Annual Report 2016

Image of William A. Downe

William A. Downe
Chief Executive Officer

Chief Executive Officer’s Message

Look Forward

The strategic actions our bank has taken, with discipline and over time, create the prerequisites of sustainable growth. The pieces are in place – and there’s more to come.

BMO Financial Group is now in its 200th year of business – moving forward, confident in a clearly defined strategy. We’ve been putting the pieces in place to continuously deliver greater value to each of our stakeholders. And we’re seeing concrete, measurable proof that it’s paying off.

The numbers add up: our strategy is working.

The actions we’ve taken to advance the bank’s strategic priorities over a number of years have been consistent, effective and on target. The result is our record performance in 2016.

Adjusted net revenue growth was strong at 8% and adjusted net income exceeded $5 billion for the first time, delivering earnings per share of $7.52 – an increase of 7% over the previous year. And we’ve achieved this level of profitability in an environment where more optimistic business scenarios had to be set aside: interest rates remained at all-time lows, with economic growth only picking up in the latter part of the year. What’s more, it was a year of extraordinary political change, from the arrival of a new federal government in Ottawa to the referendum deciding the United Kingdom’s withdrawal from the European Union to a landmark U.S. presidential election that defied expert predictions. Through all of these changes, and often despite them, our bank achieved robust growth against the key metrics of progress.

Building momentum was evident in each of our operating groups, and their individual performance measures confirm that our overall strategic focus is delivering sustainable value. Canadian Personal and Commercial Banking saw net income grow by a healthy 5% year over year, even as we anticipated significant slowing in economic growth as the result of lower commodity prices.

Adjusted Net Income – 2017: 7% Increase.

1817 1917 2017

The success we’ve built over two centuries is proof of our fundamental business agility. Insight forged by experience enables us to manage change, to drive and shape it – and to help our customers do the same.

U.S. Personal and Commercial Banking performed very well, with adjusted net income up 22% on a U.S. dollar basis, with continued strong growth in deposits and commercial loans, as well as the impact of our BMO Transportation Finance business (whose acquisition was completed in the first quarter). BMO Capital Markets had a record year, with revenue consistently exceeding $1 billion per quarter and earnings growth of 23% backed by strong performance in Canada and the United States. And in BMO Wealth Management, where results reflected weaker equity markets in the first half of 2016, underlying solid growth across a number of businesses created good momentum going into 2017.

These results underscore the strength of our business model. They also reflect the impact of sustained investment in a technology infrastructure, which enhances customer experience while allowing us to do more – quickly and efficiently – to generate steadily increasing value. In every part of the bank, we’re balancing decisions to improve operating efficiencies with those that benefit customers and enable future growth.

We’re doing what we set out to do, confident that we can build on this momentum. And our confidence is more than a feeling – it’s the ability to act.

We’ve reshaped the bank while reinforcing our core strengths.

In 2010, we recognized that there would never be a better opportunity to change our market position, and we acted. Our acquisition in the United States, and others that have followed, have been part of a broader commitment to transform BMO’s banking footprint. The positive impacts of that transformation are evident today across all of our operating groups.

The bank is ideally positioned for further growth, thanks to a unique set of advantages: a robust and diversified business mix; diversification in key geographies and customer segments; a strong balance sheet and capital position; a consistent and disciplined approach to managing risk; an unwavering commitment to regulatory compliance; industry-leading employee engagement; a long-standing investment in recruiting, developing and retaining talented people; and a trusted brand that anchors everything we do.

These interrelated strengths are the preconditions of sustainable growth. And underpinning them all is the disciplined way in which we deploy technology, something we elevated in 2016 to be a strategic priority of the bank. In every area of our business, customers are benefiting from the enhanced capabilities of our technology platform. Our re-engineered IT architecture allows us to work more flexibly and cost-efficiently. The capabilities we’re enabling – from mobile account opening to streamlined commercial lending systems to investment tools like BMO SmartFolio and adviceDirect – make doing business with our bank faster and easier. But the ultimate goal remains the same: to forge deep, mutually rewarding relationships with customers.

Our customers need to know that if a question comes up in the moment, they can count on quick access to a BMO banker who will provide the right answer. Or if they need help in resolving a complex issue or pursuing long-term goals, they can connect with a dedicated relationship manager. And as we work with them to evaluate options, the wealth of data we all have at our fingertips yields deeper insights and fuels more productive conversations. Uncertainty is replaced by clarity, and competing possibilities coalesce into well-defined plans.

