BMO Bank of Montreal

BMO's Second Quarter 2024 Report to Shareholders, including the unaudited interim consolidated financial statements for the period ended April 30, 2024 are available online at www.bmo.com/investorrelations and at www.sedarplus.ca.

Second Quarter 2024 compared with Second Quarter 2023:

• Net income of $1,866 million, compared with $1,029 million; adjusted net income^{1, 2} of $2,033 million, compared with $2,186 million
• Reported earnings per share (EPS)³ of $2.36, compared with $1.26; adjusted EPS^{1, 2, 3} of $2.59, compared with $2.89
• Provision for credit losses (PCL) of $705 million, compared with $1,023 million on a reported basis and $318 million on an adjusted basis¹
• Return on equity (ROE) of 9.9%, compared with 5.5%; adjusted ROE^{1, 2} of 10.9%, compared with 12.6%
• Common Equity Tier 1 (CET1) Ratio⁴ of 13.1%, compared with 12.2%
• Declared a quarterly dividend of $1.55 per common share, an increase of $0.08 or 5% from the prior year and $0.04 or 3% from the prior quarter

Year-to-Date 2024 compared with Year-to-Date 2023:

• Net income of $3,158 million, compared with $1,162 million; adjusted net income^1,2 of $3,926 million, compared with $4,344 million
• Reported EPS³ of $4.08, compared with $1.42; adjusted EPS^1,2,3 of $5.14, compared with $5.94
• PCL of $1,332 million, compared with $1,240 million on a reported basis and $535 million on an adjusted basis¹
• ROE of 8.5%, compared with 3.0%; adjusted ROE^1,2 of 10.7%, compared with 12.8%

Adjusted^{1, 2} results in the current quarter and the prior year excluded the following items:

• Impact of an incremental U.S. Federal Deposit Insurance Corporation (FDIC) special assessment of $50 million ($67 million pre-tax) in the current quarter.
• Acquisition and integration costs of $26 million ($36 million pre-tax) in the current quarter; $549 million ($727 million pre-tax) in the prior year.
• Amortization of acquisition-related intangible assets of $79 million ($107 million pre-tax) in the current quarter; $85 million ($115 million pre-tax) in the prior year.
• Impact of a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank, of $12 million ($15 million pre-tax) in the current quarter; $6 million ($7 million pre-tax) in the prior year.
• Initial provision for credit losses of $517 million ($705 million pre-tax) on the purchased Bank of the West performing loan portfolio in the prior year.

TORONTO, May 29, 2024 /PRNewswire/ - For the second quarter ended April 30, 2024, BMO Financial Group (TSX: BMO) (NYSE: BMO) recorded net income of $1,866 million or $2.36 per share on a reported basis, and net income of $2,033 million or $2.59 per share on an adjusted basis.

"This quarter, we achieved strong pre-provision, pre-tax earnings growth and positive operating leverage, driven by continued momentum in Canadian personal and commercial banking and strengthening performance in our Capital Markets and wealth businesses. We've delivered on our commitments with expenses down, compared with last year and last quarter. Our balance sheet strength is evident in a CET1 ratio above 13%, robust customer deposit growth and appropriate provisioning for the credit environment, which continues to be impacted by prolonged high interest rates and a slowing economy," said Darryl White, Chief Executive Officer, BMO Financial Group.

"We continue to position the bank for long-term growth. Our U.S. Segment is delivering pre-provision, pre-tax earnings growth and we're executing against a proven U.S. growth strategy, including our One Client approach that brings the full scale of BMO to our customers. We're building on a powerful platform that delivers competitive and differentiated products, advice and digital tools across our North American footprint. This quarter, BMO was ranked among Fast Company's list of the World's Most Innovative Companies of 2024, the only Canadian and U.S. bank recognized out of more than 600 winning organizations – a recognition of the tangible outcomes of our investment in the innovative technologies that make banking easier for our customers," concluded Mr. White.

