BMO Financial Group Reports Fourth Quarter and Fiscal 2022 Results

BMO's 2022 audited annual consolidated financial statements and accompanying Management Discussion and Analysis (MD&A) are available online at www.bmo.com/investorrelations and at www.sedar.com.

Financial Results Highlights

Fourth Quarter 2022 Compared with Fourth Quarter 2021:

  • Net income of $4,483 million, compared with $2,159 million; adjusted net income1,3,4 of $2,136 million, compared with $2,226 million

  • Reported earnings per share (EPS)2 of $6.51, compared with $3.23; adjusted EPS1,2,3,4 of $3.04, compared with $3.33

  • Provision for credit losses (PCL) of $226 million, compared with a recovery of the provision for credit losses of $126 million

  • Return on equity (ROE) of 27.6%, compared with 16.0%; adjusted ROE1,3,4 of 12.9%, compared with 16.5%

  • Common Equity Tier 1 Ratio5 of 16.7%, compared with 13.7%

Fiscal 2022 Compared with Fiscal 2021:

  • Net income of $13,537 million, compared with $7,754 million; adjusted net income1,3,4 of $9,039 million, compared with $8,651 million

  • Reported EPS2 of $19.99, compared with $11.58; adjusted EPS1,2,3,4 of $13.23, compared with $12.96

  • Provision for credit losses of $313 million, compared with a provision of $20 million

  • ROE of 22.9%, compared with 14.9%; adjusted ROE1,3,4 of 15.2%, compared with 16.7%

TORONTO, Dec. 1, 2022 /CNW/ - For the fourth quarter ended October 31, 2022, BMO Financial Group (TSX: BMO) (NYSE: BMO) recorded net income of $4,483 million or $6.51 per share on a reported basis, and net income of $2,136 million or $3.04 per share on an adjusted basis.

"This year, we continued to execute on our strategy to strengthen and grow each of our diversified businesses. Against the backdrop of a rapidly changing macroeconomic environment, we delivered on our commitments to positive operating leverage, improved efficiency and achieved above-target return on equity. Our strong performance was supported by targeted investments in technology and talent which delivered award winning customer and employee experiences. Very good revenue performance was driven by robust, high-quality growth in loans and deposits and expanding net interest margins, all underpinned by our leading risk management approach," said Darryl White, Chief Executive Officer, BMO Financial Group.

"Looking ahead to 2023, the economic environment remains uncertain, with inflation and higher interest rates expected to slow the economy in the near term. We have a proven track record of sustained performance and remain well positioned to deliver in any environment. We will continue to dynamically manage capital and resources to grow our businesses and support our customers while finalizing preparations for the natural next step in our North American growth strategy, the approval, closing and integration of Bank of the West.

"BMO has a long-standing, deep sense of purpose, and we are leveraging our position as a leading financial services provider to make progress for a thriving economy, sustainable future and an inclusive society, while targeting continued top-tier returns for our shareholders," concluded Mr. White.

Concurrent with the release of results, BMO announced a first quarter 2023 dividend of $1.43 per common share, an increase of $0.04 from the prior quarter, and an increase of $0.10 or 8% from the prior year. The quarterly dividend of $1.43 per common share is equivalent to an annual dividend of $5.72 per common share.

Caution

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

(1)

Results and measures in this document are presented on a generally accepted accounting principles (GAAP) basis. They are also presented on an adjusted basis that excluded the impact of certain specified items from reported results. Adjusted results and ratios are non-GAAP and are detailed for all reported periods in the Non-GAAP and Other Financial Measures section. For details on the composition of non-GAAP amounts, measures and ratios, as well as supplementary financial measures, refer to the Glossary of Financial Terms.

(2)

All EPS measures in this document refer to diluted EPS, unless specified otherwise. EPS is calculated using net income after deducting total dividends on preferred shares and distributions payable on other equity instruments.

(3)

Reported net income included revenue related to the announced acquisition of Bank of the West, with revenue in Q4-2022 of $3,336 million ($4,541 million pre-tax) resulting from the management of the impact of interest rate changes between the announcement and closing on its fair value and goodwill, as well as acquisition and integration costs of $143 million ($191 million pre-tax). Fiscal 2022 net income included revenue of $5,667 million ($7,713 million pre-tax) and expenses of $237 million ($316 million pre-tax). Refer to the Non-GAAP and Other Financial Measures section for further information on adjusting items.

