partner Sean Phelan created a community space for vendors to join together, selling food from all over the world. Zócalo also serves as an incubator for aspiring food vendors, offering a starter food truck and business coaching. As a successful entrepreneur with a growing portfolio of projects, Jesus is a strong believer in mentoring and empowering others. “Impacting my community,” he says, “that’s how I measure my success.” Read more about Zócalo later in December 2022 at about.bmo.com/blog/ Photography: Kevin Netz

BMO Financial Group 205th Annual Report 2022 9 We’re powering economic progress by helping individuals, families and businesses succeed. One Client leadership BMO has a clear One Client focus, which was recognized this year when we received the highest customer satisfaction ranking in retail banking advice in the J.D. Power 2022 Canada Retail Banking Advice Satisfaction Study*. The study analyzes direct feedback from thousands of retail bank customers across Canada. BMO scored top marks in categories demonstrating our continued commitment to helping customers make real financial progress, including clarity of advice and concern for customer needs. A winning bank BMO was named Best Private Bank for the 12th year in a row, Best Commercial Bank in Canada for the eighth consecutive year, and Best Retail Bank in Canada by World Finance. U.S. expansion BMO’s planned acquisition of Bank of the West will enable expansion in attractive markets, and capabilities that will drive greater growth, returns and efficiencies. The transaction also provides significant opportunities for collaboration in environmental, social and governance investing and product innovation. Banking excellence BMO was recognized by customers as one of the best banks in North America in Forbes’ ranking of the World’s Best Banks. Enabling entrepreneurs BMO EMpower, our five-year, US$5 billion commitment to inclusive economic recovery in the U.S., has already exceeded its early targets, with more than US$5.5 billion committed in just two years. And in Canada, BMO has committed $100 million to launch Business Within Reach: BMO for Black Entrepreneurs. The program provides business owners with greater access to working capital, educational resources and professional partnerships to start up, scale up and grow. Leading advice BMO has long been a global leader in the metals and mining sector. In 2022, we advised on the largest gold M&A transaction in history. BMO was also recognized by Global Finance magazine as the World’s Best Metals & Mining Investment Bank for the 13th consecutive year. * BMO Bank of Montreal received the highest score in the J.D. Power 2020 and 2022 (tied) Canada Retail Banking Advice Satisfaction Studies of customers’ satisfaction with advice and guidance from their primary bank. Visit jdpower.com/awards for more details.

10 BMO Financial Group 205th Annual Report 2022 A SUSTAINABLE FUTURE Powering sustainable solutions We’re committed to making meaningful progress by supporting climate change solutions. Green finance Advancing our goal to mobilize $300 billion in sustainable finance by 2025, in 2022 BMO acted as joint lead manager for the Government of Canada’s inaugural Green Bond transaction, a landmark achievement. The $5 billion transaction demonstrates Canada’s environmental leadership, ensures government expenditures align with Canada’s ESG goals and principles, and acts as a catalyst for the continued development of the sustainable finance market in Canada. A global first BMO Capital Markets launched the world’s first nuclear green financing framework for Bruce Power, and supported Capital Power with their green hybrid transaction issuance, a first in Canada. Most sustainable bank BMO was named to Corporate Knights’ 2022 ranking of the World’s 100 Most Sustainable Corporations and, for the third year in a row, ranked as the most sustainable bank in North America. Cleantech innovation BMO partnered with Breakthrough Energy Catalyst to accelerate the development of clean technologies and climate solutions essential for a net-zero world, committing $50 million over five years and leveraging our project finance and energy transition expertise. Financing the transition BMO and Export Development Canada (EDC) are working together to help large and mid-sized Canadian businesses in carbon-intensive sectors transition to more sustainable business models, aligned with Canada’s commitment to net-zero emissions by 2050. BMO is also the first financial institution to offer EDC’s new Sustainable Financing Guarantee, which provides an initial $1 billion in financing over three years to support sustainable initiatives across nine carbon-intensive sectors. Digital First mindset To help unlock climate solutions for clients and enable our Net Zero Ambition, BMO’s sustainability team has partnered with our technology and operations group to develop a unique digital platform leveraging geospatial technology to better understand climate impacts and opportunities.

BMO Financial Group 205th Annual Report 2022 11 Nature Fresh Farms Leamington, Ontario Greenhouse farming is essential to feeding the world. Nature Fresh Farms, a family-owned and managed company, is one of the largest vertically integrated leaders in greenhouse-grown produce in North America. Committed to sustainable farming, they’re continuously developing and improving their technology and practices to grow more environmentally friendly food. “We’ve grown with Nature Fresh since their inception,” says Brendan O’Connor, Managing Director, BMO Commercial Bank, Agriculture & Agri-Business. “They’re the future of food production.” Headquartered in Ontario, with greenhouses in Canada and the United States, Nature Fresh makes sustainable farming practices central to their operations; they recycle their nutrient water using a closed-loop system, use bumblebees to pollinate their crops and “good bugs” to reduce pesticides, grow plants in coconut husks and practice vertical growing, enabling them to grow more produce in a smaller space. Nature Fresh also conducts research through their Research & Development and Discovery Centers, committed to advancing greenhouse innovation and sustainable food security. That innovative spirit is behind one of their cornerstone beliefs: “Doing things differently is what truly makes a difference.” Read more about Nature Fresh later in December 2022 at about.bmo.com/blog/ Photography: Matthew Liteplo

12 BMO Financial Group 205th Annual Report 2022 AN INCLUSIVE SOCIETY A more equitable future A passion for change New York City, NY For sixteen years, Brandi Snape, Executive Assistant, BMO Capital Markets, has volunteered as a motivational speaker and mentor in the New York City and New York State departments of correction. Her passion for criminal justice reform was sparked in her childhood, when her parents were incarcerated. “I know that each prisoner has a story – and represents a family,” she says. Brandi is inspired by BMO’s commitment to equity – and she’s found new outlets for her passion through her job. “Brad Rothbaum, my manager, sits on the board of United Way of New York City. Through his partnership, I was able to connect with United Way on Project Atlas, a prison reform initiative.” The desire to make positive change is common to many of Brandi’s colleagues. “A motivating factor is having leadership that embodies the idea of Boldly Grow the Good in business and life,” she says. “Giving, and reaching beyond, is what BMO does, and I’m so happy to be part of the team.” Read more about Brandi later in December 2022 at about.bmo.com/blog/ Photography: Christian Fleury

We’re building a more inclusive society for all by removing barriers for our colleagues, clients and communities.
Diversity leadership
BMO’s commitment to diversity and inclusion in the workplace was recognized once again by Forbes, which named BMO as one of America’s Best Employers for Diversity for the fourth year in a row. And for the fifth consecutive year, we were recognized by the Human Rights Campaign Foundation as an industry leader in LGBTQ+ workplace equality, receiving a score of 100 on the 2022 Corporate Equality Index (CEI).
Eradicating poverty
We’re committed to working with our communities to build a more equitable society. For 14 years, we’ve partnered with Cara Collective, a workforce development organization dedicated to eradicating poverty. In 2022, Cara Collective recognized BMO with its Good Neighbor Award for the BMORE program, which was co-created by BMO and Cara Collective two years ago to remove barriers to employment and increase access to careers in banking and finance.
Breaking down barriers
To help address barriers facing minority businesses, communities and families, we’ve committed $5 billion to support women entrepreneurs in Canada, and an additional US$5 billion over five years to address key barriers faced by minority businesses, communities and families in the United States, through the BMO EMpower program.
A fresh start
All our customers have unique needs and experiences, and we’re focused on expanding financial inclusion with innovative banking products, services and resources. Through our BMO NewStart Program, we offer discounted or free banking products and services for permanent residents and foreign workers. This program is designed to help make setting up a new life in Canada easier.
Supporting newcomers
Helping to create a more equitable and inclusive society is core to BMO’s Purpose. We’ve launched the BMO Newcomer Talent Program to help immigrants, refugees and displaced persons find new employment opportunities in Canada and the United States.
Gender equality
For seven consecutive years, BMO has been named to the prestigious Bloomberg Gender-Equality Index, in recognition of our commitment to gender equality, as well as our role as a global leader in gender inclusion.
BMO Financial Group 205th Annual Report 2022 13