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

Concurrent with the release of results, BMO announced a third quarter 2024 dividend of $1.55 per common share, an increase of $0.04 or 3% from the prior quarter and an increase of $0.08 or 5% from the prior year. The quarterly dividend of $1.55 per common share is equivalent to an annual dividend of $6.20 per common share.

Adjusted results and ratios in this section are on a non-GAAP basis. Refer to the Non-GAAP and Other Financial Measures section for further information on adjusting items. 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.

Reported net income was $872 million, an increase of $53 million or 6% from the prior year, and adjusted net income was $877 million, an increase of $55 million or 7%. Results reflected a 13% increase in revenue due to higher net interest income, driven by balance growth and higher margins, and higher non-interest revenue, partially offset by higher expenses and a higher provision for credit losses.

Reported net income was $543 million, a decrease of $188 million or 26% from the prior year, and adjusted net income was $612 million, a decrease of $196 million or 24%.

On a U.S. dollar basis, reported net income was $398 million, a decrease of $141 million or 26% from the prior year, and adjusted net income, which excludes amortization of acquisition-related intangible assets, was $449 million, a decrease of $147 million or 25%. Results reflected lower revenue due to a decrease in net interest income, primarily from lower margins, and lower non-interest revenue, lower expenses and a higher provision for credit losses.

Reported net income was $320 million, an increase of $80 million or 33% from the prior year, and adjusted net income was $322 million, an increase of $81 million or 33%. Wealth and Asset Management reported net income was $252 million, an increase of $41 million or 19%, and adjusted net income was $254 million, an increase of $42 million or 19%, with higher revenue due to growth in client assets, including stronger global markets, partially offset by lower deposit balances and net interest margins. Insurance net income was $68 million, an increase of $39 million from the prior year, primarily due to changes in portfolio positioning during the transition to IFRS 17.

Reported net income was $459 million, an increase of $89 million or 24% from the prior year, and adjusted net income was $466 million, an increase of $88 million or 23%. Results reflected higher revenue, primarily due to Global Markets driven by higher interest rate trading and higher debt and equity issuance activity, and lower expenses, partially offset by a higher provision for credit losses.

Reported net loss was $328 million, compared with reported net loss of $1,131 million in the prior year, and adjusted net loss was $244 million, compared with adjusted net loss of $63 million. Reported results decreased, primarily due to the adjusting items noted above. Adjusted net loss increased due to lower revenue, driven by lower net accretion of purchase accounting fair value marks and the impact of treasury-related activities.

BMO's Common Equity Tier 1 Ratio was 13.1% as at April 30, 2024, an increase from 12.8% at the end of the first quarter of 2024, driven by internal capital generation, common shares issued under the dividend reinvestment and share purchase plan and lower source-currency risk-weighted assets.

Total provision for credit losses was $705 million, compared with a reported provision of $1,023 million and an adjusted provision of $318 million in the prior year. Adjusted provision for credit losses in the prior year excluded the initial provision on the purchased Bank of the West performing loan portfolio of $705 million. The provision for credit losses on impaired loans was $658 million, an increase of $415 million due to higher provisions across operating segments, reflecting the impact of a higher interest rate environment. The provision for credit losses on performing loans was $47 million, compared with a reported provision of $780 million and an adjusted provision of $75 million in the prior year. The $47 million provision for credit losses on performing loans in the current quarter was primarily driven by portfolio credit migration and uncertainty in credit conditions, partially offset by an improvement in the macro-economic outlook, including the adoption of a fourth economic scenario.

Refer to the Critical Accounting Estimates and Judgments section of BMO's 2023 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, 2023.

