Annual Report 2016

Financial Performance and Condition at a Glance (Note 1)

Total Shareholder Return (TSR) (%)

Our Performance

  • BMO shareholders have earned a strong average annual return of 9.9% over the past three years, which outperformed our Canadian bank peer group average and was above the 6.6% return on the S&P/TSX Composite Index.
  • The one-year TSR of 17.0% and the five-year average annual return of 12.5% both outperformed the S&P/TSX Composite Index, and the one-year TSR also outperformed our Canadian bank peer group average.

See Total Shareholder Return in the Value Measures (PDF, 60 KB) section of the MD&A.

Peer Group Performance

  • The Canadian peer group three-year average annual TSR was 9.4%. The one-year TSR was 15.7% and the five-year average annual TSR was 12.6%.
  • The North American peer group three-year average annual TSR was 8.8% and the one-year TSR was 10.3%, both below the corresponding Canadian peer group averages. The five-year average annual TSR of 16.8% was above the Canadian peer group average.
Total Shareholder Return (TSR) (%). 2014: 16.7; 2015: 13.5; 2016: 9.9

Light Blue BMO reported

Black Line Canadian peer group average

Grey Line North American peer group average

Graph shows average annual three-year TSR.

Earnings per Share (EPS) Growth (%)

Our Performance

  • Reported EPS grew $0.35 or 5% to $6.92. Adjusted EPS grew $0.52 or 7% to $7.52, primarily reflecting higher earnings.
  • On a reported and adjusted basis, higher revenue exceeded incremental costs, contributing to growth in net income. There were higher provisions for credit losses and a higher effective income tax rate.

See Summary Financial Results and Earnings per Share Growth in the Value Measures (PDF, 60 KB) section of the MD&A.

Peer Group Performance

  • The Canadian peer group average EPS growth was 1%, with significant variability among our Canadian peer banks.
  • Average EPS growth for the North American peer group was 9%, with increases in EPS for all but two banks in our North American peer group.
Earnings per Share (EPS) Growth (%). 2014 reported: 4; 2014 adjusted: 6; 2015 reported: 2; 2015 adjusted: 6; 2016 reported: 5; 2016 adjusted: 7

Light Blue BMO reported

Dark Blue BMO adjusted

Black Line Canadian peer group average

Grey Line North American peer group average

All EPS measures are stated on a diluted basis.

Return on Equity (ROE) (%)

Our Performance

  • Reported ROE was 12.1% and adjusted ROE was 13.1% in 2016, compared with 12.5% and 13.3%, respectively, in 2015. ROE declined in 2016 primarily due to growth in common equity exceeding growth in income. There was growth in both earnings and adjusted earnings available to common shareholders. Average common shareholders’ equity increased, primarily due to increased retained earnings and the impact of the stronger U.S. dollar on our investments in foreign operations.

See Return on Equity in the Value Measures (PDF, 60 KB) section of the MD&A.

Peer Group Performance

  • The Canadian peer group average ROE of 15.0% was lower than the average return of 16.4% in 2015, as ROE declined for all but one bank in our Canadian peer group.
  • Average ROE for the North American peer group was 11.4%, relatively unchanged from 2015.
Return on Equity (ROE) (%). 2014 reported: 14.0; 2014 adjusted: 14.4; 2015 reported: 12.5; 2015 adjusted: 13.3; 2016 reported: 12.1; 2016 adjusted 13.1

Light Blue BMO reported

Dark Blue BMO adjusted

Black Line Canadian peer group average

Grey Line North American peer group average

Revenue Growth (%)

Our Performance

  • On a net revenue basis*, revenue increased $1,409 million or 8% to $19,544 million, and adjusted revenue increased $1,491 million or 8% to $19,628 million, including a $345 million or 2% impact of the stronger U.S. dollar. Reported and adjusted revenue increased due to revenue growth in the P&C businesses, which benefited from the acquired BMO Transportation Finance business and organic growth, and in BMO Capital Markets, with a decrease in Wealth Management and Corporate Services. Total revenue increased $1,698 million or 9% to $21,087 million in 2016.

See Revenue in the 2016 Financial Performance Review (PDF, 82 KB) section of the MD&A.

Peer Group Performance

  • Revenue growth for the Canadian peer group averaged 8%, higher than the average growth of 5% in the prior year.
  • Average revenue growth for the North American peer group of 7% was significantly higher than the average growth of 2% in 2015, with all but one of our U.S. peer banks reporting higher revenues.
Revenue Growth (%). 2014 reported: 4; 2014 adjusted: 9; 2015 reported: 8; 2015 adjusted: 8; 2016 reported: 8; 2016 adjusted: 8

Light Blue BMO reported

Dark Blue BMO adjusted

Black Line Canadian peer group average

Grey Line North American peer group average

* Graph shows net revenue growth, calculated using total revenue net of insurance claims, commissions and changes in policy benefit liabilities.

Efficiency Ratio (Expense-to-Revenue Ratio) (%)

Our Performance

  • The reported efficiency ratio was 61.6% and the adjusted efficiency ratio was 59.2% in 2016. On a net revenue basis*, the reported efficiency ratio improved 70 basis points to 66.5% and the adjusted efficiency ratio improved 130 basis points to 63.9% in 2016. All operating groups had improved efficiency ratios, with the exception of Wealth Management.

See Non-Interest Expense in the 2016 Financial Performance Review (PDF, 82 KB) section of the MD&A.