14 BMO Financial Group 205th Annual Report 2022 Executive Committee1 Board of Directors1 1 As at November 1, 2022. George A. Cope, C.M. Corporate Director Board/Committees: Board Chair, Governance and Nominating, Human Resources Director since: 2006 Janice M. Babiak, CPA (US), CA (UK), CISM, CISA Corporate Director Board/Committees: Audit and Conduct Review (Chair), Governance and Nominating Director since: 2012 Sophie Brochu, C.M. President and Chief Executive Officer, Hydro-Québec Board/Committees: Governance and Nominating, Human Resources Director since: 2011 Craig W. Broderick Corporate Director Board/Committees: Governance and Nominating, Risk Review (Chair) Director since: 2018 Stephen Dent Managing Director and Co-Founder, Birch Hill Equity Partners Board/Committees: Risk Review Director since: 2021 Christine A. Edwards Corporate Director Board/Committees: Governance and Nominating (Chair), Human Resources Director since: 2010 Dr. Martin S. Eichenbaum Charles Moskos Professor of Economics, Northwestern University Board/Committees: Audit and Conduct Review, Risk Review Director since: 2015 David Harquail Chair of the Board, Franco-Nevada Corporation Board/Committees: Audit and Conduct Review, Risk Review Director since: 2018 Linda S. Huber Chief Financial Officer, FactSet Research Systems Inc. Board/Committees: Audit and Conduct Review, Risk Review Director since: 2017 Eric R. La Flèche President and Chief Executive Officer, Metro Inc. Board/Committees: Human Resources Director since: 2012 Lorraine Mitchelmore Corporate Director Board/Committees: Governance and Nominating, Human Resources (Chair), Risk Review Director since: 2015 Madhu Ranganathan Executive Vice-President and Chief Financial Officer, OpenText Corporation Board/Committees: Audit and Conduct Review Director since: 2021 Darryl White Chief Executive Officer, BMO Financial Group Director since: 2017 Darryl White Chief Executive Officer, BMO Financial Group Piyush Agrawal Chief Risk Officer, BMO Financial Group Daniel Barclay Group Head, BMO Capital Markets David Casper Chief Executive Officer, BMO Financial Corp. and Group Head, North American Commercial Banking Cameron Fowler Chief Strategy and Operations Officer, BMO Financial Group Sharon Haward-Laird General Counsel, BMO Financial Group Ernie (Erminia) Johannson Group Head, North American Personal and Business Banking Deland Kamanga Group Head, BMO Wealth Management Mona Malone Head, People & Culture and Chief Human Resources Officer, BMO Financial Group Steve Tennyson Chief Technology and Operations Officer, BMO Financial Group Tayfun Tuzun Chief Financial Officer, BMO Financial Group

 

Enhanced Disclosure Task Force

On October 29, 2012, the Enhanced Disclosure Task Force (EDTF) of the Financial Stability Board published its first report, Enhancing the Risk Disclosures of Banks. We support the recommendations issued by EDTF for the provision of high-quality, transparent risk disclosures.

Disclosures related to the EDTF recommendations are detailed in the index below, as presented in this 2022 Annual Report, the Supplementary Financial Information (SFI) or Supplementary Regulatory Capital Information (SRCI). Information on BMO’s website, including information within the SFI or SRCI, is not, and should not be considered to be incorporated by reference into this 2022 Annual Report.

 

Topic		EDTF Disclosure		Page number
				Annual Report				SFI				SRCI
General		1. Present all risk-related information in each report, providing an index for easy navigation			73-113				Index				Index
		2. Define the bank’s risk terminology and risk measures and present key parameters used			83-113, 131-133
		3. Discuss top and emerging risks for the bank and changes in risk exposure			73-75
		4. Outline plans to meet new key regulatory ratios once the applicable rules are finalized			67
Risk Governance, Risk Management and Business Model		5. Summarize the bank’s risk management organization, processes, and key functions			77-82
		6. Describe the bank’s risk culture and procedures applied to support the culture			82
		7. Describe key risks that arise from the bank’s business model and activities			80
		8. Describe the use of stress testing within the bank’s risk governance and capital frameworks			81-82
Capital Adequacy and Risk-Weighted Assets (RWA)		9. Provide minimum Pillar 1 capital requirements			66-68								3-4,10
		10. Summarize information contained in the composition of capital templates and disclose a reconciliation of the accounting balance sheet to the regulatory balance sheet •  A Main Features template can be found at https://www.bmo.com/main/about-bmo/investor-relations/regulatory-disclosure			68								3-5
		11. Present a flow statement of movements in regulatory capital, including changes in Common Equity Tier 1, Additional Tier 1, and Tier 2 capital											6
		12. Discuss capital planning within a more general discussion of management’s strategic planning			65
		13. Provide granular information to explain how RWA relate to business activities, including management’s capital targets			69								11
		14. Present a table showing the capital requirements for each method used for calculating RWA			69,83-87								11,17-30,37-43
		15. Tabulate credit risk in the banking book for Basel asset classes and major portfolios											17-30, 37-43
		16. Present a flow statement that reconciles movements in RWA by credit risk and market risk											31,57
		17. Describe the bank’s Basel validation and back-testing process. Included in our SRCI is our estimated and actual loss parameter information			106-107								58-62
Liquidity		18. Describe how the bank manages its potential liquidity needs and the liquidity reserve held to meet those needs			95-101
Funding		19. Summarize encumbered and unencumbered assets in a table by balance sheet category			97				37-38
		20. Tabulate consolidated total assets, liabilities and off-balance sheet commitments by remaining contractual maturity			102-103
		21. Discuss the bank’s sources of funding and describe the bank’s funding strategy			98-99
Market Risk		22. Provide a breakdown of balance sheet positions into trading and non-trading market risk measures			94
		23. Provide qualitative and quantitative breakdowns of significant trading and non-trading market risk measures			90-94
		24. Describe significant market risk measurement model validation procedures and back-testing and how these are used to enhance the parameters of the model			90-93, 106-107
		25. Describe the primary risk management techniques employed by the bank to measure and assess the risk of loss beyond reported risk measures			90-91
Credit Risk		26. Provide information about the bank’s credit risk profile and credit risk concentrations			83-89, 155-161				24-34				11-56
		27. Describe the bank’s policies related to impaired loans and renegotiated loans			156,161
		28. Provide reconciliations of impaired loans and the allowance for credit losses			88,159
		29. Provide a quantitative and qualitative analysis of the bank’s counterparty credit risk that arises from its derivative transactions			83-84,89								35-48
		30. Provide a discussion of credit risk mitigation			83-84, 167,173,204								16,32,44
Other Risks		31. Describe other risks and discuss how each is identified, governed, measured and managed			77-81, 104-113
		32. Discuss publicly known risk events related to other risks, where material or potentially material loss events have occurred			104-113

 

BMO Financial Group 205th Annual Report 2022			15

Management’s Discussion and Analysis

BMO’s Chief Executive Officer and Chief Financial Officer have signed a statement outlining management’s responsibility for financial information in the annual consolidated financial statements and Management’s Discussion and Analysis (MD&A). The statement also explains the roles of the Audit and Conduct Review Committee and Board of Directors in respect of that financial information.

The MD&A comments on our operations and financial condition for the years ended October 31, 2022 and 2021. The MD&A should be read in conjunction with the consolidated financial statements for the year ended October 31, 2022. The MD&A commentary is as at December 1, 2022. Unless otherwise indicated, all amounts are stated in Canadian dollars and have been derived from consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. We also comply with interpretations of IFRS by our regulator, the Office of the Superintendent of Financial Institutions (OSFI) Canada. References to generally accepted accounting principles (GAAP) mean IFRS.

 

 

 

 

16		BMO Financial Group 205th Annual Report 2022

 

Factors That May Affect Future Results

As noted in the following Caution Regarding Forward-Looking Statements, all forward-looking statements and information, by their nature, are subject to inherent risks and uncertainties, both general and specific, which may cause actual results to differ materially from the expectations expressed in any forward-looking statement. The Enterprise-Wide Risk Management section describes a number of risks, including credit and counterparty, market, insurance, liquidity and funding, operational non-financial, legal and regulatory, strategic, environmental and social, and reputation risk. Should our risk management framework prove ineffective, there could be a material adverse impact on our financial position and results.

 

 

BMO Financial Group 205th Annual Report 2022			17

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

About BMO

Established in 1817, BMO Financial Group (BMO, Bank of Montreal, the bank, we, our, us) is the eighth largest bank in North America by assets, with total assets of $1.14 trillion. We are highly diversified, providing a broad range of personal and commercial banking, wealth management, global markets and investment banking products and services. We serve twelve million customers across Canada and the United States, and in select markets globally, through three integrated operating groups: Personal and Commercial Banking, BMO Wealth Management and BMO Capital Markets.

At BMO, we continue to build a high-performing, digitally-enabled, future-ready bank with highly engaged employees and a winning culture. We are focused on helping our customers make real financial progress and financing our clients’ growth and innovation while investing in our workforce. Anchored in our Purpose, we are driven by our strategic priorities for growth, strengthened by our approach to sustainability, and guided by our values to build a foundation of trust with our stakeholders.

 

 

Our Purpose: Boldly Grow the Good in business and life

BMO has a deep sense of purpose – to be a champion for progress and a catalyst for change. We are leveraging our position as a leading financial services provider to create opportunities for our communities and our stakeholders to make positive, sustainable change, because we believe that success can and must be mutual. Our bold commitments for a thriving economy, a sustainable future and an inclusive society are reflected in our active, direct response to today’s most pressing challenges.

