BMO Financial Group 200th Annual Report 2017 TOMORROW TODAY STARTS We aren’t waiting Marla Philpot Associate Project Manager Chicago, IL for the future to arrive. We’re creating it. Connecting. Learning. Ervey Ayvar Coordinator, Administrative Services, U.S. Finance Adapting. Innovating. Chicago, IL

Business Review 2 Who We Are / Finding new ways Financial Snapshot 3 Reasons to Invest in BMO 4 Chairman’s Message to be relevant. 5 Chief Executive Officer’s Message 9 Priorities and Principles 10 Tomorrow Starts Today 16 Performance Highlights Ready for what  Gerrick Ratliff 18 Our Strategic Footprint Human Resources 20 Executive Committee Consultant Chicago, IL 21 Board of Directors comes next. Financial Review 24 Financial Performance and Condition at a Glance 26 Management’s Discussion and Analysis 122 Supplemental Information 136 Statement of Management’s Responsibility for Financial Information 137 Independent Auditors’ Report of Registered Public Accounting Firm 138 Report of Independent Registered Public Accounting Firm 139 Consolidated Financial Statements 144 Notes to Consolidated Financial Statements

Resources and Directories

202 Glossary of Financial Terms 2 017 204 Where to Find More Information IBC Shareholder Information Financial Snapshot Who We Are Reported Adjusted 1 Established in 1817, BMO Financial Group is As at or for the year ended October 31 a highly diversified financial services provider (Canadian $ in millions, except as noted) 2017 2016 2017 2016 based in North America. We are the eighth- Revenue, net of CCPB2 (p 38) 20,722 19,544 20,722 19,628 largest bank in North America by assets, with Provision for credit losses (p 42) 774 815 850 815 total assets of $710 billion and an engaged Non-interest expense (p 43) 13,302 12,997 13,007 12,544 and diverse base of employees. BMO provides Net income (p 37) 5,350 4,631 5,508 5,020 a broad range of personal and commercial banking, wealth management and investment Earnings per share – diluted ($) (p 34) 7.92 6.92 8.16 7.52 banking products and services to more than Return on equity (%) (p 35) 13.3% 12.1% 13.7% 13.1% 12 million customers. We serve eight million Operating leverage, net of CCPB (%) (p 43) 3.7% 1.1% 1.9% 2.1% customers across Canada through our Canadian Common Equity Tier 1 Ratio (%) (p 35) 11.4% 10.1% na na personal and commercial arm, BMO Bank of Montreal. We also serve customers through Net Income by Segment3 our wealth management businesses: Canadian P&C (p 47) 2,512 2,202 2,515 2,204 BMO Global Asset Management, BMO Nesbitt U.S. P&C (p 50) 1,066 1,085 1,112 1,135 Burns, BMO Private Banking, BMO Insurance Wealth Management (p 54) 953 761 1,018 862 and BMO InvestorLine. BMO Capital Markets, BMO Capital Markets (p 58) 1,315 1,253 1,317 1,254 our investment and corporate banking and Corporate Services4 (p 61) (496) (670) (454) (435) trading products division, provides a full suite of financial products and services Net income (p 37) 5,350 4,631 5,508 5,020 to North American and international clients. U.S. P&C (US$ in millions) (p 50) 817 819 853 856 In the United States, BMO serves customers through BMO Harris Bank, based in the U.S. 1 Midwest with more than two million retail, Adjusted 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 be small business and commercial customers. useful in assessing underlying ongoing business performance. Presenting results on both bases provides BMO Financial Group conducts business readers with a better understanding of how management assesses results. through three operating groups: Personal and 2 Net of insurance claims, commissions and changes in policy benefit liabilities (CCPB). Commercial Banking, Wealth Management 3 Certain comparative figures have been reclassified to conform with the current year’s presentation. See page 46. and BMO Capital Markets. 4 Corporate Services, including Technology & Operations. na – not applicable Bank of Montreal brands the organization’s member companies as BMO Financial Group. Note 27 on page 197 Reporting Excellence of the financial statements lists the intercorporate relationships among Bank of Montreal and its significant subsidiaries. This year, BMO received the Chartered Professional Accountants of Canada Platinum Award for excellence in corporate reporting, recognizing exemplary quality in all four judging categories: financial reporting, corporate governance disclosure, electronic disclosure and sustainability reporting. The CPA restructured its awards system in 2017, eliminating industry sector awards. Only four companies in the entire field achieved Platinum status. This is the third consecutive year that BMO has been recognized with a CPA Award of Excellence.

2 BMO Financial Group 200th Annual Report 2017 Reasons to Invest in BMO

 Strong, diversified businesses that continue to  Well-capitalized with an attractive deliver robust earnings growth and long-term dividend yield. value for shareholders.  Efficiency-focused, enabled by technology Large North American commercial banking innovation, simplification, process enhancement business with advantaged market share. and increased digitalization across channels.

Well-established, highly profitable core banking  Customer-centric operating model guided by business in Canada. a disciplined loyalty measurement program.

Diversified U.S. banking operations well  Adherence to the highest standards of positioned to benefit from growth opportunities. corporate governance, including sustainability principles that ensure we consider social, Award-winning wealth franchise with an active economic and environmental impacts as we presence in markets across Canada, the United pursue sustainable growth. States, Europe and Asia.

Competitively advantaged Canadian and growing mid-cap focused U.S. capital markets business.

A 189-Year Dividend Record Compound annual growth rate: BMO Financial Group has the longest-running dividend payout record % % of any company in Canada, at 189 years. BMO common shares had an 7. 5 4.8 annual dividend yield of 3.6% at October 31, 2017. BMO 15-year BMO 5-year

Dividends Declared ($ per share)

3.40 3.56 3.08 3.24 2.71 2.80 2.80 2.80 2.80 2.82 2.94 2.26 1.85

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

BMO Financial Group 200th Annual Report 2017 3 Chairman’s Message

the next generation. We have seen this team develop in The next chapter recent years, and it is a winning team. We believe they and the bank are well positioned to face the new challenges that await us. They have our full support and confidence and we look forward to working closely with them as they continue to pursue the strategy that has delivered such J. Robert S. Prichard strong results for the bank. We endorse Darryl’s focus on Chairman of the Board enabling competitive advantage and his commitment to delivering industry-leading customer experience ever more We have just completed a milestone year in Bank of efficiently, while relentlessly promoting employee engage- Montreal’s remarkable history as we celebrated 200 years ment and BMO’s strong culture of corporate citizenship. of achievement, during which Canada’s first bank has On behalf of all BMO shareholders, I extend our thanks continually played an important role in the growth and to all the bank’s employees for their contributions to our development of the Canadian and North American success in 2017. BMO’s employees have been quick to economies. Fittingly, it was also a year of record recognize their customers’ changing needs, and have performance, with solid growth across all markets served responded efficiently and effectively, without jeopardizing by the bank. In all respects, it was a very good year. the human touch that sets BMO apart. As the pace of change BMO’s bicentennial also marked an important transition in accelerates, this ability to adapt will give BMO a competitive the bank’s leadership, with the carefully planned succession edge. We thank them for all they do so well. from one chief executive to another. On October 31, 2017, We also thank you – the bank’s shareholders – for your faith Bill Downe ended his term as the bank’s CEO after ten in us to represent your interests at the boardroom table. All of exceptional years of leadership, and Darryl White assumed us take great pride in the bank and we consider it a privilege the helm. to serve you as the bank begins its third century. Strong as our The Board of Directors and I thank Bill for his 34 years of past has been, we believe the best is yet to come. service to Bank of Montreal and for the close and effective Warm regards, working relationship he developed with the board over the past ten years. He was a terrific leader and made our bank stronger and better.

The numbers tell part of the story. On Bill’s watch, the bank has delivered shareholders 10 percent returns, on average, every year for 10 years. Better still, after putting in place his strategy and building his team, Bill accelerated the bank’s performance and delivered 15 percent returns, on average, every year for the past five. Revenue, income and total assets have all more than doubled, while common shareholders’ equity has nearly tripled and the bank’s market capitalization has increased by $29 billion. That’s almost $3 billion of added value every year for ten years. Outstanding.

But the business performance Bill delivered is about much more than the numbers. He leaves the bank ever more competitive with a superb leadership team, a leading North American platform, great customer focus, a corporate culture marked by ethical conduct and employee loyalty, and a powerful commitment to diversity. Overall, the bank is in the best shape in its 200-year history.

The Board of Directors has great confidence in Darryl White and the management team that he leads. They represent

4 BMO Financial Group 200th Annual Report 2017 Chief Executive Officer’s Message It starts today

Darryl White Chief Executive Officer

We’re moving into 2018 ready for the future and motivated BMO is on the move. Adapting. by the strong results of another record year. Adjusted net Innovating. Working hard income rose to $5.5 billion, a year-over-year increase of 10%. Earnings per share grew by 9% to $8.16. to anticipate customers’ The bank’s revenue increased 6%, driven by sustained expectations and deliver growth in customer loans and deposits. Expenses continued to be well managed, rising 4% as we balanced improved value to shareholders. Always. efficiency with investing for the future. Adjusted net operating leverage for the year was 1.9%, Now it’s year 201, and we’re in line with our medium-term target of 2% and building on the 2.1% we achieved in 2016. This has yielded an speeding up. Sharpening our improvement of 240 basis points in our adjusted net focus. Making decisions today efficiency ratio over the past two years. And our strong capital position, with a Common Equity Tier 1 ratio that are driven by where our of 11.4%, gives us differentiated flexibility to continue growing the business. customers want to go next. “ In 2017, we increased our spend on technology by 13% – and at the same time we grew earnings, generated positive operating leverage, improved efficiency, raised dividends, bought back shares and grew the bank’s capital.”

Every BMO business has contributed to our growth. Our strategic priorities map out a clear and proven path to value creation. All key metrics point to robust, sustainable performance across the bank. And we continue to build competitive advantage. That starts with listening – very closely – to the people who are best equipped to identify opportunities for growth. Our employees.

BMO Financial Group 200th Annual Report 2017 5 Chief Executive Officer’s Message

Adjusted Net Income 2017 10 % increase

Teams in every area of the bank have concrete suggestions through whatever channel they want. Our redesigned for further streamlining processes, simplifying our structure IT architecture supports all the ways we connect, today and erasing traditional boundaries. We’re already putting and tomorrow. these ideas into action: Reducing complexity. Making it A rewarding customer journey also requires understanding – easier to get work done. And directing our energy toward analyzing the information people share with us to better creating even more compelling customer experiences. appreciate their goals and challenges. We’re thinking like Because in everything we do, it’s customers who ultimately our customers, guided by insights into what they prefer, lead the way. and what works best from their perspective. And from there we’re creating more personalized products, services Thinking like a customer and experiences.

Our focus is on creating end-to-end customer journeys, Thinking like a customer is something we do in every from first interaction to long-term loyalty. This requires two area of the bank, everywhere we do business. Whether building blocks: our customers are pursuing cross-border growth or adapting to shifts in North American and global trade, The first is technology, and how we seamlessly integrate we understand the kinds of changes they’re managing – human and digital interactions to get even closer to because we’ve had to manage them ourselves. And our customers. We understand how much people value we’re uniquely positioned to support customers in both convenience, speed and simplicity. The freedom countries as they adjust. Everyone at BMO, no matter that comes with banking on the move, confident that what roles we play, is committed to fulfilling our customer transactions are private and secure. And when customers promise: We’re here to help. have questions, they can reach us quickly – in person –

2017 Performance

Net Revenue Net Income Common Equity Tier 1 Ratio (C$ billions) (C$ billions) (%)

Reported Adjusted1 Reported

5.5 4.7 5.0 20.7 11.4 19.5 Reported 10.7 10.1 18.1 5.3 4.4 4.6

2015 2016 2017 2015 2016 2017 2015 2016 2017

1 Adjusted results are non-GAAP and are discussed in the Non-GAAP Measures section on page 29.

6 BMO Financial Group 200th Annual Report 2017 “ The effectiveness of our North American strategy is reflected in the continued progress of our U.S. operating businesses.”

Reinvesting for the future line in 2017 and have achieved compound annual earnings growth of 13% (on a U.S. dollar basis) over the past two As we continue to pick up speed, we’re reinvesting our years. They represent the fastest-growing part of the bank productivity gains in service of our customers. That means and now account for about 25% of total adjusted earnings building new digital, data and analytics capabilities. Making (see page 45). We believe that contribution will continue core processes more responsive. Adopting open-source to be a key feature of BMO’s growth strategy. technologies. Shifting applications and processes to the cloud. And generally enhancing our ability to work quickly At the same time, as we pursue continued growth across and effectively, whether with digital augmentation or by North America and around the globe, we’re strengthening fully automating routine tasks. the bridge between strategy and sustainability. BMO’s sustainability principles – focusing on social change, Through agile innovation and strategic partnerships, we’re financial resilience, community-building and environmental constantly switching on new capabilities – from options impact (see page 9) – reinforce the broader responsibilities such as mobile Android Pay™ and a BMO voice service for that underpin our strategic priorities. The result is greater Amazon Alexa, to digitally enabled investing and mortgage value for all stakeholders. processing, to leveraging data analytics and artificial intelligence to protect against credit card abuse.

Across the bank, we’re balancing decisions to improve Where we’re focusing: operating efficiency with those aimed at enabling future growth. 1. Customer experience: Deeper insights | More personalization Widening our scope

Our business strategy is organized not by region or product 2. Accelerating U.S. growth: offering, but by customer segment. And we lead all of our Proven strengths | Cross-border capabilities businesses – capital markets, wealth management, asset management, and personal and commercial banking – with 3. Technology deployment: a continental perspective, while ensuring our presence Continued investment | Digital acceleration in the select global markets where our clients need us. This means we can better target our strategic investments 4. Efficiency improvements: across a large base. And it allows us to deliver a superior customer experience, quickly and economically, on both Bank-wide momentum | Focus on simplification sides of the Canada-U.S. border. 5. People and culture: The effectiveness of our North American strategy is Developing new skills | Embracing our shared values reflected in the continued progress of our U.S. operating businesses, which contributed $1.4 billion to the bottom

BMO 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 chapter We have a strong, collaborative culture – one that’s grounded in the values that guide all of our decisions. This We’ve made remarkable progress over the past decade. is a great source of strength and resilience, and it cements Everyone at BMO echoes the Chairman in recognizing our stakeholders’ trust. I am so proud to work at a company Bill Downe’s forward-thinking efforts in positioning us for that has such a committed and talented workforce. the future. The bank’s current leadership is building on that success. I thank our management team for this exceptional We’re moving ahead on a solidly built foundation, ready capability, dedication and character. They are remarkable. to capitalize on every advantage: Our wealth of customer insights. The right investment in technology. The discipline As we begin a new chapter, expectations are high. And so to keep things simple. The power of a brand that makes is our confidence in BMO’s ability to exceed them. banking personal and intuitive. And a shared belief that the future starts right now. We have the depth of talent. A diverse, inclusive and equitable workplace. And a level of employee engagement At BMO, we’re unified in our focus on the customer. that places BMO at the top of our industry, alongside the And now we’re accelerating. There’s an unmistakable best companies out there. Our people are also in a class energy across the bank. It’s the energy of change. by themselves when it comes to generosity: this year more than 92% of BMO employees once again contributed to charities across North America through our annual Employee Giving Campaign.

Darryl White Chief Executive Officer

8 BMO Financial Group 200th Annual Report 2017 “ We have a strong, collaborative culture – one that’s grounded in the values that guide all of our decisions.”

Strategic Framework

OUR VISION To be the bank that defines great customer experience

STRATEGIC PRIORITIES SUSTAINABILITY PRINCIPLES

Achieve industry-leading customer loyalty Social change: Helping people adapt and thrive by delivering on our brand promise by embracing diversity and tailoring our products and services to meet changing expectations Enhance productivity to drive performance and shareholder value Financial resilience: Working with our customers to achieve their goals, and providing guidance Accelerate deployment of digital technology and support to underserved communities to transform our business Community-building: Fostering social and Leverage our consolidated North American economic well-being in the places where we platform and expand strategically in select live, work and give back global markets to deliver growth Environmental impact: Reducing our Ensure our strength in risk management environmental footprint while considering underpins everything we do for our customers the impacts of our business

A FOUNDATION OF TRUST Integrity, transparency and sound governance

BMO Financial Group 200th Annual Report 2017 9  Célia Neault and her husband Dominic Drapeau show BMO Customers lead our bank. banker Vincent Larouche (left) around Ferme Drapeau et Our job is to listen carefully. Understand. And help get them where they Bélanger, the third-generation want to go next. Quebec dairy farm where they’re adopting new technologies to Thinking like our customers is changing the way we work. We’re building boost productivity. agile teams with employees from different areas of the bank. People whose roles aren’t defined by department names, but by the job we share in common: moving customers closer to their goals.

If a product or service doesn’t fit their lives, we redesign it. Or create a new one. And if a process slows things down, we change the process.

We’ve developed tools to gain deeper insights into people’s priorities. To recognize what they like to manage themselves. Anytime. Anywhere. And we’re available whenever they need to talk something through.  “We’re committed to constantly Or solve a problem. Or build a new plan. growing and improving,” says We’re making things easier. Faster. More intuitive. More personal. And that Célia Neault of Ferme Drapeau makes our own business more efficient, too. et Bélanger. “We need bankers who know what we can do and We’re here to help. To support our customers at every step in the journey – help us accomplish our goals. from first meeting to productive conversations to long-term loyalty. That’s the relationship we have with BMO.” Read the full story online: bmo.com/drapeau.* We can’t imagine working for anyone else.

Best Metals Winning Best & Mining Bank innovations Commercial Bank Named World’s Best Metals & Mining Received the 2017 Model Bank Named Best Commercial Bank in Canada Investment Bank for the eighth consecutive Award from the global research for the third consecutive year by World year by Global Finance, we also hosted one and advisory firm Celent, for work Finance Magazine at its 2017 Banking Awards of the industry’s most important events, in advancing process automation in recognition of our strong regional and the 26th Annual Global Metals & Mining through the effective deployment industry focus, as well as our commitment Conference, which brought together more of new technology. to building customer relationships and than a thousand industry professionals providing innovative solutions, notably in representing 500 companies from 32 countries. the area of Aboriginal banking.

*This story will be available online in February 2018.

10 BMO Financial Group 200th Annual Report 2017 BMO Financial Group 200th Annual Report 2017 11 Digital is transforming everything.

As our customers navigate busy lives, they count on us to be right there with them. Making banking simple, quick and convenient. Helping them manage their money and make smart decisions on the move.

That’s why we’ve transformed BMO’s technology platforms and capabilities. To nimbly develop the products and services that people are looking for. To make both self-service and guided transactions easier – for our customers, and for us, too. And to change the way we work – across the bank and in strategic partnerships – so we can quickly and efficiently take innovations to scale.

We’re using advanced analytics to personalize customers’ experiences while keeping their information secure. And when they have questions, we can look together at how they’re spending, saving, borrowing and investing – and then collaborate on a plan to achieve their goals.

However customers choose to interact with us, they can expect digitally-enabled features and experiences that are easy to use, tailored to their needs – and a genuine source of delight.

This is the transformative power of digital: Erasing boundaries. Making banking simpler. And using insights to strengthen relationships. All of which drives deeper loyalty and sustainable growth. As our customers set a new pace.

 Brett Pitts, Chief Digital Officer Digital Acceleration Growing Loyalty With the continued acceleration of our digital strategy, teams across the bank are coming together to create fast, – Focused, cross-functional teams – F ast, simple, intuitive banking convenient and personalized banking experiences for – Rich data and analytical insights – Personalized products and services the millions of customers who interact with us every day

– Innovative, human-centred design – C ustomers in control online and via mobile devices.

12 BMO Financial Group 200th Annual Report 2017 BMO Financial Group 200th Annual Report 2017 13  BMO Harris Bank’s new Sherman Park branch is the first Wisconsin location to We’re a North feature BMO’s Smart Branch concept. American bank.

We’ve been in the United States since 1818 – a year after BMO was founded. We helped finance trade and infrastructure that fuelled continental growth. And having grown our own business on both sides of the border, we’re here to help our customers do the same. Because we understand what they’re working to achieve – it’s part of who we are.

When we acquired Chicago’s Harris Bank 34 years ago, it reinforced our presence in the heart of the Midwest. The acquisition of Milwaukee-based Marshall & Ilsley in 2011 doubled our U.S. footprint. And as we’ve integrated operations across North America, we’ve transformed our business systems and processes, our brand strategy – and our entire bank.

BMO’s growth in the U.S. continues: Acquiring a transportation finance business that’s made us a sector leader. Leveraging our focus in our core  Melissa Garcia commercial banking business as we expand into new sectors and markets. Retail Banking Market Manager Roselle, IL And in BMO Capital Markets, continuing to drive performance in our U.S. platform with a clear strategy.

We’ve refocused our wealth business in the U.S. on core private banking and asset management. And we expect continued strong performance as we drive more revenue in U.S. capital markets, build on our strength in commercial banking, and accelerate growth and profitability in personal banking.

Our U.S. businesses are growing quickly. And we’re sustaining that energy across North America. Our growth is anchored in the heart of the continent.

Our diversified businesses in the BMO has #2 deposit market share in Over the past two years, our U.S. United States are delivering strong the Chicago and Milwaukee markets, segment has delivered compound annual growth, today contributing about and we are ranked 4th within our core income growth of 13% and improved its 25% of the bank’s adjusted earnings. Midwest footprint.* efficiency ratio by more than 6%.

*Illinois, Kansas, Wisconsin, Missouri, Indiana and Minnesota.

14 BMO Financial Group 200th Annual Report 2017 BMO Financial Group 200th Annual Report 2017 15  Launched the BMO200 fountain in celebration of our Performance Highlights bicentennial year, inviting individuals and organizations to “wish it forward.” During the year, 63,434 digital wishes were made, and BMO fulfilled wishes from These highlights offer a balanced view of the bank’s performance across financial across North America and beyond to say thank you and non-financial dimensions, and reflect our commitment to serving our customers, and give back to our customers and communities. employees, shareholders, communities and the environment.

Customers Employees Community-building Environmental impact

Received a 2017 Catalyst Award, recognizing our industry-leading $ Received the 2017 Thomson Reuters/S-Network ESG Best Here to help achievements to accelerate diversity and inclusion in our workplace. 62.3 million donated Practices Award. We were the highest-ranked company in  Provided free or discounted services to 1,108,147 seniors and BMO is one of only nine organizations in the world to have won Donated $62.3 million to registered charities and non-profit the financial sector worldwide. 345,156 students (Canada). this award twice. organizations across North America. Named to the 2017 Global 100 Most Sustainable Corporations 301,094 customers completed loyalty surveys across North in the World by Corporate Knights. America, which helps us understand what’s working – and what’s Top Team A culture of giving not – and enables us to gather actionable insights into how we American Banker magazine has named the United States BMO More than 92% of our employees participated in the BMO can improve our customers’ experience. leadership team as a Top Team as part of its Most Powerful Employee Giving Campaign, donating more than $21 million Renewable energy Women in Banking awards for the eighth year in a row. to local United Way organizations and other charities across Participated in $6.4 billion of renewable energy equity and North America.* debt financing and provided $4.2 billion of loan commitments 102 First Nations to renewable entities and renewable projects (worldwide).  83% engagement 102 First Nations participated in our On-Reserve Housing US$ Loan Program. Under this program, BMO has made approximately Achieved our highest-ever engagement score of 83% in the 552 million provided $226 million available in loans (Canada). 2017 BMOPulse survey, 4% higher than the average score for BMO Harris Bank provided US$552 million in community financial institutions surveyed (worldwide). development loans in 2017 through our community reinvestment activities (United States). $71,577,643 investment $71,577,643 investment in training, equating to $1,564 per 4,600 volunteers FTE employee in Canada and the United States. More than 4,600 employees participated in BMO Volunteer Day in 2017 (North America). Recognized for gender disclosure and best-in-class practices in the Bloomberg Financial Services Gender-Equality Index for the second year in a row. BMO is one of only 52 firms to be included globally.

Medium-term 2017 financial Total shareholder return objectives performance BMO S&P/TSX Composite Index

7% to 10% adjusted EPS growth 8.5% One-year 20.2% 11.5%

15% or more adjusted ROE 13.7% Three-year 10.9% 6.2%

2% or more adjusted 1.9% Five-year 15.5% 8.4% net operating leverage

Maintain capital ratios that 11.4% CET1 Ratio exceed regulatory requirements

 These metrics have been included in an independent limited assurance engagement being performed in conjunction with our 2017 Environmental, Social and Governance Report. *This data reflects the BMO Employee Giving Campaign in fiscal 2017.

16 BMO Financial Group 200th Annual Report 2017 BMO Financial Group 200th Annual Report 2017 17 Our Strategic Footprint

BMO’s strategic footprint spans strong regional economies. Our three operating Reported net income by country 2017 groups (Personal and Commercial Banking, BMO Capital Markets and BMO Wealth Management) serve individuals, businesses, governments and corporate customers 71% Canada across Canada and the United States with a focus on six U.S. Midwest states 23% United States – Illinois, Indiana, Wisconsin, Minnesota, Missouri and Kansas. Our significant presence in North America is bolstered by operations in select global markets in 6% Other countries Europe, Asia, the Middle East and South America, allowing us to provide all our customers with access to economies and markets around the world.

North American footprint Global footprint BMO Capital Markets offices

BMO Capital Markets has approximately 2,500 professionals in 30 locations around the world.

Canada United States Europe and Middle East Asia-Pacific Canada Global We serve eight million Personal and Commercial Additional Wealth Additional Commercial Wealth Management Wealth Management Calgary, AB Abu Dhabi customers across Canada Banking and Wealth Management locations Banking locations Abu Dhabi Hong Kong Montreal, QC Beijing through our Canadian Management footprint Denver, CO Atlanta, GA Amsterdam Melbourne Toronto, ON Dublin personal and commercial Arizona Palo Alto, CA Columbus, OH Edinburgh Singapore Vancouver, BC Guangzhou arm, BMO Bank of Montreal. Florida Portland, OR Dallas, TX Frankfurt Hong Kong We also serve customers United States Illinois Rockford, IL Irvine, CA Geneva London through BMO Capital Markets Indiana Salt Lake City, UT Irving, TX Lisbon Atlanta, GA Melbourne and our wealth management Kansas West Palm Beach, FL Rancho Cordova, CA London Boston, MA Mexico City businesses. Minnesota San Francisco, CA Madrid Chicago, IL Mumbai Missouri Seattle, WA Milan Denver, CO Paris Wisconsin Washington, DC Paris Houston, TX Rio de Janeiro Stockholm Milwaukee, WI Shanghai Zurich Minneapolis, MN Singapore New York, NY Taipei San Francisco, CA Zurich Seattle, WA Washington, DC

18 BMO Financial Group 200th Annual Report 2017 BMO Financial Group 200th Annual Report 2017 19 Executive Committee1

Darryl White David R. Casper Thomas E. Flynn Catherine Roche Chief Executive Officer, President and Chief Executive Officer, Chief Financial Officer, Head, Marketing and Strategy, BMO Financial Group BMO Harris Bank N.A. and Group Head, BMO Financial Group BMO Financial Group Commercial Banking Frank Techar Cameron Fowler Lynn Roger Vice-Chair, Patrick Cronin President, Chief Transformation Officer, BMO Financial Group Group Head, North American Personal BMO Financial Group BMO Capital Markets and Business Banking, BMO Financial Group Jean-Michel Arès Joanna Rotenberg Chief Technology Alexandra Dousmanis-Curtis Group Head, & Operations Officer, Group Head, Gilles G. Ouellette BMO Wealth Management, BMO Financial Group U.S. Retail and Business Banking, Group Head, BMO Financial Group BMO Harris Bank BMO Asset Management and Vice-Chair, International, Christopher Begy BMO Financial Group Richard Rudderham U.S. Country Head and Simon A. Fish Chief Human Resources Officer, Chief Executive Officer, General Counsel, BMO Financial Group BMO Financial Corp. BMO Financial Group Surjit Rajpal Chief Risk Officer, BMO Financial Group 1 As at November 1, 2017.

 Joanna Rotenberg speaking at the 2017 BMO leaders’ conference.

20 BMO Financial Group 200th Annual Report 2017 Board of Directors1

To promote alignment of our strategic goals across all our businesses, each director serves on at least one board committee and the Chief Executive Officer is invited to all committee meetings. We review the membership of all committees annually. www.bmo.com/corporategovernance

Janice M. Babiak Sophie Brochu George A. Cope William A. Downe* Christine A. Edwards Dr. Martin S. Eichenbaum Ronald H. Farmer

Linda S. Huber Eric R. La Flèche Lorraine Mitchelmore Philip S. Orsino J. Robert S. Prichard Darryl White** Don M. Wilson III

Janice M. Babiak, CPA (US), William A. Downe, C.M. Linda S. Huber J. Robert S. Prichard, O.C., CA (UK), CISM, CISA Chief Executive Officer,* Executive Vice President and Chief O.Ont., FRSC, F.ICD Corporate Director BMO Financial Group Financial Officer, Moody’s Corporation Chairman of the Board, BMO Financial Board/Committees: Audit and Board/Committees: Attends all Board/Committees: Audit and Group, and Chair of Torys LLP Conduct Review, Risk Review committee meetings as an invitee Conduct Review Board/Committees: Governance Other public boards: Other public boards: Director since: 2017 and Nominating, Human Resources, Euromoney Institutional Investor PLC, ManpowerGroup Risk Review Walgreens Boots Alliance, Inc. Director since: 2007 Eric R. La Flèche Other public boards: Barrick Gold Director since: 2012 President and Chief Executive Officer, Corporation, George Weston Limited, Christine A. Edwards Metro Inc. Onex Corporation Sophie Brochu, C.M. Capital Partner, Winston & Strawn Board/Committees: Risk Review Director since: 2000 President and Chief Executive Officer, Board/Committees: Governance Other public boards: Metro Inc. Gaz Métro and Nominating (Chair), Director since: 2012 Darryl White Board/Committees: Audit and Human Resources, Risk Review Chief Operating Officer,** Conduct Review Director since: 2010 Lorraine Mitchelmore BMO Financial Group Other public boards: BCE Inc., President and Chief Executive Officer, Board/Committees: Attends all Bell Canada, Valener Inc. Dr. Martin S. Eichenbaum Field Upgrading Ltd. committee meetings as an invitee Director since: 2011 Charles Moskos Professor of Board/Committees: Human Director since: 2017 Economics, Northwestern University Resources, Risk Review George A. Cope, C.M. Board/Committees: Audit and Director since: 2015 Don M. Wilson III President and Chief Executive Officer, Conduct Review, Risk Review Corporate Director Bell Canada and BCE Inc. Director since: 2015 Philip S. Orsino, O.C., F.C.P.A., F.C.A. Board/Committees: Governance Board/Committees: Governance President and Chief Executive Officer, and Nominating, Human Resources, and Nominating, Human Resources Ronald H. Farmer Brightwaters Strategic Solutions, Inc. Risk Review (Chair) Other public boards: BCE Inc., Managing Director, Mosaic Capital Partners Board/Committees: Audit and Director since: 2008 Bell Canada Board/Committees: Governance Conduct Review (Chair), Governance Director since: 2006 and Nominating, Human Resources and Nominating 1 As at October 31, 2017. (Chair), Risk Review Other public boards: Hydro One Inc., * Director since: 2003 Hydro One Limited Retired as Chief Executive Officer, BMO Financial Group and Director on Director since: 1999 October 31, 2017. ** Appointed Chief Executive Officer, BMO Honorary Directors Financial Group on November 1, 2017.

Robert M. Astley, FCIA, F.ICD, LL.D., Waterloo, ON A. John Ellis, O.C., LL.D., O.R.S., Vancouver, BC Bruce H. Mitchell, Toronto, ON Stephen E. Bachand, Ponte Vedra Beach, FL, USA John F. Fraser, O.C., LL.D., O.R.S., Winnipeg, MB Eric H. Molson, Montreal, QC Ralph M. Barford, C.M., M.B.A., LL.D., F.ICD, Toronto, ON David A. Galloway, Toronto, ON Jerry E.A. Nickerson, North Sydney, NS Matthew W. Barrett, O.C., LL.D., Oakville, ON Richard M. Ivey, C.C., Q.C., Toronto, ON Dr. Martha C. Piper, O.C., O.B.C., FRSC, Vancouver, BC David R. Beatty, C.M., O.B.E., F.ICD, Toronto, ON Harold N. Kvisle, Calgary, AB Jeremy H. Reitman, Montreal, QC Peter J.G. Bentley, O.C., O.B.C., LL.D., Vancouver, BC Eva Lee Kwok, Vancouver, BC Guylaine Saucier, F.C.P.A., F.C.A., C.M., F.ICD, Montreal, QC Robert Chevrier, F.C.A., Montreal, QC J. Blair MacAulay, Oakville, ON Nancy C. Southern, Calgary, AB Tony Comper, C.M., LL.D., Toronto, ON Ronald N. Mannix, O.C., Calgary, AB C. William Daniel, O.C., LL.D., Toronto, ON Robert H. McKercher, Q.C., Saskatoon, SK

BMO Financial Group 200th Annual Report 2017 21 Financial Review

24 Financial Performance and Condition at a Glance 26 Management’s Discussion and Analysis 122 Supplemental Information 136 Statement of Management’s Responsibility for Financial Information 137 Independent Auditors’ Report of Registered Public Accounting Firm 138 Report of Independent Registered Public Accounting Firm 139 Consolidated Financial Statements 144 Notes to Consolidated Financial Statements

Resources and Directories 202 Glossary of Financial Terms 204 Where to Find More Information IBC Shareholder Information

 Lisa Levac Branch Manager Ottawa, ON

22 BMO Financial Group 200th Annual Report 2017 BMO Financial Group 200th Annual Report 2017 23 Financial Performance and Condition at a Glance

Our Performance (Note 1) Peer Group Performance Our Performance (Note 1) Peer Group Performance

Total Shareholder Return (TSR)  P 34 TSR (%) Credit Losses  P 42 Provision for Credit Losses as a % of Average •  BMO shareholders have earned a strong average annual return 13.5 • The Canadian peer group three-year average annual • Provisions for credit losses (PCL) totalled $774 million, down Net Loans and Acceptances of 10.9% over the past three years, which was above the 6.2% 10.9 TSR was 11.2%. The one-year TSR was 24.9% and the from $815 million in 2016. There was a $76 million pre-tax • The Canadian peer group average PCL represented return of the S&P/TSX Composite Index. 9.9 five-year average annual TSR was 14.9%. decrease in the collective allowance in the year, which 29 basis points of average net loans and acceptances, 0.23 •  BMO’s one-year TSR of 20.2% and five-year average annual • The North American peer group three-year average decreased the total provision for credit losses. Specific PCL 0.21 down from 39 basis points in 2016. TSR of 15.5% both outperformed the S&P/TSX Composite annual TSR was 13.6%, the one-year TSR was 35.9% and of $850 million increased $35 million. 0.19 • The North American peer group average PCL represented Index, and the five-year TSR also outperformed our Canadian the five-year average annual TSR was 15.6%, all above • Total PCL as a percentage of average net loans and acceptances 30 basis points, down from 37 basis points in 2016. bank peer group average. the corresponding Canadian peer group averages. was 0.21% in 2017, down slightly from 0.23% in the prior year. Specific PCL as a percentage of average net loans and acceptances was 0.23%, consistent with the prior year. Graph shows average annual three-year TSR. 2015 2016 2017 2015 2016 2017

Earnings per Share (EPS) Growth  P 34 EPS Growth (%) Impaired Loans  P 90 Gross Impaired Loans and Acceptances • Reported EPS grew $1.00 or 14% to $7.92 in 2017. Adjusted EPS • The Canadian peer group average EPS growth was 12%, • Gross impaired loans and acceptances (GIL) decreased to as a % of Gross Loans and Acceptances grew $0.64 or 9% to $8.16, primarily reflecting increased earnings. excluding one peer bank that was unusually high. $2,174 million from $2,332 million in 2016, and represented • The Canadian peer group average ratio of GIL as a • Reported and adjusted net income available to common • Average EPS growth for the North American peer group 0.57% of gross loans and acceptances, compared to 0.62% percentage of gross loans and acceptances was 0.50%, shareholders was 15% and 10% higher year-over-year, respectively, 14 was 18%. a year ago. down from 0.66% in 2016. 0.62 while the average number of diluted common shares outstanding Formations of new impaired loans and acceptances, a key The average ratio for the North American peer group 7 9 • 0.58 0.57 • was relatively unchanged. 6 5 driver of provisions for credit losses, totalled $2,193 million, was 1.04%, down from 1.25% in 2016. down from $2,512 million in 2016, reflecting lower oil and 2 gas impaired loan formations.

All EPS measures are stated on a diluted basis. 2015 2016 2017 2015 2016 2017

Return on Equity (ROE)  P 35 ROE (%) Capital Adequacy  P 35, 69 Capital Adequacy 11.4 • Reported ROE was 13.3% and adjusted ROE was 13.7% in 2017, • The Canadian peer group average ROE of 16.6% was • BMO’s Common Equity Tier 1 (CET1) Ratio reflects a well-capitalized 10.1 • The Canadian peer group average CET1 Ratio was 13.7 10.7 compared with 12.1% and 13.1%, respectively, in 2016. 13.3 13.1 13.3 higher than the average ROE of 15.0% in 2016, as position. 11.0% in 2017, compared to an average CET1 Ratio 12.5 12.1 ROE increased in 2017, primarily due to growth in income exceeding ROE increased for all but one bank in the group. •  Our CET1 Ratio of 11.4% increased from 10.1% at the end of fiscal of 10.7% a year ago. growth in common equity. There was growth in both earnings and • Average ROE for the North American peer group was 2016 due to higher capital, largely from retained earnings growth • The basis for computing capital adequacy ratios adjusted earnings available to common shareholders. Average 12.2%, compared to 11.1% in 2016. and common shares issued through the Shareholder Dividend in Canada and the United States is not completely common shareholders’ equity increased, primarily due to increased Reinvestment and Share Purchase Plan and the exercise of stock comparable. retained earnings. options, as well as modestly lower source currency risk-weighted assets, partially offset by share repurchases.

2015 2016 2017 2015 2016 2017

Revenue Growth  P 38 Revenue Growth (%) Credit Ratings  5P 10 Credit Ratings • On a net revenue basis*, reported revenue increased $1,178 million 8888 • Revenue growth for the Canadian peer group averaged • Credit ratings for BMO’s senior debt, as assessed by the four major rating • Moody’s Canadian peer group median credit rating was lower in 2017 or 6% to $20,722 million in 2017 and adjusted revenue increased 7%, slightly lower than the average growth of 8% in agencies, are listed below and all four ratings are considered to indicate compared with 2016, as Moody’s downgraded the ratings of six Canadian $1,094 million or 6%, driven by good performance in Canadian P&C, 66 the prior year. high-grade, high-quality issues. Standard & Poor’s (S&P) and Fitch have banks, including BMO. The credit ratings awarded by the three remaining Wealth Management and BMO Capital Markets. Total revenue • Average revenue growth for the North American peer a stable outlook on BMO. Moody’s maintains a negative outlook on all rating agencies were unchanged. increased $1,173 million or 6% to $22,260 million in 2017. group of 8% was modestly higher than the average Canadian domestic systemically important banks (DSIBs) and DBRS maintains • T he North American peer group median credit ratings were unchanged growth of 7% in 2016, with all banks in the group a negative outlook on many Canadian DSIBs, pending further details on from 2016, and remain slightly lower than the Canadian peer group median reporting higher revenues. the government’s approach to implementing a bail-in regime. for three of the rating agencies.

*Graph shows net revenue growth, calculated using total BMO Financial Group Canadian peer group median* North American peer group median* revenue net of insurance claims, commissions and changes in policy benefit liabilities (CCPB). 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 DBRS AA AA AA DBRS AA AA AA DBRS AH AH AH Fitch AA– AA– AA– Fitch AA– AA– AA– Fitch A+ A+ A+ Efficiency Ratio  P 43 Efficiency Ratio (%) 67.2 66.5 Moody’s Aa3 Aa3 A1 Moody’s Aa3 Aa3 A1 Moody’s A1 A1 A1 (Expense-to-Revenue Ratio) 65.2 63.9 64.2 62.8 • The Canadian peer group average efficiency ratio was • On a net revenue basis*, the reported efficiency ratio improved 57.1% in 2017, an improvement from 59.5% in 2016. S&P A+ A+ A+ S&P A+ A+ A+ S&P A– A– A– The average efficiency ratio for the North American 230 basis points to 64.2% in 2017 and the adjusted efficiency • *Data for all years reflects the peer group composition in the most recent year. ratio improved 110 basis points to 62.8%. peer group of 60.0% improved from 61.6% in 2016.

*Graph shows the efficiency ratio on a net revenue basis, calculated using total revenue net of CCPB. 2015 2016 2017

Note 1: Adjusted results in this section are non-GAAP. Please see the Non-GAAP Measures section on page 29. BMO reported 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, BMO reported BMO adjusted National Bank of Canada, Royal Bank of Canada, Scotiabank and TD Bank Group. The North American peer group averages include the Canadian peer group, BMO adjusted Canadian peer group average as well as BB&T Corporation, Citizens Financial Group, Inc., Fifth Third Bancorp, KeyCorp, The PNC Financial Services Group Inc., Regions Financial Corporation, Canadian peer group average North American peer group average SunTrust Banks Inc. and U.S. Bancorp. The North American peer group was redefined in 2017. Averages for prior periods have been restated. North American peer group average 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.

24 BMO Financial Group 200th Annual Report 2017 BMO Financial Group 200th Annual Report 2017 25 MD&A 26 businesses certain standards of IFRS transfers new and of changes adoption methodology The for presentation. reclassified year’s been 46. have current have page 2012 the periods See and with Prior groups. 2013 conform prospectively. operating by years to results between issued fiscal reclassified our pronouncements the been impacted annual accounting in has only compound amended periods data 2015 and and comparative year in rates new for prior growth several statements other certain adopted financial Certain such, BMO consolidated restated. As 2013, The been (CGAAP). 1, Board. time November Standards that On Accounting at meaningful. International defined be the as not GAAP may Canadian (CAGR) with rates accordance growth accounting in accepted presented generally are to and References restated Canada. with Institutions comply Financial also of We Superintendent in Board. the prepared Standards of IFRS. 2017. statements Accounting Office mean 5, financial International the (GAAP) December consolidated the regulator, principles of from by our as derived issued by is been as IFRS commentary have (IFRS) of MD&A and Standards interpretations The dollars Reporting 2017. Canadian Financial 31, in International October stated with information. ended are accordance financial year amounts that the all of for indicated, respect statements otherwise 136, in financial Unless page Directors consolidated on of our found Board with be and conjunction can Committee in which Review information statement, Conduct financial The and for (MD&A). Audit responsibility Analysis the management’s and of outlining Discussion roles statement Management’s the a and explains signed statements also have financial Officer consolidated Financial annual Chief the its in and Officer Executive Chief BMO’s Analysis and Discussion Management’s ANALYSIS AND DISCUSSION MANAGEMENT’S h fetvns fBOsdslsr otosadpoeue n h effe the and www.sec.go procedures at and website controls SEC’s fa disclosure the and BMO’s of appropriateness of section the effectiveness EDGAR certify the the Officer on Financial and Chief www.sedar.com its at and website Officer Share Administrators’ of Securities Meeting Canadian Annual the of on Notice investorrelations, and Form Information Annual MD&A, annual including materials, disclosure continuous Our Filings Regulatory Operations and Technology including Services, Corporate 62 Markets Capital BMO Banking Commercial Management and Wealth Personal 61 BMO Banking U.S. Commercial and Personal 58 Canadian 54 Banking 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Shareholders’ Parties Related with 119 Transactions Policies Accounting in Changes 2017 118 Future in Policies Accounting in 117 Changes Estimates Accounting 116 Critical 116 113 Risk Reputation 113 Risk Social and Environmental 112 Risk Strategic Risk 111 Business Risk Regulatory and 111 Legal Risk 111 Model Risk 109 Operational 107 105 9LqiiyadFnigRisk Funding and Liquidity Risk Insurance Risk 99 Market Risk Counterparty and 99 Credit Risks and 94 Framework Overview Management Results 86 Risk Future Affect May That 81 Risks 81 79 Arrangements Sheet Off-Balance 78 Instruments Financial Select Management Capital 77 Enterprise-Wide Sheet Balance 76 Summary 69 67 67 aaigkyfnnilrssadohrrltdrssw face. we risks related other and risks financial key managing Management Risk Enterprise-Wide and arrangements instruments. sheet financial off-balance select of certain review shareholders. a our includes to support also returns to It maximize position and capital capital strategies our our business optimizing of our to review approach a our includes and It adequacy category. sheet balance major by Review Condition Financial oehsoia detail. historical more Information Supplemental Enhanced the by Force. recommended Task disclosures Disclosure of reporting, index financial disclosure an over of provides control evaluation and internal our and outlines procedures also and It controls periods. in future policies for accounting and in 2017 changes and estimates Control accounting Internal critical and Disclosure and Matters Accounting n nenlCnrloe iaca Reporting Financial over Control Internal and rsnsohrueu iaca alsand tables financial useful other presents omnso u sesadliabilities and assets our on comments ulnsorapoc to approach our outlines .BOsCifExecutive Chief BMO’s v. bmo.com/ reviews MD&A 27 . We consider 8.5 6.53.6 4.7 3.9 4.6 20.214.5 15.513.313.7 5.5 13.3 9.7 13.912.51.60 8.3 11.4 13.5 12.2 14.5 1.55 na 12.3 1.54 na 1-year 5-year* 10-year* BMO Financial Group 200th Annual Report 2017 To be the bank that defines great customer experience Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 29.

Well-established, highly profitable core bankingDiversified business U.S. in banking Canada. operations wellAward-winning positioned wealth to franchise benefit with from an growthCompetitively active opportunities. advantaged presence Canadian in and markets growing across mid-cap Canada, focused the U.S. United capital States, markets Europe business. and Asia. Large North American commercial banking business with advantaged market share. ‰ ‰ ‰ ‰ ‰

Adherence to the highest standardsenvironmental of impacts corporate as governance, we including pursue sustainability sustainable principles growth. that ensure we consider social, economic and Well-capitalized with an attractive dividendEfficiency-focused, yield. enabled by technology innovation,Customer-centric simplification, operating process model enhancement guided and by increased a digitalization disciplined across loyalty channels. measurement program. Strong, diversified businesses that continue to deliver robust earnings growth and long-term value for shareholders. BMO’s business planning process is rigorous, sets ambitious goals and considers the prevailing economic conditions,Our our medium-term risk financial appetite, objectives our on an adjusted basis are to achieve average annual earnings per share (adjusted EPS) growth of 7% Our one-year adjusted EPS growth rate was 8.5%, consistent with our target growth range of 7% to 10%. Our adjusted net operating leverage The Our Financial Objectives sectionstatements. above By and their the nature, Enterprise-Wide forward-looking StrategyRegarding statements and Forward-Looking require Economic Statements us Developments on to and page makestatements Outlook 31 assumptions set sections of and forth that this are in follow MD&A subject such contain for to sections. certain a inherent forward-looking discussion risks of and such uncertainties. risks Please and refer uncertainties to and the the Caution material factors and assumptions related to the * 5-year and** 10-year growth 1-year measure rates as reflectna at growth – October based not 31, on applicable 2017; CGAAP 5-year in and 2007, 10-year respectively, measures and are IFRS the in average 2012 and of 2017, year-end respectively. values. As at and for the periods ended October 31,Average 2017 annual total shareholder return ‰ ‰ ‰ ‰ Average growth in annual EPS Average growth in annual adjustedAverage EPS annual ROE Average annual adjusted ROE Compound growth in annual dividendsDividend declared yield** per sharePrice-to-earnings multiple** Market value/book value ratio** Common Equity Tier 1 Ratio 4.7 4.8 2.8 ‰ Reasons to Invest in BMO customers’ evolving needs and theperformance opportunities that available is across measured our against lines both of internal business. and It external includes benchmarks clearto and and 10%, progress direct earn toward accountability an our for average strategic annual and annual priorities. maintain return capital on ratios equity that (adjustedIn exceed ROE) managing regulatory of our requirements. 15% operations These or and objectives more,balanced risk, are generate with we guideposts average the recognize as annual need that we net to current execute operating invest profitability against leverage in and our of our the strategic 2% businesses ability priorities. or for to more of their meet 1.9% future these in long-term objectives 2017 health in and and amore. 2.1% growth single Higher in prospects. period capital 2016 must requirements were be have inattain. had line BMO a with is negative our well-capitalized impact target with on of a ROE 2% Common and or Equity as more. Tier a Our 1 result, one-year Ratio our adjusted of 15% ROE 11.4%. ROE of objective 13.7% is was ambitious below and our will target take of time 15% to or top-tier returns to be top-quartile shareholder returns relative to our Canadian and North American peer group. Our Financial Objectives BMO’s medium-term financial objectives forexpected certain performance important over performance time. measures We areoperations believe set with, we out and will below. executing deliver These on, top-tier objectives our total establish strategic shareholder a priorities, return range along and of with meet our our vision financial objectives by aligning our