(4)

Q4-2022 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 audited annual consolidated financial statements in BMO's 2022 Annual Report.

(5)

The Common Equity Tier 1 (CET1) Ratio is disclosed in accordance with the Office of the Superintendent of Financial Institutions' (OSFI's) Capital Adequacy Requirements (CAR) Guideline.

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

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 quarter included $4,541 million pre-tax ($3,336 million after-tax) revenue related to the management of interest rate changes, comprising $4,698 million of mark-to-market gains on certain interest rate swaps as at October 31, 2022, recorded in non-interest revenue, as well as a loss of $157 million on a portfolio of primarily U.S. treasuries and other balance sheet instruments recorded in net interest income. Fiscal 2022 results included $7,713 million pre-tax ($5,667 million after-tax) revenue, comprising $7,665 million recorded in non-interest revenue and $48 million recorded in net interest income.

The impact on our Common Equity Tier 1 Ratio related to these fair value management actions was approximately 95 basis points in the fourth quarter of 2022, and the cumulative impact was approximately 150 basis points in fiscal 2022. In addition, the changes in the fair value of the forward contracts increased OCI by $706 million in the current quarter and increased OCI by $638 million in the current year.

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

Fourth Quarter 2022 Performance Review

The order in which the impact on net income is discussed in this section follows the order of revenue, expenses and provision for credit losses, regardless of their relative impact.

Adjusted results and ratios in this Fourth Quarter 2022 Performance Review section are on a non-GAAP basis and discussed in the Non-GAAP and Other Financial Measures section.

Adjusted results in the current quarter excluded the impact of the announced acquisition of Bank of the West, comprising revenue of $3,336 million ($4,541 million pre-tax) related to the management of the impact of interest rate changes between the announcement and closing of the acquisition on its fair value and goodwill, as well as acquisition and integration costs of $143 million ($191 million pre-tax). In addition, current quarter adjusted results excluded the impact of 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. For further information, refer to Note 24 of the audited annual consolidated financial statements in BMO's 2022 Annual Report. Adjusted net income also excluded the amortization of acquisition-related intangible assets and other acquisition and integration costs in both the current and the prior years.

Reported net income increased from the prior year, primarily due to the impact of the above noted fair value management actions, and adjusted net income decreased 4%, with higher net revenue offset by higher expenses and a higher provision for credit losses. Net income increased in U.S. P&C and decreased in BMO Capital Markets, BMO Wealth Management, and Canadian P&C. On a reported basis, Corporate Services recorded net income compared with a net loss in the prior year, and on an adjusted basis, Corporate Services results were relatively unchanged.

Canadian P&C

Reported and adjusted net income was $917 million, a decrease of $16 million or 2% from the prior year. Results were driven by an 11% increase in revenue, primarily due to higher net interest income reflecting strong balance growth and higher net interest margins, more than offset by higher expenses and a higher provision for credit losses compared with a recovery in the prior year.

U.S. P&C

Reported net income was $660 million, an increase of $151 million or 30% from the prior year, and adjusted net income was $662 million, an increase of $147 million or 29%. The impact of the stronger U.S. dollar increased revenue and net income growth by 9%, and expense growth by 8% on a reported basis.

On a U.S. dollar basis, reported net income was $488 million, an increase of $82 million or 21% from prior year, and adjusted net income was $489 million, an increase of $79 million or 19%. Reported and adjusted results were driven by an 18% increase in revenue, primarily due to higher net interest income reflecting higher net interest margins and loan balances, partially offset by higher expenses and a higher provision for credit losses compared with a recovery in the prior year.

BMO Wealth Management

Reported net income was $298 million, compared with $345 million in the prior year, and adjusted net income was $298 million, a decrease of $51 million or 14% from the prior year. Wealth and Asset Management (1) reported net income was $221 million, a decrease of $66 million or 24% from the prior year, primarily due to higher underlying expenses from continued investments in the business and divestitures. Insurance net income was $77 million, an increase of $19 million from the prior year, primarily due to benefits from changes in investments to improve asset liability management.