 

•

Thriving economy – Providing access to capital and valuable financial advice – investing in businesses, supporting home ownership and strengthening the communities we serve, while driving innovation that makes banking easier

 

•

Sustainable future – Being our clients’ lead partner in the transition to a net zero world, delivering on our commitments to sustainable financing and responsible investing

 

•

Inclusive society – Committing to zero barriers to inclusion through investments, products, services and partnerships that remove systemic barriers for under-represented customers, employees and communities – and drive inclusion and equitable growth for everyone

 

 

Our Strategic Priorities

Consistent strong performance is essential to realizing our Purpose. We aim to deliver top-tier total shareholder return and achieve our financial objectives by aligning our operations with, and executing on, our strategic priorities. Keeping the fundamentals of our strategy consistent, we renewed our priorities for fiscal 2023 to reflect our strong momentum and the changing environment:

 

•

World-class loyalty and growth, powered by One Client leadership, bringing the full suite of BMO’s products, services and advice to our clients

 

•

Winning culture driven by alignment, empowerment and recognition

 

•

Digital First for speed, scale and the elimination of complexity

 

•

Lead partner in our clients’ transition to a net zero world

 

•

Superior management of risk, capital and funding performance

Our group strategic priorities align with and support our enterprise-wide strategy, positioning us well to drive competitive performance. The group strategies are outlined in the 2022 Operating Groups Performance Review.

 

 

Our Approach to Sustainability

Our commitment to sustainability is embedded in our strategy and is fundamental to our Purpose. We identify the most significant effects of our business operations, products and services on our stakeholders and the communities in which we operate. We take steps to manage our business in a manner that is consistent with our sustainability objectives, while also considering the interests of our stakeholders. We apply a variety of environmental, social and governance (ESG) practices and benchmarks to capture opportunities and manage risks in key areas such as sustainable finance, climate change, human rights, and diversity, equity and inclusion.

 

 

Our Values

Four core values shape our culture and underpin our choices and actions:

 

•

Integrity

 

•

Diversity

 

•

Responsibility

 

•

Empathy

Caution

This About BMO section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.

 

18		BMO Financial Group 205th Annual Report 2022

 

Financial Objectives and Value Measures

Results and measures in this section are presented on a reported and an adjusted basis, and management considers both to be useful in assessing our performance. We believe that the non-GAAP measures and ratios presented here, read together with our GAAP results, provide readers with a better understanding of how management assesses results and are a better reflection of ongoing business performance.

Adjusted results and measures in this section, including earnings per share (EPS), EPS growth, return on equity (ROE), return on tangible common equity (ROTCE), net income, revenue, non-interest expense, efficiency ratio and operating leverage, are non-GAAP amounts, measures and ratios, and are discussed in the Non-GAAP and Other Financial Measures section.

We also present reported and adjusted revenue on a basis that is net of insurance claims, commissions and changes in policy benefit liabilities (CCPB), and we calculate our efficiency ratio and operating leverage on a similar basis. Insurance revenue can experience variability arising from fluctuations in the fair value of insurance assets, caused by movements in interest rates and equity markets, that is largely offset in CCPB. Presenting our revenue, efficiency ratio and operating leverage on a net basis allows for a better assessment of operating results.

Measures and ratios on a net revenue basis are non-GAAP. For more information on CCPB, refer to the Non-GAAP and Other Financial Measures section. Information regarding the composition of each of these measures is also provided in the Glossary of Financial Terms.

 

 

Financial Objectives

BMO’s business planning process is rigorous, sets ambitious goals and considers prevailing economic conditions, our risk appetite, our customers’ evolving needs and the opportunities available across our lines of business. It includes clear and direct accountability for annual performance that is measured against both internal and external benchmarks and progress toward our strategic priorities.

We have established medium-term financial objectives for certain important performance measures, which are set out below. Medium-term is generally defined as three to five years, and performance is assessed on an adjusted basis. We aim to deliver top-tier total shareholder return and achieve our financial objectives by aligning our operations with, and executing on, our strategic priorities.

These objectives serve as guideposts and they assume a normal business environment. Our ability to meet these objectives in any single period may be adversely affected by extraordinary developments. We recognize that in managing our operations and our exposure to risk, current profitability and our ability to meet these objectives in a single period must be balanced with the need to invest in our businesses for long-term sustainability and future growth.

Our financial objectives and our performance against these objectives are outlined in the table below and described in the sections that follow.

Financial Objectives and Metrics

 

		Financial objectives (adjusted)						Reported basis																Adjusted basis (1)
As at and for the periods ended October 31, 2022								1-year				3-year (2)				5-year (2)								1-year				3-year (2)				5-year (2)
Total shareholder return (%)		Top-tier							(3.1	)			13.4				9.2								na				na				na
Earnings per share growth (%)		7-10%							72.7				32.1				20.4								2.1				12.0				10.2
Average return on equity (%)		15% or more							22.9				16.0				14.7								15.2				14.0				14.1
Operating leverage, net of CCPB (%) (3)		2% or more							29.0				11.3				6.6								1.3				3.3				2.5
Common Equity Tier 1 Ratio (%)		Exceed regulatory requirement							16.7				na				na								na				na				na

 

(1)

Adjusted results and measures in this table are non-GAAP amounts and measures and are discussed in the Non-GAAP and Other Financial Measures section.

(2)

The 3-year and 5-year EPS growth rate and operating leverage, net of CCPB, reflect compound annual growth rates (CAGR).

(3)

Operating leverage, net of CCPB, on a reported and adjusted basis presented in this table are non-GAAP measures and are discussed in the Non-GAAP and Other Financial Measures section.

na – not applicable

 

 

Total Shareholder Return

The average annual total shareholder return (TSR) is a key measure of shareholder value, and over time, we expect that execution on our strategic priorities will drive value creation for our shareholders. The one-year, three-year and five-year average annual TSR was negative 3.1%, positive 13.4% and positive 9.2%, respectively, all above our Canadian peer group average (excluding BMO) of negative 6.2%, positive 8.9% and positive 7.2%, respectively.

The table below summarizes dividends paid on BMO’s common shares over the past five years and the movements in our share price. An investment of $1,000 in BMO common shares made at the beginning of fiscal 2018 would have been worth $1,552 as at October 31, 2022, assuming reinvestment of dividends, for a total return of 55.2%.

Dividends declared per common share in fiscal 2022 totalled $5.44, an increase of $1.20 from $4.24 in the prior year, as the restriction put in place on March 13, 2020 by the Office of the Superintendent of Financial Institutions (OSFI) on dividend increases by federally regulated financial institutions was removed effective November 4, 2021. Dividends paid over a five-year period have increased at an average annual compound rate of approximately 8%.

 

 

BMO Financial Group 205th Annual Report 2022			19

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

Total Shareholder Return

 

For the year ended October 31		2022				2021				2020				2019				2018				3-year CAGR (1)				5-year CAGR (1)
Closing market price per common share ($)			125.49				134.37				79.33				97.50				98.43				8.8				4.9
Dividends paid ($ per share)			5.11				4.24				4.21				3.99				3.72				8.6				7.7
Dividend yield (%)			4.3				3.2				5.3				4.2				3.8				nm				nm
Increase (decrease) in share price (%)			(6.6	)			69.4				(18.6	)			(0.9	)			(0.4	)			nm				nm
Total annual shareholder return (%) (2)			(3.1	)			75.9				(14.6	)			3.2				3.3				13.4				9.2
Canadian peer group average (excluding BMO) (3)			(6.2	)			56.1				(11.5	)			11.4				(1.2	)			8.9				7.2

 

(1)

Compound annual growth rate (CAGR) expressed as a percentage.

(2)

Total annual shareholder return assumes reinvestment of quarterly dividends and therefore does not equal the sum of dividend and share price returns in the table.

(3)

As at October 31, 2022, peers: BNS, CIBC, NB, RBC, TD.

nm – not meaningful

 

 

 

Earnings per Share Growth   All references to earnings per share (EPS) are to diluted EPS, unless otherwise indicated. EPS was $19.99 in 2022, an increase of $8.41 or 73% from $11.58 in 2021. Adjusted EPS was $13.23, an increase of $0.27 or 2% from $12.96 in 2021. The increase in EPS primarily reflected higher earnings. Net income available to common shareholders increased 77% year-over-year on a reported basis, and increased 5% on an adjusted basis. The average number of diluted common shares outstanding increased 3% from 2021. On March 29, 2022, we completed a public offering to finance a portion of the purchase price of the announced acquisition of Bank of the West. The impact of this share offering reduced reported EPS by $0.34 and adjusted EPS by $0.21, or 2%, respectively.
Earnings per share (EPS) is calculated by dividing net income, after deducting preferred share dividends and distributions on other equity instruments, by the average number of common shares outstanding. Adjusted EPS is calculated in the same manner, using adjusted net income. Diluted EPS, which is BMO’s basis for measuring performance, adjusts for possible conversions of financial instruments into common shares if those conversions would reduce EPS, and is more fully explained in Note 23 of the consolidated financial statements.