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BMO products Wealth BMO Harris and Management Financial Bank, services and Group based to BMO conducts in North Capital business the American Markets. through U.S. and three Midwest operating with groups: more Personal than and two Commercial million Who We Are MD&A dutdrslsi hstbeaennGA mut rnnGA esrs laeseteNnGA esrsscino ae29. page on section Measures Non-GAAP the see Please measures. 28 non-GAAP or amounts non-GAAP are table this in results Adjusted Highlights Financial ANALYSIS AND DISCUSSION MANAGEMENT’S aac Sheet Balance pcfcPLt-vrg e on n cetne (annualized) acceptances and loans net PCL-to-average Specific C-oaeaentlasadacpacs(annualized) acceptances and loans net PCL-to-average assets average on Return dutdefcietxrate tax effective Adjusted fetv a rate tax Effective e neetmri naeaeerigassets earning average on margin interest CCPB Net of net leverage, operating Adjusted CCPB of net leverage, Operating dutdefcec ai,nto CCPB of net ratio, efficiency Adjusted dutdefcec ratio efficiency Adjusted fiinyrto e fCCPB of net ratio, Efficiency growth expense non-interest Adjusted growth expense Non-interest CCPB of net growth, Revenue growth Revenue growth income net Adjusted growth income Net oeg xhneRates Exchange Foreign Ratio Leverage equity common tangible on return Adjusted oa aia Ratio Capital Total equity common tangible on Return growth share per Earnings okvleprshare per value Book ir1CptlRatio Capital 1 Tier equity on return Adjusted price share Closing share per earnings Adjusted oa aktvleo omnshares common of value market Total aia Ratios Capital yield Dividend iied elrdprshare per declared Dividends vrg aainUS dollar Canadian/U.S. Average dollar Canadian/U.S. at As Ratio 1 Tier Equity Common ratio assets securities-to-total and Cash equity shareholders’ Common Deposits acceptances and loans Net Assets equity on Return Ratios and Measures Financial share per Earnings income interest Net Statement Income Summary noted) as except millions, in $ (Canadian dutderig e hr growth share per earnings Adjusted o-neetrevenue Non-interest e income Net taxes income for Provision expense Non-interest losses credit for provision Total losses credit of) (recovery for provision (PCL) Collective losses credit for provision Specific CCPB (CCPB) of liabilities net benefit Revenue, policy in changes and commissions claims, Insurance Revenue omnSaeData Share Common income net Adjusted income Net M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO trbtbet o-otoln neeti subsidiaries in interest non-controlling to Attributable shareholders bank to Attributable (%) (%) a t$mlin,ecp snoted) as except millions, $ at (as $ xeta noted) as except ($, ($) (%) (%) (%) $billions) ($ (%) 483,488 378,218 709,580 40,114 10,007 12,253 13,302 20,722 22,260 1.3071 1.2895 5,348 5,350 1,296 1,538 5,508 5,350 61.92 98.83 0.23 0.21 19.8 19.5 1.55 62.8 58.4 64.2 15.5 16.5 15.1 16.3 13.0 13.7 8.16 3.56 11.4 13.3 7.92 14.5 28.5 64.0 2017 774 850 (76) 0.7 1.9 3.7 3.7 2.3 6.0 5.6 9.7 4.4 8.5 3.6 2 7,7 438,169 334,024 641,881 473,372 371,751 687,935 84436,182 38,464 12510,626 11,215 29712,182 12,997 18,135 19,389 19,544 21,087 .211.2550 1.3075 1.3251 1.3411 ,7 8,763 9,872 ,2 4,370 4,405 936 4,622 4,631 1,101 1,254 1,543 ,2 4,681 4,405 5,020 4,631 95 56.31 59.56 53 76.04 85.36 .30.19 0.23 .30.19 0.23 9918.0 19.9 9217.5 19.2 .91.51 1.59 3965.2 63.9 9260.9 59.2 6567.2 66.5 6116.4 16.1 3614.4 13.6 15.8 15.3 1612.3 11.6 13.3 13.1 7.00 7.52 .03.24 3.40 0110.7 10.1 12.5 12.1 6.57 6.92 7127.8 27.1 48.9 55.1 062015 2016 1 612 612 815 815 . 0.7 0.7 . (1.3) (3.0) 2.1 1.1 . 9.8 11.5 8.5 6.4 5.1 6.1 1.7 6.7 7.8 8.8 7.2 5.1 . 4.2 4.2 . 6.2 7.4 . 4.3 4.0 . 2.5 5.3 935 –– MD&A 29 –– –– (71) (43) (85) – (62) – 2016 2015 7.52 7.00 6.92 6.57 (160) (163) (124) (127) (815) (612) (104)(188) (53) (537) (149) (365) (132)(389) (106) (276) (815) (612) (0.60) (0.43) 5,732 5,341 4,631 4,405 6,269 5,706 5,020 4,681 (1,543) (1,254) (1,101) (936) (1,543) (1,254) (1,249) (1,025) 21,08719,544 19,389 18,135 21,17119,628 19,391 18,137 (12,997) (12,182) (12,544) (11,819) – – 76 54 (87) (59) (55) (41) 2017 8.16 7.92 (149) (116) (774) (219) (158) (850) (0.24) 6,646 5,350 6,865 5,508 (1,538) (1,296) (1,538) (1,357) 22,260 20,722 22,260 20,722 (13,302) (13,007) BMO Financial Group 200th Annual Report 2017 ance are charged to Corporate Services, since the (6) (6) (3) (3) (4) (4) (1) (2) (2) (1) ($) (5) (5) ($) ($) costs related to F&C Asset Management plc (F&C), which are charged to Wealth Management. acquisition impacts both Canadian and U.S. P&C businesses. Acquisition integration costs are primarily recorded in non-interest expense. 2015, primarily due to restructuring to drive operational efficiencies. Restructuring costs are recorded in non-interest expense. Cumulative accounting adjustment Cumulative accounting adjustment (2) Acquisition integration costs related to F&C are charged to Wealth Management. Acquisition integration costs related to BMO Transportation Fin Adjusted results and measures in this table(1) are Adjusting non-GAAP items amounts are or included non-GAAP in measures. Corporate Services, with the exception of the amortization of acquisition-related intangible assets, which is charged to the operating groups, and acquisition integration Insurance claims, commissions and changes in policy benefit liabilities (CCPB) Provision for credit losses Income before income taxes Provision for income taxes Adjusting items included in reported pre-tax income Amortization of acquisition-related intangible assets Adjusting items included in reported net income after tax Acquisition integration costs Acquisition integration costs (Canadian $ in millions, except as noted) Reported Results Revenue Revenue, net of CCPB Non-interest expense Net Income Diluted EPS Amortization of acquisition-related intangible assets Decrease in the collective allowance for credit losses Adjusting Items (After tax) Decrease in the collective allowance for credit losses Impact on diluted EPS Restructuring costs Restructuring costs Insurance claims, commissions and changes in policy benefit liabilities (CCPB) Provision for credit losses Income before income taxes Provision for income taxes Adjusted Results Revenue Revenue, net of CCPB Non-interest expense Net Income Diluted EPS Adjusting Items (Pre-tax) (3) These expenses were included(4) in Cumulative the accounting non-interest adjustment expense recognized(5) of in the Restructuring other operating charges non-interest groups. in revenue Before 2017 related and and to after-tax 2016, foreign amounts as currency for we translation, each continue(6) largely operating to impacting group Adjustments accelerate prior are to the periods. provided the use on collective of pages allowance technology 46, for to 48, credit enhance 52, losses customer 56 are experience and recorded and 59. in focus Corporate on Services driving provision operational for efficiencies. credit Restructuring losses. charge in Non-GAAP Measures Results and measures in thisitems MD&A as are set presented out on in aU.S. the GAAP segment following basis. are table. They non-GAAP Results are measures and alsorates (please measures presented on see that on our the exclude an results). Foreign the adjusted Management Exchange impact basisunderlying assesses section of that ongoing performance on Canadian/U.S. excludes business on page dollar the performance. a 36 exchange impact Presenting reported for rate ofassesses results basis a movements certain results. on and discussion on It both on of our also bases an the permits provides adjusted effectsresults readers readers basis of excluding to with and changes those assess a considers in items the better both exchange if impact understanding toanalysis they of of be of consider certain how useful trends, the specified management in as items items assessing well not onin as to results this comparisons be for MD&A with reflective the applies our of periods equally competitors. ongoing presentedstandardized to Except results. and meaning changes as As to under in otherwise such, better GAAP. the noted, the assess They corresponding management’s presentationin are adjusted discussion may isolation unlikely results. of facilitate from to Adjusted changes readers’ or be results in as comparable and reported a to measures results substitute similar are for measures non-GAAP GAAP presented and results. by as other such companies do and not should have not be viewed MD&A 3. 2. 30 Resilience Financial 2. Change Social 1. Principles Sustainability Our 1. Priorities Strategic Our our shifts, these of ability face proven the of performance, In years macroeconomic environment. 200 mixed regulatory by by dynamic unwavering. Guided characterized a is growth. world and customers future complex intensity our for increasingly competitive to well an advances, commitment us navigate technology position to rapid that continue needs, capabilities we customer and change, evolving assets to the of adapt and day. foundation and environment every strong anticipate the do a to employees, we on and what built customers inspire is our brand strategy to and Our commitments vision our Our balance work. we and as live return we shareholder where total communities top-tier deliver to aim We Context in Strategy Our experience. customer great defines that bank the be To Vision Our Strategy Enterprise-Wide ANALYSIS AND DISCUSSION MANAGEMENT’S M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO u business. our of deployment Accelerate Enhance upr hthlste n nbe hmt obetter. do to them enables and and them guidance helps to that providing access support And with futures. communities financial underserved their of shape members they as appropriate risk, gauging of while levels goals, and needs customers’ Supporting promise. brand our industry-leading Achieve omnte hr ed business. the do and we workplace where our communities in and inclusion expectations, and changing diversity reflect embracing tailoring to – services evolves and society products as our thrive and adapt people Helping productivity odiepromneadsaeodrvalue. shareholder and performance drive to utmrloyalty customer iia technology digital ydlvrn on delivering by otransform to 5. .EvrnetlImpact Environmental 4. 4. .Community-building 3. ed o u customers. our for do we in strength our Ensure h hr u omtett sustainability. stakeholders to with commitment work our we share as who activities business our the of considering impacts while footprint environmental our Reducing growth. deliver to markets global select in strategically consolidated our Leverage oain,sosrhp n oute activities. volunteer and charitable sponsorships through donations, together support and, providing taxes employees, of our share with facilitating fair enterprises, our new paying financing investment, by public work and communities live the we in where well-being economic and social Fostering ikmanagement risk ot mrcnplatform American North nepn everything underpins n expand and MD&A 31 ect in l, and BMO Financial Group 200th Annual Report 2017 Private Securities Litigation Reform Act of 1995 tion starting on page 78 describes a number of risks, including credit and e, there could be a material adverse impact on our financial position. el, legal and regulatory, business, strategic, environmental and socia By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: general economic and market 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 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 and any applicable Canadian securitiesfor legislation. fiscal Forward-looking 2018 statements and may beyond, involve,operations our but or strategies are for or not the future limited Canadian, actions, to, U.S. our comments and targets, with international expectations respect economies. for topredictions, our our forecasts, financial objectives conclusions condition and or or priorities projections sharesuch will price, predictions, not and forecasts, prove the conclusions to results or befactors of projections. accurate, could or We that cause outlook caution our actual for readers assumptions future our oflooking results, may this statements. conditions, not document be actions not correct, or to and events place that to undue actual differ reliance results materially on may from ourconditions differ the forward-looking in materially targets, statements, the from expectations, as countries estimates a in orfiscal, number which intentions or of we expressed economic operate; in policy weak, the and volatilesupervisory forward- tax or expectations legislation illiquid or and capital requirements, interpretation; and/or including theor credit capital, level regulatory markets; interest of proceedings; interest rate competition the rate and in accuracy and liquiditystrategic the and currency requirements plans geographic completeness value and and and of fluctuations; guidance, to business the changes and complete areas informationstandards, in the and in we rules monetary, effect integrate which obtain and of acquisitions, we with interpretations such including operate; respect on changes obtainingto changes to these on regulatory or in our estimates; funding approvals; affecting laws customers operational costs; economic critical or and and judicial or accounting in counterparties; infrastructurethat trade estimates our risks; affect matters; and ability changes local, global the to to national capital effect execute our or of marketssupply; our credit international changes activities; technological ratings; economies; to the changes; political natural accounting possible information conditions, disasters effects and including and on cyber changes disruptions our security; relating to business and public of our infrastructure, war abilitysee such or to the as terrorist anticipate discussion transportation, activities; and in communications, outbreaks effectively the powerfunding, of manage Risks or operational, disease risks That water model, or arising May legal illness from Affect and all Futurefactors regulatory, of Results and business, the section risks strategic, foregoing on that environmental factors. page may andpotential 79, affect social, events, and Bank and and the of reputation the sections Montreal’s risk, inherent related futurewritten which uncertainty to results. or begin of credit Investors oral, on forward-looking and and that page statements. counterparty, others may 86 Bankdocument market, should be and of is insurance, carefully made outline Montreal presented liquidity consider from certain does for and these time key not the factors towell undertake purpose and time as to of risks, by our update assisting as the strategic any our well organization priorities forward-looking shareholders as or and statements, in other on objectives, whether understanding uncertainties its and our and behalf, may financial except notmaterial position as be factors as required appropriate we at by for consider and law. other when forboth The purposes. determining the broadly forward-looking our periods and information strategic ended in contained priorities, on the in objectivesfinancial the financial this and variables, dates services expectations and presented, sector, for the as we our risks primarily business. to consider In the historical determining domestic economic our and data expectations global provided for economy. by economic See governments, growth, the historical Economic relationships Developments between and economic Outlook and section of this document. Caution Regarding Forward-Looking Statements Bank of Montreal’s public communicationsincluded often in include other written filings or with oralpursuant Canadian forward-looking to securities statements. the regulators Statements “safe or of harbor” the this provisions U.S. type of, Securities are and and included are Exchange in intended Commission, this to or document, be in and forward-looking other may statements communications. be under, All the such United statements States are made to inherent risks and uncertainties,any both forward-looking general statement. and The specific, Enterprise-Wide whichcounterparty, Risk may market, Management cause insurance, sec actual liquidity results and toreputation funding, differ risk. operational, materially Should mod from our the risk expectations management expressed framework prove ineffectiv Factors That May Affect Future Results As noted in the following Caution Regarding Forward-Looking Statements, all forward-looking statements and information, by their nature, are subj MD&A 32 in spending government regional restrained the and of industry performance auto Statements. the the However, in exports. production stronger of and downshifting investment to business due constraints. healthy economy budgetary reflecting national reflecting 2018, the Illinois in lag 1.8% to to expected and is 2017 economy U.S. and in the policies 1.5% However, trade to 2018. protectionist 2016 in reductions, in U.S. 4.0% tax trade-weighted below income The fall corporate 2018. to and of expected personal end is proposed Federal the rate in the before unemployment delays tensions. with 2.0% The possible geopolitical moderately, above rates. to heightened rise slightly interest related to to rising risks continue currently to faces likely 1.0% due outlook will above firm economic new rates just remain on Interest from to spending 5.0%. rate projected business above policy is formations Increased growth main dollar household year. loan its increased next business raise to 6.0% of to sustain response above rate expected should in to the Reserve and spending further growth lift 2017, household strengthen mortgage to in Firm to residential projected 2.3% reductions. expected in is to tax is increase equipment 2016 proposed activity an in to market supporting 1.5% response Housing affordability, by from in 2018. ongoing supported up 2018 in and was pick in 5.0% spending to 2.4% above Household expected to growth October. is further loan in growth modestly consumer in 4.1% GDP strengthen weakness of Real to some low wealth. projected and 16-year record is demand a and it Consumer global to income policies. increased rate rising tax by unemployment confidence, and supported the consumer trade were reduced heightened about Exports employment uncertainty steady. Growing to was dollar. due activity U.S. possibly market the weakened, housing growth while loan strong, business remained investment, spending in and Union. upturn States European this Trade United the Despite 2018. Free the and policies. in American between Kingdom US$0.76 North tensions United around the from the its to if stemming between lift modestly government turbulence talks to weaken U.S. market Brexit projected to the global uncertain is expected by potential and Canada is taken include Korea, of dollar be risks North Bank Canadian could Additional The The measures renegotiated. 2018. 2018. protectionist not late of more is by end that Agreement 5.7% the risk above to before the growth rate 1.75% faces of loan unemployment to economy result business the 1.0% Canada’s to a support reduce current continue as should to the will 5.0% sentiment expected from regions below business is rate most to in expansion policy in moderate improvement economic markets to An The estate projected rules. 2018. real is underwriting in that growth mortgage 6.0% expect mortgage stricter loan we residential and in household Although growth, rates is moderate reducing 2017. population interest growth likely debt, in robust higher GDP will household 3.6% and of spending elevated estimated affordability rate consumer and an good grow the in growth from from to 2018, Growth employment 2018 benefit expected to dollar. in in is ahead Canadian moderation 3.0% GDP Looking stronger some around real countries. the rates, to Overall, G7 and interest growth dollar. other rates in Japan. Canadian all interest increases and the exceeding higher expected Eurozone in and to to the appreciation rate due response including strong year’s 2.2% economy, a previous to global to the moderate result the leading double to a in 2017, than expected as upturn in more increased an twice 2017, regions to rate in energy-producing response policy 3.0% the in its by many in strengthened raised in investment also Canada strengthened Business exports of activity declines. Canada’s Bank Toronto market earlier prices. The Greater housing following oil the government, Vancouver in in Ontario in recovery activity the recovery the While by a of payments automobiles. undertaken by were benefit new measures led rebound child of policy year, this federal sales to this of enhanced record due regions effects and driving weakened The decade and has prices. a spending market energy nearly consumer housing in in supporting Area downturn growth income, the employment disposable with annual of years fastest levels two The raised for regions. struggling and after industries 2017 across in widespread sharply 2018 rebounded for economy Outlook Canadian The and 2017 in Developments Economic Outlook and Developments Economic ANALYSIS AND DISCUSSION MANAGEMENT’S M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO hsEooi eeomnsadOtokscincnan owr-okn ttmns laeseteCuinRgrigForward-Looking Regarding Caution the see Please statements. forward-looking contains section Outlook and 1.2% Developments from Economic improve This to expected is footprint, BMO the within states contiguous six the includes which region, Midwest U.S. the in expansion The fiscal expansionary more and deregulation of anticipation in investment business in upturn an by led 2017, in improved economy U.S. The MD&A 33 Oct 1.31 2018* 1500 1000 500 0 1.26 Oct Forecast Forecast 2017 * * Oct 1.33 2016 Canada States United 11 12 13 14 15 17*1618* Jan 1.42 200 150 100 250 2016 After rallying sharply in 2017, the Canadian dollar is expected to weaken modestly in 2018. Housing market activity is expected Housing market activity is to moderate in Canada but States. strengthen in the United Housing Starts Housing (in thousands) Dollar Canadian/U.S. Rates Exchange BMO Financial Group 200th Annual Report 2017 4.0 1.88 Oct Oct 2018* 5.7 2018* 1.75 1.13 4.1 Oct Oct Forecast 2017 6.3 Forecast 2017 1.00 * * (%) rate (%) 4.8 0.38 Oct Oct 2016 7.0 2016 Canadian overnight Canadian overnight U.S. federal funds rate Canada States United 0.38 4.9 Jan Jan 2016 7.2 0.50 0.50 2016 Central banks are expected to continue to raise policy rates in 2018. Unemployment rates in Canada and the United States are projected to decline modestly. Canadian and U.S. Canadian Rates Unemployment Canadian and U.S. Interest Rates 2.4 2.4 1.9 Forecast Forecast 2.2 * * 2.1 (%) 2.3 1.5 3.0 1.3 1.5 1.4 (%) 1.4 0.1 Canada States United Canada States United 2.9 2015 2016 2017* 2018* 1.1 2015 2016 2017* 2018* 1.0 The Canadian and U.S. economies are expected to grow moderately in 2018. Real Growth in Gross in Gross Real Growth Product Domestic Inflation is expected to rise modestly but remain low. Consumer Price Index Inflation Data points are averages for the month, quarter or year, as appropriate. References to years are calendar years. MD&A dutdrslsi hsscinaennGA n r icse nteNnGA esrsscino ae29. page on section Measures Non-GAAP the in 34 discussed are and non-GAAP are section this in results Adjusted unchanged. relatively was outstanding higher shares growth 15% common EPS was diluted 10%. shareholders of to common number 7% to average of available the growth income while EPS net year-over-year, adjusted Reported annual earnings. average increased achieving reflected of primarily objective indicated. our for otherwise with measures unless consistent key EPS, 2016, our diluted are to EPS are adjusted EPS in to and references (EPS) All share growth. per earnings earnings analyzing in changes percentage year-over-year The Growth Share per Earnings Return Shareholder Total 4.7%. of rate compound to annual 2018 per average 27, $0.82 an February from at on years increased payable two have is past period dividend the five-year The over a ago. times over year four paid a declared Dividends from dividend 2016. 6% quarterly of or our quarter share increased first per have the $0.05 We for up 2018. share and 1, common quarter February 2017, prior on 31, the record October from of at 3% shareholders $2,058 or worth share been per have $0.03 would up 2013 105.8%. fiscal of of return beginning total the a at for made dividends, shares of common reinvestment bank BMO assuming Canadian in our $1,000 the both of outperformed of investment both returns An and average strong, corresponding were the Canada. value 10.9% outperformed in drive of 15.5% market priorities TSR of overall strategic annual TSR the our average annual and that three-year average group confirms our five-year peer and and Our value, 20.2% Canada. shareholder of in of TSR market measure one-year overall key Our a shareholders. is our (TSR) for return creation shareholder total annual average The Return Shareholder Total Measures Value ANALYSIS AND DISCUSSION MANAGEMENT’S hrsi hs ovrin ol eueES n smr ul xlie nNt 4o ae11o the income. of net 191 adjusted page using on manner 24 same Note the in in explained calculated fully is more EPS common is Adjusted into and statements. instruments EPS, financial is financial reduce consolidated which of would EPS, conversions conversions Diluted possible those outstanding. for if shares adjusts shares common performance, of measuring number for average basis the our by dividends, preferred of deduction (EPS) share per Earnings The hrsmd ttebgnigo ie eid h eunicue h hnei hr rc n sue iied eevdwr reinvested were received dividends assumes and price share in change the includes return The period. shares. fixed common a additional of in beginning the at made shares 2 oa nulsaeodrrtr sue eneteto urel iied n hrfr osnteultesmo iiedadsaepiertrsi h table. the in returns price share and dividend of sum the equal not does therefore and dividends quarterly meaningful of not reinvestment – assumes nm percentage. return a shareholder as annual expressed Total (CAGR) (2) rate growth annual Compound (1) price share in (decrease) Increase share common per price market Closing 31 October ended year the For oa nulsaeodrreturn shareholder annual Total yield Dividend iied paid Dividends M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO P a 79,u 10 r1%fo 69 n21.Ajse P a 81,u 06 r9 rm$.2in $7.52 from 9% or $0.64 up $8.16, was EPS Adjusted 2016. in $6.92 from 14% or $1.00 up $7.92, was EPS share, per $0.93 of shares common on dividend quarterly a declared had Directors of Board the price. that share announced BMO’s BMO in 2017, movements 5, the December and On years five past the over shares common BMO on paid dividends summarizes below table The vrg nulttlsaeodrrtr (TSR) return shareholder total annual average Shareholder Return One-Year Total *All returnsrepresenttotalreturns. Composite S&P/TSX Index 11.5 (%) $prshare) per ($ Peer Group Canadian Average 24.9 scluae ydvdn e noeatiual obn hrhles fe the after shareholders, bank to attributable income net dividing by calculated is * (%) % (2) (%) Common Shares (%) BMO 20.2 ($) ersnsteaeaeana oa eunere na neteti M common BMO in investment an on earned return total annual average the represents Total Shareholder Return Three-Year Average Annual Composite S&P/TSX Index 6.2 Peer Group 98.83 Canadian Average 20.2 15.8 3.52 2017 11.2 3.6 Common Shares BMO 10.9 53 60 17 72.62 81.73 76.04 85.36 * 70(.)1. 28.8 23.0 2.92 17.1 12.5 (3.0) 3.04 (7.0) 17.0 3.20 12.3 3.36 0621 042013 2014 2015 2016 . . . 4.0 3.8 4.3 4.0 (%) Total ShareholderReturn Five-Year AverageAnnual Composite S&P/TSX Index 8.4 EPS Peer Group Canadian Average 6.57 14.9 052017 2015 ($) 7.00 EPS CAGR Common 3-year Shares 6.92 0915.5 10.9 BMO 15.5 mnm nm mnm nm . 4.7 5.0 . 10.9 6.5 2016 * (1) 7.52 Adjusted EPS (%) 7.92 CAGR 5-year 8.16 (1) MD&A 35 16.5 16.3 11.4 2017 13.7 13.3 16.1 Adjusted ROTCE Adjusted ROE 15.3 (9) (35) 10.1 2016 13.1 124 127 265 149 2016 2015 13.1 13.3 12.1 12.5 16.1 16.4 15.3 15.8 (150) (117) 12.1 4,631 4,405 4,472 4,253 4,596 4,380 4,861 4,529 (%) 30,101 27,666 36,997 34,135 16.4 ROE ROTCE 15.8 (%) 10.7 2015 2016 2017 2015 13.3 (2) 12.5 42 CET1 Ratio 116 2017 ROE 13.7 13.3 16.5 16.3 (184) 5,350 5,164 5,280 5,322 32,303 38,962 BMO Financial Group 200th Annual Report 2017 is calculated as net income, less non-controlling interest is calculated as net income available to common shareholders (= C/E) (%) is calculated as CET1 capital, which is comprised of common shareholders’ (= B/E) (%) (= C/D) (%) (= A/D) (%) Average tangible common equity (E) Return on tangible common equity Adjusted return on equity Adjusted return on tangible common equity Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 29. Reported net income (Canadian $ in millions, exceptFor as the noted) year ended October 31 Net income available to common shareholders (A) Attributable to non-controlling interest inPreferred subsidiaries dividends After-tax amortization of acquisition-related intangible assets Net income available to common shareholders after adjusting for amortization of acquisition-related intangible assets (B) After-tax impact of other adjusting items Adjusted net income available to common shareholders (C) Average common shareholders’ equity (D) Return on equity Common Equity Tier 1 (CET1) Ratio equity less deductions for goodwill,items, intangible divided assets, by pension risk-weighted assets, assets certain for deferred CET1. tax assets and other Return on common shareholders’ equity (ROE) in subsidiaries and preferred dividends,Common as shareholders’ a equity percentage is of comprised averagecomprehensive of common income common shareholders’ (loss) share equity. and capital, retained contributedrather earnings. surplus, than Adjusted accumulated net ROE other income. is calculated using adjusted netReturn income on tangible common equity (ROTCE) adjusted for the amortization ofcommon acquisition-related equity. intangible Tangible assets common as equity aacquisition-related is percentage intangible calculated of assets, as average net common tangible of shareholders’adjusted related equity net deferred less income tax goodwill rather liabilities. and than Adjustedand net ROTCE is income. is meaningful ROTCE calculated because is using it commonlyacquired measures used or the in developed performance the organically. of North businesses American consistently, banking whether industry they were Common Equity Tier 1 Ratio BMO’s Common Equity Tier 1Our (CET1) CET1 Ratio Ratio reflects was a 11.4% well-capitalizedfrom at position the October relative end 31, to of 2017, the fiscal compared riskissued 2016 to in through due 10.1% our the to at business. Shareholder higher October Dividend capital, 31,options, Reinvestment largely 2016. as and from The well Share retained CET1 as Purchase earnings Ratio modestly Plan growth increased lower and and source the common currency exercise shares risk-weighted of assets, stock partially offset by share repurchases. Return on Equity and Return on Tangible Common Equity Return on Equity Return on equity (ROE) wasrespectively, 13.3% in in 2016. 2017 ROE and increased adjustedequity. in ROE There 2017, was was primarily 13.7%, an due compared increase to with$461 of growth 12.1% million $692 in and or million income 13.1%, 10% or exceeding in 15% growthshareholders’ adjusted in in equity net net common increased income income $2.0 available available billion to topartially or common common offset 5% shareholders shareholders by from in and higher 2016, 2017. unrealized primarily Averageinvestments losses due common in on to foreign cash increased operations. flow retained The hedges earnings, with reported and 15.3% return the in on impact 2016 tangible of and common theincreased adjusted equity weaker 4% ROTCE (ROTCE) U.S. from was was dollar the 16.5%, 16.3%, on prior compared compared our year with to 16.1% $61.92, in reflecting 2016. the Book increase value in per shareholders’ share equity. MD&A dutdrslsi hsscinaennGA n r icse nteNnGA esrsscino ae29. page on section Measures Non-GAAP the in 36 discussed are and non-GAAP are section this in results Adjusted Statements. Forward-Looking Regarding Caution the see Please statements. forward-looking contains section Exchange Foreign presentation. This year’s current the with Caution conform to reclassified been have figures comparative Certain Results Adjusted and Reported by BMO’s operations foreign on in Rates investment Exchange our in of Changes dollars portion Canadian unhedged of many the Effects how of of translation terms the in (decrease) expressed increase rate, to exchange expected million. dollar be $156 Canadian/U.S. would the buys, in dollar (decrease) U.S. increase one cent one Each operations. foreign transactions hedging execute to position. whether income. capital determine net our regularly on We movements 2015. rate and exchange 2016 foreign the in of in hedged impact million economically the $11 was mitigate by income to year net the dollar for U.S. be taxes Markets would income Capital buys, before cent dollar income one U.S. net each one segment 2017, dollars U.S. in Canadian our results many of transactions. with how equivalent hedging consistent of dollar of are terms Canadian absence results in the future expressed (decrease) If rate, increase arise. exchange to losses dollar expected credit Canadian/U.S. of) the (recoveries in for (decrease) BMO’s provisions increase of and outside expenses segment recorded revenues, U.S. amounts which our U.S.-dollar-denominated in on include dollar. rates not U.S. the do weaker in dollar the changes U.S. by of the 2016 impact of to the impact relative and the segment. decreased rates to U.S. were exchange document dollars dollar this U.S. Canadian/U.S. in in average References denominated relevant results. are the that indicates results below U.S. table BMO’s The of equivalents dollar Canadian The enterprise the follows 65. performance page in Exchange and on included strategies appears Foreign Income groups’ 2016 of operating for Statement our performance Consolidated of financial the review enterprise on A the focuses 139. of that page summary 2017 on A for begin review. performance which financial statements, enterprise financial our consolidated of our review a provides section This Review Performance Financial 2017 ANALYSIS AND DISCUSSION MANAGEMENT’S fet nrpre results reported on Effects fet najse results adjusted on Effects aainUS olrecag ae(average) rate exchange dollar Canadian/U.S. noted) as except millions, in $ (Canadian M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO nrae rvso o rdtlosses credit for provision Increased revenues increased (Decreased) revenue non-interest increased (Decreased) income interest net increased (Decreased) 2015 Dcesd nrae eotdnticm eoeipc fhedges of impact before income net reported increased (Decreased) taxes income (increased) Decreased expenses (increased) Decreased Dcesd nrae eotdntincome net reported increased (Decreased) tax after year current in losses Hedging Dcesd nrae e neetincome interest net increased (Decreased) nrae rvso o rdtlosses credit for provision Increased revenues increased (Decreased) revenue non-interest increased (Decreased) Dcesd nrae dutdnticm eoeipc fhedges of impact before income net adjusted increased (Decreased) taxes income (increased) Decreased expenses (increased) Decreased Dcesd nrae dutdntincome net adjusted increased (Decreased) tax after year current in losses Hedging 2016 2017 hne nfrinecag ae ilas fetacmltdohrcmrhnieicm rmrl rmtetasaino u netetin investment our of translation the from on primarily have income can comprehensive rates other exchange accumulated foreign affect in also changes will that rates impact exchange the foreign of in discussion Changes for 69 page BMO on of section portion Management A Capital year. Enterprise-Wide current the the See during rates exchange foreign in changes to unhedged was stream income dollar U.S. our Economically, periods the of function a is results those on impact the and dollars Canadian in measured results future affect will rate exchange the in Changes 1.3251 1.3071 07vs. 2017 2016 (79) (30) (49) (13) (13) (49) (79) (30) (14) (14) 63 59 (3) (1) 6 7 – – 1.3251 1.2550 06vs. 2016 (267) (257) 2015 353 149 204 204 353 149 (11) (18) (12) (20) 57 57 64 64 – – MD&A 37 0%. BMO Financial Group 200th Annual Report 2017 Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 29. Reported and adjusted net income growth reflects the benefit ofThe good impact performance of in the Canadian following P&C, items Wealth on Management net and income BMO and Capital net income growth in 2017 largely offset each other: aCanadian net P&C gain reported of net $133 income million, of attributed $2,512 million increased $310 million or 14% and adjusted net income of $2,515 million,U.S. which P&C excludes reported net income of $1,066 million decreased $19 million and adjusted net income of $1,112 million decreased $23 million from the Wealth Management reported net income of $953 million increased $192 million or 25% from the prior year. Adjusted net income of BMO Capital Markets reported net income of $1,315 million increased $62 million or 5% fromCorporate the Services prior reported year. net Adjusted loss net for income the of year was $496 million, compared with a reported net loss of $670 million a year ago. The adjusted Further discussion is provided in the 2017 Operating Groups Performance Review section on pages 45 to 62. Net Income Net income was $5,350 millionallowance in in 2017, the up current $719 year millionacquisition-related and or intangible a 16% assets negative from and cumulative the acquisition accounting previous integration adjustment year. costs in Adjusted in the net both prior income years. year, excludes Adjusted as a net well decrease income as in was restructuring the $5,508 costs, collective million, the up amortization $488 of million or 1 Markets. Corporate Services results were also higher and results into U.S. a P&C $168 were million relatively after-tax flatthe gain compared U.S. on to indirect the the auto sale prior loan of year. hurricanes portfolio; Moneris Irma, a Solutions Maria loss Corporation and due (Moneris Harvey; to US) and elevated and the claims a prior of $35 year $112 million write-down million after-taxthe of in loss amortization an our on of equity reinsurance the acquisition-related investment business sale intangible net largely ofhigher assets, of resulting balances a increased a from across portion $311 gain the most of million on impact products, or its of revenue the 14% subsequent and $168 from sale. lower million the provisions after-tax prior for gain year. credit on Net losses, sale income partially of increased offset Moneris as by US aprior higher in result year expenses. the of due first to quarter the ofreported weaker 2017, net U.S. increased income dollar. non-interest of Adjusted $817 netdeposit million income revenue and excludes and adjusted the increased net amortization loan income ofand volumes, of acquisition-related an offset $853 intangible increase by million assets. in loan were On the spread both a provision compression, relatively U.S. for higher flat dollar credit expenses, compared basis, losses. the to $27 the$1,018 million prior million, after-tax year, which loss due excludes on to the the higher or amortization loan 18%. of sale Traditional acquisition-related wealth intangible reported assetswealth net and of income acquisition $782 of integration million $717 costs, increased million increasedimproved $142 increased $156 equity million $178 million markets or million and 22%, or the primarily 33%benefits accumulation due from from of to the productivity net higher prior initiatives. new income year. The client related Adjustedincome prior assets, to net in year growth an income insurance included in increase in of a deposit in traditional $236 write-down and assetsunfavourable million of loan under impacts increased an balances, management in $14 equity up from the million investment 11% prior or net and year 6%, of 10%, and as a respectively, business the gain and growth benefits on were from its$1,317 largely favourable subsequent million, offset market sale. which by movements Adjusted excludes elevated in net the claims theand amortization of current lower of $112 year loan acquisition-related million relative loss intangible in to provisions, assets, our partially increased reinsurance offset $63 business. by million higher or expenses. 5%net due loss to for increased the revenue yearcollective was allowance $454 in million, the compared current withacquisition year an integration and adjusted costs a net in negative loss both cumulative ofrevenue years. accounting $435 excluding Adjusted adjustment million taxable results in a equivalent declined the year basis due prior ago.negative (teb). to year, Adjusted cumulative Reported lower as results accounting results credit well exclude adjustment increased recoveries as a in mainly and restructuring decreasenet the due higher costs in impact prior to expenses, and the of year the partially the and lower offset factors the restructuring by noted decrease charge higher above. in in the the collective current allowance year, in a the current year, partially offset by the MD&A dutdrslsi hsscinaennGA n r icse nteNnGA esrsscino ae29. page on section Measures Non-GAAP the in 38 discussed are and non-GAAP are section this in results Adjusted 1.87%. to year prior the from point basis 1 increased trading) (excluding margin interest Net loan to due growth. primarily loan dollar, and U.S. securities weaker in the increase of businesses. an impact trading to the certain excluding from 2% income or interest million, net $10,007 lower to by 1% offset or partially million growth $135 increased income interest Net Income Interest Net Revenue Adjusted and Revenue assets income fixed predominantly are liabilities benefit policy support which investments The assets. insurance of value fair the in fluctuations from arising variability experience can revenue Insurance (1) year. prior the in adjustment business. accounting Products cumulative Trading negative our a in performance solid as were as 11%, growth well or business as million and growth, $45 year year. loan increased prior current and million the the banking $467 in in write- of impacts business a CCPB, unfavourable reinsurance included of to the year net relative in prior revenue, year claims benefits The Insurance current elevated and divestitures. sale. the by respectively, and subsequent in offset 10%, dollar, its movements largely and U.S. on market 11% and gain favourable up pound a from improved balances, British of benefits from loan weaker net the management and a investment under deposit of equity assets in impact an in growth the of increase and by down an assets, offset to client partially related new initiatives, income net productivity higher of from to accumulation due the and primarily and compression 7%, markets spread or equity loan million of $264 net increased volumes, sale. million loan loan $4,187 increased the and on revenue loss deposit pre-tax higher million to $41 revenue. due the non-interest primarily of increased 2%, impact and or the 2017 million of $62 quarter increased first million the $3,578 in teb US The Moneris level. of group sale operating on the gain at pre-tax 2016. (teb) million in basis $187 equivalent million taxable $510 a from on up revenue million, analyze $567 we totalled group, 2017 peer for sale. adjustment Canadian adjustments subsequent accounting our a its cumulative with by on negative Consistent offset gain a basis. largely a excludes adjusted was of revenue million, net Adjusted $133 investment significant. by equity not revenue an was revenue. increased of growth non-interest which write-down revenue in sale, year on 2016 loan prior dollar in the the U.S. recorded on and weaker loss million the the $112 of of of impact net claims The US reinsurance benefit Moneris elevated policy of to in million. sale due changes $20,722 the loss and to on commissions 6% gain claims, or The insurance million Markets. nets $1,178 Capital that increased basis revenue a reported On revenue), 2017. (net in revenue million insurance $22,260 against to (CCPB) 6% liabilities or million $1,173 increased Revenue Revenue ANALYSIS AND DISCUSSION MANAGEMENT’S rvso o noetxsaeicesdo a-xmtscrte oa qiaetbfr-a ai ofcltt oprsn ficm between income of comparisons facilitate Services. to Corporate basis in before-tax offset equivalent is an adjustment to This securities sources. tax-exempt tax-exempt on and increased taxable are taxes income for provision (teb) basis equivalent Taxable o-neetrevenue Non-interest income interest Net 31 October ended year noted) the as For except millions, in $ (Canadian oa revenue Total oa eeu,nto CCPB of net revenue, Total dutdntitrs income interest net Adjusted dutdnnitrs revenue non-interest Adjusted oa dutdrevenue adjusted Total oa dutdrvne e fCCPB of net revenue, adjusted Total eei iblte,teipc fwihi elce nisrnecam,cmisosadcagsi oiybnftlaiiis h icsino eeu nantbssrdcsti aiblt nresults, in 41. policy variability page of this see value reduces liabilities, fair basis benefit the net policy in a in changes on changes by revenue and offset of commissions largely discussion claims, are The insurance changes liabilities. of value benefit discussion fair policy additional These in For Income. changes results. of and operating Statement commissions of Consolidated claims, discussion the insurance better in in a revenue reflected for insurance is allows in which which recorded of value impact fair the in liabilities, changes benefit with value fair at recorded M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO al npg 2 rvdsfrhrdtiso e neeticm n e neetmargin. interest net and businesses. income trading interest from net income on interest details net further lower provides due by 124 dollar, driven page U.S. mainly on weaker 1.55%, 3 the to Table of points impact basis the 4 excluding by 4% decreased or margin billion interest $27.3 net or overall billion, BMO’s $646.8 to 4% or billion $24.1 increased assets earning Average 62. to 45 pages on section Review Performance of Groups impact Operating the 2017 excludes the revenue in Adjusted provided investment million. is in $8 discussion activity increased Further client revenue higher adjusted to and due million year, $92 prior increased the revenue from reported 7% Services or Corporate million $286 increased million $4,624 of revenue Markets Capital BMO of wealth traditional in Revenue year. prior the from 7% or million of $309 revenue increased basis, million dollar $4,654 U.S. of a CCPB, On of basis. net dollar revenue, Canadian Management a Wealth on year the prior products, the most to across compared balances higher higher slightly to was due million year, $4,673 prior of the revenue from P&C million U.S. $7,444 to 7% or an million on $475 and increased statements, revenue financial P&C consolidated Canadian the in reported as revenues GAAP on based level consolidated the at revenue analyzes BMO BMO and Management Wealth P&C, Canadian in performance good by driven 6%, or million $1,094 increased CCPB, of net revenue, Adjusted (1) eeuso prtn rusaepeetdi u DAo aal qiaetbss(e) eeu n the and Revenue (teb). basis equivalent taxable a on MD&A our in presented are groups operating of Revenues 12,253 10,007 22,260 20,722 10,007 12,253 22,260 20,722 2017 12510,626 11,215 10719,389 21,087 95418,135 19,544 12910,627 11,299 11119,391 21,171 96818,137 19,628 ,7 8,763 9,872 ,7 8,764 9,872 062015 2016 rm2016 from Change (%) 1 9 6 6 1 8 5 6 MD&A 3 39 (4) (1) 13 12 12 nm (10) Change 58 nm 159 237 289 254 363 363 2016 2017 20.7 20.7 (in basis points) Net interest margin 19.6 19.5 – 375 4 155 8 250 25nm 292 548 4 253 % 2017 (1) 375 Total Net Revenue Total Net Adjusted Revenue 2015 2016 18.1 18.1 Net Revenue ($ billions) Change BMO Financial Group 200th Annual Report 2017 2016 25,898 45,399 97,538 73,639 622,732 297,065 254,370 199,527 Average earning assets 10.7 20.7 10.0 1 646,799 2 96,244 3 304,059 4 207,815 3 73,661 % 2017 (3) 47,786 14 28,026 20.7 (13) 266,928 10.7 10.0 Change 9.8 9.9 19.6 9.7 9.9 614 19.5 2016 (823) 9,872 1,483 3,538 8,598 5,060 2,671 Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 29. 9.4 8.8 18.1 Net Interest Income Net Non-Interest Revenue Adjusted Net Interest Income Adjusted Net Non-Interest Revenue 2015 2016 2017 9.4 8.8 18.1 700 2017 (850) Net interest income (teb) *Numbers may not add due to rounding. Net Interest Income Net Interest Revenue* and Net Non-Interest ($ billions) 1,288 3,607 8,869 5,262 2,761 10,007 647 1.55 623 1.59 is comprised of earnings on assets, such as loans and securities, including interest and dividend income, less interest expense 2016 is the ratio of net interest income to average earning assets, expressed as a percentage or in basis points. Average Earning Assets ($ billions) Net Interest Margin (%) 579 1.51 2015 2017 Average Earning Assets Average Earning Margin and Net Interest (US$ in millions) Adjusted non-interest revenue, net of CCPB, increased $959 million or 10% to $10,715 million, withInvestments the in majority associates of and the joint growth ventures driven increased by $246 strong million primarilyUnderwriting due and to advisory the fees gain increased onTrading $216 sale revenues million, of increased primarily Moneris $160 due US million to inSecurities and higher the gains, are debt first other discussed underwriting quarter than in activity. of trading, the 2017 increased Trading-Related $87 Revenues million, section primarily that due follows. Investment to management higher and net custodial securities fees gains increased in $66 BMO million Capital from Markets the and prior Corporate year, mainly due to business growth in Wealth Management, Lending fees increased $58 millionGross due insurance to revenue increased increased lending $47 activity million in from BMO a Capital year Markets ago, and due Canadian to P&C. higher annuity sales and underlying business growth, offset by increases Deposit and payment service charges increased $46 million, due to growth in both Canadian and U.S. P&C. U.S. P&C Canadian P&C U.S. P&C Wealth Management BMO Capital Markets Total BMO reported Corporate Services Personal and Commercial Banking (P&C) (Canadian $ in millions, exceptFor as the noted) year ended October 31 Certain comparative figures have been reclassifiednm to – conform not with meaningful the current year’s presentation. paid on liabilities, such as deposits. Net interest margin Net interest income Non-Interest Revenue Non-interest revenue, which comprises allNon-interest revenues revenue, other net than of net CCPB, interest increased income, $1,043 increased million $1,038 or million 11% orperformance to 9% in $10,715 to BMO million. $12,253 Capital million Markets, incumulative as 2017. accounting well adjustment as recorded growth in in 2016. Canadian P&C and Wealth Management.and Adjusted the non-interest write-down revenue of excludes an a equity negative investment net of a gain on its subsequent sale in 2016. Services. partially offset by the impactand of mutual the fund weaker revenue U.S. were dollar.the also Mutual impact positively fund of impacted revenue the by increased weaker the $47 British improved million. pound. equity Both markets investment on management average and compared custodial to fees the prior year,in partially long-term offset interest by rates decreasingincreasing the the fair fair value value of of insurancevalue insurance investments of investments in insurance in the assets. the current The prior yearchanges investments year. compared in which Insurance to fair support revenue decreases value policy can in recorded benefit experience long-termin in liabilities variability interest the insurance are arising rates fair revenue predominantly from value in fixed fluctuations of the income in(CCPB), policy Consolidated assets the as benefit Statement recorded fair discussed liabilities, of at on the Income. fair page impact These value 65. of fair with which value is changes reflected are in largely insurance offset claims, by commissions changes and changes in policy benefit liabilities Change in Net Interest Income, Average Earning Assets and Net Interest Margin MD&A dutdrslsi hsscinaennGA n r icse nteNnGA esrsscino ae29. page on section Measures Non-GAAP the in 40 discussed are and non-GAAP are section this in results Adjusted client increased to reflecting due 27%, 28% or or million million $50 $18 increased increased revenues revenues products. trading- trading-relat trading-related trading-related energy rate exchange Equities Commodities in Interest Foreign activity. clients. activity offset. businesses. client investor hedging teb most increased and the across by corporate and activity driven with dollar client 6%, activity U.S. decreased or higher weaker to million the due $21 of primarily limits, up impact 27%, prescribed were the or revenues within exclude million managing, positions. amounts $181 profitably trading following decreased by principal The revenues positions from 5%. related client revenue or its earns million of also $69 sum BMO decreased BMO net basis, revenues the with limited transactions on a into profit On enter or positions. who spread net clients a its for earns of undertaken BMO risk activities invest. overall of to the volume or the risks things, their other mitigate among to on, dependent are revenues Trading-related Revenues Trading-Related Revenue Non-Interest ANALYSIS AND DISCUSSION MANAGEMENT’S n ntttoa qiytaigcmisoswti M aia akt.Teices sdet mrvdeut akt n rwhi fee-based in sale. growth loan and the markets on equity loss improved to due is increase The Markets. Management. Capital Wealth BMO in within businesses commissions trading equity institutional and oa M reported BMO Total oa M adjusted BMO Total CCPB of net reported, BMO nuac eeu,nto CCPB of net revenue, Insurance CCPB of net adjusted, BMO netet nascae n on ventures Other joint and associates in Investments nuac revenue Insurance trading than other exchange, Foreign trading than other gains, Securities fees advisory and Underwriting uulfn revenues fund Mutual netetmngmn n utda fees custodial and management Investment fees Card edn fees Lending rdn revenues Trading eoi n amn evc charges service payment and Deposit nld noe(xes)adgis(oss rmbt nblnesetisrmnsaditrs ae oeg xhne(nldn spot (including exchange also foreign revenues rate, Trading-related interest basis. and daily instruments contracts. a sheet credit on on-balance and market both commodity to from equity, them (losses) positions), marking gains includes and typically (expense) positions income these include of management The purposes. trading revenues Trading-related fees and commissions Securities 31 October ended year the For millions) in $ (Canadian M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO h aktRs eto npg 4poie oeifraino rdn-eae revenues. trading-related on information more provides 94 page on section Risk Market The trading-related dollar, U.S. weaker the of impact the Excluding 6%. or million $72 decreased revenues trading-related non-interest and Interest adfe erae 4 ilo,piaiydet ihrrwr ot,a ela oe necag eeu nUS P&C. U.S. in growth. revenue revenue interchange and lower revenue as on well details as further costs, provides reward 124 higher page to on due 3 the primarily Table by million, offset $46 partially million. decreased year, $29 fees prior increased Card the trading in than adjustment other accounting exchange, cumulative Foreign negative a to due million, $37 increased revenue Management non-interest Wealth Other within commissions brokerage of largely consist revenues These million. $45 increased fees and commissions Securities nld e neeticm n o-neetrvneere rmo n f-aac he oiin netknfor undertaken positions sheet off-balance and on from earned revenue non-interest and income interest net include 12,253 12,253 10,715 10,715 2,070 1,036 1,411 1,622 1,352 1,187 2017 532 526 386 191 171 415 917 969 12510,626 11,215 12910,627 11,299 ,7 9,372 9,672 ,5 9,373 9,756 ,2 1,762 2,023 ,6 1,377 1,364 ,5 1,552 1,556 ,9 987 1,192 ,4 1,077 1,141 062015 2016 8 508 480 8 517 207 489 140 6 172 706 162 820 6 460 461 5 737 859 2 901 924 4171 84 rm2016 from Change +100 +100 (10) ed (%) 11 11 10 18 26 13 7 9 8 2 3 4 7 4 5 MD&A 41 6 (1) (6) (1) (6) (6) 88 28 11 16 13 11 13 (%) (28) (34) (+100) Change from 2016 25 6 66 56 99 32 663349 422 364 441 467 629 638 540 499 441 467 2016 2015 1,732 1,486 1,291 1,019 1,192 987 1,732 1,486 1,291 1,019 1,192 987 1,291 1,019 BMO Financial Group 200th Annual Report 2017 47 84 480 369 488 727 355 488 2017 (133) 1,707 1,219 1,352 1,707 1,219 1,352 1,219 (1) (2) Total (teb) (1) Trading-related revenues are presented(2) on Includes a nominal taxable revenues equivalent from basis. run-off structured credit activities and hedging exposures in BMO’s structural balance sheet. For the year ended October 31 Foreign exchange Interest rates (Canadian $ in millions) (taxable equivalent basis) Other Reported total Teb offset Equities Commodities Reported as: Net interest income Non-interest revenue – trading revenues Total (teb) Reported total, net of teb offset Teb offset Adjusted net interest income, net of teb offset Adjusted non-interest revenue – trading revenues Adjusted total, net of teb offset Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 29. Insurance Claims, Commissions and ChangesInsurance in claims, commissions Policy and Benefit changesin in Liabilities 2016, policy as benefit increases liabilities in (CCPB)long-term long-term were interest interest $1,538 rates rates million increasing decreasing in the the 2017,elevated fair fair down reinsurance value value $5 claims of of million and policy policy from growth benefit benefit $1,543related in liabilities liabilities million to the in in annuity underlying the the sales business. prior current were The year year largely decrease were compared offset related offset to in to by decreases revenue, the the in as fair impact discussed value of on of higher page policy annuity 38. benefit sales, liabilities and the increase Interest and Non-Interest Trading-Related Revenues MD&A 42 Group Operating by Losses Credit for Provision Losses segmentation Credit financial PCL for consolidated further the Provision provides of 134 152 page page on on 15 in 4 Table PCL Note basis. Specific 2016. geographic 2016. in a information. in million on million $268 information $547 from PCL to up provides compared million, statements million, $326 $524 was was States States) United United the the year (excluding prior countries the other while and reduction, recoveries. with allowance loan million, collective impaired $4 million credit increased $76 purchased million the to $78 to due provisions, of due largely new recoveries mostly was lower credit year recovery to total current due Services the largely Corporate in Capital year, sector. recovery BMO prior gas the dollar. the and U.S. from oil weaker million the the $37 in of decreased primarily commercial impact million higher the $44 reflecting and of 2016, provisions provisions from consumer Markets million lower $38 by increased offset million partially $295 provisions, the of with provisions consistent P&C 0.23%, U.S. was provisions. acceptances and loans net average of percentage a as year. PCL prior Specific lower year. by prior offset the partially in P&C, U.S. in P&C. provisions Canadian increased higher and positive million and Markets of $850 Services Capital result of Corporate BMO a PCL in in as Specific recoveries provisions 2016. largely losses. lower in year, credit to million the for due $815 in provision million from allowance total $35 down collective the year, the decreased current in which the decrease migration, in pre-tax portfolio million million $774 $76 was a (PCL) was losses There credit for provision total The Losses Credit for Provision ANALYSIS AND DISCUSSION MANAGEMENT’S C-oaeaentlasadacpacs(annualized) acceptances and loans net PCL-to-average losses credit for losses Provision credit for allowance collective the in Decrease losses credit for provision Specific off written previously loans of Recoveries allowances established previously of Reversals rvso o rdtlosses credit for losses Provision credit for allowance collective the in Decrease losses credit for provision Specific 1 einn ntefrtqatro 06 h euto ntecei akta srfetdi e neeticm n h rvso o rdtlse nteprhsdpromn otoi r being are portfolio performing purchased the on losses credit for provision the and income interest net in reflected is that mark credit the in reduction the 2016, of quarter first the in Beginning (1) 31 October ended year the For millions) in $ (Canadian provisions specific New 31 October ended year noted) the as For except millions, in $ (Canadian pcfcPLt-vrg e on n cetne (annualized) acceptances and loans net PCL-to-average Specific oprt evcs nldn T&O including Services, Corporate Markets Capital BMO Management Wealth Banking Commercial and Personal M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO ucae efrigloans performing Purchased loans impaired credit Purchased loans impaired on Interest loans estate real Impaired P&C U.S. P&C Canadian nagorpi ai,temjrt forpoiin eaet u aainla otoi.Seii C nCanada in PCL Specific portfolio. loan Canadian our to relate provisions our of majority the basis, geographic a On commercial and consumer lower reflecting million, $505 to million $37 0.23% decreased from provisions slightly P&C down Canadian 2017, in 0.21% was acceptances and loans net average of percentage a as PCL Total eonzdi ..PC ossetwt h conigfrteaqiiino M rnprainFnne n ie htteeaonshv eue usatal nsz.Rslsfrpirperiods prior for Results size. in substantially reduced have amounts these that given and Finance, Transportation BMO of acquisition the for reclassified. accounting been the not with have consistent P&C, U.S. in recognized (1) (1) (1) (%) (%) 1,356 (265) (241) 0.23 0.21 2017 2017 774 850 774 850 505 295 800 (76) (76) 44 (4) Credit Losses Provision for 2 8 – – 052016 2015 612 Specific provision Collective provision ,8 1,278 1,386 33 (456) (210) (343) (228) .30.19 0.19 0.23 0.23 062015 2016 2015 2016 1 612 612 815 815 1 612 612 815 815 4 496 542 5 119 257 9 615 799 5)(86) (58) 1)28 (16) 126 81 ($ millions) 97 –– –– –5 –17 815 (76) 2017 850 MD&A – 2 4 6 5 2 3 1 3 4 3 3 9 43 18 (%) (%) 13,007 62.8 2017 2017 Change Change 64.2 from 2016 from 2016 (%) 13,302 12,544 63.9 66.5 12,997 11,819 65.2 Reported Non-Interest Expense Adjusted Non-Interest Expense Net Efficiency Ratio Net Adjusted Efficiency Ratio 2015 2016 2015 2016 67.2 Non-Interest Expense Non-Interest ($ millions) 284 248 444 411 12,182 Net Efficiency Ratio 2016 2015 2016 2015 2,248 2,087 2,278 2,102 4,894 4,835 5,104 4,979 7,142 6,922 7,382 7,081 2,357 2,130 2,393 2,137 2,761 2,519 2,778 2,553 12,544 11,819 12,997 12,182 is the difference between is calculated in the same BMO Financial Group 200th Annual Report 2017 336 485 2017 2017 2,381 2,386 5,007 5,081 7,388 7,467 2,430 2,491 2,853 2,859 13,007 13,302 adjusted efficiency ratio Adjusted operating leverage Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 29. , the reported efficiency ratio improved 230 basis points to (1) ) is a measure of productivity. It is calculated as non-interest expense divided by total revenue (1) , reported operating leverage was 3.7% and adjusted operating leverage was 1.9%, (1) expense-to-revenue ratio is the difference between revenue and expense growth rates. (or efficiency ratio Adjusted non-interest expense excludes restructuring costs, the amortization of acquisition-related intangible Adjusted non-interest expense increased $463 million or 4% to $13,007 million. Reported and adjusted expenses The dollar and percentage changes in expense by category arePerformance-based outlined compensation in on the a Non-Interest reported Expense basis and increased Adjusted $108 million or 5% and on an adjusted basis Premises and equipment costs on a reported basis increased $98 million or 4% and onBMO’s an reported adjusted efficiency basis ratio improved 180 basis points to 59.8% and the adjusted efficiency ratio improved On a net revenue basis manner, utilizing adjusted revenue and expense. Operating leverage (on a taxable equivalent basis in the operating groups), expressed as a percentage. The (Canadian $ in millions) For the year ended October 31 Performance-based compensation Performance-based compensation (Canadian $ in millions) For the year ended October 31 The Other employee compensation Other employee compensation adjusted revenue and adjusted expense growth rates. Total employee compensation Total employee compensation Premises and equipment Premises and equipment Other Other Amortization of intangible assets Total adjusted non-interest expense Amortization of intangible assets Total non-interest expense (1) Adjusted non-interest expense excludes restructuring costs, the amortization of acquisition-related intangible assets and acquisition integration costs. Adjusted Non-Interest Expense Non-Interest Expense (1) This ratio is calculated excluding insurance claims, commissions and changes in policy benefit liabilities (CCPB). Non-Interest Expense Non-interest expense increased $305 million or 2% to $13,302 millionassets in and 2017. acquisition integration costsand in 2016, both respectively. years. The Restructuring amortization costs2017 of were and acquisition-related $59 2016, intangible million respectively. assets and Acquisition was $188respectively. integration $149 million costs million in were and 2017 $87 $160 million million and in $104 million in 2017increased and primarily 2016, due to higherby employee-related our expenses focus and on increased disciplined technologygrowth expense investments, was management. partially not The offset significant. impact of the weaker U.S. dollar onNon-Interest non-interest Expense expense tables. Table 4 on page 125 provides moreincreased detail $133 on million expenses or and 6%, expensecompensation, due growth. which to includes improved salaries, performance benefits acrossan and most adjusted severance, operating basis on groups. increased a Other $113 reported employee million basis or decreased 2%. $23 million andincreased on $73 million or 3%,Other due reported to expenses increased increased technology $81 investments million net or of 3% lower and real other estate-related80 adjusted costs. basis expenses points increased to $92 58.4% million in or 2017. 3%. On a net revenue basis 64.2% and the adjusted efficiency ratio improved 110 basis pointsreflecting to our 62.8% ongoing in focus 2017. onmanagement. improving efficiency by driving revenue growth and maintaining disciplined cost MD&A te hnicm ae.Teices rm$,2 ilo n21 a rmrl u oahge rvso o noetaxes. income for levies provision government higher total a in to included due million primarily $496 was remaining 2016 the in and million taxes $1,827 income from for increase 2017. provision The 1, our taxes. May in income of included than as million other effective $867 were with and rate. Canada, passed circumstances tax in were certain effective incurred Rules) in our (SEA dividends increase rules Canadian to arrangement of is equity deductibility Rules synthetic tax SEA the the the 2016, impact of June Rules impact In SEA The the details. The of related Canada. 142 additional in page for law year, on 113 into the Equity page for in on million Changes section $8 of Estimates of Statement Accounting equity Consolidated shareholders’ the in to exchange expense Refer in tax 2016. details. fluctuations income in further taxes the an million for income of to $10 statements incur function rise of financial period not a given expense consolidated current does is has tax the operations gain/loss operations income in foreign hedging foreign an credit the a of with or on from Hedging compared to charge loss arising period. credited tax or charge/benefit to or income gain tax period charged an unrealized income from is in associated The rates operations results the liquidated. foreign activities while are of hedging equity, investments translation the shareholders’ the on on to until loss loss credited or or or gain gain charged unrealized a is an purposes, that rate and tax tax hedging income effective on For adjusted loss equity. the or shareholders’ and gain predominantly 25.8% A rate was currency. statutory 2017 foreign the in corresponding from rate year. differs tax prior rate effective the tax reported from effective the unchanged The basis, both 2016. teb 25.9%, in a was 19.9% On 2017 with securities. in compared from 19.8%, income was tax-exempt 2017 of in because rate tax effective adjusted The dutdrslsi hsscinaennGA n r icse nteNnGA esrsscino ae29. page on section Measures Non-GAAP the in 44 discussed are and non-GAAP are section this in results Adjusted tax. to subject income of determination the in income net reported than rather income net adjusted using computed is rate adjusted The (1) taxes income for provision adjusted The 2016. accordingly. in report 19.2% and with basis compared equivalent 19.5%, taxable a on taxes subsidiaries income from associated earnings and retained groups of statements. operating of repatriation financial the regardless the consolidated income, of the in exception of recorded the 189 transactions with page upon authorities, on based taxing 23 is by Note Income taxation in of to outlined Statement subject Consolidated are the transactions in such reflected when taxes income for provision The Taxes Income for Provision ANALYSIS AND DISCUSSION MANAGEMENT’S M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO al npg 2 eal h 198mlino oa oenetlve n ae nurdb M n21.$,6 ilo fti mutis amount this of million $1,363 2017. in BMO by incurred taxes and levies government total of million $1,988 the details 125 Critical page the on in 4 discussion Table the See earnings. our impact can authorities taxing by interpretation its and policy, and law tax rates, tax in Changes the in investments the funding by operations foreign its from arising risk exchange foreign the purposes, accounting for hedges, partially BMO h rvso o noetxsws$,9 ilo n21,cmae ih$,0 ilo n21.Terpre fetv a aei 07was 2017 in rate tax effective reported The 2016. in million $1,101 with compared of 2017, performance in the million assess $1,296 We was basis. taxes GAAP income a for on provision taxes The income for provision associated and results consolidated BMO’s assesses Management (1) a 137mlini 07 oprdwt 129mlini 2016. in million $1,249 with compared 2017, in million $1,357 was ,as MD&A 45 Markets BMO Capital Canada 69% United States 25% Other countries 6% by Country Investment and Corporate Banking Trading Products 2017 Adjusted Net Income ‰ ‰ BMO Financial Group 200th Annual Report 2017 BMO Wealth Management BMO Nesbitt Burns BMO Private Banking BMO InvestorLine BMO Global Asset Management BMO Insurance ‰ ‰ ‰ ‰ ‰ Canada 71% United States 23% Other countries 6% by Country 2017 Reported Net Income BMO Financial Group Personal Banking Commercial Banking ‰ ‰ Corporate Services, including Technology and Operations Canadian P&C 42% U.S. P&C 19% Wealth Management 17% BMO CM 22% 2017 Adjusted Net Income by Operating Segment* Personal and Commercial (P&C) Banking Canadian P&C U.S. P&C Personal Banking Commercial Banking ‰ ‰ Canadian P&C 43% U.S. P&C 18% Wealth Management 16% BMO CM 23%

2017 Reported Net Income by Operating Segment*

Operating Groups Lines of Business Operating Segments *Percentages determined excluding results in Corporate Services. BMO’s business mix is wellincome diversified more by resilient operating over segment time, and and by provides geography. more Our avenues mix for is profitable a growth. source of strength that makes our revenue and net

This section includes an analysisstrengths, of challenges, the key financial value results drivers, of achievements our and operating outlooks. groups and descriptions of their operating segments, businesses, strategies, 2017 Operating Groups Performance Review MD&A dutdrslsi hsscinaennGA n r icse nteNnGA esrsscino ae29. page on section Measures Non-GAAP the in 46 discussed are and non-GAAP are section this in results Adjusted sections of the amortization in the separately excludes reviewed which are income, segments net operating Adjusted These ago. 9%. year or banking a million P&C from $288 combined 9% up follow. The or million, that segments, P&C). million $3,627 operating (U.S. $291 was banking Banking up assets, business Commercial was intangible and and million acquisition-related retail Personal $3,578 two U.S. of our and income of P&C) net sum (Canadian business the Banking represents Commercial group and operating Personal (P&C) Canadian Banking Commercial and Personal The Banking Commercial and Services Corporate in Personal reflected is to adjustments basis teb the before-tax group at equivalent the basis an to teb to offset taxes. a securities The income on tax-exempt sources. for revenue on tax-exempt provision analyze increased and and we are taxable revenue banks, taxes between many income income Like for of group. provision comparisons peer the facilitate Canadian and our Revenue with level. consistent group is operating which (teb), basis equivalent reclassified. taxable been have periods prior for Results Services. Corporate and Management Wealth Transportation P&C, BMO Canadian to in U.S. related revenue legacy impacts the accounting to loan been related Purchased not provisions Services. P&C. have or Corporate U.S. periods recoveries in in prior and recognized recognized the for 2011 be are and for Results in to Finance income accounting size. purchased continue interest the in portfolio portfolio net with substantially impaired estate in consistent reduced credit real reflected P&C, have the impaired credit is U.S. amounts on of that in these provisions recoveries mark recognized that or and credit being given Recoveries provisions the are and reclassified. and in portfolio Finance, loans reduction performing Transportation purchased the purchased BMO the 2016, the of of of on acquisition term quarter losses the first credit over the for income in provision interest Beginning the net portfolio. in purchased reflected the is on that losses align presentation. mark accurately current credit more the the to to in closely updated conform reduction more are to to allocations restated groups expense are support and periods corporate revenue prior and addition, for client In Results between priorities. experience. transferred strategic current are its with lines with business structure the organizational within BMO’s units align and lines business Results certain Periodically, Group Operating Reports BMO How ANALYSIS AND DISCUSSION MANAGEMENT’S eotdntincome net Reported (teb) taxes income for Provision taxes income before Income expense Non-interest losses credit for Provision ultm qiaetemployees equivalent Full-time administration under Assets deposits Average acceptances and loans net Average assets earning Average (teb) equity assets common earning Average average on margin interest Net (teb) ratio efficiency Adjusted prtn eeae(teb) leverage Operating equity on return Adjusted 1 eoetxaonso 6 ilo n21,$1mlini 06ad$3mlini 05aeicue nnnitrs expense. non-interest in included are 2015 in million $73 and 2016 in million $71 2017, in million $66 of amounts tax Before (1) (teb) ratio Efficiency (teb) leverage operating Adjusted equity on Return growth expense non-interest Adjusted growth expense Non-interest (teb) revenue Total revenue Non-interest (teb) income interest Net 31 October ended year the for or noted) at as As except millions, in $ (Canadian eeu growth Revenue growth income net Adjusted e noegrowth income Net Drivers and Metrics Performance Key income net Adjusted M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO mriaino custo-eae nagbeassets intangible acquisition-related of Amortization M nlzsrvnea h osldtdlvlbsdo APrvnerfetdi h osldtdfnnilsaeet ahrta na on than rather statements financial Services. consolidated Corporate the in in included reflected also revenue are GAAP group on operating based one level non-interest than consolidated to more the income impact at interest that revenue net costs analyzes from integration BMO reclassified and been acquisition has and investments costs equity Restructuring from income 2016, of quarter first the in effective Also the of recognition including portfolio, loan purchased 2011 the of respect in items certain reflected 2016 to prior results Services Corporate (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) (1) 152,492 215,667 207,815 14,554 29,267 2,512 3,339 3,600 7,444 2,182 5,262 2,515 2.53 48.3 48.4 14.0 14.0 2017 827 505 2.9 2.9 3.9 3.9 6.8 3 aainPCUS & oa P&C Total P&C U.S. P&C Canadian 4,3 132,767 142,132 195,183 205,813 189,505 199,527 48315,713 22,848 14,803 25,439 ,0 2,103 2,202 2,801 3,342 2,963 3,464 ,6 6,639 1,833 6,969 4,806 1,909 5,060 ,0 2,107 2,204 .42.54 50.3 2.54 50.3 49.7 49.7 062015 2016 6 698 761 496 542 . (1.2) (1.2) 1.3 1.3 4.9 4.9 3.7 3.7 3.7 5.0 . 4.5 4.5 4.6 4.7 24 148,753 85,927 90,453 96,244 1,066 1,436 2,942 4,673 1,066 3,607 7,122 1,112 3.75 61.6 63.0 2017 (1.1) (0.9) (1.9) (1.7) 370 295 1.4 1.2 0.3 46 5,4 126,513 159,448 78178,032 74,500 87,881 82,046 90,752 97,538 ,8 837 1,085 1,121 2,392 1,494 2,906 ,5 3,632 787 4,657 2,845 1,119 3,538 ,5 7,606 7,055 ,3 890 1,135 .33.47 64.0 3.63 65.9 60.9 62.4 2215.7 15.0 22.2 15.0 21.5 28.2 7425.8 27.7 27.4 29.5 062015 2016 0 284 409 119 257 . – (0.7) 6.0 6.7 053 50 178,020 238,419 306,120 304,059 12,117 21,676 20,849 1,197 3,578 4,775 6,542 3,248 8,869 3,627 2.92 53.4 54.0 17.1 16.9 2017 800 2.8 2.7 4.2 1.4 1.5 8.6 8.8 49 8,8 149,361 184,887 210,799 230,013 269,683 296,565 271,551 297,065 16610,271 11,626 18823,319 21,858 17,862 20,241 ,7 982 1,170 ,8 2,940 3,287 3,922 5,734 4,457 6,370 ,2 2,620 7,651 3,028 8,598 ,3 2,997 3,339 .92.82 55.1 2.89 55.8 54.2 54.8 6216.5 16.2 16.2 15.9 139.1 8.9 7.4 11.3 11.1 13.2 1410.0 10.2 11.4 11.8 062015 2016 9 615 799 . (1.7) (1.5) 1.9 2.1 257 52 MD&A 47 Continue to focus on improving customer loyalty by deepening relationships. 2018 Focus In personal banking, deliver a leading customer experience leveraging new digital channels and existing networks. BMO Financial Group 200th Annual Report 2017 provides small business and commercial banking Commercial Banking customers with a broad suiteincluding of business commercial deposit products accounts, and commercial services, loans credit and cards, commercial business mortgages, cashexchange management and solutions, specialized foreign banking programs.partner Our with Commercial our bankers customers to help them grow and manage their business. eTransfers for all BMO customers. ® Upgraded 21 branches across Canada,and including Toronto, two providing new customers Smart with Branchsmaller the locations format best in tailored of Winnipeg to our their innovativeContinued needs. technologies enhancing in our a automated unique, tellerthe machines flexibility (ATM) to network choose this bill year denominations by in including 40% of our ATMs across Canada. Ran effective campaigns in supportEveryday of Banking, key helping offerings to ranging increase fromGrew our home our new-to-BMO financing mix customer to of base. advice-based roles,the strengthening financial our issues ability important to to engage them,Launched with whenever free customers and Interac on however they choose to interact. Achieved strong employee engagement surveyparticularly results, around above customer leading focus, company demonstrating benchmarks, deliver our a employees’ leading ongoing customer commitment experience. to Created dedicated teams focused onoverall improving service. moments that matter, to help improve ‰ ‰ ‰ ‰ ‰ ‰ ‰ Personal banking card issuer in Canada for both retail and commercial cards. ® provides customers with a wide range of products

Key Priority 2017 Achievements (1) Effective November 1, 2017, Cameron Fowler was appointed President, North American Personal and Business Banking, BMO Financial Group. Proud to be the officialsince bank 2008. of the Canadian defence community, serving the unique needs of Canadian military members and their families Largest Mastercard Consistently applied credit risk managementPrudent practices underwriting that standards provide to customers support with responsible reliable personal access lending to and appropriate long-term financing financial solutions. sustainability. Highly engaged team of dedicatednew employees ways focused to on help. providing aLeading personalized commercial banking banking experience, business, anticipating as customers’Strong evidenced needs retail by and banking BMO’s finding business number including two leading ranking digital in sales, Canadian with market nearly share 20% for of business applications loans submitted up through to our $25 digital million. channel. Continue our focus on customer loyalty and growth LinesofBusiness Personal Banking and services, including chequing andmortgages, savings creditor accounts, insurance credit and cards, everydayadvice. financial Our and employees investment are focusedwith on an providing exceptional all experience of every our time customers they interact with us. Capture key growth and loyalty opportunities by delivering a leading digital experience and personalized advice. ‰ Strategy and Key Priorities ‰ ‰ ‰ ‰ ‰ Strengths and Value Drivers Cameron Fowler Group Head Canadian Personal and Commercial Banking, BMO Financial Group (1)

Canadian Personal and Commercial Bankingfinancial provides products a and full services range toto of eight help million our customers. customers We’re makebusiness here the with right us financial seamlessly decisions acrossour as our employees they channels: at do getting their advice placetheir from of mobile business, devices, in online, over overautomated 900 the teller branches, telephone, machines on and across at the over country. 3,300 Canadian Personal and Commercial Banking MD&A 48 P&C Canadian ANALYSIS AND DISCUSSION MANAGEMENT’S (continued) growth and loyalty customer on focus our Continue experience digital leading a Deliver eotdntincome net Reported taxes income for Provision noebfr noetaxes income before Income e noegrowth income Net o-neetexpense Non-interest losses credit for Provision omrilrevenue Commercial oa eeu (teb) revenue Total esnlrevenue Personal Drivers and Metrics Performance Key o-neetrevenue Non-interest eeu growth Revenue dutdntincome net Adjusted 1 eoetxaonso 2mlini 07 3mlini 06ad$ ilo n21 r nlddi o-neetexpense. non-interest in included are 2015 in million $5 and 2016 in million $3 2017, in million $2 of amounts tax Before (1) ratio Efficiency leverage operating Adjusted leverage Operating growth expense non-interest Adjusted growth expense Non-interest income interest Net 31 October ended year the for or noted) at as As except millions, in $ (Canadian ultm qiaetemployees equivalent Full-time deposits Average acceptances and loans net Average assets assets earning earning Average average on margin interest Net M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO e roiy21 Achievements 2017 Priority Key mriaino custo-eae nagbeassets intangible acquisition-related of Amortization (%) (%) (%) (%) omrilbanking Commercial ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ M rdtaddbtcards. debit and credit BMO mrvdpoessadicesdpafr fiinis loigorslsfret spend to customers. force with sales engaging our directly allowing time efficiencies, more platform increased and processes Improved oki dacn rcs uoaintruhteefciedpomn fnwtechnology. new for of Celent, deployment firm effective advisory the and through research automation global process the advancing from in Award work Bank balances, Model rewards 2017 card the credit Received of viewing transactions. online pending easy and enable alerts to features card credit Enhanced industry- platforms. Pay our desktop Android extended to Introduced and journey process, opening opening account account mobile now the leading and branches. simplify year 125 and prior approximately enhance the at to from volume Continued 24% sales nearly total up the volume, to sales equivalent channel digital grow to Continued banking. Aboriginal providing of and area relationships the customer in building notably to solutions, commitment innovative our as well by as year focus, consecutive third the for Mastercard Canada Magazine commercial in of Bank self-serve suite Commercial through new Best bank a Named to as prefer well who as clients transactions, business electronic small for Plan eBusiness Launched (%) (%) tis21 akn wrsi eonto forsrn einladindustry and regional strong our of recognition in Awards Banking 2017 its at (%) (%) ™ loigcsoest aescr ucae aiywt their with easily purchases secure make to customers allowing , (1) 152,492 215,667 207,815 14,554 2,512 3,339 3,600 2,729 7,444 4,715 2,182 2,515 5,262 2.53 48.4 14.0 2017 827 505 2.9 2.9 3.9 3.9 6.8 3 4,3 132,767 195,183 142,132 189,505 205,813 199,527 48315,713 14,803 ,0 2,103 2,202 ,6 2,801 2,963 ,6 3,342 3,464 ,1 2,225 2,415 ,6 6,639 6,969 ,5 4,414 4,554 ,0 1,833 1,909 ,0 2,107 2,204 ,6 4,806 5,060 .42.54 50.3 2.54 49.7 062015 2016 6 698 761 4 496 542 . 4.5 4.7 . (1.2) (1.2) 4.9 4.9 1.3 3.7 1.3 3.7 3.7 5.0 24 ® ol Finance World products. *Numbers maynotaddduetorounding. ($ millions) Reported NetIncome ($ billions) Average NetLoansandAcceptances ($ billions) Average Deposits Commercial Personal Residential Mortgages Consumer InstalmentandOtherPersonal Credit Cards Business andGovernment 2,103 195.2 2015 2015 84.1 52.9 43.5 90.2 8.6 2015 48.7 08Focus 2018 transactions. service and sales digital increase to Continue strengths. core maintaining while businesses, and sectors high-value across diversification through opportunities target banking, commercial In 2,202 205.8 2016 2016 90.5 44.1 58.3 94.8 8.6 2016 51.6 2,512 215.7 2017 2017 97.0 62.9 44.9 99.0 8.8 * 2017 55.5 MD&A 49 BMO Financial Group 200th Annual Report 2017 Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 29. Growth in the Canadian economy is expected to moderate in 2018. Consumer loan growth is expected to moderate, while residential mortgage We expect to generate growth by capturing acquisition opportunities and increasing our customer share of wallet, while growing our advisory The Canadian economic environment in 2017 and outlook for 2018 are discussed in more detail in the Economic Developments and Outlook Revenue increased $475 million or 7% to $7,444 million. In our personal banking business, revenue increased $161 million or 4%Net due interest to margin higher decreased 1The basis provision point for to credit 2.53%. lossesNon-interest decreased expense $37 was million $3,600 or million, 7% up to $136 $505 million million, or reflecting 4% lowerAverage from consumer net a and loans year commercial and ago, provisions. acceptances reflecting increased continued $9.9 investment billion in or the 5% business, from including a a year ago toAverage $215.7 deposits billion. increased Total $10.4 personal billion lending or balances 7% (excluding to $152.5 billion. Personal deposit balances increased 7%, including growth in chequing account Caution This Canadian P&C Banking section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements. The personal and commercial bankingembraced business new in technologies Canada and is strengthened highlycontinued their competitive to focus in gain on a momentum the rapidly and customer changing are experience. environment. increasingly Non-traditional Traditional collaborating competitors competitors with (such have banks asgrowth to fintech is enhance companies) projected their have to products slow andside, in customer growth response experience. in to both regulatory personal changesmargins and to to commercial the increase operating market. slightly, deposits We benefiting is expectpricing from expected to in improvements to see the in decelerate continued market. the as growth Credit interest interest in losses rate rates business are environment, trend lending. expected growth steadily On to may higher. the rise, be While deposit sales driven dampened we force by by expect and volume the targeting growth, effects commercial compared oftechnology opportunities to competitive will across the continue geographic relatively to regions, lower play market lossesin a segments experienced 2017, growing and in the role industry 2017. number in sectors. of delivering We digital a remain transactions leading confident was experience that more for than oursection double customers on the while page number improving 32. of the branch efficiency transactions. of our operations; Business Environment, Outlook and Challenges Financial Review Canadian P&C reported net incomeamortization of of $2,512 acquisition-related million intangible increased assets, $310 increased million $311 or million 14% or and 14% adjustedbalances from net across the income most prior of products year. $2,515 and million,to increased which the non-interest excludes gain revenue. the on In sale oursale of commercial contributed Moneris banking approximately US business, 8% in revenue to increased the net $314 first income million quarter growth or of and 13% 2017, 3% higher due to balances revenue across growth. most products and increased non-interest revenue. The gainfocus on on our digital strategy and select sales force investment. retail cards) increased 4% year8% over year year, over with year, residential with mortgage good growth growth of across 4%. a Commercial number loanbalances of balances of industry (excluding 12%. sectors. corporate Commercial cards) deposit increased balance growth was broad-based, with balances growing 7% year over year. MD&A 50 all address to customers our with partnership intuitive and differentiated a creating by markets our in leader a needs. be financial and their business of our grow to aim We Priorities Key and Strategy ‰ ‰ ‰ ‰ ‰ Drivers Value and Strengths Banking Business and Retail U.S. Head Group with Dousmanis-Curtis clients Alexandra our help to working needs. services, financial and their knowledge products local of expertise, breadth sector a of and commercial combination Our a machines. provides teller team automated banking 43,000 than nationwide more and to platforms access banking digital branches, centres, 570 contact and over dedicated small through and seamlessly two retail than customers serves business more team mid-sized to banking services personal financial Our of customers. BMO range million Midwest, broad U.S. a the offers in Bank position Harris well-established and strong a Banking Through Commercial and Personal U.S. ANALYSIS AND DISCUSSION MANAGEMENT’S utmrbase customer growing and loyal a to experience customer great a Deliver their in confidence have and decisions. borrowing, financial better and make investing our to saving, help them in to enabling choices is complexity, do of we sense everything make in customers goal and Our cards services. credit banking lending, other business credit, consumer mortgages, deposits, Banking Personal LinesofBusiness opeesv n nertdcnrlsrcuet cieymng ikadrgltr compliance. regulatory and risk manage best-in-class actively knowledge, to industry businesses. structure in-depth flagship control by our integrated broad supported in and a and share Comprehensive network, Midwest market branch U.S. top-tier extensive the and an capabilities. in experience base, digital centred customer customer on business, loyal focus commercial markets. and continuing national our growing a diversified succeed. in large, and Large-scale, customers perform a services our and with and helping compete banking, products and to retail of communities how in suite our knows growth to and accelerated commitment customers for deep our foundation a understands Strong with that Midwest, team U.S. experienced the and in Strong years 170 of heritage Rich M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO e roiy21 Achievements 2017 Priority Key fesabodrneo rdcsadsrie,including services, and products of range broad a offers ‰ ‰ ‰ ‰ ‰ mrvdorrnigt ihhaog3 edn mrcnbnsi h 07Sre of Survey 2017 the in banks online. American by and leading published in-app, 39 Reputations in-store, among Bank purchases eighth for to pay ranking wallets, to our digital customers Improved Pay™ for Samsung way and seamless Pay™ a Android offering footprint. Masterpass™, and Midwest Bank Chicago our Harris core across BMO our place Released in fourth share our market and deposit markets in Wisconsin ranking place second and acquisition. our retail customer Maintained in net acquisition commercial household in deposit improvement net continued leading with solutions. growth, of digital customer understanding our Strong our enhancing deepening and commercial offerings, needs both product clients’ in our our Score improving Promoter by Net banking by business measured and as loyalty customer improved Further hi oenne rdcsadsrie,adinnovation. and services, and products governance, their n ru edCmeca Banking N.A. Commercial Bank Head Harris Group BMO and Officer Executive Chief and President Casper R. David mrcnBanker American hc eonzsbnigisiuin for institutions banking recognizes which , ed n hrn u xets n nweg ohl hmgrow them help to knowledge businesses. financial and their their expertise anticipate our to sharing clients and our needs solutions. with management partnering risk in and believe management We credit treasury and as deposits well lending, as including cards, services, and products banking of Banking Commercial rvdsbsns utmr ihabodrange broad a with customers business provides 08Focus 2018 ouin oorclients. our to solutions financial Bank” “One comprehensive deliver to businesses our across collaboration increasing while structure, cost our improve and position competitive our enhance will that capabilities digital in invest to Continue MD&A 51 Continue to grow the commercial banking franchise by deepening market share in our flagship businesses, investing in high-growth markets and specialty businesses and improving share of wallet by delivering comprehensive solutions to meet all of our clients’ needs. Further accelerate deposit and customer growth, enhance our lending operating model and expand our front- end and back-end digital capabilities. 2018 Focus BMO Financial Group 200th Annual Report 2017 . ® products that consolidates multiple types of business ® app. ® expenses – purchasing, travel and fleet spending – into a single card. Successfully completed the integration ofleverage BMO the Transportation combined Finance, capabilities allowing and uscustomers’ suite to needs. of financial solutions toExpanded better our meet cross-border our service groupto and delivering offering a as consistent, part seamless ofLaunched and our a integrated continuing new client commitment suite experience of across Mastercard the enterprise. Introduced a new suite ofcustomers chequing and products focused tailored on to bringing matchLaunched simplicity the People to lifestyles Pay, banking of a at our secure everyHarris way stage Mobile to of Banking send life. money toPartnered friends with and 1871 family – using a theto leading BMO nearly technology 500 and high-growth entrepreneurship start-ups ecosystemopportunities – currently for to home continued mentor growth early-stage and fintechContinued innovation. start-ups to and execute identify our multi-yearexperience, strategy including to an improve enhanced efficiency account andBranch opening digitize technology. experience the and customer investments in Smart Expanded coverage to Texas andestate Ohio and and mezzanine into finance. new productStrengthened segments our – presence healthcare in real dealerCarolina finance and by by expanding improving into coordination San with Diego, our Boston, retail and auto North business. Expanded customer access to include12,000 more international than ATMs 43,000 through ATMs our in partnership the with United Allpoint States and ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ Key Priority 2017 Achievements Continue to deliver local access and industry expertise to commercial banking clients across more sectors and an expanding geographic footprint through aprovenand effective operating model Accelerate personal banking by leveraging the strong foundation and growth we have achieved to build scale, improve profitability, and meet our customers’ evolving needs MD&A 52 rates. interest higher given volumes commercial billion. in $1.9 decline of expected sale an loan by the including volumes, loan personal in billion $3.4 of declines costs. marketing and investments provisions. consumer lower by offset compression. volumes. spread and loan spreads of deposit net increased assets, by spread offset low partially in sale, reduction loan the on loss sale the loan of the impact on the loss and The spreads 2017. of growth. quarter revenue compression. first on spread the 1% loan in and of portfolio growth net loan income spreads, auto net deposit indirect adjusted improved the and of reported portion on a 3% of approximately sale of the impact on negative loss a the had of impact the the and in compression amounts All the assets. from intangible million acquisition-related $23 of basis. decreased amortization dollar million the U.S. $1,112 excludes a of income on income net are net Adjusted section adjusted dollar. this and U.S. of million weaker remainder $19 the decreased to million due $1,066 year, of prior income net reported P&C U.S. Review Financial P&C U.S. ANALYSIS AND DISCUSSION MANAGEMENT’S e noegrowth income Net growth income Net eotdntincome net Reported (teb) taxes income for Provision omrilrevenue Commercial income net Adjusted noebfr noetaxes income before Income losses credit for Provision (teb) revenue Total revenue Non-interest dutdnnitrs xes growth expense non-interest Adjusted growth expense Non-interest Drivers and Metrics Performance Key income net Adjusted 2 eoetxaonso S4 ilo n21,U$2mlini 06adU$5mlini 05aeicue nnon-interest in included are 2015 in million US$55 and 2016 in million US$52 2017, in million US$49 of the amounts and income tax Before interest net (2) in reflected is that mark credit the in reduction the 2016, of quarter first the in Beginning (1) (teb) ratio Efficiency (teb) leverage operating Adjusted (teb) leverage Operating growth Revenue growth income net Adjusted revenue Personal (teb) income interest Net noted) as except millions, in (US$ growth income net Adjusted income net Reported 31 October ended year the for noted) or as at except As millions, in equivalent $ (Canadian o-neetexpense Non-interest ultm qiaetemployees equivalent Full-time deposits Average acceptances and loans net Average (teb) assets assets earning earning Average average on margin interest Net (teb) ratio efficiency Adjusted M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO mriaino custo-eae nagbeassets intangible acquisition-related of Amortization vrg eoiso 6. ilo erae 06blino % sgot nproa oue cosaldpstpout a oeta offset than more was products deposit all across volumes personal by in offset growth partially as 9%, 1%, of or growth billion loan $0.6 commercial decreased by billion driven $65.7 billion, of $69.2 deposits to Average technology 1% higher or to billion due $0.7 mainly increased 3%, acceptances increased and both loans partially million net provisions, $2,203 Average commercial of higher expense reflecting non-interest ago, adjusted year and a million a from $2,252 from 16% of benefit or expense a million Non-interest and $31 rates, increased interest million increased $225 to of due losses revenue credit and deposit for volumes higher provision loan by The in driven declines 3.75%, to to due points primarily basis million, 12 $1,427 increased to margin 3% interest and or Net volumes million loan $39 increased by to decreased due revenue primarily business, million, banking $2,151 personal to our 5% In or million spread $101 loan increased of revenue net business, volumes, banking loan commercial year. increased our prior and In the revenue to deposit compared higher flat to relatively due both primarily were 2%, million or $853 million of $62 income increased net million adjusted $3,578 and of million Revenue $817 of income net Reported conigfrteaqiiino M rnprainFnne n ie htteeaonshv eue usatal in substantially reduced expense. the have reclassified. with amounts been consistent these not P&C, that have U.S. given periods in and prior recognized Finance, for being Transportation Results are BMO size. portfolio of loan acquisition performing the purchased for the accounting on losses credit for provision (%) (1) (%) (%) (%) (%) (1) (1) (%) (%) (%) (%) (%) (%) U$basis) (US$ (%) (2) 65,724 69,233 73,661 2,151 1,112 1,101 1,427 1,066 2,252 3,578 2,761 7,122 3.75 61.6 62.9 2017 (0.5) (0.3) (1.9) (1.7) (1.1) (0.9) 817 284 817 853 225 2.7 1.8 2.9 36 63362,152 59,353 65,383 66,343 68,514 73,639 ,5 1,439 2,050 890 1,135 ,2 893 1,129 ,6 1,455 1,466 837 1,085 ,9 1,906 2,894 2,193 2,267 3,516 2,671 ,5 7,606 7,055 510.2 0.3 15.1 21.5 089.7 11.3 20.8 22.9 25.8 27.7 27.4 29.5 570.8 15.7 .33.47 63.9 65.9 3.63 60.9 62.4 062015 2016 1 667 226 819 310 4 627 845 5 709 856 9 95 194 . (0.5) 0.1 5.8 6.4 742 37 (US$ billions) Average NetLoansandAcceptances (US$ billions) Average Deposits ($ millions) Reported NetIncome Canadian dollar U.S. dollar Commercial Personal Indirect Auto Business Banking 2015 37.4 667 59.4 35.5 5.0 9.3 6.8 2.8 2015 2015 24.8 837 Other Loans Commercial 2016 40.4 819 68.5 47.2 8.2 5.0 5.9 2.2 2016 2016 1,085 26.0 Mortgages 2017 42.4 817 69.2 51.2 1.9 5.0 7.7 3.4 2017 2017 1,066 23.3 Loans Commercial Loans Personal MD&A 53 BMO Financial Group 200th Annual Report 2017 Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 29. The personal and commercial banking environment remains competitive, with tightened lending standards and continued pressure on pricing The pace of expansion in the U.S. Midwest region should improve modestly in 2018 and continue to contribute to U.S. P&C’s growth. Personal The personal and commercial banking business remains committed to a customer-focused growth strategy. We expect to generate growth in The U.S. economic environment in 2017 and the outlook for 2018 are discussed in more detail in the Economic Developments and Outlook Caution This U.S. P&C Banking section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements. Business Environment, Outlook and Challenges U.S. P&C operations are primarilyand concentrated Kansas). in In six addition contiguous to states our in core the footprint, U.S. we Midwest have regionstrategies personal (Illinois, given banking Wisconsin, commercial locations Indiana, loan in Minnesota, growth Florida Missouri allowed opportunities. and us Relative Arizona. to to build our a peers,position strong we of national have strength presence a in in strong our key andhome core specialties proven sales footprint. such commercial and With as lending residential relatively financial model, mortgage low institutions, whichrisk lending. mortgage dealer has appetite, As rates finance with we and and loss move increased transportation rates forward, demand finance, expected we from and to will young created remain maintain millennials, a stable. a we Additional diversified expectbanking anticipated and an loan short-term high-quality upturn growth rate loan in is increases portfolio expected are thatparticularly to expected adheres in improve to to our in benefit our mortgage retail margins. business. andgrowth We business from believe banking, customer that reflecting deposits our a and retail strongflagship improve banking commitment business. our transformation, to On share along improving the of with our deposit wallet. improved performance, anticipate side, We product that we anticipate offerings, large expect continued will commercial strong loan help clients consumer growth accelerate will growth in seek with commercial alternative continued banking, investments pressure which in on remainsmortgages a lower our through rising spread a rate commercial redefined environment. deposits, sales asenhance model, we our streamlined competitive processes position and and optimizedmomentum, streamline pricing. we our We will cost are continue structure, invested to and in focus we improving on are the strengthening committed digital our to experience franchise providing to section and best-in-class on growing products. page our Building 32. business, on while this operating within our risk appetite. MD&A 54 framework. management risk strong a maintaining while client BMO, exceptional across an collaboration through strong needs and management innovation, asset and institutional productivity and on insurance focus wealth, a personal experience, evolving and current clients’ our on Deliver Priorities Key and Strategy ‰ ‰ ‰ ‰ ‰ ‰ Drivers Value and Strengths Management Wealth BMO Head Group Rotenberg Joanna Asia. and EMEA States, United active the an Canada, with across business markets global in a presence is Management including Wealth services, BMO and broad insurance. products a management with wealth institutional, from of and segments, offering worth client net of ultra-high range to full mainstream a serves business wealth BMO’s Management Wealth BMO ANALYSIS AND DISCUSSION MANAGEMENT’S n,udrBOHri iaca dios oms fletcinsi the in clients affluent mass clients to States. worth Advisors, United net Financial ultra-high Harris and BMO worth under net and, financial high of to range solutions comprehensive and a services offering Singapore, and Kong Hong Banking Private BMO’s portfolios. their and for advice recommendations online investment with or investors decisions; provides investment which independent adviceDirect™, provides make which investors service, help self-directed to top-ranked tools our invest: to ways two InvestorLine BMO letexperience client exceptional an with needs, insurance and management wealth personal evolving and current clients’ our on Deliver platform, management portfolio SmartFolio digital well bank-owned as first capabilities, Canada’s planning as services wealth advisory comprehensive wealth our and with investment delivered client-focused of range broad a Burns Nesbitt BMO LinesofBusiness togrs aaeetfaeok nbigu ooeaewti u ikaptt n epn ohihee euaoyexpectations. regulatory heightened to respond networks. and distribution appetite and risk Asia. base our and client within (EMEA) broad operate Africa BMO’s to and to us East access enabling Middle and framework, the trusted, management Asia. Europe, and risk in America, recognized Strong capabilities North widely banking in is private capabilities that as distribution brand well broad Prestigious as with individuals, manager for asset management significant trust/banking wealth Globally holistic American and North management in money clients. presence professional institutional Strong experience. to and client investment retail great self-directed both a digital for providing offered from services to solutions ranging committed banking solutions professionals core of wealth and portfolio management skilled Diversified wealth highly specialized of insurance, team investment, a integrates by that approach advice-based and Planning M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO e roiy21 Achievements 2017 Priority Key ® . sa nieivsigsrieta fesclients offers that service investing online an is u ulsrieivsigbsns nCnd,offers Canada, in business investing full-service our , ‰ ‰ ‰ ‰ ‰ uiessoeaei aaa h ntdStates, United the Canada, in operate businesses xaddorBOfrWmnpormt etteuiu ed fwmnentrepreneurs women of needs unique the meet to clients. program and Women for and BMO transfer our to Expanded clients for easier it funds. making access capabilities, for banking easier cross-border it our making us. Enhanced insurance, with life business for do applications to online advisors advisor enable improving to also SmartApp while BMO States, Launched United experience. the client in the force and sales productivity worth net high our account capabilities. Doubled and channel onboarding online/mobile as enhanced such including journeys maintenance, client critical digitized and Transformed ieCar nentoa,BOFnnilGroup Financial BMO International, and Vice-Chair, Management Asset BMO Head, Group Ouellette Gilles obn utmr n enuac ouin oitrainlreinsurers. international to insurance solutions travel reinsurance and and creditor customers group bank offer to and also individuals We to customers. advisors pension through group marketed and are products that annuity funds insurance, segregated sickness and accident insurance, life Insurance BMO investors worth net high world. and the retail around institutional, to services trust custody management, and investment provides that organization management (GAM) Management Asset Global BMO rvdslf nuac n elhsltos ecreate We solutions. wealth and insurance life provides sagoal infcn asset significant globally a is 08Focus 2018 let’eovn needs. evolving clients’ our meeting to tailored solutions planning wealth and capabilities digital innovations, product market-leading in invest to Continue MD&A 55 Continue to grow BMO Global Asset Management’s global platform through a sharpened investment focus, targeted distribution strategy and streamlined organizational structure. Increase collaboration within Wealth Management and across the bank to deliver an exceptional client experience. Continue to invest in market-leading product innovations, digital capabilities and wealth planning solutions tailored to meeting our clients’ evolving needs. (continued) 2018 Focus BMO Financial Group 200th Annual Report 2017 Sharpened our investment focus, withcredible an products. emphasis on globally relevant and consultant- Focused on driving even strongermeet collaboration their across financial BMO needs to at offerMore every our co-location stage clients arrangements of solutions for their that our lives. teams, banking, including planning, with estate our and business trustclients banking and more partners, investment efficiently. to meet theIncreased diverse collaboration needs between of BMO our GAMstrong and distribution our channels bank and affiliate investment partners capabilities. to leverage Introduced a new BMO Wholeguarantees. Life Product that is simpleEntered and the flexible pension and buy-in has market strong Canadian to companies. meet the longevity risk management needs of Streamlined our organizational structure toglobally simplify and decision-making, reduce improve operating collaboration costs. Strong investment performance, with aoutperforming majority the of relevant assets benchmark under over management Solidified a our five-year position period. as the #2 ETF provider in Canada and #1 in net sales in the market. Continued to drive improvements inContinued client to experience expand scores our across Private ourclient Banking business. acquisition. footprint in Asia through accelerated hiring to drive ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ Key Priority 2017 Achievements Bring the best of BMO to our clients through strong collaboration Build on our leadership position in asset management key markets through enhanced investment and distribution capabilities Deliver on our clients’ current and evolving personal wealth management and insurance needs, with an exceptional client experience (continued) MD&A 56 Management Wealth BMO ANALYSIS AND DISCUSSION MANAGEMENT’S eotdntincome net Reported taxes income for Provision taxes income before Income o-neetexpense Non-interest losses credit for Provision eeu,nto CCPB of net Revenue, vrg deposits Average benefit policy in changes and commissions claims, Insurance vrg e on n acceptances and loans net Average Data Financial Select Business U.S. revenue Total eeu growth Revenue sesudradministration under Assets deposits Average acceptances and loans net Average assets earning Average dutdnnitrs xes growth expense non-interest Adjusted growth expense Non-interest income net Adjusted 3 ehv eti sesudrmngmn htaeas diitrdb sadicue nast ne administration. under expense. assets non-interest in in included included and are us 2015 by in administered million also $88 are and included 2016 that are in management 2015 million under in $88 assets million 2017, certain $46 in have and million We 2016 $80 in (3) of million amounts $38 tax 2017, Before in $nil (2) of amounts tax before costs integration acquisition F&C (1) assets earning Average income net Adjusted income net Reported expense Non-interest revenue Total employees equivalent Full-time management under Assets CCPB of net ratio, CCPB Efficiency of net leverage, operating Adjusted equity on Return CCPB of net growth, Revenue growth income Net income net income Insurance net adjusted businesses wealth Traditional income net businesses wealth Traditional Drivers and Metrics Performance Key revenue Non-interest income interest Net 31 October ended year the for or noted) at as As except millions, in $ (Canadian dutdnticm growth income net Adjusted vrg omnequity assets common earning Average average on margin interest CCPB Net of net ratio, efficiency Adjusted ratio efficiency Adjusted CCPB of net leverage, Operating equity on return Adjusted M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO custo nerto costs integration Acquisition iblte (CCPB) liabilities mriaino custo-eae nagbeassets intangible acquisition-related of Amortization nnnitrs expense. non-interest in (%) (%) (%) (%) (%) (%) (3) (%) (%) (%) (1) (%) U$i millions) in (US$ (%) (%) (%) (%) (2) 429,448 359,773 33,289 18,063 28,026 1,299 3,347 4,654 5,783 1,538 3,300 6,192 1,018 3,348 6,320 5,492 6,040 18.1 25.2 2.50 70.2 52.8 71.9 16.8 15.7 2017 953 346 543 650 236 782 717 700 0.3 7.1 5.2 5.3 6.8 1.8 65 90 78 8 – 0,9 397,959 465,742 405,695 469,694 99127,377 14,550 23,784 29,931 16,458 25,898 ,3 3,358 3,337 ,4 4,509 4,345 ,0 6,010 5,602 1,254 1,543 ,0 2,965 3,200 5,763 5,888 ,4 3,242 3,446 6,506 6,282 5,198 5,274 ,7 5,688 6,078 1.)9.0 (10.3) .72.38 71.5 55.9 2.37 74.5 73.9 54.5 76.8 16.6 14.8 14.1 12.4 062015 2016 96 13.3 (9.6) 06 18.2 17.6 (0.6) (3.6) 32 0.8 (0.6) (3.2) (3.0) 16.8 (0.4) 6 849 295 761 238 9 1,144 999 6 954 862 7 652 806 575 629 240 714 609 222 640 539 565 614 . 8.0 2.2 037 30 168 71 4118 99 54 39 97 5%BMOInvestorLine 25% BMO’sPrivateBanking 31% BMOGlobalAsset 10% BMOInsurance 29% BMONesbittBurns (%) 2017 NetRevenuebyLineofBusiness ($ millions) Reported NetIncome Businesses Management

