TOMORROW STARTS TODAY 200 - Bmo Bank Of Montreal
TOMORROWSTARTS TODAYBMO Financial Group200th Annual Report 2017
Marla PhilpotAssociate Project ManagerChicago, ILErvey AyvarCoordinator, AdministrativeServices, U.S. FinanceChicago, ILBusiness Review2 Who We Are /Financial Snapshot3Reasons to Invest in BMO4Chairman’s Message5 Chief Executive Officer’sMessage9Priorities and Principles10 Tomorrow Starts Today16 Performance Highlights18 Our Strategic Footprint20 Executive Committee21 Board of DirectorsWe aren’t waitingfor the future to arrive.We’re creating it.Connecting. Learning.Adapting. Innovating.Finding new waysto be relevant.Ready for whatcomes next.Financial Review24 Financial Performance andCondition at a Glance26 Management’s Discussionand Analysis122 Supplemental Information136 Statement of Management’sResponsibility for FinancialInformation137 Independent Auditors’Report of Registered PublicAccounting Firm138 Report of IndependentRegistered PublicAccounting Firm139 Consolidated FinancialStatements144 Notes to ConsolidatedFinancial StatementsResources and Directories202 Glossary of Financial Terms204 Where to Find MoreInformationIBC Shareholder Information2 017 errick RatliffGHuman ResourcesConsultantChicago, IL
Who We AreEstablished in 1817, BMO Financial Group isa highly diversified financial services providerbased in North America. We are the eighthlargest bank in North America by assets, withtotal assets of 710 billion and an engagedand diverse base of employees. BMO providesa broad range of personal and commercialbanking, wealth management and investmentbanking products and services to more than12 million customers. We serve eight millioncustomers across Canada through our Canadianpersonal and commercial arm, BMO Bank ofMontreal. We also serve customers throughour wealth management businesses:BMO Global Asset Management, BMO NesbittBurns, BMO Private Banking, BMO Insuranceand BMO InvestorLine. BMO Capital Markets,our investment and corporate banking andtrading products division, provides a fullsuite of financial products and servicesto North American and international clients.In the United States, BMO serves customersthrough BMO Harris Bank, based in the U.S.Midwest with more than two million retail,small business and commercial customers.BMO Financial Group conducts businessthrough three operating groups: Personal andCommercial Banking, Wealth Managementand BMO Capital Markets.Reporting ExcellenceThis year, BMO received the CharteredProfessional Accountants of CanadaPlatinum Award for excellence in corporatereporting, recognizing exemplary quality inall four judging categories: financial reporting,corporate governance disclosure, electronicdisclosure and sustainability reporting.The CPA restructured its awards system in2017, eliminating industry sector awards. Onlyfour companies in the entire field achievedPlatinum status. This is the third consecutiveyear that BMO has been recognized with aCPA Award of Excellence.2 BMO Financial Group 200th Annual Report 2017Financial SnapshotReportedAs at or for the year ended October 31(Canadian in millions, except as noted)Adjusted 12017201620172016Revenue, net of CCPB2 (p 38)Provision for credit losses (p 42)Non-interest expense (p 43)Net income (p 5013,0075,50819,62881512,5445,020Earnings per share – diluted ( ) (p 34)Return on equity (%) (p 35)Operating leverage, net of CCPB (%) (p 43)Common Equity Tier 1 Ratio (%) (p 9%7.5213.1%2.1%nanaNet Income by Segment3Canadian P&C (p 47)U.S. P&C (p 50)Wealth Management (p 54)BMO Capital Markets (p 58)Corporate Services4 (p ,5151,1121,0181,317(454)2,2041,1358621,254(435)Net income (p 37)5,3504,6315,5085,020817819853856U.S. P&C (US in millions) (p 50)1Adjusted results are non-GAAP and are discussed in the Non-GAAP Measures section on page 29.Management assesses performance on a reported basis and on an adjusted basis and considers both to beuseful in assessing underlying ongoing business performance. Presenting results on both bases providesreaders with a better understanding of how management assesses results.2Net of insurance claims, commissions and changes in policy benefit liabilities (CCPB).3Certain comparative figures have been reclassified to conform with the current year’s presentation.See page 46.4Corporate Services, including Technology & Operations.na – not applicableBank of Montreal brands the organization’s member companies as BMO Financial Group. Note 27 on page 197of the financial statements lists the intercorporate relationships among Bank of Montreal and its significantsubsidiaries.