Return on Equity   Reported return on equity (ROE) was 22.9% in 2022 and adjusted ROE was 15.2%, compared with 14.9% and 16.7%, respectively, in 2021. Reported ROE increased due to higher net income, primarily due to higher revenue in the current year resulting from fair value management actions related to the announced acquisition of Bank of the West. Adjusted ROE decreased, as higher net income was offset by an increase in common equity, partially due to the impact of equity issued related to the announced acquisition of Bank of the West. There was an increase of $5,796 million in reported net income available to common shareholders and an increase of $401 million in adjusted net income available to common shareholders in the current year. Average common shareholders’ equity increased $7.6 billion or 15% from 2021, primarily due to growth in retained earnings and the issuance of common shares, partially offset by a decrease in accumulated other comprehensive income. The reported return on tangible common equity (ROTCE) was 25.1%, compared with 17.0% in 2021, and adjusted ROTCE was 16.6%, compared with 18.9% in 2021. Book value per share increased 19% from the prior year to $95.60, reflecting the increase in shareholders’ equity.
Return on common shareholders’ equity (ROE) is calculated as net income, less preferred dividends and distributions on other equity instruments, as a percentage of average common shareholders’ equity. Common shareholders’ equity comprises common share capital, contributed surplus, accumulated other comprehensive income (loss) and retained earnings. Adjusted ROE is calculated using adjusted net income rather than net income.   Return on tangible common equity (ROTCE) is calculated as net income available to common shareholders, adjusted for the amortization of acquisition-related intangible assets, as a percentage of average tangible common equity. Adjusted ROTCE is calculated using adjusted net income rather than net income.

 

20		BMO Financial Group 205th Annual Report 2022

 

Efficiency Ratio and Operating Leverage   BMO’s reported gross efficiency ratio (1) was 48.0%, compared with 57.0% in 2021. On a net revenue basis (2), the reported efficiency ratio was 47.1%, compared with 60.1% in 2021, and the adjusted efficiency ratio was 55.8%, compared with 56.5% in 2021, an improvement of 70 basis points. Reported operating leverage (1) was positive 19.6%. On a net revenue basis (2), reported operating leverage was positive 29.0%, and adjusted operating leverage was positive 1.3%.   (1)  This ratio is calculated using revenue and non-interest expense. Refer to the Revenue section and the Non-Interest Expense section. (2)  Net revenue comprises revenue, net of insurance claims, commissions and changes in policy benefit liabilities (CCPB).
Operating leverage is the difference between revenue and non-interest expense growth rates, and adjusted operating leverage is the difference between adjusted revenue and adjusted non-interest expense growth rates.   Operating leverage, net of insurance claims, commissions and changes in policy benefit liabilities (CCPB), is the difference between revenue, net of CCPB (net revenue) and non-interest expense growth rates.   Adjusted operating leverage, net of CCPB, is the difference between adjusted revenue, net of CCPB (net revenue), and adjusted non-interest expense growth rates. We evaluate performance using adjusted revenue, net of CCPB.   Efficiency ratio (or expense-to-revenue ratio) is a measure of productivity. It is calculated as non-interest expense divided by total revenue (on a taxable equivalent basis in the operating groups), expressed as a percentage.   Efficiency ratio, net of CCPB, is calculated as non-interest expense divided by total revenue, net of CCPB (on a taxable equivalent basis in the operating groups), expressed as a percentage.   Adjusted efficiency ratio, net of CCPB, is calculated in the same manner as efficiency ratio, net of CCPB, utilizing adjusted revenue, net of CCPB, and adjusted non-interest expense.

 

 

 

 

Common Equity Tier 1 Ratio   Our Common Equity Tier 1 (CET1) Ratio was 16.7% as at October 31, 2022, compared with 13.7% as at October 31, 2021. The CET1 Ratio increased from the end of fiscal 2021, primarily driven by the benefit of fair value management actions related to the announced acquisition of Bank of the West, strong internal capital generation, the issuance of common shares and the benefit of the sale of our EMEA Asset Management business, partially offset by higher risk-weighted assets and a legal provision related to a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank. The cumulative impact of the fair value management actions on our CET1 Ratio was approximately 150 basis points.
Common Equity Tier 1 (CET1) Ratio is calculated as CET1 capital, which comprises common shareholders’ equity, net of deductions for goodwill, intangible assets, pension assets, certain deferred tax assets and other items (which may include a portion of expected credit loss provisions), divided by risk-weighted assets. The CET1 Ratio is calculated in accordance with OSFI’s Capital Adequacy Requirements (CAR) Guideline.

Caution

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

 

BMO Financial Group 205th Annual Report 2022			21

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

Supporting a Sustainable and Inclusive Future

BMO has a deep sense of purpose – to be a champion for progress and a catalyst for change. We are leveraging our position as a leading financial services provider in order to create opportunities for our stakeholders and communities to make positive, sustainable change, because we believe that success can and must be mutual. In support of our customers, communities and employees, in 2022 we:

•

Deployed more than US$5.5 billion in loans and investments in the past two years as part of BMO EMpower™, exceeding our commitment of US$5 billion over five years to advance an inclusive economic recovery in the United States by addressing key barriers faced by U.S. minority businesses, communities and families.

•

Mobilized more than $1.1 billion toward a 10-year, $12 billion commitment to finance affordable housing in Canada.

•

Announced a $5 billion commitment to support women business owners in Canada, allocating capital over five years to women entrepreneurs.

•

Acted as joint lead manager for the Government of Canada’s inaugural Green Bond transaction, a landmark achievement. The $5 billion transaction demonstrates Canada’s environmental leadership and acts as a catalyst for the continued development of the sustainable finance market in Canada.

•

Continued to support our employees’ wellness by providing free access to Headspace®, a platform that is offering preventative and proactive mental wellness resources to all of our employees.

BMO’s leadership continues to be recognized in a number of rankings, including:

•

Ranked among the most sustainable companies on the Dow Jones Sustainability Indices (DJSI), benchmarks for investors who recognize that sustainable business practices are critical to generating long-term shareholder value. We are one of only five companies in Canada – and one of only two North American banks – included in the DJSI World Index.

•

Named as one of Corporate Knights’ 2022 Global 100 Most Sustainable Corporations in the World and, for the third consecutive year, ranked as North America’s most sustainable bank. We ranked in the top quartile for Clean Revenue, as well as for the representation of diversity among our directors and senior leadership.

•

Included in Corporate Knights’ listing of Canada’s Best 50 Corporate Citizens, and ranked first among Canadian banks with top-quartile scores in board gender diversity, executive diversity and compensation linked to sustainability. In addition, we received a top-quartile Clean Revenue score, reflecting our commitment to sustainable financing and responsible investing.

•

Included for the seventh consecutive year in the Bloomberg Gender-Equality Index (GEI), which recognizes BMO as a global leader in gender inclusion, as well as a leader within the financial sector.

•

Recognized by Ethisphere as one of the World’s Most Ethical Companies for the fifth consecutive year. We are one of five banks worldwide – one of four banks in the United States and the only bank in Canada – to be recognized in 2022. The award affirms our commitment to doing what’s right and operating with transparency, good governance and integrity in support of a thriving economy, a sustainable future and an inclusive society.

Caution

This Supporting a Sustainable and Inclusive Future section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.

 

22		BMO Financial Group 205th Annual Report 2022

 

Financial Highlights

 

(Canadian $ in millions, except as noted)		2022				2021
Summary Income Statement (1)
Net interest income			15,885				14,310
Non-interest revenue			17,825				12,876
Revenue			33,710				27,186
Insurance claims, commissions and changes in policy benefit liabilities (CCPB)			(683	)			1,399
Revenue, net of CCPB (2)			34,393				25,787
Provision for credit losses on impaired loans			502				525
Provision for (recovery of) credit losses on performing loans			(189	)			(505	)
Total provision for credit losses (PCL)			313				20
Non-interest expense			16,194				15,509
Provision for income taxes			4,349				2,504
Net income			13,537				7,754
Adjusted net income			9,039				8,651
Common Share Data ($, except as noted) (1)
Basic earnings per share			20.04				11.60
Diluted earnings per share			19.99				11.58
Adjusted diluted earnings per share			13.23				12.96
Dividends declared per share			5.44				4.24
Book value per share			95.60				80.18
Closing share price			125.49				134.37
Number of common shares outstanding (in millions)
End of period			677.1				648.1
Average basic			664.0				647.2
Average diluted			665.7				648.7
Market capitalization ($ billions)			85.0				87.1
Dividend yield (%)			4.3				3.2
Dividend payout ratio (%)			27.1				36.5
Adjusted dividend payout ratio (%)			41.0				32.6
Financial Measures and Ratios (%) (1)
Return on equity			22.9				14.9
Adjusted return on equity			15.2				16.7
Return on tangible common equity			25.1				17.0
Adjusted return on tangible common equity			16.6				18.9
Efficiency ratio			48.0				57.0
Efficiency ratio, net of CCPB (2)			47.1				60.1
Adjusted efficiency ratio, net of CCPB (2)			55.8				56.5
Operating leverage			19.6				(1.5	)
Operating leverage, net of CCPB (2)			29.0				0.4
Adjusted operating leverage, net of CCPB (2)			1.3				6.1
Net interest margin on average earning assets			1.62				1.59
Effective tax rate			24.3				24.4
Adjusted effective tax rate			22.8				22.7
Total PCL-to-average net loans and acceptances			0.06				–
PCL on impaired loans-to-average net loans and acceptances			0.10				0.11
Liquidity coverage ratio (LCR) (3)			135				125
Net stable funding ratio (NSFR) (3)			114				118
Balance Sheet and Other Information (as at October 31, $ millions, except as noted)
Assets			1,139,199				988,175
Average earning assets			979,341				897,302
Gross loans and acceptances			567,191				474,847
Net loans and acceptances			564,574				472,283
Deposits			769,478				685,631
Common shareholders’ equity			64,730				51,965
Total risk-weighted assets (4)			363,997				325,433
Assets under administration			744,442				634,713
Assets under management			305,462				523,270
Capital Ratios (%) (4)
Common Equity Tier 1 Ratio			16.7				13.7
Tier 1 Capital Ratio			18.4				15.4
Total Capital Ratio			20.7				17.6
Leverage Ratio			5.6				5.1
Foreign Exchange Rates ($)
As at Canadian/U.S. dollar			1.3625				1.2376
Average Canadian/U.S. dollar			1.2918				1.2554