0521 2017 2016 2015 849 761 953 MD&A 57 BMO Financial Group 200th Annual Report 2017 Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 29. Moderate growth in the Canadian and U.S. economies is expected in 2018, which we anticipate will result in a sustained level of client trading The Canadian and U.S. economic environment in 2017 and the outlook for 2018 are discussed in more detail in the Economic Developments and Traditional wealth reported net income of $717 million increased $178 million or 33% from the prior year. Adjusted net income in traditional Revenue of $6,192 million increased $304 million or 5% from the prior year. Revenue, net of CCPB, of $4,654 million increased $309 million or The provision for credit lossesNon-interest was expense $8 was million, $3,347 compared million, to compared $9 to million $3,337 in million the in prior the year. prior year. Adjusted non-interest expense was $3,267 million Assets under management and administration declined $86 billion or 10% from a year ago to $789 billion, due to the divestiture of a non- Caution This Wealth Management section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements. The wealth management sector isas highly part competitive, of with their our strategy Canadiantechnologies, to peer products drive group and overall competitors services bank expanding to performance. theirhigh meet All wealth net their competitors management worth clients’ are businesses sectors, evolving focused continue needs. on to Changing enhancing reshape demographics, the the particularly customer wealth in experience management the byactivity sector. retirement, leveraging that mass new will affluent continue and toexpected drive to transaction be volumes moderate and and assetrise is levels. only subject We moderately, to anticipate with equity good minimal market growthregulatory impact performance. in environment expected Long-term net could on interest new result our rates assets; in brokerage in marketto downward and Canada appreciation expense pressure insurance and is management, on businesses. the while fees Expanding United making for digital States investments products capabilities are to and and expected further services. changes to grow We in our will the Outlook businesses. focus section on on maintaining page our 32. disciplined approach Business Environment, Outlook and Challenges Financial Review Wealth Management reported net incomewhich of excludes $953 the million amortization increased of $192 acquisition-related million intangible or assets 25% and from acquisition thewealth integration prior of costs, year. $782 increased Adjusted million $156 net increased million incomeimproved $142 or of equity million 18%. $1,018 markets or million, and 22%, the primarilybenefits accumulation due from of to productivity net higher initiatives. new income The client relatedincome prior assets, to in year growth an insurance included in increase of a deposit in $236 write-down and assetsunfavourable million of loan under impacts increased an balances, management in $14 equity up from the million investment 11% prior or net andresulting year 6%, of 10%, from and as a respectively, the business the gain and impact growth benefits on of were from its hurricanes largely favourable subsequent Irma, offset market sale. Maria by movements Adjusted and elevated in net Harvey. claims the7%. of current Revenue $112 year in million relative traditional in to wealth ourthe of reinsurance impact $4,187 business of million largely the increased weaker $26411%, British million due pound or to and 7%, the U.S. due factors dollar, to$13 noted and the million. above. divestitures. factors The Insurance noted weaker revenue, above, British net with pound of revenue reduced CCPB, growth revenue of reduced by $467 by $34 million million. increased The $45 weaker million U.S. or dollarcompared reduced to revenue $3,211 by million inU.S. the dollar, prior and year, divestitures. reflecting The higherexpense weaker revenue-based by British costs, $12 pound partially million. decreased offset non-interest by expense the by impact $31 of million. the The weakerstrategic weaker British business U.S. pound in dollar and the decreased fourth non-interest quarter,partially which offset reduced by assets market under appreciation administration and by growth $138 in billion, new and client unfavourable assets. foreign exchange movements, MD&A 58 platform, integrated an offer We goals. their achieve to clients enabling bank investment coverage. American unified North and lead ideas the innovative be by to differentiated is vision Markets Capital BMO Priorities Key and Strategy ‰ ‰ ‰ ‰ ‰ Drivers Value and Strengths Markets Capital BMO Head Group Cronin Patrick America. North world, in the offices around 16 locations including 30 in has professionals Markets corporate, 2,500 Capital to approximately BMO services clients. and government products and of institutional range services complete financial a American-based offering North provider a is Markets Capital BMO Markets Capital BMO ANALYSIS AND DISCUSSION MANAGEMENT’S oeaeteam coverage top-tier our through Canada in position leadership our maintain to Continue international and banking American of North institutions. range to financial wide tailored a services provide operating we other and and international clients, the our support of to activities offer services business also mitigation We risk opinions. and fairness finance and trade valuation as and well restructurings as acquisitions, recapitalizations, and mergers provide on We advice sheet services. strategic balance management syndication, treasury and and origination solutions loan management as well as services, raising Banking Corporate and Investment LinesofBusiness eldvriidpafr n uiesmx–b etr egah,poutadcrec,icuigasrn,saal n eeatUS uies– business U.S. relevant and term. scalable long strong, the a over including and currency, markets and key product several geography, in sector, well by our BMO – of positioning mix support sectors. business in core and decision-making in platform effective expertise Well-diversified enabling deep capabilities, with compliance capabilities and priorities. trading regulatory strategic and and sales management research, meeting risk economic and first-line-of-defence income understanding Strong fixed anticipating, and to equity dedicated Canadian team, Top-ranked coverage comprehensive and a seamless through a needs. delivered delivering client solutions footprint, tailored global and complementary ideas and Innovative platform American North experience. our client across exceptional distribution integrated and coverage Unified M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO e roiy21 Achievements 2017 Priority Key ‰ ‰ ‰ ‰ ‰ ae etBn o h aainDla by Dollar Canadian year. the Management for Wealth Bank SRP Best 2017 Named the at Products Awards. Structured Derivatives for and equity Canada Canadian in of House range Best a Named across areas. Leader research Quality and and trading Leader sales, transactions. Share bond Greenwich its hybrid 2017 on Canadian a Inc. inaugural Named Enbridge year for 60NC10 billion and billion $1.5 transaction, $1.65 its bond combined on hybrid TransCanada Canadian for inaugural offerings year bond 60NC10 hybrid corporate dollar Canadian multi-family history. Led largest Canadian to the in advisor on transaction exclusive (REIT) REIT as Trust property acting Investment industries, Estate Canadian Real core Apartments in Milestone mandates key win to Continued fescinsdb n qiycapital- equity and debt clients offers XWeek FX omdte rcs nadto,w rvd udn n liquidity clients. and our funding to and provide management rates we interest addition, including In inputs, prices. key commodities of against variety hedge a to in services fluctuations as and well advice as (derivatives) services, management origination risk and also development We product commodities. new and offer exchange, securitization foreign equity, debt, credit, include rate, that interest solutions suite trading integrated and an sales through of clients retail and corporate institutional, Products Trading aaiefrtesvnhconsecutive seventh the for magazine fesrsac n cest lblmresfor markets global to access and research offers 08Focus 2018 aktsaegrowth. share market incremental driving and relationships client our strengthening by Canada in share market leading earn to Continue MD&A 59 38% 62% 2017 2017 1,315 4,624 1,888 2,736 35% 65% 2016 2016 1,253 4,338 1,667 2,671 2018 Focus Continue to leverage our key strategic investment to increase growth from our U.S. platform, and selectively grow our U.S. corporate bank where we are competitively advantaged. Continue to leverage our strong North American and global capabilities to expand our footprint and strategic relationships in select international markets. 35% 65% 2015 2015 2015 2016 2017 1,009 3,835 1,423 2,412 Global Global BMO Financial Group 200th Annual Report 2017 Canada and other countries United States Trading Products Investment and Corporate Banking Reported Net Income ($ millions) Revenue by Geography Revenue by Line of Business (%) ($ millions) 12 81 26 3.89.3 5.5 (2.2) 430 320 860 887 184 126 2016 2015 16.059.30.58 14.5 64.7 0.55 24.113.1 (6.0) 3.3 1,253 1,009 1,683 1,329 4,3382,574 3,835 2,480 2,855 2,528 1,667 1,423 2,353 2,183 1,144 1,074 1,483 1,307 1,254 1,011 2,671 2,412 7,387 6,536 78,70486,22215,068 76,565 52,459 85,459 11,034 55,942 46,109 37,113 254,370304,031 238,835 290,672 150,068 141,038 2 44 5.0 6.6 7.9 487 927 285 (1.3) 2017 15.8 60.1 0.48 1,315 1,802 4,624 2,778 3,336 1,888 2,502 1,343 1,288 1,317 2,736 7,900 88,135 93,344 15,551 52,471 51,358 266,928 306,319 147,306 . (1) (%) (US$ in millions) and hosted one of the industry’s most important events, the 26th Annual Global Metals (%) Continued to expand our mandatesChrysaor in on select its global $3 sectors, billion includingconvertible acquisition as bond of financial offering certain advisor to UK to refinance Northloan the Sea raised outstanding assets for portion from the of Shell, acquisition thecompany. and of Sibanye-Stillwater leading Stillwater, bridge a an American palladiumExpanded and our platinum-mining Global Trade businesssupply in chain Singapore, finance broadening services. the reachLeveraged of our our presence suite in of China,central trade completing bank. and our first cross-border ChineseEstablished bond a trade European to Commercial a Paperregulatory program demands. to help our clientsExpanded meet our their presence increased in themandates, Supranational including Sub-sovereign the Agency World (SSA) Bank’s market first and U.S. won dollar key benchmark offering of 2017. Continued to win significant cross-borderCanadian-based, mandates, U.S.-backed, including Jamieson acting Wellness on Inc. behalfraised in of $345 its million. initial public offeringClosed that 43 U.S. M&A transactions,$65.4 up billion. 30% from the priorActed year, as with bookrunner a on total 228last deal equity year. volume and of debt capital raisingRanked transactions, #1 up in almost the 50% InstitutionalU.S. from Investor Rates 2017 Strategy All-America and Fixed Technical Income Analysis. Research Team SurveyNamed for World’s Best Metals &Finance Mining Investment Bank for the& eighth Mining consecutive Conference, year which by broughtrepresenting together 500 more companies than from a 32 thousandNamed countries. industry Best professionals Forex Provider inBanking North and America/China Finance for Review the seventh consecutive year by Expanded our lending and advisoryas, mandates in with the leading global roles energy inand sector, marquee with our transactions, Broadcom largest such in U.S. its equity $5.9 transaction billion to acquisition date of with Brocade Parsley Communications Energy, Systems. (%) ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ (%) (%) (%) (%) Amortization of acquisition-related intangible assets Key Priority 2017 Achievements Provision for income taxes (teb) Reported net income Provision for credit losses Income before income taxes Total revenue (teb) Non-interest expense Net income growth U.S. Business Select Financial Data Non-interest expense Non-interest revenue Investment and Corporate Banking revenue Reported net income Average earning assets Average assets Average net loans and acceptances Average deposits Average earning assets Average assets Average net loans and acceptances Average deposits Full-time equivalent employees Return on equity Efficiency ratio (teb) (1) Before tax amounts of $3 million in 2017, $1 million in 2016 and $2 million in 2015 are included in non-interest expense. Total revenue (teb) Trading Products revenue Adjusted net income Key Performance Metrics and Drivers Net interest income (teb) (Canadian $ in millions, exceptAs as at noted) or for the year ended October 31 Operating leverage (teb) Net interest margin on averageAverage earning common assets equity (teb) Revenue growth Non-interest expense growth Leverage our strong North American capabilities and presence in select international markets Continue to drive performance in our U.S. platform with a focused strategy and selectively grow our U.S. corporate bank where we are competitively advantaged BMO Capital Markets MD&A dutdrslsi hsscinaennGA n r icse nteNnGA esrsscino ae29. page on section Measures Non-GAAP the in 60 discussed are and non-GAAP are section this in results Adjusted Statements. Forward-Looking Regarding Caution the see Please statements. forward-looking contains section Markets Capital BMO This objectives. Caution strategic by our 32. impacted achieve page be can on could we section markets that Outlook the confident and in are technology Stability we better management year. constructive, to risk next remain capabilities in requirements markets our investment reporting that expanding our risk assuming selectively perspective, new but market are regulatory meet concerns, leading we a to macroeconomic our Asia, From well maintain and presence. us to Europe global positioned expect In a has platform we growth. have infrastructure sector-focused Canada, our that our In for clients grow book. foundation American-based to loan stable North expect our and serve we growing strong opportunity, and a market clients providing largest new while our acquiring positions, States, relationships, United client the existing In deepening business. by markets capital American investment North and focused trading certain in banks regulatory disintermediate heightened to a opportunities within new have operating seek products. highly competitors and to banking is banking practices continuing States Traditional management are United competitors. risk competitors the non-bank disciplined Non-bank and and maintaining environment. Canada banks relationships, in investment client environment boutique expanding operating banks, on The regional focused provider. banks, services major financial the American-based among North competitive a is Markets Capital BMO Challenges and Outlook Environment, Business offset partially were activity banking corporate repos. in reverse increases of to levels due lower acceptances and and balances loans asset net financial and derivative securities lower of by levels Higher billion. $3.7 increased costs. employee-related higher and business the in investment sector. gas and revenue. trading lower by offset partially gains, revenue. securities banking-related net corporate higher as well as activity, advisory acquisitions and mergers BMO our in income business. Net basis. Products significant. dollar Trading not U.S. our was a in loss growth on performance loan revenue year million, lower on prior $1,317 and dollar the of revenue U.S. from income increased weaker 55% net to the increased Adjusted due of segment year. 5% impact U.S. prior or The Markets’ the million expenses. Capital from $63 higher 5% increased by or assets, offset million intangible partially $62 acquisition-related provisions, increased of million amortization $1,315 the of excludes income which net reported Markets Capital BMO Review Financial ANALYSIS AND DISCUSSION MANAGEMENT’S M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO h aainadUS cnmcevrneti 07adteotokfr21 r icse nmr eali h cnmcDevelopments Economic the in detail more in discussed are 2018 for outlook the and 2017 in environment economic U.S. and Canadian The client- integrated, highly a building of strategy consistent and well-defined our executing on focused remain we 2018, fiscal to ahead Looking assets average dollar, U.S. weaker the of impact the continued Excluding to year. due prior dollar, the U.S. from weaker billion the $2.3 of increased oil impact billion the the $306.3 in excluding of primarily 9% assets provisions, or Average new million, lower $2,778 to to due 8% largely or year, million prior $204 higher the increased and from expense issuances million Non-interest income $37 fixed decreased new million from $44 revenue of higher losses to credit due for year, provision higher prior The and the activity from underwriting 2% strong or by million driven $65 solid year, increased as prior revenue well the Products as from Trading growth, 13% loan or and million banking $221 investment increased in revenue activity Banking client Corporate higher and to Investment due 7%, or million $286 increased million $4,624 of Revenue MD&A 61 –– 41 6 62 – 58 280 (81) (79) (74) (36) (56) (30) (74) (36) (75) (130) 218 273 716 610 119 229 461 456 132 106 2016 2015 (737)(670) (661) (393) (435) (281) (140) (138) (435) (281) (124) (73) (124) (73) (313)(510)(823) (236) (765) (524) (760) (480) (681) (478) (186) (137) (1,407) (1,054) 14,741 14,345 – (2) (2) 55 41 (23) (78) (54) 244 635 170 489 177 2017 (734) (496) (454) (185) (454) (111) (114) (111) (283) (567) (850) (673) (673) (218) (1,230) 14,702 BMO Financial Group 200th Annual Report 2017 (5) (1) (3) (US$ in millions) (1) (1) (1) (2) (1) (1) (1) (1) (1) (4) (1) (1)

Corporate Services focuses on enterprise-wide priorities related to maintaining a sound risk and control environment and efficiency while

The costs of these Corporate Units and T&O services are largely transferred to the three client operating groups (Personal and Commercial Cumulative accounting adjustment Acquisition integration costs Restructuring costs Decrease in the collective allowance for credit losses Non-interest expense Non-interest expense Recovery of income taxes (teb) Loss before income taxes Recovery of income taxes (teb) Reported net loss Adjusted net loss Adjusted total revenue (teb) Adjusted non-interest expense Adjusted non-interest expense Adjusted net loss Adjusted net loss Full-time equivalent employees U.S. Business Select Financial Data Total revenue (teb) Recovery of credit losses Adjusted recovery of credit losses Total revenue (teb) (Canadian $ in millions, exceptAs as at noted) or for the year ended OctoberNet 31 interest income beforeGroup group teb teb offset offset Net interest income (teb) Non-interest revenue Recovery of credit losses Adjusted recovery of credit losses Reported net loss Adjusted total revenue (teb) Contributed to our customer channelsContinued strategy operational through efficiencies technology within innovation the andparticularly Anti-Money real within Laundering/Anti-Terrorist estate the Financing reconfiguration. Financial and Intelligence Sanctions Units, Program and by improving reducing our manual data processes, foundation. Enhanced our Data & Analyticsthe platform value to of add machine new learning governance,operations to analytics and further and Corporate improve robotics Services, fraud capabilities and and ingenerating enhanced anti-money support initiatives. Enterprise laundering of Reference management, business Data introduced initiatives: capabilities robotics demonstrated in to support automate of processes emerging in regulatory requests and revenue- Accelerated the deployment of digitalaccelerate technology digital to developments transform across our personal business,Invested segments. including in commencing information the technology upgrade initiatives ofaccounting to a standards, meet U.S. while regulatory digital also requirements, platform deploying including to new market capabilities risk, to client reduce tax time reporting to and market responding and to strengthen new our technology foundation. Continued to proactively invest insecurity defences threats and at procedures BMO, to as furthermeet well improve BMO as our standards. performed ability assessments to of prevent, controls detect, at respond third to parties and and manage service cyber providers to verify that programs and controls Corporate Services, including Technology and Operations Financial Review Corporate Services reported net lossfor for the the year year was was $454 $496allowance million, million, in compared compared the with with current an a year adjusted reportedintegration and net net costs a loss loss in negative of of both cumulative $435 $670 years. accounting million millionexcluding Adjusted adjustment a a teb. results in year year Reported declined the ago. ago. results due prior Adjusted Adjusted increased to year, results netadjustment mainly lower as exclude loss and due credit well a the to recoveries as decrease decrease lower and restructuring in in restructuring higher costs the the costs expenses, and collective collective in partially acquisition allowance the offset in current by the year, higher current the revenue year, prior partially year’s offset negative by cumulative the accounting net impact of the drivers noted above. ‰ ‰ ‰ ‰ ‰ ‰ supporting our businesses in meeting their customer experience objectives. Notable achievements during the year included: Banking, Wealth Management and BMOresults Capital largely Markets), reflect with the remaining impact amountsresults of retained from residual in certain treasury Corporate impaired and Services real asset-liability results.integration estate management As costs, secured activities, such, restructuring assets, the Corporate costs certain elimination Services and purchased of adjustments loan taxable to accounting equivalent the impacts, adjustments, collective residual the allowance unallocated for expenses, certain credit acquisition losses. Corporate Services consists of Corporategovernance Units support and in Technology a and variety Operationscommunications of (T&O). and areas, Corporate human including Units resources. strategic provide T&O planning, enterprise-wideestate manages, risk expertise and maintains management, and procurement and finance, for provides legal BMO governance and Financial over regulatory Group. information compliance, technology, marketing, operations services, real Corporate Services, including Technology and Operations MD&A dutdrslsi hsscinaennGA n r icse nteNnGA esrsscino ae29. page on section Measures Non-GAAP the in 62 discussed are and non-GAAP are section this in results Adjusted businesses. P&C the in and included Markets allowance, Capital collective BMO the in in provisions decrease higher a to to due due was was 2017 2017 of of quarter quarter second third the the in items, in increase adjusting decrease the of The and inclusion 2017. results, the in reported to lower due were part provisions current large gas the in and in quarter, businesses to Products quarter Trading from Services. and vary Corporate Banking can in to Corporate results recorded due and Services largely an momentum Investment Corporate are of continued both States. which sale and reflect from United on markets results performance the gain equity Markets’ by in a rates, Capital driven particularly from interest BMO 2017, year, fourth benefited of changes. and the 2016 impacts assumptions 2016 in of from actuarial in rebounded quarter primarily and results and fourth resulting methodology good impacted 2017, The variability, as were in 2017. to well 2016 flat throughout subject as of relatively strong been claims, a half were were have reinsurance of first Canada States results sale the in United insurance the in markets the Quarterly on results Equity in investment. million Management’s 2016. markets equity $35 Wealth of Equity of 2017. half year. loss of second the growth, after-tax quarter the of loan an first in quarter in and reflect the improving growth revenue also in markets, P&C reflect Results recognized equity U.S. 2017 losses. portfolio lower sale. in credit loan by on results for auto gain P&C provision indirect after-tax U.S. increased the million business. an of $168 Finance and portion a Transportation expenses included BMO higher 2017 acquired by of the offset quarter of partially first results collective the the the 2016. in reflected in of results largely decrease quarter P&C 2016 a first Canadian 2016, the revenue. of in non-interest Reported quarter adjustment and 2016. second accounting balances of the cumulative quarter and a second 2017 and the of 2017, in quarter of write-down fourth quarter investment the third an in the and charges in 2017, restructuring allowance of by some quarter impacted in fourth also slowdown the were a in results to Management fewer contributes Wealth thus also on and season claims days, holiday reinsurance calendar December translation. fewer The currency to expenses. foreign due of by quarters level affected other higher also to a are relative have earnings results also Quarterly second-quarter can activities. lower quarter in fourth resulting The days, days. 92 business 63. have page quarters on other outlined and are year) quarters eight past the for measures performance and results BMO’s Trends Earnings Quarterly Summary Losses Credit for Provision Services Corporate ANALYSIS AND DISCUSSION MANAGEMENT’S dutdrslsi hstbeaennGA mut rnnGA esrs laeseteNnGA esrssection. Measures Non-GAAP the see Please measures. non-GAAP or amounts non-GAAP are table this in results Adjusted eraei h olciealwnefrcei losses credit for allowance collective the in basis Decrease adjusted losses, credit for) (provision of Recovery ucae efrigloans performing Purchased loans impaired credit Purchased 4 etutrn hre eoetxaonso:$9mlini 07ad$8 ilo n21,a ecniu oaclrt h s ftcnlg oehnecsoe xeineadfcso driving on focus and experience customer enhance to technology million. of $76 use of the amount accelerate tax to before continue losses we credit as for 2016, allowance in collective million the $188 in and Decrease 2017 (5) in being translation. million are expense. currency $59 portfolio non-interest foreign of: performing in to amounts purchased included related tax the primarily revenue before on are non-interest charges losses Finance other Restructuring credit Transportation in for BMO (4) recognized provision of adjustment the acquisition accounting and the Cumulative income to interest (3) related net costs in integration reflected Acquisition is that (2) mark credit the in reduction the 2016, of quarter first the in Beginning (1) loans impaired on Interest loans estate real Impaired 31 October ended year the for or at As millions) in $ (Canadian eoeyo rdtlse,rpre basis reported losses, credit of Recovery vrg on n acceptances and loans Average eredlasadacceptances and loans Year-end M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO h fetv noetxrt a ay si eed ntxrts a asadplc,adisitrrtto ytxn authorities. taxing by interpretation its and policy, and laws tax rates, tax on depends it as vary, can oil rate Overall, tax variability. income quarter-to-quarter effective some The with stable, relatively been has acceptances and loans of percentage a as measured PCL BMO’s higher by driven growth revenue reflecting quarters, eight last the of each in growth income net year-over-year positive delivered P&C elevated Canadian of impact the of exception the with quarters, eight past the over upwards trended generally have results leap adjusted a and in Reported (90 days 89 has quarter fiscal second Our factors. seasonal by affected modestly are expense and revenue earnings, quarterly BMO’s prtoa fiinis n 19mlini 05 rmrl u orsrcuigt rv prtoa fiinis r nlddi o-neetexpense. non-interest in included are efficiencies, operational drive to restructuring to due primarily 2015, in million periods $149 prior and for efficiencies; Results operational size. in substantially reduced have amounts these that given and Finance, Transportation BMO of acquisition the for reclassified. accounting been the not with have consistent P&C, U.S. in recognized 2017 (76) (78) 63 53 (2) (4) 2 – – 062015 2016 7)(36) (74) 5)(86) (58) 1)28 (16) 7)(36) (74) 96 80 –5 –1 –– 242 182 7 MD&A – – 63 – 132 – 132 –––– –––– –1 – – –––62 –––62 –––– –1 –1 – – 7959 16 1714 19 10 19 11 6 2129 19 31 16 31 15 33 13 12 12 13 79 691 407 366 302392 227 317 158 287 175 257 301279 290 201 280 134 264 147 174 257357 201 348 183 208 188 588 560 525 529 392 318 287 257 588288 561 278 525 268 530 251 2.032.022.101.57 1.870.19 1.860.19 1.9421.0 1.58 1.4621.2 0.29 1.45 0.29 1.73 21.9 1.61 1.59 22.0 0.23 1.58 0.23 1.75 17.6 1.58 19.6 0.21 0.21 15.0 16.2 (188) (101) (98) (48) (202) (111) (241) (116) 3,3231,702 3,092 1,593 3,312 1,181 3,270 1,256 5,199 4,942 4,694 4,709 2,4982,7805,278 2,474 3,159 5,633 2,420 2,681 5,101 2,480 2,595 5,075 1,345 1,245 9731,395 1,068 1,295 1,152 1,178 BMO Financial Group 200th Annual Report 2017 1.3216 1.3029 1.3016 1.3737 Q4-2016 Q3-2016 Q2-2016 Q1-2016 – – Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 29. – (76) – – –––– –11 – –––– – (54) – –––– – (54) – 11 –1 1––– 1––– 14 1515 214 13 15 13 14 15264 13 28 13 34 14 28 11 11 12 12 186326 279 292 272 321 281 376 291172 289 264 260 251 272 266 208 210278 259 407 173 250 361 573 253 708 4 624 614 531 743 326 293 322 376 625280 615 278 531 248 744 260 1.821.811.94 2.051.57 2.050.22 2.030.22 1.85 1.5518.5 1.84 0.1419.3 1.92 0.22 2.23 1.52 22.7 2.22 0.28 22.5 2.28 0.28 1.55 16.7 0.19 17.1 0.19 19.5 19.8 (119) (102) (90) (143) (175) (61) (103) (157) 3,3691,505 3,278 1,794 3,276 1,498 3,379 1,849 5,082 5,206 5,033 5,401 2,5353,1205,655 2,533 2,926 5,459 2,409 3,332 5,741 2,530 2,875 5,405 1,227 1,387 1,2481,309 1,488 1,374 1,295 1,530 1.2621 1.2974 1.3412 1.3288 Q4-2017 Q3-2017 Q2-2017 Q1-2017 (%) (%) (5) (5) (2) (2) (2) (2) (2) (%) ($) (3) (3) ($) (see below) (1) (1) (1) (%) ($) ($) (4) (4) (see below) (see below) (%) $10 million in Q3-2016; $6Q1-2017; million $21 in million Q2-2016; in and Q4-2016; $12 $17 million million in in Q1-2016. Q3-2016; Corporate $18 Services millionQ2-2017; amounts and in of: $1 Q2-2016; $24 and million million $10 in in$17 million each Q4-2017; million in of $20 in Q1-2016. Q1-2017, million Q4-2016; Q4-2016 in $16 and Q3-2017;Q2-2017; million Q3-2016; $21 $19 $nil in million million in Q3-2016; in in $17 Q2-2016; Q2-2017; Q1-2017; million and $22 $19each in $1 million million of million Q2-2016; in in and Q3-2017, in Q4-2016; Q2-2017 $18 Q1-2016. and $22 U.S. million million Q1-2017; in P&C $nil in Q1-2016. amounts in Q3-2016; Wealth of: $23 Q4-2016; Management $16 $1 million amounts million million in in of: in Q2-2016; each $18 and Q3-2016; million of and $24 in Q4-2017, $nil million Q3-2017, Q4-2017; in in Q2-2017 $17 each Q1-2016. and million BMO of Q1-2017; in Capital Q2-2016 Q3-2017; and Markets $26 Q1-2016. amounts million of: in $nil in Q4-2017; $1 million in Amortization of acquisition-related intangible assets Cumulative accounting adjustment Amortization of acquisition-related intangible assets Cumulative accounting adjustment Decrease in the collective allowance for credit losses Acquisition integration costs Decrease in the collective allowance for credit losses liabilities (CCPB) Acquisition integration costs Amortization of acquisition-related intangible assets Amortization of acquisition-related intangible assets Restructuring costs Restructuring costs Acquisition integration costs Amortization of acquisition-related intangible assets Diluted earnings per share Adjusted diluted earnings per share Net interest margin on averagePCL-to-average earning net assets loans and acceptancesSpecific (annualized) PCL-to-average net loans andEffective acceptances tax (annualized) rate Adjusted effective tax rate Canadian/U.S. dollar average exchange rate Wealth Management adjusted net income BMO Capital Markets reported net income U.S. P&C adjusted net income Wealth Management reported net income Provision for (recovery of) creditNon-interest losses expense – collective Income before provision for incomeProvision taxes for income taxes Reported net income Provision for credit losses – specific (1) Acquisition integration costs before tax are included in non-interest expense. Wealth Management amounts(2) of: $nil Amortization in of each acquisition-related of intangible Q4-2017, assets Q3-2017, was Q2-2017 charged and to Q1-2017; the $10 non-interest million expense in of Q4-2016; the operating groups. Canadian P&C amounts of: $nil in Q4-2017; $1(3) million in Cumulative Q3-2017; accounting $nil adjustment in recognized(4) in Restructuring other charges non-interest before revenue tax(5) related amounts to Adjustments included foreign to in currency the non-interest translation collective expense that allowance in largely for Corporate impacted credit Services prior losses of periods. before-tax $59 amount million of in $76 Q4-2017 million and in $188 Q3-2017 million are in recorded Q2-2016. in Corporate Services provision for (recovery of) credit losses. Revenue, net of CCPB Non-interest revenue Total revenue Insurance claims, commissions and changes in policy benefit Operating group reported net income Canadian P&C reported net income Net interest income (Canadian $ in millions, except as noted) Corporate Services adjusted net income BMO Capital Markets adjusted net income Corporate Services reported net income Basic earnings per share Adjusted net income Canadian P&C adjusted net income U.S. P&C reported net income Caution This Summary Quarterly Earnings Trends section containsIn forward-looking the statements. opinion of Please Bank seefor of the a Montreal Caution fair management, Regarding presentation information Forward-Looking of that Statements. as such is well information. derived as All from interim such unaudited operating adjustments financial results, are information, are of including not a information necessarily normal as indicative and at of recurring and actual nature. for results Financial the for ratios interim the for periods, full interim includes fiscal periods all year. are adjustments stated necessary on an annualized basis, where appropriate, and the ratios, Summarized Statement of Income and Quarterly Financial Measures MD&A eae nagbeast nbt ures ihrtcnlg ot n rfsinlfe eelreyofe yagi ntesl fa fiebuilding office an of sale the on gain a acquisition- by of offset amortization largely 64 the were and fees expenses. non- costs professional employee-related Adjusted integration and lower dollar. acquisition costs and U.S. and technology quarter weaker 2017 Higher the the of quarters. in of quarter both impact fourth in the the assets excluding in intangible 2% charge related increased restructuring were expense a sales non-interest excludes annuity Adjusted expense and million. interest liabilities $3 benefit decreased policy million elevated of $3,252 liabilities, value of benefit fair liabilities policy the benefit of to policy value related of fair increases value the The fair decreasing sales. revenue. the 2016 annuity in increasing of higher offset rates quarter of largely interest fourth impact long-term the the in in and decreases rates claims to interest reinsurance due long-term 2016 in quarter. of increases the quarter to in fourth compared allowance the collective in the million to $79 policy below. change from of discussed net value as no fair liabilities, was the benefit There in policy P&C. changes in Canadian by changes and offset and Services largely commissions Corporate insurance are claims, Markets, of changes insurance value value in fair fair reflected the These is decreasing sales. which rates annuity of interest higher impact long-term and the in 2016 liabilities, and increases of benefit underwriting to quarter lower compared fourth and 2017 the year of in prior quarter investments the fourth in the investment in equity investments an insurance of sale on businesses. gain banking a Commercial 2017, and of improved Personal quarter trading) the fourth fees. (excluding in the advisory securities margin spreads in higher interest deposit claims to Net higher reinsurance due year. by elevated dollar, prior driven the U.S. the primarily weaker to 1.91%, the compared to of flat year impact was prior businesses. the 1.57% the trading excluding of from certain 4% margin points from or interest basis income billion, net 4 interest $642.5 overall net to BMO’s lower 2% growth. teb. by or loan excluding offset billion and revenue partially $11.2 higher businesses, increased by banking assets offset Commercial earning partially and Average adjustment, Personal unchanged teb the largely group in was higher spreads revenue a deposit advisory Products to acquisitions Trading due and revenue. decreased mergers banking-related revenue lower corporate Services to higher Corporate Investment due by year. insurance from as primarily offset prior Net benefits 4%, year, partially the 2016. by decreased last gains, from of offset revenue quarter securities quarter partially Markets strong net fourth claims, Capital particularly lower the reinsurance BMO a and in elevated changes. from activity investment the related decreased equity to portfolio revenue an due investment Banking of year, of Corporate sale prior impact and on the the non- gain in and lower deposit a million movements and higher by $136 market compression including offset to favourable increased spread growth, were compared revenue loan business 2017, million, P&C of and of $42 U.S. net markets quarter was dollar. volumes, equity fourth revenue U.S. loan improved the weaker commercial as in the increased unchanged, revenue non- of and relatively loan higher impact revenue was and and the deposit revenue margin to higher wealth interest due by Traditional of net basis driven revenue. claims higher dollar basis, interest reinsurance products, Canadian dollar elevated most a U.S. included across on a revenue balances 2% on Net higher decreased 3% dollar. to revenue U.S. due P&C weaker mainly U.S. the 5%, revenue. of increased interest impact revenue the P&C excluding Canadian 1% million. increased charge. or $112 the results restructuring 2%, on reported the or gain Services by million a Corporate offset $117 to recoveries. partially decreased due credit above, part lower noted in by drivers higher expenses, offset the business, lower partially of 17% Banking to teb, impact or Corporate due excluding net million and increased revenue the $66 Investment results higher to decreased our adjusted and due both in Services building, million revenue Corporate office $326 lower losses. an of to credit of net income due for sale partially insurance net primarily provision 2017, to adjusted 2016, higher of compared and of a quarter This reported quarter and fourth changes. Markets fourth expenses, the the related Capital the in in portfolio BMO in investment claims investment year. performance equity reinsurance of prior record an elevated impact the from of the the in equity sale to and million improved on due movements $78 as gain million market of million, the $17 favourable income $224 by of from was to offset loss benefits income comp M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO eotdnnitrs xes f$,6 ilo nrae 4 ilo r1 rmtefut ure erao dutdnnitrs expense non-interest Adjusted ago. year a quarter fourth the from 1% or million $46 increased million $3,369 of expense non-interest Reported million $494 up 2017, of quarter fourth Capital the BMO in in million provisions $573 higher were to (CCPB) due liabilities year, benefit prior policy the in from changes million and $34 commissions of claims, increase Insurance an million, $208 was losses credit for of provision value total fair The the increasing rates interest long-term in decreases to due largely ago, to year due a mainly from dollar, million U.S. $396 weaker increased the revenue of insurance impact Gross the excluding 4% or 6%, or million $154 decreased million $2,547 of revenue non-interest Net higher to due primarily dollar, U.S. weaker the of impact the excluding 3% or million, $2,535 to 2% or million $37 increased income interest Net million $5,082 of CCPB, of net revenue, Total ago. year a quarter fourth the from 7% or million $377 increased million $5,655 of revenue Total were million $916 of income net adjusted and million $904 63. of page income on net outlined reported quarter are business this quarters banking income comparative Commercial Net and and year. quarter Personal prior the combined the for The from data 8% and or statements $0.16 income down Summary was $1.94 of EPS adjusted and 10%, or $0.21 down was $1.81 of EPS Reported MD&A 65 BMO Financial Group 200th Annual Report 2017 was $1,249 million in 2016, compared with $1,025 million in 2015. (1) The provision for income taxes of $278 million decreased $79 million from the fourth quarter of 2016. The effective tax rate for the quarter was Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 29. 18.5%, compared with 21.0% aadjusted year effective ago. tax The rate adjusted was provisionthe 19.3% for fourth in income quarter the taxes of fourth of 2017 quarter $313reported relative of million effective to 2017, decreased tax the compared $62 rate fourth with million for quarter 21.2% fromwas the of a a 27.2%, quarter 2016 year year compared was were ago. ago. with 27.1%, primarily The The 26.3% compared due lower a with to reported year 26.3% higher and ago. a tax-exempt adjusted year income tax ago. from rates On securities. in a On teb a basis, teb the basis, adjusted the effective tax rate for the quarter (1) The adjusted rate is calculated using adjusted net income rather than net income in the determination of income subject to tax. The provision for income taxescompared was with $1,101 17.5% million in in 2015. 2016, The compared adjusted with provision $936 for million income in taxes 2015. The reported effective tax rate in 2016 was 19.2%, Provision for Income Taxes Non-interest expense increased $815 millionamortization or of 7% acquisition-related to intangible $12,997 assets million$12,544 and in million, acquisition 2016. or integration Adjusted 4% costs. non-interest excluding Adjusted expenseacquired the non-interest excludes BMO impact expense restructuring Transportation of increased costs, Finance the $725 the business stronger milliondisciplined and U.S. or expense business dollar. 6% management. growth Reported to and and investment, adjusted partially expenses offset increased by primarily the due benefits to of the divestitures impact and of our the focus on The provision for credit lossesBMO was Capital $815 Markets, million partially in offset 2016, by up higher from net $612Non-Interest recoveries million in Expense in Corporate 2015, Services. due to higher provisions in the P&C businesses and Provision for Credit Losses Insurance Claims, Commissions and ChangesInsurance claims, in commissions Policy and Benefit changes Liabilities to in lower policy long-term benefit interest liabilities rates wereoffset increasing $1,543 by the million decreased fair in reinsurance value 2016, liabilities. of up The policy $289 increase benefit million was liabilities from largely and $1,254 offset the million in impact in revenue. of 2015 growth due in the underlying business, partially Revenue Revenue, net of CCPB, increasedcumulative $1,409 accounting million adjustment or recognized 8% in toto 2016 $19,544 $19,628 in million. million, other Adjusted or non-interest revenue 6% revenue. differsP&C excluding Adjusted from businesses, the revenue, reported which impact net revenue benefited of of largely from the CCPB, duedecrease the stronger increased to in acquired U.S. $1,491 a Wealth BMO million dollar. negative Management Transportation Reported or and Finance and 8% Corporate business adjusted Services. and revenue organic increased growth, due and to in revenue BMO growth Capital in Markets, the with a Return on Equity Reported ROE was 12.1% andprimarily adjusted due ROE to was growth 13.1% in incommon common 2016, shareholders equity compared and exceeding with $332 growth 12.5% million in andequity or income. 13.3%, increased 7% There respectively, $2.9 in was in billion adjusted an 2015. or net increase ROEinvestments 8% income of declined in from available $219 in foreign 2015, to million 2016, operations. primarily common or The due shareholders 5%ROTCE reported to in in was return increased 2016. net 16.1%, on retained Average income compared tangible earnings common available with common and shareholders’ to 16.4% equity the in (ROTCE) impact 2015. was of 15.3%, the compared stronger with U.S. 15.8% dollar in on 2015 our and adjusted Net Income Net income was $4,631 millionamortization in of 2016, acquisition-related up intangible $226 assets, millioncurrency acquisition or translation integration 5% that costs from largely and the impacted a previousbasis, prior negative year. higher periods. cumulative Adjusted revenue Adjusted accounting net exceeded net adjustment income incremental income related excludeslosses costs, was to restructuring and contributing $5,020 foreign costs, a to million, the higher growth up effective in $339 income net million tax income, or rate. as 7%. discussed On below. a There reported was and a adjusted higher provision for credit 2016 Financial Performance Review The preceding discussions in thefiscal MD&A 2015. focused As on noted our on performancefrom page in transfers 26, fiscal between certain 2017. operating prior-year This groups. data section Further has summarizes information been our on reclassified performance restatements to in is conform fiscal provided to 2016 on the relative page presentation to 46. in 2017, including restatements arising The adjusted effective tax rateto in year 2016 was was attributable 19.9%, to compared a with higher 18.0% proportion in of 2015. income The from change higher in tax the rate reported jurisdictions and and adjusted lower tax tax-exempt rates income from from year securities. MD&A dutdrslsi hsscinaennGA n r icse nteNnGA esrsscino ae29. page on section Measures Non-GAAP the in 66 discussed are and non-GAAP are section this in results Adjusted currency foreign to related adjustment accounting cumulative negative higher a and to business due in Finance 2016 settlement Reported Transportation in 2015. legal 2016. BMO lower impacted a in acquired was largely under recoveries the revenue that recovery credit to reported translation a higher related and by by costs 2016, driven offset integration in adjusted revenue, partially acquisition costs an lower revenue, higher restructuring both with to accounting to in compared due purchase due results 2016, declined lower primarily Reported in results and increased, 2015. million adjusted gains expenses in $435 and estate million was reported real $393 loss Both impaired of net 2015. lower loss adjusted in 2015, net The million reported costs. $281 a integration of with acquisition loss compared and net 2016, charge in restructuring million a $670 included was years business. loss trading net million bond reported $34 municipal Services increased our Corporate expense expense of Non-interest non-interest sale provisions. dollar, the gas U.S. Services and and stronger management Corporate oil the expense business. higher of disciplined trading to impact on bond due the focus municipal mainly Excluding our our year, million. reflecting of prior $2,574 1%, sale the to or acquisitions the than 4% and and higher or impact mergers gains million million the strong securities $55 $94 Excluding performance, net was increased year. revenue lower losses prior trading by credit the improved offset for from reflecting partially provision million 11%, revenue, The by $4,338 or lending offset to million higher of partially 13% $424 and amortization was or increased activity the performance million revenue advisory excludes revenue $503 dollar, which Strong increased U.S. income, 24%. Revenue stronger net or provisions. the Adjusted million loss of year. $243 loan prior of higher the increase and from an expenses million million, higher $1,253 $1,254 to was 24% assets, or intangible million acquisition-related pound $244 British business. increased weaker the income down the in net million, and investment Reported $3,337 divestitures continued was of and expense Markets impact dollar Non-interest the Capital U.S. above. as stronger BMO noted million, the factors $13 of the down impact 2015 net to million, the in Revenue, due $3,211 by benefits business. 2015, was offset above-trend underlying from expense partially was and the 4% non-interest was insurance year in or Adjusted in prior growth million 1%. income the by $164 or Net in offset down million retirement 2016. benefits partially was $21 U.S. in actuarial management, million BMO’s sale higher asset-liability $4,345 of subsequent to improve of sale its due to CCPB, the on primarily portfolio of on gain 2015, investment gain a in our to a of million in compared of net $240 changes million, benefits investment to from $640 prior-year equity compared was the an 2016, wealth by of in traditional offset write-down million in than the $222 wealth income more as Traditional net was well 2015. Adjusted growth as of in 2015. underlying business, amortization million in solid services the $954 million as excludes to $609 2015, which compared to in income, 2016, compared million net in million, $714 Adjusted million $539 2015. $862 was in was income million costs, net $849 integration reported to acquisition compared and 2016, assets in intangible million acquisition-related $761 was income million net $290 Reported increased million $2,141 business. business. of Management Finance Finance expense Transportation Wealth Transportation non-interest BMO BMO adjusted acquired increased acquired and the million the 15% to $194 to or due of due million largely losses mainly $287 16%, credit provisions, increased or treasury for commercial million and provision higher $2,193 Transportation lending The reflecting of BMO commercial revenue. largely expense acquired higher banking 2015, Non-interest the and mortgage from of spreads lower 104% benefit deposit and or the in compression million the to improvements spread $99 in due growth, loan expenses primarily deposit of and 21%, and net revenue or loan fees, both million organic management to $622 as 14% increased well approximately million as contributed $3,516 business, which of Finance business, Revenue Finance growth. Transportation organic BMO and acquired year, million. the $4,657 basis. to to dollar due 28% U.S. primarily of or a 21%, amortization million on the $1,025 are excludes grew section which Revenue this income, 27%. of net or remainder Adjusted million the 2015. $245 in from up amounts 30% million, All or $1,135 million was $248 assets, increased intangible million acquisition-related $1,085 of expenses. income contain net to R M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO eotdnticm f$1 ilo nrae 12mlino 3 rm21.Ajse e noeo 86mlinicesd$4 ilo or million $147 increased million $856 of income net Adjusted 2015. from 23% or million $152 increased million $819 of income net Reported MD&A 67 491 641,881 24 899 1,020 2016 2015 2016 2015 2016 2015 4,439 4,416 8,101 7,980 8,965 9,432 (1,925) (1,855) 38,22740,71888,85142,304 42,639 39,891 76,853 39,422 39,18337,289 38,238 34,265 11,37664,680 10,981 65,598 66,646 68,066 84,45855,663 72,460 48,006 36,102 47,677 358,730 322,717 473,372 438,169 687,935 360,655 324,572 687,935 641,881 164,221 134,095 358,730 322,717 112,277 105,918 149,985 130,918 149,985 130,918 – BMO Financial Group 200th Annual Report 2017 960 2017 2017 2017 5,029 8,071 9,094 (1,833) 27,804 55,119 93,786 44,354 28,951 41,623 11,744 61,944 75,047 99,069 54,075 39,089 361,672 483,488 709,580 363,505 709,580 166,488 361,672 115,258 163,198 163,198

Table 7 on page 128 provides a comparative summary of loans by geographic location and product. Table 9 on page 129 provides a comparative Derivative instruments Securities lent or sold underOther repurchase liabilities agreements Subordinated debt Shareholders’ equity Non-controlling interest in subsidiaries Allowance for credit losses Total net loans Liabilities and Shareholders’ Equity Deposits Total liabilities and shareholders’ equity Gross loans Derivative instruments Other assets Total assets Non-residential mortgages Consumer instalment and other personal Credit cards Businesses and governments (Canadian $ in millions) As at October 31 Residential mortgages Securities borrowed or purchased underNet resale loans agreements Available-for-sale Held-to-maturity Other (Canadian $ in millions) As at October 31 Trading Securities Total securities Assets Cash and interest bearing deposits with banks (Canadian $ in millions) As at October 31 summary of net loans inNotes Canada 4, by 6 province and and 25 industry. on Loan pages quality 152, is 157 discussed and on 192 pages of 89 the and consolidated 90 financial and statements. further details on loans are provided in Net loans increased $2.9 billion,loans or in $8.3 the billion Personal excluding and theby Commercial impact the Banking of sale businesses the of and weaker US$1.9 BMO U.S. billion Capital dollar, of Markets, largely U.S. and due indirect higher to auto residential an loans, mortgages increase reflected in in in Canadian business consumer P&C, and instalment partially government and offset other personal loans. Securities Borrowed or Purchased UnderSecurities Resale borrowed or Agreements purchased under resale agreements increased $8.4Net billion, Loans driven by client activities in BMO Capital Markets. Securities increased $13.2 billion fromhigher October levels 31, of 2016 supplemental due liquidity. to increases in trading securities related to client activities in BMO Capital Markets and Cash and interest bearing depositsbalances with held banks with increased central $3.0 banks. billion, or $4.6 billionSecurities excluding the impact of the weaker U.S. dollar, due to higher Cash and Interest Bearing Deposits with Banks Overview Total assets of $709.6 billionderivative increased assets, $21.6 resulting billion from from the Octoberincludes weaker 31, a U.S. 2016. $10.7 dollar. This billion Total increase reduction liabilities includes$2.0 in of an billion liabilities, $665.2 $11.2 from excluding billion billion October derivative increased reduction 31, liabilities $19.6 in 2016. resulting billion assets, from from excluding the October weaker 31, U.S. 2016. dollar. This Shareholders’ increase equity increased