BMO Capital Markets

Reported net income was $357 million, a decrease of $174 million or 33% from the prior year, and adjusted net income was $363 million, a decrease of $173 million or 33% . Reported and adjusted results were impacted by current market conditions, resulting in lower Investment and Corporate Banking revenue, partially offset by higher Global Markets revenue, higher expenses, and a lower recovery of the provision for credit losses compared with the prior year.

Corporate Services

Reported net income was $2,251 million, compared with a reported net loss of $159 million in the prior year, and adjusted net loss was $104 million, compared with an adjusted net loss of $107 million. Reported results increased, primarily due to higher revenue reflecting the fair value management actions, partially offset by the legal provision noted above. Adjusted results were relatively unchanged from the prior year.

Capital

BMO's Common Equity Tier 1 Ratio was 16.7% as at October 31, 2022, an increase from 15.8% at the end of the third quarter of 2022, primarily driven by the benefit from fair value management actions related to the announced acquisition of Bank of the West, internal capital generation and common shares issued from treasury under the shareholder dividend reinvestment and share purchase plan, which were partially offset by the legal provision noted above and higher risk-weighted assets.

(1)

Wealth and Asset Management was previously known as Traditional Wealth.

Credit Quality

Total provision for credit losses was $226 million, compared with a recovery of the provision for credit losses of $126 million in the prior year. The provision for credit losses on impaired loans was $192 million, an increase of $108 million from the prior year. The provision for credit losses on impaired loans as a percentage of average net loans and acceptances ratio was 14 basis points, compared with 7 basis points in the prior year. There was a $34 million provision for credit losses on performing loans in the current quarter, compared with a $210 million recovery in the prior year. The $34 million provision for credit losses on performing loans in the current quarter reflected a deteriorating economic outlook and balance growth, largely offset by continued reduction in uncertainty as a result of the improving pandemic environment and portfolio credit improvement. The $210 million recovery of credit losses in the prior year largely reflected an improving economic outlook and portfolio credit improvement, partially offset by growth in loan balances.

Refer to the Critical Accounting Estimates and Judgments section of BMO's 2022 Annual Report and Note 4 of our audited annual consolidated financial statements for further information on the allowance for credit losses as at October 31, 2022.

Caution

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

Regulatory Filings

BMO's continuous disclosure materials, including interim filings, annual Management's Discussion and Analysis and audited annual consolidated financial statements, Annual Information Form and Notice of Annual Meeting of Shareholders and Proxy Circular, are available on our website at www.bmo.com/investorrelations, on the Canadian Securities Administrators' website at www.sedar.com, and on the EDGAR section of the U.S. Securities and Exchange Commission's website at www.sec.gov. Information contained in or otherwise accessible through our website (www.bmo.com), or any third party websites mentioned herein, does not form part of this document.


Bank of Montreal uses a unified branding approach that links all of the organization's member companies. Bank of Montreal, together with its subsidiaries, is known as BMO Financial Group. In this document, the names BMO and BMO Financial Group, as well as the words "bank", "we" and "our", mean Bank of Montreal, together with its subsidiaries.


Financial Review

Management's Discussion and Analysis (MD&A) commentary is as at December 1, 2022. The material that precedes this section comprises part of this MD&A. The MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the period ended October 31, 2022, included in this document, as well as the audited annual consolidated financial statements for the year ended October 31, 2022, and the MD&A for fiscal 2022, contained in BMO's 2022 Annual Report.

BMO's 2022 Annual Report includes a comprehensive discussion of its businesses, strategies and objectives, and can be accessed on our website at www.bmo.com/investorrelations. Readers are also encouraged to visit the site to view other quarterly financial information.

Bank of Montreal's management, under the supervision of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness, as at October 31, 2022, of Bank of Montreal's disclosure controls and procedures (as defined in the rules of the U.S. Securities and Exchange Commission and the Canadian Securities Administrators) and has concluded that such disclosure controls and procedures are effective.

There were no changes in our internal control over financial reporting during the quarter ended October 31, 2022, which materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Because of inherent limitations, disclosure controls and procedures and internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.

As in prior quarters, Bank of Montreal's Audit and Conduct Review Committee reviewed this document and Bank of Montreal's Board of Directors approved the document prior to its release.