Peer Group Performance

  • The Canadian peer group average efficiency ratio was 59.4%, an improvement from 60.2% in 2015.
  • The average efficiency ratio for the North American peer group of 61.6% improved from 63.3% in 2015.
Efficiency Ratio (%). 2014 reported: 65.3; 2014 adjusted 64.4; 2015 reported: 67.2; 2015 adjusted: 65.2; 2016 reported: 66.5; 2016 adjusted: 63.9

Light Blue BMO reported

Dark Blue BMO adjusted

Black Line Canadian peer group average

Grey Line North American peer group average

* Graph shows the efficiency ratio on a net revenue basis, calculated using revenue net of insurance claims, commissions and changes in policy benefit liabilities.

Credit Losses (Provision for Credit Losses as a % of Average Net Loans and Acceptances)

Our Performance

  • Provisions for credit losses (PCL) totalled $815 million, up from $612 million in 2015 due to higher provisions in the P&C businesses and BMO Capital Markets, partially offset by higher net recoveries in Corporate Services.
  • PCL as a percentage of average net loans and acceptances was 0.23% in 2016, up from 0.19% in 2015.

See Provision for Credit Losses in the 2016 Financial Performance Review (PDF, 82 KB) and page 91 of the Enterprise-Wide Risk Management (PDF, 245 KB) section of the MD&A.

Peer Group Performance

  • The Canadian peer group average PCL represented 39 basis points of average net loans and acceptances, up from 30 basis points in 2015.
  • The North American peer group average PCL represented 35 basis points, up from 26 basis points in 2015, and was lower than the average PCL for the Canadian peer group.
Provision for Credit Losses as a % of Average Net Loans and Acceptances. 2014: 0.19; 2015: 0.19; 2016: 0.23

Light Blue BMO reported

Black Line Canadian peer group average

Grey Line North American peer group average

Impaired Loans (Gross Impaired Loans and Acceptances as a % of Gross Loans and Acceptances)

Our Performance

  • Gross impaired loans and acceptances (GIL) increased to $2,332 million from $1,959 million in 2015, and represented 0.62% of gross loans and acceptances, compared with 0.58% a year ago.
  • Formations of new impaired loans and acceptances totalled $2,512 million, up from $1,921 million in 2015, in part due to an increase in oil and gas impaired formations.

See Gross Impaired Loans on page 91 of the Enterprise-Wide Risk Management (PDF, 245 KB) section of the MD&A.

Peer Group Performance

  • The Canadian peer group average ratio of GIL as a percentage of gross loans and acceptances was 0.66%, up from 0.58% in 2015.
  • The average ratio for our North American peer group of 1.21% was up from 1.15% in 2015, and continues to be higher than the average for the Canadian peer group.
Gross Impaired Loans and Acceptances as a % of Gross Loans and Acceptances. 2014: 0.67; 2015: 0.58; 2016: 0.62

Light Blue BMO reported

Black Line Canadian peer group average

Grey Line North American peer group average

Capital Adequacy

Our Performance

  • BMO’s Common Equity Tier 1 (CET1) Ratio reflects a well-capitalized position.
  • Our CET1 Ratio of 10.1% decreased by 60 basis points from 10.7% in 2015, due to increased risk-weighted assets, largely from the Basel I Capital floor and business growth, and the acquisition of the BMO Transportation Finance business in the first quarter of 2016, which reduced the ratio by approximately 60 basis points, partially offset by capital growth.

See Common Equity Tier 1 Ratio in the Value Measures (PDF, 60 KB) section and Enterprise-Wide Capital Management in the Financial Condition Review (PDF, 100 KB) section of the MD&A.

Peer Group Performance

  • The Canadian peer group average CET1 Ratio was 10.7% in 2016, compared with an average CET1 Ratio of 10.3% a year ago.
  • The basis for computing capital adequacy ratios in Canada and the United States is not completely comparable.
Capital Adequacy (%). 2014: 10.1; 2015: 10.7; 2016: 10.1

Light Blue BMO reported

Black Line Canadian peer group average

Credit Rating

Our Performance

  • Credit ratings for BMO’s senior long-term debt, as assessed by the four major rating agencies, are listed below and all four ratings are considered to indicate high-grade, high-quality issues. Standard & Poor’s (S&P) and Fitch have a stable outlook. Moody’s and DBRS have a negative outlook pending further details on the government’s approach to implementing a bail-in regime for Canada’s domestic systemically important banks.

See page 105 of the Enterprise-Wide Risk Management (PDF, 245 KB) section of the MD&A.


Peer Group Performance

  • The Canadian peer group median credit ratings were unchanged from 2015.
  • The North American peer group median credit ratings were unchanged from 2015, and remain slightly lower than the median of the Canadian peer group for three of the ratings.

BMO Financial Group
  2014 2015 2016
DBRS AA AA AA
Fitch AA– AA– AA–
Moody’s Aa3 Aa3 Aa3
S&P A+ A+ A+
Canadian peer group median*
  2014 2015 2016
DBRS AA AA AA
Fitch AA– AA– AA–
Moody’s Aa3 Aa3 Aa3
S&P A+ A+ A+
North American peer group median*
  2014 2015 2016
DBRS AAL AAL AAL
Fitch AA– AA– AA–
Moody’s A1 A1 A1
S&P A A A

*Data for all years reflects the peer group composition in the most recent year.

Note 1: Adjusted results in this section are non-GAAP. Please see the Non-GAAP Measures (PDF, 34 KB) section of the MD&A.

The Canadian peer group averages exclude BMO and are based on the performance of Canada’s five other largest banks: Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, Scotiabank and TD Bank Group. The North American peer group averages are based on the performance of 12 of the largest banks in North America. These include the Canadian peer group, except National Bank of Canada, as well as BB&T Corporation, Bank of New York Mellon Corporation, Fifth Third Bancorp, KeyCorp, The PNC Financial Services Group Inc., Regions Financial Corporation, SunTrust Banks Inc. and U.S. Bancorp.

Results are as at or for the years ended October 31 for Canadian banks and as at or for the years ended September 30 for U.S. banks.

 

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