Summary Balance Sheet Financial Condition Review MD&A 68 the of 172 capital page enterprise-wide on our 16 on page. Note Details following while capital. the equity, share on shareholders’ in found reduce changes be shares or and can common increase of strategies of Statement that components and impact Consolidated items the practices the Our of on management by follows. summary details offset that a provides partially section provides statements maturities, Management 142 financial of Capital page consolidated net Enterprise-Wide on shares the Equity impacts. preferred in in hedging of described Changes of issuance is of net the DRIP billion, as BMO’s $0.9 well cancellation. of as for operations Plan, repurchased foreign Option offset net Stock partially impact of and capital, the translation (DRIP) share to on Plan in due income increase comprehensive primarily billion decreased other $0.9 accumulated income a comprehensive on and other dollar earnings Accumulated U.S. retained income. weaker in comprehensive the increase other of billion accumulated $2.5 in a decrease to billion due $1.4 billion $2.0 increased equity Total on 15 Note in provided are debt subordinated of composition Equity the on statements. details financial Further consolidated statements. year. the financial prior of consolidated the 171 the from page of related million insurance 169 $590 in page increased increase on debt billion 14 Subordinated $1.1 Note a in and provided acceptances Debt are liabilities under liabilities Subordinated Other liability other acceptances. customers’ of and in composition liabilities increase the entities billion on structured $3.5 details and a Further securitization to liabilities. purchased, due yet primarily not billion, but $4.9 sold increased Markets. securities Capital include BMO mainly in liabilities activities Other client by driven Liabilities billion, Other $14.4 increased contracts. agreements exchange repurchase foreign under and sold Agreements rate or interest Repurchase lent of Securities Under value Sold fair or the Lent in decline Securities consolidated the the to of due 168 billion page $10.4 on decreased 13 liabilities Note Derivative in 99. provided page Liabilities are on a deposits Financial section by of Risk Derivative offset composition Funding wholesale partially the and and billion, on Liquidity customer $7.6 details the of increased Further in levels individuals billion. and higher by $2.3 statements reflecting deposits of financial dollar, and banks U.S. billion by weaker $13.7 deposits the increased in of governments decrease impact and the businesses excluding by billion Deposits $19.1 deposits. or billion, $10.1 increased Deposits under liability customers’ in increase billion $3.5 assets, a Deposits tax to deferred due and primarily current billion assets, $4.3 intangible increased and assets goodwill Other acceptances. equipment, expenses. and prepaid premises and acceptances, receivable contracts. under accounts rate liability interest customers’ of include value assets fair Other the in decrease Assets a to Other due primarily billion $10.2 decreased assets financial Derivative Assets Financial Derivative ANALYSIS AND DISCUSSION MANAGEMENT’S oa equity Total subsidiaries in interest Non-controlling equity shareholders’ Total income comprehensive other Accumulated earnings Retained surplus Contributed capital Share 31 October at As millions) in $ (Canadian deposits Total Individuals governments and Businesses Banks 31 October at As millions) in $ (Canadian M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO omnshares Common shares Preferred h nraei hr aia a rvnb h suneo omnsae ne h hrhle iiedRivsmn n hr Purchase Share and Reinvestment Dividend Shareholder the under shares common of issuance the by driven was capital share in increase The 483,488 168,311 284,070 44,354 44,354 23,709 13,032 31,107 3,066 4,240 2017 2017 307 – 7,7 438,169 147,416 258,144 473,372 162,887 276,214 23839,913 39,422 42,328 18,930 12,313 42,304 21,205 12,539 32,609 34,271 ,2 4,640 3,240 4,426 3,840 062015 2016 2015 2016 9 299 294 4491 24 ya by MD&A 69 BMO Financial Group 200th Annual Report 2017 Capital Supply to support risks Capital available Capital adequacy Capital demand and supply assessment capital of Capital Demand business activities business the risks underlyingthe risks our Capital required to support to Capital required ICAAP is an integrated process that uses stress testing and other tools to evaluate capital adequacy on both a regulatory and an economic capital BMO uses regulatory and economic capital to evaluate business performance and considers capital implications in its strategic, tactical and Refer to the Enterprise-Wide Risk Management section on page 78 for further discussion of the risks underlying our business activities. supports depositor, investor and regulator confidence, while building long-term shareholder value. is appropriate given our targetis regulatory consistent capital with ratios our and target internalunderpins credit assessment our ratings; of operating required groups’ economic business capital; strategies; and Regulatory capital requirements for BMOthe are Superintendent determined of in Financial accordance Institutions withSupervision Canada the (BCBS). (OSFI), Capital The which Adequacy minimum is Requirements capital based (CAR)and ratios on Guideline 8% contained of the Total in capital the Capital the standards Office Ratio, CAR developed of Since which Guideline by January are are the 31, calculated a Basel 2016, using 4.5% Committee OSFI a Common onminimum has nine-year Equity Banking plus expected transitional Tier a Domestic phase-out 1 3.5% Systemically of (CET1) Capital Important non-qualifying Ratio,“all-in” Conservation Banks capital 6% requirements Buffer, (D-SIBs) instruments Tier as, including to ending 1 except a attain in Capital for 1% a 2022. Ratio phase-in the D-SIB target of Credit Common CET1 regulatory Valuation Equity Ratio adjustments Adjustment Surcharge). of as (CVA) These at proposed risk expectations least by capital are 8% the charge also (4.5% BCBS. mentioned referred below, to there as is the no five-year transitional Regulatory Capital Requirements Governance The Board of Directors, eithermanagement, directly including or our in Capital conjunction Management withreviews Corporate its BMO’s Policy Risk capital framework, Review position capital Committee, and plan providesadequacy key and ultimate assessment capital capital oversight results. management adequacy and The activities, assessments. approval Balance and The ofsignificant Sheet the Board capital capital and Risk regularly management Capital Review policies, Management Committee issues Committee reviewsexecution and provides the of activities senior ICAAP-determined our and, management capital enterprise-wide along oversight, strategy. with includingand Finance the the the and Risk review framework Risk Management of related Management Committee, to are theadherence capital responsible capital to and for required controls risk the to and management design support identifies and and the opportunities the implementation to ICAAP. of strengthen The the our Corporate corporate processes. Audit policies Division, as the third line of defence, verifies our basis. It is used inrisk the appetite establishment of of the capital enterprise. targetspromoting The and alignment capital implementation between plan of our is capital business developed strategiesEnterprise-wide and considering that stress risk the take testing strategies, results into and regulatory of consideration scenario and our therequirements. analysis economic ICAAP strategic The are capital and direction framework used requirements in and seeks to and conjunction to assess the withunder ensure the availability our stress, that impact of annual and we of capital. business it are various plan, supports adequately stresslevels the capitalized conditions and determination given on capital of the BMO’s requirements limits, risks risk at targets we profileadequacy both and take and against the performance in capital the consolidated measures the capital entity that normal plan and are courseregulatory throughout operating used of expectations. the group to business, year, levels. manage as making BMO balance well updates evaluates sheet as to assessments positions, reflect of risk changes actual in and business forecasttransactional activities, capital decision-making. risk By profile, allocating operating our environmentgroups’ capital or performance to against operating these groups, limits settingcapitalized and and position. metrics, monitoring This we capital approach seek limits aims to andto to optimize metrics deploy protect our and resources our risk-adjusted measuring to stakeholders return the support from to the the shareholders strategic risks while growth inherent maintaining activities in a of our well- our various operating businesses, groups. while still allowing the flexibility The principles and key elementscapital of plan, BMO’s which capital includes management the framework results are of outlined our in Internal our Capital Capital Adequacy Management Assessment Corporate Process Policy (ICAAP). and in our annual ‰ Capital Management Framework ‰ ‰ ‰ Capital Management Objective BMO is committed to adepositors, disciplined fixed approach income to investors capital and management rating that agencies. balances Our the objective interests is and to requirements maintain of a shareholders, strong regulators, capital position in a cost-effective structure that: Enterprise-Wide Capital Management MD&A aia eutosadalwne)i ihrta iia aclto ne h iksniieBslIIrls h aia lo a prtv o the for operative was floor RWA, capital (covering The RWA. rules rules. total I III our Basel Basel in the risk-sensitive reflected 70 under the is calculated under and amount calculation 2017 an similar and when a 2016 RWA than in increase higher bank to is requirement allowances) a and is deductions there capital ratios, capital regulatory calculating In risk. operational for requirements capital determine to rules, OSFI under Approach. Standardized the exposures. using in some determined changes are for reflect portfolios they U.S. so and appropriately Canadian risks certain differentiate from and arising quantify RWA to procedures Credit rules. periodically Validation conditions. OSFI enhanced periodically. credit the are updated and by and are economic prescribed place and type in benchmarking class are by asset parameters supplemented and these data maturity to of portfolio to related probability historical term the using parameters, of determined risk estimates are default including parameters at principles, risk exposure management These and risk default sound given on loss based downturn level the rules. exposure default, the capital prescribed at regulatory OSFI’s RWA OSFI’s on measure to with based techniques accordance risks sophisticated in operational calculated and and (trading) risk market relative credit, their for for calculated weighted are exposures, RWA bank’s rules. a measure (RWA) Assets 2013. Risk-Weighted 1, January on Assets began capital Risk-Weighted that a period accept nine-year to to a about agreed over is or out or accepted phased is has and bank bank grandfathered a the that that announces announces OSFI publicly non-viability. that Canada avoid event in to the the government support, require in provincial equivalent provisions shares or or NVCC common federal injection, (NVCC). of a capital number if contingent variable or non-viability a non-viable, on into become guidance instruments BCBS capital of certain implementation of the conversion requires also Guideline CAR OSFI’s major The absorbency. loss of mix appropriate an ensure follows: to as tiers summarized and are instruments capital across regulatory diversified our is of that components structure capital a maintains BMO Elements Capital Regulatory Ratios Capital Regulatory table. following the in summarized are requirements, capital “all-in” OSFI the with along requirements, implemented fully The ANALYSIS AND DISCUSSION MANAGEMENT’S • • • • • • • • Tier 2Capital Additional Tier1Capital CET1 Capital adjustments. The The The The SIrequirements OSFI 2 SIsrqieet r h ulse aia eurmnsDSB utme n21 oaodbigsbett etitoso iceinr itiuin fearnings. of distributions discretionary on restrictions to subject being includes avoid BMO to for 2017 Buffer in Conservation meet Capital must The D-SIBs stress. requirements applicable of capital not periods published – during the na losses are absorb requirements can OSFI’s which Buffer, (2) Conservation Capital 3.5% the by augmented is requirement Ratio CET1 4.5% minimum The (1) Surcharge Equity Common D-SIB the including Buffer, Conservation Capital Plus: requirements capital Minimum assets) risk-weighted of (% Less certainregulatorydeductions May includeaportionofthecollectiveandindividualallowancesforcreditlosses Subordinated Debentures Less certainregulatorydeductions Innovative HybridInstruments Preferred Shares Less regulatorydeductionsforitemssuchas: Common Shareholders’Equity M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO o o o o o o ntttosuigavne prahsfrcei iko prtoa ik hr sacptlfora rsrbdi SIsCRGuideline. CAR OSFI’s in prescribed as floor capital a is there risk, operational areas or certain risk in credit Approach for Standardized approaches the advanced with using along institutions model, For used capital is risk-sensitive Approach a Standardized (AMA), the Approach but Measurement Approach, Advanced Models the Internal uses advanced BMO more the using determined primarily are RWA risk market BMO’s utilizes Approach AIRB The portfolio. our in RWA credit determine to Approach (AIRB) Based Ratings Internal Advanced the uses primarily BMO are requirements, NVCC including requirements, III Basel meet not do that instruments capital share non-common Guideline, CAR OSFI’s Under iied,saerprhssaddsrtoaycmesto)wudese ihtedge fsc etitosvrigacrigt h oiino h aksrto ihntebfe range. as buffer (such the earnings within of ratios distributions bank’s discretionary the on of restrictions position buffer, the combined to this according of varying range restrictions the such within of fall degree ratios the capital with bank’s ensue, a would If compensation) D-SIBs. discretionary for and Surcharge repurchases Equity share Common dividends, 1% the of addition the Certainotheritems Certaindeferredtaxassets Definedbenefitpensionassets Intangibleassets Goodwill eeaeRatio Leverage Ratio Capital Total Ratio Capital 1 Tier Ratio 1 Tier Equity Common (2) elcsTe aia iie ytesmo nblnesetiesadseiidofblneseties e fspecified of net items, sheet off-balance specified and items sheet on-balance of sum the by divided capital 1 Tier reflects elcsTtlcptldvddb oa aia RWA. capital Total by divided capital Total reflects elcsTe aia iie yTe aia RWA. capital 1 Tier by divided capital 1 Tier reflects elcsCT aia iie yCT aia RWA. capital CET1 by divided capital CET1 reflects Tier 1Capital Total Capital (1) omnEquity Common ir1Rto(1) Ratio 1 Tier . . 153.0 11.5 9.5 8.0 . . . na 3.5 3.5 3.5 . . . 3.0 8.0 6.0 4.5 aia Ratio Capital ir1 Tier aia Ratio Capital Total Leverage Ratio MD&A 71 e, Tax Cuts and Jobs BMO Financial Group 200th Annual Report 2017 . OSFI also reiterated its intention to implement section on page 116 for further discussion. Financial Instruments Financial Instruments We are also monitoring potential regulatory capital developments that mayCapital replace ratios AMA are with impacted a by new deferred Standardized tax Measurement assets. Approach Given for our net U.S. deferred tax asset, under the proposals contained in the In accordance with guidance from OSFI, the CVA risk capital charge for Canadian banks has been phasing in since the first quarter of 2014. In Our Tier 1 Capital and Total Capital Ratios were 13.0% and 15.1%, respectively, at October 31, 2017, compared to 11.6%BMO’s and Leverage 13.6%, Ratio respectively, was 4.4% at October 31, 2017, up from 4.2% at October 31, 2016 and in excess of the 3% minimum requirement In conjunction with OSFI’s release of the draft guideline on TLAC, the Department of Finance Canada introduced draft regulations setting out In July 2017, OSFI extended the Canadian implementation of the Minimum Capital Requirements for MarketIn Risk October (Fundamental 2017, Review the of BCBS the signalled that it was close to finalizing the Basel IIIIn reforms, October including 2017, an the output BCBS floor, issued AIRB final input guidelines restrictions, on a step-in new risk aiming to mitigate theIn risk November of 2017, stress OSFI in released shadow the banking final entities version spilling of over the to CAR Guideline for implementation in the first quarter of fiscal 2018. Revisions mainly OSFI implemented the countercyclical capital buffer in the first quarterIn of March fiscal 2017, 2017. the It BCBS is issued calculated a as Pillar the 3 weighted standard averageIn that of June aims buffers 2017, to in OSFI improve effect released comparability a and draft consistency guideline of on financial TLAC regulatory for disclosures comment. through OSFI’s draft guideline will apply to Canada’s D-SIBs as part of the federal IFRS 9 will impact our reported capital as a result of the adjustment recorded in retained earnings on adoption of the standard; however, this , a reduction in the U.S. federal tax rate from 35% to 20% would result in a net decrease of approximately 15 basis points in the CET1 Ratio. This operational risk. Act one-time impact is expected towill be depend offset on over final time tax byTax changes higher Assets and net section the income on effective resulting page date from 114 of the for the reduction further lower in discussion tax the on rate. U.S. the Refer federal expected to tax impact the rate. of Critical The the Accounting ultimate proposals. Estimates impact – Income Taxes and Deferred 2016 and 2017, the CVAincrease risk to capital 80% charge in applicable 2018. to CET1 was 64% and 72% of the fully implemented charge, respectively, and it is expected to at October 31, 2016. Thepreferred increase shares, in partially the offset Tier by 1factors the Capital impacting redemptions Ratio the of was Tier non-NVCC mainly 1 preferred due Ratio. shares. to The the increase factors in impacting the theestablished Total CET1 by Capital Ratio OSFI. Ratio discussed was above mainly and due issuances to of the 2017 Regulatory Capital Review BMO is well capitalized, withEquity capital Surcharge ratios implemented that in exceed 2016. OSFI’sincreased Our published from CET1 requirements the Ratio for end was large of 11.4% CanadianShareholder fiscal at banks, Dividend 2016 October including Reinvestment due 31, the and to 2017, 1% Share higher compared D-SIBother Purchase capital, to Common items Plan largely 10.1% having (DRIP) from at largely and retained October offsetting the earnings 31,business impacts. exercise growth 2016. growth The of and The being net stock common CET1 more impact options, shares Ratio than of partially issuedforeign offset source offset through exchange by currency by the movements the RWA share was benefits changes repurchases, meaningful of was with the to risk relatively impacts RWA mitigation small, largely and and largely offset. CET1 capital due BMO’s capital, management todollar-denominated investments compared actions higher RWA in to and RWA and foreign October methodology from U.S. operations 31, changes. dollar-denominated are 2016, Theimpact capital primarily but impact of deductions denominated are of foreign may in managed exchange result U.S. by movements in dollars. theon on variability The enterprise equity. its in foreign such capital the exchange that ratios, bank’s impact and capital of did ratios. U.S. so BMO during may 2017. offset Any the such activities could also impact our book value and return the details of the bail-infinalized. framework Under for the Canada’s new six regulations, D-SIBs.Council upon The may, a bail-in upon determination regulations a by are recommendation OSFI expectedportion of that to of the the come certain Minister bank into shares of has force and Finance, ceased, 180bail-in liabilities make or days regulations (i.e. an is after and with order about the TLAC an directing to regulations guideline original the cease, are are term Canada to not to Deposit be expected maturity Insurance viable, to greater Corporation the have than to GovernorTrading a 400 convert in Book, material days) all or impact of or FRTB) on the a rules BMO’s bankquarter by funding into of at strategy. common fiscal least shares 2021. one of year, the with bank. the The first regulatory reportingstandardized under credit the risk FRTB weighting rules approach toit and commence is a no prepared new earlier to operational than move risk the forward weighting first ahead approach of that the replaces BCBS thebanks. on AMA. The related Earlier guidelines aspects in entail of the no capital year,expects additional reform. OSFI the Pillar stated guidelines 1 that to capital apply or no liquidity later charge than but 2020. focus onrelate identifying to entities the that capital may treatment have of step-in allowances risks. as The a BCBS result of the adoption of IFRS 9 based on current guidance, expectedlater to in fully 2017 meet or the in TLAC early requirements 2018. by November 2021. OSFI is expected to release the final TLAC guideline in jurisdictions where the bank has private sector credit exposures.more The standardized impact formats. of The the standard countercyclical includes capital new buffer disclosure has requirements been in immaterial. government’s respect bail-in of regime. the The Total draft Loss-Absorbingis TLAC Capacity tailored guideline (TLAC) to is regime. the consistent Canadian with context. international Public standards disclosure developed of by D-SIBs’ the TLAC Financial ratios Stability is Board anticipated (FSB), to but begin in the first quarter of fiscal 2019, and D-SIBs ar Capital Regulatory Developments A number of regulatory capitalrequired changes, to some hold finalized over and time. some The under nature development, of will these put changes upward is pressure outlined on below. the amount of capital BMO is impact is not expected to be significant. Refer to the Adoption of IFRS 9 in the first quarter ofto fiscal central 2019 counterparties the and Standardized the Approach revised to securitization Counterparty framework Credit that Risk, was the released revisions by to the the BCBS capital in requirements July for 2016. bank exposures MD&A 72 Capital the in outlined as shares, growth preferred above. the non-NVCC mentioned to of attributable redemptions on was the movements 2016 by exchange 31, offset foreign October partially of since shares, impact capital preferred section. the 1 of Activities the by Tier issuances Management through offset in the and issued partially increase and billion shares deductions, The capital $28.2 common capital repurchases. CET1 from growth, in share in up earnings decrease and 2017, retained a income 31, to and comprehensive October due options other at mainly stock accumulated respectively, increased of billion, capital exercise $35.1 CET1 the and 2016. and billion 31, DRIP $30.6 October were at levels respectively, capital billion, 1 $32.2 Tier and capital CET1 Our ANALYSIS AND DISCUSSION MANAGEMENT’S aia aisaeaoewl-aiaie ees ne FS,BCas odcsmdccecmayrnsrs et n icoe t eut nOctober in results its disclosed and bank BHB’s tests levels. its and stress well-capitalized Capital and BFC’s run above Regulatory BFC that company remain 2017, indicating mid-cycle to June scenario, conducts continue in adverse also ratios Also severely BFC capital assessment. supervisory DFAST, BFC’s CCAR DFAST Under indicating the 2017 the levels. 2017, 2017, the under well-capitalized June under results above In evaluated their are financial conditions. as disclosed ratios the economic plan (BHB) capital whether adverse capital N.A. assess during BFC’s Bank to operations to Harris FRB support object BMO the and to subsidiary by losses not conducted absorb decision to for exercise to its capital account forward-looking capital announced sufficient that a sufficient FRB have processes is have States capital-planning CCAR) supervise United forward-looking to they the robust, exercise that in have complementary companies an operating and (a is companies stress DFAST CCAR holding financial risks. requirements. bank and unique (DFAST) largest economic their Test the of Stress whether times Act assess throughout Dodd-Frank to operations and FRB continue (CCAR) the appropriately. Review by capital and conducted and Analysis exercise funding Capital annual their Comprehensive manage (FRB) also Board’s subsidiaries Reserve that Federal such place in is framework A ventures. joint and subsidiaries oa euaoyajsmnsapidt diinlTe aia (215) capital regulatory as qualify longer no that instruments of value capital the that and 2013, 1, January effective applied are adjustments regulatory III Basel all that assumes capital regulatory “All-in” (1) provisions and instruments capital: 2 AT1) Tier + CET1 = (T1 capital 1 Tier (AT1) capital 1 capital Tier 1 Additional Tier Additional to applied adjustments regulatory Total instruments capital: 1 Tier Additional (CET1) capital 1 Tier Equity Common reserves and instruments capital: 1 Tier Equity Common 31 October at As millions) in $ (Canadian oa euaoyajsmnst ir2capital 2 Tier to adjustments regulatory Total oa aia T 1+T2) + T1 = (TC capital Total (T2) capital 2 Tier M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO ir2isrmns(n E1adA1isrmnsnticue)ise ysbiire n edb hr parties third by allowance held Collective and subsidiaries by issued included) not instruments AT1 and 2 CET1 Tier (and from instruments phase-out 2 to Tier surplus subject stock instruments related capital plus issued instruments Directly 2 Tier qualifying issued Directly third by held and subsidiaries by issued included) otherwise not instruments 1 CET1 Tier (and Additional instruments from 1 phase-out Tier surplus to Additional stock subject related instruments plus capital instruments issued 1 Directly Tier Additional qualifying issued Directly deductions capital 1 liability) Tier tax equity related common of Other (net intangibles other reserves) and other Goodwill (and income comprehensive other Accumulated surplus stock related plus earnings capital Retained share common qualifying issued Directly oa aia a 4. ilo tOtbr3,21,u rm$79blina coe 1 06 trbtbet h rwhi ir1capital 1 Tier in growth the to attributable 2016, 31, October at billion $37.9 from up 2017, 31, October at billion $40.6 was capital Total sabn odn opn ihttlcnoiae seso S5 ilo rmr,orsbiir M iaca op BC ssbett the to subject is (BFC) Corp. Financial BMO subsidiary our more, or billion US$50 including of structures, assets corporate consolidated of total variety with a company through holding business bank conducts a BMO As base, capital consolidated bank’s the reflect above ratios the While ne ae I ue sbigpae u tart f1%prya rmJnay1 03t aur ,2022. 1, January to 2013 1, January from year per 10% of rate a at out phased being is rules III Basel under aon loe ngopTe 2) Tier group in allowed (amount AT1) group in allowed (amount parties fwih ntuet sudb usdaissbett phase-out to subject subsidiaries by issued instruments which: of phase-out to subject subsidiaries by issued instruments which: of Ali ai (1)) basis (All-in 35,108 30,633 23,709 13,339 40,596 (1,596) (7,885) 1,053 3,976 4,475 1,040 3,650 3,066 5,488 2017 509 (50) – – – – 32,236 28,159 21,205 12,833 37,862 (2,265) (8,040) 1,873 3,266 4,077 1,540 2,750 4,426 5,626 (213) 2016 538 (51) – – – – MD&A 73 380 705 2016 1,976 4,486 8,115 6,135 5,110 7,696 1,403 9,675 1,878 9,651 8,962 16,197 33,755 11,934 30,502 15,599 15,219 14,894 104,488 261,963 222,499 277,562 261,963 277,562 261,963 277,562 290 522 2017 7,984 1,626 9,542 2,476 1,627 5,892 5,426 5,465 7,582 8,448 9,648 8,421 8,131 7,899 15,631 35,246 11,258 32,773 100,421 261,045 219,824 269,466 261,045 269,466 261,045 269,466 the risk-sensitive Basel III rules. BMO Financial Group 200th Annual Report 2017 (1) (2) (2) (2) Corporate, including specialized lending Residential mortgages, excluding home equity line of credit Corporate small and medium-sized enterprises Sovereign Bank Home equity line of credit Qualifying revolving retail Other retail, excluding small andRetail medium-sized small enterprises and medium-sized enterprises to increase RWA when an amount calculated under the Basel I rules (covering both RWA and capital deductions) is higher than a similar calculation under Scaling factor for credit risk assets under AIRB Approach Wholesale Retail Equity Trading book Securitization Other credit risk assets – non-counterparty managed assets Basel I Capital Floor Basel I Capital Floor (1) The scaling factor is(2) applied For to institutions the using RWA advanced amounts approaches for for credit credit risk risk under or the operational AIRB risk, Approach. there is a capital floor as prescribed in OSFI’s CAR Guideline. In calculating regulatory capital ratios, there is a requirement (Canadian $ in millions) As at October 31 Credit Risk CET1 Capital Risk-Weighted Assets beforeBasel Capital I floor Capital Floor Total Credit Risk Market Risk Operational Risk CET1 Capital Risk-Weighted Assets Tier 1 Capital Risk-Weighted AssetsAdditional before CVA CVA adjustment, and prescribed Capital by floor OSFI, for Tier 1 Capital Tier 1 Capital Risk-Weighted Assets Total Capital Risk-Weighted Assets beforeAdditional CVA CVA and adjustment, Capital prescribed floor by OSFI, for Total Capital Total Capital Risk-Weighted Assets Changes in Risk-Weighted Assets Total RWA were $269.5 billionat at October October 31, 31, 2017, 2017, down down$5 from from billion, $222.5 $277.6 as billion billion well at at as October Octoberfrom changes 31, 31, foreign in 2016. 2016. exchange book The Credit movements quality decrease Risk are and was RWA$9.0 largely models, largely (CET1 billion offset partially due basis) at in offset to were October the by foreign $219.8 31, CET1 business exchange billion $32.8 2016, Ratio. growth impact billion with Market and of at the Risk changes approximately October benefit RWA in 31, largely were methodology.floor 2017, attributable $8.4 As RWA up to billion noted were from enhancements at above, $8.4 $30.5 in October impacts billion billion risk 31,capital at at measurement 2017, management October October methods. down actions 31, 31, Operational from and 2017, 2016, Risk changes down largely RWA in from due were methodology, $15.6 to partially billion growth offset at in by October the business 31, bank’s growth 2016, average and primarily gross changes due income. in to Basel book the I quality benefits capital and of models. risk mitigation and MD&A oe eisHFrtTaceadScn rnh,adSre is rnh n eodTacewudb ovre noBOcmo shares common BMO into converted Medium-Term be and would 35, Tranche Series Second 29, Shares and 74 Series Preferred Tranche 27, B First Series Class I Shares Perpetual Series Preferred Non-Cumulative and B 42, Tranche, Class Series Second Reset and and Rate 40 Tranche 5-Year Series First Non-Cumulative 38, H instruments, Series Series capital 36, Notes NVCC Series our 33, occur, Series to 31, were Series event trigger NVCC an If conversions. and redemptions issuances, Conversions instrument and capital Redemptions 2 Issuances, Tier and Share 1 Tier following the a completed prevailing to BMO the pursuant 2017, purchases. to purchased During of discount were time a million the at cost 4 at and average and seller TSX an TSX third-party the at the arm’s-length on NCIB on an shares the purchased from common OSFI of were made our with part million were of consult as 1 repurchases price will shares shares, share market bank common common Specific The million these program. purchases levels. 5 Of repurchase of capital cancelled million. share amount and and $440 specific and conditions repurchased totalling timing market we share, The as 2017, per our repurchase program. such During $87.88 of to repurchase factors NCIB. of million us share on the 15 allow specific based under to to a discretion purchases up NCIB under management making repurchase the or to before may to agreement subject we amendments private are NCIB, approved of NCIB the (TSX) way the Under Exchange by under 2017. Stock NCIB 1, Toronto the May the under effective 2017, shares year June common one In for cancellation. (NCIB) for bid shares issuer common course normal our renewed We Activities Management Capital Services. Corporate in included are RWA floor capital I *Basel Type Risk and 2017) horizon Group 31, time Operating October is one-year at by (As capital a RWA Economic on and horizon. based value time business, Capital market same and Economic or the operational economic over non-trading), in loss and loss expected (trading level. the the market confidence is to credit, defined loss relative including a Economic level, risk, using risks. confidence of adverse such defined types underlying severely across a various its should basis at for in occur consistent horizon calculated risks could a time economic that on specified the losses measured a of economic be over view of to incurred bank’s magnitude returns the likely allows to the and relative of arise, requirement estimation situations demand management’s capital represents enterprise’s It the activities. of business expression an is capital Economic Capital Economic ANALYSIS AND DISCUSSION MANAGEMENT’S 1 o ute eal nsbriae etadsaecptl e oe 5ad1 npgs11ad12 epciey ftecnoiae iaca statements. financial consolidated the of respectively, 172, and 171 pages on 16 and 15 Notes see capital, share and debt subordinated on details further For A (1) Series – Notes Subordinated Tranche Trust Second of Notes, Redemption Medium-Term I Series Debentures of 16 Issuance Series Rate Fixed of Maturity Capital 15 2 Series Tier Shares, Preferred B 14 Class Series Perpetual Shares, Non-Cumulative 42 Preferred of Series B Redemption Shares, Class Preferred Perpetual B Non-Cumulative 40 Class of Series Reset Redemption Shares, Rate Preferred 5-Year B Non-Cumulative Class of Reset Issuance Rate 5-Year Non-Cumulative of Issuance Capital 1 Tier issuance DRIP exercised options Stock issued shares Common 2017 31, October at As millions) (in M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO uig21,BOise prxmtl ilo omnsae hog h RPadteeecs fsokoptions. stock of exercise the and DRIP the through shares common million 7 approximately issued BMO 2017, During (Canadian $inmillions) RWA byRiskType* Economic CapitalbyRiskType(%) Operating Groups (1) (1) Credit Operational Market Operational/Other Market Credit Personal and and Personal Commercial Banking 146,875 18,130 19% 77% 4% – Management Wealth 10,504 5,736 48% 25% 27% 36 BMO FinancialGroup BMO Capital etme 6 2017 26, September Markets 50,812 eray2,2017 20, February 8,412 8,907 21% 12% 67% ac ,2017 9, March ue2,2017 29, June a 5 2017 25, May 2017 25, May a 1 2017 31, May eepindate redemption suneor Issuance fsae Amount shares of Number Corporate Services 1)$(250) $(250) (10) (10) . 448 $ 146 $ 4.8 2.2 20,054 6$400 $ 16 0$500 $ 20 23% 25% 52% – – $(800) $(100) 850 $ MD&A 75 –– –– –– – $0.56 – $0.34 nananana na na na na 2016 2015 $ 3.40 $3.24 $65.03 – $ 1.25 $0.41 $ 0.95 $0.45 $ 0.95 $0.95 $ 0.98 $0.98 $ 1.00 $1.00 $ 0.85$ 0.53$ 0.84 $0.85 $ 0.10 $0.60 $0.98 – $ 1.31$ 1.45 $1.31 $1.45 – – na na na na Dividends declared per share 2017 $ 0.45 $ 0.80 $ 3.56 $ 1.33 $58.50 $ 1.25 $ 0.95 $ 0.95 $ 0.98 $ 1.00 $ 0.85 $ 0.55 $ 0.45 $ 0.43 $ 0.66 $ 0.73 BMO Financial Group 200th Annual Report 2017 – – – – 4.6 2.9 648 $ 400 $ 500 $ 600 $ 600 $ 150 $ 200 $ 300 $ 400 $ 500 $1,000 $1,000 $1,250 $ 850 $ 157 $ 143 $ 236 $54 (in millions) or dollar amount Number of shares (Canada) and any similar provincial and territorial legislation, BMO designates all dividends paid or deemed to (6) (6) (6) (6) Income Tax Act (3) (3) (4) (5) (5) (1) (2) (2) and Second Tranche. Our target dividend payout range (common share dividends as a percentage of net income available to shareholders, less preferred share At year end, BMO’s common shares provided a 3.6% annual dividend yield based on the year-end closing share price andCommon dividends shareholders declared may in elect to have their cash dividends reinvested in common shares of BMO in accordance with the DRIP. In the first and Further details are provided in Notes 15 and 16 on pages 171 and 172, respectively, of the consolidated financial statements. Series H – First Tranche Series 42 Series 40 Series 14 Series 25 Series 13 Series 38 Series 36 Series 35 Series 33 Series 31 Series 29 Series 17 Series 23 Series 26 Series 27 Series H – Second Tranche Series I – First Tranche Series I – Second Tranche Vested Non-vested Series 15 Series 16 na – not applicable Note 16 on page 172 of the consolidated financial statements includes details on share capital. Medium-Term Notes (1) Redeemed in May 2015. (2) Redeemed in May 2017. (3) In August 2013, approximately(4) 5.7 Redeemed million in Series February 16 2015. Preferred(5) Shares In were August converted 2016, into approximately(6) Series 2.2 17 Note million Preferred 15 Series Shares on 25 on page Preferred a 171 Shares one-for-one of were basis. the converted consolidated into financial Series statements 26 includes Preferred details Shares on on the a Series one-for-one H basis. Medium-Term Notes, First Tranche and Second Tranche and Series I Medium-Term Notes, First Tranche Common shares Class B Preferred shares As at October 31, 2017 Stock options Caution This Enterprise-Wide Capital Management section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements. Eligible Dividends Designation For the purposes of the be paid on both its common and preferred shares as “eligible dividends”, unless indicated otherwise. Dividends Dividends declared per common shareof in adjusted fiscal net 2017 income totalled available $3.56. to Annual common dividends shareholders declared on represented a 43.6%dividends, last of based twelve reported on months net earnings basis. income over anddividend the 42.6% payout last range twelve seeks months) to isbusiness provide 40% growth, shareholders to fund with 50%, strategic stable providing investments income shareholders and while with support ensuring a capital sufficient competitive adequacy. earnings dividend are yield.the retained BMO’s last to target four support quarters. anticipated Onper December share, 5, up 2017, $0.03 BMO per announced2018 share the to or Board shareholders 3% of of from Directors record the had on prior declared February quarter a 1, and quarterly 2018. up dividend $0.05 onsecond per common quarters share shares of or of 2017, 6% $0.93 common fromthird shares a quarter to year of supply ago. 2017, the The common DRIP dividendcommon shares were is shares were issued payable to issued from on supply from treasury February the treasury at 27, DRIP without a were a 2% purchased discount. discount on In from the the their open fourth then-current market. quarter market of price. 2017 In and the the first quarter of 2018, Outstanding Shares and Securities Convertible into Common Shares pursuant to automatic conversion formulasof with our a common conversion shares price at basedcapital the on instruments time the would of greater be the of: converted trigger (i)unpaid into event a dividends. approximately (calculated floor 1.96 using price billion a of BMO 10-day $5.00, common weighted and shares, average). (ii) assuming Based the no on current accrued a market interest floor price and price no of declared $5.00, and these NVCC MD&A hsSlc iaca ntuet eto otisfradloigsaeet.Pes e h ato eadn owr-okn Statements. Forward-Looking Regarding Caution the 76 see Please statements. forward-looking contains assets section aggregate Instruments the Financial Select of This 2016) in (72% 78% Caution represent classes asset two vehicle. These the loans. of Program ex Loan of Education ABCP primarily Family consist vehicle’s Federal vehicle government-guaranteed the ou securitization of commitments customer million our this of US$185 of part assets held comprised The BMO amount year, This the 2016). in during billion effect (US$4.7 into came that 2016. and rules 2016). 2017 retention in in risk vehicle (US$nil U.S. the 2017 to with 31, exposures comply October BMO’s to of at any order on In recorded Moody’s. were losses by No P1 loan. a of form the in our credit use extending We when vehicle. do the related we to as the provide arrangements, we in support involved liquidity assets the and the assets. vehicle our servicing those the provides for on vehicle responsible realized securitization remain losses customer customers any customer This Our absorb of statements. markets. to consolidation financial ABCP first on consolidated U.S. are information the the and Further of in financing IFRS. 157 financing under page to consolidate on access we 7 with that Note customers States in United provided the is in vehicles vehicle securitization securitization customer a 2016) sponsor in We (87% Canadian 90% Vehicle of represent Securitization remain pools Customer classes facilities diversified U.S. asset vehicles. these to two these of exposure These of All of mortgages. assets statements. primarily residential aggregate financial consist conventional the consolidated vehicles and of the securitization insured of customer Canadian 192 market-funded and page these receivables on of automobile-related 25 each Note of in assets million outlined The $6 commitments undrawn. totalled our vehicles of market-funded part the comprised of amount ABCP 2016. in and investment 2016). 2017 BMO’s in in Moody’s. million vehicles by ($14 these P1 2017 to and 31, exposures DBRS October 7 BMO’s by at Note of R-1(high) in any rated provided on is is recorded vehicles vehicles were market-funded securitization losses customer No of statements. consolidation financial the consolidated on the information of enter Further 157 to consolidated. page whether loan. not on deciding a are in of they process form therefore adjudication the and credit in entities our credit use extending We when investors. do remain by we sellers purchased as the ABCP just cases, to arrangements, all assets. provide these In the we into purchases. on support the realized liquidity fund losses the the to any and in order absorb vehicles interest in to an BMO first asset- selling or are the by investors and in indirectly either assets or or to transferred BMO vehicles, ABCP the from these issue servicing directly into then for either directly which responsible financing assets vehicles, to their these access sell into with either assets customers Customers securitized 2016. our markets. in provide (ABCP) million Canada paper $92 in commercial and sponsor backed 2017 we in vehicles fees million securitization arrangement $44 customer financial approximately The and totalled distribution fees Vehicles liquidity, These Securitization including Customer vehicles. its vehicle). vehicles, Canadian the or securitization securitization of vehicle) customer customer operations securitization U.S. the ongoing bank one to the a and related supporting through vehicles services for securitized securitization providing then customer for are Canadian fees (which several earn BMO through We either securitized by then originated as are assets classified (which fund were customers that loans vehicles finance leveraged various at of sponsors outstanding 1.6% BMO billion or $12.7 million Vehicles with $197 Securitization assets, amount, higher BMO-Sponsored total this 2016). a our Of in indicates of 2016). 3.1% assessment 1.8% in or our represented respectively, million where which billion, ($387 financings loans, $12.5 impaired mezzanine finance and and leveraged (1.8% businesses to 2017 equity exposure 31, private has October to BMO loans risk. as credit BMO of by level defined are loans finance Leveraged value. collateral Finance underlying 79. Leveraged the page and on repay section to Results borrowers Future our Affect of May ability the consider practices were lending practices Our lending assessment. These well. capacity moderate. exceptionally and to performed ratios continues has losses, portfolio limited high existing and drove the ratios and and loan-to-value recession recession high global the (e.g., the into practices to early lending up discontinued market leading lenders. aggressive prevalent third-party of were subprime from impact which any loans The documentation), have Alt-A loan M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO M rvdscmitdlqiiyspotfclte otevhce ihteudanaon oaln S52blina coe 1 2017 31, October at billion US$5.2 and totalling S&P amount by undrawn A1 the rated with vehicle, is the vehicle to the facilities of support ABCP liquidity committed The provides 2016). BMO in billion (US$2.9 2017 31, October at outstanding ABCP of billion with US$3.1 into had entered vehicle have we The contracts derivative related any vehicle, the by issued ABCP in investment our to relates losses potential to exposure Our This 2016). in billion ($5.8 2017 31, October at billion $5.0 the totalling of vehicles ABCP market-funded The the 2016). for in facilities billion support ($4.4 liquidity 2017 provided 31, BMO October at outstanding ABCP the of these billion control $3.8 not of does total BMO a BMO. had by vehicles directly market-funded funded The is third a while market, the in the funded with are into vehicles entered securitization have customer we these contracts of derivative Two vehicles, the by issued ABCP in investments our to relates losses potential to exposure Our That Risks Emerging and Top the in provided is market housing Canadian loan-to-value the scores, to credit related to portfolio relative Lending standards Consumer prudent the to on underwritten discussion are Further products lending consumer States, United the and Canada both In equity home mortgages, first residential classes: asset three of comprised primarily is portfolio Lending Consumer our States, United the In oue odvriidposo ..atmbl-eae eevbe and receivables automobile-related U.S. of pools diversified to posures rdtajdcto rcs ndcdn hte oetrit these into enter to whether deciding in process adjudication credit lndi oe2 npg 9 ftecnoiae iaca statements. financial consolidated the of 192 page on 25 Note in tlined U.S. MD&A 77 BMO Financial Group 200th Annual Report 2017 The maximum amount payable by BMO in relation to these guarantees was $24 billion at October 31, 2017 ($24 billionFor in a 2016). more However, detailed this discussion of these arrangements, please see Note 25 on page 192 of the consolidated financial statements. There are a large number of credit instruments outstanding at any time. Our customers are broadly diversified, and we doThe not maximum anticipate amount events payable by BMO in relation to these credit instruments was approximately $147 billion at October 31, 2017 ($146 billion For the credit commitments outlined in the preceding paragraphs, in the absence of an event that triggers a default, early termination by BMO Caution This Off-Balance Sheet Arrangements section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements. Guarantees Guarantees include contracts under whichliability we or may equity be security required that toaccording the make to counterparty payments the holds. to terms Contracts a of under counterpartyIn a which based the contract we on normal and may changes course contracts be in of under required thederivatives business, which to value contracts we we make of or enter provide payments an instruments into indirect if asset, (including, a guarantees a but variety of third not of indebtedness party limited guarantees, are does to, including also not credit standby considered perform amount default letters guarantees. is swaps), of not as credit, representative well backstop of as andguarantees our indemnification other will likely agreements. liquidity require exposure, facilities us as and to itprovisions. make does any not payments, take nor into does account it customer take behaviour, into which account suggests any that amounts only that a could portion be of recovered the under recourse and collateral Structured Entities (SEs) Our interests in SEs areconsolidated discussed financial in statements. detail Under on IFRS, pageand we 76 funding consolidate in vehicles. our the We bank BMO-Sponsored do securitization Securitizationvehicles, not vehicles, Vehicles and consolidate U.S. section various our customer and BMO Canadian securitization in managed customer vehicle, Note and securitization and 7 non-BMO vehicles, certain on managed structured capital page investment finance 157 funds. vehicles, of certain the capital and funding or conditions that would causeWe a use significant our number credit of adjudication oura process customers loan. in to We deciding fail monitor whether to off-balance to perform sheet enter in instruments into accordance in these with order arrangements, the to just termsin avoid as of 2016). undue we their However, concentrations do contracts this in when with amount any extending us. into is geographic credit account not region in customer representative or the behaviour, of industry. form which our of it suggests likely take that credit into only exposure account a or any portion liquidityfound amounts of requirements in that our for Note could customers these 25 be will instruments, on recovered utilize as page under the it 192 recourse facilities does of and related not the collateral to take consolidated provisions. thesemay financial Further instruments, result statements. information nor in on does a these breach instruments of can contract. be Credit Instruments In order to meet theletters financial of needs credit, of which our represent clients,required our we payments obligation use or to a meet make variety other payments ofagreement contractual to off-balance to requirements. third sheet honour We parties credit drafts also on instruments. presented write behalf Thesearrangements by documentary of include that a and a guarantees represent third commercial customer and our party letters if standby commitment upon of thematurities, to completion credit, customer subject customers of which is to to specified represent unable meeting grant activities. our to certain them Commitments make conditions. credit to the in extend the credit form are of off-balance loans sheet or other financings for specific amounts and Off-Balance Sheet Arrangements BMO enters into a number of off-balance sheet arrangements in the normal course of operations. MD&A dutdrslsi hsEtrrs-ieRs aaeetscinaennGA n r icse nteNnGA esrsscino ae29. page on section Measures Non-GAAP the in discussed are and 78 non-GAAP are section Management Risk Enterprise-Wide this in results Adjusted ‰ ‰ ‰ Priorities ‰ ‰ Challenges ‰ ‰ ‰ ‰ Drivers Value and Strengths Group Financial BMO Officer Risk Chief Rajpal Surjit essential advantage. is competitive and building enterprise to the across provides oversight framework success risk management the independent risk to disciplined Our fundamental A operations. is activities. our risk business of managing our to in approach inherent integrated are to and that exposed risks are of we variety services, a insurance wealth and banking, market providing capital company management, services financial diversified a As Management Risk Enterprise-Wide ANALYSIS AND DISCUSSION MANAGEMENT’S etadtbe rsne nabu-itdfn nteEtrrs-ieRs aaeetscino h DAfr nitga ato h 07ana consolidated annual 2017 the 7, of IFRS part in integral Board an Standards form Accounting MD&A International the the of by section out Management set Risk as Enterprise-Wide disclosures the required in present font They blue-tinted statements. a financial in presented tables and Text effectiveness. and capabilities our responsibilities. advance and to roles people clear and establish processes to data, culture. continuing systems, our and in strengthen processes invest and of to enhance simplification Continue to through together efficiency work and we productivity how Improve and people our on Focus cyber of risk the to respond and anticipate to need the and expectations customer threats. meet competitive environment. to and geopolitical required and investment economic and uncertain improvements an Technology in return and risk Balancing risk. of management the risks. in and efficiency businesses and of consistency management drive ongoing to the improvement and continuous planning on strategic focus into Sustained integrated metrics and appetite Risk frameworks. risk consistent and Comprehensive risk-taking. to approach Disciplined emt rs-eeecn ewe h oe otecnoiae iaca ttmnsadteM&.SeNt npg 4 n oe5o ae16o h consolidated the of 156 page on 5 Note and 144 page on 1 Note See MD&A. the and statements financial consolidated the statements. to financial notes the between cross-referencing permits loan formations. reflecting loweroilandgasimpaired was 13%loweryearoveryear, Level ofnewimpairedloanformations Loan Formations Gross Impaired M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO 1,921 2015 2,512 2016 ($ millions) 2,193 2017 gas impairedloans. year overyear,reflectingloweroiland Gross impairedloanswere7%lower * Excludespurchasedcreditimpairedloans. Loan Balances* Gross Impaired 1,959 2015 2,332 2016 ($ millions) 2,174 2017 Services andhigherprovisionsinU.S.P&C. offset bylowerrecoveriesinCorporate Markets andCanadianP&C,partially and lowerprovisionsinBMOCapital the decreaseincollectiveallowance, 5% loweryearoveryear,reflecting The totalprovisionforcreditlosseswas Credit Losses Provision for 2015 612 Specific provision Collective provision ($ millions) 2016 815 (76) 2017 850 iaca ntuet Disclosures – Instruments Financial * ExcludesallowancesrelatedtoOtherCredit adequate. weaker U.S.dollar,andremains allowance andtheimpactof the decreaseincollective decreased 5%yearoverdueto The totalallowanceforcreditlosses Credit Losses* Total Allowancefor Instruments. 1,498 052017 2015 357 Specific allowance Collective allowance 1,520 2016 405 ($ millions) which , 1,440 393 MD&A 79 gof BMO Financial Group 200th Annual Report 2017 BMO benefits from an integrated North American strategy in diverse industries and geographies, with limited direct lending exposure outside of Our credit exposure by geographic region is provided in Tables 7, 8 and 11 to 13 on pages 128 to 133 and Note 4 on page 152 of the In 2017, particular attention was given to the following top and emerging risks: North America and a footprintrises that often minimizes have the offsetting effects impacts ofthe across changes potential different in economic North commodity and American prices financial regions andand consequences and foreign North of industries. exchange American trade-related Although movements, trends events it wherein and that is priceportfolios, continually could difficult declines/ business assess adversely to plans our affect successfully and portfolio economic predict capital and growth, andmitigation adequacy business we mitigate strategies against strategies actively to severely in monitor react adverse the global to scenarios context and arising of offset from those possible shocks, developments. adverse and We political we stressconsolidated and/or establish test financial economic contingency our statements. developments. plans Further and informationon on page our 92. direct and indirect European exposures isTechnology provided Disruption in and the Competition European ExposuresThe section financial services industry continuessegments to of undergo banking, rapid in change, some asdata cases technology and with enables analytical reduced new tools, regulatory non-traditional lower requirements entrantspayments, cost and to consumer to oversight. compete and serve New in commercial and/or entrants certain lending, faster maytechnologies foreign processes leverage and exchange to new competition and challenge technologies, may low-cost traditional advanced potentially investment banks,entrants. impact advisory including While our services. new we overall Failure business closely revenues to models monitor and keep inkeep technology earnings pace retail pace disruptors, if with with we customers these dynamic also choose new client continue the expectations. to services This adapt of includes by these improving increasing new our our market mobile investment and in internet technology banking and capabilities, innovation building to new branch formats, and regional, property type and customerstress segment test concentration analysis limits, suggests support that the significant soundness price of declines ourTrade and Canadian Instability recessionary real economic estate conditions lending would portfolio.The result Further, risk in our of manageable global losses. tradesentiment instability in stems the from United political, States economic(NAFTA), and and which other trade is countries policy currently may uncertainty. under impact Supportnew renegotiation, existing for rules as trade protectionism that well agreements, and could as such anti-globalization have overall asand a global the trade significant growth. North and impact In American investment on particular, Free flows. our the Trade customers outcome Agreement in of the the United NAFTA States negotiations and could Canada, result resulting in in disruptions in cross-border supply chains Information and Cyber Security Risk Information security is integral todigital BMO’s technologies, business we activities, face brand common andwell banking reputation. as information Given the security our possibility risks, pervasive of including useproactively denial the of invest of threat the in service of internet defensive resulting hacking, and technology, from identity relianceproviders. talent efforts theft on These and targeted and advanced include processes at corporate benchmarking to causing espionage, and prevent system as of review or failure our of detect and key best and service controls practices manage disruption. and across cyber BMOassessments development the security continues of of banking threats to third-party new and within service controls, cyber BMO providers as security andbolster to needed, industries, at our monitor with evaluation service internal alignment ongoing of resources with investments the and BMO in effectiveness technology standards. both capabilities We technology inGeopolitical also and Risk order work human to with resources. better cyber BMO enable security performs Geopolitical us and risk to software has remain suppliers increased, resilient to largely inand as a strained a rapidly U.S. result evolving relations of threat with escalating landscape. potentially countries tensions leading such between to as several market Russia countries, disruptions and inhowever, and China. particular our a Heightened North core decrease geopolitical Korea customers in risk and and growth can themonitor our and create United and international trade. uncertainty States, test strategy Our in our depend portfolio global portfolio on has economic and trade limited investment, business and direct strategies, growth. exposureCanadian and To outside Housing we mitigate North Market establish our America; contingency exposure plans toThe for geopolitical Canadian possible risk, housing adverse we market developments. continually hashousing appreciated price considerably increases over until the the pastPlan. spring number While of of recent 2017, years. resale at The market which Greaterthe results time Toronto year suggest price Area and this increases (GTA) future price moderated had rate adjustment following experiencedVancouver hikes in the rapid Area. and the announcement In regulatory GTA of particular, changes is the future could largely Ontarioactivity regulatory weigh complete, Fair and changes on Bank Housing therefore related sales of home to activity Canada prices the and ratevolumes in qualifying home hikes and, these rate prices announced if regions. for in during housing Lower all this values sales uninsured regionimpact decline, activity mortgages as of the in could well the collateralization these also as recent of previously reduce in changes our heated transactional theunemployment and existing markets Greater and potential portfolio may above-average future would impact population changes, be mortgage growth, but reduced. origination lending support robust It practices, the economic is which expectations conditions not include for in possible the low these to personal ongoing regions, accurately adjudication delinquency including predict of rates good the higher-value for economic full and real growth, higher estate low loan-to-value loans. transactions Our and prudent setting and close monitorin We are exposed to aof variety our of risk continually management changing process risksemerging is that risk to have identification proactively the process identify, potential consists assess, tocombining of monitor affect both several and our bottom-up forums manage business and for a and top-down discussion broad financialand approaches with spectrum condition. stress in the of An tests considering Board, top essential of risk. senior and part our Our management emerging exposure assessment and risks. to of business Our certain top thought top events. and leaders, and emerging risks is used to develop action plans Risks That May Affect FutureTop Results and Emerging Risks That May Affect Future Results MD&A infcn conigplce n uuecagsi conigplce r icse npgs16t 1 swl si oe1o ae14of 144 page on 1 Note in results. as financial well our as report 117 and to record 116 we pages 80 how on affect discussed materially are may policies statements. makes and accounting financial Board anticipate in consolidated Standards to changes the Accounting difficult future International be and the can policies that standards accounting Changes these Significant so. IFRS. to doing with time in accordance to succeed in time always statements from will financial we consolidated that our assurance prepare acquired no We Standards of be Accounting turn employees can and in key there Estimates that and and Accounting plans clients disruption, Critical process certain the without diligence implementing retaining processes due in on and the delays depends systems in unexpected performance key identified as post-acquisition integrating not well Successful on were as integration. and costs that anticipated, full companies Integration costs than achieving earnings. unanticipated significant in than our acquisition, more delays higher affect an are to while adversely to that lead approvals revenue, also related time necessary lower could costs management the in acquisition regulatory on terms result an higher demands what may after of or on factors, savings result or other cost a if as expected as acquisition when, well realize increase an determine as to may complete to environment, failure successfully able economic and to be and costs ability not competitive integration acquisition Our may the anticipated an expectations. we in make or and Changes could objectives approvals granted. we strategic shareholder be that or and will possible financial regulatory is our to it with subject However, line be acquisitions. in may portfolio perform or not business does completing subsequently and before that taxes diligence income due on thorough discussion conduct further We for could 113 rates page tax on Economic income section Acquisitions for in Estimates Organisation reduction Accounting the a Critical as and addition, the well G20 In to as the reporting. Refer laws, by related asset. assets. Tax efforts tax tax tax earnings. of increase deferred deferred our result and our on a globally of impact as base value an change tax the have may the lower can authorities, broaden authorities taxing to taxing by Development by policy and interpretation and Co-operation its laws and tax policy, of and interpretation law the tax section rates, Risk exposures. tax Market risk in the rate Changes and interest 69 and Interpretations financial page exchange and on on foreign Legislation fluctuations section our Tax rate Management of positions exchange Capital discussion Hedging dollar Enterprise-Wide complete profitability. Canadian/U.S. the more dollar of 36, a Canadian effects page for during our pre-tax on 94 so to the section page did contribution offset Exchange on and operations’ partially Foreign ratios, U.S. and the capital our exposures to its of rate Refer and on strength interest results. RWA movements the manage business, U.S.-dollar-denominated exchange reduce to small our foreign would taken our of of dollar be of value impact U.S. may results the the the retail the increase offset in our affect could may decline in could dollar BMO A profitability dollar U.S. ratios. 2017. overall U.S. the capital lower the of our to to strengthening lowering lead relative A deductions, could dollar Canada. capital rates Canadian in interest the clients low of commercial Prolonged value and valuation. the corporate and in earnings Changes our businesses. on commercial impact and may an which have markets, default. can and of changes businesses risk these jurisdictions. in greater other uncertainty a and and to States profitability contributing United competition, potentially the reducing counterparties, Canada, or and in increasing customers policies of our economic effect affect other the and have regulatory may monetary, policies fiscal, Such by affected are 109 earnings pages Our on risk. sections regulatory Policies Management and Monetary Capital legal and Enterprise-Wide our Fiscal customer and of and Risk discussion investor Regulatory complete in and more litigation, decline Legal a in a the for result strategies, to respectively, to may business Refer 69, well-positioned requirements our reputation. and is regulatory execute our U.S. BMO and to to the that legal inability harm of so applicable an and reforms Union, with actions, confidence as European comply enforcement such the to sanctions, changes from Failure regulatory potential withdrawal changes. losses, other Kingdom required financial our and United any affect developments, a implement could such of and that monitor impacts to in competitors We potential respond of differences international share. the extent addition, our market or the In to of system an M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO hne nfsa n oeayplce r ifcl oatcpt n rdc.Futain nitrs ae n xhnertsta eutfrom result that rates exchange and rates interest in Fluctuations predict. and anticipate to difficult are policies monetary and fiscal in Changes MD&A e. 81 BMO Financial Group 200th Annual Report 2017 Risk Appetite Risk Framework Culture