Caution Regarding Forward-Looking Statements

Bank of Montreal's public communications often include written or oral forward-looking statements. Statements of this type are included in this document, and may be included in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made pursuant to the "safe harbor" provisions of, and are intended to be forward-looking statements under, the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. Forward-looking statements in this document may include, but are not limited to, statements with respect to our objectives and priorities for fiscal 2023 and beyond, our strategies or future actions, our targets and commitments (including with respect to net zero emissions), expectations for our financial condition, capital position or share price, the regulatory environment in which we operate, the results of, or outlook for, our operations or for the Canadian, U.S. and international economies, the closing of our proposed acquisition of Bank of the West, including plans for the combined operations of BMO and Bank of the West and the financial, operational and capital impacts of the transaction, and include statements made by our management. Forward-looking statements are typically identified by words such as "will", "would", "should", "believe", "expect", "anticipate", "project", "intend", "estimate", "plan", "goal", "commit", "target", "may", "might", "schedule", "forecast", "outlook", "timeline", "suggest", "seek" and "could" or negative or grammatical variations thereof.

By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, both general and specific in nature. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that our assumptions may not be correct, and that actual results may differ materially from such predictions, forecasts, conclusions or projections. We caution readers of this document not to place undue reliance on our forward-looking statements, as a number of factors – many of which are beyond our control and the effects of which can be difficult to predict – could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.

The future outcomes that relate to forward-looking statements may be influenced by many factors, including, but not limited to: general economic and market conditions in the countries in which we operate, including labour challenges; the severity, duration and spread of the COVID-19 pandemic, and possibly other outbreaks of disease or illness, and their impact on local, national or international economies, as well as their heightening of certain risks that may affect our future results; information, privacy and cybersecurity, including the threat of data breaches, hacking, identity theft and corporate espionage, as well as the possibility of denial of service resulting from efforts targeted at causing system failure and service disruption; benchmark interest rate reforms; technological changes and technology resiliency; political conditions, including changes relating to, or affecting, economic or trade matters; climate change and other environmental and social risk; the Canadian housing market and consumer leverage; inflationary pressures; global supply-chain disruptions; changes in monetary, fiscal, or economic policy; changes in laws, including tax legislation and interpretation, or in supervisory expectations or requirements, including capital, interest rate and liquidity requirements and guidance, and the effect of such changes on funding costs; weak, volatile or illiquid capital or credit markets; the level of competition in the geographic and business areas in which we operate; exposure to, and the resolution of, significant litigation or regulatory matters, our ability to successfully appeal adverse outcomes of such matters and the timing, determination and recovery of amounts related to such matters; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; failure of third parties to comply with their obligations to us; our ability to execute our strategic plans, complete proposed acquisitions or dispositions and integrate acquisitions, including obtaining regulatory approvals; critical accounting estimates and judgments, and the effects of changes to accounting standards, rules and interpretations on these estimates; operational and infrastructure risks, including with respect to reliance on third parties; the possibility that our proposed acquisitions, including our acquisition of Bank of the West, do not close when expected, or at all, because required regulatory approvals and other conditions to closing are not received or satisfied on a timely basis, or at all, or are received subject to adverse conditions or requirements; the anticipated benefits from proposed acquisitions, including Bank of the West, such as potential synergies and operational efficiencies, are not realized; our ability to manage exposure to capital arising from changes in fair value of assets and liabilities between signing and closing; our ability to perform effective fair value management actions and unforeseen consequences arising from such actions; changes to our credit ratings; global capital markets activities; the possible effects on our business of war or terrorist activities; natural disasters and disruptions to public infrastructure, such as transportation, communications, power or water supply; and our ability to anticipate and effectively manage risks arising from all of the foregoing factors.

We caution that the foregoing list is not exhaustive of all possible factors. Other factors and risks could adversely affect our results. For more information, please refer to the discussion in the Risks That May Affect Future Results section, and the sections related to credit and counterparty, market, insurance, liquidity and funding, operational non-financial, legal and regulatory, strategic, environmental and social, and reputation risk, in the Enterprise-Wide Risk Management section of BMO's 2022 Annual Report, all of which outline certain key factors and risks that may affect our future results. Investors and others should carefully consider these factors and risks, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. We do not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by the organization or on its behalf, except as required by law. The forward-looking information contained in this document is presented for the purpose of assisting shareholders and analysts in understanding our financial position as at and for the periods ended on the dates presented, as well as our strategic priorities and objectives, and may not be appropriate for other purposes.