Reasons to Invest in BMO Strong, diversified businesses that continue todeliver robust earnings growth and long-termvalue for shareholders.Large North American commercial bankingbusiness with advantaged market share. Well-established, highly profitable core bankingbusiness in Canada. Diversified U.S. banking operations wellpositioned to benefit from growth opportunities. Award-winning wealth franchise with an activepresence in markets across Canada, the UnitedStates, Europe and Asia.Well-capitalized with an attractivedividend yield.Efficiency-focused, enabled by technologyinnovation, simplification, process enhancementand increased digitalization across channels.Customer-centric operating model guided bya disciplined loyalty measurement program.Adherence to the highest standards ofcorporate governance, including sustainabilityprinciples that ensure we consider social,economic and environmental impacts as wepursue sustainable growth.Competitively advantaged Canadian andgrowing mid-cap focused U.S. capital marketsbusiness.A 189-Year Dividend RecordCompound annual growth rate:BMO Financial Group has the longest-running dividend payout recordof any company in Canada, at 189 years. BMO common shares had anannual dividend yield of 3.6% at October 31, 2017.7.5%4.8%BMO 15-yearBMO 5-yearDividends Declared( per 5620162017BMO Financial Group 200th Annual Report 2017 3
Chairman’s MessageThe next chapterJ. Robert S. PrichardChairman of the BoardWe have just completed a milestone year in Bank ofMontreal’s remarkable history as we celebrated 200 yearsof achievement, during which Canada’s first bank hascontinually played an important role in the growth anddevelopment of the Canadian and North Americaneconomies. Fittingly, it was also a year of recordperformance, with solid growth across all markets servedby the bank. In all respects, it was a very good year.BMO’s bicentennial also marked an important transition inthe bank’s leadership, with the carefully planned successionfrom one chief executive to another. On October 31, 2017,Bill Downe ended his term as the bank’s CEO after tenexceptional years of leadership, and Darryl White assumedthe helm.The Board of Directors and I thank Bill for his 34 years ofservice to Bank of Montreal and for the close and effectiveworking relationship he developed with the board over thepast ten years. He was a terrific leader and made our bankstronger and better.The numbers tell part of the story. On Bill’s watch, the bankhas delivered shareholders 10 percent returns, on average,every year for 10 years. Better still, after putting in place hisstrategy and building his team, Bill accelerated the bank’sperformance and delivered 15 percent returns, on average,every year for the past five. Revenue, income and total assetshave all more than doubled, while common shareholders’equity has nearly tripled and the bank’s market capitalizationhas increased by 29 billion. That’s almost 3 billion ofadded value every year for ten years. Outstanding.But the business performance Bill delivered is about muchmore than the numbers. He leaves the bank ever morecompetitive with a superb leadership team, a leading NorthAmerican platform, great customer focus, a corporate culturemarked by ethical conduct and employee loyalty, and apowerful commitment to diversity. Overall, the bank is inthe best shape in its 200-year history.The Board of Directors has great confidence in Darryl Whiteand the management team that he leads. They represent4 BMO Financial Group 200th Annual Report 2017the next generation. We have seen this team develop inrecent years, and it is a winning team. We believe they andthe bank are well positioned to face the new challengesthat await us. They have our full support and confidenceand we look forward to working closely with them as theycontinue to pursue the strategy that has delivered suchstrong results for the bank. We endorse Darryl’s focus onenabling competitive advantage and his commitment todelivering industry-leading customer experience ever moreefficiently, while relentlessly promoting employee engagement and BMO’s strong culture of corporate citizenship.On behalf of all BMO shareholders, I extend our thanksto all the bank’s employees for their contributions to oursuccess in 2017. BMO’s employees have been quick torecognize their customers’ changing needs, and haveresponded efficiently and effectively, without jeopardizingthe human touch that sets BMO apart. As the pace of changeaccelerates, this ability to adapt will give BMO a competitiveedge. We thank them for all they do so well.We also thank you – the bank’s shareholders – for your faithin us to represent your interests at the boardroom table. All ofus take great pride in the bank and we consider it a privilegeto serve you as the bank begins its third century. Strong as ourpast has been, we believe the best is yet to come.Warm regards,