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Limit tail risk The application of IFRS requires management to make significant judgments and estimates, sometimes relying on financial and statistical Our financial results could be affected for the period during which any such new information or change in circumstances becomes apparent, ‰ ‰ ‰ Our Approach to Risk Management ‰ ‰ Our integrated and disciplined approachframework to work risk together management in is support fundamentalOur of to Enterprise prudent the Risk and success and measured of Portfolio risk-taking, ourand Management while operations. oversight (ERPM) striking All across group an elements the develops appropriate of enterprise our balance our on risk between risk risk-related appetite, risk management issues risk and to policies return. achieve and prudent limits, and and measured provides risk-taking independent that review is integrated with our business strategy. models, that can affect theas dates well on as which their certain recorded assets,possible values. liabilities, that In revenues circumstances making and may these expenses change, judgments are that and recorded new estimates, in information we our may rely consolidated become on financialand available the statements, the or best extent that information of our available the models at impact may the could prove time. be to However, significant. be it More imprecise. is information is included in the Critical Accounting Estimates section on page 113. These risk framework elements are discussed in more detail in the sections that follow. Framework and Risks Enterprise-Wide Risk Management Framework Our enterprise-wide risk management framework assists the bank in managing its risk-taking activities and ensuring they are within our risk appetit At BMO, we believe thatmanaging risk risk management across is the every enterprise. employee’s responsibility. We are guided by five key perspectives on risk that drive our approach to Risk Management Overview Caution This Risks That May Affect Future Results section andOther the factors remainder beyond of our this control Enterprise-Wideaffect that Risk future may Management results affect section is our contain not future forward-looking exhaustive. results statements. are noted in the Caution Regarding Forward-Looking Statements on page 31. We caution that the preceding discussion of risks that may MD&A 82 defence, of lines three our entities. by and supported businesses frameworks, material governance our risk all appropriate in framework, place governance in risk are enterprise-level the to addition In monitor and limits. with establish Board-approved procedures committees of and governance furtherance processes Individual in risk framework. and our management with of risk consistent and operation overall limits, Risk and our management and Enterprise implementation with risk controls, management. the outcomes further activities, risk oversees aligning governance effective defence, effectively for provide of to responsible to line view is procedures second a defence, and primary of processes the line management as first risk Management, below. the our Portfolio diagram as of the management, operation in groups, and outlined operating implementation risk as our the enterprise-wide responsibilities, of This individual each risks. and In operational committees activities. and of risk-taking risk model hierarchy our funding, a with and through accordance liquidity levels in market, all risks reported credit, at specific that and as governed as so mitigated such is well type, monitored, risks, framework as risk managed, key management committees, significant measured, our its every identified, govern or for appropriately policies Directors objectives are Specific of and exposed appetite. Board frameworks is a the outline enterprise and by policies the structure approved corporate which committee is Our to robust which procedures. a of operating includes each and that limits, standards approach and corporate governance policies a corporate on of founded set is comprehensive framework management risk enterprise-wide Our Governance Risk ANALYSIS AND DISCUSSION MANAGEMENT’S otrn togrs utr costeenterprise. the across culture and risk framework strong management a risk risk fostering a on maintaining leadership and and independent developing risks providing issues, enterprise-wide for of responsible oversight is and CRO review The RMC. of chair and (CRO) Officer the Risk and Chief CRO the by supported ERPM. is of CEO rest The activities. risk-taking BMO’s of (CEO) Officer Executive ethics. Chief and conduct business of confidential standards and and interest information; of conflicts transactions parties; requirements; related regulatory involving and legal with performance; compliance and controls; BMO’s independence internal qualifications, BMO’s auditor’s of integrity independent effectiveness the the the for reporting; responsibilities financial oversight BMO’s its Directors of fulfilling of in Board Board the the of assists Committee activities. Review risk-taking Conduct our in and of RRC Audit governance the the by for basis guidance regular provide a Our to on CRO. order reviewed the is for framework planning management succession Risk risk into Chief input the including of (CRO), evaluation Officer the and risk- requirements with regulatory compliance risk related procedures, to and groups policies operating corporate by management adherence risks, culture, BMO’s risk of our management including and This identification responsibilities. the oversight overseeing management includes risk (RRC) its Directors fulfilling of in Board Board the of Committee Review Risk governance. corporate and management, disclosure senior public of communication, evaluation internal and integrity, planning of succession culture controls, a of fostering management management, and capital identification strategic risk, the areas: its appetite, following through risk the or defining in directly planning, oversight either for Board, responsible The is BMO. committees, of affairs and business the Directors of Board M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO u ikmngmn rmwr srvee narglrbssb h ikRve omte fteBado ietr oteeygieour guide thereby to Directors of Board the of Committee Review Risk the by basis regular a on reviewed is framework management risk Our Balance Sheet Management and Capital srsosbefrspriigtemngmn of management the supervising for responsible is Risk ManagementCommittee eot ietyt h E n sha fERPM of head is and CEO the to directly reports Management Reputation Risk sdrcl conal oteBadfrall for Board the to accountable directly is Risk Review First LineofDefence Committee Operating Groups Management Operational Risk Management sit the assists Model Risk Portfolio Management Enterprise Riskand Risk GovernanceFramework Second LineofDefence Board ofDirectors Chief ExecutiveOfficer oio ute ikmngmn iista r ossetwt and limits. with Board-approved consistent the are to that subordinate limits and management establish reviewed risk ERPM are further and issues monitor committees risk governance significant Individual that ERPM. and and with place processes in policies, are effective controls that business internal ensure exercise to They seek business. and of judgment lines respective their reporting within and risk mitigating monitoring, managing, measuring, identifying, Groups appetite. Operating any risk that BMO’s verify with to consistent and are objectives risks enterprise accepted meet education. to risk seeks and approach modelling This testing, stress reporting, policy risk management, formulation, portfolio for and responsibilities approval its transactional fulfilling independent in a risk-taking supports to ERPM approach enterprise. disciplined the across management standards risk and in practices consistency promotes risk It comprehensive oversight. provides management defence, of line second (ERPM) management Management Portfolio and Risk Enterprise risk and limits within held are tolerances. and guidelines, in policy reported with and are accordance mitigated enterprise monitored, the managed, across measured, undertaken identified, risks of the oversight whereby provide processes sub-committees the its and and RMC management planning. risk contingency model measurement, strategies, risk management practices, of governance impacts sheet balance and implications Sub-Committees of CFO. RMC heads the the and include CEO members the its groups, and This operating CRO management. our the of by levels chaired highest is the provides committee at RMC governance strategy. and enterprise-wide oversight the action risk executing and in issues arise risk that significant plans discusses and reviews RMC committee. (RMC) Committee Management Risk Corporate Support Areas r epnil o fetvl aaigrssby risks managing effectively for responsible are aeoesgtrsosblt o h risk the for responsibility oversight have Corporate AuditGroup Third LineofDefence Audit andConductReview sBOmngmn’ eirrisk senior management’s BMO is Committee sterisk the as , MD&A 83 BMO Financial Group 200th Annual Report 2017 . They are accountable for the risks arising from their businesses, activities and exposures. . It provides an independent assessment of the effectiveness of internal controls across the – encourage engagement and sharing of information between ERPM and the operating groups, leading first line of defence third line of defence is comprised of the ERPM group and in targeted areas, Corporate Support areas. The second line provides independent – pay is aligned with prudent risk-taking so that compensation and other incentives reward the appropriate use of – our programs are designed to foster a deep understanding of BMO’s capital and risk management frameworks across – two-way rotation allows employees to transfer between ERPM and the operating groups, effectively embedding our strong – promotes a clear understanding of the most prevalent risks that our businesses face, facilitates alignment of business strategies second line of defence Our risk culture is grounded in a “Being BMO” risk management approach that encourages openness, constructive challenge and personal Certain elements of our risk culture that are embedded throughout the enterprise include: enterprise, including controls that support our risk management and governance processes. Rotation programs Training and education risk culture across the enterprise and ensuring many of our risk management professionals have a practical grounding in our business activities. Compensation philosophy Communication and escalation channels to greater transparency and openpotential and or effective emerging communication. risks We to also senior foster management a so culture that that they encouragescapital the can and escalation be respect of evaluated for and concerns the appropriately associatedOur rules with addressed. risk and managers principles have in input ourassessment into enterprise-wide of the risk employees design management who of framework, take incentive and material programs do risks which not or may encourage who affect excessive are risk-taking, risk-taking. the responsible and enterprise, for provide providing losses input employees or into and events theoversight, management creating performance regardless with an of the unexpected their tools risk position and ofLearning, in awareness loss. our the they risk organization. need management Our to professionals, education fulfill external strategy their risk has responsibilities experts been for and developed independent teaching in professionals. partnership with BMO’s Institute for Risk appetite with our risk appetite, anddecision-making provides and a execution, control supported and by early a warning strong framework monitoring through framework. our key risk metrics, thereby leading to sound business oversight, effective challenge and independentmanagement assessment decisions, of processes risks and and controls riskinfrastructure, in management processes, the practices, methodologies first including and line transaction, practices of productenterprise. that defence. and the The portfolio first second risk and line second establishesCorporate lines enterprise-wide Audit use risk Division to management is identify, policies, the assess, manage and monitor risks across the The Our operating groups are the bank’s They are expected to pursuereport business all opportunities risks within in our or establishedand arising risk reporting from appetite methodologies their and and businesses, to processes activities identify,corporate developed and measure, functions by exposures. manage, or the The monitor, other business first mitigate service and line and internal providers by discharges controls to the its in help ERPM responsibilities accordance discharge group by with these and usinghelp our responsibilities. other risk ensure risk Businesses Corporate management businesses management are Support act framework responsible areas, within and for andframework. their for establishing may delegated monitoring appropriate rely risk-taking the on authority efficacy and of risk such limits controls. as Such set processes out and in controls corporate policies and our risk appetite ‰ ‰ ‰ ‰ ‰ At BMO, we believe thatcorporate risk culture management and is is the evident responsibilitydecisions in of that the every balance actions employee risks and within and behaviours thestrong opportunities of organization. risk and our This culture seek employees key among to and tenet all optimize leaders shapesenforcing employees risk-adjusted as and compensation by returns. they influences plans communicating Our identify, our and this senior interpret other responsibility management andpolicies, incentives effectively, plays discuss business which by a risks, processes, are the critical and risk designed example role make management to of inis framework, drive their fostering evident risk desired own a in appetite, behaviours. actions every limits Our and aspect and risk bythrough of tolerances, culture establishing standardized the capital is and and way management deeply anonymous we and embedded employee operate compensation within surveys. across practices, our the and enterprise. We activelyaccountability. solicit “Being feedback BMO” on values the include effectivenessand integrity of opportunity, and our taking a risk ownership, responsibility culture, following to including is through make also on tomorrow essential commitments, better in speaking and engaging up “BeingThis stakeholders and BMO” not in being behaviours only key candid. include leads decisions Timely balancing to and and risk and the strategy transparent an timely discussions, sharing understanding identification, thereby of of escalation bringing information the and rigouraction key resolution and in risks of discipline a faced issues, to coordinated by but our and our also decision-making. committee consistent organization, encourages structures, manner, so open learning supported that communication, curriculums by our independent and a employees challenge proactive strong are communication monitoring equipped also and and reinforce control empowered and framework. to foster Our make our governance decisions risk and and culture. leadership take forums, ‰ Risk Culture ‰ ‰ Three-Lines-of-Defence Operating Model Our risk management framework isas anchored described in below: the three-lines-of-defence approach to managing risk, which is fundamental to our operating model, MD&A uhrte a edlgtdars h raiain swl sterqieet eaigt ouetto,cmuiainadmonitoring standards. and and communication policies documentation, corporate to in specific relating out more requirements set whereby the are defence). criteria as authorities, of defined The well delegated line within activities. as specific (second limits banking organization, those CRO exposure investment the of the sector and across to industry trading delegated operating and and for be the areas, geographic limits may of respective approve inventory authorities executives their tolerances, and senior in risk underwriting turn the risk set establish in to of to and and authorities management officers parameters, limits specific the risk risk more for allow key delegates responsible authorities approves then are delegated and CEO who These reviews The defence), annually CEO. of RMC, the line the to (first and limits groups RRC these the for from authority recommendations overall considering delegates after Directors, of Board The Return Risk Optimize Liquidity and Capital Strong Maintain Risk Tail Limit Diversify. Reputation our Protect 84 risk. market for limits position and transactional and risk, credit of approval ERPM and recommendations group originator. operating the include of which the independent of committee, complexity a and or transactions size individual below. Portfolio nature, an outlined the either are on by category based approval by established and approvals to are review and developed processes formal authorities capital been approval a Delegated stress have and involves and processes review this reported testing Risk Generally, is stress risks. involved. capital hoc) these risks the economic ad evaluating to of which or and acting implementation for (industry/portfolio-specific identifying then the categories targeted in and supporting risk and assist loss risks, primary enterprise-wide for key the Our potential manage identifying estimated. the and in is understanding identify assisting consumption face, comprehensively and we to Framework that maintained Appetite risks is Risk inherent Taxonomy bank’s key Risk the A recognizing potential. in this step mitigate essential an is identification Risk Approval and Review Identification, Risk ‰ ‰ ‰ management and/or ‰ Directors of Board the diversification, by ‰ risk approved consider and we reviewed particular, are In limits ‰ decisions. These and limits. strategies setting include: business when and our returns committees inform risk-adjusted and and framework, loss appetite to risk exposure our reflect limits risk Our Limits Risk ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ ‰ requires Statement Appetite ‰ Risk Risk risk our Manage respective through Risk and own management Our Understand their risk approval. developing to for entities approach Directors and our of businesses things, Board key other to: basis, the with Among BMO annual and enterprise, framework. an RMC the this On the across within system. to consistently statements management metrics applied appetite targeted performance risk and and and key articulated returns processes and is is appropriate planning Statement Statement BMO initiatives, capital Appetite Appetite that business and Risk risk sound strategic our and of supports our recommends standards amount thus into management policies, the and integrated senior corporate defines capacity, is our appetite capital appetite by risk and risk supported Our principles Our is therein. guiding growth. and defined our metrics, controls given risk and assume key levels to and concentration willing Statement limits, Appetite related Risk the our including of guidelines, consists Framework Appetite Risk Our Framework Appetite Risk ANALYSIS AND DISCUSSION MANAGEMENT’S oe ik–lmt nmdlapoa n oiiainecpin,mtra eiinyetnin,adshdldrve extensions. review scheduled and extensions, and deficiency risks; material operational exceptions, as measuring modification well for and as metrics approval funding, risk model wholesale key on and and limits pledging risks – asset operational Risk of exposures; specific Model levels facility on maximum liquidity limits and and – assets credit Risk liquid and Operational of diversification levels liability minimum to on related movements; limits limits significant arrangements; – and reinsurance Risk segments; scenarios and Funding portfolio/product stress exposure and and to policy Liquidity industry, exposures on country, earnings limits material and – and value Risk exposures economic Insurance single-name on and limits group – on Risk limits Market – Risk Counterparty and Credit limits those within returns risk-adjusted optimize to business of lines our require and and financial strategy strategic, and good shareholders appetite a our risk provide for our acquisitions value on new creating based whether of limits assess likelihood capital and high set approval, a and have review and rigorous fit, to cultural funding initiatives to and access products competitive new crisis allows subject extreme that market an level the in a of response at expectations efficient rating the and credit and effective grade requirements an investment regulatory enables an exceed that maintain or framework meet recovery reputation that robust or positions a position funding maintain liquidity and or liquidity assessments capital capital, risk-return ratings, strong our credit maintain guide BMO’s and jeopardize risks could our that understand events to high-severity methodologies low-frequency, and testing to legal stress exposure all and limit to capital adhere regulatory and capital, returns economic risk-adjusted use optimize to the able guide are will they reputation that that BMO’s standards management so protecting ethical and employees thus high training all obligations, as provide of regulatory well and activities as controls, risk-taking respect, and and and standards practices controls integrity compliance business risk honesty, guidelines, operational of procedures, strong principles policies, and by effective limits do maintain risk we prudent everything of in system guided a be maintaining by clients against BMO’s performance and of BMO assessment decisions of an compensation assets including in the system, objectives protect management return performance and our appetite managed into risk and returns our monitored risk-adjusted measured, and understood, measures transparent, risk are incorporate that risks those only take M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO rnatosaeapoe hog ikassmn rcse o l ye ftascin tallvl fteenterprise, the of levels all at transactions of types all for processes assessment risk through approved are transactions – MD&A 85 BMO Financial Group 200th Annual Report 2017 – policies and procedures for the approval of new or modified products and services offered to our customers are the – new structured products and transactions with significant legal, regulatory, accounting, tax or reputation risk are reviewed – documentation of risk assessments is formalized through our investment spending approval process, which is reviewed and Quantitative models and qualitative approaches are utilized to assess the impact of changes in the macroeconomic environment on our income Stress test results, including mitigating actions, are benchmarked and challenged by relevant business units and senior management, including On a regular basis, reporting on risk issues is also provided to stakeholders, including regulators, external rating agencies and our shareholders, statement and balance sheet andunder the the resilience Model of Risk our Management capital framework over and a are forecastEnterprise used horizon. Stress to Models Testing establish used a for better stressEnterprise understanding testing stress of are testing our approved supports risks and our and governed balance ICAAP to sheet, and test earnings, target-setting our and through capital liquidity analysis adequacy. idiosyncratic and of risks capital the and positions. potential the Scenario effects potential selection ofbe impact is low-frequency, defined of a high-severity by new multi-step events senior or process on management emerging that our by or risks considers translating regulators, on the the and our enterprise’s scenarios the risk material into economic and profile,unemployment macroeconomic impacts as rates, and are well real market determined as estate variables by the prices, that our macroeconomicmodels stock include Economics environment. and index but group. Scenarios the growth are The may qualitative and not Economics assessments changes limited groupgroups that in to does to determine corporate GDP this assess our profits. growth, a estimated These yield broad stress macroeconomic curvewould range impacts. variables estimates, be of The drive anticipated financial scenarios our in impacts are stress response which used loss to could by that arise our stress. under operating, a risk specific andthe stress finance Enterprise and Stress the Testing ordinary Steering course Committee. and extraordinary actions that Stress Testing Stress testing is a keyand element embedded of in our our risk management andcomplexity processes. capital in To management our evaluate frameworks. businesses our It and risks, isGovernance portfolios we integrated of and regularly in the across test our stress the a enterprise testing enterprise. range andThis framework In of group committee resides addition, scenarios risk is with we that appetite comprised senior participate vary statements of management, in instress business, including regulatory frequency, test risk the stress severity results. and Enterprise tests and Stress finance Stress in testing executives Testing multiplerecommendations and and Steering jurisdictions. for enterprise-wide is Committee. actions scenarios accountable that associated for the with reviewingand enterprise the and presented could Internal challenging to take Capital enterprise the in Adequacy scenarios Board order Assessment and Dodd-Frank of to Process Act Directors. manage (ICAAP), Stress Stress the including Test testing impact (DFAST) associated ofthe – with a BFC which the stress level. are Comprehensive event, U.S. Capital are regulatory Analysis established requirements and by for Review senior our (CCAR) management subsidiary and BMO the Financial mid-year Corp. (BFC) – is similarly governed at Risk-Based Capital Assessment Two measures of risk-based capitalthe are risk used that by we BMO: take economicfor on capital the in and direct pursuit advanced-approach management of regulatory of our capital.profitability each financial Both of type objectives are transactions of and aggregate or risk, enable measures portfolios as us of risk incorporates well to before a as evaluate authorizing combination the returns new of management on exposures. both of athe Both expected all risk-adjusted inherent expected and material basis. risk and unexpected risks Our in unexpected losses on operating the loss to an modeland, position measures assess integrated provides if and, for the basis. appropriate, as a extent Measuring recalibrated appropriate, transaction and the or its or correlation economic maximum revalidated. credit a of potential Our quality. portfolio loss risk-based Risk-based reflect in capital capital current economic models methods marketconfidence (or provide and conditions, level. market) a material value forward-looking models and estimate are our of reviewed expected the at loss, difference least measured between annually over our a specified time interval and using a defined as well as to others in the investment community. Risk Monitoring Enterprise-level risk transparency and monitoringculture and that associated allow reporting senior are management, criticaloversight committees components responsibilities and of at the our the Board risk enterprise, of managementassociated operating Directors framework metrics group to and that and exercise corporate the key their enterprise legal businessemerging currently entity management, risks, faces. levels. risk to Our Internal management provide reporting reporting and the highlights includestimely, Board our a actionable of most synthesis and Directors, significant of forward-looking its risks, the risk committees including keyrelative reporting. and assessments risks to This any of and our reporting other our risk includes appropriate top appetite supporting executive and and metrics and the and senior relevant materials management limits to committees established facilitate with within assessment our of Risk these Appetite risks Framework. Structured transactions by the Reputation Risk Managementmanagement Committee process or if the they Trading involve Products structural Risk or Committee, operational asInvestment complexity appropriate, initiatives which and may are create reviewed operational underapproved risk. our by operational Corporate risk Support areas. 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control our risk robust tolerance through of a risk appetite oversight by or risk management supported limits our below, risk within discussed corresponding types As and risk processes. framework these management policy of our each including manage framework, to management guidance, risk enterprise-wide our leverage We 86. page on starting provided are above types and presented risk processes analysis these risk quantitative of our via each of management on operation to Details and themselves techniques. implementation lend qualitative effective that more impact the types through material on risk managed a focus with primarily have same below, risks could the shown those that with are types managed types risk all risk individual are These of types procedures. management risk robust These the business. for our or provides on economic framework changing management to risk response enterprise-wide in Our conducted is testing Types the stress by Risk hoc in and Ad strategies. it management strategy. business embeds risk and test and by concentration to level conducted limits, and product is appetite, conditions and analysis risk market geographic geographic test industry, and to portfolio, industry business business, portfolio, of of Targeted lines line decision-making. the and at planning testing business stress strategy, integr ae.Poe aaeeto rdtrs sesnilt u ucs,snefiuet fetvl aaecei ikcudhv nimdaeand immediate an have could risk BMO credit risk manage measurable effectively significant to reputation. most failure and transactions the since condition securities, is success, financial investment risk our earnings, of Credit to our holding securitization. essential on the to is impact in related risk significant arises activities credit also and of and products management into, markets Proper enters capital faces. BMO other that and activity trading lending to every related underlies risk counterparty and Credit ooraohrpeeemndfnnilobligation. financial predetermined another honour risk counterparty and Credit M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO oneprycei ik(C)cetsabltrlrs fls eas h aktvleo rnato a epstv rngtv o either for negative or positive be can transaction a of value market the because loss of risk bilateral a creates (CCR) risk credit Counterparty and commercial most with basis, regular a on reviewed are accounts Performing monitoring. regular to subject are exposures risk credit All due appropriate of completion the on based decisions credit recommending for responsible are groups operating the in officers Lending steptnilfrls u otefiueo orwr nosr urno rcutrat orpyala or loan a repay to counterparty or guarantor endorser, borrower, a of failure the to due loss for potential the is Regulatory Legal and Counterparty and Funding Credit and uiesSrtgcReputation Strategic Business Liquidity Operational aktInsurance Market Model Environmental and Social MD&A 87 ,is lis BMO Financial Group 200th Annual Report 2017 Many G20 jurisdictions will continue to Material presented in a blue-tinted font above is an integral part of the 2017 annual consolidated financial statements (see page 78). represents the likelihood that a borrower or counterparty will go into default over a one-year time horizon. represents an estimate of the outstanding amount of a credit exposure at the time a default may occur. is a measure of our economic loss, such as the amount that may not be recovered in the event of a default, presented as is a measure representing the loss that is expected to occur in the normal course of business in a given period of time. Collateral for our trading counterparty exposures is primarily comprised of cash and high-quality liquid securities (U.S. and Canadian treasury To document our contractual securities financing relationships with our counterparties, we utilize master repurchase agreements for repurchase Our credit assets consist of a well-diversified portfolio representing millions of clients, the majority of them consumers and small to medium- On a periodic basis, collateral is subject to regular revaluation specific to asset type. For loans, the value of collateral is initially established at the Expected Loss (EL) EL is calculated as a function of EAD, LGD and PD. Loss Given Default (LGD) a proportion of the exposure at default. Probability of Default (PD) Credit and Counterparty RiskWe Measurement quantify credit risk atcredit both losses the and individual minimize borrower unexpected or losses, counterparty credit andExposure risk the at is portfolio Default assessed level. (EAD) and In measured order using to the limit following earnings risk-based volatility, parameters: manage expected highly correlated with macroeconomic oridentified other in factors transactions that and affect accounted theidentify for value existing in of or the the emerging assessment mitigant. concentrations of Our of risk. procedures general Stress require wrong-way testing that risk of specific in replacement wrong-way our risk risk portfolios. is be conducted monthly and can be used to securities, U.S. agency securities andobtained Canadian under provincial the government contractual securities) terms thatDerivatives of are Association standardized monitored Inc. industry and Master documentation. revalued Agreement With oncounterparties with limited a for a exceptions, daily over-the-counter Credit we basis. (OTC) Support utilize Collateral derivatives Annex the is other that to International credit are document Swaps support) not our and when centrally collateralized its cleared. tradingindependent OTC Credit relationships amount derivatives Support with (initial exposure Annexes our margin) to entitle and/or the atypes variation other party of margin. party to collateral Credit exceeds demand and Support an collateral how Annexes agreed (or collateral they contain, amount can are among (threshold). be to other Collateral re-pledged be things, transferred by valued provisions can the (discounts setting include recipient are out an and often acceptable how applied interest totransactions is the and, to market for be values), securities calculated. as lending well transactions, as we thresholds, utilize whether master or securities not lending the agreements. sized businesses. From an industry$223,962 viewpoint, million our ($224,041 most million significant in exposure 2016). at OctoberWrong-way 31, Risk 2017 was to individualWrong-way consumers, risk comprising occurs when exposurethe to risk a related counterparty to is that highlymitigant counterparty. correlated display There with a is the high specific credit correlation, wrong-way quality and risk, of general which collateral wrong-way arises or risk, when some which the other arises counterparty intended when and mitigant the the of credit market quality risk of factors the affecting counterparty, that for non-specific reasons routinely obtained at the timeHousing of Corporation loan to origination. assist In in certainin determining low Canada, whether LTV we a ratio determine full cases, the property we value appraisal may of is use the necessary. an property For external through high service appraisal LTV provided techniques ratio by and (greater Canada the than Mortgage default 80%) and insurer insured confirms mortgages the value. implement new regulations that willand require amounts certain of counterparties collateral with for significant uncleared OTC OTC derivatives derivativesPortfolio exposures transactions. Management to See and post Legal Concentrations or and of collect RegulatoryBMO’s Credit prescribed and Risk credit types Counterparty – risk Risk Derivatives governance Reform policiesConcentrations on require of an page credit acceptable 110. risk level may ofsimilar exist diversification economic if to characteristics a help such number ensure that of weother their clients avoid conditions. ability are undue Limits to engaged concentrations may meet in of be contractual similar creditlending), specified obligations activities, risk. country, for could are product several be located and portfolio similarly in single-name dimensions, affectedof the concentrations. including by same credit The industry, changes protection geographic diversification specialty in region through of segments economic, or guarantees, our (e.g., political insurance have credit hedge or or exposure funds credit may and default be leveraged swaps. supplemented by the purchase or sale time of origination, and thereal frequency estate, of a revaluation full is external dependentamount, appraisal on in of the which the type case property of an is collateral.purchase internal obtained For prices, evaluation at collateral real and the in estate a time the listings site of formborrower or inspection loan risk of realtor are origination, investor-owned rating, opinions. conducted. except existing commercial The Internal where tenants case evaluations thedepending and for may loan on lease an consider is its contracts, updated property below size, as appraisal tax a a well is assessments, is current specified as reviewed classified external threshold current annually, as appraisal, market with impaired. evaluation conditions. consideration In or In given Canada, restricted the to for use event the residential appraisal a real is loan estate obtained is that and classified has updated as a every impaired, loan-to-value twelve (LTV) months ratio while of the less loan than 80%, an external property appraisa Credit and Counterparty Risk Management Collateral Management Collateral is used for creditthe risk type mitigation of purposes borrower to or minimizeFor counterparty, losses corporate the that and assets would commercial available otherwise borrowers, and bemachinery, collateral the incurred real can structure in estate, take and the or the term event personal form ofagreements of assets of the for a pledged pledges credit on-balance default. in of obligations, sheet Depending support the collateral credit on of assets canand exposures, guarantees. of take securities where For a various lending), possible. counterparties, business, forms. we In we such take our may as eligible securities enter accounts financial financing into receivable, collateral transaction legally inventory, that business enforceable we (including netting control repurchase and agreements can readily liquidate. often use a central counterpartythrough (CCP) the that use intermediates of between margin counterparties requirements for (both contracts initial in and financial variation) markets. and CCPs a aim default to management mitigate process, the including risk a default fund and other resources. MD&A oa o-rdn xoue tdfutb nutysco,a tOtbr3,21 n 06 ae nteBslIIcasfctosaea follows: as are classifications III Basel the on based 2016, and 2017 31, October at as sector, industry by default at exposures non-trading Total aeilpeetdi letne otaoei nitga ato h 07ana osldtdfnnilsaeet sepg 78). page (see statements financial consolidated annual 2017 the of part 88 integral an is above font blue-tinted a in presented Material process, estimation parameter the retail in The points uncertainty. data this additional for incorporate incorporated. account to is to basis experience segment annual recent each an most for on the level calibrated that parameter are ensuring the and at quarterly, that made tested parameters are are EAD adjustments parameters and process, LGD calibration PD, the homogeneous of During into combination uncertainty. line unique risk- product a the a assigned that within is so exposure pool modelled each Each risk. separately sorts parameters. credit are then risk-based segment-specific areas segmentation common its risk final reflect captures retail A that the product. risk of each retail each of of within nature pools lines distinct environment. Product the automated rate. capture and utilization parameters centralized loan based a and in ratio decisions LTV are credit delinquency, systems behavioural optimal including support models, generate decision Adjudication to pools, purposes. combined these monitoring are For and knowledge credit exposures. underwriting expert loans, risk for and personal homogeneous systems trees mortgages, of expert decision residential pools and scorecards, include in techniques and managed statistical accounts are established customer loans using individual These developed of loans. group business diversified small a and of cards comprised are portfolios retail The Business) Small and (Consumer Retail exposure. any of risk models. the retail measure and assess to designed are systems rating risk BMO’s Systems Rating Risk ‰ ‰ ‰ ‰ follows: as classified are Exposures risk. ‰ counterparty and credit assess to be EAD to use considered frameworks are Approach. capital that AIRB economic ‰ exposures the and related other to capital calculations few portfolios regulatory capital a these our regulatory for of Both for and parts used portfolios, material being Finance all currently Transportation transition portfolios, are is BMO to our approaches Approach and continue of advanced Standardized Corporation We most other III Isley immaterial. in and Basel & risk this The Marshall credit through floor. acquired of determined standardized the measurement assets I to the risk-weighted Basel Internal for The a Foundation Approach Corp. to Standardized, AIRB Financial subject risk: the BMO currently credit apply subsidiary of We our measurement (AIRB). of the Based portfolios for Ratings including approaches Internal three Advanced permits and OSFI Based calculations, Ratings capital regulatory in inclusion For ANALYSIS AND DISCUSSION MANAGEMENT’S Individual gas and Oil trade Wholesale oa exposure Total eti oprtv iue aebe elsiidt ofr ihtecretya’ presentation. year’s current the intangibles. with and conform assets to tax reclassified deferred been goodwill, 2%. have investments, than figures non-significant less comparative as of Certain such exposure assets total other a and having book industries trading Includes securitization, (2) equity, excluding exposure Credit (1) Governments institutions Financial millions) in $ (Canadian asset netting. Basel and different collateral a including or mitigants, band risk PD credit favourable considering more and a mitigation to risk redistributed credit been applying have of applicable, result where a exposures. that, as liability exposures class and on asset drawn. based both amount calculated represent total is which the Capital off-balance transactions, is other lending transactions for securities repo-style EAD and for credits. repos EAD the documentary reverse to and repos, equal credit estimate. include is of best transactions derivatives letters management’s Repo-style OTC standby on for guarantees, based EAD as is risk. amount. such items market exposure items sheet to credit include addition potential exposures in any sheet risk plus off-balance credit netting, Other attract considering that after unconditionally data. accounts cost, are empirical proprietary replacement which internal our positive those on in default. including based those of above, generated are time noted model derivatives the loans is OTC at drawn commitments drawn the undrawn and be with for amounts may associated EAD sheet that authorizations cancellable. off-balance amounts unutilized For further all securities. any cover certain of commitments and estimate Undrawn institutions, an financial includes regulated EAD with amounts, deposits undrawn acceptances, loans, include loans Drawn evc industries Service trade Retail estate Real Others Manufacturing M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO tdefault at h ealrs aigsse sdsge ognrt siae ftevleo rdtrs aaeesa cuaeya osbe u ssbetto subject is but possible, as accurately as parameters risk credit of value the of estimates generate to designed is system rating risk retail The nature, in recent more primarily conditions, expected likely of range narrow a on based risk borrower’s the assesses system rating risk retail The and wholesale the both for basis quarterly a on is monitoring The regularly. monitored and validated reviewed, are parameters risk-based Credit (2) laerfrt ae 0 o19fradsuso formdlrs iiainprocesses. mitigation risk model our of discussion a for 109 to 107 pages to refer Please 180, 461,963 11,440 36,829 89,681 34,723 18,242 26,991 35,523 19,737 8,185 2017 612 Drawn 457,526 182,358 10,726 35,569 95,392 33,650 17,314 24,310 31,900 18,430 7,877 2016 126,360 19,457 11,207 15,709 43,223 12,258 7,706 4,675 2,243 3,410 6,472 Commitments 2017 (undrawn) 125,097 20,590 11,503 14,954 41,533 12,279 7,340 4,282 2,563 3,952 6,101 2016 1,474 1,488 T derivatives OTC 2017 1 1 3 9 – – – – – 2016 23 38 14 1 – – – – – – – 19,083 4,137 2,831 1,496 6,617 1,360 te off-balance Other 2017 481 127 682 523 829 he items sheet 17,985 3,773 2,909 1,318 6,063 1,216 2016 413 150 863 497 783 139,188 149,814 eosyetransactions Repo-style 10,626 2017 – – – – – – – – 76,994 80,577 3,583 2016 – – – – – – – – 253,937 758,708 223,962 48,762 17,387 16,597 57,852 33,364 22,175 34,292 50,380 2017 oa (1) Total 196,772 681,223 224,041 48,063 16,535 15,421 52,917 31,939 21,763 31,194 42,578 2016 MD&A 89 19.7 U.S. 77.0 19.0 30.6 67.5 BMO Financial Group 200th Annual Report 2017 166.3 Canada and Other Countries BMO Capital Markets P&C/Wealth Management – Commercial P&C/Wealth Management – Consumer Loans by Geography and Operating Group ($ billions) Standard & Poor’s implied equivalent Material presented in a blue-tinted font above is an integral part of the 2017 annual consolidated financial statements (see page 78). 0.05% Moody’s Investors Service implied equivalent Probability of default band ≤ This represents an increase of $77 billion or 11% from the prior year. BMO’s loan book continues to be well-diversified by industry and geographic region. Gross BMO employs a master scale with 14 BRRs above default, and PDs are assigned toBMO each also grade assigns within an an LGD asset estimate class to to each reflect separate the facility long-run provided to a borrower at the time of origination. An LGD estimate is a measure of BMO rating Acceptable I-1 to I-3I-4 to I-5I-6 to I-7S-1 to S-2S-3 to S-4Watchlist P-1 to P-3Default / Impaired T1, D-1 Aaa to to D-4 Aa3 A1 to Baa1 Baa2 to Baa3 Ba1 to Ba2 Ba3 to B1 B2 to Ca C AAA to AA- A+ to BBB BBB+ to BBB- BB+ to BB BB- to B+ B to CC D Very lowLowMediumHighDefault > 0.05% to 0.20% > 0.75% > to 0.20% 7.00% to 0.75% > 100% 7.00% to 99.99% Exceptionally low Risk profile loans and acceptances increased $62017. billion The or geographic 2% mix from of theprior our prior year, Canadian year and and to represented U.S. $380 66.2% portfolios billionand and was at 32.6% 30.4% relatively October in of consistent 31, 2016. total with Our loans, the representing loan respectively, 48.7% portfolio compared of is with the well-diversified, 64.5% total withand portfolio, the government a consumer loans modest loan representing decrease portfolio 51.3% from of 49.5% the in total 2016, portfolio, and up business from 50.5% in 2016. Portfolio Review Total enterprise-wide outstanding credit exposurescomprised were of $759 $414 billion billion at in Octoberjurisdictions. Canada, 31, $291 2017, billion in the United States and $54 billion in other Credit Quality Information average of one-year default rates.that PD covers estimates at are least updated one periodically full based economic on cycle, internal supplemented default by experiencethe external over potential benchmarking, a economic as period loss applicable. of that moreprovides could than an be five inverse incurred years measure for of aelements the facility of protection if the against the facility, loss borrower including afforded wereasset seniority, by to class margin the default using arrangements, assigned during internal and collateral, a data product as period that and applicable, of covers sectoral and economic a characteristics. considersAs distress. period LGD the demonstrated The of models supporting in LGD more have structural the estimate than been table seven developed below, years, for our and each internalWholesale results risk Borrower are rating Risk benchmarked system Rating using corresponds Scale external in data, a when logical necessary. manner to those of external rating agencies. Wholesale (Corporate, Commercial and Sovereign) Within wholesale portfolios, we utilizecommercial an counterparties. enterprise-wide One risk key rating element frameworkA of that suite this is of framework applied general is to and the allqualitative sector-specific assignment of risk risk of our factors rating appropriate sovereign, associated models borrower bank, with has or corporateBRRs borrowers been counterparty and are in developed risk assessed different for ratings and industries each (BRRs). assigned and assetwith at portfolios. class weaker the Risk in risk time ratings order ratings, of are to borrowers loan assigned capturerequesting that origination using the changes trigger and the key to a reviewed appropriate quantitative credit review at internal and facilities. through least model. ratings, The a annually. the assigned rating More PD ratings change frequent associated are or reviews with mapped that are the to experience conducted borrower a covenant for changes. PD breaches, borrowers over and a borrowers one-year requiring time or horizon. As a borrower migrates between risk Retail Credit Probability of Default Bands by Risk Rating MD&A on ygorpi einadidsr a efudi al 1o ae10adi oe4o ae12o h osldtdfnnilstatements. financial consolidated the of 152 page 78). page on (see 4 statements financial Note the consolidated in annual for impaired and 2017 accounted of the 130 of States breakdowns page part United Detailed 90 integral on the 2016. an 11 is basis, in Table above geographic 56.8% font in a blue-tinted with found a On compared be in formations. 2017, presented can Material impaired in industry gas formations and and total region gross oil of geographic of in 52.8% percentage by decrease comprising a loans a formations, as to loan GIL due impaired loans. part of impaired in majority gas 2016, and in oil million lower 2016. $2,512 to in from due 0.62% 2016, to in compared million 0.57% $2,332 to statements. from decreased financial 7% are also consolidated decreased PCL, acceptances the 2017 in and of in trends loans 152 million historical page $2,174 including on of PCL, 4 GIL our Note Total of in discussions and (GIL) Detailed 134 Loans 2016. page Impaired in on Gross million 15 $815 Table from in 5% 42, decreased page 2017 on are in provided and million scenario $774 the of of PCL severity Total the (PCL) incorporate with Losses tests vary Credit stress tests for These these Provision performs events. in regularly high-impact forecast BMO of losses environment. effects credit manageable. current potential The be the the adverse. to in evaluate severely considered interest to to of portfolios moderately be HELOC from to and ranging continue mortgage scenarios exposures to residential (HELOC) 128 its statements. credit pages on financial of on testing consolidated line 15 stress the equity to of home 7 152 and Tables page mortgage in on Residential found 4 be Note Lending can in Secured region, presented Estate geographic are Real and exposures industry credit by our breakdowns to detailed related including Details book, 134. loan our of details Further sensitivity: rate interest by acceptances and loans net presents table following The risk: ultimate of country by and maturity contractual by acceptances and loans gross presents table following The Sensitivity Rate Interest and Maturities Loan Rating Risk by Loans Gross Consumer 31, Rating October Risk at by as Acceptances rating and risk Loans by Gross outstanding Government acceptances and and Business loans gross consumer and government 2016. and and business 2017 our present tables following The ANALYSIS AND DISCUSSION MANAGEMENT’S te countries Other States United Total Total eal Impaired / Default tnadzdpromn o rated Not / performing Standardized Total 1 o-neetsniiei opie fcsoes iblt ne acceptances. under liability customers’ of comprised is sensitive Non-interest (1) sensitive Non-interest rate Floating rate Fixed millions) in $ (Canadian Canada millions) in $ (Canadian 99.99%) to 7.00% (> High 7.00%) to 0.75% (> Medium 0.75%) to 0.20% (> 0.20%) Low to 0.05% (> low Very ( low Exceptionally millions) in $ (Canadian Watchlist Acceptable millions) in $ (Canadian eal Impaired / Default Total M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO omrilra estate real Commercial omriladcroae(xldn elestate) real (excluding corporate and Commercial Consumer grade Sub-investment grade Investment atr otiuigt h hnei I r ulndi h al eo.Lascasfe sipie uigteya erae o$,9 million $2,193 to decreased year the during impaired as classified Loans below. table the in outlined are GIL in change the to contributing Factors ≤ 0.05%) (1) 159,218 11,184 33,382 52,858 55,568 6,226 2017 ero less or year 1 145,078 33,776 48,997 47,466 5,803 9,036 2016 192,033 115,258 106,023 eieta mortgages Residential 61,394 14,699 16,305 21,011 75,721 8,997 1,370 2017 2017 920 413 438 vr1year 1 Over o5years 5 to – 199,260 112,277 108,887 67,262 14,467 17,629 23,379 68,557 7,471 1,173 1,858 2016 2016 432 421 1 rdtcr,consumer card, Credit 28,800 70,015 20,947 13,157 14,701 14,616 21,709 ntletadother and instalment 1,453 1,367 2,765 4,349 2,481 100,771 194,778 esnllasTotal loans personal 2017 2017 88,424 vr5years 5 Over 684 586 4,209 1,374 2017 uiesadgvrmn on n acceptances and loans government and Business 29,338 72,781 20,784 15,247 14,996 18,056 18,264 1,417 1,370 3,311 5,205 2,287 2016 2016 562 620 380,051 185,273 115,723 165,940 378,218 171,418 190,254 16,676 12,788 68,924 16,546 29,462 35,712 90,337 21,709 4,135 2,919 2017 2017 2017 999 Total 373,676 185,058 121,822 161,558 371,751 171,866 186,864 188,618 14,691 10,771 64,834 13,021 32,876 38,375 86,613 18,265 85,695 96,059 1,052 5,169 2,708 5,340 1,524 2016 2016 2016 2016 MD&A 91 –– –– 47 202 22 118 27 35 (71) (35) (34) (252) 392815343 424 612 456 432 392 162 162 2016 2015 2016 2015 17.4 18.2 0.62 0.58 (706) (704) (577)(869) (556) (700) 1,959 2,048 1,660 1,542 2,512 1,921 2,332 1,959 1,682 1,660 2,114 2,052 1,925 1,855 (1,047) (1,065) – 27 (46) (68) (30) (76) 432 850 265 420 136 2017 2017 18.1 0.57 (982) (145) (623) (607) 2,332 1,682 2,193 2,174 1,576 1,996 1,833 (1,007) BMO Financial Group 200th Annual Report 2017 (1) (1) (IFRS 9) is effective for the bank for the fiscal year beginning November 1, 2017, and addresses the impairment of (2) Financial Instruments Factors contributing to the change in ACL are outlined in the table below. Further details on changes in ACL by country and portfolio can be found BMO maintains an allowance for credit losses (ACL) at a level that we consider adequate to absorb credit-related losses. As at October 31, 2017, The collective allowance decreased $106 million from $1,682 million inIFRS 2016, 9 reflecting a decrease through PCL of $76 million and the impact of Specific PCL (charge to incomeRecoveries statement) of amounts written offWrite-offs in previous years Foreign exchange and other movements Foreign exchange and other movements Collective PCL (charge to income statement) Loans Specific allowance for other creditCollective instruments allowance for other credit instruments (1) Includes allowances related to(2) other Ratio credit excludes instruments the that specific are allowance included for in other other credit liabilities. instruments that are included in other liabilities. (Canadian $ in millions, exceptFor as the noted) year ended October 31 Specific ACL, beginning of year (1) GIL excludes purchased credit impaired loans. GIL, beginning of year (Canadian $ in millions, exceptFor as the noted) year ended October 31 Specific ACL, end of year Collective ACL, beginning of year Classified as impaired during the year GIL, end of year Collective ACL, end of year Recoveries of loans and advances previously written off Disposals of loans Foreign exchange and other movements Net repayments Amounts written off Transferred to not impaired during the year GIL as a % of gross loans and acceptances Total ACL Comprised of: Specific ACL as a % of GIL in Tables 12 and 13 on pageChanges 132 in and Allowance in for Note Credit 4 Losses on page 152 of the consolidated financial statements. financial assets. For a discussionpage on 116 the and adoption Note of 1 IFRS on 9 page and 144 the of impact the on consolidated our financial ACL, statements. see the Future Changes in Accounting Policies section on Allowance for Credit Losses BMO employs a disciplined approachloans to being provisioning a and key loan risk lossallowance management evaluation reduces objective. across the BMO all aggregate maintains loan carrying both portfolios,collective value a with allowance of specific the in credit allowance prompt order assets and identification to for a ofOur cover which collective problem approach any there allowance to impairment is for establishing in evidence credit and the of losses.our maintaining existing deterioration The regulator, the loan in specific OSFI. collective portfolio credit Our allowance that quality. collective is cannot BMOqualitative allowance based yet also factors methodology on be maintains to groups the associated a determine loans requirements with the on of individuallyexpected appropriate the IFRS, identified long-run level basis in loans. losses for of conjunction based the similar with on collective credit guidelinesFor the allowance. risk issued commercial PD, The characteristics, by and LGD quantitative and corporate and component applies loans, EAD of quantitativesector, key risk the and credit determinants parameters methodology product of used measures and incurred in amount but thecharacteristics, and not models and quality identified we the of losses employ levels collateral include to of held. the estimatepool. incurred For underlying risk-based The but consumer risk capital. loss not and rating factors identified small of are losses business thebeen back-tested are loans, borrower, incurred and determined exposures industry but calibrated based are not on on pooled yet a the basedmanagement’s identified, regular long-run on judgment on basis default similar with an to and risk respect individual ensure historical to basis, that lossquality current within they experience trends, and the continue of and near-term pools to each model macroeconomic of reflect risk and loans. our factors. business The best We conditions, qualitative estimate review portfolio-specific component of the considerations, of losses collective credit the thatour allowance methodology have ACL on reflects decreased a $118 quarterly million basis. comprised to of $1,996 specific million, allowances due of toand $420 a a million decrease collective and in allowance a the of collective collectiverecorded $136 allowance allowance in million of and other related $1,576 the liabilities. to million, impact The undrawn which ofadequate, specific commitments also the with allowance and includes weaker specific decreased letters specific U.S. ACL $12 of allowances dollar. as million credit of This a in that $27 was percentage 2017 are million of from considered GIL $432 other of million creditthe 18.1%, in instruments weaker compared 2016. and U.S. with In dollar. 17.4% addition, in our 2016. coverage ratio remains Changes in Gross Impaired Loans and Acceptances MD&A 92 in amount, funded the Counterparty to and compared Country commitments by total Exposure by European as well follow. as that type, 93. tables counterparty page the by on in detailed table out is the countries, set lending European is Funded to (GIIPS), derivatives. exposure Spain and exposures, Our and transactions European risk. Portugal our potential Italy, monitor our Ireland, closely assess Greece, We to including risk. appropriate 2017, ultimate as 31, and of tests October assessments country stress at focus. political the incorporate as particular and and processes of economic entity management been incorporates product, risk has that on our region framework based and this management limits to risk within exposure country exposures and a of past, to management recent subject the are in exposures concerns geographic credit BMO’s experienced have countries European Some Exposures European ANALYSIS AND DISCUSSION MANAGEMENT’S 9 forttlntdrc xouet uoe prxmtl 5 a ocutrate ncutiswt aigo a/A rma es n fMoysadS&P. and Moody’s of one least at from Aaa/AAA of rating a with countries in counterparties to countries was 8 55% 2017. across approximately 31, distributed Europe, October is to at exposure exposure as European direct million Other net $28 exposure. total of net our Bank million Of Central $300 Irish than (9) the less counterparties with with for maintain countries offsets to 7 collateral required includes and are exposure into, we Eurozone entered 2017). reserves Other countries been 31, subsidiary GIIPS have October (8) Irish to counterparties at include exposure with as not CDS Europe agreements Does single-name* for netting net billion master (7) no ($12.0 where with collateral netting million, holds transaction $208 BMO incorporating was which marked-to-market, Europe for are to counterparties amounts table) bank Derivatives this with in (6) primarily exposure are securities transactions the Repo-style of (5) part as (embedded exposure CDS credit. notional traded net and total investments BMO’s insurance (4) products, cash include Securities (3) loans. includes lending Funded (2) Country wdn4 9–20395––5383 447 5 5 2,356 – – 3,528 287 – 319 9 – 13 5 49 5 63 329 229 243 435 230 2,885 131 323 1,128 – 211 572 197 – 28 77 77 99 304 85 479 35 49 7 2,081 84 1,746 1,568 1,188 133 Europe 247 of All – Total Europe of Rest – Total 1,120 Other Kingdom United Sweden Denmark Europe of Rest GIIPS) (excluding Eurozone – Total onr oa akCroaeSvrinTtlBn oprt oeeg Total Sovereign Corporate Bank Total Sovereign Corporate Bank Total Country ehrad 5 41 51 3–6 710 118 – 1,275 28 474 – 61 217 – 28 – – 74 – 2 65 – – 12 – – – 43 3 – – 20 – – 18 46 23 42 – – – – 95 19 889 293 – – – 862 2017: 31, – October 131 1 at as 1 Europe to exposures indirect following the has – BMO (1) 26 – – – Europe 11 – of – All – Total Europe of Rest – Total – – 1 GIIPS) (excluding 84 Eurozone – 1 – Total 162 1 GIIPS – Total 358 554 107 – – – 2016 31, – October – at As 118 – 151 (5)(6) derivatives – and 27 transactions Repo-style – (3)(4) Securities Other Netherlands Germany France GIIPS) (excluding Eurozone (2) lending Funded GIIPS – Total Spain Portugal Italy Ireland Greece GIIPS 2017 31, October at As millions) in $ (Canadian M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO h al eo ulnsttlntprfloepsrsfrfne edn,scrte icuieo rdtdfutsa CS ciiy,repo-style activity), (CDS) swap default credit of (inclusive securities lending, funded for exposures portfolio net total outlines below table The sa coe 1 2017. 31, October at as entities). domiciled GIIPS of effect. comprised in is is 19% Annex which Support of Credit indices, a CDS where on protection) (bought million $178 of position net a (*includes 2017 31, October at as GIIPS). to million ($37 billion $1.1 of Guarantees – oltrlof Collateral – (8) (8) (7) 2 ilo ospottaigatvt nscrte ( securities in activity trading support to million €426 (9) (9) uddlnig(2) lending Funded (1) ,5 2 1 ,6 ,9 4 9 1516,630 581 41 194 346 2,697 1,760 211 726 3,352 ,2 ,0 0 ,8 ,9 ,6 9 12078,013 3,375 2,097 219 41 32 294 84 1,762 103 3,893 2,185 2,092 1,580 105 48 1,603 2,023 464 1,064 oa akCroaeSvrinTtlBn oprt oeeg Total Sovereign Corporate Bank Total Sovereign Corporate Bank Total 7 1––4 442 342 22 4 426 14 34 4 14 41 19 – 1 – 291 41 195 279 96 – 101 8 ,3 7651751371291584,194 1,518 9 152 1,357 1,795 605 57 1,133 881 1mlinfo IP)and GIIPS) from million €21 86––6325 6 444 360 – 58 302 6 – – 6 78 6––––1946–6571 7 ilo fcs oltrlheld. collateral cash of million €176 euiis()Rp-tl rnatosaddrvtvs(5)(6) derivatives and transactions Repo-style (3) Securities ih$ ilo xouet h usa Federation Russian the to exposure million $4 with , exposure exposure oa net Total oa net Total MD&A 93 981 2016 3,033 4,014 6,828 4,672 29,508 43,921 89,354 58,313 29,876 30,405 13,603 25,103 430,507 382,666 409,189 941,490 2,726,701 3,230,637 4,259,557 –– –– 11 11 80 53 126 25 436 318 415 268 202 59 808 543 155 111 206 78 207661 133 502 3,101 2,023 1,459 1,064 1,436 881 448 2017 2,658 3,106 7,080 4,905 29,107 37,247 85,586 63,528 23,812 29,101 18,713 30,698 195,142 434,210 402,708 975,417 3,202,365 3,463,861 4,536,610 – – – – – – – – – – – 188 2016 1,303 1,491 18,150 18,150 429,219 2,151,178 2,580,397 2,600,038 – – – – – – – – – – –– 7 7 BMO Financial Group 200th Annual Report 2017 78 27 27 103 6 247 101 502 279 195 49 149 118 152 107 488756 358 554 334 279 151 2017 2,285 1,746 1,643 1,120 2,989 2,081 1,018 1,352 4,911 3,352 31,946 32,024 Lending (2) 193,700 2,723,188 2,916,888 2,950,264 793 2016 – – – – – – – – – – – – – 1 1 1 1,288 1,730 2,523 6,828 4,672 29,508 43,921 89,354 58,313 29,876 30,405 13,603 25,103 575,523 650,240 382,666 391,039 923,340 1,659,519 114 2017 – – – 1 6 6 1,442 1,640 1,754 7,080 4,905 29,107 37,247 85,586 63,528 23,812 29,023 18,713 30,698 Non-centrally cleared Centrally cleared Total 479,177 546,973 434,210 370,762 943,393 1,586,346 atory authorities and, as financial market infrastructure, must satisfy as a member for its contribution to a default fund and may be called on unterparty (CCP) and those which are non-centrally cleared. CCPs are trally clear, BMO acquires a membership in the CCP and, in addition to – – 7 26 12 1,734 87 14 6698 213 1,983 13 36 75 479 380 739 112 111 246 107 Funded lending as at October 31, 2017 As at October 31, 2017 As at October 31, 2016 Bank Corporate Sovereign Commitments Funded Commitments Funded 616 2,735 138 13 (9) ther support in the event another member defaults. (Notional amounts) (9) (7) Contracts (8) (8) The notional amounts of our derivatives represent the amount to which a rate or price is applied in order to calculate the amount of cash that Italy Forward rate agreements As at October 31 Interest Rate Contracts Swaps (Canadian $ in millions) Refer to footnotes in the table on page 92. (Canadian $ in millions) Country Total – Eurozone (excluding GIIPS) Total – Rest of Europe Total – All of Europe GIIPS GreeceIreland – – – – – – – Portugal Purchased options Written options Total interest rate contracts Foreign Exchange Contracts Cross-currency swaps Cross-currency interest rate swaps Credit Default Swaps Purchased Rest of Europe Denmark Sweden United Kingdom Other Spain Forward foreign exchange contracts Written Total credit default swaps Total – GIIPS Purchased options Written options Total foreign exchange contracts Total Germany Eurozone (excluding GIIPS) France Commodity Contracts Swaps Purchased options Netherlands Other Written options Equity Total commodity contracts must be exchanged under theBalance contract. Sheet. Notional The amounts fair do values not of represent OTC assetsOver-the-Counter derivative or Derivatives contracts liabilities are and recorded therefore in are our not Consolidated recorded Balance in Sheet. our Consolidated Certain comparative figures have been reclassified to conform with the current year’s presentation. established under the supervision ofcertain central financial banks resilience or requirements. other Generally similar speaking, regul to cen The following table presents thecleared notional and amounts settled of through our a over-the-counter designated (OTC) clearing derivative house contracts, or comprised central of co those which are centrally Derivative Transactions providing collateral to protect theto CCP make against additional BMO contributions, risk, or BMO to is provide at o risk European Lending Exposure by Country and Counterparty MD&A hi eut r ae nmdl n siae,aesbett ofdnelvl n siae ol eecee ne noeenmarket unforeseen under exceeded be could estimates and levels basis. confidence regular to a subject on are RRC estimates, the and and models conditions. RMC on examine the based to in business, are conducted changes of results also reflect lines their and are better the 1987 analyses, to to of hoc removed reported crash ad or are market other added results stock with amended, the the along are and as portfolios, Scenarios conditions such and scenarios. market scenarios risks high-severity underlying of of low-frequency, tests analyses hypothetical, including Targeted to basis, 2008. sensitivity weekly in our a Brothers on Lehman tested of reflect are collapse measures stresses the VaR event that historical so addition, confirm frequently, In results updated portfolios. its are and models calculated expectations, our the regulatory underpin often defined that how with correlations assessing aligned and by is data part testing volatility conditions. then in This The current and validated period. models. positions are defined our closing Models a of day’s positions. over reliability previous closing measure the the those VaR in against the changes movements exceed no price losses of are day’s hypothetical close there each the assumes of at Back-testing effects positions activity. team. the that trading valuation isolates fact intra-day model the of independent and impact an events, the by metric market reflect approval VaR future not the forecast do of to based, limitations proxy is Generally, Further a calculation conditions. metrics. as VaR market risk used the all illiquid relevant be which that under for can upon assumption case appropriate data business, the the where historical is be updated that limitations not and assumption these may suitability the Among which for include limitations. period, reviewed has holding are VaR one-day horizons metric, assigned liquidity model-driven the market any within like liquidated risk, be of can indicator positions valuable a is it Although management risk market robust a exposures. these and risk of governance market importance diligent of and for control magnitude call and The variables, reporting activities. market measurement, banking of identification, structural volatility effective its potential provide as the to well with framework as along activities, enterprise, underwriting the and to trading activities BMO’s from arises risk Market aeilpeetdi letne otaoei nitga ato h 07ana osldtdfnnilsaeet sepg 78). page (see statements financial consolidated annual 2017 the of part 94 integral an is above font blue-tinted a in presented Material position factors, risk market stress various as to well portfolios as underwriting attribution, and capital trading economic our losses. and of trading regulatory sensitivity and and the values Risk, of notional at analysis concentrations, Value the Stressed include Risk, techniques at Other positions Value testing. non-trading groups. include and operating primarily with trading our metrics associated positions, of These exposures sheet operations exposures. risk off-balance foreign market and and identify on- domestic to including the place products, from in existing arising are of exposures processes profile risk assessment risk market thorough evolving and risk, the market and of products issuance. management new securities the both of in servicing way step Risk of by first Market course funds the Underwriting the raise As and in to Trading products clients of financial assisting Measurement selling from and and and Identification buying activities, with financing associated related risk and market making to market rise requirements, basis. give customer ongoing businesses an underwriting on and controlled trading and Our Risk that monitored Market ensure independently our Underwriting help and framework, together, and measured, governance which, accurately Trading risk documentation identified, BMO’s supporting appropriately of and are support infrastructure exposures procedures In processes, risk and tolerances. the market standards risk of bank’s governance policies, and comprised the risk corporate limits is BMO’s relevant specified framework within all within management work to exposures risk businesses to adhere risk market all required must market addition, are they manage unusual, In BMO responsibilities, and to risks. of first-line-of-defence maintain BMO market behalf their and expose emerging on of could and activities part that current underwriting as factors other and and, other as trading framework and well conduct RMC risk- exposures as to The BMO’s risk exposures, authorized appetite. of market market individuals risk oversight specific with and our management of associated with senior apprised risks consistent ongoing kept unquantified are provides are or that and committees unexpected market exposures positions, these of risk and of management market exposures Both the governing risk activities. of limits market taking oversight approves significant provides and discusses RRC Directors and The of reviews framework. Board regularly governance the comprehensive of a behalf to on subject risk are activities risk-taking Governance market BMO’s Risk Market Underwriting and Trading Risk Market ANALYSIS AND DISCUSSION MANAGEMENT’S aafo eido infcn iaca tes hsmauecluae h aiu oslkl ob xeine ntetaigand trading the in experienced period. be holding to one-day historical likely a to loss over calibrated maximum level are the confidence inputs calculates 99% model measure a where This at volatilities, stress. measured implied financial portfolios, their significant underwriting and of prices period commodity a and from equity data period. spreads, holding credit be one-day rates, to a exchange likely over foreign loss level (SVaR) maximum confidence Risk the 99% at calculates a Value measure at Stressed This measured volatilities. portfolios, implied underwriting their and and trading prices the commodity in and experienced equity spreads, credit rates, exchange (VaR) Risk at Value credit of risk the includes and spreads, credit and volatilities, implied book. their trading and our prices in commodity default and and equity migration rates, exchange foreign rates, interest risk Market M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO ete a o testsigsol evee sdfntv rdcoso h aiu muto ossta ol cu nayoedy as day, one any in occur could that losses of amount maximum the of predictors definitive as viewed be should testing stress nor VaR Neither our on changes market severe but plausible of impact potential the determine to daily used are analysis scenario and testing stress Probabilistic and losses hypothetical against back-testing of application the including models, risk our of integrity the verify to methods of variety a use We elcigtemlidmninlntr fmre ik aiu erc n ehiusaete mlydt esr dniidmre risk market identified measure to employed then are techniques and metrics various risk, market of nature multi-dimensional the Reflecting steptnilfravrecagsi h au fBOsast n iblte eutn rmcagsi aktvralssc as such variables market in changes from resulting liabilities and assets BMO’s of value the in changes adverse for potential the is smaue o pcfccasso iki M’ rdn n newiigatvte eae oitrs ae,foreign rates, interest to related activities underwriting and trading BMO’s in risk of classes specific for measured is smaue o pcfccasso iki M’ rdn n newiigatvte eae oitrs rates, interest to related activities underwriting and trading BMO’s in risk of classes specific for measured is MD&A 95 9.3 (0.7) (4.5) (1.8) (1.4) (2.0) (3.2) (6.5) 2016 2016 25.8 (10.3) (18.7) (10.0) (23.1) (27.1) Year-end Year-end 2017 2017 BMO Financial Group 200th Annual Report 2017 5.9 7.0 nm nm (1.7) (1.8) (6.0) (0.7) (0.9)(3.3)(0.3) (0.9)(5.0) (3.1) (0.8) (1.7) (6.1) (8.5) (3.1) (11.4) (0.4) (2.2) (0.1) (3.9) (1.9)(5.5) (2.3) (6.2) (4.1) (10.0) (1.5) (4.3) (0.3) (1.3) (4.5) (0.1) 27.1 25.0 nm nm (16.2) (12.4) (19.3) (8.9) (15.2) (17.1) (25.1) (11.9) (18.3) (12.9) (33.8) (6.6) (24.6) (20.5) (34.6) (13.4) Year-end Average High Low Year-end Average High Low (1)(2) (1) Material presented in a blue-tinted font above is an integral part of the 2017 annual consolidated financial statements (see page 78). As at or for the(pre-tax year Canadian ended $ October equivalent 31 in millions) (1) One-day measure using a(2) 99% Stressed confidence VaR interval. is Losses produced arenm weekly. presented – in not brackets meaningful and benefits are presented as positive numbers. Commodity SVaR Commodity VaR As at or for the(pre-tax year Canadian ended $ October equivalent 31 in millions) Equity VaR Foreign exchange VaR Interest rate VaR Equity SVaR Credit VaR Total Trading VaR Foreign exchange SVaR Diversification Interest rate SVaR Credit SVaR Diversification Total Trading SVaR Total Trading Stressed Value at Risk (SVaR) Summary Total Trading Value at Risk (VaR) Summary Trading Market Risk Measures Trading VaR and SVaR Total Trading VaR and TotalVaR Trading figures, Stressed particularly VaR for decreased interest yearexposure, rates. over partially SVaR year. offset reduced Lower by as exposures increased well, anduncollateralized Credit with reduced derivatives. SVaR lower market from interest volatility a rate, resulted methodology foreign in change exchange a relating and reduction to equity in market components risk from associated reduced with the valuation of Monitoring and Control of Trading andA Underwriting comprehensive Market set Risk of limitsescalated is to applied the to appropriate these level metrics,supporting of and limits, oversight. they and Risk are are profiles subject monitored of toinclude and our regular the reported trading monitoring independent to and and valuation traders, underwriting reporting, of management, activities withmodel financial senior are any risk. assets executives maintained breach and and within of liabilities, Board our the as committees. risk limits well Other appetite as significant and compliance controls with our model risk management framework to mitigate MD&A 96 2017, In distribution. revenue net daily of representation a with losses. along trading VaR, net Trading daily Total any against incur plotted not revenues did net we daily present below charts The Revenue Net Trading ANALYSIS AND DISCUSSION MANAGEMENT’S M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO November 1,2016toOctober31,2017($millions) Frequency DistributionofDailyNetRevenues November 1,2016toOctober31,2017($millions) (pre-tax basisandinmillionsofCanadiandollars) Trading NetRevenuesversusValueatRisk (20) (10) 10 20 30 60 40 50 Frequency in number of days 0 Nov 07 Daily Revenue Nov 15 10 15 20 25 30

0 5 Nov 23

1 Dec 01

Dec 09 2 Dec 19

3456789101112131415161718192021222324252629384249Dec 29 Total Trading VaR Jan 09

Jan 17

Jan 25

Feb 02

Feb 10

Feb 21 Mar 01

Mar 09

Mar 17

Mar 27

Apr 04

Daily netrevenues(pre-tax) Apr 12 Apr 21

May 01

May 09

May 17

May 26

Jun 05

Jun 13

Jun 21

Jun 29

Jul 10

Jul 18 Jul 26

Aug 03

Aug 14

Aug 22

Aug 30

Sep 08

Sep 18

Sep 26 Oct 04

Oct 13

Oct 23

Oct 31 MD&A 97 BMO Financial Group 200th Annual Report 2017 Material presented in a blue-tinted font above is an integral part of the 2017 annual consolidated financial statements (see page 78). is a measure of the impact of potential changes in interest rates on the market value of a portfolio of assets, All models are subject to our model risk management framework described in more detail on page 107. is a measure of the impact of potential changes in interest rates on the projected 12-month pre-tax net income of a Structural interest rate earnings and economic value sensitivity to anDuring immediate the parallel 2017 increase fiscal or year, decrease we of introduced 100 new basis deposit points models in in the both yield Canada and theStructural United economic States value that exposure better to reflect rising expected interest customer rates primarily reflects a lower market value for fixed rate loans. Structural economic value Structural interest rate risk isInterest primarily rate comprised mismatch of risk interest arises rate when mismatch there risk are and differences product in embedded the option scheduled risk. maturities, repricing datesProduct or embedded reference option rates risk of arises assets, when liabilities product features allow customers to alter cash flows, such as scheduled maturity or repricingStructural dates, interest rate risk is measured using simulations, earnings sensitivity and economic value sensitivity analysis, stress testing and gap The RRC has oversight of the management of structural market risk, annually approves the structural market risk plan and limits, and regularly portfolio of assets, liabilities and off-balance sheetEconomic positions Value in Sensitivity response to prescribed parallel interest rate movements. Earnings Sensitivity liabilities and off-balance sheet positions in response to prescribed parallel interest rate movements. curve are disclosed in the following table. The interest ratebehaviour gap and position product is pricing disclosed as induring interest Note the rates 19 year. change. on There page were 180 no of other the significant consolidated changes financial in statements. sensitivity our to structural falling market interest risk rates managementrates. primarily framework Structural reflects economic the value impact exposure ofbeing to a more rising higher rate-sensitive interest market at rates value higher increased forto interest relative fixed falling rate to rate interest levels October loans rates following 31, and relative the 2016, minimumsensitivity to increase primarily modelled quantifies October in owing client the 31, market to deposit potential 2016 rates modelled impact increased during depositearnings of owing the pricing exposure interest to year. to rate the The falling changes greater structural interest on extent economicability rates structural to value to primarily balance which benefit reduce reflects sheet interest deposit the pre-tax rates pricing risk net canearnings, as of income now it rates fixed over fall. results fall. and the Structural in Canadian floating next earnings higher and rate 12Structural earnings U.S. loans months. earnings exposures long-term repricing Structural benefit to and at to falling short-term lower rising interest rates ratesearnings interest rates increased and benefit rates because during the to primarily interest the more rising reflects rates year. limited interest the can Whileinterest rates benefit now this rate decreased of fall benefits increases modestly widening further current over relative deposit than the to spreads they next October as could 12 31, interest previously. months 2016, rates following primarily rise. the owing The increase to structural in a market lower rates modelled during benefit the of year. subsequent Interest Rate Risk Structural interest rate risk arisesbanking when activities. changes The in objective interest of ratesspread, structural affect while interest the managing rate cash the risk flows, risk management earnings to is and the to values economic maintain of value high-quality assets of earnings and our and liabilities assets maximize related due sustainable to to product our changesand in derivatives. interest The rates. net interestthrough rate interest mismatch, rate representing swaps residual and assets securities. funded by common shareholders’ equity,usually is in managed response to to a changes targetcommitted in profile rates market on conditions. unadvanced Product mortgages. embeddedhedging Product options programs embedded include may options loan be and prepayments, used associated deposit to customer redemption manage behaviours privileges this are and risk captured to inanalysis, low risk in levels. modelling addition and to other treasury risk metrics. Structural Market Risk Measurement reviews structural market risk positions.market The risk RMC positions and and the provide Balance senior Sheet management and oversight. Capital Management Committee (BSCMC) regularly review structural Structural Market Risk Governance BMO’s Corporate Treasury group isoversight responsible provided for by the the ongoing Market managementchanges Risk of in group. structural interest In market rates, addition risk more to across granular Board-approved the management limits enterprise, limits on with are earnings independent in at place risk to and guide economic the value daily sensitivities management due of to this price risk. Structural (Non-Trading) Market Risk Structural market risk is comprisedour of foreign interest currency rate operations risk and arising exposures. from our banking activities (loans and deposits) and foreign exchange risk arising from The models used to measurechanges. structural For interest customer rate loans risk and usethe deposits projected extent with changes to scheduled in which maturity interest customers and ratesmaturity are repricing and and likely dates predict repricing to (such how dates use as customers (such embedded mortgages wouldproduct as options and likely pricing credit to term react and card alter deposits), to reflect loans those our these historical and scheduled modelsinherent and chequing terms. measure uncertainty, forecasted accounts), For as trends we customer they in measure loans reflect balances. our andhave potential The exposure deposits been anticipated results using without developed pricing of models scheduled using and these that statistical customer structural adjustassessment, analysis behaviours, market for back-testing and which risk elasticity processes are may models in and independently differ by ongoing validated from theirin dialogue and actual nature support with periodically experience. have of the updated These product lines through models pricing. of regular business. model Models performance developed to predict customer behaviour are also used MD&A 98 to subject are that balances of comprised risk, market to subject are techniques. that measurement Sheet results. risk Balance bank’s non-traded Consolidated the or our on risk in rates traded Disclosures reported exchange either transactions. items Risk in hedging presents changes Market of below of and absence table effects the Items The the in Sheet dollar of million, Balance Canadian discussion $11 between the complete by (decrease) more Linkages in year increase a results the to for with for to expected 36 consistent taxes taken be page are income be would on results before may rate section future income positions exchange Exchange If net Hedging dollar Foreign results. segment arise. Canadian/U.S. financial U.S. losses the on our credit in fluctuations of for (decrease) on rate equivalent provisions increase impact exchange and cent the dollar expenses one and Canadian/U.S. revenues, each dollars of which 2017, Canadian effects during in pre-tax periods measured the the results offset of future year. partially function affect fiscal a 2017 will is the fluctuations results during rate those so Exchange did results. information. and financial further ratios U.S.-dollar-denominated for capital BMO’s 69 its page on on movements section exchange Management foreign Capital of Enterprise-Wide impact risk the the transaction see offset from Please to and arrangements operations into U.S. enter may our BMO in investment net the to income. related net risk U.S.-dollar-denominated translation our from with primarily associated arises risk exchange foreign Structural Risk Exchange Foreign Sensitivity Rate Interest Sheet Balance Structural ANALYSIS AND DISCUSSION MANAGEMENT’S aeilpeetdi letne otaoei nitga ato h 07ana osldtdfnnilsaeet sepg 78). page (see statements financial consolidated annual 2017 the of part integral an is above font blue-tinted a in presented Material oa Liabilities Total debt Subordinated liabilities Other repurchase under sold or lent purchased Securities yet not but sold Securities Acceptances instruments Derivative 2 rmrl opie fBOsblnesetiesta r ujc otesrcua aac he n nuac ikmngmn rmwr,o r vial-o-aesecurities. available-for-sale are or loss. framework, or management presentation. profit risk year’s through insurance current valued and the fair sheet with and balance conform framework structural to management the reclassified risk to been underwriting subject have and are figures trading that comparative the items Certain to sheet subject balance are BMO’s that of items comprised sheet Primarily balance (2) BMO’s of comprised Primarily (1) Deposits Risk Market to Subject Liabilities Assets Total assets Other acceptances under liability Customers’ instruments Derivative Securities banks with deposits bearing Interest equivalents cash and Cash Risk Market to Subject Assets before value economic in increase an and million $52 of tax before earnings in increase an in results 2017 31, October at rates interest in increase point numbers. basis positive 100 as a presented businesses, rates are Insurance interest framework. benefits BMO’s decreasing risk and For with trading brackets scenarios (4) bank’s in The the presented nil. under are below managed Losses rates are interest (3) holdings overnight AFS decrease non-trading not Certain do banks (2) central U.S. and Canadian assume rates interest falling to sensitivities value and Earnings (1) decrease point basis 100 increase point basis 100 millions) in $ (Canadian Cnda nmillions) in $ (Canadian on nto loac o rdtlosses) credit for allowance of (net Loans euiisbroe rprhsdunder purchased or borrowed Securities M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO agreements Other Held-to-maturity Available-for-sale Trading eaeagreements resale rnato ikrpeet h matta lcutosi h aainUS olrecag aemyhv nteCnda olreuvln of equivalent dollar Canadian the on have may rate exchange dollar Canadian/U.S. the in fluctuations that ratios. impact capital the and represents equity risk shareholders’ Transaction reported BMO’s on have can rates exchange foreign in changes that impact the represents risk Translation 5 ilo n eraei cnmcvlebfr a f$0 ilo $7mlinad$4 ilo,rsetvl,a coe 1 06.Teeipcsaentrfetdi h al above. table of the tax in before reflected earnings not in are decrease impacts a These in 2016). results 31, 2017 October 31, at October respectively, at million, rates $744 interest and in million decrease ($87 point million $507 basis 100 of A tax 2016). before 31, value October economic at in respectively, decrease million, a Longer-term $623 2016). and and 31, million million $50 October ($90 of million as $417 points of basis tax (50 2017 31, October of as terms shorter rates. for interest points short-term basis of 100 level to assumed rates the interest below short-term decrease U.S. not and do Canadian rates both interest in decrease the limit therefore aac Sheet Balance Consolidated 6,2 4995999358 599,909 64,959 665,226 8,8 3644984– 469,814 15,315 13,674 483,488 576,111 118,154 709,580 6,7 6,7 – 361,672 – 361,672 519–5,1 – 358 – – 51,719 55,119 – – – – 16,546 52,077 – 55,119 25,163 1,682 25,163 16,546 26,122 27,804 656–1,4 – 15,315 9,762 – 16,546 – – 1,592 25,077 – 16,546 27,359 28,951 – 54,075 – – 8,620 32,599 54,075 90,449 – 99,069 32,599 507–7,4 – 75,047 – 75,047 ,2 ,2 – 5,029 – 5,029 ,9 ,9 – 9,094 – – 9,094 6,144 346 6,490 6 6 – 960 – 960 sa coe 1 2017 31, October at As ujc omre risk market to Subject risk Traded (1) 1 2 3 (4) (3) (2) (1) Non-traded risk (2) o ujc to subject Not aktrisk market aac Sheet Balance Consolidated cnmcvalue Economic 4,0 2825242323 572,442 72,842 645,607 7,7 1644178–Itrs rate, Interest – 461,768 15,119 11,604 473,372 558,493 114,323 687,935 5,3 5,3 neetrate, Interest – 358,730 – 358,730 078–4,1 neetrate rate Interest Interest – 323 rate – Interest – 50,401 40,718 – rate, Interest – – – 13,021 50,724 – 40,718 25,106 2,095 25,106 13,021 36,132 38,227 301–1,2 neetrate Interest rate Interest – 15,119 rate, Interest 9,149 – 13,021 – – 1,415 credit 24,268 rate, Interest 13,021 – 37,768 39,183 credit rate, Interest – rate Interest 55,663 – – 8,161 31,653 55,663 76,297 – 84,458 31,653 666–6,4 neetrate Interest – 66,646 – 66,646 sensitivity ,3 ,3 neetrate Interest – 4,439 – 4,439 ,6 ,6 neetrate Interest – 8,965 rate Interest – – 8,965 4,191 258 4,449 (Pre-tax) sa coe 1 2017 31, October at As 978 136.9 (957.8) 9 9 Equity – 899 – 899 86(433.4) 78.6 sa coe 1 2016 31, October at As ujc omre risk market to Subject ik(1) risk Traded annssensitivity Earnings vrtenext the over 2months 12 Non-traded (Pre-tax) ik(2) risk o ujc to subject Not aktrisk market cnmcvalue Economic sa coe 1 2016 31, October at As sensitivity (Pre-tax) 602 149.0 (680.2) . (168.9) 7.3 ee othe to Refer oeg exchange foreign oeg exchange foreign oeg exchange foreign oeg exchange foreign spread equity spread, ikbalances risk non-traded for factors risk Main annssensitivity Earnings vrtenext the over 2months 12 (Pre-tax) MD&A 99 BMO Financial Group 200th Annual Report 2017 Material presented in a blue-tinted font above is an integral part of the 2017 annual consolidated financial statements (see page 78). is the potential for loss if BMO is unable to meet financial commitments in a timely manner at reasonable prices as is the potential for loss as a result of actual experience being different from that assumed when an insurance product was BMO has a robust limit structure in place in order to manage liquidity and funding risk. Limits define the enterprise-level risk appetite for our key Enterprise Market Risk Management, as the second line of defence, provides oversight, independent risk assessment and effective challenge of A robust product approval process is a cornerstone of BMO Insurance’s risk management framework, as it identifies, assesses and mitigates risks they become due. Financial commitments include liabilities to depositors and suppliers, and lending, investment and pledging commitments. Liquidity and funding risk Expense risk – the riskassumed that in actual the expenses pricing arising process. from acquiring and administering policies and processing claims will exceed the expenses Claims risk – the riskincluding that mortality the risk, actual morbidity magnitude risk, orPolicyholder longevity frequency behaviour risk of risk and claims – catastrophe will the risk; differsurrenders, risk from and that those other the assumed voluntary behaviour in terminations of the will policyholders pricing differ in or from regard underwriting the to process, behaviour premium assumed payments, in withdrawals the or pricing loans, process; policy and lapses and Insurance risk designed and priced. It generallyuncertainty entails of the future inherent events. unpredictability Insurance thatthe provides can insurer protection arise (under against from specific the assuming terms financial long-termannuities and consequences policy and conditions) of liabilities life, in insured or accident exchange risks from and for by the sickness, premiums. transferring and Insurance those creditor risk risks insurance, is to as inherent well in as all in our our insurance reinsurance products, business. including Net Liquidity Position (NLP) measure,enterprise regulatory collateral liquidity pledging. ratios, Limits secured also andbusiness establish unsecured pledging the funding activity, tolerance appetite, and for for the concentrations bothwithin size of trading these and maturities, and limits type requirements structural helps of for activities, to uncommitted diversifying and effective confirm and counterparty management that committed liabilities, in liquidity credit the and and event funding liquidityin of risk facilities order a is that to disruption appropriately may detect is managed. be any also An outstanding. signs in enterprise-wide Operating of place. contingency growing Early plan liquidity warning that or indicators will funding identified facilitate risk in in the the contingency market plan or are risks regularly monitored specific to BMO. Liquidity and Funding Risk Management BMO’s Liquidity and Funding Riskapproved Management standards. Framework These is policies defined and andand standards authorized responsibilities outline under for key Board-approved the management corporate management principles, policies of liquidity and liquidity and management- and funding funding metrics risk and across related the limits, enterprise. as well as roles The Corporate Treasury group andfunding the risk operating across groups, the as enterprise. theand BMO’s first reporting Corporate line on Treasury of BMO’s group defence, liquidity is areManagement and responsible responsible Framework funding for for and risks. identifying, the the The understanding, ongoing related Corporate managing, managementof risk Treasury monitoring, of market appetite group mitigating liquidity events and develops and on limits, and liquidity monitors recommends and compliance the funding with Liquidity requirements the and on relevant Funding an corporate Risk liquidity ongoing policies and basis. and funding assesses management, the frameworks, impact management policies, oversight limits, and monitoring also and review reportingstrategic and across priorities. discuss the The significant enterprise. RRC liquidity The provides and RMCcontingency oversight funding and plan, of policies, BSCMC and the issues provide regularly management and senior reviews of developments liquidity liquidity that and and arise funding funding in positions. risk, the annually pursuit approves of applicable our policies, limits and the Liquidity and Funding Risk Governance Liquidity and Funding Risk ‰ ‰ ‰ Insurance Risk Managing liquidity and funding riskpolicy is to essential ensure to that maintaining sufficient a liquid safe assets and and sound funding enterprise, capacity depositor are confidence available and to earnings meet stability. financial It commitments, is even BMO’s in times of stress. BMO’s risk governance practices provideFramework effective comprises independent the oversight identification, and assessment, controlkey management of risk and risk metrics; reporting within insurance of BMO risk risks. Insurance.Assessment; policies The BMO’s and and framework Insurance ongoing processes, includes: Risk monitoring including the Management of limits; riskresponsible experience. capital appetite for, Senior requirements; statement as management stress and the within testing; first the riskreports line various reports; to of lines Own the defence, of Risk CRO, managing business and Wealth insurance uses Solvency provide Management. risk. this senior Internal Second-line-of-defence framework governance risk oversight and and committees, is is review. the provided primarily management In Boards by activities particular, of the on the Directors CRO, a Insurance of BMO quarterly Risk BMO Insurance,the basis Management Insurance’s who Board to Committee subsidiaries acts the at and as insurance BMO senior the companies’ Insurance management Audit Boards oversees and of and Conduct Directors. reports Review In on Committee addition, risk associated for the with BMO Audit new Life and insurance Insurance Conduct products Company. Reviewmanagement, or Committee promotes changes of the to effective existing identification, products.transfer measurement This insurance and process, risk management along to of with independent insurance guidelinesclaims. reinsurance risk. and Our companies, Reinsurance, practices reinsurance is which for business, also involves underwriting on used transactions andjurisdictions the to that claims worldwide, other mitigate in hand, our accordance assumes exposure with property to BMO catastrophe insurance Insurance’s and risk risk other by management reinsurance diversifying framework, risks risk to from and control independent limiting reinsurance reinsurers exposures. in various Insurance risk consists of: MD&A aeilpeetdi letne otaoei nitga ato h 07ana osldtdfnnilsaeet sepg 78). page (see statements financial consolidated annual 2017 the of part 100 integral an is above font blue-tinted a in presented Material assets. pledged on information further for statements financial consolidated assets. non-financial available and of financial source for a limits as pledging facilities bank central discount on Bank rely funding. Reserve not broker/dealer Federal do position. our the We liquidity in programs, facilities. BMO’s and assistance liquidity of entity, lending standby strength dollar. bank Canada’s Bank the U.S. U.S. of Central assessing weaker our Bank European when the Bank, the and liquidity of Harris to States impact BMO access United the at has the by level, BMO in offset bank assets, window 2016. partially parent liquid 31, balances, the to October security at addition at and held In billion cash primarily operations. $197.7 higher are eligible with to assets assets sheet compared due liquid sheet off-balance 2017, was unencumbered on-balance other 31, assets Net as plus October liquid defined agreements, at unencumbered assets, resale billion in re-pledge liquid under $213.8 increase may unencumbered purchased totalled The and Net or encumbered, collateral activities. borrowed collateral as trading securities less assets of and received, liquid support securities collateral receive in and may collateral cash BMO as BMO-owned addition, or as In cash such support abroad. for to and exchange entity Canada in legal in assets one systems these at payment held and assets clearing their liquid in maintain use participation entities to legal ability our our of on entity. supplemental certain restrictions legal the requirements, regulatory another of regulatory and of size local legal requirements with The meet be liquidity assets, assets. To may the U.S.-dollar-denominated U.S.-dollar-denominated risk. There and in liquidity positions. Canadian- Bank of liquidity in Harris measurement minimum level BMO our own under bank at with assets parent held integrated liquid the pool is high-quality at liquidity pool of held supplemental liquidity and definition is remaining provincial the pool the and meet liquidity of federal assets supplemental majority Canadian pool the the highly-rated liquidity of of supplemental 75% of agreements all Approximately comprised repurchase Substantially III. highly- predominantly reverse debt. Basel institutions, are short-term agency financial assets and and other pool securities government with liquidity and federal deposits Supplemental banks U.S. scenario. short-term agreements. central stress banks, repurchase with severe central reverse deposit a with short-term on under deposit and cash in assets on securities as those cash equity well of include and as value businesses debt businesses, liquidity trading rated trading the the our of in in assessment held held purposes. management’s assets to primarily management reflects Liquid converted are risk framework be assets liquidity management can Liquid contingent our and requirements. for under borrowings, funding maintained classes for and are security liquidity that as our pools pledged meets liquidity be that supplemental can frame marketable, time are a (NCCF). that in Flow assets cash Cash high-quality Cumulative include Net assets and liquid (LCR) Unencumbered Ratio Coverage Assets Liquidity Liquid the Unencumbered as Risk such Funding metrics and regulatory Liquidity include The These plans. above. contingency section and Management plans business of testing. design stress the enterprise-wide shape with to integrated help is also Framework they Management and combination pricing, a transfer under and scenario. liquidity assets scenarios each internal those stress withstand of enterprise-specific to value and sufficient also liquidity systemic NLP scenario the severe an stress of under maintaining The assessment assessed on type). management’s are focuses counterparty and needs BMO by monetized funding thereof. facilities be These liquidity can stress. (e.g., or assets market classification credit non-operational liquid of depositor committed or which conditions by operational or over vary uninsured, uncommitted horizon factors insured, (e.g., time business These (e.g., type the various activity. type commitment considers to each deposit by factors to and as applying related counterparties) well volatility, by risk wholesale as market quantified liquidity or deposits), or are of corporate downgrades needs level non-financial ratings funding relative business, to Potential the small not due investments. of retail, or collateral strategic view withdrawn pledge or management’s are to assets on that obligations new based risk. deposits lines, fund activities liquidity systemic wholesale liquidity to of and and and need measure enterprise-specific commercial credit continuing key combined retail, availabl ffnigast n h au fdpst ne omloeaigcniin,a ela h oto odn upeetllqi sest meet to assets liquid supplemental cost holding the of both cost capture the practices as These well business. as each conditions, of operating performance normal the under assess deposits requirements. to of liquidity and value contingent business the of and regularly lines assets are the funding positions to of and provided entity, are in each requirements. customers are to applicable for limits apply with products and that compliance policies requirements confirm management regulatory to and risk and level liquidity funding legal entity such, and the legal As Liquidity by key entities. basis. informed the these entity are at of legal which reviewed requirements key entities, adequacy and legal capital consolidated key and a for funding both place liquidity, on the managed things, are other positions among funding to, subject are group corporate M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO M’ oa nubrdast n nnubrdlqi sesaesmaie ntetbeblw e oe2 npg 9 fthe of 192 page on 25 Note See below. table the in summarized are assets liquid secured unencumbered long-term and raise assets to encumbered loans, total and BMO’s mortgages including assets, other pledge also may BMO holdings, securities and cash to addition In and activities trading of support in collateral as holdings securities and cash of portion a encumber may BMO business, of course ordinary the In Risk Funding and Liquidity the in noted ratios liquidity and limits the to relation in positions monitor regularly we and NLP, limits the setting to on addition decisions In management in considered are and tolerance risk stated BMO’s against evaluated are results testing Stress M mly ud rnfrpiigadlqiiytase rcn rcie ohl nueta prpit cnmcsgasfrtepiigof pricing the for signals economic appropriate that ensure help to practices pricing transfer liquidity and pricing transfer funds employs BMO the in entities between funds of movements result, a as and branches, and subsidiaries foreign and regulated include entities legal BMO spr fteLqiiyadFnigRs aaeetFaeok ldigo sesCroaePlc esottefaeokand framework the out sets Policy Corporate Assets of Pledging a Framework, Management Risk Funding and Liquidity the of part As h iudt au eonzdfrdfeetasset different for recognized value liquidity The MD&A – 101 4,449 41,175 23,855 19,746 58,365 29,696 20,436 assets (3) 143,141 197,722 306,980 109,258 Net unencumbered As at October 31, 2016 (3) 22,940 64,776 assets Net unencumbered BMO Financial Group 200th Annual Report 2017 assets Encumbered (2) assets Total gross – 25,441– 2,501 65,169 393 As at October 31, 2017 Other cash and securities received ––––– (1) 6,490 – 6,490 – 6,490 Carrying 71,195 21,012 92,207 39,591 52,616 18,254 7,929 26,183 3,815 22,368 22,402 583 22,985 4,220 18,765 32,599 – 32,599 1,435 31,164 25,441 65,169 assets value/on- 238,245 50,269 288,514 135,351 153,163 126,394 20,745 147,139 87,725 59,414 302,775 50,269 353,044 139,287 213,757 367,944 50,269 418,213 139,680 278,533 balance sheet (5) (4) obligations banks value and are included as liquid assets under BMO’s Liquidityliquidity and that Funding may Management be Framework. realized Thisdecreased from amount as the is at loan shown Q4-2017 portfolio, as as including a a incremental separate result securitization, line of covered item, a bond NHA change issuances mortgage-backed in and securities. the Federal criteria Home for Loan eligible Bank loan (FHLB) collateral advances. that Other can eligible be assets accepted at by central the banks Bank of Canada effective Q1-2017. balance sheet eligible collateral received, less encumbered assets. amortized cost) under resale agreements Corporate equity Corporate debt Mortgage-backed securities and collateralized mortgage resale agreements Sovereigns / Central banks / Multilateral development NHA mortgage-backed securities (reported as loans at Total securities and securities borrowed or purchased Securities and securities borrowed or purchased under Deposits with other banks Total liquid assets Other eligible assets at central banks (not included above) Total liquid assets and other sources (5) Represents loans currently lodged at central banks that could potentially be used to access central bank funding. Loans available for pledging as collateral do not include other sources of additional (4) Under IFRS, NHA mortgage-backed securities that include mortgages owned by BMO as the underlying collateral are classified as loans. Unencumbered NHA mortgage-backed securities have liquidity (1) The carrying values outlined(2) in Gross this assets table include are on-balance(3) consistent sheet with Net and the unencumbered off-balance carrying liquid sheet values assets assets. reported are in defined BMO’s as balance on-balance sheet sheet as assets, at such October as 31, BMO-owned 2017. cash and securities and securities borrowed or purchased under resale agreements, plus other off- (Canadian $ in millions) Cash and cash equivalents Undrawn credit lines granted by central banks Liquid Assets MD&A 102 funding 101. the page or on assets table liquid Assets bank’s Liquid the the of in all shown capture are fully assets weighted not liquid the does total at and BMO’s arrive position stress. to liquidity of HQLA bank’s period and a a flows of during cash measure available to one be and applied only may secured activities are is that deposits, lending weights LCR alternatives from securities OSFI-prescribed The outflows loans, horizon. LCR. during include from 30-day the 100% flows inflows a and than non- cash permitted over values less and Net by maturing of bonds index. offset debt LCR covered stock requirements, non-HQLA an highly-rated major collateral other in governments, a potential and result by of and in may backed part commitments 100% which or are funding, than stress, issued that wholesale decreased greater of debt equities unsecured outflows LCR period highly-rated non-financial cash an a cash, over and Net maintain during of outflows debt, outflows. to HQLA comprised cash corporate cash required utilize primarily financial stressed net are to are net in banks able HQLA total decrease While be BMO’s to a activities. to period. (HQLA) to trading expected that 2017 Assets due of also 31, Liquid year, types are October High-Quality last certain banks ended of 131% with conditions, quarter stock from associated normal the the up inflows for of was higher LCR ratio LCR to daily the average due average as The primarily The basis days. page. daily calendar following a 30 the on next on calculated the table is the LCR in The summarized 152%. is was (LCR) Ratio Coverage Liquidity BMO’s Encumbrance Asset ANALYSIS AND DISCUSSION MANAGEMENT’S Securities sa coe 1 2016 31, October at As millions) in $ (Canadian 2017 31, October at As millions) in $ (Canadian 4 on nldda vial sclaea ersn on urnl ogda eta ak htcudptnilyb sdt cescnrlbn udn.Lasaalbefrpegn sclaea do collateral cost). as amortized pledging at for loans available as Loans (reported funding. securities bank mortgage-backed central NHA access and to agreements used resale be under potentially purchased could or that borrowed banks securities central securities, of at Includes securities lodged and (5) currently cash loans include represent These collateral requirements. as liquidity available BMO’s as support included to Loans available readily (4) not minimum are contracts, believes derivative management lent, that securities holdings agreements, asset repurchase liquid through select pledged include is assets that unencumbered securities Other and cash (3) other and assets sheet on-balance of portion the to assets. refers sheet collateral off-balance as and Pledged sheet (2) on-balance include assets Gross (1) banks other with deposits and Cash banks Securities other with deposits and Cash oa assets Total assets other Total assets Other acceptances and Loans te assets Other acceptances and Loans oa assets Total oa te assets other Total M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO te assets Other assets tax Deferred assets tax Current assets Intangible Goodwill equipment and Premises acceptances under liability Customers’ instruments Derivative urn a assets tax Current assets Intangible Goodwill equipment and Premises utmr’laiiyudracceptances under liability Customers’ eiaieinstruments Derivative te assets Other assets tax Deferred o nld te ore fadtoa iudt htmyb elzdfo h onprflo nldn nrmna euiiain oee odisacsadFL advances. FHLB and issuances bond covered securitization, incremental including portfolio, loan the from realized be may that liquidity inves funding. additional certain secured of and access sources investments, to other equity securitized include significant be not subsidiary, may insurance that BMO’s loans or at and legal held mortgages for securities include restricted include also are which assets that 2017, unencumbered assets 31, Other include October assets at encumbered as Other billion systems. $9.7 payment and sales. houses short clearing and in cash participation restricted with as associated such requirements reasons, and other banks central at deposits required (5) (5) oa gross Total 1,5 0,1 28,742 109,110 313,955 5,4 7,4 0502783268,838 287,893 30,570 172,548 759,849 64,776 207,624 393 63,438 336,231 oa gross Total assets 8,8 55427,622 95,584 286,783 3,7 738381884109,258 168,814 398 57,308 335,778 3,3 5,9 9972432297,894 254,372 29,977 152,892 735,135 ses(1) assets 909–145337,651 3 1,435 – 39,089 70,574 10,405 16,546 28,951 36,102 13,021 39,183 76,472 2,865 1,371 2,159 6,244 2,033 2,178 6,381 2,147 9,555 3,101 906 (1) lde as Pledged lde as Pledged collateral collateral Encumbered nubrd()Ntunencumbered Net (2) Encumbered – – – – – – – – – 1,957 – – – – – – – – – – encumbered encumbered (2) mnshl tormrhn akn business. banking merchant our at held tments Other Other – – – – – – – – – – – – – – – – – – unencumbered nnubrd(3) unencumbered e unencumbered Net 28,951 70,574 10,405 16,546 13,021 39,183 76,472 ,9 166,411 9,692 2,865 1,371 2,159 6,244 2,033 2,178 6,381 2,147 ,7 154,502 9,075 9,555 3,101 Other Other 906 134,134 11 (3) collateral vial as Available oltrl(4) collateral vial as Available (4) – – – – – – – – – – – – – – – – – – MD&A (4) 103 2.6 7.4 131 152 12.9 27.9 35.4 13.2 10.0 76.5 85.8 (2) (3) 132.3 100.7 130.3 (average) Total weighted value Total adjusted value (4) Total adjusted value * 132.3 * * 130.3 2.70.5 2.7 – 10.5 5.6 11.221.3 8.5 21.3 27.9 54.1 88.0 74.1 53.3 (1) (2) 128.3115.1323.4 27.7 113.3 19.4 145.8 5.2 16.7 46.5 162.1 135.3 (average) For the quarter ended October 31, 2017 BMO Financial Group 200th Annual Report 2017 Total unweighted value 303 2017 295 2016

270 2015 Customer Deposits Customer ($ billions) Customer deposits provide a strong funding base. 97.7 95.6 Material presented in a blue-tinted font above is an integral part of the 2017 annual consolidated financial statements (see page 78). 2016 (%)