Material economic assumptions underlying the forward-looking statements contained in this document include those set out in the Economic Developments and Outlook section of BMO's 2022 Annual Report, as well as in the Allowance for Credit Losses section of BMO's 2022 Annual Report. Assumptions about the performance of the Canadian and U.S. economies, as well as overall market conditions and their combined effect on our business, are material factors we consider when determining our strategic priorities, objectives and expectations for our business. Assumptions about Bank of the West's balance sheet, product mix and margins, and interest rate sensitivity were material factors we considered in estimating the fair value and goodwill and intangibles amounts at closing, and assumptions about our integration plan, the efficiency and duration of integration and the alignment of organizational responsibilities were material factors we considered in estimating pre-tax cost synergies.

In determining our expectations for economic growth, we primarily consider historical economic data, past relationships between economic and financial variables, changes in government policies, and the risks to the domestic and global economy.

Financial Highlights

(Canadian $ in millions, except as noted)

Q4-2022

Q3-2022

Q4-2021

Fiscal 2022

Fiscal 2021

Summary Income Statement (1)






Net interest income

3,767

4,197

3,756

15,885

14,310

Non-interest revenue

6,803

1,902

2,817

17,825

12,876

Revenue

10,570

6,099

6,573

33,710

27,186

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

(369)

413

97

(683)

1,399

Revenue, net of CCPB (2)

10,939

5,686

6,476

34,393

25,787

Provision for credit losses on impaired loans

192

104

84

502

525

Provision for (recovery of) credit losses on performing loans

34

32

(210)

(189)

(505)

Total provision for (recovery of) credit losses

226

136

(126)

313

20

Non-interest expense

4,776

3,859

3,803

16,194

15,509

Provision for income taxes

1,454

326

640

4,349

2,504

Net income

4,483

1,365

2,159

13,537

7,754

Adjusted net income

2,136

2,132

2,226

9,039

8,651

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






Basic earnings per share

6.52

1.96

3.24

20.04

11.60

Diluted earnings per share

6.51

1.95

3.23

19.99

11.58

Adjusted diluted earnings per share

3.04

3.09

3.33

13.23

12.96

Dividends declared per share

1.39

1.39

1.06

5.44

4.24

Book value per share

95.60

90.88

80.18

95.60

80.18

Closing share price

125.49

127.66

134.37

125.49

134.37

Number of common shares outstanding (in millions)






End of period

677.1

674.4

648.1

677.1

648.1

Average basic

676.1

673.3

648.2

664.0

647.2

Average diluted

677.5

674.8

650.1

665.7

648.7

Market capitalization ($ billions)

85.0

86.1

87.1

85.0

87.1

Dividend yield (%)

4.4

4.4

3.2

4.3

3.2

Dividend payout ratio (%)

21.3

71.1

32.7

27.1

36.5

Adjusted dividend payout ratio (%)

45.6

44.9

31.7

41.0

32.6

Financial Measures and Ratios (%) (1)






Return on equity

27.6

8.8

16.0

22.9

14.9

Adjusted return on equity

12.9

13.8

16.5

15.2

16.7

Return on tangible common equity

30.1

9.6

18.0

25.1

17.0

Adjusted return on tangible common equity

14.0

15.1

18.5

16.6

18.9

Efficiency ratio

45.2

63.3

57.9

48.0

57.0

Efficiency ratio, net of CCPB (2)

43.7

67.9

58.7

47.1

60.1

Adjusted efficiency ratio, net of CCPB (2)

57.2

56.7

57.4

55.8

56.5

Operating leverage

35.3

(24.2)

2.6

19.6

(1.5)

Operating leverage, net of CCPB (2)

43.3

(18.4)

1.0

29.0

0.4

Adjusted operating leverage, net of CCPB (2)

0.4

(1.9)