BMO’s technology and data capabilities are transforming the experience of customers to be intuitive, personalized and relationship-focused – and this is what distinguishes our bank. It’s what we mean when we say we’re creating a more personal bank for a digital world.

Our overarching aim is to deepen customer loyalty, and to grow share as a result. In all of these efforts, we’re judged – and we judge ourselves – against a standard set by the best banks, while the presence we’re building across BMO’s footprint is distinctly our own.

Our business model works.

2016 Performance

1 Adjusted results are non-GAAP and are discussed in the Non-GAAP Measures (34 KB PDF) section of the MD&A.

Photo of Bill Downe, Darryl White, Catherine Roche, Connie Stefankiewicz and Frank Techar.

Bill Downe engaging with the audience at an employee event in November 2016, alongside Darryl White, Chief Operating Officer, Catherine Roche, Head, Office of Strategic Management, Connie Stefankiewicz, Chief Marketing Officer, and Frank Techar, Vice-Chair.

We’ve shown the value of staying agile – for 200 years.

The final dimension that distinguishes our bank is perspective. The challenges we face today are not so different, at their core, from those we’ve tackled in the past. And yet we know our thinking must constantly evolve as market conditions and the broader social context change.

In marking our 200-year milestone, we’re focused on the bank’s proven ability to adapt and innovate as we refine our strategy to meet the challenges of tomorrow. The success we’ve built over two centuries is proof of our fundamental business agility. In booms and recessions, through dramatic shifts in culture and technology, we’ve found that the insight forged by experience enables us to manage change, to drive and shape it – and to help our customers do the same.

We’re paying close attention to what people want.

During the past year, markets worldwide grappled with uncertainty in the face of rapid, sometimes uncomfortable change. Traditional politics has been disrupted, and public discourse, fractious and polarized. This sense of widespread discontent, often expressed through populism, suggests a deep dissatisfaction with institutions that have failed to respond adequately to the needs of the people they’re meant to serve.

Confidence is the ability to act.

Our bank does not stand outside these currents of social change. Through 200 years in business, we’ve seen that keeping pace with expectations is a perpetual challenge. An enterprise that is inattentive to what people want, or that tries to impose or constrain choice, quickly becomes irrelevant.

Ensuring BMO’s relevance starts with the fundamentals of how we do business: customers expect us to provide an evolving array of products and services, readily accessible and at a reasonable cost. Even more importantly, we’re expected to do business in a responsible manner.

In order to earn and maintain trust, institutions must address people’s expectations fully and responsibly. The leaders of institutions must be equally accountable for their actions – and our bank is no exception.

Sustainability is not an add-on. It’s core to our strategy.

The bank’s activities are guided by our strategic priorities, which frame our decision-making and help us gauge progress over the long term. While these priorities may evolve to reflect the changing business environment, they are anchored by a commitment to create lasting value for all of our stakeholders.

Over the past year, we’ve expressed that commitment more formally through a set of sustainability principles focusing on social change, financial resilience, community-building and environmental responsibility. Extending and complementing our promise to customers, these principles reinforce the deeper sense of responsibility that informs all aspects of our business strategy.

Our bank has always tried to lead by example. By giving our sustainability principles due prominence, positioned right alongside the strategic priorities that communicate how we intend to grow, we confirm that sustainability is incorporated into how we do business, manage risk and create value.

Operating Group Performance

Operating Group Performance graph

Reported Net Income (C$ millions)

Canadian P&C

2015: 2,105

2016: 2,207

U.S. P&C

2015: 829

2016: 1,081

Wealth Management

2015: 850

2016: 762

BMO Capital Markets

2015: 1,029

2016: 1,268

View large graph

We have one simple rule: look forward.

The strategic actions our bank has taken, with discipline and over time, are the prerequisites of sustainable growth: people, capital, reputation and track record. The pieces are in place – our 2016 results confirm it. And there’s more to come.

Building customer loyalty remains our first priority, because it’s the key to sustainable growth. This is something BMO has understood from its earliest days – in a journey not simply of endurance, but of enduring relevance to our customers. We have a deep sense of continuity that gives us confidence as we deliver on our promise to customers, and as their success continues to drive our own.

And yes, we’re looking forward to the future.

Signature of William A. Downe

William A. Downe


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