97.3 2015 2017 Customer Deposits and Capital-to-Customer Loans Ratio Our large customer base and strong capital position reduce our reliance on wholesale funding. (%) (%) based on the average of the month-end values in the quarter. BMO maintains a large and stable base of customer deposits that, in combination with our strong capital base, is a source of strength. It supports Outflows related to derivatives exposuresOutflows and related other to collateral loss requirements ofCredit funding and on liquidity debt facilities products Unsecured debt Non-operational deposits (all counterparties) Stable deposits Less stable deposits Operational deposits (all counterparties) and deposits in networks of cooperative banks Additional requirements, of which: Other contractual funding obligations Other contingent funding obligations Total cash outflows Cash Inflows Secured lending (e.g. reverse repos) Inflows from fully performing exposures Other cash inflows Total cash inflows Secured wholesale funding Total net cash outflows Liquidity Coverage Ratio Total HQLA * Disclosure is not required(1) under the Unweighted LCR values disclosure are standard. calculated(2) at Values market are value calculated (for based HQLA) on or the as simple outstanding average balances(3) of maturing the or Weighted daily callable values LCR within are over 30 calculated(4) 63 days after business (for Adjusted the days inflows values application in and are of the outflows). calculated the fourth based weights quarter on prescribed of total under 2017. weighted the The values OSFI LCR after Liquidity in applicable Adequacy prior caps Requirements periods, as (LAR) up defined Guideline to by for and the HQLA including LAR and the Guideline. cash fourth inflows quarter and of outflows. 2016, is For the quarter ended October 31, 2016 Total HQLA Cash Outflows Retail deposits and deposits from small business customers, of which: Unsecured wholesale funding, of which: Total net cash outflows Liquidity Coverage Ratio (Canadian $ in billions, except as noted) High-Quality Liquid Assets Total high-quality liquid assets (HQLA) the maintenance of a sound liquidity2017, position up and from reduces $295.1 our billion reliance inin on 2016, support wholesale as of funding. strong certain Customer deposit trading deposits growth activities totalled$33.5 was and $303.1 billion partially receives billion as offset non-marketable at at by deposits October October the from 31, 31, impact corporate 2017. of and the institutional weaker customers. U.S. These dollar. deposits BMO totalled also receives deposits Funding Strategy Our funding philosophy requires that securedmaturing and in unsecured two wholesale to funding ten used years)trading to that assets support will is loans support largely and the shorter less effective termaggregate liquid term (maturing maturities assets to in that must maturity one are be of year permitted of these or across a assets. less), different term Wholesale is time (typically secured aligned periods. and with Supplemental unsecured the liquidity funding liquidity pools for of are liquid the funded assets with being a funded, mix and of is wholesale subject term to funding. limits on Liquidity Coverage Ratio MD&A 104 Maturities Funding Wholesale ANALYSIS AND DISCUSSION MANAGEMENT’S ed nrlto otefnigsucsaalbe h udn lni eiwdanal yteBCCadRCadapoe yteRC n is and RRC, the by approved and RMC and funding BSCMC assesses the information. and by forecast process, annually updated planning reviewed incorporate and is and forecasting plan results our funding actual in The reflect businesses available. to our sources updated for funding regularly projected the growth to liability relation and in asset needs as well as maturities, expected covered securitizations, (HELOC) credit of line equity home deposits. Medium-Term and unsecured U.S. auto senior and card, U.S. Australian credit and long-term Canadian, Canadian Canadian to Program, securitizations, and access Issuance mortgage bonds, ready Note U.S. maintains European and BMO a Canadian profile. including programs, maturity programs, Note and borrowing instrument various meet segment, through to investor funding monetized currency, wholesale be jurisdiction, can 100. by statements. that page well-diversified financial 2017, on are consolidated 31, section activities the October Assets of at Liquid 199 as Unencumbered outlined page billion the are on $213.8 in funding 29 totalling described term Note assets, as wholesale in liquid requirements, BMO’s found unencumbered funding of be of potential maturities can portfolio and maturities sizeable from mix deposit a increased The on maintains outstanding issuances. information BMO funding funding Additional Wholesale wholesale below. funding. to table unsecured due the as 2016, in sourced 31, billion October $123.5 at and billion funding $170.3 secured as sourced billion $57.0 6 oa hlsl udn ossso aaindla-eoiae udn f$95blinadUS-olradohrfrindnmntdfund foreign-denominated other and U.S.-dollar Enhanced and recommended billion with $49.5 accordance of in funding table Canadian-dollar-denominated this of in consists reported funding is wholesale debt Total Subordinated purposes. (6) advances. accounting FHLB for to liabilities Refers other or (5) deposits as reported instruments debt subordinated certain securitizations. Includes auto (4) and card acceptances, credit bankers’ Includes and investors. transactions (3) institutional repo to excludes issued funding Primarily Wholesale instruments. (2) negotiable marketable, of issuance the through raised funding includes primarily funding unsecured Wholesale (1) debt Subordinated banks from Deposits Cnda nmillions) in $ (Canadian oee od n securitizations and bonds Covered Total which: Of Total Other notes deposit paper Bearer commercial and deposit of Certificates se-akdcmeca ae (ABCP) paper commercial Asset-backed eiruscrdsrcue notes structured unsecured Senior notes medium-term unsecured Senior M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO te se-akdsecuritizations asset-backed Other bonds Covered securitizations HELOC and Mortgage Unsecured Secured M’ hlsl udn lnsest nuesfiin udn aaiyi vial oeeuebsns taeis h udn lnconsiders plan funding The strategies. business execute to available is capacity funding sufficient ensure to seeks plan funding wholesale BMO’s funding wholesale BMO’s strategy. management liquidity overall our of part important an is sources funding wholesale our of Diversification with 2017, 31, October at billion $180.5 was securities, marketable negotiable of consisting largely outstanding, funding wholesale Total hc r icoe ntecnrculmtrt al nNt 9o ae19o h osldtdfnnilsaeet,adecue BPise ycranAC odista sntcnoiae for consolidated not is disclosures. that Force conduits Task ABCP Disclosure certain by issued ABCP excludes and statements, financial consolidated the of 199 page on 29 Note in table purposes. maturity reporting contractual financial the in disclosed are which (6) (5) (4) (2) (3) (1) 2017 esthan Less 0632,3 8782,4 9301,5 216180,513 72,126 19,057 89,330 21,548 18,758 28,331 20,693 8831,2 6292,4 5291,0 705123,536 37,015 11,302 180,513 75,219 72,126 20,144 19,057 16,279 89,330 19,923 21,548 18,873 18,758 28,331 20,693 4581,8 0801,1 670380–60,640 – 3,880 56,760 14,718 10,880 16,584 14,578 month 1 Wholesale CapitalMarketTermFundingComposition ,1 4 ,5 0 3,962 106 – 3,856 – 4 241 3,611 ,2 ,0 ,7 ,0 4117753,1 56,977 35,111 7,755 14,111 1,404 2,479 8,408 1,820 ,7 ,6 8 ,2 3,722 – – 3,722 – 481 2,066 1,175 22% Senior Debt(GlobalIssuances) Senior Debt(Canadiandollar) Mortgage, CreditCard,Auto&HELOCSecuritization+FHLBAdvances Covered Bonds 26% 4 ,6 8 ,9 4 6,935 645 – 6,290 – 484 5,161 645 6 ,9 ,4 0285––2,815 – – 2,815 10 1,042 1,098 665 9–––1 ,8 3,002 2,983 – 19 – – – 19 46420981492735,160 2,753 1,449 958 290 614 54 –––––– – 5 5 ,5 89223,225 18,912 3,756 17,935 557 12,801 2,550 – 2,584 – 1,114 900 557 570 – – ,0 ,5 ,1 1797422,9 48,089 28,898 7,422 11,769 5,416 4,353 2,000 – 23% 29% months 1to3 months 3to6 sa coe 1 2017 31, October at As months 6to12 2016 22% 25% esthan less Subtotal year 1 21% 32% (%) 1to2 years n f$3. ilo sa coe 1 2017. 31, October at as billion $131.0 of ing er Total years 2 ,2 5,028 5,028 Over sa coe 1 2016 31, October at As 170,326 117,634 170,326 19,778 18,105 52,692 55,260 42,876 4,303 2,193 6,538 5,666 6,295 5,344 3,968 Total MD&A 105 Subordinated debt – NVCC Outlook BMO Financial Group 200th Annual Report 2017 Senior long- term debt Short-term debt P-1A-1F1+R-1 (high) A1 A+ AA AA- Baa2 A BBB (low) A+ Negative Negative Stable Stable is the potential for loss resulting from inadequate or failed internal processes or systems, human interactions or external The credit ratings assigned to BMO’s senior debt by rating agencies are indicative of high-grade, high-quality issues. Standard & Poor’s (S&P) and Operational risk is not only inherent in our business and banking activities, it is inherent in the processes and controlsThe used nature to of manage our our business risks. also exposes us to the risk of theft and fraud when we enter into credit transactions with customers or counterparties. We utilize various risk management frameworks to manage and mitigate all of these risks, including internal controls, limits and governance We regularly review our top and emerging risks, and assessConsistent our with preparedness the to management proactively of manage risk the across risks the that enterprise, we we face employ or the could three-lines-of-defence face approach in to the operational risk. Operational Operational risk events, but excludes business risk, credit risk and market risk. Rating agency Moody’s As at October 31, 2017 S&P Fitch DBRS Operational Risk Credit Ratings The credit ratings assigned tocapital BMO’s and short-term funding and to senior support long-termlevels. our debt Should business securities our operations. by credit Maintaining external ratings strong ratingcapital experience credit agencies markets a ratings are could downgrade, allows important be our us in reduced. cost to thepage A of access raising 159 material funding the of of downgrade would capital both the of likely markets consolidated our increase at financial ratings and competitive statements. could our pricing also access have to other fundingFitch consequences, and have including capital a those through stable set the outlook outStrong+ on in from BMO. Note Very Moody’s 8 Strong-, and on resulting DBRSMoody’s in have expectation a a of downgrade negative a of outlook. more Moody’s Onand challenging ratings May increase operating of 10, their environment six 2017, sensitivity for Canadian Moody’s to banks banks, revisedAssessment external in including its assigned shocks. Canada BMO. Macro to The that The Profile BMO Baseline could Macro for by Credit lead Profile Canada Moody’s Assessment, to change to were long-term a reflects each debt deterioration downgraded and in by deposit the one ratings banks’ notch. and asset Counterparty quality Risk Regulatory Developments The Net Stable Funding Ratiovalue (NSFR) of is the a bank’s regulatory assets. liquiditytimeline While metric to this that January metric assesses 2019, was the given expected stabilitydeadline. the to of This uncertainty come a also about into bank’s extends whether force funding the key on profile time foreign January in available jurisdictions 1, relation for will 2018, to OSFI implement OSFI the to the has liquidity clarify new extended the standard the details by domestic of the implementation the January NSFR 2018 rules as they relate to the Canadian market. There is the potential forreputational errors harm. to Shortcomings occur, or as failures wellincluding of as any our the of internal possibility our processes, of financial, employees failure accounting or in or systems, our other or internal data of processes processing services orIn systems, and systems, extending could products which credit, lead provided could we to by lead rely financial third toaccurate on loss parties, financial and information or loss complete. and restatements and While other and we representations damagevaluation conduct made our experts, appropriate by reputation. and due customers other diligence and experts on counterpartiesbe or such and adversely sources customer that impacted of information information if information and, provided the to where is diligence information assist practical process. provided with and by assessing economical, customers collateral engage or and counterparties other is customer materially risks, misleading our and financialprocesses. that results However, is may despite not the discovered contingency duringimpacts, plans the and we due the have contingency in plans placedisruption our to to third-party maintain the service our infrastructure providers ability that have todisruption supports in serve caused both place, our by our our clients public operations ability and health and to minimize emergencies the conduct disruptions or communities business and terrorist in may adverse acts. which be we adverselyfuture. do affected For business, by more including a information but on not these limited and to other factors thatrisk may is affect managed future by results, business pleasealong units refer with and to the corporate the Corporate functions discussion Support as ona areas the page comprehensive in first 80. Operational targeted line Risk areas, of Management as defence.to Framework the It controls (ORMF). second is and The line overseen highlights Corporate of by opportunities Audit defence, ERPM to Division, governed Operational strengthen as by Risk our the a Management processes. third robust (ORM), line committee of structure defence, and assesses supported our by adherence Operational risk is inherent inincluding all financial our loss, business restatements and and bankingis damage activities exposed to and to our has a reputation. the variety Like potentialexternal of other to threats. operational financial significantly Potential risks services impact losses that organizations our may arise operating businessnon-compliance, result from in and business from the multiple financial disruption, process potential jurisdictions, results, information and for BMO security control failuresdamage breaches, failures, of to cyber theft our physical security and internal assets. threats fraud, processes, Given and unauthorized employeesis the exposure transactions and a large related by systems, possibility volume to employees, as that of outsourcing, regulatory well certain transactions as as operational we well from or process as human on the errors a risk may daily of be basis, repeated and or the compounded complexity before and they speed are of discovered our and business, rectified. there MD&A rmr betv fteOM,adoripeetto n vrih fti rmwr n t rvsos st nueta u prtoa risk operational our that ensure to is provisions, capital. its adequate and by framework supported this and of appetite oversight risk and our implementation with our consistent and is ORMF, profile the of objective primary A ose u nenlrsucsadtcnlg aaiiisi re obte nbeu ormi eiin narpdyeovn hetlandscape. threat evolving rapidly a in to resilient suppliers remain 106 software to and us performs security enable BMO cyber better resources. with to human work order and also in technology We capabilities both standards. technology effectiveness in BMO and the investments with resources of ongoing alignment internal service evaluation with monitor our at industries, needed, to bolster and security as providers BMO cyber controls, service within and new third-party to threats banking of of continues security the development assessments BMO cyber across and disruption. manage practices controls service and best key and detect of our failure or review of as system prevent and espionage, causing to benchmarking corporate at processes include advanced and targeted and These on theft efforts talent providers. reliance identity from technology, and hacking, resulting defensive internet of service in the threat of invest of the denial proactively use including of pervasive risks, possibility our security the Given information as reputation. banking well and common brand face activities, we business technologies, BMO’s digital to integral is security Information Risk Security Cyber ‰ ‰ ‰ ‰ ‰ ‰ ‰ second- our ‰ strengthen to continue also and We profile: near-misses ORMF. and the events of loss oversight from and learning execution by defence, day-to-day oversight. culture of as and risk lines well support our three as line-of-defence strengthen all communication, to within and continuing risk training and involves operational other controls, also of providing ORM and strategy understanding within processes ORMF and develops, (OROs) in our awareness defence, Officers weaknesses Executing greater of Risk potential actions. promoting line Operational and and second risk. exposures strategies the operational material mitigation as of identify appropriate near-miss ORM, management profiles, recommend and which its risk losses by in operational exposures, processes line group risk the first assess operational defines the independently by key also assesses used on ORMF and processes report The monitors the and impact. supports, policies, defines monitor potential communicates, and which mitigate, significant tools ORMF, manage, with strategy, the measure, events risk maintains identify, risk operational and to operational for establishes defence targeted responsible ORM of businesses in is governance. line of oversight which and first CROs and team, challenge the the governance ORM effective with additional the oversight, risk, providing by second-line operational areas provided for of Support is and management Corporate oversight day-to-day and management the units risk for respective Independent accountable their areas. are for defence, oversight of and line governance first providing the as groups, our operating in The invest management to proactive continue Management the We facilitate Risk profiles. and Operational group transparency operating risk and enhance integrated indicators to an risk capabilities exposures. provides key reporting risk to reporting consumption, comprehensive operational profile Enterprise capital and of risk framework. data, timely operational governance loss support enterprise risk in to ensure our our trends platforms to of of risks, reporting basis reporting elements emerging regular and important and a analysis are top on Regular RRC) of reviewed appetite. and view are risk RMC guidelines, documents our (ORC, operating governance with committees standards, These consistent various risk policies, ORMF. are the operational the the and all to of practices for challenge principles sound committee effective governing incorporate governance provides the they and ORC comprise oversight the that primary responsibilities, tools the governance and is its methodologies RMC, of the part of As sub-committee matters. a management (ORC), Committee Risk Operational The Governance Risk Operational ANALYSIS AND DISCUSSION MANAGEMENT’S eurdb a,rglto rcnrculareet n hr ti cnmclyatatv n rcial omtgt u ik,i re to order in risks, our mitigate where to insurance practicable purchase and We attractive exposures. economically loss. risk is material operational it unexpected certain where against for and protection mitigation agreement, adequate stakeholders. of contractual provide the other level or in and second regulation processes customers a law, and our provides by operations on team required critical effects Insurance recover adverse & and any Risk manage minimizing Corporate maintain, thereby BMO’s ORMF to disruption, the capability business execute the a to with of equipped us event and provides qualified management are continuity employees business the our Effective of that member share ensure efficiently. a that to and is banks modelling. seek effectively BMO of and programs consistently, appropriate. associations assessment training where international identification, management taken and risk risk be national in operational to other assist BMO’s action and to regularly corrective Association anonymously are or Bankers information trends preventative American data prevention Material enable the loss risk data. to Association, future external order Exchange for available in Data opportunities against RRC Risk identifying benchmarked and Operational and and RMC exposure analyzed ORC, risk intervention. risk is the our management operational data to to trigger our loss reported relation that assessing internal overall thresholds of assessment, their to means this and linked important In identify profiles are an measures. functions risk and as corporate operational ORM, serves and monitoring by data groups in challenge loss Operating used and Internal exposure. are review risk KRIs to in These subject changes risks. are and adverse operational appetite, monitoring any material approval, of their diligence, indication to due early related or that organization. an metrics service ensure the provide business, to of (KRIs) new seeks levels indicators a process all risk when The at Key initiatives enhanced. addressed qualifying are appropriately approve products are our and and requirements of management. document services reporting understanding risk assess, existing greater appropriate to or a and used developed enable oversight is is ORMIs effective process product controls and more approval and PRAs facilitates and risks units. which assessment key functional activities, initiative identifying and mitigation BMO’s by business risk view multiple and deeper span issues a may processes, appropriately provide which key be (ORMI) processes, can Investigations business risks Management important key Risk our that Operational in so and appetite, (PRA) risk. risk Assessment of our Risk business management to Process the and relative mitigated. of mitigation risk and impact prevention, operational managed the proactive of documented, their of the view identified, with view enabling enterprise-level associated forward-looking profiles, independent risks a risk an key provides group produces the process operating ORM identify RCSA on to The controls groups mitigation. internal operating risk and our for environment by required used controls process the established and an businesses is (RCSA) Self-Assessment Control Risk M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO h olwn r h e rgas ehdlge n rcse nteOM htass si h non eiwo u prtoa risk operational our of review ongoing the in us assist that ORMF the in processes and methodologies programs, key the are following The MD&A 107 BMO Financial Group 200th Annual Report 2017 is the potential for adverse consequences following from decisions that are based on incorrect or misused model results. These The results from these models are used to inform business, risk and capital management decision-making and to assist in makingQuantitative daily tools lending, provide important insights and are effective when used within a framework that identifies key assumptions, limitations Model risk adverse consequences can include financial loss, poor business decision-making or damage to reputation. Model Risk BMO currently uses the Advancedthe Measurement Standardized Approach Approach (AMA), in a certain risk-sensitivedistribution areas, capital approach, regulatory model, along capital to with requirements determine the for bothdata four managing economic are elements operational capital used required risk. and, as to The along inputs support AMA with activity for the Capital or the measurement Model event AMA of uses type. Capital our a Minimum Model operational loss distribution enterprise and, risk (99.9% operational based exposure. quantile risk on Internal for capital shared and regulatory is attributes, externalused capital determined are loss for and at grouped post-modelling 99.95% a into adjustments, quantile specific cells and for upper whichconsistency these economic confidence include in are capital). limit operating application subject Business of group, across to environment the business the regular and enterprisemanagement enterprise. review internal total with Scenarios in control loss a are order factors better used to are understanding to identifycreate of verify and risks low-frequency, the understand that high-severity distributions risk exceed events and drivers our and correlations andwith risk to used to a appetite. assess to confirm new We enterprise model Standardized are preparedness capital, Measurement monitoring for toimpact Approach. potential events provide of We regulatory which plausible also capital could operational, use developments economic, scenario thatexposure market analysis may and and as lead confirm credit part to the events of the adequacy on our replacement of our stress of our operations testing AMA operational and program, risk capital which capital. position, measures and the allows potential us to manage tail risk Operational Risk Capital and Stress Testing Anti-Money Laundering Anti-Money Laundering, Anti-Terrorist Financing (AML/ATF)customers and and Sanctions the Measures communities compliance in isregulatory which an requirements. we essential Risks operate. part related BMO of to is safeguardingBMO non-compliance committed BMO, promotes include to our effective regulatory prudently AML/ATF enforcement managing governance actions AML/ATFbusinesses, through or risks, so our penalties, including that AML/ATF legal complying we program, actions with are which and all designed able establishes loss to to minimum of be take standards reputation. dynamic prudent and and measures guidelinesprofessional adaptable to across expertise to prevent all to the money BMO deter, evolving laundering, detect nature terrorist and of financing report AML/ATF and suspicious risks, sanctioned activity. and activity. is This delivered program by is employees who use analytics, technology and Models are quantitative tools thatquantitative apply estimates. statistical, BMO economic uses and models otherthat ranging quantitative value from techniques complex very and transactions simple assumptions or models to provide that process a produce input broad straightforward data range estimates into of totrading, forward-looking highly underwriting, estimates. sophisticated funding, models investment andexposure operational to decisions. specific For risks example, through BMOrequirements stress uses and testing, models to to as measure value a risks and core on price risk an transactions, management integrated to tool basis evaluate to using credit, measure and economic market controls capital. and and operational mitigates risk model regulatorymaintaining risk. capital strong In controls addition over to the applyingto development, judgment ensure validation, to that implementation evaluate qualitative and the model use reliabilitysubject overlays of of to and models model effective non-statistical across results, challenge approaches all BMO by to model mitigates those evaluating categories. model with risks BMO risk sufficient are also by expertise intuitive, takes and experience-based, steps knowledge well-documented to and provide reasonable results. MD&A eurstemdlonr n eeoest sesamdlscniun utblt o s,adsc seseti ujc oidpnetreview independent to subject is 108 assessment such Revalidation and rating, inadequate. use, risk be for model’s may suitability a performance continuing on model’s model’s group. based a a Validation that frequency that assess Model ensure the indicate to the help with tools developers by to revalidation, monitoring and and periodic ongoing owners issues to or model potential subject judgment the mitigate are business requires and to use if validity applied in reviews continuing are models earlier the controls All to confirms other acceptably. and analysis which and perform outcomes process, techniques to including evaluation These continue are monitoring, the time. models limitations ongoing of over the model to part model any subject are each that are analysis of validation use, models outcomes performance and of use, and adequate development range in monitoring The appropriate When Ongoing cycle. an implemented. reviews. life within are periodic of model effectively mitigants and understanding the used risk an over be appropriate including models can that decision-making, of models and business maintenance that identified in and ensure models care to of proper guidance use the provide appropriate for processes the and for limitations, accountable and are assumptions users model model other and owners developers and Model the review Monitoring model, independent a and effective of and Use definition documentation Model the appropriate meet provide managers. quantitative otherwise to and or not expected employees methodology does nevertheless BMO a or are knowledgeable Risk Where techniques tool by Model used. statistical or challenge BMO’s be advanced methodology and with can on such users accordance model reliant of owners, in a materially users model obtained before be and of is required to guidance exception is considered the an group not for unless Validation is its made and, Model tool achieves are required the sound, Observations be from statistically risk. may approval and model issues Framework, conceptually material model Management is creating of model without mitigation proposed use or a intended remediation documentation, whether its developers, development evaluate for the to fit reviews developers is strengths group model and outputs, Validation the objectives other characteristics, Model by and model independent generated owners documenting Our analysis model and alternatives. and engaging evaluating and results and by by assumptions, availability so and and data do processes, limitations identifying Developers implementation weaknesses, BMO’s solutions, purposes. and and with model intended development complies proposing their the model by address in each owners that stakeholders that model models key ensuring the implementing for assist and design, responsibility developers developing the overall Model and determine have use. limitations, stakeholders, and of other models, terms and the approved requirements developers of and regulatory model functionality policies certain with desired with consultation and complying in use including owners, intended objectives, Model objectives, business objectives. specific management meet risk to meeting used and and implemented developed, are the Models oversee governance Validation to discuss models, and to of and Development use challenge Model bank’s effective the provide direct to the help Framework, and to Management models. validators regularly Risk enterprise’s and meets Model the developers MRMC the of Committee users, The of Management owners, RMC. maintenance Risk (model the and Model enterprise of implementation The the sub-committee development, risk. across a model stakeholders and of key group) defence. assessment all Governance of and representing Model line aggregation group third overall cross-functional Validation the the a Model is and is the Division processes (MRMC) defence, Audit model of Corporate our line the of first and effectiveness the defence, the and are of roles users line the and second define developers the and owners, are processes Model groups remains Model management cycle. Governance risk and risk life Model model Standard model model the that Corporate detail the and ensure Risk risk, across to Model model stakeholders helps Policy, managing all and Corporate for of cycle Risk principles responsibilities life Model explicit model BMO’s outline the includes which across framework Guidelines, governance The Risk risk appetite. model risk for enterprise-wide approach BMO’s end-to-end within an out sets framework This Risk Model enterprise-wide the by BMO estimates at provide governed or is reality risk simulate Model to models. cycle. data of life and misuse model techniques potential the statistical the covers on from which rely arises Framework, that also Management estimates risk are Model resu M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO h oe oennegopi epnil o h eeomn n aneac fteMdlRs aaeetFaeok vrih of oversight Framework, Management Risk Model the of maintenance and development the for responsible is group Governance Model The Monitoring & Validation Ongoing Maintenance Decommission Model Use& 7 Model 6 8

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Model e Data Development 4 2 Model 3 MD&A 109 BMO Financial Group 200th Annual Report 2017 – All internal models used in determining regulatory capital and economic capital for trading and risk is the potential for loss or harm created by failing to comply with laws or satisfy contractual obligations or regulatory – Back-testing of our structural market risk models is performed monthly and reported on quarterly. For products with a – The Model Risk Guidelines support BMO’s Model Risk Corporate Policy. These guidelines include clear and detailed requirements for the All models used within BMO are subject to validation and ongoing monitoring, and are used in accordance with our Model Risk Management The process for back-testing the probability of default (PD) model computations includes comparing PD estimatesThe generated comprehensive by validation credit of risk a models risk rating system involves various prescribed tests and analyses thatAs assess with discriminatory any power, analysis, calibration judgment is applied in determining which of the various factors, suchAnnual as validations data of limitations, all might material affect models the in overall use relevance are conducted to confirm that they perform as intended and continue to be fit for use. An annual Under the direction of the General Counsel, the Legal and Compliance Group (LCG) maintains enterprise-wide frameworks that identify, measure, Safeguarding our employees, customers, information and assets from criminal risk is a top priority. Criminal risk is the potential for loss or Legal and regulatory requirements. This includes the risksor of regulatory failing requirements; to: enforce comply or withmanner comply the so with law as contractual (in to terms; letter maintain assert or our non-contractual in reputation. rights; spirit) effectively or manage maintain disputes; standards or of act care; in implement a legislative Legal and Regulatory Risk scheduled term, such as mortgagesobserved. and For term products deposits, without the a modelcompared scheduled forecasts to term, of actual such prepayments balance as or trends. credit redemptions card are loans compared and to chequing the accounts, actual the outcomes modelled balance run-off profiles are Outcomes Analysis and Back-Testing Once models are validated, approvedcomponent and of in outcomes use, analysis, they back-testing areactual compares subject outcomes model to experienced results regular are against revalidation measured actual andactions against observed ongoing such defined outcomes. monitoring as risk Variances and model materiality between outcomes review thresholds. model analysis.during and To forecasts As model parameter ensure and a development. recalibration that key This are variances analysis taken. remaincontrols serves Performance within are to is the in confirm assessed tolerance place the by range, to validity analyzing address of model identified a overrides issues model’s and and performance tests enhance over conducted Framework. the time, The model’s and framework overall helps applies performance. to to ensureand a that anti-money wide appropriate laundering variety models. of We models, highlight ranging a from few stressCredit key loss, Risk applications market, of credit this and framework operationalback-testing below: risks of all to credit pricing risk and rating valuation models. to the actual or realizedaccurately default capture rates sampling across variability borrower over ratings. time. This process also includes examiningand statistical dynamic evidence properties, to with confirm support thatprobability from default of migration rates default analysis. results. Additional tests or analyses are used toof validate a borrower given risk validation rating approach gradesmodel or and computations. interpretation of statistical analysis. Similar back-testing is applied tovalidation the includes loss a given qualitative default and andModel quantitative exposure Validation assessment at group, conducted default with by all model conclusions developers, reported which to isTrading senior reviewed and management. and Underwriting effectively Market challenged Risk by the underwriting market risk have theirday Value 99% at confidence Risk level (VaR) VaR resultsthe at back-tested daily the regularly. change local The in and bank’s portfolio consolidated internalabsolute value BMO VaR value that levels model is would is is greater occur compared back-tested than if to daily,and the the the and the previous portfolio realized the back-testing day’s composition theoretical one- results VaR, remained Profit are a unchanged. &monitors reviewed back-testing If Loss the by exception the (P&L) quality Market occurs. theoretical calculation, and Risk, Each P&L which accuracy senior exception result is of management is is the and investigated, negative internal the explainedStructural and VaR Board, and Market its model and documented, Risk results are and reported assists to in our refining regulators. overall This risk process measurement procedures. manage, monitor and report onlegal legal and and regulatory regulatory requirements, risk. trends LCGBMO and also is potential works subject risks, with to recommend the litigation mitigation operatingadverse arising strategies groups effect in and and on the actions, other our ordinary and Corporate financial course oversee Supportmanagement results of litigation areas is and business involving to the damage and BMO. identify oversight our the of reputation. unfavourableclients. fiduciary Another resolution Of risk area of particular related of any importance to focus such are any for litigationand policies of the could expectations, and BMO’s operating have client practices businesses groups a suitability that that and material determinations, address provide legal and the products and disclosure responsibilities or compliance obligations of services risk and a giving communications. business riseharm to to created a fiduciary by client, duties failing including to to serviceby comply requirements external with parties criminal using laws BMO andBMO to includes has engage acts transformed in by its unlawful employees management conduct againstdetect, of such BMO, respond criminal as acts to risk fraud, by and through theft, external report the money partiesand on implementation laundering, against oversight. criminal of violence, BMO risk cyber-crime, a and using bribery robust acts a and Criminal three-lines-of-defence corruption. Risk approach, Framework as that well is as designed through to enhanced prevent, centralized management BMO’s success relies in partregulated, on and our we ability anticipate to intense prudentlyas ongoing manage governments scrutiny our and from exposure regulators our to around supervisors legalcontinue the in and to world the regulatory be continue oversight risk. subject with process The to reforms and financialmonitor fines intended strict services developments and to enforcement industry to penalties strengthen of is enable for the regulatory highly BMO a stability requirements to number of respond of the to regulatory financial and and system. implement conduct Banks any issues. globally required As changes. rulemaking and supervisory expectations evolve, we MD&A 110 ANALYSIS AND DISCUSSION MANAGEMENT’S aae opinewt plcbelgladrgltr eurmns h C iet prtn rusadCroaeSpotaest maintain to areas Support Corporate and and and assesses groups Board identifies, operating the approach, directs of risk-based ECP (ACRC) a The Committee using requirements. Review which, regulatory Conduct (ECP), and and Program legal Audit Compliance applicable the Enterprise with to our compliance report of manages further regularly effectiveness and (CCO) the delay Officer on a Compliance management expect Chief senior we the uncertain, and extend remain Counsel would amendments General which proposed The amendments, the proposed of implemented filed details BMO DOL While 2018. the 2019. rule. 1, 2017, 1, the January August July to for In to changes complete scheduled deadline. date to compliance 2017 compliance exemption full June 2018 an with the January require 2017, before the that June requirements activities of these fiduciary as address be apply to to partially procedures considered requirements generally exemption are The plans sale. benefit the employee and OTC accounts retirement jurisdictions, to individual of continue requirements. number regulations and a conduct rules Rule In business these Fiduciary 2019. and of DOL 1, execution impact be September clearing, the will than and for and later repositories preparing 2017, no trade is non- 1, and designated BMO on March 2018 to implemented. performance since 1, reported be secure rules September be to margin than now designed variation earlier must are to no transactions which subject beginning derivatives United of been rules the both has margin and margin, BMO initial Europe initial entities. to Canada, and covered subject including margin between jurisdictions, variation transactions of of derivatives number exchange cleared a the centrally in require adopted will been rules have Margin derivatives States. protection cleared consumer non-centrally the for to requirements changes Margin further of being advance currently in Reform practices measures Derivatives sales policy of potential reviews inform the help survey and will banks. cross-jurisdictional (FCAC), initiatives to the Canada These applicable to of OSFI. framework reference Agency and with Consumer FCAC banks, Financial the to the by applicable by conducted open framework conducted of protection rules merits the consumer protection the with federal consumer examining them the of financial competition; align of new increase closely review of to more government’s policy context banks to the Potential the mid-sized provisions includes sector. in and governance financial banks small corporate the those for modifying to among frameworks and the approach collaboration exit banking; to longer-term facilitating and prior government’s and entry changes federal banks bank legislative the of streamlining to inform powers technologies; lead might business could that the that or clarifying measures 2019, include policy 29, measures potential March on of focuses date paper sunset consultation statutory limits. The LTV Legislation. those Sector circumvent Financial uninsured to Federal for designed rate transactions Legislation qualifying on Sector minimum restrictions Financial the and Federal on limits, focus and with frameworks practices, (LTV) underwriting loan-to-value mortgage around their expectations in mortgages, vigilant remain lenders mortgage regulated requirements, Procedures TLAC and 69. capacity regime page Reforms loss-absorbing bail-in on Market total the starting Housing related of section for the discussion Management released and additional Capital OSFI framework For Enterprise-Wide and bail-in banks. the Canada Canada’s important to Finance of systemically refer of details domestic please Department out six the setting Canada’s 2017, guidelines for June and requirements In regulations (TLAC) efforts. draft international of with package line a in comment Legislation capabilities, Tax and resolution 114, policy bank page fiscal Canada’s on potential enhance Assets 80. certain Tax page of Bail-in Deferred on and impact and Policies Resolution the Taxes Monetary Bank of Income and discussion – Fiscal additional Estimates and For Accounting 80 starting 99. Critical page section page see on Management on please Interpretations Capital starting results, and Enterprise-Wide section our the Risk on to Funding changes refer and legislation please Liquidity tax risk, the hold funding and to and 69 required liquidity page are specific and on we and management capital measures capital of protection to amount consumer relating the reform, developments on derivatives the pressure (OTC) as upward over-the-counter such put include reforms, will developments financial expect regulatory we global which Other III), time. reputation. (Basel over our standards with to global comply harm (BCBS) to inabilit and Supervision Failure an confidence Banking issues. actions, customer of protection enforcem M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO ecniu orsodt te lblrgltr eeomns nldn aia n iudt eurmnsudrteBslCmiteon Committee Basel the under requirements liquidity and capital including developments, regulatory global other to respond to continue We and groups operating the with Working business. conduct we way the on impact significant a has scrutiny supervisory and Support regulatory Corporate Heightened and groups operating The previously. described model operating three-lines-of-defence the reflect frameworks these of All quality the concerning expectations their raising concerns, related other and laundering anti-money on focus to continue regulators International development, economic sustainable stability, political on effects negative its counter and corruption curb to seek globally governments As h eie udln oe noefc nJnay1 08 h eiin enoc SIsepcainta ak n te federally other and banks that expectation OSFI’s reinforce revisions The 2018. 1, January on effect into comes Guideline revised The . h ..Dprmn fLbr(O)fdcayrl eaeefciei ue21.Slso netetpout n evcsto services and products investment of Sales 2017. June in effective became rule fiduciary (DOL) Labor of Department U.S. The – 2 uidcin otnet mlmn e euain spr fteOCdrvtvsrgltr eomprogram. reform regulatory derivatives OTC the of part as regulations new implement to continue jurisdictions G20 – nOtbr21,OF ulse h ia eso of version final the published OSFI 2017, October In – odFakWl tetRfr n osmrPoeto Act Protection Consumer and Reform Street Wall Dodd-Frank nJn 06 eilto eurdt mlmn ali eiewspse yteCnda oeneti re to order in government Canadian the by passed was regime bail-in a implement to required legislation 2016, June In – h eateto iac aaahsrlae eodcnutto ae eae ote21 eiwof Review 2019 the to related paper consultation second a released has Canada Finance of Department The – udln -0–RsdnilMrgg newiigPatcsand Practices Underwriting Mortgage Residential – B-20 Guideline Dd-rn) o diinldsuso fteregulatory the of discussion additional For (Dodd-Frank). aaaBsns oprtosAct Corporations Business Canada h consultation The . yto MD&A 111 BMO Financial Group 200th Annual Report 2017 is the potential for loss or damage to BMO’s reputation resulting from environmental or social concerns related to is the potential for loss due to changes in the external business environment and/or failure to properly respond to these changes arises from the specific business activities of an enterprise and the effects these could have on its earnings. All BMO employees must complete annual legal and regulatory training on topics such as anti-corruption, anti-money laundering and privacy. Our Sustainability Principles are the guidelines we follow as a responsibly managed bankBMO’s that Sustainability considers Council, environmental, social which and is governance comprised (ESG) of senior leaders fromThe business ESG and group Corporate is Support responsible areas for across coordinating our the organization, development provides and maintenance of an enterprise-wide strategy that meets BMO’s overarching BMO’s Office of Strategic Management (OSM) oversees our strategic planning process and works with theThe lines OSM of works business, with along the with lines ERPM, of business and key corporate stakeholders during the strategy development process to promote consistency and Our ability to execute on the strategic plans developed by management influences our financial performance. If these strategic plans do not meet BMO faces many risks that are similar to those faced by non-financial firms, principally that our profitability, and hence value, may be eroded Within BMO, each operating group is responsible for controlling its respective business risk by assessing, managing and mitigating the risks Environmental and social risk BMO or its customers. Environmental and social risk is often associated with credit, operational and reputation risk. Strategic risk as a result of inaction, ineffective strategies or poor implementation of strategies. Business risk Environmental and Social Risk Strategic Risk Business Risk compliance policies, procedures and controlsdeficiencies, that and meet tracks these remedial requirements. action Under plans. the The direction Chief of Anti-Money the Laundering CCO,This Officer LCG is also identifies done regularly and in reports reports conjunction to onbehave with the gaps as our ACRC. and employees Code of of BMO. Conduct training, which tests employees’ knowledge and understanding of how they are required to issues as we pursue sustainable growth. These principles reinforce the deeper sense ofoversight responsibility and that informs leadership all for aspects our of ESG our business strategy. strategy. environmental and social responsibilities. Theenvironmental Environmental management Sustainability system (ES) that group is isbank’s aligned responsible operations with for and the establishing its framework and Environmental set maintainingmanagement Policy. out an processes. BMO’s in Procurement ISO and 14001, Corporate and Real for Estate setting groups objectives are and responsible targets for related establishing to environmental the Environmental and social risk coversunsustainable a use broad of spectrum water of and issues, other such resources, as as climate well change, as biodiversity, risks ecosystem to health, the pollution, livelihoods, waste health, and human the rights and cultural heritage of communities. Strategic risk arises from externalunable risks to inherent address in those the external businesscompetitive risks environment risks effectively. within – While which cannot external BMO be strategic operates,framework, controlled, risks as and the – well certain likelihood including as of and economic, the these magnitude geopolitical, potential risks, of regulatory, for including their technological, loss economic, social impact if geopolitical and can BMO and be is Finance regulatory mitigated and risks, through Corporate can an Support be effective areas, assessed strategicframework to through management encourages identify, stress a monitor testing. consistent and approach mitigate in strategic developing risk strategies across and the incorporates enterprise.adherence information Our to linked rigorous strategic to strategic management financial management standards, commitments. The including potential a impacts consideration of of changes theof in results this the of process business stress and environment, testing inform such asCommittee strategic as an and decisions broad input the within industry into Board each trends strategic of of and decision-making. and Directors our the the annually lines actions potential in of of future interactive business. competitors, business sessions Enterprise are environment. that and considered challenge group as assumptions strategies part and are strategies reviewedwith in with success the the or context Executive if of there boththrough is the the a current strategic change management in process theperformance, are strategic so monitored plans, that regularly our strategies and earnings can reported couldin be on grow order reviewed quarterly, at to and using a identify adjusted both slower any where leading pace significant necessary. and or emerging Regular lagging decline. risk strategic indicators Performance issues. and of objectives financial established updates are also monitored closely by changes in the businessexpectations, environment heightened or competition, by technology failures driver ofchanges. changes, strategy For adverse or example, business execution. client developments Sources retention and ofplatforms, can relatively these ease be ineffective risks of influenced responses include, access by to but to a industry are products number not and of limited services, factors, to, the including changing quality service client arising of levels, from the prices changes customer for in experience, products business our and volumes reputation services, and and delivery cost the structures, actions among of other our factors. competitors. Business risk encompasses the potentialof causes business of risk earnings identifies volatility and thatability addresses are to factors distinct compensate related from for to credit, these the market developments risk or by that operational cutting volumes risk costs. will factors. decrease The or management margins will shrink without the enterprise having the MD&A 112 Risk Reputation ANALYSIS AND DISCUSSION MANAGEMENT’S ttmn PS,ado u oprt epniiiywbie eetdevrnetladsca niaosi h S eotadPSaeassured are PAS and Report ESG the in Accountability indicators Public social and and our Report environmental report (ESG) Selected party. publicly Governance website. third We and Responsibility a operate. Social Corporate by we Environmental, our where annual on jurisdictions our and the in (PAS), in targets Statement changes and legislative performance and social policy and Leadership evaluate environmental Pricing world. and Carbon the monitor the around continuously in pricing and partner carbon stakeholders, a of are implementation We effective practices. the ownership supports and that decision-making partnership global investment, voluntary a into a – issues Coalition, Project ESG Disclosure change. of Carbon climate integration been the and the have in emissions through principles participant gas These and greenhouse risks. to on and signatory disclosure impacts long-time corporate potential a publishes their are and and of We assembles environmental magnitude framework. that Corporation the management initiative Finance on risk Bank/International based credit World projects our the assess into apply and integrated also categorize We to transactions. process finance screening project social in risk outlines social which Kingdom and Conduct, United environmental of the legislation. Code under this Supplier statement reflect our first to of our Conduct principles issued of the We Code respect sustainability. Supplier and and our understand dealing updated of, fair aware integrity, be for to standards suppliers our our poor expect have We to that responsibly. diligence borrowers business due with enhanced business apply doing we avoid records. risks, we track environmental and management clients’ sectors, risk address to industry social to exposure sensitive and guidelines assess environmentally environmental risk financing To in social specific business. operating and implemented of clients environmental and lines with decisions. the developed specific transactions financing evaluate have for and we We risk operations framework, exposures. social our management and and of risk transactions environmental impacts credit counterparty and and and consequences framework credit the management with understand risk associated to enterprise stakeholders our external of with part work As We business. our within risk ikMngmn omte eiw ntne fsgiiato egtndepsr orptto ikfrBMO. for behaviour. risk or reputation decisions to the poor exposure reinforce from heightened continually result or we may significant and that of culture, reputation instances ethical our reviews our to Committee of risks Management foundation minimize Risk the to is order Conduct in of employees Code our The for work. out their sets affect it that principles decisions in day-to-day choice in right as the well as decision-making, initiative or transactional and implementation, operational and decision-making. protecting and strategic By engagement development, assets. employee strategy valuable improve of most capital, course our of of cost one our is reduce and value, ethics, shareholder and increase conduct brand, loyalty. business our customer of safeguard maintain standards we high reputation, to our commitment maintaining our and on built is reputation BMO’s euainrisk Reputation M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO oke nomdo mrigise,w atcpt ngoa ouswt u er,miti noe ilgewt u nenladexternal and internal our with dialogue open an maintain peers, our with forums global in participate we issues, emerging investing of sustainable informed encourage keep to To designed framework a Investment, Responsible for Principles Nations United the to signatory a is BMO manage and assess identify, to framework management risk credit its applies and 2005 since Principles Equator the to signatory a been has our BMO manage to commitment our reflects Conduct of Code Board-approved Our stakeholders. our on have decisions our impact the consider We social and environmental manage to areas Support Corporate and business of lines the with partnership in work group ES and group ESG The euainrs sas aae hog u oprt oennepatcsadoretrrs ikmngmn rmwr.BOsReputation BMO’s framework. management risk enterprise our and practices make governance can corporate they our that through so managed them, also of is expected risk is Reputation that behaviour the on guidance with directors and employees the our in provides issues Conduct risk of reputation Code considering BMO’s by achieved best is risk reputation of management effective and ongoing active, that believe We steptnilfrls rhr oteBObad tmyaieee fohrrssaemngdeffectively. managed are risks other if even arise may It brand. BMO the to harm or loss for potential the is oenSaeyAct Slavery Modern n we and MD&A 92 60 43 113 195 2016 15 33 63 111 2017 BMO Financial Group 200th Annual Report 2017

For instruments that are valued using models, VPC identifies situations in which valuation adjustments must be made to the model estimates to The methodologies used for calculating these adjustments are reviewed onThe an Valuation ongoing Steering basis Committee to is ensure BMO’s that senior they management remain valuation appropriate. committee. It meets at least monthly to address the more challenging Our valuation models use general assumptions and market data, and therefore do not reflect the specific risks and other factors that could affect For a more detailed discussion of the use of estimates, please see Note 1 on page 144 of the consolidated financial statements. Funding risk Liquidity risk Total (Canadian $ in millions) As at October 31 Credit risk providing independent review of portfolios where prices supplied by traders are used for valuation. developing and maintaining valuation policiesestablishing and official procedures rate in sources accordance for with valuation regulatory of requirements all and portfolios; IFRS; and arrive at fair value. Astake a into result, account we the incorporate estimated certainadjustment impact adjustments for of when derivative credit using financial risk, internal instruments liquidity modelscounterparty’s incorporates risk to credit credit and establish rating, risk other fair the into items, values. duration our including Thesecosts of determination closeout fair borne the of costs. value by instrument fair For adjustments BMO and values example, for changes by the over-the-counter in taking credit derivative credit into risk positions spreads. account valuation (the We factors funding also suchSignificant valuation incorporate as changes adjustment). an the in estimate methodologies of are the made implicit only funding when we believematerial that valuation a issues change related will to resultdiscussing BMO’s in positions portfolios, better categorized approves estimates as valuation of Level adjustments fair 3 and value. for methodology financial changes, reporting and purposes acts and as their a inherent key uncertainty. forum for Valuation adjustments decreased in 2017, primarily due to higher interest rates and tighter corporate bond and CDS spreads. Valuation Adjustments ‰ ‰ ‰ Financial Instruments Measured at FairBMO records Value trading and available-for-salefair securities, value and option. derivatives, Fair at value theircurrent represents fair transaction our value, between estimate and willing of certain parties. the assetsvalue. We amount and The employ we liabilities extent a would are of fair receive, designated our value or underwithout use hierarchy would the observable of to be market quoted categorize required information market the to (Level prices inputs payat 3) (Level we in October in 1), use the 31, the internal in case 2017, valuation models valuation of as of using techniques afinancial well securities, observable to liability, statements. as derivative market measure in a assets information fair a sensitivity and (Level analysis liabilities, 2) of and and our liabilities internal Level recorded models 3 at financial faira instruments, value particular is as instrument’s disclosed fair in value. Notebusiness, Valuation 17 ensures Product on that Control page the (VPC), 174 fair a of values group the at within consolidated which Market financial Risk instruments Management are independent recorded of are the materially trading accurate lines by: of The allowance for credit lossesfor (ACL) but consists not of yet specific written allowancesbeen off, that individually and represent identified collective estimated as allowances, losses impaired. which relateddefault, Establishing is to severity allowances our impaired of requires best loans loss, significant estimate in the judgment of thecredit timing regarding impairment portfolio losses of key in provided as future assumptions, the a cash including existing percentage flows the portfolioof of and probability for 0.88% average the of loans in net valuation that 2009 loans of have to and collateral. notcollective a acceptances. One yet allowance, low Over of the the of our high 10 0.19% key and years in performancewhen low prior 2015. measures aggregated provision to The is with ratios 2017, ratio the the of our varies provision specific the average with for $774 allowance, past annual changes million establishes 10 ratio in and a years has the our range are ranged economy allowance of applied from anddetermining for $1,139 to a credit the credit million year-end high conditions. allowance losses to net To for at $3,752 loans establish credit October million. and apage losses 31, Our acceptances range 152 can 2017 provision in for of be was for 2017. the the found $1,996 credit This consolidated in million. losses range, financial the Additional in statements. discussion information 2017 of on was Credit the and process Counterparty and Risk methodology on for page 86, as well as in Note 4 on Allowance for Credit Losses