Chief Executive Officer’s MessageIt starts todayDarryl WhiteChief Executive OfficerBMO is on the move. Adapting.Innovating. Working hardto anticipate customers’expectations and delivervalue to shareholders. Always.We’re moving into 2018 ready for the future and motivatedby the strong results of another record year. Adjusted netincome rose to 5.5 billion, a year-over-year increase of 10%.Earnings per share grew by 9% to 8.16.Now it’s year 201, and we’respeeding up. Sharpening ourfocus. Making decisions todaythat are driven by where ourcustomers want to go next.Adjusted net operating leverage for the year was 1.9%,in line with our medium-term target of 2% and buildingon the 2.1% we achieved in 2016. This has yielded animprovement of 240 basis points in our adjusted netefficiency ratio over the past two years. And our strongcapital position, with a Common Equity Tier 1 ratioof 11.4%, gives us differentiated flexibility to continuegrowing the business.The bank’s revenue increased 6%, driven by sustainedgrowth in customer loans and deposits. Expenses continuedto be well managed, rising 4% as we balanced improvedefficiency with investing for the future.“ In 2017, we increased our spend ontechnology by 13% – and at the sametime we grew earnings, generatedpositive operating leverage, improvedefficiency, raised dividends, bought backshares and grew the bank’s capital.”Every BMO business has contributed to our growth.Our strategic priorities map out a clear and proven path tovalue creation. All key metrics point to robust, sustainableperformance across the bank. And we continue to buildcompetitive advantage. That starts with listening – veryclosely – to the people who are best equipped to identifyopportunities for growth. Our employees.BMO Financial Group 200th Annual Report 2017 5
Chief Executive Officer’s MessageAdjusted Net Income 201710%increaseTeams in every area of the bank have concrete suggestionsfor further streamlining processes, simplifying our structureand erasing traditional boundaries. We’re already puttingthese ideas into action: Reducing complexity. Making iteasier to get work done. And directing our energy towardcreating even more compelling customer experiences.Because in everything we do, it’s customers who ultimatelylead the way.Thinking like a customerOur focus is on creating end-to-end customer journeys,from first interaction to long-term loyalty. This requires twobuilding blocks:The first is technology, and how we seamlessly integratehuman and digital interactions to get even closer toour customers. We understand how much people valueconvenience, speed and simplicity. The freedomthat comes with banking on the move, confident thattransactions are private and secure. And when customershave questions, they can reach us quickly – in person –through whatever channel they want. Our redesignedIT architecture supports all the ways we connect, todayand tomorrow.A rewarding customer journey also requires understanding –analyzing the information people share with us to betterappreciate their goals and challenges. We’re thinking likeour customers, guided by insights into what they prefer,and what works best from their perspective. And fromthere we’re creating more personalized products, servicesand experiences.Thinking like a customer is something we do in everyarea of the bank, everywhere we do business. Whetherour customers are pursuing cross-border growth oradapting to shifts in North American and global trade,we understand the kinds of changes they’re managing –because we’ve had to manage them ourselves. Andwe’re uniquely positioned to support customers in bothcountries as they adjust. Everyone at BMO, no matterwhat roles we play, is committed to fulfilling our customerpromise: We’re here to help.2017 PerformanceNet RevenueNet IncomeCommon Equity Tier 1 RatioReportedAdjusted1Reported(C billions)(C 65.520174.44.620152016Adjusted results are non-GAAP and are discussed in the Non-GAAP Measures section on page 29.6 BMO Financial Group 200th Annual Report 201711.410.15.32017201520162017
“ The effectiveness of our North American strategy is reflectedin the continued progress of our U.S. operating businesses.”Reinvesting for the futureAs we continue to pick up speed, we’re reinvesting ourproductivity gains in service of our customers. That meansbuilding new digital, data and analytics capabilities. Makingcore processes more responsive. Adopting open-sourcetechnologies. Shifting applications and processes to thecloud. And generally enhancing our ability to work quicklyand effectively, whether with digital augmentation or byfully automating routine tasks.Through agile innovation and strategic partnerships, we’reconstantly switching on new capabilities – from optionssuch as mobile Android Pay and a BMO voice service forAmazon Alexa, to digitally enabled investing and mortgageprocessing, to leveraging data analytics and artificialintelligence to protect against credit card abuse.Across the bank, we’re balancing decisions to improveoperating efficiency with those aimed at enablingfuture growth.Widening our scopeOur business strategy is organized not by region or productoffering, but by customer segment. And we lead all of ourbusinesses – capital markets, wealth management, assetmanagement, and personal and commercial banking – witha continental perspective, while ensuring our presencein the select global markets where our clients need us.This means we can better target our strategic investmentsacross a large base. And it allows us to deliver a superiorcustomer experience, quickly and economically, on bothsides of the Canada-U.S. border.The effectiveness of our North American strategy isreflected in the continued progress of our U.S. operatingbusinesses, which contributed 1.4 billion to the bottomline in 2017 and have achieved compound annual earningsgrowth of 13% (on a U.S. dollar basis) over