 

(1)

Adjusted results remove certain items from reported results and are used to calculate our adjusted measures as presented in the above table. Management assesses performance on a reported basis and an adjusted basis, and considers both to be useful. Revenue, net of CCPB, and adjusted results, measures and ratios in this table are non-GAAP. For further information, refer to the Non-GAAP and Other Financial Measures section, and for a composition of non-GAAP amounts, measures and ratios, as well as supplementary financial measures, refer to the Glossary of Financial Terms.

(2)

We present revenue, efficiency ratio and operating leverage on a basis that is net of CCPB, which reduces the variability in insurance revenue resulting from changes in fair value that are largely offset by changes in the fair value of policy benefit liabilities, the impact of which is reflected in CCPB. For further information, refer to the Insurance Claims, Commissions and Changes in Policy Benefits section.

(3)

LCR and NSFR are disclosed in accordance with the Liquidity Adequacy Requirements (LAR) Guideline, as set out by OSFI, as applicable.

(4)

Capital ratios and risk-weighted assets are disclosed in accordance with the Capital Adequacy Requirements (CAR) Guideline, as set out by OSFI, as applicable.

 

BMO Financial Group 205th Annual Report 2022			23

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

Non-GAAP and Other Financial Measures

Results and measures in this document are presented on a GAAP basis. Unless otherwise indicated, all amounts are in Canadian dollars and have been derived from our audited annual consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS). References to GAAP mean IFRS. We use a number of financial measures to assess our performance, as well as the performance of our operating segments, including amounts, measures and ratios that are presented on a non-GAAP basis, as described below. We believe that these non-GAAP amounts, measures and ratios, read together with our GAAP results, provide readers with a better understanding of how management assesses results.

Non-GAAP amounts, measures and ratios do not have standardized meanings under GAAP. They are unlikely to be comparable to similar measures presented by other companies and should not be viewed in isolation from, or as a substitute for, GAAP results.

For further information regarding the composition of non-GAAP and other financial measures, including supplementary financial measures, refer to the Glossary of Financial Terms.

Our non-GAAP measures broadly fall into the following categories:

Adjusted measures and ratios

Management considers both reported and adjusted results and measures to be useful in assessing underlying ongoing business performance. Adjusted results and measures remove certain specified items from revenue, non-interest expense and income taxes, as detailed in the following table. Adjusted results and measures presented in this document are non-GAAP. Presenting results on both a reported basis and an adjusted basis permits readers to assess the impact of certain items on results for the periods presented, and to better assess results excluding those items that may not be reflective of ongoing business performance. As such, the presentation may facilitate readers’ analysis of trends. Except as otherwise noted, management’s discussion of changes in reported results in this document applies equally to changes in the corresponding adjusted results.

Measures net of insurance claims, commissions and changes in policy benefit liabilities (CCPB)

We also present reported and adjusted revenue on a basis that is net of insurance claims, commissions and changes in policy benefit liabilities (CCPB), and our efficiency ratio and operating leverage are calculated on a similar basis, as reconciled in the Revenue section. Measures and ratios presented on a basis net of CCPB are non-GAAP. Insurance revenue can experience variability arising from fluctuations in the fair value of insurance assets caused by movements in interest rates and equity markets. The investments that support policy benefit liabilities are predominantly fixed income assets recorded at fair value, with changes in fair value recorded in insurance revenue in the Consolidated Statement of Income. These fair value changes are largely offset by changes in the fair value of policy benefit liabilities, the impact of which is reflected in CCPB. The presentation and discussion of revenue, efficiency ratios and operating leverage on a net basis reduces this variability, which allows for a better assessment of operating results. For more information, refer to the Insurance Claims, Commissions and Changes in Policy Benefit Liabilities section.

Presenting results on a taxable equivalent basis (teb)

We analyze consolidated revenue on a reported basis. In addition, we analyze revenue on a taxable equivalent basis (teb) at the operating group level, consistent with our Canadian peer group. Revenue and the provision for income taxes in BMO Capital Markets and U.S. P&C are increased on tax-exempt securities to an equivalent pre-tax basis. These adjustments are offset in Corporate Services. Presenting results on a teb basis reflects how our operating groups manage their business and is useful in facilitating comparisons of income between taxable and tax-exempt sources. The effective tax rate is also analyzed on a teb basis for consistency of approach, with the offset to operating segment adjustments recorded in Corporate Services.

Tangible common equity and return on tangible common equity

Tangible common equity is calculated as common shareholders’ equity less goodwill and acquisition-related intangible assets, net of related deferred tax liabilities. Return on tangible common equity is commonly used in the North American banking industry and is meaningful because it measures the performance of businesses consistently, whether they were acquired or developed organically.

 

24		BMO Financial Group 205th Annual Report 2022

 

Non-GAAP and Other Financial Measures

 

(Canadian $ in millions, except as noted)		2022				2021				2020
Reported Results
Net interest income			15,885				14,310				13,971
Non-interest revenue			17,825				12,876				11,215
Revenue			33,710				27,186				25,186
Insurance claims, commissions and changes in policy benefit liabilities (CCPB)			683				(1,399	)			(1,708	)
Revenue, net of CCPB			34,393				25,787				23,478
Provision for credit losses			(313	)			(20	)			(2,953	)
Non-interest expense			(16,194	)			(15,509	)			(14,177	)
Income before income taxes			17,886				10,258				6,348
Provision for income taxes			(4,349	)			(2,504	)			(1,251	)
Net income			13,537				7,754				5,097
Diluted EPS ($)			19.99				11.58				7.55
Adjusting Items Impacting Revenue (Pre-tax)
Impact of divestitures (1)			(21	)			29				–
Management of fair value changes on the purchase of Bank of the West (2)			7,713				–				–
Legal provision (3)			(515	)			–				–
Impact of adjusting items on revenue (pre-tax)			7,177				29				–
Adjusting Items Impacting Non-Interest Expense (Pre-tax)
Acquisition and integration costs (4)			(326	)			(9	)			(14	)
Amortization of acquisition-related intangible assets (5)			(31	)			(88	)			(121	)
Impact of divestitures (1)			(16	)			(886	)			–
Restructuring (costs) reversals (6)			–				24				–
Legal provision (3)			(627	)			–				–
Impact of adjusting items on non-interest expense (pre-tax)			(1,000	)			(959	)			(135	)
Impact of adjusting items on reported net income (pre-tax)			6,177				(930	)			(135	)
Adjusting Items Impacting Revenue (After-tax)
Impact of divestitures (1)			(23	)			22				–
Management of fair value changes on the purchase of Bank of the West (2)			5,667				–				–
Legal provision (3)			(382	)			–				–
Impact of adjusting items on revenue (after-tax)			5,262				22				–
Adjusting Items Impacting Non-Interest Expense (After-tax)
Acquisition and integration costs (4)			(245	)			(7	)			(11	)
Amortization of acquisition-related intangible assets (5)			(23	)			(66	)			(93	)
Impact of divestitures (1)			(32	)			(864	)			–
Restructuring (costs) reversals (6)			–				18				–
Legal provision (3)			(464	)			–				–
Impact of adjusting items on non-interest expense (after-tax)			(764	)			(919	)			(104	)
Impact of adjusting items on reported net income (after-tax)			4,498				(897	)			(104	)
Impact on diluted EPS ($)			6.76				(1.38	)			(0.16	)
Adjusted Results
Net interest income			16,352				14,310				13,971
Non-interest revenue			10,181				12,847				11,215
Revenue			26,533				27,157				25,186
Insurance claims, commissions and changes in policy benefit liabilities (CCPB)			683				(1,399	)			(1,708	)
Revenue, net of CCPB			27,216				25,758				23,478
Provision for credit losses			(313	)			(20	)			(2,953	)
Non-interest expense			(15,194	)			(14,550	)			(14,042	)
Income before income taxes			11,709				11,188				6,483
Provision for income taxes			(2,670	)			(2,537	)			(1,282	)
Net income			9,039				8,651				5,201
Diluted EPS ($)			13.23				12.96				7.71

 

(1)

Reported net income included the impact of divestitures related to the sale of our EMEA Asset Management business and our Private Banking business in Hong Kong and Singapore. Fiscal 2022 reported net income included a gain of $6 million ($8 million pre-tax) related to the transfer of certain U.S. asset management clients and a $29 million (pre-tax and after-tax) loss related to foreign currency translation reclassified from accumulated other comprehensive income, both recorded in non-interest revenue, and expenses of $32 million ($16 million pre-tax), including taxes of $22 million on closing of the sale of our EMEA Asset Management business recorded in non-interest expense. Fiscal 2021 reported net income included a $779 million pre-tax and after-tax write-down of goodwill related to the sale of our EMEA Asset Management business recorded in non-interest expense, a $22 million ($29 million pre-tax) net gain on the sale of our Private Banking business in Hong Kong and Singapore recorded in non-interest revenue, and $85 million ($107 million pre-tax) of divestiture-related costs for both transactions recorded in non-interest expense. These amounts were recorded in Corporate Services.