Critical Accounting Estimates The most significant assets andfair liabilities value; for pension which and we other mustintangible employee make assets; future estimates purchased benefits; include: loans; impairment allowance insurance-related of forsubstantially liabilities; securities; credit all and provisions losses; risks provisions, for financial and including income instruments rewards legal taxes measureddiscussed have reserves. and at in been We deferred Notes transferred make tax 6 in judgments assets; and respect in goodwillstatements 7, of assessing and discusses respectively, transfers whether the on of judgments page financial made 157 assetsmake, in of and the determining the whether impact the consolidated we would fair financial control be value statements. SEs.judgments recorded of Note These we in financial 17 judgments make future instruments. on are in periods. If page estimating We actual 174believe these have results of that amounts established were the our are detailed to consolidated estimates well policies differ financial of controlled, and from the independently control the fair reviewed procedures estimates value and that we of consistently are BMO’s applied intended assets from to and period ensure liabilities to the are period. appropriate. We Accounting Matters and Disclosure and Internal Control MD&A 114 net our were impact be positions negatively may filing would we tax expense that our tax possible that additional is view the it the unsuccessful, future, of is the remain challenge In We our arrangements 2017. years. If rental 1, subsequent reassessment. dividend May and any income. with of 2013 challenge dealing as in to rules applied activities intend tax that similar and deductions The rules for appropriate dividend arrangement.” introduced tax denied rental which income income CRA “dividend Budget, significant additional the a Federal for for reassessments, of Canadian reassessed CRA its part 2015 the In as the by dividends. received in reassessed corporate were revised were Canadian dividends were we 2011 the 2016, certain that fiscal of basis in respect the Previously, in on and dividends. million legislation corporate $76 final Canadian approximately this the 2012 of at of certain taxes uncertain details of is and respect asset provisions in tax phase-in million deferred timing, $116 income our its net on and the annual impact enacted in our any rate reduction increase and tax the to increase the of expected income including amount is net factors, the 20% annual many interpretation. year, to this on its following rate of dependent a federal size be further in U.S. The will for effective the been. and 71 is in otherwise point page reduction reduction have would on rate a would which section federal addition, it million, Developments U.S. In what US$400 Regulatory the accordingly. from approximately Capital If reduce by the Ratio. would asset to CET1 asset tax Refer our tax deferred income. to deferred net net impact our our related reduce in the the would charge on in 2018, tax discussion decrease, contained 1, corresponding or proposals January one-time increase the effective a rates under if in tax example, 20%, result income For to as impact. 35% decrease tax from or income rate increase an federal will in liabilities result and will our assets and decrease tax respectively, before or deferred income increase our net could Furthermore, future factors accordingly. of these decrease forecast of recognized. our assessment be gains, our not capital in periods. should and Changes future asset income carryforwards. in realized tax of loss taxes be income experience tax income will deferred past of for asset our our period provision tax of are expiration income portion realization remaining deferred any of the our if probability and that determine the taxes, probable evidence, assess is available to it all used whether on factors assess based The amount to and, The required expiration periods. are its future We to in utilized. prior decrease be or may taxing increase differences of could temporary those taxes deductible from income estimated. differ for reasonably assumptions provision be assumptions and our cannot make interpretations expected, decrease also our as or We If not increase obligations. liabilities. is such in tax and reversals any positions settle assets of of administrative to tax timing and required deferred the law amount of if case the reversal or legislation, of the authorities tax estimate of interpret our timing we record expected taxes, judgment, the position. income our about our for on defend provision based to the and, prepared determining jurisdictions, collaborative are In numerous a we Equity. committed in authorities, in are disputes taxing Changes We resolve of or change. to that Income in and seek from laws adapt We differs applicable we matters. law all customers, tax tax level consider our all of a We for in interpretation within framework. or authorities our is management business taxing where and risk our with however, understood tax in cooperating manner; well our change and is in laws relationships exposure out tax productive actively financial set where maintaining We our as and to processes. ensure risk, activities, and to tax commercial controls arise of our internal may management with through that the connection implemented risks for is tax objectives which any our framework, manage with management and consistent statements. risk monitor financial tax evaluate, consolidated our identify, the by to of governed seek 174 is page tax on to 17 Assets approach Note Our Tax and Deferred 149 and page Taxes on 3 Income and Note rates in interest included market is in value changes fair from of resulted determination losses unrealized issuer. These the 2016). of in creditworthiness million the to ($135 in expected million deterioration still $480 from are were not security recorded debt debt been on the not write-downs with had impairment associated down period record flows the not cash and do contractual amount We future its differ. if write-down, to rates, a were market record factors in to those changes recovered. of decision of to be evidence The assessment due other market. management’s is or active if impairment restructuring M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO diinlifrainrgrigoracutn o noetxsi nlddi oe2 npg 8 ftecnoiae iaca statements. financial consolidated the of 189 page on 23 Note in included is taxes income for accounting our regarding information Additional approximately of amount an in interest and taxes income additional for (CRA) Agency Revenue Canada the by reassessed were we 2017, fiscal In or increase will periods future for taxes income for provision our jurisdiction, a in periods future in decrease or increase rates tax income If which against periods future in available be will profit taxable sufficient that probable is it when only recognized are assets tax Deferred of Statements Consolidated our in recorded transactions of treatment tax expected the on based calculated is taxes income for provision The the and securities other and securities held-to-maturity securities, write- available-for-sale impairment for an accounting and our value regarding fair information exceeded Additional cost which for securities available-for-sale to related losses unrealized total 2017, of end the At key for analysis sensitivity a including benefits, future determine employee We other rates. and discount pension in for changes accounting to our sensitive regarding are information obligations Additional related the and expense benefits future employee other and Pension a usadJb Act Jobs and Cuts Tax euto nteU.S. the in reduction a , MD&A 115 BMO Financial Group 200th Annual Report 2017 In the normal course of business, BMO enters into arrangements with SEs. We are required to consolidate SEs if we determine that we control Provisions are recorded at the best estimate of the amount required to settle any obligation related to these legal actions as at the balance sheet Additional information regarding provisions is provided in Note 25 on page 192 of the consolidated financial statements. PCI loans are those where the timely collection of principal and interest is no longer reasonably assured as at the date of acquisition. Purchased performing loans are subject to the same credit review processes we apply to loansAdditional we information originate. regarding We purchased also loans assess is the provided portfolio in to Note 4 on page 152 of the consolidated financial statements. Fair value less costs to sell was used to perform the impairment test in all periods. In determining fair value less costs to sell, we employ a Intangible assets with definite lives are amortized to income on either a straight-line or anIntangible accelerated assets basis with over indefinite a lives period are not tested exceeding annually for impairment. If any intangible assets are determined to be impaired, we write Caution This Critical Accounting Estimates section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements. the SEs. We control anpower SE to when affect we the have amount powerpage of over 157 our the of returns. entity, the Additional exposure consolidated information or financial concerning rights statements. BMO’s to interests variable in returns SEs from is our included investment on and page the 77, ability as to well exercise as in Note 7 on Transfers of Financial Assets andWe sell Consolidation Canadian of mortgage Structured loans Entities third-party to investors third-party under Canadian the securitization National programs,rewards Housing including of Act the the Mortgage-Backed Canadian loans Securities Mortgage have program. Bondall been We program, of transferred assess and the in whether directly prepayment, order substantially to interest to allrecognize rate determine of the and/or if the loans credit they risks and risk qualify and we associated forconcerning recognize with derecognition. the the the Since transfer related securitized we of cash loans, continue financial proceeds they to assets as do be is secured not exposed included financing qualify to on in for substantially page our derecognition. 76, Consolidated We as Balance continue well Sheet. to as Additional in information Note 6 on page 157 of the consolidated financial statements. Provisions BMO and its subsidiaries are involved in various legal actionsdate, in taking the into ordinary account course the ofassessment risks business. of and specific uncertainties facts surrounding and theare circumstances, obligation. involved our Factors in past considered estimating experience in any and makingthe amounts the the amount that opinions assessment of may of include the be legal a provisions. required. experts. case-by-case The Management actual and costs internal of and resolving external these experts claims may be substantially higher or lower than Insurance claims and policy benefitinsurance liabilities contracts represent are current determined claims using andpolicy the estimates lapses, Canadian of surrenders, Asset future future Liability insurance investment Method, policyreviewed yields, which obligation at policy incorporates liabilities. least dividends, best-estimate Liabilities annually administration assumptions for and costs for life these updated and mortality, liabilities to margins morbidity, would reflect for be actual adverse the experience deviation.percentage result and These point, of market assumptions net a conditions. are income change The would in mostapproximately increase the significant $37 by assumption potential million. approximately for impact Additional $38 future on information million. investment thestatements, on A yields. valuation and insurance-related reduction If of information liabilities of the on is one assumed insurance provided percentage yield risk in point were is Note would to provided 14 lower increase on on net by page page income one 99. 169 by of the consolidated financial Insurance-Related Liabilities Acquired loans are identified asvalue either at purchased the performing time loans of orportfolio acquisition. purchased and The credit determining determination impaired the of loans discount fair (PCIour rate value loans), cost to involves both to be estimating of raise applied the which funds to expected are in those cash recorded the cash flows at current flows. to fair market, In be the determining receivedWe risk the from regularly premium discount the evaluate associated rate, acquired what with we loan we the considera expect loans various recovery to and factors, through collect the including the on cost provision PCI tojudgment for loans. service regarding credit Changes the key losses. in portfolios. assumptions, Estimating expected including the cashAll the timing flows of probability and could these of amount result factors default, of in are severity expected the inherently of cash recognition subjective loss, flows of and timing requires impairment can of significant or result payment management ensure in receipts the significant and remaining changes valuation credit in of mark estimates collateral. the is of probability adequate expected of to cash default, cover flows severity probable over of credit the loss, losses term timing in of of the a future portfolio. loan. cash This flows, requires and judgment valuation regarding of assumptions, collateral including and estimated life of the loans. Purchased Loans Goodwill and Intangible Assets Goodwill is assessed for impairmenteach at cash-generating least unit annually. (CGU) This in assessmentto order includes exceed to a the verify comparison recoverable that of amount the thefair of recoverable carrying value the amount value less CGU, of and costs an the the to impairment CGU recoverable sell calculation is amount and would greater of its be than value performed. its in The carryingdiscounted use. recoverable value. cash amount If flow of the model, a carrying consistent CGU valuegrowth, with is were discount that the rates, used higher synergies when of achieved we its would on acquire affect acquisition businesses. the and This determination the model of availability isin fair of dependent determining value comparable on fair for acquisition assumptions value, each data. related and of Changes towrite-down. differences our in revenue At in CGUs any October judgments in of 31, and a these 2017, assumptions different assumptions the could manner. estimated affect Management fair the must value determination exercise of of judgment15 each fair and years, of value make depending our and assumptions on CGUs any the was resultingvalue nature greater impairment may of than not the its be asset. carrying recoverable. We value. test intangible assets with definitethem lives down for to impairment their when recoverable circumstancesAdditional amount, indicate information the the regarding higher carrying the of composition valuestatements. of in goodwill use and and intangible fair assets value is less included costs in to Note sell, 11 when on this page is 167 less of than the the consolidated carrying financial value. MD&A uueCagsi conigPolicies Accounting in Changes Future 116 follows: as capital regulatory our calculating in used those from differ stage. losses each credit future for expected of losses at forecasts the credit arriving Incorporating consequence, for in EAD. a allowance above expected As the used the asset. impact terms or financial also 9 lifetime the will IFRS expected of losses The the life credit with expected expected increase the of will as measurement assets well the financial as into 2 default, conditions Stage held. at economic for collateral balance losses any expected credit of the for quality default, allowance and given amount loss default. the default, of consideration of time into probability the takes at LGD drawn appropriate. be where to conditions, amounts economic further and future any conditions about of market information estimate current an on includes based EAD estimated amounts, is undrawn and and data sheet historic off-balance on based conditions. modelled economic is future instrument considered, about individual also information each loss supportable for not the and PD factors of reasonable The reflect timing 2. to the Stage judgment with for credit (LGD), horizon experienced default of given use loss the and through (EAD) and default information at models. economic exposure in forward-looking judgment. (PD), captured incorporating credit default by experienced of estimated require probability is will the and risk of credit function in a increase is certain significant ECL and a origination Concepts of since Modelling assessment default Impairment The of Key status. probability watch-list probability-weighted and in due changes of past relative recognition 30-day are the as determination requires such this loan criteria making impaired the in An of considered 2). life allowance. factors (Stage remaining specific main risk the current credit over our in losses as increase credit same significant expected the a of is experienced recognition which have the losses, capture to requires lifetime to considered 9 designed are IFRS is which 1). loans assets (Stage performing financial identified. recognition on whether specifically initial recorded of been since allowance regardless have significantly the assets they increased where financial not and approach on or commitments current recorded whether loan the being incurred, sheet from losses been off-balance differs credit have certain This expected that and event. for losses assets loss allowance only financial actual an all an in for been result framework has will impairment there framework (ECL) ECL loss new credit The expected guarantees. new a introduces 9 IFRS Assets Financial of Impairment statements. 9 financial IFRS consolidated issued the IASB of the 144 that 2014, page Instruments standards July on existing Financial In 1 to such 9 Note amendments any IFRS in and that described of standards effects are Adoption New the periods policies. analyzes reporting accounting and future and (IASB) in reporting Board BMO financial Standards for BMO’s Accounting effective on International be have the will may by standards proposed the IFRS to to changes changes potential the monitors BMO 2017. in policies accounting our in changes no were 2017 There in Policies Accounting in Changes ANALYSIS AND DISCUSSION MANAGEMENT’S rcse n infcn ra fjdmn eedvlpdadtse ihnprle uso h ytm n processes. and systems the key of over runs controls parallel new within and tested refined and were process developed forward- controls and were incorporating internal systems judgment and existing technology of risk while Information areas credit framework, models. significant in governance credit required and increase existing expected the processes significant our the validated a using of and assessing designed calculation developed the for were the and by approach architecture support factors, impacted its to macroeconomic instruments developed methodology including financial bank impairment information of the an looking population 2017 developed the during and of Specifically, 9 assessment allowance. IFRS an loss of performed actual the requirements has the by measurement bank change driven and The may tax) classification reporting. which after and process million risk impairment ($65 processing, our tax technology of before estimate aspects million we certain $100 status, monitor approximately implementation and of current refine equity to and to shareholders’ relating adoption. data continue in guidance on 2017 We increase Additional impact 31, 9. an 2017. October IFRS to 1, on of 9 lead November Based requirements IFRS will beginning losses. impairment – 9 year credit Guideline IFRS fiscal for its of the allowance in adoption for the OSFI the bank of by the determination provided for our been effective in has is considered 9 9 IFRS IFRS of OSFI, adoption regulator, the our of direction the At PD Other LGD EAD M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO o h upsso FS9 h loac o rdtlse safce yavreyo e hrceitc,sc s u o iie o the to, limited not but as, such characteristics, key of supportable variety and a reasonable by and affected data is historic losses on credit based for modelled allowance For is the occur. and 9, may default IFRS default of of a event purposes time the the the in For at recovered exposure be credit not of may amount lifetime that outstanding or amount the 1 the of Stage is estimate for LGD an horizon represents 12-month and a data either historic in on default modelled into is go EAD will and repaid be not will loan a that likelihood the represents PD The The segment. risk and product by vary will and factors different many account into takes risk not credit has in date increase reporting significant the a at of risk determination credit The the if losses, credit expected 12-month to equal amount an at allowance loss a recognize will bank The h akhsacnrlymngdIR rga htbig oehrsbetmte xet nmtoooy aa oeln,information modelling, data, methodology, on experts matter subject together brings that program 9 IFRS managed centrally a has bank The ‰ ‰ ‰ ‰ Capital Regulatory ‰ ‰ nldsdrc n nietcssascae ihcollection with associated costs indirect and direct Includes apply downturn floors economic regulatory severe Certain a on based LGD Downturn than lower be cannot and outstanding default current to prior draws expected Includes due for past except days due 180 past uses days which 90 cards, generally credit is default of definition view The loss 12-month cycle the Through iaca Instruments Financial IR ) hc drse maret lsiiain esrmn n eg accounting. hedge and measurement classification, impairment, addresses which 9), (IFRS iaca ntuet n Disclosures and Instruments Financial ‰ ‰ ‰ ‰ ‰ ‰ 9 IFRS ‰ ieielse r icutdbc oteblnesetdate sheet balance the to back discounted are losses Lifetime included costs direct Only floors regulatory No appropriate forward- where supportable information reasonable to looking for according adjusted horizon stage lifetime applicable or the 12-month on based LGD Expected than lower be can outstanding and current stage the applicable lifetime the or to 12-month according a horizon across exposure expected the Represents capital regulatory with consistent definition Default and information conditions forward-looking current supportable experience, reasonable past on the based to stage according applicable horizon lifetime or 12-month Point-in-time OF udln) hs udlnsare guidelines These Guideline). (OSFI MD&A 117 4on for the BMO Financial Group 200th Annual Report 2017 stablished a transitional arrangement for regulatory capital purposes. Regulatory treatment of accounting provisions – interim approach and dictions the option to choose whether to apply a transitional arrangement ed in shareholders’ equity on adoption of the standard; this impact is not . The BCBS clarified it will retain its current treatment of provisions under both Standardized Approach and Advanced Internal IFRS 9 requires the consideration of past events, current market conditions and reasonable forward-looking supportable information about future In considering the lifetime of a loan, IFRS 9 generally requires the use of theThe contractual bank’s period ECL of methodology the also loan, requires including the prepayment, use extension of and experiencedAs credit a judgment result to of incorporate the the forward-looking estimated nature impact of of the factors standard, that we are anticipate not that the provision for credit losses recorded in the income statement will Equity instruments would be measured at fair value through profit or loss unless we elect to measure them at FVOCI.Upon Future adoption unrealized we gains expect and to reclassify $2.1 billion of debt and equity securities previously recordedWe as reviewed available items for currently sale elected securities at to fair fair value value through profit or loss. Under IFRS 9,As certain permitted instruments by managed IFRS on 9, a in fair fiscal value 2015, basis we are early now adopted the provisions relating to the recognition of changes in own credit risk for financial Details of our investments in joint arrangements and associates and the compensation of key management personnel are disclosed in Note 28 economic conditions in determining whetherassessing there information has about been possible a future significantadverse economic increase forecasts, conditions, in all we credit of utilized risk, which multiple andlosses are economic in include developed scenarios calculating GDP, by representing the the our our amount unemployment Economics base ofgeographic rate group. case, expected diversity and Key benign losses. of housing economic and In our prices, variables portfolios, among used where others. in appropriate. We the use determination regional of economic theother variables allowance options. in for For our credit revolving models instruments, tobehaviour. such reflect as the credit cards, which may not have a definedcaptured contractual in period, the the modelled lifetime ECL is results. based on historical become more responsive to expectedaccounting changes standard. in the economic environment andClassification be and recorded Measurement earlier of in Financial the AssetsThe credit and new cycle Liabilities standard than requires under that thecharacteristics we current of classify those debt assets. instruments The basedinstruments business on will model our be test business measured determines model at the forother fair classification managing comprehensive value based the income through on assets (FVOCI) profit the and or and business theand amortized loss purpose contractual interest cost. unless for cash will Debt certain holding flow be instruments conditions the eligible that are asset.instruments for have met Debt will classification contractual that be as cash permit recognized FVOCI flows measurement in or representing at profit amortized only fair or cost. payments value loss Gains of through only and principal on losseslosses disposal. recorded on in fair other value comprehensive through incomeother profit for comprehensive or debt income loss for equity available-for-sale instrumentsnever equity will be instruments. be recognized For recorded in equity in income. instruments income. we Currently, elect the to unrealized record gains at andthrough FVOCI, losses profit gains are or and recognized loss. losses in Upon would profit adoption or we loss. expect to reclassify $2.1 billion of loan balancesmandatorily previously accounted recorded for at as amortized fair costthese value to instruments. through fair Our profit value remaining or through existing loss fair as value a designations result are of expected ourliabilities to business designated continue model. at under As fair IFRS a value 9. result, through we profit expect or no loss. change Additional in information the regarding accounting changes for in own credit risk is included in Notes 13 and 1 pages 168 and 169, respectively, ofHedge the Accounting consolidated financial statements. IFRS 9 introduces a newaccounting hedge more accounting closely model with that risk expandspermit management. the hedge The scope de-designation. new of IFRS model hedged 9 no itemsadopt includes longer and the a specifies risks hedge policy quantitative eligible accounting choice measures for provisions that for hedge of would effectiveness accountingImpacts IFRS allow testing and on 9; us and aligns Governance however, to does hedge and as continue not Controls required toThe by apply bank the the has standard, existing applied we hedge its will accountingjudgments existing adopt rules. to governance the We determine framework new did the to hedge not ECL. ensure accountingcontrols As that disclosures. where part appropriate required of controls in the and areas implementation, validationsscenarios, that we are credit are are in risk impacted in place data by the over and IFRS process keyIn systems, 9, of processes addition the including refining and to determination controls existing the of over internal existing a the controlsappropriateness risk significant development and of management increase and implementing the framework, in probability new allowance. we credit weighting established risk of a and macroeconomic Impacts committee the on to classification Capital review, of Planning challenge loans and andIFRS approve securities. 9 will key impact inputs our and reported assess capital as a result of the adjustmenttransitional record arrangements Ratings Based frameworks at this time. Further, the BCBS allows local juris expected to be significant. During 2017, the BCBS released its standard on on page 198 of the consolidated financial statements. In the ordinary course of business, we providepreferred banking customers. services Key to management our personnel key are management defined personnel ascontrolling on those the the persons activities same having of terms authority an that and entity, we responsibility being offer for theequity-accounted these planning, directors investees services directing and on to and/or the the our most same senior terms executives offered of to the our bank. customers We for provide these banking services. services We to also our offer joint employees ventures a and subsidy on annual credit card fees. Transactions with Related Parties Other Future Accounting Changes For details on other future accounting policy changes, see Note 1 on page 144 of the consolidated financial statements. impact of IFRS 9 on regulatory capital. The bank’s regulator, OSFI, has not e MD&A nue httela ui ate oae u fta oeatrfv osctv er n osntrtr ota oefrafrhrfv years. five further a for role that to return not does and years consecutive five after role that of out performance rotates the partner with audit satisfied lead was the the ACRC that (iii) the ensures and reviews, team; these engagement of the result focused of a reviews quality As These the auditors. auditors. CPAB. (ii) shareholders’ shareholders’ the auditors; the the and shareholders’ with of Canada the interactions of of and as the CPA skepticism communications such of the professional of areas review of and quality on comprehensive recommendations objectivity management periodic the independence, and a on the members completed based (i) ACRC ACRC was on: from the review sought 2015, comprehensive was In The Input performance. auditors. completed. audit shareholders’ was and auditors insights shareholders’ industry the effectiveness, of communication review annual an 2017, In 118 follows: as were 2016 and 2017 31, October ended years fiscal the during auditors shareholders’ professional the as to well paid as fees are Standard, Aggregate provided Independence be Auditor to Fees our services with Auditors’ that the comply Shareholders’ services and must permitted obtained services independence. For is All auditor services. engagement meeting. governing be of the next regulations can types with its securities that specific proceed at and services) for to ratification standards (permitted fees approval for services includes plan, ACRC of which audit the by types plan, annual to provided the audit pre-approved presented services pre-approves annual the the ACRC the in limiting The as included policy auditors. well not our as as are of role auditors, application their shareholders’ the to the oversees related by ACRC not provided the are practices, that governance auditors corporate shareholders’ Group’s the Financial BMO of part As Procedures and Policies Pre-Approval ‰ ‰ ‰ ‰ ‰ ‰ include: which ‰ the partner, (iv) audit and lead auditors; the shareholders’ including and the experience from auditors. qualifications, received shareholders’ relevant communications the quality the of of the (ii) quality skepticism (i) period; the professional as: audit (iii) and such the Group; objectivity factors during Financial independence, considering team BMO auditors auditors, engagement serve shareholders’ shareholders’ auditors’ to the the shareholders’ reach of of the geographical oversight effectiveness by and and provided compensation performance services appointment, the the the of of for assessment responsible annual is an (ACRC) conducts Committee and Review Conduct and Audit The Auditors Shareholders’ of Review Fees and Services Auditors’ Shareholders’ ANALYSIS AND DISCUSSION MANAGEMENT’S Total fees other All ui-eae fees Audit-related 3 l te esfr21 n 06rlt rmrl ofe adfrrveso opinewith compliance of reviews for paid fees to primarily relate 2016 and procedures 2017 specified for advice, fees accounting other for All paid (3) fees to relate 2016 and and Securities 2017 U.S. for and fees laws Audit-related securities (2) Canadian applicable on based is fees of classification The (1) fees Audit (1) Fees millions) in $ (Canadian CPAB. the and Canada) of (CPA Canada these of between Accountants review Professional annual Chartered an the performing by and out of years, set independently five guidelines issues every the audit-related auditors following discuss shareholders’ reviews, to the comprehensive partner of audit review lead comprehensive the a and performing Chair ACRC the Oversight firms; with and Accounting peer meetings management; Company their quarterly Public and holding audit; and auditors minimum, the shareholders’ (CPAB) a of the Board at areas Accountability on risky Public reports and Canadian inspection complex recent (PCAOB) more including Board the sessions; performance, on camera and emphasis in quality with including audit auditors, findings, evaluating shareholders’ audit an the the and of evaluating plan plan and audit audit reviewing the the on of risks members; execution business team the of engagement monitoring impact senior the the of fee; of consideration audit qualifications a the reviewing including of meetings, reasonableness separate the two of in assessment plan audit the reviewing annually M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO needneo h hrhles uiosi vrenb h CCi codnewt u uio needneSadr.TeAR also ACRC The Standard. Independence Auditor our with accordance in ACRC the by overseen is auditors shareholders’ the of Independence h CCblee hti a outrve rcse npaet oio ui ult n vre h oko h hrhles auditors, shareholders’ the of work the oversee and quality audit monitor to place in processes review robust has it that believes ACRC The rvddb aiu M iaca ru uiess hyas nld h ot ftranslation of costs the include also They services businesses. over Group services. controls Financial internal BMO on various reports by and provided information financial for requirements regulatory procedures. specified other and Circular Proxy our on definitions. Commission Exchange (3) (2) 23.7 19.1 2017 2.1 2.5 22.8 17.6 2016 2.7 2.5 MD&A 119 (the Exchange Act). Based on this BMO Financial Group 200th Annual Report 2017 , issued by the Committee of Sponsoring National Instrument 52-109, Certification of Disclosure in Issuers’ Securities Exchange Act of 1934 Internal Control – Integrated Framework , and in the United States by Rule 13a-15(e) under the have a material effect on the consolidated financial statements is prevented or detected in a timely manner. statements in accordance with IFRSBank and of the Montreal requirements are of being the made SEC only in in the accordance United with States, authorizations as by applicable, management and and that directors receipts of and Bank expenditures of of Montreal; and Bank of Montreal; At the request of Bank of Montreal’s Audit and Conduct Review Committee, KPMG LLP (shareholders’ auditors), an independent registered public Bank of Montreal’s management, under the supervision of the CEO and the CFO, has evaluated the effectiveness of internal control over (iii) are designed to provide reasonable assurance that any unauthorized acquisition, use or disposition of Bank of Montreal’s assets which could (ii) are designed to provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial Bank of Montreal’s internal control(i) over financial reporting pertain includes to policies the and maintenance procedures of that: records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of As at October 31, 2017, under the supervision of the CEO and the CFO, Bank of Montreal’s management evaluated the effectiveness of the design accounting firm, has conducted anthat, audit in of KPMG’s the opinion, effectiveness Bank of2017, of our in Montreal internal accordance maintained, control with in over the all financial criteria material reporting. established respects, The in effective audit the internal report 2013 control states COSO over in Framework. financial its This reporting conclusion audit as report at appears October on 31, page 137. Organizations of the Treadway Commissioncontrol in over May financial 2013 reporting (2013 was COSO effective Framework). as Based at on October this 31, evaluation, 2017. management has concluded that internal There were no changes inmaterially our affect, internal the control adequacy over and financial effectiveness reporting of in our fiscal internal 2017 control that over have financial materially reporting. affected, or are reasonably likely to financial reporting using the framework and criteria established in Changes in Internal Control over Financial Reporting Because of its inherent limitations,misstatements. internal Furthermore, control projections over of financial any reportinginadequate evaluation can because of provide of effectiveness only changes to reasonable in future assurance conditions, periods and or are may that subject not the to prevent degree the or of risk detect compliance that with controls the may related become policies and procedures may deteriorate. Internal control over financial reportingassurance is regarding a the process reliability designed of underrequirements financial the of reporting supervision the and of Securities the the and preparation bank’smaintaining Exchange of CEO adequate Commission consolidated and internal (SEC) financial CFO, control in statements in over the in order financial United accordance to reporting States, with provide for as IFRS reasonable Bank applicable. and of Management the Montreal. is responsible for establishing and Annual and Interim Filings evaluation, the CEO and the CFO have concludedInternal that our Control disclosure over controls Financial and Reporting procedures were effective, as at October 31, 2017. and operation of our disclosure controls and procedures, as defined in Canada by Disclosure Controls and Procedures Disclosure controls and procedures aremanagement, designed including to the provide Chief reasonable Executive assurancemade Officer that regarding (CEO) all public and relevant disclosure. the information Chief is Financial gathered Officer and (CFO), reported on to a senior timely basis so that appropriate decisions can be Management’s Annual Report on Disclosureand Controls Internal and Control Procedures over Financial Reporting MD&A 120 below. risk detailed transparent are high-quality, recommendations of EDTF provision Enhancing the the report, to for first related EDTF its Disclosures the published by Board issued Stability recommendations Financial the the support of We disclosures. (EDTF) Banks. Force of Task Disclosures Disclosure Risk Enhanced the the 2012, 29, October On Force Task Disclosure Enhanced ANALYSIS AND DISCUSSION MANAGEMENT’S 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 aia dqayadRs-egtdAst (RWA) Assets Risk-Weighted and Adequacy Capital Governance Risk General M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO al hwn siae n culls aaeesi rvddo ae49. page on provided is parameters loss actual and estimated showing table A Information: Financial Supplementary process. back-testing Report: and Annual validation Basel bank’s the Describe Information: mov Financial reconciles Supplementary that statement flow a Present classes. asset Basel for Information: book Financial banking Supplementary the in risk credit 89. Tabulate to 88 pages on provided is Information: RWA Financial determine Supplementary to used models significant about Information requirem Report: capital Annual the showing table a Present activities. business to relate RWA Report: how Annual explain to information granular Provide planning. strategic management’s of discussion general Report: more Annual a within 1, planning Tier capital Additional Discuss 1, Tier Equity Common in Information: changes Financial including Supplementary capital, regulatory capital. in 2 movements Tier of and statement flow a Present Filings. Regulatory and Relations Investor under www.bmo.com at Information: Financial Supplementary Report: compositi Annual the in contained information Summarize Information: Financial Supplementary Report: requirements. Annual capital 1 Pillar minimum Provide ban the within Report: testing Annual stress of use the activities. Describe and model business bank’s the Report: from Annual arise that risks key Describe Report: Annual culture. risk bank’s the Describe Report: organ Annual management risk bank’s the Summarize finalized. are rules applicable the once ratios regulatory Report: key Annual new meet to plans Outline 203. Report: to Annual 202 pages on found be can Discusstopandemergingrisksforthebank. terminology) risk (including terms financial of glossary A 144. page on provided is ris Report: statements and Annual financial terminology consolidated risk the bank’s to the notes Define the for index An 26. page Information: on Financial provided Supplementary is MD&A the for index An navigation. easy for Report: index Annual an Suppl provide Report, and Annual Disclosure, the Capital in information risk-related all Present M’ ae aiainadbc-etn rcs o rdtadmre iki ecie npgs18t 109. to 108 pages on described is risk market and credit for process back-testing and validation Basel BMO’s 70. page on outlined is RWA, of percentage a as requirement, 74. capital page Regulatory on provided is group, operating by RWA including exposure, risk BMO’s of diagram A 69. page on Framework Management Capital under discussed is process planning capital BMO’s 72. page on provided is template capital regulatory the of version abridged An 72. to 69 pages on described are requirements capital 1 Pillar 86. to 85 pages on described is process testing 74. stress page BMO’s on provided is segment operating by exposure risk BMO’s of diagram A 83. page on described is culture risk 86. BMO’s to 81 pages on summarized are functions key and processes organization, management risk BMO’s 105. and 71 pages on outlined are ratios regulatory new meet to plans BMO’s 81. to 79 pages on discussed are risks emerging and top BMO’s 112. to 86 pages on provided are reporting risk BMO’s underpinning parameters key and definitions risk Specific 112. to 78 pages on section Management Risk Enterprise-Wide the in presented is information Risk-related al hwn xouea eal n W ymdlapoc n se ls spoie npg 39. page on provided is class asset and approach model by RWA and Default at Exposure showing table A 38. page on reconciliation a with 40, page on provided are statements 47. flow to RWA 46 pages on provided are grades rating internal by exposures credit retail and 39. Wholesale page on provided is type risk and approach model by RWA showing table A 40. page on provided is statement flow capital Regulatory website BMO’s on found be can template Features Main A 39. and 37 to 35 pages on provided is disclosure 3 Pillar 35. page on disclosed is capital Regulatory Information. Financial Supplementary our in provided is index An esrsadpeetkyprmtr used. parameters key present and measures k nsfrec ehdue o acltn RWA. calculating for used method each for ents mnsi W ycei ikadmre risk. market and risk credit by RWA in ements zto,poess n e functions. key and processes, ization, ’ ikgvrac n aia frameworks. capital and governance risk k’s no aia epae dpe yteBslCommittee. Basel the by adopted templates capital of on mnayFnnilIfrainadSplmnayRegulatory Supplementary and Information Financial ementary MD&A 121 BMO Financial Group 200th Annual Report 2017 ts by remaining contractual maturity. re material or potentially material loss events have occurred. bythebanktomeasureandassesstheriskoflossbeyond ificant trading and non-trading market risk measures. eeds and the liquidity reserve held to meet those needs. o trading and non-trading market risk measures. dentified, governed, measured and managed. Tables detailing credit risk information are provided on pages 19 to 29 and 42 to 50. Quantitative disclosures for OTC derivatives are provided on page 33. The Exposures Covered by Credit Risk Mitigation table is provided on page 43. An Asset Encumbrance table by currency is provided on page 34. Other risks are discussed on pages 105 to 112. A diagram illustrating the risk governance process that supports BMO’s risk culture is provided on page 81. The use of stress testing, scenario analysis and Stressed Value at Risk for market risk management is described on pagesInformation 94 about to BMO’s 96. credit risk profile is provided on pages 88 to 91 and in Notes 4 and 5 on pages 153 to 156Impaired of and the renegotiated consolidated loan policies are described in Note 4 on pages 153 and 155, respectively, of theContinuity consolidated schedules financial for gross impaired loans and allowance for credit losses are provided on page 91 and inQuantitative Note disclosures 4 on on collateralization page agreements 154 for of over-the-counter the (OTC) derivatives are provided on page 93 and qualitative A discussion of BMO’s credit and counterparty risk management is provided on page 87. Collateral management discussions are provided on Trading market risk exposures are described and quantified on pages 94 to 96. Market risk measurement model validation procedures and back-testing for trading market risk and structural (non-trading) market risk BMO’s potential liquidity needs and the liquidity reserve held to meet those needs are described on pages 99 to 101. An Asset Encumbrance table is provided on page 102. A Contractual Maturity table is presented in Note 29 on pages 199 to 201BMO’s of sources the of consolidated funding financial and statements. funding strategy are described on pages 103 to 104. A table linking balance sheet items to market risk measures is provided on page 98. Discuss publicly known risk eventsAnnual related Report: to other risks, whe Describe other risks and discussAnnual how Report: each is i Other risks are discussed on pages 105 to 112. Provide a quantitative and qualitativeAnnual analysis Report: of the bank’s counterparty credit risk that arises from its derivative transactions. Provide a discussion of creditAnnual risk Report: mitigation. financial statements. Supplementary Financial Information: Describe the bank’s policies relatedAnnual to Report: impaired loans andstatements. renegotiated loans. Provide reconciliations of impaired loansAnnual and Report: the allowance forconsolidated credit financial losses. statements. disclosures are provided on pages 86Supplementary to Financial 87. Information: page 87 and in Note 8Supplementary on Financial pages Information: 162 to 165 and in Note 25 on page 193 of the consolidated financial statements. Annual Report: Provide information about the bank’sAnnual credit Report: risk profile. Annual Report: Structural (non-trading) market risk exposures are described andDescribe quantified significant on market pages risk 97 to measurementenhance 98. model the validation parameters procedures of and theAnnual back-testing model. Report: and how theseare are described used on to pages 107 to 109. Describe the primary risk management techniques employed Annual Report: Provide a breakdown of balanceAnnual sheet Report: positions int Provide qualitative and quantitative breakdowns of sign Additional collateral requirements in thestatements. event of downgrades by rating agencies areSupplementary disclosed Financial in Information: Note 8 on page 162Tabulate of consolidated the consolidated total financial assets, liabilitiesAnnual and Report: off-balance sheet commitmen Discuss the bank’s sources of funding and describe the bank’sA funding table strategy. showing the composition and maturity of wholesale funding is provided on page 104. reported risk measures. Describe how the bank managesAnnual its Report: potential liquidity n Summarize encumbered and unencumbered assetsAnnual in Report: a table by balance sheet category. Credit Risk Other Risks Funding Market Risk Liquidity 32 31 30 29 27 28 26 25 24 23 22 21 20 19 18 Supplemental Information 122 Information Statistical Other and Value Shareholder 1: 29. of page Table result on a section As Measures (CGAAP). Non-GAAP time the that to at Refer defined measures. meaningful. as non-GAAP be GAAP are not Canadian section may with this (CAGR) IFRS. accordance of in rates with in 1 results growth accordance presented Note Adjusted annual in are to compound reported and Refer and been restated policies. rates have been accounting growth statements not in certain financial have changes changes, BMO’s 2011 for these 2011, to and 1, prior presentation November years year’s since for current addition, Results the In to statements. conform financial to consolidated reclassified the been have figures comparative Certain Information Supplemental INFORMATION SUPPLEMENTAL iied declared Dividends Employees Information Statistical Other assets total average to equity assets Average risk-weighted average on return Adjusted assets risk-weighted average on Return assets average on return Adjusted assets average on equity Return common tangible on return Adjusted equity common tangible on Return equity on return Adjusted Balances multiple value Market-to-book multiple earnings Price-to-adjusted multiple Price-to-earnings yield Dividend ratio payout Dividend euno equity on Return Assets and Equity on Return acceptances and loans net Average assets Average assets Total accounts shareholder of Number outstanding Number Information Share Common return One-year return annual average Three-year return annual average Five-year share per declared Dividends Dividends Share Common Close Low High Share Common per Price Market 31 October ended year the for or at As oa aktvleo shares of value market Total oa hrhle Return Shareholder Total okvleprshare per value Book akbranches Bank uoae akn machines banking Automated 1 h mato dutn tm nto a)wsa nrae(erae onticm sflos 02–$9)mlin 01–$6 ilo;21 3 ilo;20 59mlin 08–$6 million. $461 – 2008 million; $509 – 2009 million; $32 – hours. 2010 overtime million; for $161 adjustments – and 2011 employees million; prospectively. part-time $(97) results and – our full-time 2012 comprising impacted follows: employees, only as 2015 of income in number net standards equivalent to IFRS full-time increase/(decrease) new Reflects an of (2) was adoption tax) The of 2014. (net in items adopted adjusting standards of IFRS impact new The the reflect (1) to restated been not has 2011 CGAAP. on based prior and 2010 Canada diluted Average basic Average year of End ntdStates United Other Total Total Other States United Canada Canada ntdStates United Total M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO eal nteajsigiescnb on nte21 o20 aaeetsDsuso n Analysis. and Discussion Management’s 2008 to 2012 the in found be can items adjusting the on Details $millions) ($ (2) (%) (%) $millions) ($ i thousands) (in ($) (%) (%) % (1) (%) (%) $billions) ($ ($) % (1) (%) ($) (%) (%) (%) % (1) (%) % (1) (%) 373,946 722,626 709,580 651,961 649,650 647,816 29,647 50,805 14,071 45,200 104.15 2,312 1,482 1,503 3,315 1,416 4,731 98.83 83.58 61.92 0.05 2.05 1.99 0.76 0.74 16.5 16.3 13.7 13.3 64.0 44.8 3.56 1.60 12.1 12.5 20.2 10.9 15.5 2017 573 926 3.6 4 5,0 2,8 9,9 6,0 4,2 1,1 7,5 8,9 175,079 182,097 397,609 171,554 438,548 416,050 215,414 398,474 388,458 246,129 469,934 411,640 266,107 543,931 500,575 292,098 555,431 524,684 320,081 593,928 537,044 357,708 664,391 588,659 707,122 641,881 687,935 506,697 542,313 502,062 563,125 540,294 504,575 607,068 559,822 551,716 648,615 591,403 566,468 649,806 644,407 639,000 648,475 648,476 650,730 647,141 645,860 644,130 646,126 644,916 649,050 644,049 642,583 645,761 9633,6 0573,0 0773,5 9812,1 29,529 29,118 29,821 31,351 30,797 30,303 30,587 30,669 29,643 2075,8 5605,4 9285,6 6623,6 37,250 37,061 36,612 58,769 59,238 56,241 55,610 53,481 52,087 4171,1 4851,9 4931,8 ,4 ,3 7,256 6,732 7,445 15,184 14,963 14,694 14,845 14,316 14,147 5244,5 6784,3 6224,7 7693,7 37,073 36,173 37,629 46,975 46,272 45,631 46,778 46,353 45,234 ,9 ,8 ,9 ,0 ,2 ,9 ,7 ,3 1,409 1,530 1,571 1,690 1,820 1,904 1,991 2,087 2,191 ,4 ,6 ,4 3 1 4 6 2 288 323 363 440 512 634 1,346 1,368 1,444 ,2 ,3 ,5 ,6 ,7 ,1 ,3 ,9 1,280 1,195 1,234 1,611 1,571 1,563 1,553 1,535 1,522 ,8 ,4 ,1 ,0 ,9 ,3 ,7 ,3 2,026 2,030 2,076 2,235 2,596 2,900 3,016 3,442 3,285 53 60 17 26 90 88 02 00 43.02 35.65 50.06 63.44 24.05 60.23 54.75 49.78 58.89 65.71 55.02 59.02 63.94 53.15 72.62 61.29 56.74 81.73 73.90 67.04 76.04 85.71 64.01 85.36 84.39 68.65 87.92 ,1 ,1 ,2 ,2 ,7 ,6 0 3 640 636 905 1,366 1,375 1,325 1,322 1,319 1,314 95 63 81 32 94 67 40 19 32.02 31.95 34.09 36.76 39.41 43.22 48.18 56.31 59.56 ,9 ,6 ,3 ,2 ,7 ,0 ,8 ,6 2,666 2,666 2,981 3,601 3,971 4,225 4,338 4,761 4,599 .500 .500 .500 .500 0.04 1.32 1.07 0.04 0.61 1.25 0.50 0.97 0.05 17.9 0.52 1.76 14.7 0.41 1.74 0.04 16.2 14.5 0.71 1.79 13.0 11.3 0.71 1.70 0.05 12.9 16.6 0.68 1.92 9.9 16.6 0.65 1.96 0.05 15.0 18.2 0.73 1.94 14.9 17.6 0.75 1.93 0.05 16.0 18.5 0.75 1.91 15.1 19.4 0.74 1.85 0.05 15.5 17.7 0.74 1.96 15.9 17.9 0.72 1.84 0.05 15.0 17.4 0.70 21.7 1.85 14.9 17.3 0.66 1.71 14.4 16.4 27.6 0.71 14.0 15.8 0.65 13.3 16.1 34.1 12.5 15.3 13.1 37.6 12.1 38.4 46.8 53.0 48.9 73.9 2.80 90.6 55.1 2.80 58.6 2.80 57.1 2.80 46.0 2.82 47.5 2.94 47.8 3.08 49.2 3.24 49.0 3.40 .313 .016 .714 .715 1.34 9.2 11.4 1.57 12.5 16.3 1.77 12.5 12.7 1.49 11.5 12.2 1.47 9.9 9.7 1.66 11.7 11.8 1.70 12.4 12.8 1.35 10.9 11.6 1.43 11.4 12.3 25951. 70421959180.9 (27.9) 25.1 1.8 26.4 5.9 2.4 1.9 5.2 4.2 28.8 17.0 17.1 15.5 (3.0) 9.5 17.0 12.5 0621 0421 0221 0020 2008 2009 2010 2011 2012 2013 2014 2015 2016 7 9 1 2 3 8 2 9 292 983 290 900 321 910 688 920 638 930 626 933 615 934 592 939 576 942 ...... 6.5 5.6 4.6 4.8 4.8 4.0 3.8 4.3 4.0 . 351. 151. 7445(.)(5.6) (5.3) 4.5 17.4 10.8 11.5 16.7 13.5 9.9 444433355 Supplemental Information 123 CAGR 10-year na na nana na na na na 5.35.46.5 6.6 6.8 4.2 2.78.05.4 7.6 9.8 8.8 5.55.4 18.9 5.6 8.3 5.78.2 7.3 10.7 5.2 21.2 5.5 9.3 5.2 9.6 9.6 4.78.76.8 7.6 5.5 7.9 6.9 7.7 18.9 6.7 7.2 6.6 7.2 7.0 6.3 6.7 6.36.3 6.7 6.7 nm nm nm nm nm nm nm nm CAGR 14.4 8.6 5-year BMO Financial Group 200th Annual Report 2017 9355665 9355665 5.1 1.7 3.3 0.9 5.3 2.5 3.9 1.1 7.2 5.1 5.4 4.1 7.4 6.2 6.1 4.4 815 612 561 587 815 612 561 357 2016 2015 2014 2013 6.946.927.52 6.59 6.57 7.00 6.44 6.41 6.59 6.19 6.17 6.21 9,872 8,763 8,292 8,487 4,631 4,405 4,333 4,195 1,543 1,254 1,5055,7321,101 767 5,3414,631 9364,622 5,236 4,405 4,370 5,250 903 4,333 4,277 1,055 4,195 9,872 4,130 8,7641,543 8,292 1,254 7,830 1,5056,2691,249 767 5,706 1,025 5,396 943 5,260 1,037 5,020 4,681 4,453 4,223 5,011 4,646 4,397 4,158 5,020 4,681 4,453 4,223 11,21521,087 10,626 19,389 9,931 18,223 8,343 16,830 12,997 12,182 10,921 10,226 12,544 11,819 10,761 9,755 19,544 18,135 16,718 16,063 11,29921,171 10,627 19,391 9,93119,628 18,223 18,137 8,309 16,139 16,718 15,372 2 2 9.7 8.5 774 850 2017 7.95 7.92 8.16 15.5 14.5 5,350 1,538 6,646 1,296 5,350 5,348 1,538 6,865 1,357 5,508 5,506 5,508 10,007 12,253 22,260 13,302 13,007 20,722 10,007 12,253 22,260 20,722 (1) (1) (%) ($) non-interest revenue. Prior years’ amounts and ratios have been reclassified. Attributable to bank shareholders Attributable to non-controlling interest in subsidiaries Attributable to bank shareholders Attributable to non-controlling interest in subsidiaries nm – not meaningful na – not applicable Five-year and ten-year CAGR based on CGAAPThe in adoption 2007 of and new IFRS IFRS in standards 2012 in(1) and 2015 Beginning 2017. only in impacted 2015, our insurance results claims, prospectively. commissions and changes in policy benefit liabilities (CCPB) are reported separately. They were previously reported as a reduction in insurance revenue in Diluted Adjusted diluted Year-over-Year Growth-Based Statistical Information Net income growth Adjusted net income growth Basic ($ millions, except as noted) For the year ended October 31 Income Statement – Reported Results Net interest income Non-interest revenue Revenue Insurance claims, commissions and changes in policy benefit liabilities (CCPB) Non-interest expense Net income Non-interest expense Revenue, net of CCPB Provision for credit losses Income before provision for incomeProvision taxes for income taxes Net income Income Statement – Adjusted Results Net interest income Non-interest revenue Revenue Insurance claims, commissions and changes in policyRevenue, benefit net liabilities of (CCPB) CCPB Provision for credit losses Income before provision for incomeProvision taxes for income taxes Adjusted net income Adjusted net income Earnings per Share (EPS) Diluted EPS growth Adjusted diluted EPS growth Table 2: Summary Income Statement and Growth Statistics Supplemental Information 124 Growth Revenue and Revenue 3: Table INFORMATION SUPPLEMENTAL e neetmargin interest Net oa o-neetRevenue Non-Interest Total revenues ventures Other joint and associates in Investments 2 einn n21,isrnecam,cmisosadcagsi oiybnftlaiiis(CB r eotdsprtl.Te eepeiul eotda euto nisrnervnein revenue insurance in reduction a as reported meaningful previously not were – They nm separately. reported are applicable (CCPB) not liabilities – benefit na policy in changes and commissions assets. claims, earning insurance average 2015, on in based Beginning prospectively. calculated results (2) is our margin impacted interest only 2017. Net 2015 and (1) in 2012 standards in IFRS IFRS new and of 2007 adoption in The CGAAP on based CAGR ten-year and Five-year assets earning Average Income Interest Net 31 October ended year the For noted) as except millions, ($ e neetMargin Interest Net Income Interest Net Adjusted oa dutdRvne e fCCPB of net Revenue, Adjusted Total Revenue Adjusted Total CCPB of net Revenue, Total nuac revenue Insurance trading than other exchange, Foreign trading than other gains, Securities fees advisory and Underwriting revenues fund Mutual fees custodial and management Investment fees Card fees Lending revenues Trading charges service payment and Deposit fees and commissions Securities Revenue margin Non-Interest interest net currencies other and dollar U.S. margin interest net dollar Canadian margin interest net Adjusted oa Revenue Total Revenue Non-Interest Adjusted M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO eroe-ernnitrs eeu growth revenue non-interest Year-over-year eroe-erttlajse eeu rwh e fCCPB of net growth, revenue adjusted total Year-over-year CCPB of net growth, revenue total Year-over-year eroe-erttlajse eeu growth revenue adjusted total Year-over-year eroe-ergrowth Year-over-year eroe-erttlrvnegrowth revenue total Year-over-year growth revenue non-interest adjusted Year-over-year growth Year-over-year dutdnnitrs eeu sa%o oa dutdrevenue adjusted total of % a as revenue non-interest Adjusted revenue total of % a as revenue Non-interest o-neetrvne ro er’aonsadrto aebe reclassified. been have ratios and amounts years’ Prior revenue. non-interest (2) (%) (1) (%) (%) (%) (2) (%) (2) (%) (%) (%) (%) (%) (%) (%) 646,799 12,253 10,007 20,722 20,722 10,007 22,260 22,260 12,253 2,070 1,036 1,411 1,622 1,352 1,187 1.45 1.64 1.55 1.55 55.0 55.0 2017 526 386 191 171 415 917 969 1.4 1.4 5.6 5.1 6.0 5.6 8.4 9.2 2,3 7,7 2,8 485,191 528,786 579,471 622,732 1251,2 ,3 8,343 9,931 10,626 11,215 9681,3 67815,372 16,718 18,137 19,628 16,063 16,718 18,135 19,544 1111,9 82316,139 18,223 19,391 21,171 1071,8 82316,830 18,223 8,309 19,389 9,931 21,087 10,627 11,299 ,2 ,6 ,0 1,212 2,008 1,762 2,023 ,7 ,6 ,9 8,487 8,292 8,763 9,872 ,7 ,6 ,9 7,830 8,292 8,764 9,872 ,6 ,7 ,6 828 1,003 849 1,065 1,286 916 1,377 949 1,552 1,364 1,002 987 1,556 1,077 1,192 1,141 265759(1.8) (3.0) 5.9 (2.3) 5.7 5.7 12.6 12.7 .613 .11.74 1.76 1.61 1.41 1.75 1.68 1.57 1.38 1.57 1.62 1.51 1.56 1.51 1.60 1.59 1.59 345. 4551.5 54.5 49.6 54.8 54.5 53.4 54.8 53.2 0621 042013 2014 2015 2016 8 1 3 351 190 331 169 517 207 489 140 6 7 7 172 652 179 461 744 603 172 462 706 821 680 162 460 820 894 737 461 901 859 924 . . . 3.4 8.7 0.6 0.8 8.5 12.9 4.1 (1.6) 6.4 8.2 8.3 8.5 9.2 3.0 6.4 7.8 19.5 (0.1) 8.8 7.0 19.0 6.3 7.0 5.5 41112285 162 171 84 5-year 55nm 15.5 157.0 9.4 17.5 11.5 16.2 8.5 10.9 11.0 CAGR 12 14.5 (1.2) . 9.8 8.0 . 7.2 6.9 8.3 5.4 7.8 7.0 . 7.7 6.8 . 6.8 14.8 8.2 6.5 . 7.6 2.7 . 7.6 4.7 . 8.8 5.4 7.9 8.7 . (3.6) 2.5 . 3.8 4.6 nm 5.0 (1.7) 5.7 5.0 3.3 ana na na na ana na na na na na na na na na na na ana na na na na na na na ana na na na 10-year CAGR Supplemental Information 125 CAGR 10-year na na nanana na na na na na nana na na nana na na 3.4 6.0 8.26.4 21.2 13.2 5.6 7.3 3.3 7.5 7.2 9.2 7.64.8 10.2 8.7 1.8 3.4 1.89.45.9 3.4 10.2 7.9 7.9 9.9 6.7 7.2 5.1 6.9 4.9 7.4 7.66.15.9 6.5 6.4 4.3 6.9 6.7 nm nm (4.7) (2.9) (1.0) 6.5 (4.1) (2.3) (4.9) (2.6) (1.0) 6.7 (5.2) 1.5 CAGR 5-year BMO Financial Group 200th Annual Report 2017 3221 197 9109 42 45 39 39 30 33 27 30 42 39 39 37 42 39 39 37 6.76.1 11.5 9.8 6.8 10.3 0.9 3.7 726 684 602 586 318 288 273 262 646 605 542 514 523 595 622 527 444294 411 314 382 289 346 291 324 312 252 249 486337 462 287 415 261 416 377 2016 2015 2014 2013 28.3 26.9 25.8 28.1 61.659.266.5 62.863.9 60.9 67.2 59.9 65.2 59.1 65.3 60.8 64.4 60.4 63.7 63.5 19.219.9 17.5 18.0 17.2 17.5 20.1 19.7 1,101 936 903 1,055 1,827 1,620 1,505 1,641 1,273 994 897 834 3,222 2,964 2,771 2,551 1,5282,393 1,349 2,137 1,193 1,908 1,003 1,833 4,082 3,910 3,388 3,259 2,278 2,102 1,946 1,686 1,0227,382 1,069 7,081 908 6,242 897 5,842 12,997 12,182 10,921 10,226 12,544 11,819 10,761 9,755 1 8 38 29 39 39 2.3 3.7 692 293 693 563 485 286 322 494 282 2017 27.1 59.8 58.4 64.2 62.8 19.5 19.8 1,296 1,988 1,279 3,344 1,676 2,491 3,995 2,386 1,086 7,467 13,302 13,007 (%) (%) (%) (%) (%) (%) (1) (%) (%) and Government Levies and Taxes government levies and taxes Year-over-year total non-interest expense growth Harmonized sales tax, GST, VATSundry and taxes other sales taxes Travel and business development Other Professional fees Total other expenses Business taxes Business, capital and sundry taxes Provincial capital taxes Computers and equipment Total premises and equipment Amortization of intangible assets Communications Year-over-year total adjusted non-interest expense growth Payroll levies Property taxes Salaries Performance-based compensation Property taxes Employee benefits Total employee compensation Rental of real estate Premises, furniture and fixtures Total government levies other than income taxes Provision for income taxes Total Government Levies and Taxes Total government levies and taxes as a % of income before total Effective income tax rate Total Non-Interest Expense Other expenses Five-year and ten-year CAGR based on CGAAPThe in adoption 2007 of and new IFRS IFRS in standards 2012 in(1) and 2015 Government 2017. only levies impacted are our included results in prospectively. na various – non-interest not expense applicable categories. nm – not meaningful Government levies other than income taxes Non-Interest Expense Employee compensation ($ millions, except as noted) For the year ended October 31 Premises and equipment Adjusted non-interest expense-to-revenue ratio (AdjustedEfficiency Efficiency ratio, ratio) net of CCPB Adjusted efficiency ratio, net of CCPB Government Levies and Taxes Adjusted effective income tax rate Total Adjusted Non-Interest Expense Non-interest expense-to-revenue ratio (Efficiency ratio) Table 4: Non-Interest Expense, Expense-to-Revenue Ratio Supplemental Information 126 Rates Interest and Liabilities Assets, Average 5: Table INFORMATION SUPPLEMENTAL dutdntitrs noebsdo oa assets total on based income interest net Adjusted 5,826 margin interest net 0.81 Adjusted assets total on based income interest Net 722,626 margin interest Net Equity Shareholders’ and Expense Interest Liabilities, Total equity Shareholders’ expense interest and liabilities Total Currencies All Total liabilities bearing non-interest Other currencies other and dollar U.S. Total uodntddb n te neetbaigliabilities sold bearing or interest lent other securities and and debt purchased Subordinated yet not but sold Securities Deposits Currencies Other and Dollar U.S. dollar Canadian Total liabilities bearing interest other and debt Subordinated 1 o h er ne coe 1 07 06ad21,temxmmaon fscrte eto odudrrprhs gemnsa n ot n amoun end month any at agreements repurchase under sold or lent securities of amount maximum the 2015, and 2016 2017, 31, October ended years the For (1) sold or lent securities and purchased yet not but sold Securities Deposits Dollar Canadian Liabilities income interest and assets Total Currencies All Total assets bearing non-interest Other currencies other and dollar U.S. Total agreements resale Loans under purchased or borrowed Securities Securities banks other with Deposits Currencies Other and Dollar U.S. dollar Canadian Total agreements resale Loans under purchased or borrowed Securities Securities banks other with Deposits Dollar Canadian Assets o h ereddOtbr31 October ended year the For noted) as except millions, ($ M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO ae nttlassets total on based – assets earning on based – assets total on based – assets earning on based – oa deposits Total Individuals governments and Businesses Banks oa deposits Total Individuals governments and Businesses Banks loans Total governments and Businesses cards credit and Personal mortgages Non-residential mortgages Residential loans Total governments and Businesses cards credit and Personal mortgages Non-residential mortgages Residential n 5,8 ilo,respectively. million, $57,385 and (1) (1) 7,8 .65,826 0.86 679,582 2,608 0.78 333,323 6,2 .11,889 0.71 1,429 265,027 0.78 182,156 3,218 1.16 277,210 1,9 .32,026 754 0.93 1,245 0.70 218,892 1.21 108,200 103,343 15,833 2.19 722,626 7,028 5,233 2.31 4,372 3.81 304,803 3.90 137,361 112,141 8,805 7,514 2.59 3.38 340,142 222,059 2,729 2.61 104,529 balances 43,044 69,049 91409 570 0.96 190 59,154 270 0.33 57,245 1.05 25,626 595 597 2.48 1.74 24,018 34,300 77,681 449 3.90 11,513 508 965 322 0.93 1.29 54,766 0.85 74,991 37,685 1,836 2,752 3.42 4.77 53,741 57,675 309 980 0.95 1.15 32,528 84,985 Average ,4 .3149 1.63 9,142 ,4 .727 0.37 7,349 108 304 2.08 3.55 5,159 8,548 197 3.23 6,114 7 .32 0.43 570 ae(%) rate Average interest 1.38 1.55 1.38 1.55 10,007 10,007 expense income/ Interest 2017 0,2 .5460643106 4,395 0.66 664,391 4,630 0.65 707,122 6,6 .9460674907 4,395 0.70 627,489 875 4,630 0.31 0.69 284,382 666,867 1,422 0.45 317,808 5,2 .0100268102 601 447 0.25 236,841 0.27 1,040 167,544 0.40 761 3,520 259,825 0.43 1.33 178,848 264,977 3,208 1.18 271,513 0,0 .5779,3 .8832 2,154 1.08 0.88 198,627 94,031 2,012 757 0.96 0.75 208,898 101,402 13,158 1.98 664,391 4,451 14,502 1.73 3,552 2.05 2,598 3.23 256,773 707,122 3.26 5,952 109,999 2.06 4,757 79,678 3.52 3,823 288,877 3.61 135,026 105,953 8,707 2.71 7,292 3.67 320,864 8,550 198,941 2.58 7,238 3.43 331,929 210,908 balances 02536,902 78,130 40,255 77,546 07105 8 17204 199 95 0.48 41,792 59 0.20 288 47,671 0.27 0.57 131 21,626 50,791 616 148 0.24 750 2.40 54,081 0.55 1.85 25,713 26,896 40,637 584 612 2.28 1.65 25,598 37,017 63686,754 545 3.19 86,316 17,071 168 562 524 169 0.38 1.03 3.32 44,010 0.35 54,733 15,771 319 48,031 676 200 0.59 1.17 1,710 54,210 0.48 2,690 57,820 3.94 41,821 4.87 43,427 251 55,219 1,766 2,645 0.85 3.59 1,143 4.71 1.27 29,617 49,136 56,211 261 90,322 1,028 0.75 1.22 34,906 84,099 80412 ,3 44813 1,269 1.34 94,438 1,231 1.26 98,004 2,663 2.83 94,119 2,615 2.63 99,280 Average ,9 .19 ,4 .175 1.31 5,749 94 1.31 7,192 ,9 .52 01805 53 0.52 10,158 24 0.25 9,492 116 293 2.51 3.39 4,619 8,631 106 304 2.28 3.52 4,672 8,630 229 3.71 6,176 212 3.37 6,281 ,1 .22 ,8 .421 1.04 1,984 23 1.12 2,016 ae(%) rate Average interest 1.40 1.59 1.40 1.59 expense income/ Interest 9,872 9,872 062015 2016 e o$286mlin 6,6 million $67,169 million, $72,826 to ted balances Average ae(%) rate Average interest 1.32 1.51 1.32 1.51 expense income/ Interest 8,764 8,763 Supplemental Information 127 2016/2015 rate Total Average –1111 –2 2 1 (11) (10) 4 (21) (17) (3) (29) (32) (4) (25) (29) 19 – 19 43 46 89 57 382 439 30 284 314 31 83 114 13 23 36 39 112 151 39 (351)14 (312) 75 89 47 (92) (45) 45 (35) 10 65 (140) (75) 48 (86) (38) (22) 53 31 (41) 20 (21) (67) (71) (138) (79) (36) (115) 119 428 547 857817 368865 388 1,225 636 1,205 1,501 225422 (169)388 (476) (545) 56 (54) (157) 146 (194) (48) 109 (251) (142) 158 77 235 Increase (decrease) due to change in 1,253 91 1,344 1,095 14 1,109 balance Average BMO Financial Group 200th Annual Report 2017 2017/2016 rate Total Average 85159 3 186 189 (3) 3 – (7) 129 122 (6) (9) (15) (6) 9 3 87 1,099 1,186 25 30 55 47 235 282 15 834 849 12 (10) 2 90 386 476 14 654 668 32 (22) 10 69 38 107 51 (54) (3) 11 (59) (48) 68 (54) 14 (19) 141 122 (36) 47 11 (17) 65 48 (45) 30 (15) (17) (4) (21) 201 88 289 223 326275 801 549 1,076 166367 (96)344 (91) (89) 70 276 255 138 (24) 114 113 (99) 14 619 712 1,331 119500 1,077 (365) 1,196 135 (142) 67 (75) Increase (decrease) due to change in balance Average (a – b) (b) (a) Individuals Total deposits Residential mortgages Non-residential mortgages Personal and credit cards Businesses and governments Total loans Banks Businesses and governments Businesses and governments Total loans Residential mortgages Non-residential mortgages Personal and credit cards Total deposits Individuals Banks Businesses and governments Change in U.S. dollar and other currenciesTotal interest All expense Currencies Change in total interest expense Subordinated debt and other interest bearing liabilities Securities sold but not yet purchased and securities lent or sold Securities Securities borrowed or purchased under resale agreements Loans Change in U.S. dollar and other currenciesTotal interest All income Currencies Change in total interest income U.S. Dollar and Other Currencies Deposits Change in Canadian dollar interest income U.S. Dollar and Other Currencies Deposits with other banks Change in Canadian dollar interest expense Loans Subordinated debt and other interest bearing liabilities Securities borrowed or purchased under resale agreements Securities sold but not yet purchased and securities lent or sold Securities Change in total net interest income Liabilities Canadian Dollar Deposits Assets Canadian Dollar Deposits with other banks ($ millions) For the year ended October 31 Table 6: Volume/Rate Analysis of Changes in Net Interest Income Supplemental Information 128 – Acceptances and Loans Impaired Net 8: Table – Acceptances and Loans Net 7: Table INFORMATION SUPPLEMENTAL odto Ratios Condition and loans impaired Total uiessadgovernments and Businesses I sa%o e on and loans net of % a as NIL sa coe 31 October at As $mlin,ecp sntd aaaUie ttsOhrcountries Other commitments. undrawn and instruments sheet off-balance portfolios. commitments. excluding purchased undrawn allowances, including and specific presented instruments of are sheet net Ratios off-balance are to (3) balances related Loans those Impaired excluding Net allowances States specific United (2) all and allowances, collective of net are balances Acceptances and Loans Net Aggregate (1) and loans net of % a as NIL Canada Consumer 31 October at As noted) as except millions, ($ acceptances and loans net Total Consumer millions) ($ olcieallowance Collective and businesses Total oa on n acceptances, and loans Total M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO allowances specific of net acceptances, oa consumer Total uiessadgovernments and Businesses osmrisamn and instalment Consumer acceptances Consumer acceptances mortgages Residential cards Credit mortgages Residential osmrisamn and instalment Consumer governments oa consumer Total e fseii allowances specific of net h osmradBsnse n oenet e on n cetne aacsaesae e fseii loacsol ecuigtoerltdt f-aac he ntuet n undrawn and instruments sheet off-balance to related those (excluding only allowances specific of net stated are balances Acceptances and Loans Net governments commitments). and Businesses and Consumer The te esnlloans personal other te esnlloans personal other emne Information Segmented Information Segmented 2 (3) (2) (3) (2) (1) 250,485 106,647 165,834 251,328 51,637 85,494 7,550 (843) 0.29 0.21 0.17 2017 2017 535 248 287 127 160 4,1 2,9 1,0 202,461 212,504 222,498 240,017 88,677 92,972 96,975 103,558 6,6 5,8 4,0 145,285 149,403 153,583 161,467 4,1 2,5 1,9 203,252 213,299 223,355 240,910 0384,8 89549,195 48,955 49,181 50,368 9436,7 38657,967 63,896 69,772 79,443 ,4 ,2 ,7 7,413 7,476 7,427 7,541 83 87 75 (791) (795) (857) (893) .803 .90.44 0.39 0.32 0.38 .302 .60.25 0.26 0.22 0.23 .601 .00.18 0.20 0.18 0.16 0621 042013 2014 2015 2016 0621 042013 2014 2015 2016 6 9 5 510 551 496 563 9 2 4 253 247 220 298 6 7 0 257 304 276 265 2 1 3 100 136 117 121 4 5 6 157 168 159 144 Canada (1) (2) 114,829 115,562 18,906 96,656 1,216 8,587 9,798 (733) 0.79 1.04 2.40 2017 2017 762 454 293 161 521 2,0 0,8 92667,615 79,206 100,183 120,802 2,9 0,8 99368,309 79,953 100,986 121,591 3202,5 35422,467 23,564 25,556 14,364 15,088 23,220 16,098 13,974 8317,3 63945,842 56,389 75,430 98,371 ,6 ,0 ,1 1,587 1,119 1,102 1,363 ,8 ,0 ,8 7,646 7,980 8,905 8,686 79 83 77 (694) (747) (803) (789) .608 .22.12 0.92 0.82 0.86 .311 .32.38 1.43 1.10 1.13 .619 .32.90 2.63 1.94 2.26 0621 042013 2014 2015 2016 0621 042013 2014 2015 2016 4 1 0 944 507 613 843 2 8 1 643 612 489 520 4 1 0 274 309 316 345 7 7 0 369 303 173 175 6 5 9 457 496 553 560 ntdStates United 12,768 12,768 12,395 0.24 0.23 2017 2017 373 373 30 30 – – – – – – – 0701,8 1168,954 11,146 11,181 10,770 0701,8 1168,954 11,146 11,181 10,770 0551,7 1158,954 11,145 10,975 10,555 .100 .40.03 0.04 0.04 0.01 .100 .40.03 0.04 0.04 0.01 0621 042013 2014 2015 2016 0621 042013 2014 2015 2016 1 0 – – 1 1 206 206 215 215 te countries Other 1443 1443 –––– –––– –––– –––– –––– –––– –––– Supplemental Information 129 6–261 110175 11359– 7 9 13 19 2325 8239 107 48 145 9 246 – 60451351 87 83 55 159 47 84 38 379 35 32 74 64 8812 30 14 7 – 23 – 221 129 103 118 889 859 587 631 895 815 831 729 106 102 100 74 408 100 1 30 2016 2015 2014 2013 2016 2015 2014 2013 1,142 837 758 1,200 1,3944,222 1,874 4,772 2,076 6,131 1,719 6,272 1,8627,930 1,3092,692 6,667 1,085 1,984 5,943 959 1,670 3,908 1,309 3,563 3,544 3,101 2,934 46,43043,127 43,612 39,579 42,043 37,251 38,825 37,920 98,448 89,460 84,498 80,726 13,74038,272 13,361 36,486 13,065 35,647 11,244 33,746 35,48135,977 28,384 31,220 22,114 24,096 18,321 19,019 10,694 3,735 2,532 2,152 12,15710,951 10,24318,689 9,891 8,281 16,187 9,155 7,345 13,612 8,380 11,250 16,859 14,096 12,580 10,229 24,114 20,597 17,636 17,606 BMO Financial Group 200th Annual Report 2017 240,017 222,498 212,504 202,461 188,369 156,177 131,430 112,763 – 2 3 4 2 1 21 45 39 36 97 70 238 181 835 625 145 156 2017 2017 1,040 1,541 3,824 1,344 8,166 2,890 3,916 46,856 45,168 13,684 38,909 34,055 39,082 10,496 11,612 11,114 20,070 18,496 26,479 250,485 105,868 194,545 (2) (1) Segmented Information Segmented Information instruments and undrawn commitments. Thespecific Consumer allowances and only Businesses (excluding and those governments related Net to Loans off-balance and sheet Acceptances instruments balances and are undrawn stated commitments). net of Financial institutions Government Other British Columbia and territories Total net loans and acceptances in Canada Communications (1) Aggregated Net Loans and Acceptances are net of collective allowances, and all specific(2) allowances excluding Net those Impaired related Loans to balances off-balance are sheet net of specific allowances, excluding off-balance sheet instruments and undrawn commitments. Prairie provinces ($ millions) As at October 31 Net Impaired Businesses and GovernmentsCommercial Loans real estate Construction (non-real estate) Retail trade Wholesale trade Agriculture Manufacturing Net Loans and Acceptances byAtlantic Province provinces Quebec Ontario Utilities Forest products Service industries ($ millions) As at October 31 Other Financial institutions Government Utilities Service industries Oil and gas Transportation Forest products Agriculture Communications Manufacturing Mining Wholesale trade Retail trade Construction (non-real estate) Net Businesses and Governments LoansCommercial by real Industry estate Mining Oil and gas Transportation Table 10: Net Impaired Loans and Acceptances – Table 9: Net Loans and Acceptances – Total Total 319 332466785 471 433 765 526 445 916 374 900 2016 2015 2014 2013 2016 2015 2014 2013 0.52 0.480.42 0.550.61 0.43 0.75 0.54 0.53 0.58 0.54 1.07 8,101 7,980 7,972 7,870 1,927 1,602 1,674 2,100 1,142 837 758 1,200 (1,682) (1,660) (1,542) (1,485) 64,557 65,485 64,044 63,559 112,244 105,880 100,952 96,323 188,369 156,177 131,430 112,763 373,271 335,522 304,398 280,515 371,589 333,862 302,856 279,030 184,902 179,345 172,968 167,752 420 741 321 2017 2017 0.47 0.40 0.53 8,071 1,781 1,040 (1,576) 61,808 379,658 115,234 378,082 194,545 185,113 Supplemental Information 130 – Loans Impaired Gross in Changes 11: Table INFORMATION SUPPLEMENTAL sa coe 31 October at As 1 nldsaonsrtrigt efrigsau,sls eamns h mato oeg xhne n fst o osmrwieof htaentrcgie sformations. as recognized not are that unavailable write-offs – consumer un for Loans. offsets Impaired and Credit exchange, Purchased foreign excludes of portfolios. GIL impact purchased the (3) including repayments, presented sales, are status, Ratios performing (2) to returning amounts Includes (1) rs mardlasadacpacs(GIL), acceptances and loans impaired Gross noted) as except millions, ($ Write-offs and loans impaired to Additions I sa%o qiyadalwnefor allowance and equity of % a as GIL rs mardlasadacceptances, and loans impaired Gross and loans impaired to Reductions I sa%o rs Loans Gross of % a as GIL Ratios Condition M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO Consumer Consumer year of beginning Consumer repayments net to due reductions Total governments and Businesses Consumer acceptances year of beginning GIL, Total governments and Businesses oa write-offs Total governments and Businesses governments and Businesses rdtlosses credit Consumer year of end acceptances additions Total oa on n Acceptances and Loans Total Consumer year of end GIL, Total governments and Businesses uiessadgovernments and Businesses n other and (1) emne Information Segmented 2 (3) (2) (474) (186) (730) (256) (237) 0.30 0.24 0.41 2017 356 697 736 380 281 393 978 747 354 (51) un ,8 4 2 878 928 848 1,084 42 49 41 (416) (431) (479) (452) 10 12 13 (162) (123) (142) (110) 12 17 12 (158) (162) (177) (182) (690) (655) (630) (697) (274) (224) (151) (245) 22 39 25 (320) (285) (319) (292) .102 .50.37 0.35 0.29 0.31 .202 .70.24 0.27 0.23 0.22 .804 .40.68 0.54 0.40 0.48 0621 042013 2014 2015 2016 5 9 4 338 348 398 359 3 1 4 584 643 617 886 631 754 548 742 406 641 344 282 5 3 8 294 285 231 453 5 5 9 348 398 359 356 3 4 4 754 742 406 641 344 736 282 380 nu nun un un un (3) Canada 1,594 1,009 1,159 1,377 (301) (249) (136) (991) (690) (385) 1.19 2.69 0.90 2017 585 360 799 508 869 un ,1 ,0 ,8 2,047 1,783 1,301 1,314 ,2 ,6 ,1 1,568 1,214 1,068 1,426 ,9 ,1 ,0 1,783 1,081 1,301 623 1,314 757 1,594 1,009 22 42 31 (243) (321) (432) (282) 21 19 24 (278) (284) (169) (251) 13 25 22 (338) (232) (215) (163) (1,216) (1,180) (973) (671) (732) (859) (239) (450) 44 34 56 (616) (516) (384) (414) .113 .22.60 1.62 1.30 1.31 .221 .73.12 2.87 2.18 2.52 .310 .02.34 1.10 1.01 1.03 0621 042013 2014 2015 2016 5 7 0 646 702 678 557 7 2 2 637 529 526 473 5 2 ,8 1,401 1,081 623 757 5 4 8 931 685 542 953 8 5 7 702 678 557 585 nu nun un un un ntdStates United 0.39 0.40 2017 56 56 50 50 (1) (7) (7) (1) un 2 2 – – – – – – .200 .40.10 0.04 0.04 0.02 .200 .40.10 0.04 0.04 0.02 0621 042013 2014 2015 2016 4 5 2 (36) (2) (36) (5) (2) (4) (5) (4) nu nun un un un te countries Other 45743 45743 5–3 25 5–3 25 2457 2457 –––– –––– 1 (3) – (1) – –––– –––– 1 (3) – (1) – –––– –––– Supplemental Information 131 BMO Financial Group 200th Annual Report 2017 Total 941 916 1,076 1,050 916 1,076 1,050 984 2016 2015 2014 2013 0.510.74 0.510.62 0.67 0.62 0.58 0.74 0.63 5.25 0.67 1.32 4.67 0.91 5.49 7.68 (345)(361) (392) (312) (394)(706) (407) (704) (496) (443) (801) (939) (734)(699) (911) (395) (752) (1,085) (1,283) (659) 2,332 1,959 2,048 2,544 1,391 1,043 972 1,494 2,512 1,921 2,142 2,449 1,1041,408 1,143 1,172 778 1,221 970 1,228 1,959 2,048 2,544 2,976 1,043 972 1,494 1,992 (1,433) (1,306) (1,837) (1,942) 901 941 2017 0.57 4.69 0.49 0.65 (322) (301) (623) (775) (953) 2,174 1,273 2,193 1,057 1,136 2,332 1,391 (1,728) Supplemental Information 132 – Losses Credit for Allowance of Allocation 13: Table – Losses Credit for Allowance in Changes 12: Table INFORMATION SUPPLEMENTAL Consumer Market by Write-offs of Allocation C,edo year of end ACL, 2 aisecueseii loacsfrOhrCei ntuet,wihaeicue nOhrLiabilities. Other in included are which Instruments, unavailable Credit – Other un for allowances specific exclude portfolios. Ratios purchased (2) including presented are Ratios (1) Consumer 31 October at As noted) as except millions, ($ (ACL), losses credit for Allowance 31 October at As noted) as except millions, ($ uiessadgovernments and Businesses Recoveries rvso o rdtlosses credit for Provision uiessadgovernments and Businesses Consumer Market by Recoveries of Allocation e rt-fsa faeaeloans average of % a as write-offs Net Write-offs f-aac sheet Off-balance governments and Businesses pcfcalwnefrcei ossas losses credit for allowance Specific Ratios Coverage olcieallowance Collective allowances specific Total loac o rdtlosses credit for Allowance te,icuigfrinecag rate exchange foreign including Other, M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO Consumer foreign including Other, Total eieta mortgages Residential Consumer year of beginning oa C,edo year of end ACL, Total governments and Businesses uiessadgovernments and Businesses Consumer losses credit for provision Total uiessadgovernments and Businesses Consumer uiessadgovernments and Businesses osmrisamn n other and instalment Consumer oa recoveries Total oa C,bgnigo year of beginning ACL, Total oa consumer Total n acceptances and Consumer uiessadgovernments and Businesses fgosipie on and loans acceptances impaired gross of % a oa write-offs Total Consumer changes uiessadgovernments and Businesses xhnert changes rate exchange Total Consumer loans personal uiessadgovernments and Businesses 1 (2) (1) emne Information Segmented Information Segmented (1) 1,055 1,066 1,055 (520) (520) (571) 28.4 27.0 29.9 2017 2017 612 595 443 134 453 413 471 134 144 106 106 843 212 (37) (51) (51) (10) (27) 12 10 40 94 10 un – ,6 ,0 8 1,035 986 1,002 1,066 ,0 8 ,3 968 1,035 986 1,002 ,6 ,0 8 1,035 986 1,002 1,066 51 51 50 (507) (500) (521) (511) 10 13 12 (160) (122) (143) (110) 51 51 50 (507) (500) (521) (511) 10 13 12 (160) (122) (143) (110) 61 64 62 (667) (622) (664) (621) 352. 5732.4 25.7 22.6 23.5 562. 3626.1 23.6 23.1 25.6 162. 8237.7 28.2 22.0 21.6 0621 042013 2014 2015 2016 2013 2014 2015 2016 9 1 1 602 615 614 595 1 1 0 518 602 615 614 7 8 7 433 371 388 471 0 1 981 99 654 111 533 102 561 583 8 4 7133 97 149 180 0 1 3 521 436 412 403 8 7 3 450 433 371 388 0 1 981 99 111 102 1 2 1 80 114 124 116 9 5 9 791 244 795 191 857 145 893 173 1)()(4 – (74) (5) (14) 1)()(2 (11) (22) (3) (13) 51 027 20 17 15 41 5(1) 15 13 14 66 464 74 66 76 41 5(1) 15 13 14 18 491 94 83 91 26 7153 97 62 82 1 2 5)11 (52) (2) (1) nu nun un un un –––– Canada Canada 1,047 (161) (137) (249) (161) (249) (410) (114) 11.7 10.6 12.3 2017 2017 921 229 254 692 300 222 793 121 107 921 733 188 (23) 81 78 12 81 40 42 40 54 27 un ,4 ,5 7 931 979 1,050 1,047 ,5 7 3 950 931 979 1,050 ,4 ,5 7 931 979 1,050 1,047 15 22 22 (347) (242) (232) (175) 21 18 25 (280) (285) (168) (251) 15 22 22 (347) (242) (232) (175) 21 18 25 (280) (285) (168) (251) 46 40 57 (627) (527) (400) (426) 451. 4011.0 14.0 16.1 14.5 111. . 8.4 9.7 12.2 11.1 651. 8612.7 18.6 19.0 16.5 0621 042013 2014 2015 2016 2013 2014 2015 2016 5 9 3 278 333 393 254 9 3 7 291 278 333 393 9 5 4 653 646 657 793 4 8 0 597 408 (65) 181 30 140 52 232 6 7)(7)(327) (172) (70) 263 5 4 5 659 653 646 657 4 8 0 597 408 181 140 2 3 1 692 510 332 227 6 4 1 137 116 144 166 8 0 4 694 237 747 232 803 247 789 258 3)8 5(19) 35 87 (36) 3)1222262 202 122 (31) 2)1 7 (23) (7) 19 (20) 1)6 24 42 68 (16) 7111295 102 151 87 82 142 41 21 18 7111295 102 151 87 74 517 25 47 47 56 659 66 68 65 73 041 50 35 27 nu nun un un un ntdStates United States United 40.0 40.0 2017 2017 20 20 21 21 20 20 20 (1) (1) (1) (1) (1) un 1 1 – – – – – – – – – – – – – – – – – 00–2. 57.1 20.0 – 50.0 00–2. 57.1 20.0 – 50.0 0621 042013 2014 2015 2016 2013 2014 2015 2016 nu nun un un un te countries Other countries Other 1–14 1 (9) (1) 1 1 1–14 1–14 1–14 1–14 1 –––– –––– 1 2 (2) (2) (1) – –––– 1 2 (2) (2) (1) – –1418 –––– –––– –––– –––– 1 (3) – (1) – –––– –1418 –––– –––– –––– –––– –––– –––– –––– 1 (3) – (1) – –––– 1 (3) – (1) – –––– 1 (9) (1) 1 Supplemental Information 133 BMO Financial Group 200th Annual Report 2017 Total Total 33 38 6127 69 35 50 41 (33)(16) 16 67(49) (29) (11) 83 (34) 6 (40) (28) 372443 534815 78 638 612189 (77) 783 154 561 (196) 262343 194 587 201 456 423 176 624 596 772 123156 113249 151 99 206432 160 214 81 392 150 294 424 485 189154 262 194 201 423 176 596 849 1,007 948 880 2016 2015 2014 2013 2016 2015 2014 2013 17.416.6 18.217.9 16.5 18.3 19.8 14.9 17.5 22.0 14.3 19.7 0.20 0.19 0.18 0.20 (686)(361) (753) (312) (742) (407) (854) (443) (686)(361) (753) (312) (742) (407) (854) (443) 1,0071,045 948 1,0182,052 1,090 1,966 880 1,127 1,970 809 1,936 1,682 1,6602,114 1,542 2,052 1,485 1,966 1,970 1,265 1,0452,114 1,018 2,052 1,090 1,966 1,970 (1,047) (1,065) (1,149) (1,297) 50 24 27 50 (33) 774 215 265 491 283 849 136 160 420 233 215 841 2017 2017 18.1 17.8 18.3 0.19 (681) (301) (982) (681) (301) (175) (142) 1,265 2,114 1,996 1,576 1,996 1,155 Supplemental Information 134 – Losses Credit for Provision 15: Table – Losses Credit for Allowances Specific 14: Table INFORMATION SUPPLEMENTAL 1 mut o 07ecueseii loacso 1mlinrltdt te rdtIsrmns(06–$ ilo,21 4mlin 04–$3mill $23 – 2014 million, $4 – 2015 million, $1 – portfolios. (2016 purchased Instruments including Credit presented Other are to Ratios related (2) million $1 of allowances specific exclude 2017 for Amounts (1) acceptances and loans net PCL-to-average Transportation gas and Oil Mining Manufacturing Communications Agriculture trade Wholesale trade Retail estate) (non-real Construction estate real Commercial Governments and Businesses consumer Total loans personal other and instalment Consumer Cards mortgages Residential Consumer 31 October ended year the For millions) ($ loans governments and businesses on losses credit for allowances specific Total Other Government institutions Financial industries Service products Forest Utilities Transportation gas and Oil Mining Manufacturing Communications Agriculture trade Wholesale trade Retail estate) (non-real Construction estate real Commercial Industry by Allowances Specific Governments and Businesses 31 October at As millions) ($ C-osgetdaeaentlasadacceptances and loans net average PCL-to-segmented oetproducts Forest Utilities evc industries Service Other Government institutions Financial efrac Ratios Performance losses credit for provision Total losses credit for provision Collective provisions specific Total governments and businesses Total pcfcPLt-vrg e on n acceptances and loans net PCL-to-average Specific M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO Consumer uiessadgovernments and Businesses te Liabilities. Other emne Information Segmented Information Segmented (%) (2) (1) 0.21 0.27 0.15 0.23 2017 2017 233 108 498 232 255 102 774 850 352 (76) 28 31 24 29 25 11 51 13 42 51 11 17 14 14 15 (1) (4) (3) 9 2 1 2 4 – – – – – – – – .301 .90.22 0.19 0.19 0.23 .103 .70.49 0.37 0.30 0.21 .500 00)(0.18) (0.06) 0.05 0.25 .301 .90.23 0.19 0.19 0.23 0621 042013 2014 2015 2016 2013 2014 2015 2016 o,21 2 ilo)icue in included million) $21 – 2013 ion, 4 0 1 294 214 206 249 0 5–– – 25 105 747 313 305 596 251 268 508 225 272 534 246 264 1 1 6 587 597 561 (150) 561 612 (35) 612 815 104 815 281 1)(7 11 (185) (141) (37) (16) 2)3 4)51 (49) 31 (26) 96 42 8 44 10 (4) 36 15 67 29 1 7 3 2027229 19 8 – 56 11 129 13 15 77 11 24 31 29 3 59 2 1 40 100 3 14 33 36 – 10 50 33 25 2 13 38 10 46 8 45 36 19 13 23 1968931 17 12 13 6()1 (9) 10 (4) 56 1(9 0(37) 80 (29) 21 1 1 3 (1) – (1) 7 3)(15) (34) 8 (7) 3–(6) – 13 2 3 10 1 1 – – 19 12911 26 3––– 9524 16 8 4 3––– –––1 2 3 (6) (3) (2) – (10) – – – Supplemental Information 135 Total 2016 Average rate paid (%) Approach 224,378 261,963 224,378 261,963 Advanced – 15,599 15,599 balance Average 37,585 239,977 277,562 37,585 239,977 277,562 37,585 239,977 277,562 Approach Standardized 2016 2015 Average Total 2016 rate paid (%) 6,867 0.36 6,804 0.24 balance 77,231 0.44 76,458 0.57 37,296 – 31,762 – 19,493 0.33 18,910 0.36 17,346 0.02 16,109 0.01 26,209 0.55 23,952 0.36 Average 136,821270,841 1.38 120,764 0.85 247,894 1.42 0.89 147,460197,882468,723 0.40 140,709 0.38 187,574 0.65 435,468 0.31 0.29 0.63 BMO Financial Group 200th Annual Report 2017 Approach Advanced –– – – –– –– – – – – 15,219 380 – 15,219 – 380 – – 14,894 705 14,894 705 –– – – – – 1,211 4,982 7,751 25,520 8,962 30,502 – 64,409 64,409 – 33,755 33,755 – – – – 9,651 9,651 – 34,016 34,016– – 2,122 5,110 2,122 5,110 – 1,403 1,403 – 23,269– 23,269 24,328 24,328 – 1,878 – 1,878 16,197 16,197 122 87,124 87,246 64 1,912 1,976 264 40,734 40,998 264 4,222 4,486 431 39,177 39,608 306 5,829 6,135 261 145,411 145,672 261 9,414 9,675 Exposure at Default Risk-weighted assets 2,594 99,076 101,670 1,349 6,766 8,115 2,395 35,1547,135 37,549 4,064 11,199 1,567 10,367 11,934 5,427 2,269 7,696 2017 35,276 841,338 876,614 37,585 224,378 261,963 35,276 841,338 876,614 31,392 191,107 222,499 22,074 242,454 264,528 22,154 82,334 104,488 Approach Average Standardized rate paid (%) Total 2017 Basel III 9,196 0.76 balance 81,279 0.49 41,985 – 21,253 0.44 14,327 0.04 24,730 1.05 Average 147,097291,614 1.50 0.93 144,052192,305483,919 0.61 0.63 0.81 Approach 225,895 261,045 225,895 261,045 Advanced – 8,421 8,421 – 9,648 9,648 35,150 234,316 269,466 35,150 234,316 269,466 35,150 234,316 269,466 Approach Standardized Total 2017 Approach Advanced –– – – –– –– – – – – 290 – 8,131 – 8,131 290 – – 522 7,899 7,899 522 – – – 5,355 27,418 32,773 – – – 1,868 6,580 8,448 – 67,900 67,900 – 35,246 35,246 ––– – 34,826 34,826– 2,205 – 2,205 5,465 5,465 – 1,626 1,626 – 29,201– 29,201 22,052 22,052 – 2,476 – 2,476 15,631 15,631 (1) 148 100,800 100,948 77 1,550 1,627 314 78,573 78,887 314 5,578 5,892 306 40,895 41,201 217 5,209 5,426 110 93,836 93,946 110 9,432 9,542 Exposure at Default Risk-weighted assets 1,865 100,940 102,805 970 7,014 7,984 2,292 31,8736,854 34,165 4,112 10,966 1,510 9,748 5,231 11,258 2,351 7,582 31,311 874,801 906,112 35,150 225,895 261,045 31,311 874,801 906,112 27,927 191,897 219,824 19,422 267,588 287,010 19,498 80,923 100,421 Approach Standardized (1) enterprises equity line of credit medium-sized enterprises enterprises Corporate small and medium-sized Sovereign Corporate, including specialized lending Bank Residential mortgages, excluding home Home equity line of credit Qualifying revolving retail Other retail, excluding small and Retail small and medium-sized counterparty managed assets AIRB Approach OSFI, for Tier 1 Capital before CVA and Capital Floor OSFI, for Total Capital Risk-Weighted Assets before Credit Valuation Adjustment (CVA) and Capital Floor Risk-Weighted Assets before Capital Floor Wholesale Retail Equity Trading book Securitization Other credit risk assets – non- Scaling factor for credit risk assets under Additional CVA adjustment, prescribed by Basel I Capital Floor Tier 1 Capital Risk-Weighted Assets Total Capital Risk-Weighted Assets Additional CVA adjustment, prescribed by Basel I Capital Floor Total Capital Risk-Weighted Assets Common Equity Tier 1 (CET 1) Capital Tier 1 Capital Risk-Weighted Assets Basel I Capital Floor Operational Risk Common Equity Tier 1 (CET 1) Capital Market Risk ($ millions, except as noted) Payable on a fixed date Total deposits booked in Canada Deposits Booked in the UnitedBanks States located and in Other the Countries United States and other countries Payable after notice Demand deposits – non-interest bearing As at October 31, 2017,after 2016 notice and included 2015: $33,561 deposits million,total by $30,122 deposits foreign million payable depositors and on in $29,104 aamounts our million, fixed would Canadian respectively, date have bank of included been offices chequing $30,648 classified amounted accounts million, as to that $35,460 short-term(1) $44,746 would million borrowings million, have and Includes for $52,834 been $25,926 regulated million U.S. classified million, and and reporting as respectively, central $37,477 purposes. demand of banks. million, deposits federal respectively; under funds total U.S. purchased, deposits reporting commercial payable requirements; paper and issued and other deposit liabilities. These Deposits Booked in Canada Demand deposits – interest bearing Total Credit Risk (1) The scaling factor is applied to the risk-weighted assets amounts for credit risk under the AIRB Approach. Credit Risk Other deposits payable after notice or onTotal a deposits fixed booked date in the United StatesTotal and average deposits other countries Other demand deposits Governments and institutions in the United States and other countries ($ millions) As at October 31 Table 17: Average Deposits Table 16: Risk-Weighted Assets Statement of Management’s Responsibility for Financial Information

Management of Bank of Montreal (the “bank”) is responsible for the preparation and presentation of the annual consolidated financial statements, Management’s Discussion and Analysis (“MD&A”) and all other information in the Annual Report. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and meet the applicable requirements of the Canadian Securities Administrators (“CSA”) and the Securities and Exchange Commission (“SEC”) in the United States. The financial statements also comply with the provisions of the Bank Act (Canada) and related regulations, including interpretations of IFRS by our regulator, the Office of the Superintendent of Financial Institutions Canada. The MD&A has been prepared in accordance with the requirements of securities regulators, including National Instrument 51-102 Continuous Disclosure Obligations of the CSA. The consolidated financial statements and information in the MD&A necessarily include amounts based on informed judgments and estimates of the expected effects of current events and transactions with appropriate consideration to materiality. In addition, in preparing the financial information we must interpret the requirements described above, make determinations as to the relevancy of information to be included, and make estimates and assumptions that affect reported information. The MD&A also includes information regarding the impact of current transactions and events, sources of liquidity and capital resources, operating trends, risks and uncertainties. Actual results in the future may differ materially from our present assessment of this information because events and circumstances in the future may not occur as expected. The financial information presented in the bank’s Annual Report is consistent with that in the consolidated financial statements. In meeting our responsibility for the reliability and timeliness of financial information, we maintain and rely on a comprehensive system of internal controls, including organizational and procedural controls, disclosure controls and procedures, and internal control over financial reporting. Our system of internal controls includes written communication of our policies and procedures governing corporate conduct and risk management; comprehensive business planning; effective segregation of duties; delegation of authority and personal accountability; escalation of relevant information for decisions regarding public disclosure; careful selection and training of personnel; and accounting policies that we regularly update. Our internal controls are designed to provide reasonable assurance that transactions are authorized, assets are safeguarded and proper records are maintained and that we are in compliance with all regulatory requirements. The system of internal controls is further supported by a compliance function, which is designed to ensure that we and our employees comply with securities legislation and conflict of interest rules, and by an internal audit staff, which conducts periodic audits of all aspects of our operations. As of October 31, 2017, we, as the bank’s Chief Executive Officer and Chief Financial Officer, have determined that the bank’s internal control over financial reporting is effective. We have certified Bank of Montreal’s annual filings with the CSA and with the SEC pursuant to National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings and the Securities Exchange Act of 1934. In order to provide their audit opinions on our consolidated financial statements and on the bank’s internal control over financial reporting, the Shareholders’ Auditors audit our system of internal controls over financial reporting and conduct work to the extent that they consider appropriate. Their audit opinion on the bank’s internal control over financial reporting as of October 31, 2017 is set forth on page 138. The Board of Directors, based on recommendations from its Audit and Conduct Review Committee, reviews and approves the financial information contained in the Annual Report, including the MD&A. The Board of Directors and its relevant committees oversee management’s responsibilities for the preparation and presentation of financial information, maintenance of appropriate internal controls, compliance with legal and regulatory requirements, management and control of major risk areas, and assessment of significant and related party transactions. The Audit and Conduct Review Committee, which is comprised entirely of independent directors, is also responsible for selecting the Shareholders’ Auditors and reviewing the qualifications, independence and performance of both the Shareholders’ Auditors and internal audit. The Shareholders’ Auditors and the bank’s Chief Auditor have full and free access to the Board of Directors, its Audit and Conduct Review Committee and other relevant committees to discuss audit, financial reporting and related matters. The Office of the Superintendent of Financial Institutions Canada conducts examinations and inquiries into the affairs of the bank as are deemed necessary to ensure that the provisions of the Bank Act, with respect to the safety of the depositors, are being duly observed and that the bank is in sound financial condition.