the past twoyears. They represent the fastest-growing part of the bankand now account for about 25% of total adjusted earnings(see page 45). We believe that contribution will continueto be a key feature of BMO’s growth strategy.At the same time, as we pursue continued growth acrossNorth America and around the globe, we’re strengtheningthe bridge between strategy and sustainability. BMO’ssustainability principles – focusing on social change,financial resilience, community-building and environmentalimpact (see page 9) – reinforce the broader responsibilitiesthat underpin our strategic priorities. The result is greatervalue for all stakeholders.Where we’re focusing:1. Customer experience:Deeper insights More personalization2. Accelerating U.S. growth:Proven strengths Cross-border capabilities3. Technology deployment:Continued investment Digital acceleration4. Efficiency improvements:Bank-wide momentum Focus on simplification5. People and culture:Developing new skills Embracing our shared valuesBMO Financial Group 200th Annual Report 2017 7
Chief Executive Officer’s Message“ We’re unified in our focus on the customer.And now we’re accelerating.”This is a new chapterWe’ve made remarkable progress over the past decade.Everyone at BMO echoes the Chairman in recognizingBill Downe’s forward-thinking efforts in positioning us forthe future. The bank’s current leadership is building on thatsuccess. I thank our management team for this exceptionalcapability, dedication and character. They are remarkable.As we begin a new chapter, expectations are high. And sois our confidence in BMO’s ability to exceed them.We have the depth of talent. A diverse, inclusive andequitable workplace. And a level of employee engagementthat places BMO at the top of our industry, alongside thebest companies out there. Our people are also in a classby themselves when it comes to generosity: this yearmore than 92% of BMO employees once again contributedto charities across North America through our annualEmployee Giving Campaign.We have a strong, collaborative culture – one that’sgrounded in the values that guide all of our decisions. Thisis a great source of strength and resilience, and it cementsour stakeholders’ trust. I am so proud to work at a companythat has such a committed and talented workforce.We’re moving ahead on a solidly built foundation, readyto capitalize on every advantage: Our wealth of customerinsights. The right investment in technology. The disciplineto keep things simple. The power of a brand that makesbanking personal and intuitive. And a shared belief thatthe future starts right now.At BMO, we’re unified in our focus on the customer.And now we’re accelerating. There’s an unmistakableenergy across the bank. It’s the energy of change.Darryl WhiteChief Executive Officer8 BMO Financial Group 200th Annual Report 2017
“ We have a strong, collaborative culture – one that’s groundedin the values that guide all of our decisions.”Strategic FrameworkOUR VISIONTo be the bank that defines great customer experienceSTRATEGIC PRIORITIESSUSTAINABILITY PRINCIPLESAchieve industry-leading customer loyaltyby delivering on our brand promiseEnhance productivity to drive performanceand shareholder value Accelerate deployment of digital technologyto transform our businessLeverage our consolidated North Americanplatform and expand strategically in selectglobal markets to deliver growthEnsure our strength in risk managementunderpins everything we do for our customersSocial change: Helping people adapt and thriveby embracing diversity and tailoring our productsand services to meet changing expectationsFinancial resilience: Working with our customersto achieve their goals, and providing guidanceand support to underserved communitiesCommunity-building: Fostering social andeconomic well-being in the places where welive, work and give backEnvironmental impact: Reducing ourenvironmental footprint while consideringthe impacts of our businessA FOUNDATION OF TRUSTIntegrity, transparency and sound governanceBMO Financial Group 200th Annual Report 2017 9
Célia Neault and her husbandDominic Drapeau show BMObanker Vincent Larouche (left)around Ferme Drapeau etBélanger, the third-generationQuebec dairy farm where they’readopting new technologies toboost produc
It starts today Darryl White Chief Executive Officer BMO is on the move. Adapting. Innovating. Working hard to anticipate customers’ expectations and deliver value to shareholders. Always. Now it’s year 201, and we’re speeding up. Sharpening our focus. Making decisions today that are driven by where our customers want to go next.
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financial statements lists the intercorporate relationships among Bank of Montreal and its significant subsidiaries. 6.4% BMO 15-year 5.7% BMO 5-year BMO Financial Group has the longest-running dividend payout record of any company in Canada, at 191 years. BMO common shares had an annual dividend yield of 4.2% at October 31, 2019.
Responsible Investment Responsible Investment 2020 Review 3 BMO Global Asset Management 2 BMO Global Asset Management Growing the Good The COVID-19 pandemic has changed much about the way . we live and work; it has been a year none of us could have . expected. Yet through it our commitment to responsible investment at BMO is as clear as ever.
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