(2)

Fiscal 2022 reported net income included revenue of $5,667 million ($7,713 million pre-tax) related to the announced acquisition of Bank of the West resulting from the management of the impact of interest rate changes between the announcement and closing on its fair value and goodwill, comprising $7,665 million of pre-tax mark-to-market gains on certain interest rate swaps recorded in non-interest trading revenue and $48 million of pre-tax non-trading interest income on a portfolio of primarily U.S. treasury securities recorded in net interest income. These amounts were recorded in Corporate Services. For further information on this acquisition, refer to the Significant Events section.

(3)

Fiscal 2022 reported net income included a legal provision of $846 million ($1,142 million pre-tax) related to a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank, comprising interest expense of $515 million pre-tax and non-interest expense of $627 million pre-tax, including legal fees of $22 million. These amounts were recorded in Corporate Services. For further information, refer to the Provisions and Contingent Liabilities section in Note 24 of the consolidated financial statements.

(4)

Fiscal 2022 reported net income included acquisition and integration costs of $237 million ($316 million pre-tax) related to the announced acquisition of Bank of the West recorded in non-interest expense in Corporate Services. In addition, reported net income included acquisition and integration costs of $8 million ($10 million pre-tax) related to KGS-Alpha and Clearpool in fiscal 2022, $7 million ($9 million pre-tax) in fiscal 2021, and $11 million ($14 million pre-tax) in fiscal 2020 recorded in non-interest expense in BMO Capital Markets.

(5)

Amortization of acquisition-related intangible assets of $23 million ($31 million pre-tax) in fiscal 2022, $66 million ($88 million pre-tax) in fiscal 2021, and $93 million ($121 million pre-tax) in fiscal 2020 were recorded in non-interest expense in the related operating group.

(6)

Fiscal 2021 reported net income included a partial reversal of $18 million ($24 million pre-tax) of restructuring charges related to severance recorded in 2019 in non-interest expense, in Corporate Services.

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

 

BMO Financial Group 205th Annual Report 2022			25

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

Summary of Reported and Adjusted Results by Operating Segment

 

(Canadian $ in millions, except as noted)		Canadian P&C				U.S. P&C				Total P&C				BMO Wealth Management				BMO Capital Markets				Corporate Services				Total Bank				U.S. Segment (1) (US$ in millions)
2022
Reported net income			3,826				2,497				6,323				1,251				1,772				4,191				13,537				6,079
Acquisition and integration costs			–				–				–				–				8				237				245				185
Amortization of acquisition-related intangible assets			1				5				6				3				14				–				23				17
Impact of divestitures			–				–				–				–				–				55				55				(45	)
Management of fair value changes on the purchase of Bank of the West			–				–				–				–				–				(5,667	)			(5,667	)			(4,312	)
Legal provision			–				–				–				–				–				846				846				621
Adjusted net income (loss)			3,827				2,502				6,329				1,254				1,794				(338	)			9,039				2,545
2021
Reported net income (loss)			3,288				2,176				5,464				1,382				2,120				(1,212	)			7,754				2,593
Acquisition and integration costs			–				–				–				–				7				–				7				6
Amortization of acquisition-related intangible assets			1				24				25				24				17				–				66				37
Impact of divestitures			–				–				–				–				–				842				842				27
Restructuring costs (reversals)			–				–				–				–				–				(18	)			(18	)			(13	)
Adjusted net income (loss)			3,289				2,200				5,489				1,406				2,144				(388	)			8,651				2,650

 

(1)

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

Refer to footnotes (1) to (6) in the Non-GAAP and Other Financial Measures table for further information on adjusting items.

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

Net Revenue, Efficiency Ratio and Operating Leverage

 

(Canadian $ in millions, except as noted) For the year ended October 31		2022				2021				2020
Reported
Revenue			33,710				27,186				25,186
Insurance claims, commissions and changes in policy benefit liabilities (CCPB)			(683	)			1,399				1,708
Revenue, net of CCPB			34,393				25,787				23,478
Non-interest expense			16,194				15,509				14,177
Efficiency ratio (%)			48.0				57.0				56.3
Efficiency ratio, net of CCPB (%)			47.1				60.1				60.4
Revenue growth (%)			24.0				7.9				(1.2	)
Revenue growth, net of CCPB (%)			33.4				9.8				3.1
Non-interest expense growth (%)			4.4				9.4				(3.1	)
Operating leverage (%)			19.6				(1.5	)			1.9
Operating leverage, net of CCPB (%)			29.0				0.4				6.2
Adjusted
Revenue			26,533				27,157				25,186
Impact of adjusting items on revenue			(7,177	)			(29	)			–
Insurance claims, commissions and changes in policy benefit liabilities (CCPB)			(683	)			1,399				1,708
Revenue, net of CCPB			27,216				25,758				23,478
Impact of adjusting items on non-interest expense			(1,000	)			(959	)			(135	)
Non-interest expense			15,194				14,550				14,042
Efficiency ratio (%)			57.3				53.6				55.8
Efficiency ratio, net of CCPB (%)			55.8				56.5				59.8
Revenue growth, net of CCPB (%)			5.7				9.7				3.0
Non-interest expense growth (%)			4.4				3.6				0.3
Operating leverage, net of CCPB (%)			1.3				6.1				2.7

Refer to footnotes (1) to (6) in the Non-GAAP and Other Financial Measures table for further information on adjusting items.

 

26		BMO Financial Group 205th Annual Report 2022

 

Return on Equity and Return on Tangible Common Equity

 

(Canadian $ in millions, except as noted) For the year ended October 31		2022				2021				2020
Reported net income			13,537				7,754				5,097
Dividends on preferred shares and distributions on other equity instruments			(231	)			(244	)			(247	)
Net income available to common shareholders (A)			13,306				7,510				4,850
After-tax amortization of acquisition-related intangible assets			23				66				93
Net income available to common shareholders after adjusting for amortization of acquisition-related intangible assets (B)			13,329				7,576				4,943
After-tax impact of other adjusting items (1)			(4,521	)			831				11
Adjusted net income available to common shareholders (C)			8,808				8,407				4,954
Average common shareholders’ equity (D)			58,078				50,451				48,235
Return on equity (%) (= A/D)			22.9				14.9				10.1
Adjusted return on equity (%) (= C/D)			15.2				16.7				10.3
Average tangible common equity (E) (2)			53,148				44,505				41,484
Return on tangible common equity (%) (= B/E)			25.1				17.0				11.9
Adjusted return on tangible common equity (%) (= C/E)			16.6				18.9				11.9

 

(1)

Refer to footnotes (1) to (6) in the Non-GAAP and Other Financial Measures table for further information on adjusting items.

(2)

Average tangible common equity is average common shareholders’ equity (D above) adjusted for goodwill of $5,051 million ($5,836 million in 2021 and $6,530 million in 2020) and acquisition-related intangible assets of $130 million ($381 million in 2021 and $495 million in 2020), net of related deferred tax liabilities of $251 million ($271 million in 2021 and $274 million in 2020).

Capital is allocated to the operating segments based on the amount of regulatory capital required to support business activities. Unallocated capital is reported in Corporate Services. Capital allocation methodologies are reviewed annually.