2.4

1.3

6.1

Net interest margin on average earning assets

1.46

1.71

1.62

1.62

1.59

Effective tax rate

24.5

19.3

22.9

24.3

24.4

Adjusted effective tax rate

21.8

22.0

22.7

22.8

22.7

Total PCL-to-average net loans and acceptances

0.16

0.10

(0.11)

0.06

-

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

0.14

0.08

0.07

0.10

0.11

Liquidity coverage ratio (LCR) (3)

135

129

125

135

125

Net stable funding ratio (NSFR) (3)

114

114

118

114

118

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






Assets

1,139,199

1,068,338

988,175

1,139,199

988,175

Average earning assets

1,021,540

972,879

918,255

979,341

897,302

Gross loans and acceptances

567,191

537,829

474,847

567,191

474,847

Net loans and acceptances

564,574

535,417

472,283

564,574

472,283

Deposits

769,478

729,385

685,631

769,478

685,631

Common shareholders' equity

64,730

61,286

51,965

64,730

51,965

Total risk weighted assets (4)

363,997

351,711

325,433

363,997

325,433

Assets under administration

744,442

711,508

634,713

744,442

634,713

Assets under management

305,462

310,469

523,270

305,462

523,270

Capital ratios (%) (4)






Common Equity Tier 1 Ratio

16.7

15.8

13.7

16.7

13.7

Tier 1 Capital Ratio

18.4

17.3

15.4

18.4

15.4

Total Capital Ratio

20.7

19.4

17.6

20.7

17.6

Leverage Ratio

5.6

5.3

5.1

5.6

5.1

Foreign Exchange Rates ($)






As at Canadian/U.S. dollar

1.3625

1.2813

1.2376

1.3625

1.2376

Average Canadian/U.S. dollar

1.3516

1.2774

1.2546

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, as well as reported ratios calculated 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 details on the composition of non-GAAP amounts, measures and ratios, as well as supplementary financial measures, refer to the Glossary of Financial Terms.

(2)

We present revenue, efficiency ratio and operating leverage on a basis that is net of CCPB, which reduces the variability in insurance revenue 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 Office of the Superintendent of Financial Institutions' (OSFI's) Liquidity Adequacy Requirements (LAR) Guideline, as applicable.

(4)

Capital ratios and risk-weighted assets are disclosed in accordance with OSFI's Capital Adequacy Requirements (CAR) Guideline, as applicable.

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 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.

Non-GAAP and Other Financial Measures

(Canadian $ in millions, except as noted)

Q4-2022

Q3-2022

Q4-2021

Fiscal 2022

Fiscal 2021

Reported Results






Net interest income

3,767

4,197

3,756

15,885

14,310

Non-interest revenue

6,803

1,902

2,817

17,825

12,876

Revenue

10,570

6,099

6,573

33,710

27,186

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

369

(413)

(97)

683

(1,399)

Revenue, net of CCPB

10,939

5,686

6,476

34,393

25,787

Provision for credit losses

(226)

(136)

126

(313)

(20)

Non-interest expense

(4,776)

(3,859)

(3,803)

(16,194)

(15,509)

Income before income taxes

5,937

1,691

2,799

17,886

10,258

Provision for income taxes

(1,454)

(326)

(640)

(4,349)

(2,504)

Net income

4,483

1,365

2,159

13,537

7,754

Diluted EPS ($)

6.51

1.95

3.23

19.99

11.58

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)

4,541

(945)

-

7,713

-

Legal provision (3)

(515)

-

-

(515)

-

Impact of adjusting items on revenue (pre-tax)

4,026

(945)

-

7,177

29

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






Acquisition and integration costs (4)

(193)

(84)

(1)

(326)

(9)

Amortization of acquisition-related intangible assets (5)

(8)

(7)

(20)

(31)

(88)

Impact of divestitures (1)

6

(7)

(62)

(16)

(886)

Restructuring (costs) reversals (6)

-

-

-

-

24

Legal provision (3)

(627)

-

-

(627)

-

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

(822)

(98)

(83)

(1,000)

(959)

Impact of adjusting items on reported pre-tax income

3,204

(1,043)

(83)

6,177

(930)

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)

3,336

(694)

-

5,667

-

Legal provision (3)

(382)

-

-

(382)