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.sedarplus.ca, 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'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 2024 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, the regulatory environment in which we operate, the results of, or outlook for, our operations or the Canadian, U.S. and international economies; plans for the combined operations of BMO and Bank of the West; 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", "commit", "target", "may", "schedule", "forecast", "outlook", "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 anticipated benefits from acquisitions, including Bank of the West, are not realized; changes to our credit ratings; the emergence or continuation of widespread health emergencies or pandemics, and their impact on local, national or international economies, as well as their heightening of certain risks that may affect our future results; cyber and cloud security, 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; technology resiliency; failure of third parties to comply with their obligations to us; political conditions, including changes relating to, or affecting, economic or trade matters; climate change and other environmental and social risks; the Canadian housing market and consumer leverage; inflationary pressures; global supply-chain disruptions; technological innovation and competition; 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 and capital requirements; 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; 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 in accounting standards, rules and interpretations on these estimates; operational and infrastructure risks, including with respect to reliance on third parties; 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 2023 Annual Report, and the Risk Management section in in our Second Quarter 2024 Report to Shareholders, 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 2023 Annual Report, as updated in the Economic Developments and Outlook section and the Risk Management - Update on General Economic Conditions section in our Second Quarter 2024 Report to Shareholders, as well as in the Allowance for Credit Losses section of BMO's 2023 Annual Report, as updated in the Allowance for Credit Losses section in our Second Quarter 2024 Report to Shareholders. 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. 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.

Results and measures in this document are presented on a generally accepted accounting principles (GAAP) basis. Unless otherwise indicated, all amounts are in Canadian dollars and have been derived from our audited annual consolidated financial statements and our unaudited interim consolidated financial statements, prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board. 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.

Certain information contained in BMO's Management's Discussion and Analysis dated May 29, 2024 for the period ended April 30, 2024 (Second Quarter 2024 Report to Shareholders) is incorporated by reference into this document. For further details on the composition of non-GAAP amounts, measures and ratios, including supplementary financial measures, please refer to the Glossary of Financial Terms section in our Second Quarter 2024 Report to Shareholders which is available at www.sedarplus.ca.

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

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, provision for credit losses 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.

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.

For periods prior to November 1, 2022, we presented 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 were calculated on a similar basis. Measures and ratios presented on a basis net of CCPB are non-GAAP amounts. For more information, refer to the Insurance Claims, Commissions and Changes in Policy Benefit Liabilities section of the 2023 Annual MD&A. Beginning the first quarter of 2023, we no longer report CCPB given the adoption and retrospective application of IFRS 17, Insurance Contracts (IFRS 17).

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

Non-GAAP and Other Financial Measures

Summary of Reported and Adjusted Results by Operating Segment

Return on Equity and Return on Tangible Common Equity 

Return on Equity by Operating Segment ⁽¹⁾

Capital is allocated to the operating segments based on the amount of regulatory capital required to support business activities. Effective the first quarter of fiscal 2024, our capital allocation rate increased to 11.5% of risk weighted assets, compared with 11.0% in 2023, to reflect increased regulatory capital requirements. Unallocated capital is reported in Corporate Services. Capital allocation methodologies are reviewed at least annually.

Interested parties are invited to visit BMO's website at www.bmo.com/investorrelations to review the 2023 Annual MD&A and audited annual consolidated financial statements, quarterly presentation materials and supplementary financial and regulatory information package.

Interested parties are also invited to listen to our quarterly conference call on Wednesday, May 29, 2024, at 8.00 a.m. (ET). The call may be accessed by telephone at 416-340-2217 (from within Toronto) or 1-800-806-5484 (toll-free outside Toronto), entering Passcode: 9768240#. A replay of the conference call can be accessed until June 29, 2024, by calling 905-694-9451 (from within Toronto) or 1-800-408-3053 (toll-free outside Toronto) and entering Passcode: 3927329#.

A live webcast of the call can be accessed on our website at www.bmo.com/investorrelations. A replay can also be accessed on the website.

BMO's 2023 Annual MD&A, audited consolidated financial statements, annual information form and annual report on Form 40-F (filed with the U.S. Securities and Exchange Commission) are available online at www.bmo.com/investorrelations and at www.sedarplus.ca. Printed copies of the bank's complete 2023 audited consolidated financial statements are available free of charge upon request at 416-867-6785 or corp.secretary@bmo.com.

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SOURCE BMO Financial Group