Return on Equity by Operating Segment

 

		2022
(Canadian $ in millions, except as noted)		Canadian P&C				U.S. P&C				Total P&C				BMO Wealth Management				BMO Capital Markets				Corporate Services				Total Bank
Reported
Net income available to common shareholders			3,783				2,461				6,244				1,243				1,732				4,087				13,306
Total average common equity			11,798				13,815				25,613				5,282				11,602				15,581				58,078
Return on equity (%)			32.1				17.8				24.4				23.5				14.9				na				22.9
Adjusted (1)
Net income available to common shareholders			3,784				2,466				6,250				1,246				1,754				(442	)			8,808
Total average common equity			11,798				13,815				25,613				5,282				11,602				15,581				58,078
Return on equity (%)			32.1				17.8				24.4				23.6				15.1				na				15.2
		2021
(Canadian $ in millions, except as noted)		Canadian P&C				U.S. P&C				Total P&C				BMO Wealth Management				BMO Capital Markets				Corporate Services				Total Bank
Reported
Net income available to common shareholders			3,246				2,136				5,382				1,374				2,081				(1,327	)			7,510
Total average common equity			11,147				13,522				24,669				5,899				10,913				8,970				50,451
Return on equity (%)			29.1				15.8				21.8				23.3				19.1				na				14.9
Adjusted (1)
Net income available to common shareholders			3,247				2,160				5,407				1,398				2,105				(503	)			8,407
Total average common equity			11,147				13,522				24,669				5,899				10,913				8,970				50,451
Return on equity (%)			29.1				16.0				21.9				23.7				19.3				na				16.7

 

(1)

Refer to footnotes (1) to (6) in the Non-GAAP and Other Financial Measures table for further information on adjusting items.

na – not applicable

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

 

BMO Financial Group 205th Annual Report 2022			27

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

Significant Events

During the first quarter of 2022, we completed the sale of our EMEA Asset Management business to Ameriprise Financial, Inc., including the transfer of certain U.S. asset management clients, and on April 30, 2021, we completed the sale of our Private Banking business in Hong Kong and Singapore to J. Safra Sarasin Group. Collectively, we refer to these transactions as “divestitures”. The divestitures reduced net revenue and expenses by approximately 3% and 4%, respectively, on both a reported and an adjusted basis, compared with the prior year.

On December 20, 2021, we announced the signing of a definitive agreement with BNP Paribas to acquire Bank of the West and its subsidiaries. Under the terms of the agreement, we will pay a cash purchase price of US$16.3 billion, or US$13.4 billion net of an estimated US$2.9 billion of excess capital (at closing) at Bank of the West. The transaction, which is expected to close by the end of the first calendar quarter of 2023, is subject to customary closing conditions, including regulatory approvals. We expect to fund the transaction primarily with excess capital, reflecting our strong capital position, including the added impact of the 20,843,750 common shares issued for $3,106 million on March 29, 2022, and anticipated capital generation.

On closing, the acquisition is expected to add approximately US$92 billion of assets, US$59 billion of loans and US$76 billion of deposits to our consolidated balance sheet. These amounts are based on the financial position and results of Bank of the West as at the period ended September 30, 2022.

This acquisition aligns with our strategic, financial and cultural objectives, and meaningfully accelerates our U.S. growth. Building on the strength of our performance and our integrated North American foundation, the acquisition will bring nearly 1.8 million customers to BMO and will further extend our banking presence through an additional 503 branches and commercial and wealth offices in key U.S. markets. After closing, our footprint will expand to 32 states, including an immediate scaled entry into the attractive California market, where we expect to deliver a highly competitive offering to new growth markets, combining the strength of our digital banking platform and our strong banking team to generate good customer growth.

A signature strength of Bank of the West is the deep relationships formed between its customers, its employees, and the communities they have served for over 100 years. As part of this transaction, we do not plan to close Bank of the West branches, and we are committed to retaining front-line Bank of the West branch employees.

Leveraging our deep integration experience and proven track record in U.S. expansion, we remain confident that we can achieve annual pre-tax cost synergies of approximately US$670 million (C$860 million) through operational efficiencies across our combined businesses. Integration planning is underway and is being overseen by a dedicated joint integration management office.

Under IFRS, the purchase price will be allocated to the identifiable assets and liabilities of Bank of the West at closing, on the basis of their relative fair values, with the difference recorded as goodwill. The fair value/par value differences, referred to as the fair value mark, will be amortized to income over the estimated life of an underlying asset (liability). Intangible assets identified, including the core deposit intangible related to non-maturity deposits, will be amortized over their estimated life. The fair value of fixed rate loans, securities and deposits is largely dependent on interest rates. If interest rates increase, the fair value of the acquired fixed rate assets (in particular, loans and securities) will decrease, resulting in higher goodwill. If interest rates decrease, the opposite would be true. Conversely, the fair value of floating rate assets (liabilities) and non-maturity deposits approximate par, providing no natural fair value change offset. Changes in goodwill relative to our original assumptions announced on December 20, 2021 will impact capital ratios at closing, because goodwill is treated as a deduction from capital under the Office of the Superintendent of Financial Institutions (OSFI) Basel III rules. In addition, given that the purchase price of the acquisition is in U.S. dollars, any change in foreign exchange translation between the Canadian dollar relative to the U.S. dollar between the announcement and the closing of the acquisition will result in a change to the Canadian dollar equivalent goodwill.

We are proactively managing exposure to capital from changes in fair value of the assets and liabilities of Bank of the West at closing. As part of our fair value management actions, we entered into interest rate swaps that increase in value as interest rates rise, resulting in mark-to-market gains recorded in trading revenue. These swaps were largely offset from an interest rate risk perspective through the purchase of a portfolio of matched-duration U.S. treasuries and other balance sheet instruments that generate net interest income. Together, these transactions aim to mitigate the effects of any changes in goodwill arising from changes in interest rates between the announcement and closing of the acquisition, with the associated revenue (loss) treated as an adjusting item. In addition, BMO entered into forward contracts, which qualify as accounting hedges, to mitigate the effects of changes in the Canadian dollar equivalent of the purchase price on closing. Changes in the fair value of these forward contracts are recorded in other comprehensive income (OCI) until closing of the transaction.

The impact of the fair value management actions on our results was treated as an adjusting item. The current year included $7,713 million pre-tax ($5,667 million after-tax) revenue related to the management of interest rate changes, comprising $7,665 million of mark-to-market gains on certain interest rate swaps recorded in non-interest revenue, as well as $48 million interest income on a portfolio of U.S. treasuries and other balance sheet instruments recorded in net interest income.

The cumulative impact on our Common Equity Tier 1 Ratio related to these fair value management actions was approximately 150 basis points. In addition, changes in the fair value of the forward contracts increased OCI by $638 million in 2022. The impact of the stronger U.S. dollar increased OCI by 5%.

Caution

This Significant Events section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.

 

28		BMO Financial Group 205th Annual Report 2022

 

Economic Developments and Outlook

Economic Developments in 2022 and Outlook for 2023 ⁽¹⁾

After reaching 5.0% in 2021, growth in Canada’s real gross domestic product (GDP) is anticipated to slow to an estimated rate of 3.5% in 2022. Growth remained robust in the first half of the year, as economic activity rebounded following the easing of pandemic restrictions. The trade balance benefitted from rising commodity prices and consumer spending was supported by high levels of household savings. However, the momentum in the economy has been halted by rapidly rising interest rates, high inflation, supply-chain disruptions and weakening global demand. Housing sales have plunged below pre-pandemic levels, while prices are retreating from the record levels of the previous two years. With headwinds growing, real GDP is expected to contract modestly in early 2023 and to register no growth for the year. In order to dampen demand and control inflation, the Bank of Canada has raised its overnight lending rate by 350 basis points to 3.75% since March 2022, the most aggressive round of tightening in nearly three decades. The policy rate will likely rise to 4.5% in early 2023, with the intent of maintaining sustained downward pressure on inflation. A contracting economy is expected to lift the unemployment rate from 5.2% in October 2022 to 6.5% by late 2023, easing pressure on wages and prices. After reaching four-decade highs above 8% year-over-year in the summer, consumer price index (CPI) inflation is expected to decline but remain elevated at around 3% in late 2023. The strong industry-wide growth in residential mortgage balances seen in the first half of 2022 is projected to moderate to the low single digits in 2023, as housing market activity slows and prices decline. Consumer credit balances (excluding mortgages) have been restrained by higher borrowing costs and elevated household savings, and are anticipated to rise only modestly in the year ahead. Growth in non-financial corporate credit is expected to decelerate in response to rising interest rates and a slowing economy, as businesses draw on their elevated cash balances.

After rebounding strongly in 2021, growth in U.S. real GDP likely slowed sharply to an estimated rate of 1.9% in 2022 due to rising interest rates, high inflation, a strong U.S. dollar and supply-chain disruptions. Despite elevated household savings and strong gains in employment and wages, real consumer spending growth has slowed. Business investment has also slowed in response to a deteriorating economic outlook. Housing market activity has fallen sharply amid the worst affordability levels in three decades. Real GDP is anticipated to contract modestly in the first half of 2023 and to register no growth for the year, largely in response to tighter monetary policy and weaker financial conditions. The economic slump is anticipated to raise the unemployment rate from 3.7% in October 2022 to 5.0% by late 2023. In line with a partial retreat in oil prices, CPI inflation likely peaked at above 9% year-over-year in the summer. However, it is anticipated to decline slowly and remain above 3% in late 2023. After raising its policy rate by 375 basis points from March to November 2022, the Federal Reserve is projected to lift it by an additional 100 basis points to a range of 4.75% to 5.0% by spring 2023. Earlier strong growth in industry-wide residential mortgage balances is anticipated to moderate as housing market activity slows. Consumer credit balances have risen recently, as inflation has strained household budgets, but growth is expected to decelerate as a result of rising interest rates and a higher unemployment rate. Non-financial corporate credit growth strengthened earlier this year as companies took advantage of still-low interest rates, but is projected to weaken quickly as interest rates rise, economic growth slows and businesses draw on their elevated cash balances.

The economic outlook is subject to several risks that could lead to a severe downturn in Canada and the United States. These include persistent high inflation and significant further increases in interest rates, an escalation of the conflict in Ukraine, geopolitical tensions between the United States and China, and emerging new strains of COVID-19. A material housing market correction could also occur if monetary policy becomes overly restrictive in an effort to control inflation.

Caution

This Economic Developments and Outlook section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.

 

(1)	All time periods in this section refer to the calendar year rather than BMO’s fiscal year.

 

BMO Financial Group 205th Annual Report 2022			29

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

2022 Financial Performance Review

This section provides a review of BMO’s enterprise financial performance for 2022 that focuses on the Consolidated Statement of Income in BMO’s audited annual consolidated financial statements. A review of the operating groups’ strategies and performance follows the enterprise review.

We use a number of financial measures to assess our performance, as well as the performance of our operating segments, including amounts, measures and ratios that are presented on a non-GAAP basis. We believe that these non-GAAP amounts, measures and ratios, read together with our GAAP results, provide readers with a better understanding of how management assesses results.

Non-GAAP amounts, measures and ratios do not have standardized meanings under GAAP. They are unlikely to be comparable to similar measures presented by other companies and should not be viewed in isolation from, or as a substitute for, GAAP results.

Further discussion of the non-GAAP amounts, measures and ratios is provided in the Non-GAAP and Other Financial Measures section.

For further information regarding the composition of non-GAAP and other financial measures, including supplementary financial measures, refer to the Glossary of Financial Terms.

 

 

Foreign Exchange

The Canadian dollar equivalents of BMO’s U.S. segment results that are denominated in U.S. dollars increased relative to 2021 due to changes in the Canadian/U.S. dollar exchange rate. The table below indicates the relevant average Canadian/U.S. dollar exchange rates and the impact of changes in those rates on BMO’s U.S. segment results. References in this document to the impact of the U.S. dollar do not include U.S. dollar-denominated amounts recorded outside of BMO’s U.S. segment.

Economically, our U.S. dollar income stream was not hedged against the risk of changes in foreign exchange rates during 2022 and 2021. Changes in exchange rates will affect future results measured in Canadian dollars, and the impact on those results is a function of the periods in which revenue, expenses, provisions for (or recoveries of) credit losses and income taxes arise.

Refer to the Enterprise-Wide Capital Management section for a discussion of the impact that changes in foreign exchange rates can have on BMO’s capital position.

Effects of Changes in Exchange Rates on BMO’s U.S. Segment Reported and Adjusted Results

 

(Canadian $ in millions, except as noted)		2022 vs. 2021
Canadian/U.S. dollar exchange rate (average)
2022			1.2918
2021			1.2554
Effects on U.S. segment reported results
Increased (Decreased) net interest income			166
Increased (Decreased) non-interest revenue			102
Increased (Decreased) total revenue			268
Decreased (Increased) provision for credit losses			7
Decreased (Increased) non-interest expense			(153	)
Decreased (Increased) provision for income taxes			(27	)
Increased (Decreased) net income			95
Impact on earnings per share ($)			0.14
Effects on U.S. segment adjusted results
Increased (Decreased) net interest income			166
Increased (Decreased) non-interest revenue			102
Increased (Decreased) total revenue			268
Decreased (Increased) provision for credit losses			7
Decreased (Increased) non-interest expense			(150	)
Decreased (Increased) provision for income taxes			(28	)
Increased (Decreased) net income			97
Impact on earnings per share ($)			0.15

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

 

30		BMO Financial Group 205th Annual Report 2022

 

Net Income

Reported net income was $13,537 million, an increase of $5,783 million or 75% from the prior year, and adjusted net income was $9,039 million, an increase of $388 million or 4%.

Adjusted results in the current year excluded the impact of the announced acquisition of Bank of the West, comprising revenue of $5,667 million ($7,713 million pre-tax) related to management of the impact of interest rate changes between the announcement and closing on its fair value and goodwill, and related acquisition and integration costs of $237 million ($316 million pre-tax). In addition, the current year excluded a legal provision of $846 million ($1,142 million pre-tax) related to a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank, the impact of divestitures related to the sale of our EMEA Asset Management business and the transfer of certain U.S. asset management clients of $55 million, comprising a gain of $6 million ($8 million pre-tax), a loss related to foreign currency translation of $29 million pre-tax and after-tax that was reclassified from accumulated other comprehensive income to non-interest revenue, and expenses of $32 million ($16 million pre-tax), including taxes of $22 million on the closing of the sale. Adjusted results in the prior year excluded a $779 million pre-tax and after-tax write-down of goodwill related to the sale of our EMEA Asset Management business, a $22 million ($29 million pre-tax) net gain on the sale of our Private Banking business in Hong Kong and Singapore, and $85 million ($107 million pre-tax) of divestiture-related costs for both transactions, as well as an $18 million ($24 million pre-tax) partial reversal of restructuring charges related to severance recorded in 2019. Adjusted net income in both years excluded the amortization of acquisition-related intangible assets and acquisition and integration costs. The amortization of acquisition-related intangible assets was $23 million ($31 million pre-tax) and $66 million ($88 million pre-tax) in 2022 and 2021, respectively. Acquisition and integration costs related to KGS-Alpha and Clearpool were $8 million ($10 million pre-tax) and $7 million ($9 million pre-tax) in 2022 and 2021, respectively. For further information, refer to the Non-GAAP and Other Financial Measures section.

The increase in reported net income was driven by the impact of fair value management actions in the current year. Adjusted results were primarily driven by higher net revenue, partially offset by higher expenses and a higher provision for credit losses. Net income increased in our P&C businesses, and decreased in BMO Capital Markets and BMO Wealth Management. On a reported basis, Corporate Services recorded net income compared with a net loss in the prior year, and on an adjusted basis recorded a lower net loss compared with the prior year.

Canadian P&C reported net income increased $538 million or 16% from the prior year, driven by a 12% increase in revenue, with higher net interest income and non-interest revenue and a lower provision for credit losses compared with the prior year, partially offset by higher expenses. U.S. P&C reported net income increased $321 million or 15% from the prior year, primarily driven by a 14% increase in revenue due to higher net interest income, partially offset by higher expenses and a higher provision for credit losses compared with the prior year. BMO Wealth Management reported net income decreased $131 million or 9%, in part due to divestitures, with higher underlying revenue more than offset by higher underlying expenses. BMO Capital Markets reported net income decreased $348 million or 16%, with higher revenue more than offset by higher expenses and a lower recovery of the provision for credit losses compared with the prior year. Corporate Services reported net income was $4,191 million and adjusted net loss was $338 million, compared with a reported net loss of $1,212 million and an adjusted net loss of $388 million in the prior year.

Further discussion is provided in the 2022 Operating Groups Performance Review section.

For further information on non-GAAP amounts, measures and ratios in this Net Income section, refer to the Non-GAAP and Other Financial Measures section.

 

 

Revenue

 

Reported revenue was $33,710 million, an increase of $6,524 million or 24% from the prior year, and adjusted revenue was $26,533 million, a decrease of $624 million or 2%. On a basis that nets insurance claims, commissions and changes in policy benefit liabilities (CCPB) against insurance revenue (net revenue), reported net revenue was $34,393 million, an increase of $8,606 million or 33% from the prior year, and adjusted net revenue was $27,216 million, an increase of $1,458 million or 6%. Adjusted revenue in the current year excluded $7,713 million related to fair value management actions, comprising $7,665 million of pre-tax mark-to-market gains on certain interest rate swaps recorded in non-interest trading revenue and $48 million of non-trading interest income on a portfolio of primarily U.S. treasury securities. In addition, adjusted revenue excluded interest expense of $515 million related to a legal provision. Both years excluded the impact of divestitures. The stronger U.S. dollar increased revenue growth by 1%. Revenue increased in Canadian P&C, due to higher net interest income and non-interest revenue, and in U.S. P&C, primarily due to higher net interest income and the impact of the stronger U.S. dollar. BMO Wealth Management revenue decreased, as underlying revenue growth was more than offset by divestitures, while BMO Capital Markets revenue increased 1%, with higher Global Markets revenue offset by lower Investment and Corporate Banking revenue. Corporate Services reported revenue increased, due to fair value management actions, partially offset by a legal provision, while adjusted revenue decreased compared with the prior year. BMO analyzes revenue at the consolidated level based on GAAP revenue as reported in the consolidated financial statements, and on an adjusted basis. Operating group revenue is presented on a taxable equivalent basis (teb), with revenue and the provision for income taxes increased on tax-exempt securities to an equivalent pre-tax basis. These teb adjustments for 2022 totalled $270 million, compared with $315 million in 2021. Further discussion is provided in the 2022 Operating Groups Performance Review section. For further information on non-GAAP amounts, measures and ratios, and results presented on a net revenue basis in this Revenue section, refer to the Non-GAAP and Other Financial Measures section.

 

 

BMO Financial Group 205th Annual Report 2022			31