Darryl White Thomas E. Flynn Toronto, Canada Chief Executive Officer Chief Financial Officer December 5, 2017

136 BMO Financial Group 200th Annual Report 2017 Independent Auditors’ Report of Registered Public Accounting Firm

To the Shareholders of Bank of Montreal We have audited the accompanying consolidated financial statements of Bank of Montreal (the "Bank"), which comprise the consolidated balance sheets as at October 31, 2017 and October 31, 2016, the consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended October 31, 2017, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Bank's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Bank as at October 31, 2017 and October 31, 2016, and its consolidated financial performance and its consolidated cash flows for each of the years in the three- year period ended October 31, 2017 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Other Matter We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Bank’s internal control over financial reporting as of October 31, 2017, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated December 5, 2017 expressed an unmodified (unqualified) opinion on the effectiveness of the Bank’s internal control over financial reporting.

Chartered Professional Accountants, Licensed Public Accountants December 5, 2017 Toronto, Canada

BMO Financial Group 200th Annual Report 2017 137 Report of Independent Registered Public Accounting Firm

To the Shareholders of Bank of Montreal We have audited Bank of Montreal’s (the “Bank”) internal control over financial reporting as of October 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Bank’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included under the heading “Management’s Annual Report on Disclosure Controls and Procedures and Internal Control over Financial Reporting” in the accompanying Management’s Discussion and Analysis. Our responsibility is to express an opinion on the Bank’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of October 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Bank as at October 31, 2017 and 2016, the consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended October 31, 2017, and notes, comprising a summary of significant accounting policies and other explanatory information, and our report dated December 5, 2017 expressed an unmodified (unqualified) opinion on those consolidated financial statements.

Chartered Professional Accountants, Licensed Public Accountants December 5, 2017 Toronto, Canada

138 BMO Financial Group 200th Annual Report 2017 Consolidated Financial Statements 139 935 84 171 42 45 140489 207 517 223 190 162 172 815 612 444646294523 411 605 314 595 820 706 859461 737 460 924 901 170 163 2016 2015 6.923.40 6.57 3.24 4,622 4,370 2,023 1,762 1,5437,3822,393 1,254 7,081 2,137 1,2731,101 994 936 1,704 1,705 1,364 1,377 1,556 1,552 1,192 987 1,141 1,077 9,872 8,763 1,4084,630 1,477 4,395 3,052 2,755 5,732 5,341 11,215 10,626 14,502 13,158 12,997 12,182 21,087 19,389 $ 4,631 $ 4,405 $ 4,631 $ 4,405 $ 6.94 $ 6.59 $ 12,575 $ 11,263 2 38 386 526 324 171 191 774 485 693 286 563 917 415 969 155 2017 7.92 3.56 5,348 2,070 1,538 7,467 2,491 1,279 1,296 1,945 1,036 1,411 1,622 1,352 1,187 1,756 5,826 3,915 6,646 12,253 15,833 13,302 10,007 22,260 BMO Financial Group 200th Annual Report 2017 $ 5,350 $ 5,350 $ 7.95 $ 13,564 Philip S. Orsino Chairman, Audit and Conduct Review Committee (Note 14) (Note 3) (Note 11) (Note 4) (Note 23) (Note 9) (Notes 21 and 22) (Canadian $) (Note 24)

(Note 3)

Non-controlling interest in subsidiaries Bank shareholders Net Income Earnings Per Share Investments in associates and jointOther ventures Non-Interest Expense Employee compensation Premises and equipment Amortization of intangible assets Net Income Attributable to: Chief Executive Officer Darryl White The accompanying notes are an integral partCertain of comparative these figures consolidated have financial been statements. reclassified to conform with the current year’s presentation. Basic Deposits with banks Foreign exchange, other than trading Insurance revenue Insurance Claims, Commissions and Changes in Policy Benefit Liabilities Travel and business development Communications Business and capital taxes Professional fees Other Diluted Dividends per common share Securities Interest, Dividend and Fee Income Loans For the Year Ended October 31 (Canadian $ in millions, except as noted) Underwriting and advisory fees Securities gains, other than trading Mutual fund revenues Lending fees Card fees Investment management and custodial fees Trading revenues Non-Interest Revenue Securities commissions and fees Deposit and payment service charges Net Interest Income Subordinated debt Other liabilities Total Revenue Provision for income taxes Interest Expense Deposits Income Before Provision for Income Taxes

Provision for Credit Losses Consolidated Statement of Income Consolidated Financial Statements 140 Income Comprehensive of Statement Consolidated FINA CONSOLIDATED 7 e ficm a poiin eoeyo 5 ilo,$5mlinad$4)mlinfrteya ne,respectively. ended, year statements. the financial for consolidated respectively. million these ended, $(43) of year and part the million integral for $55 an respectively. million million, are ended, $(51) $53 notes year and of accompanying the million recovery The for $156 (provision) respectively. million million, tax ended, $167 $(157) income year and of of the million recovery Net for $(10) (provision) respectively. million (7) million, tax ended, $14 $(8) income year and of of the million recovery Net for $(6) (provision) million (6) million, tax respectively. $(188) $(21) income ended, and of of year million (recovery) Net the $(4) provision respectively. for (5) million, tax ended, million $322 income year $24 of of the and recovery Net for million (provision) million (4) $11 tax $63 million, income and $36 of million of Net $(64) provision (3) million, tax $(21) income of of recovery Net (provision) (2) tax income of Net (1) income net to reclassified be subsequently may taxes that of Items net (Loss), Income Comprehensive Other Income millions) Net in $ (Canadian 31 October Ended Year the For oa opeesv Income Comprehensive Total to: Attributable oa opeesv Income Comprehensive Total taxes of net (Loss), Income Comprehensive Other tm htwl o ercasfe ontincome net to reclassified be not will that Items M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO e hnei nelzdgis(oss naalbefrsl securities available-for-sale on (losses) gains unrealized in change Net e an lse)o rnlto fntfrinoperations foreign net of translation on (losses) gains Net hedges flow cash on (losses) gains unrealized in change Net o-otoln neeti subsidiaries in interest Non-controlling shareholders Bank elsiiaint annso gis osso ahfo hedges flow cash on losses (gains) of earnings to Reclassification nelzdgis(oss naalbefrsl euiisaiigdrn h year the during arising securities available-for-sale on (losses) gains Unrealized nelzdgis(oss ntasaino e oeg operations foreign net of translation on (losses) gains Unrealized year the during arising hedges flow cash on (losses) Gains year the in (gains) of earnings to Reclassification an lse)o eesrmn foncei iko iaca iblte eintda arvalue fair at designated liabilities financial on risk credit own of remeasurement on (losses) Gains an lse)o eesrmn fpninadohrepoe uuebnftplans benefit future employee other and pension of remeasurement on (losses) Gains operations foreign net of hedges on (losses) gains Unrealized CA STATEMENTS NCIAL Nt 23) (Note 23) (Note (2) (3) (5) (4) (1) (6) Nt )(7) 1) (Note 5,350 $ 3,990 $ 3,990 $ (1,360) 3,988 (148) (839) (885) (862) (778) 2017 272 420 (87) 23 61 95 8 2 ,3 4,405 $ 4,631 $ ,1 7,670 $ 4,417 $ ,1 7,670 $ 4,417 $ ,0 7,635 4,408 55 320 120 (575) (153) 42 200 (422) 24 3,265 (214) 062015 2016 2 (231) 123 5 (166) 151 1 3,187 213 5 2,705 254 2)528 (26) 2)(65) (28) 1)471 (16) 1(482) 41 (57) 10 935 Consolidated Financial Statements 141 24 81 906 242 899 294 2016 9,555 4,449 2,147 6,381 2,178 3,101 4,439 3,840 8,965 8,101 4,426 (1,925) 84,458 55,663 64,680 42,328 39,183 13,021 76,472 38,227 13,021 25,106 40,718 22,377 28,024 12,539 21,205 42,304 66,646 358,730 149,985 112,277 175,597 360,655 167,796 $ 473,372 $ 31,653 $ 687,935 $ 687,935 – 233 960 125 307 2017 2,033 6,244 2,159 2,865 5,029 4,240 6,490 1,371 9,094 8,071 3,066 (1,833) 99,069 54,075 61,944 44,354 28,951 16,546 10,405 70,574 27,804 16,546 25,163 55,119 23,054 28,665 13,032 23,709 44,354 75,047 361,672 115,258 363,505 163,198 178,232 176,709 $ 483,488 $ 32,599 $ 709,580 $ 709,580 BMO Financial Group 200th Annual Report 2017 (Note 4) (Note 14) (Notes 6 and 7) (Note 2) (Note 16) (Note 12) (Note 14) (Note 2) (Note 4) (Note 9) (Note 8) (Note 8) (Note 23) (Note 15) (Note 23) (Note 11) (Note 16) (Note 16) (Note 14)

(Note 3) (Note 13) (Note 11) (Notes 4 and 6) (Note 14) (Note 12)

Other Liabilities Derivative instruments Other Assets Derivative instruments Interest Bearing Deposits with Banks Securities Goodwill Intangible assets Current tax assets Deferred tax assets Other Other Equity Preferred shares Common shares The accompanying notes are an integral part of these consolidated financial statements. Residential mortgages Trading Available-for-sale Held-to-maturity Securities Borrowed or Purchased Under Resale Agreements Consumer instalment and other personal Credit cards Allowance for credit losses Assets Cash and Cash Equivalents As at October 31 (Canadian $ in millions) Other Businesses and governments Total Liabilities and Equity Liabilities and Equity Deposits Total Equity Customers’ liability under acceptances Premises and equipment Total Assets Acceptances Securities sold but not yetSecurities purchased lent or sold underSecuritization repurchase and agreements structured entities’ liabilities Current tax liabilities Subordinated Debt Contributed surplus Accumulated other comprehensive income Non-controlling interest in subsidiaries Retained earnings Total shareholders’ equity Loans

Deferred tax liabilities Consolidated Balance Sheet Consolidated Financial Statements 142 Equity in Changes of Statement Consolidated FINA CONSOLIDATED nelzdgis(oss nhde fntfrinoperations foreign net of hedges on (losses) gains Unrealized nelzdgis(oss ntasaino e oeg operations foreign net of taxes translation of on net (losses) Operations, gains Foreign year Unrealized Net of of beginning Translation at on Balance Income Comprehensive Other Accumulated year the during arising hedges flow cash on (losses) Gains Shares Common Year of End at Balance year the during Redeemed eucae o cancellation for Repurchased aac tbgnigo year of beginning at Balance Subsidiaries in Interest Non-controlling Equity Shareholders’ Total Income Comprehensive value Other fair Accumulated at Total designated liabilities Year financial of on End risk at credit Balance own of remeasurement on (losses) Designated year Gains Liabilities of Financial beginning on at Risk Balance Credit Own on (Loss) Income Comprehensive Other Accumulated Year of End at Balance iied onncnrliginterest non-controlling interest to non-controlling Dividends to attributable income Net aac tbgnigo year of beginning at Balance Earnings Retained 7 e ficm a poiin eoeyo 5 ilo,$5mlinad$4)mlinfrteya ne,respectively. ended, year statements. the financial for consolidated respectively. million these ended, $(43) of year and part the million integral for $55 an respectively. million million, are ended, $(51) $53 notes year and of accompanying the million recovery The for $156 (provision) respectively. million million, tax ended, $167 $(157) income year and of of the million recovery Net for $(10) (provision) respectively. million (7) million, tax ended, $14 $(8) income year and of of the million recovery Net for $(6) (provision) million (6) million, tax respectively. $(188) $(21) income ended, and of of year million (recovery) Net the $(4) provision respectively. for (5) million, tax ended, million $322 income year $24 of of the and recovery Net for million (provision) million (4) $11 tax $63 million, income and $36 of million of Net $(64) provision (3) million, tax $(21) income of of recovery Net (provision) (2) tax income of Net (1) Other plans benefit future employee other and pension of remeasurement on (losses) year Gains Benefit of Future beginning Employee at Other Balance and Pension on (Loss) Income Comprehensive Other Accumulated Year of End at Balance Year of End at Balance taxes of net Hedges, year Flow of Cash beginning on at (Loss) Balance Income Comprehensive Other Accumulated Year of End year at the Balance in (gains) of earnings to Reclassification year of beginning at Balance year the during year Issued of beginning at Balance millions) Shares in Preferred $ (Canadian 31 October Ended Year the For hr su expense issue Share year the during redeemed shares Preferred expense/exercised option Stock Year of End at Balance Plan Option Stock the under Issued eepinprhs fnncnrliginterest non-controlling of Redemption/purchase year the in losses (gains) of earnings to Reclassification Year of End at Balance omnsae eucae o cancellation for repurchased shares Common iied rfre shares Preferred shareholders – bank Dividends to attributable income Net Year of End at Balance Other aac tEdo Year of End at Balance Plan Purchase Share and Reinvestment Dividend Shareholder the under Issued aac tbgnigo year of beginning at Balance Surplus Contributed cuuae te opeesv noe(os nAalbefrSl euiis e ftaxes of net year Securities, of Available-for-Sale beginning on at (Loss) Balance Income Comprehensive Other Accumulated nelzdgis(oss naalbefrsl euiisaiigdrn h year the during arising securities available-for-sale on (losses) gains Unrealized oa Equity Total M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO tFi au,nto taxes of net Value, Fair at ln,nto taxes of net Plans, omnshares Common – Nt 16) (Note CA STATEMENTS NCIAL Nt 16) (Note Nt 16) (Note Nt 16) (Note Nt 16) (Note Nt 21) (Note Nt 16) (Note Nt 16) (Note Nt 16) (Note (2) Nt 16) (Note (4) (3) (5) Nt 16) (Note (1) (6) Nt )(7) 1) (Note 44,354 $ 3,840 $ 44,354 $ 21,205 12,539 13,032 23,709 (2,312) 4,327 4,240 3,066 3,465 5,348 (885) (500) (181) (512) (182) (339) (184) (101) (148) (839) 2017 596 900 146 448 420 307 294 (33) (92) (25) (87) 24 23 61 95 56 48 (1) (9) 2 6 7 – – – 234$39,422 $ 42,304 $ ,4 3,040 $ 3,240 $ 238$39,913 $ 42,328 $ 89017,237 18,930 23312,357 12,313 25912,313 12,539 12518,930 21,205 211 (2,087) (2,191) ,7 1,368 4,073 3,240 3,840 ,2 4,640 4,426 ,2 4,073 4,327 ,2 4,370 4,622 10 (117) (150) 42 200 (422) 13 120 (153) 52 (90) (512) 40 (600) (450) 062015 2016 1 3,187 213 596 612 950 600 3 51 136 2 – 120 9 1,091 491 9 299 294 5 (166) 151 9 304 299 3)120 (33) 9)(290) (90) 2)(65) (28) 2)528 (26) 1)(37) (10) 1)– (14) 1)2 (16) 7)156 (75) 1(482) 41 (57) 10 8(75) 48 058 90 4491 24 6 (5) (6) 935 (5) 9 (750) – (465) – (153) – (3) – 612 141 Consolidated Financial Statements 143 – (753) – (618) –– (7) 76 (6) (5) 64 (113) 17 12 (81) 53 (18) (141) (10) (37) (82) (4,625) 600 950 137 51 815384 612 219444108 377 – 411 226 628 (1,028) 2016 2015 (345) 298 (450) (600) (306) (6,178) (101) (183) (224) (179) (387) (345) 1,771 5,820 2,250 – 8,945 6,684 3,739 (7,049) 3,100 (390) 1,372 5,484 8,0463,007 149 (461) 2,793 (7,940) 6,985 5,267 (2,101)(2,200) (2,498) (500) (2,219) (2,135) (5,598) 9,320 (8,642) 11,909 (2,728) 2,250 22,835 7,884 40,295 28,386 22,293 16,740 (23,235) (15,600) (12,147)(15,332) 4,026 – (11,403) 15,613 (34,859) (16,996) $ 4,631 $ 4,405 $ 31,653 $ 40,295 $ 4,561$ 1,201$ $ 14,541 4,476 $ $ 13,138 641 – – – 7 (9) 15 52 (12) (87) (25) 850 900 149 774 391 227 485 156 336 946 762 2017 (497) (130) (100) (500) (440) (178) (803) (301) (490) 5,845 1,996 2,908 5,930 (2,095) (2,602) (2,010) (8,857) (3,155) (2,245) 16,094 15,544 16,535 31,653 45,893 (14,923) (16,237) (51,917) (10,891) $ 5,350 $ 32,599 $ 5,826 $ 1,338 $ 15,900 BMO Financial Group 200th Annual Report 2017 (Note 3) (Note 3) (Note 15) (Note 16) (Note 2) (Note 9) (Note 16) (Note 16) (Note 13) (Note 16) – Increase (decrease) in derivative liability (Note 11) (Note 15) (Note 16) (Note 13) – Increase (decrease) in interest payable (Note 4) (Note 10)

Net (increase) decrease in current income tax asset Net increase (decrease) in currentChange income in tax accrued liability interest – (Increase) decrease in interest receivable Changes in other items andNet accruals, increase net in deposits Change in derivative instruments – (Increase) decrease in derivative asset Amortization of other assets Amortization of intangible assets Net decrease in deferred incomeNet tax increase asset (decrease) in deferred income tax liability Impairment write-down of securities, other than trading Amortization of premises and equipment Net (increase) in loans Net increase (decrease) in securities sold but not yet purchased Net (increase) decrease in trading securities Net increase (decrease) in securities lent or sold under repurchase agreements Amount of interest paid inAmount the of year income taxes paidAmount in of the interest year and dividend income received in the year Net (gain) on securities, other than trading Provision for credit losses Net (increase) decrease in securitiesNet borrowed increase or (decrease) purchased in under securitization resale and agreements structured entities’ liabilities Share issue expense Proceeds from issuance of common shares Redemption of preferred shares Common shares repurchased for cancellation The accompanying notes are an integral partCertain of comparative these figures consolidated have financial been statements. reclassified to conform with the current year’s presentation. Proceeds from issuance of subordinatedRepayment debt of subordinated debt Proceeds from issuance of preferred shares Redemption of capital trust securities Cash dividends paid Cash dividends paid to non-controlling interest Adjustments to determine net cash flows provided by (used in) operating activities Redemption of covered bonds Cash Flows from Operating Activities Net Income For the Year Ended October 31 (Canadian $ in millions) Proceeds from issuance of covered bonds Supplemental Disclosure of Cash FlowNet Information cash provided by operating activities includes: Net Cash Provided by (Used in) InvestingEffect Activities of Exchange Rate Changes on CashNet and increase Cash (decrease) Equivalents in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Net Cash Provided by Financing Activities Cash Flows from Investing Activities Net (increase) decrease in interestPurchases bearing of deposits securities, with other banks than trading Net Cash Provided by (Used in) OperatingCash Activities Flows from Financing Activities Net increase (decrease) in liabilities of subsidiaries Cash and Cash Equivalents at End of Year Maturities of securities, other than trading Proceeds from sales of securities, other than trading Purchase of non-controlling interest Premises and equipment – net (purchases) Purchased and developed software – net (purchases)

Acquisitions Consolidated Statement of Cash Flows Notes ftetasaingi ls)adayapial egn ciiisadrltdicm ae srcasfe oorCnoiae ttmn fIncom of Statement Consolidated amount our cumulative to the reclassified lost, is is taxes 144 control income disposition. joint related on of or and loss translation influence activities or on significant hedging gain (loss) control, applicable the gain that any of net such and part within operation (loss) Income foreign gain Comprehensive a translation of of the Statement dispose of Consolidated we our When in operations. included foreign are net are taxes, currencies income foreign applicable not in and liabilities denominated activities and expenses assets and year. Non-monetary Revenues the date. rates. for foreign sheet historical rate in balance at exchange denominated the dollars average are at Canadian the functional that effect into using our value in translated translated is fair rate are which at exchange value dollars, measured the fair Canadian liabilities at at in and dollars measured statements assets Canadian financial non-monetary into consolidated as translated our well are present as currencies, and liabilities, currencies and foreign assets of Monetary variety currency. a in business conduct We Currencies Foreign of Translation the throughout policies accounting significant caption: our major disclosed by have disclosures we financial statements, related financial the consolidated with our notes of following understanding better a facilitate of To Statement Consolidated Policies our Accounting in separately Specific presented is subsidiaries in interest non-controlling to our attributable Income. in income ventures, of net joint Statement The and our equity. associates of shareholders’ in section investments relevant in the recorded in securities, is reflected as loss are recorded or amounts our are income income recognize investments net comprehensive Income. to accounted the other Comprehensive decreased equity of Any or Our share Income. increased loss. our of shareholders. is or and Statement applied other amount income Sheet Consolidated also with carrying comprehensive Balance is agreement the other Consolidated method an and including our equity through cost, loss, in The control at or other, method. joint recorded income equity exercise initially net the we are investee using where investments of for entities accounting, share accounted those of are are method These ventures equity shares). Joint the voting ventures. Under and the joint subsidiaries of in our consolidation. 50% investments of on and our expenses eliminated 20% to and are between consolidate revenues balances own we liabilities, and we which assets, transactions which SEs, the intercompany in in of All interests All statements. hold 7. financial also Note consolidated We in our shares. described in voting fully included the those more are are of are SEs business Subsidiaries majority These consolidated conduct ventures. the SE. We joint of the 2017. and ownership control 31, associates our we October (“SEs”), through when at entities control as structured exercise subsidiaries subsidiaries, we our including where of structures, entities statements corporate financial of the variety of a inclusive through are statements financial consolidated These Consolidation of Basis liabilities; payment liabilities. share-based insurance-related financial cash-settled and loss; relationships; liabilities; or hedge benefit profit value future through fair employee value qualifying other fair in and at items pension designated hedged benefit liabilities as defined and designated assets liabilities financial financial assets; and Superintendent financial assets the available-for-sale of trading; Office for the held regulator, liabilities our by IFRS of interpretations Exchange. First with (“OSFI”). Stock 1 comply Canada York West, also Institutions Street New We Financial King the (“IASB”). of 100 and Board Exchange at Standards are Stock Accounting offices Toronto International executive the the Its on Quebec. listed banking Montreal, are investment Saint-Jacques, shares and rue common management 129 Our wealth at Ontario. banking, is Toronto, commercial office Place, and head Canadian personal bank’s of The range services. broad and the a products under providing bank company, chartered services a financial is diversified bank”) (“the Montreal of Bank Presentation of Basis 1: Note CONSOLIDATED TO NOTES 6Equity Debt Subordinated 16 Liabilities Other 15 Deposits 14 Assets Other 13 Assets Intangible and Goodwill 12 Acquisitions 11 Equipment and Premises 10 Instruments Derivative 9 Entities Structured 8 Assets of Transfer 7 Management Risk Losses Credit for 6 Allowance and Loans 5 Banks Securities with Deposits Bearing 4 Interest and Cash 3 Presentation of Basis 2 1 Topic Note M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO nelzdgisadlse rsn rmtasaigorntivsmn nfrinoeain noCnda olr,nto eae hedging related of net dollars, Canadian into operations foreign in investment net our translating from arising losses and gains Unrealized our from distinct is that equity of component separate a as Sheet Balance Consolidated our in presented is subsidiaries in interest Non-controlling companies (generally decisions financing and investing operating, over influence significant exert we where associates, in investments hold We 2017. 5, December on Directors of Board the by issue for authorized were statements financial and consolidated assets These items: following the of revaluation the for except basis, cost historic a on prepared been have statements by financial issued consolidated as Our (“IFRS”) Standards Reporting Financial International with accordance in statements financial consolidated these prepared have We IACA STATEMENTS FINANCIAL akAt(Canada) Act Bank Page 167 168 148 171 152 144 169 166 165 159 157 172 168 157 156 149 7Fi au fFnnilIsrmnsadTaigRltdRvne174 Liabilities Financial and Assets Financial Revenue of Trading-Related Offsetting and Instruments Financial of Value Fair 18 17 Topic Note 9CnrculMtrte fAst n iblte and Liabilities and Assets of Maturities Contractual Transactions Party Related 29 Subsidiaries Significant 28 Segmentation Geographic and Operating 27 26 Provisions Assets, Pledged Guarantees, Commitments, Share Per Earnings 25 Taxes Income 24 23 2Epoe opnain–PninadOhrEmployee Other and Pension – Compensation Employee Compensation Share-Based – Compensation Employee 22 Management Capital 21 Risk Rate Interest 20 19 n sapbi opn noprtdi aaa eaeahighly a are We Canada. in incorporated company public a is and f-aac he Commitments Sheet Off-Balance Liabilities Contingent and uueBenefits Future Page 194 184 198 197 189 191 182 192 180 180 199 182 eas Notes 145 BMO Financial Group 200th Annual Report 2017 Foreign currency translation gains and losses on available-for-sale debt securities that are denominated in foreign currencies are included in From time to time, we enter into foreign exchange hedge contracts to reduce our exposure to changes in the value of foreign currencies. Additional information regarding the allowance for credit losses is included in Note 4. The most significant assets and liabilities for which we must make estimates include allowance for credit losses; financial instruments measured We have established detailed policies and control procedures that are intended to ensure these judgments are well controlled, independently As lessor in a financing lease, a loan is recognized equal to the investment in the lease, which is calculatedAssets as under the operating present leases value are of recorded the in minimum other assets in our Consolidated Balance Sheet. Rental income is recognized on a straight-line basis Investment management and custodial fees are based primarily on theSecurities balance commissions of and assets fees under and managementDeposit underwriting and and and assets payment advisory under service fees administration, charges are as Card and recorded fees insurance as primarily fees revenue include are when interchange recognized the income, over related late the services fees, period are cash in completed. advance which fees the and related annual services fees. are Card provided. fees are recorded as billed, except for annual foreign exchange, other than trading,equity in securities our that Consolidated are Statement denominated ofnet in Income. of foreign Foreign taxes, currencies currency in are translation our included gainsexchange, Consolidated in and other Statement accumulated losses than of other on trading, Changes comprehensive available-for-sale in income in our on Equity. Consolidated All available-for-sale Statement securities, other of foreign Income currencyRealized as translation and they gains unrealized arise. and gains losses and arenon-interest losses included revenue that in in arise foreign our on Consolidated therecorded Statement mark-to-market in of of our Income. foreign Consolidated Changes exchange Statement in contractsforward of the related differential Comprehensive fair to (the Income value economic difference within of hedges between net forward arecontract) the change contracts included recorded foreign in that in in currency unrealized qualify interest exchange gains as income rate (losses) accounting (expense) at on hedges over the cash are the inception flow term of hedges, of the with the contract the hedge. and spot/ the rate at the end of the Financial Instruments Measured at FairFair Value value measurement techniques areon used certain to non-financial value assets. various Detailed financial discussions assets of and our financial fair liabilities value and measurement are techniques used are in included performing in impairment Notes testing 3 and 17. Allowance for Credit Losses The allowance for credit lossesmust adjusts rely the on value estimates of and loansdevelopments exercise to affecting judgment reflect companies regarding their in matters estimated particular for realizablefuture industries, which value. assessments and the In of specific ultimate assessing credit issues outcome their risk with is estimatedfor to respect unknown. realizable credit be to These value, losses. materially single include we different borrowers. economic from Changes factors, current in assessments, circumstances which may could cause result in an increase or decrease in the allowance Use of Estimates and Judgments The preparation of the consolidatedcertain financial assets statements and requires liabilities, management certain to amounts use reported estimates in and net assumptions income thatat and affect fair other the value; related carrying pension disclosures. amounts and of intangible other assets; employee insurance-related future liabilities; benefits; and impairmenttransferred provisions. of in We securities; respect make income of judgments taxes transfers in anddiffer of assessing deferred from financial whether taxes; the assets substantially purchased estimates, and all loans; the whether risks goodwill impact we and and would control rewards be SEs, have recorded as been in discussedreviewed future in and periods. Notes consistently 6 applied and from 7, period respectively. to If period. actual We results believe were that to our estimates of the value of our assets and liabilities are appropriate. Non-current non-financial assets classified aspresented held-for-sale within are other measured assets at in theor our lower amortized, Consolidated of and Balance their any Sheet. carrying subsequent Subsequent amountStatement write-down to and of in its fair Income. fair initial value value classification, less less a costs costs non-current to to asset sell sell is and is no are recognized longer in depreciated non-interest revenue, other, in our Consolidated Assets Held-for-Sale payments to be received fromrecover the at lessee, the discounted end at of theIncome. the interest lease. rate Finance implicit lease in income the is lease, recognized plus in any interest, unguaranteed dividend residualover and value the fee we term income, expect of loans, to the instraight-line lease our basis in Consolidated over non-interest Statement the revenue, of life other, of in the our lease Consolidated in Statement non-interest of expense, Income. other, Depreciation in on our these Consolidated assets Statement is of recognized Income. on a Leases We are lessors in bothrewards financing incidental leases to and ownership operating of leases.risks the Leases and leased are rewards asset classified of to as asset the financing ownership. lessee. leases Otherwise if they they are transfer classified substantially as all operating the leases, risks as and we retain substantially all the at the period end, respectively, for services provided. fees, which are recorded evenly throughout the year. Fee income (including commissions) istreatment recognized for based lending on fees. the services or products for which the fee is paid. See Note 4 for the accounting Dividend Income Dividend income is recognized when the right toFee receive Income payment is established. This is the ex-dividend date for listed equity securities. Dividend and Fee Income Notes h rbblt fdfut eeiyo os iigo amn eepsadvlaino oltrl l fteefcosaeihrnl ujcieadcan and subjective inherently are factors loan. these a of of All term provision collateral. the the including of over 146 through assumptions, valuation estimates recovery key and flow a regarding receipts cash or judgment payment in what impairment management of changes evaluate of significant timing significant are regularly recognition requires loss, in loans We the flows of result PCI acquisition. in cash severity portfolios. of result of default, the date could amount of service the flows and probability to at cash timing the cost as expected the the assured in Estimating factors, and reasonably Changes losses. various loans longer loans. credit consider the no PCI for we with was on rate, associated interest collect the discount premium and to determining the risk principal expect and determining the of we received In market, collection be portfolio. current timely to loan the the (“PCI flows purchased in where loans cash the funds those impaired expected from raise credit the flows to purchased estimating cash cost or involves the our loans value to including performing fair applied purchased of be either determination to as value. The rate identified carrying acquisition. discount are the of and than time value less the fair is at at this loans”) measured when initially sell, are to loans costs Purchased less value impaired, fair be and Loans to use Purchased determined in are value value assets of carrying intangible higher the any the indicate If amount, circumstances impairment. recoverable when for their impairment annually to for tested down assets are them intangible assets write definite-life intangible we test Indefinite-life We recoverable. resulting asset. be any the not and of may value nature fair the of on in determination depending assumptions the years, make affect and could judgment assumptions exercise and must judgment the Management in affect manner. differences would different and assumptions a sell, write-down. rates, these in to impairment discount of units costs growth, any business less revenue in the value to Changes of fair related data. each determining use. assumptions acquisition for in on comparable value value dependent of fair the is availability of and model the determination sell This and calculation to businesses. acquisition impairment costs acquire on an less we achieved amount, value when synergies recoverable fair used its its those exceed of with of to higher consistent amount were the model recoverable group is the the CGU whether of a determine value of the to carrying amount comparing allocated the recoverable by been If The annually, has value. performed. within least goodwill carrying be level at which its would lowest performed to than the is CGUs greater represent testing the is which Impairment of group (“CGUs”), purposes. amounts each units management recoverable cash-generating internal the of for and groups monitored values our is carrying to goodwill allocated which is at goodwill bank testing, the impairment of purpose the For or Assets increase Intangible could and net factors Goodwill future these of of forecast assessment our our be gains, in periods. not capital Changes future should and carryforwards. in assets income loss taxes tax of tax income income experience of for be deferred past period provision will our our expiration our assets of are remaining decrease tax portion realization the income any of and deferred if probability taxes, our determine the before that evidence, assess income probable available to is the used it all factors whether on The assess based recognized. decrease to and, or required expiration increase are to such We prior any utilized. realized of be timin amount may the The differences if periods. temporary or future deductible authorities in taxing decrease the of or about those increase assumptions from could make differ taxes also interpretations income estimated. We our for reasonably numerous obligations. If provision be in tax liabilities. our cannot positions settle and expected, administrative to assets as and required tax not Income law amount deferred is of case the of reversals Statements legislation, of reversal Consolidated tax estimate the our interpret our of in we record timing recorded taxes, judgment, expected transactions income our of for on treatment provision based tax the and, expected determining jurisdictions the In on Equity. based in calculated Changes is or taxes income for provision Assets The Tax Deferred and Taxes Income 17. and 3 Notes recovered. in be included to is expected securities impairment. still equity of are for evidence security addition, objective debt In is the security. cost with consider, a its associated otherwise for below flows not market security cash would active a of we an of evidence that of value Objective terms disappearance fair estimated. o M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO diinlifrainrgriggowl n nagbeast sicue nNt 11. Note in included is assets intangible and goodwill 15 regarding exceeding information not Additional period a over basis accelerated an or straight-line a either on income to amortized are definite-life a with assets Intangible flow cash discounted a employ we sell, to costs less value fair determining In test. impairment the perform to used is sell to costs less value Fair 23. Note in included is taxes income for accounting our regarding information Additional which against periods future in available be will profit taxable sufficient that probable is it when only recognized are assets tax Deferred value fair of determination the contractual and future securities, if other rates and interest available-for-sale market held-to-maturity, in for changes accounting to our due regarding is information impairment Additional when securities debt on write-downs impairment record not do We a as impairment of evidence objective is there if recognized are losses impairment securities, other and available-for-sale held-to-maturity, For 22. Note in included is benefits future employee other and pension rates. for discount accounting in our changes regarding to information sensitive Additional also are obligations benefit defined and assets plan expense, benefits future employee other and Pension IACA STATEMENTS FINANCIAL gof ,a Notes he 147 - ry the mits fa d (“OSFI Guideline”). BMO Financial Group 200th Annual Report 2017 program. We assess whether substantially all of the risks and rewards of t n. Since we continue to be exposed to substantially all of the repayment, olidate these vehicles, as we have the key decision-making powers necessa (“IFRS 9”), which addresses impairment, classification and measurement, and hedge Guideline – IFRS 9 Financial Instruments and Disclosures Financial Instruments Based on October 31, 2017 data and current implementation status, we estimate the adoption of IFRS 9 will lead to an increase in shareholders’ Impaired loans require recognition ofIFRS lifetime 9 losses requires and consideration are of expected past to events, be current similar market to conditions our and current reasonable specific and allowance. supportable information about future economic In fiscal 2015, the bank early adopted the provisions relating to the recognition of changes in own credit risk for financial liabilities designated at The expected credit loss model requires the recognition of credit losses based on 12 months of expected losses for performing loans and the Provisions are recorded at the best estimate of the amounts required to settle any obligations related to these legal actions as at the balance Additional information regarding insurance-related liabilities is included in Note 14. For most of our subsidiaries, control is determined based on holding the majority of the voting rights. For certain investments in limited Transferred assets are discussed in greater detail in Note 6 and structured entities are discussed in greater detail in Note 7. equity of approximately $100 millionmonitor before certain tax aspects ($65 of million our after impairment tax) process driven which by may the change impairment the requirements actual of impact IFRS on 9. adoption. We continue to refine and accounting. At the direction ofthe our adoption regulator, of OSFI, IFRS IFRS 9 9 has is been effective provided for by our OSFI fiscal in year its beginning November 1, 2017. Additional guidance relating to conditions, in determining whether there has been a significant increase in credit risk, and in calculating the amount of expected losses. significant increase in credit riskmaking takes this into determination account are many relative differentdue changes factors and in and watch-list probability-weighted will status. probability vary The of by assessment default product of since and a origination risk significant and segment. increase certain The in criteria main credit such factors risk as considered will 30-day in require past experienced credit judgment. Classification and Measurement The new standard requires thatcharacteristics we of classify the debt asset. instruments The basedinstruments business on will model our be test business measured determines model at the forincome fair classification managing (“FVOCI”) value based the or through on asset amortized profit the and cost. or business theeligible Debt loss purpose contractual for instruments unless for cash classification that certain holding flow as have conditions the FVOCI contractual are asset.recognized or cash met Generally, in amortized flows that debt profit cost. representing permit or Gains only fair loss and payments value on losses of through disposal. recorded principal other in and comprehensive other interest comprehensive willfair income be value for through debt profit instruments or will loss, be as permitted by IFRS 9. Additional information regarding changes in own credit risk is included in Notes 13 and 14. Impairment IFRS 9 introduces a newguarantees. expected The credit new loss ECL (“ECL”) model impairmentan will model actual result for loss in all event. an financial This allowance assetshave differs for and been from credit certain incurred the losses off-balance whether current being sheet or approach recorded loan not where on commitments they the financial and have allowance assets been recorded regardless specifically on ofrecognition identified. performing whether of The loans there lifetime most is has expected significant designed been losses impact to on will capture loans be only that on losses have the that experienced loan a portfolio. significant increase in credit risk since origination. The determination o Financial Instruments In July 2014, the IASB issued IFRS 9 Future Changes in IFRS We sell Canadian mortgage loans to third-party Canadian securitization programs, including the Canada Mortgage Bond program, and directly to third Transfer of Financial Assets and Consolidation of Structured Entities party investors under the Nationalloans Housing have Act been Mortgage-Backed transferred Securities to determine if they qualify for derecognitio Provisions The bank and its subsidiaries are involved in various legalsheet actions date, in taking the into ordinary account coursecase-by-case the of assessment risks business. of and specific uncertainties facts associatedare and with involved circumstances, the in our obligation. estimating past Factors any experience consideredprovisions. provisions. and in Additional The the making information actual opinions the regarding costs of assessment provisions of legal include: is resolving experts. a included these Management in claims and Note may external 25. experts be substantially higher or lower than the amounts of the Insurance-Related Liabilities Insurance claims and policy benefitinsurance liabilities contracts represent are current determined claims using andpolicy the estimates lapses, Canadian of surrenders, Asset future future Liability insurance investment Method, policyreviewed yields, which benefit at policy incorporates liabilities. least dividends, best-estimate Liabilities annually administration assumptions for and costs for life would updated and mortality, result to margins morbidity, from reflect for a actual adverse change experience deviation. in and These the market assumptions assumption conditions. are for The future most investment significant yields. impact on the valuation of a liability interest rate and/or credit risk associated with the securitized loans, they do not qualify for derecognition. We continue to recognize the loans and related cash proceeds as secured financings in our Consolidated Balance Sheet. We use securitization vehicles to securitize our Canadian credit car loans, Canadian real estate lines of credit and Canadian auto loans in order to obtain alternate sources of funding. The structure of these vehicles li partnerships, we exercise judgment indetermined determining that whether we we do control not anwe control entity. are certain Based not entities, on the even an general though assessmenthave partner we of determined in may our that an have interests we arrangement an and control and ownership rights,partner certain the interest we in entities general greater have an despite partner’s than arrangement having rights 50%. and an most This the ownership significantly may general interest affect be partner’s less the the rights than returns case most 50%. of when significantly This the affect may entity. the be Additionally, returns the we of case the when entity. we are the general the activities they can undertaketerm and asset-backed the securities types to of fund assetsto their they obtain activities. can the We hold, majority control and of and the the cons vehicles benefits have of limited their decision-making activities. authority. The vehicles issue Notes iblte rsn rmfnnigatvte ntesaeeto ahfos ed o xetteaedet ohv infcn mato our on impact significant 2017. a 1, have November to beginning amendments year the fiscal expect our not for do effective We be flows. will cash amendments of These statement statements. the financial on consolidated activities financing from arising liabilities FS1 ratraiey ecnrcgietecmltv feto n hne eutn rmoraoto fIR 5i pnn eandearnings retained opening project. in our 15 of IFRS part of as adoption approach our transition from our resulting assessing changes are any We future of years. our effect prior on cumulative for impact the comparison significant recognize no a can with expect we not alternatively, do or we 15 standard, IFRS new the standard. of new scope the the of outside adoption are the streams from revenue results our financial of majority the property. As intellectual adoption. of licences and agent cash versus and principal revenues on of guidance uncertainty application insurance and obligations, gains/losses, timing securities amount, revenues, nature, trading the customers. income, about our dividend disclosures with and additional transactions as interest requires from obligations include also arising performance 15 standard flows for IFRS The customers, revenue of income. with recognizing scope lease contracts of the and from concept of revenues generated the outside revenues introducing Revenues of and satisfied. measurement recognition, are and revenue they recognition for the approach for principles-based framework a a providing establishes standard new The recognition. 148 income Interest banks. other by issued were that basis. purchased accrual have an we on acceptances recorded include is and deposits cost these amortized on at earned recorded operation, are of banks countries with respective Deposits Banks their with in 2016). Deposits banks in central Bearing million with ($1,958 Interest balances 2017 minimum 31, or October reserves at maintain as us to million between required $1,435 transit are totalling in operations items foreign other our and of cheques Some uncleared the of position Restrictions net Cash the represent and cost at recorded banks. are other transit and in items Net other Transit, and Cheques in Items Other and Cheques Banks with Deposits Bearing Interest and Cash 2: Note results. financial future our on standard the of impact the 4 assessing IFRS currently existing the 17 replace IFRS will issued and IASB the 2017, The May statements. In financial consolidated our 2018. on 1, Contracts impact November Insurance significant beginning a year have fiscal to our amendments for the effective expect are not amendments 2 do IFRS We to transactions. amendments payment issued based IASB the 2016, June In Payment Share-based 15 IFRS issued IASB the 2014, May In Revenue 7 IAS to amendments issued IASB the 2016, January In Flows Cash of Statement disclosures. accounting hedge 16 new IFRS will the issued bank adopt IASB The will the rules. we 2016, accounting standard, January hedge the In existing by the required apply as not to however, hedge does continue 9; aligns Leases and to IFRS and testing us of accounting effectiveness allows provisions hedge for that accounting for measures choice hedge eligible quantitative policy the risks specifies a adopt and longer includes not items no 9 hedged model IFRS of new de-designation. scope The hedge the management. permit expands risk that with model closely accounting more hedge accounting new a introduces 9 IFRS Accounting Hedge CONSOLIDATED TO NOTES sesn h mato h tnado u uuefnnilresults. financial future our on standard the of impact the assessing conig FS1 sefciefrorfsa erbgnigNvme ,21.Eryaoto spritd rvddIR 15 lessor IFRS to provided changes permitted, minimal is are adoption There Early leases. 2019. most 1, for November sheet beginning balance year the fiscal on our Customers asset for with corresponding effective a is record 16 and IFRS liabilities accounting. lease future of value present 1 nldsdpst ihteBn fCnd,teUS eea eev n te eta banks. central other and Reserve Federal U.S. the Canada, of Bank the with deposits Includes (1) net transit, in items other and Cheques banks with deposits and Cash millions) in $ (Canadian oa ahadcs equivalents cash and cash Total M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO FS1 sefciefrorfsa erbgnigNvme ,21.O rniin ecnete ett ro eid si ehdawy applied always had we if as periods prior restate either can we transition, On 2018. 1, November beginning year of fiscal impact our the for evaluating effective currently is are 15 and IFRS project enterprise-wide an established performance have identifying we to 15, related IFRS recognition of revenue requirements on the clarity meet additional to provide order which In 15, IFRS to clarifications issued IASB the 2016, April In a enaotd nodrt etterqieet fIR 6 ehv salse netrrs-iepoetadaecurrently are and project enterprise-wide an established have we 16, IFRS of requirements the meet to order In adopted. been has IACA STATEMENTS FINANCIAL (1) nuac Contracts Insurance nuac Contracts Insurance Customers with Contracts from Revenue Leases “FS1”,wihpoie udnefrlae hrb ese ilrcgiealaiiyfrthe for liability a recognize will lessees whereby leases for guidance provides which 16”), (“IFRS hr-ae Payment Share-based ewl eaotn FS1 fetv o u iclya einn oebr1 01 eare We 2021. 1, November beginning year fiscal our for effective 17 IFRS adopting be will We . ttmn fCs Flows Cash of Statement “FS1”,wihpoie opeesv prahfraltpso nuac contracts insurance of types all for approach comprehensive a provides which 17”), (“IFRS “FS2)i eaint h lsiiainadmaueeto share- of measurement and classification the to relation in 2”) (“IFRS “FS1”,wihrpae h xsigsadrsfrrevenue for standards existing the replaces which 15”), (“IFRS “A ”,wihwl eur pcfcdslsrsfrmvmnsin movements for disclosures specific require will which 7”), (“IAS 30,002 32,599 eeu rmContracts from Revenue 2,597 2017 29,460 31,653 2,193 2016 Notes 149 nof BMO Financial Group 200th Annual Report 2017 consist of debt and equity securities that may be sold in response to or in anticipation of changes in interest rates and are debt securities that we have the intention and ability to hold to maturity and that do not meet the definition of are securities that we purchase for resale over a short period of time. We classify trading securities and securities designated are investments in companies where we exert significant influence over operating, investing and financing decisions (generally For equity securities, a significant or prolonged decline in theThe fair impairment value loss of on a available-for-sale security securities below is its the cost difference is between considered the to security’s be amortized objective cost evidence and of its current fair value, lessThe any impairment loss on held-to-maturity securities is the difference between a security’s carrying amount and the present value of its estimated Available-for-sale securities are initially recorded at fair value plus transaction costs. They are subsequently measured at fair value, with Investments held by our insurance subsidiaries are classified as available-for-sale securities, except for those investments that support the policy We designate certain investments held in our merchant banking business at FVTPL, which aligns the accounting result with the way the portfolio We designate certain securities held by our insurance subsidiaries that support our insurance liabilities at FVTPL, since the actuarial calculatio impairment. previously recognized impairment losses. Ifof there Comprehensive is Income, objective unrealized evidence gains ofthan (losses) impairment, trading. on a available-for-sale write-down securities, is to transferred our from Consolidated our Statement Consolidated of Statement Incomefuture in cash securities flows gains, discounted other atConsolidated the Statement original of effective Income interest in rate. securities If gains, there other is than objective trading. evidence of impairment, a write-down is recorded in our Impairment Review For available-for-sale, held-to-maturity and otherof securities, an impairment event losses that are reduces recognized the if estimated there future is cash objective flows evidence from of the impairment security. as a result We account for all ofthe our trade securities date transactions and using settlement settlementcomprehensive date date income. are accounting recorded in in our net Consolidated income, Balance except Sheet. for Changes those in related fair to value available-for-sale between securities, which are recorded in other Other securities companies in which we ownaccounting. between Other 20% securities and also 50% include of certain the securities voting held shares). by We our account merchant for banking these business. other securities using the equity method of a loan. These securities areinterest initially method. recorded Impairment at losses fair are valueincome recorded plus earned in transaction and our costs amortization Consolidated and of Statement subsequentlydividend premiums of measured and or Income at fee discounts in amortized income, on securities cost securities. these gains using debt (losses), the securities other effective are than recorded trading. in Interest our Consolidated Statement of Income in interest, Held-to-maturity securities unrealized gains and losses recordedIncome in until unrealized the gains security (losses) is onIncome sold. available-for-sale in Gains securities non-interest and in revenue, losses our securities on Consolidatedare gains, disposal Statement recorded other and of in than impairment Comprehensive our trading. losses Consolidated Interest (recoveries) Statement income are of earned recorded Income and in in dividends our interest, received Consolidatedbenefit dividend on Statement liabilities and available-for-sale of on fee securities our income, insurance securities. income contracts, on which the are insurance designated available-for-sale atinsurance securities fair revenue. is value recognized through when profit earned or in loss, our as Consolidated discussed Statement above. of Interest Income and in other non-interest fee revenue, Available-for-sale securities resulting prepayment risk, changes inneeds. credit risk, changes in foreign currency risk, changes in funding sources or terms, or in order to meet liquidity is managed. The fair valueConsolidated of Balance these Sheet. investments The as impact atsecurities of October gains, recording 31, other these 2017 than investments of trading, at $333 of fair million $9 value ($320 million through million for profit in the or 2016) year loss is ended was recorded October a in 31, decrease securities, 2017 in other, (decrease non-interest in of revenue, our $40 million in 2016 and $34 million in 2015). insurance liabilities is based onportfolio the is fair managed value on of a thechange fair investments in value supporting fair basis. them. value The This of change designationinvestments the in aligns as liabilities fair the at is value accounting October recorded of result 31, in the withBalance 2017 insurance securities the Sheet. of claims, is way The $8,465 commissions recorded the impact million and in of ($7,887 changes non-interestrevenue, recording million in revenue, of these as policy insurance $39 investments at benefit revenue, million at October liabilities. and for fair 31, The the the value 2016) fair year through is value ended profit recorded of October or in these 31, loss securities, 2017 was trading, (increase an in of increase our $430 in Consolidated million non-interest in revenue, 2016 insurance and $8 million in 2015). Securities Designated at FVTPL Securities designated at FVTPL arethey financial meet instruments certain that criteria. are Securities accounteddesignation designated for eliminates at at or FVTPL fair significantly must value, reduces have withdifferent the reliably changes basis; inconsistent measurable in (2) treatment fair fair the that values value securities would and recordedare are otherwise satisfy in hybrid part arise one income financial of from of provided instruments a measuring the with group the followingrecognition, embedded of gains criteria: and derivatives financial and (1) the that instruments losses the designation would that on is significantly is a irrevocable. modify managed their and cash evaluated flow. on Securities a must fair be value designated basis; on or initial (3) the securities Trading securities under the fair value optionunrealized at gains fair and value losses through due profit to or changes loss in (“FVTPL”). fair We value record in the our transaction Consolidated costs, Statement gains of and Income losses in realized trading on revenues. disposal and Note 3: Securities Securities are divided into four types, each with a different purpose and accounting treatment. The types of securities we hold are as follows: Notes 150 17. Note in included market is where measurement securities value For fair prices. of bid discussion on A based value. is fair value determine market to Quoted techniques value. estimation fair use be we to available, considered not is are value quotes market quoted securities, traded For Measurement Value Fair CONSOLIDATED TO NOTES infcn maret h al npg 5 eal nelzdgisadlse sa coe 1 07ad2016. and 2017 31, ther October equity. that at shareholders’ determined as our from have losses of not and and 10% and securities gains rates available-for-sale unrealized interest these details in of 152 changes recovery page from full on resulted expect table equities, We The corporate issuers. impairment. excluding the significant instruments, of these creditworthiness on the losses in Unrealized deterioration the 2016). of in cost million other amortized $135 in the of recorded of are maximum value a available-for-sale fair to For in recorded charge. charge. increases are impairment impairment subsequent securities original original any held-to-maturity the the and on before of income, losses investment maximum net impairment a through of to reversed Reversals value, not income. fair are comprehensive in losses increase impairment an previous to securities, attributed equity objectively be can that recognized M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO eddntonayscrte sudb igenngvrmn niyweetebo au,a tOtbr3,21 r21,wsgetrthan greater was 2016, or 2017 31, October at as value, book the where entity non-government single a by issued securities any own not did losses We (unrealized million $480 totalling losses unrealized with 2016) in (1,699 securities available-for-sale 1,775 had we 2017, 31, October at As was impairment the after occurs event an if income net through reversed is loss impairment previous a securities, debt available-for-sale For IACA STATEMENTS FINANCIAL eisno Notes 151 602 139 899 Total 2016 1.29 2.17 1.51 1.80 1.15 1.60 1.66 1.76 1.62 2.07 2,820 7,422 6,148 1,124 1,062 9,513 8,109 8,168 6,126 6,232 9,564 9,557 4,379 4,450 5,214 5,227 3,473 3,507 4,913 4,974 9,591 8,965 9,615 9,073 7,219 7,292 3,098 1,529 2,005 2,014 2,047 2,085 1,615 60,813 12,952 84,458 86,352 45,496 55,663 55,204 149,985 149,526 149,985 1,855 1,857 2.37 2.37 years Total 1,499 1,499 1,604 1,604 Over 10 55,641 55,641 years 5to10 BMO Financial Group 200th Annual Report 2017 years 3to5 Term to maturity 2017 –––– –––– years 1to3 – 28 7 118 – 153 –––– –––– –––– –––– 1 20 62 658 10,161 10,902 1 19 62 659 10,020 10,761 7 21 13 38 881 960 7 21 13 38 3,161 3,240 85 438 266 34 – 823 15 – 3,128 11,338 – 14,481 17 – 3,115 11,137 – 14,269 812 1,343 714 1,991 2,467 7,327 642 222 86 100 1,081 2,131 147 571 203 8 2 931 370 563 463 1,329 1,333 4,058 370 566 467 1,357 1,336 4,096 255 1,143 1,059 – – 2,457 191 485 364 999 3,633 5,672 262 1,141 1,052 – – 2,455 191 486 366 997 3,609 5,649 995 2,082 737 607 93 4,514 997 2,080 734 619 95 4,525 735737 510 512 – – 322 341 – – 1,567 1,590 year 0.66 1.48 1.46 1.57 – 0.99 0.85 1.45 2.24 2.32 3.27 1.77 0.88 – 1.81 1.80 – 1.80 1.63 1.78 2.26 2.40 1.71 2.00 1.44 1.34 1.52 2.72 – 1.43 2.05 1.83 1.56 – – 1.74 1.83 3.12 2.25 2.31 1.97 1.99 0.75 2.08 2.48 3.08 3.64 2.02 0.89 1.72 1.85 1.95 2.00 1.72 1,033 116 55 24 1,750 2,978 1,332 1,758 2,000 1,906 2,477 9,473 1,298 1,375 795 1,281 7,014 11,763 5,585 1,764 1,266 597 – 9,212 5,578 1,749 1,262 591 – 9,180 1,157 265 1,293 860 38 3,613 1,156 266 1,310 855 40 3,627 1,592 1,231 725 19 – 3,567 1,593 1,225 722 18 – 3,558 3,948 6,662 7,916 17,087 44,384 79,997 4,862 1,527 2,021 1,313 1,104 10,827 2,781 995 364 1,321 3,633 9,094 2,785 998 366 1,338 3,609 9,096 9,178 7,262 6,092 6,751 69,786 99,069 1,855 1,857 9,974 7,046 8,724 15,236 13,095 54,075 9,970 7,068 8,733 15,408 13,124 54,303 21,940 15,324 15,193 23,346 87,395 163,198 16,959 8,546 7,222 6,235 41,261 80,223 21,93621,940 15,346 15,324 15,202 15,193 23,518 23,346 87,424 87,395 163,426 163,198 Within 1 (1) (1) (in Canadian $ equivalent) Amortized cost Fair value Yield (%) Amortized cost Fair value Yield (%) Amortized cost Fair value Yield (%) Amortized cost Fair value Yield (%) Amortized cost Fair value Yield (%) Amortized cost Amortized cost Fair value Yield (%) Fair value Amortized cost Fair value Yield (%) Amortized cost Fair value Yield (%) Amortized cost Fair value Fair value Amortized cost Fair value Amortized cost Yield (%) Canadian provincial and municipal governments U.S. federal government U.S. states, municipalities and agencies Other governments Canadian federal government Canadian provincial and municipal governments U.S. federal government U.S. states, municipalities and agencies Other governments obligations – Canada Canadian federal government Canadian provincial and municipal governments Canadian federal government (1) These amounts are supportedYields by in insured the mortgages table or aboveare issued are not by calculated taken U.S. using into agencies the consideration. andcall cost The government-sponsored or of term enterprises. prepay the to obligations. security maturity Equity and included securities the in with contractual the no interestCertain table maturity rate comparative above date associated figures is are with have based included each on been in security, the reclassified the adjusted contractual to over for conform maturity 10 any with date years amortization the of category. of current the premiums year’s security. and presentation. Actual discounts. maturities Tax could effects differ, as issuers may have the right to Other currencies Total securities Mortgage-backed securities and collateralized mortgage obligations Corporate debt Loans Available-for-Sale Securities Issued or guaranteed by: Mortgage-backed securities and collateralized mortgage Canadian dollar U.S. dollar Trading Securities Issued or guaranteed by: (Canadian $ in millions, except as noted) Total cost or amortized cost Mortgage-backed securities and collateralized mortgage obligations – U.S. Total fair value Other Securities Carrying value Corporate debt Corporate equity Corporate equity Total trading securities Fair value Total value of securities Total by Currency Total carrying value or amortized cost of securities Yield (%) Mortgage-backed securities and collateralized mortgage obligations Held-to-Maturity Securities Issued or guaranteed by: Total fair value Total cost or amortized cost Notes 152 latter the In loan. financing. the the of in term involved the lenders over the comparable income time other interest case, the of as latter at that recorded the fees than is In lending less fee used. in is syndication be included retain the Commitment not are we of origination. will fees loans portion loan commitment syndication any appropriate of loan Loan on an time the period. yield case, the believe commitment the at we the unless income unless over completed, into loan, fees is taken the lending syndication are of as are fees term recorded fees lending the are renegotiation other over fees and while income commitment restructuring loan, interest origination, the as loan of recorded Some term are transaction. the fees the over on income these depending interest for varies as account fees recorded We lending price. for specified treatment a accounting at The resell date or specified return a to on Fees commitment seller, Lending our or of lender result original loans. a the were as to they receive back if will purchased, as we or instruments amounts borrowed the have represent we is agreements that loans resale securities impaired under for purchased income Agreements or interest Resale borrowed dividend of Securities Under interest, treatment Purchased in The recognized or outstanding. amount principal Borrowed the the Securities the method, on through interest based receipts effective loan cash the the future Under of the estimated loan. term to discounts the the below. rate exactly of over described interest that amount varies effective rate carrying loans, the the net income, interest applying as the fee effective by defined to and the loan is loan using the rate the cost of interest of amortized term effective term at expected The expected measured the loan. subsequently over the are income of and interest amount costs, allocates carrying attributable method directly interest plus effective value The fair method. at measured Losses initially Credit are Loans for Allowance and Loans 4: Note statements financial consolidated our in included been has securities, trading on gains unrealized and follows: realized as net excluding securities, from Income Securities Available-for-Sale on Losses and Gains Unrealized CONSOLIDATED TO NOTES otaebce euiisadclaeaie otaeolgtos–Canada – obligations mortgage collateralized and securities Mortgage-backed Total oprt equity Corporate vial-o-aesecurities Available-for-sale Revenue Non-Interest otaebce euiisadclaeaie otaeolgtos–U.S. – debt obligations Corporate mortgage collateralized and securities Mortgage-backed nelzdgisadlse ntaigscrte r nlddi rdn-eae eeu nNt 17. Note fee in and revenue dividend trading-related Interest, in Income: included of are Statement securities Consolidated trading our on in losses revenue, and insurance gains Unrealized revenue, non-interest in included were operations insurance our to related income of amounts following The (1) securities Other securities Held-to-maturity securities Available-for-sale securities Trading Income Fee and Dividend Income: Interest, of Statement Consolidated in Reported millions) in $ (Canadian mortgages. insured by supported are amounts These (1) by: guaranteed or Issued millions) in $ (Canadian euiisgis te hntrading than other gains, Securities gains write-downs unrealized Impairment and equity realized to net available-for-sale securities, from Other reclassified investments on gain Unrealized te governments Other ..sae,mncplte n agencies and municipalities states, U.S. government federal U.S. aainpoica n uiia governments municipal and provincial Canadian aainfdrlgovernment federal Canadian M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO rs elzdgains realized Gross rs elzd(losses) realized Gross i o h ereddOtbr3,21 ($nil 2017 31, October ended year the for $nil of trading, than other gains, securities and 2015); in million $282 and 2016 in million ($309 2015). 2017 in 31, million October $1 ended and year 2016 the in for million $325 of income IACA STATEMENTS FINANCIAL (1) (1) (1) Amortized 433224054,075 480 252 54,303 4411 2 14,269 224 12 14,481 09261710,761 147 6 10,902 ,6 23,558 12 3 3,567 ,5 354,096 5 43 4,058 ,9 2 61,604 16 121 1,499 ,1 91 3,627 15 29 3,613 ,1 31 4,525 12 23 4,514 ,1 89,180 38 6 9,212 ,5 12,455 11 9 2,457 cost unrealized Gross gains unrealized losses Gross 1,945 value 2017 2017 228 171 150 806 977 (99) Fair 12 49 (7) – Amortized 524541555,663 135 594 55,204 ,1 745,227 4 17 5,214 ,7 764,450 6 77 4,379 ,2 1 01,615 30 116 1,529 ,2 1 6,232 4 110 6,126 ,6 75 9,557 54 47 9,564 ,1 857,292 5 78 7,219 ,0 238,168 3 62 8,109 ,7 733,507 3 37 3,473 ,9 02 9,615 26 50 9,591 cost unrealized ,0 1,705 1,704 062015 2016 4 167 504 1,016 143 623 923 1)(12) (17) 1)(18) (16) Gross 518 15 9116 59 185 51 4171 84 gains 7– unrealized losses Gross value 2016 Fair Notes 153 has BMO Financial Group 200th Annual Report 2017 The collective allowance methodology incorporates both quantitative and qualitative factors to determine an appropriate level for the collective The allowance is comprised of a specific allowance and a collective allowance. Corporate and commercial loans are classified as impaired when we determine there is no longer reasonable assurance that principal orA interest loan will be reclassified to performing status when we determine that there is reasonableOur assurance average of gross full impaired and loans timely were repayment $2,248 of million interest for theOnce year a ended loan October is 31, identified 2017 as ($2,198 impaired, million we in continue 2016). to Our recognize average interest impaired income loans, based on the original effective interest rateDuring of the the year loan. ended In October the 31, 2017, we recorded a net gain of $28 million before tax ($5 million in 2016 and $72 million in 2015) on the Changes in the value ofthe our provision loan for portfolio credit due losses to in credit-related our losses Consolidated or Statement recoveries of of Income. amounts previously provided for or written off are included in Provision for Credit Losses (“PCL”) allowance. For the purpose offactors calculating for the groups collective of allowance, loans wecredit are group cards, determined loans where based on a on the seven-month a basisthey loss minimum of continue emergence of similarities to period five in reflect is years credit our used. of riskHistorical best The historical characteristics. loss estimate loss data The experience of factors and loss data losses are a is that back-tested one-year also have and loss reviewed been calibrated emergence in incurred on period, the but a except determination not regular for of yet basis loss identified, to factors. on ensure Qualitative an that factors individual are basis, based within on the current pools observable of data, loans. suc Collective Allowance We maintain a collective allowanceimpaired. in Our order approach to to cover establishing impairmentby and in OSFI. maintaining the the existing collective portfolio allowance for is loans based that on have the not requirements yet of been IFRS, individually considering identified guidelines as issued Individually Insignificant Impaired Loans Residential mortgages, consumer instalment andassessed other for personal losses loans at are the individually time insignificant of and impairment, may taking be into individually account assessed historical or loss collectively experience. To determine the amount wediscounted expect at to the recover loan’s from original anexpected effective individually realization interest significant of rate. impaired the The loan, underlying determination weby security, of use type net estimated the of of future value loan expected cash of and costs flows the may and of estimated include any a future cash, amounts collateralized cash securities, legally impaired flows real required loan properties, to reflects accounts be the receivable, paid guarantees, to inventory the or borrower. other Security capital can assets. vary current macroeconomic and business conditions, portfolio-specific considerations and model risk factors. Individually Significant Impaired Loans Specific Allowance These allowances are recorded forreview individually our identified loans impaired on loans an torecorded ongoing reduce (excluding basis their credit to carrying card assess value loans, whether todiscussed which any the under are loans expected Impaired classified recoverable should Loans). as amount. be The impaired We classifiedof review and as whom of written impaired assesses individually off and the significant when whether ultimate problem principal anloan. collectability loans or allowance This and is interest or assessment estimated conducted payments write-off is recoveries at are should then for least 180 be reviewed a quarterly days and specific by past approved loan the due, by based account as an on managers, independent all each credit events officer. and conditions that are relevant to the Allowance for Credit Losses (“ACL”) The allowance for credit losseslosses recorded on in our our loans Consolidated and BalanceBalance other Sheet Sheet credit is and instruments. maintained amounted The at to portion a $163 related level million to that as other we at credit consider October instruments adequate 31, is to 2017 recorded absorb ($189 in credit-related million other in liabilities 2016). in our Consolidated Impaired Loans We classify a loan asboth impaired Canada when and one the or U.S. moreguaranteed are loss by classified events the as have Government impaired occurred, of when suchand Canada. payment as are Credit is bankruptcy, not card contractually default reported loans 90 or as are days delinquency.when impaired. immediately past Generally, they In written due, consumer are Canada, off or loans one consumer when one in year instalment principal yearestate past loans, or past term due. other interest due loans, In personal payments for which the loans are residential are U.S., and 180 mortgagesdetermination generally all some days if of written consumer small past the off loans business due, recoverable at are loans amount 120 generally are includes days written normally an past off written estimate due. when off of For they future the arewill recoveries. purpose 180 be of days collected measuring past in the due, their amount except90 entirety to for days on be non-real past a written due. timely off, Corporate basis. the have and Generally, been commercial we exhausted. loans consider are corporate written and off commercial following loans a to review be on impairedand an when principal individual payments in loan are accordance basis with thatto the confirms apply. terms all and recovery conditions attempts of the loan, and that nonenet of of the the criteria specific for allowance, classification were of $1,838 the million loan for as the impairedperiods year continue following ended the October recognition 31, of 2017presented impairment, ($1,771 as adjustments million interest to in income. the 2016). Interest allowance2016 income for and on these $91 impaired loans million loans reflecting in of the 2015). $75 time million value was of recognized money for aresale the recognized of year and impaired ended and October written-off 31, loans. 2017 ($74 million in Notes 154 follows: as are region geographic by losses credit for provisions Specific follows: as are allowances, related the including loans, Impaired follows: as are region geographic by losses credit for allowance and Loans follows: as are category by losses credit for allowance and Loans CONSOLIDATED TO NOTES oa ACL Total olcieAL n fyear of end ACL, Collective hret noesaeet(olciePCL) (collective statement income to Charge oeg xhneadohrmovements other and exchange Foreign year of beginning ACL, Collective pcfcAL n fyear of end ACL, Specific oeg xhneadohrmovements other and exchange Foreign off written Amounts Total maretalwne seii C) beginning ACL), (specific allowances Impairment hret noesaeet(pcfcPCL) (specific statement years income previous to in Charge off written amounts of Recoveries opie f Loans of: Comprised Total ygorpi region geographic By osmrisamn n te esnlloans personal other and instalment Consumer 1 egahcrgo sbsduo h onr futmt risk. ultimate of country the upon based is region Geographic (1) region geographic By respectively. 2016, and 2017 millions) 31, in October $ at (Canadian as million $88 and million $62 totalled impaired as classified not liabilities. have other we in that included days is 180 which and 2016), 90 in between million due ($27 past instruments amounts credit with other loans for secured million Fully risk. $27 ultimate of of allowance country specific the Excludes upon (3) based is region Geographic loans. (2) impaired credit purchased Excludes (1) mortgages Residential liabilities. millions) other in in $ included (Canadian is liabilities. which other 2016), in in included million is ($162 which instruments 2016), credit in other million for ($27 million instruments $136 credit of other allowance for collective million Excludes risk. $27 (3) ultimate of of allowance country specific the Excludes upon (2) based is region Geographic (1) region geographic By 2016 in million millions) ($2,204 in million $ $2,528 (Canadian and liabilities. dollars other U.S. in in included denominated are loans instruments of credit 2015) other in to million $117,098 related and allowances 2016 collective in and million specific ($139,696 total million The 2017 $135,535 31, (3) are October 2017 at 31, as October million at $53,981 as of loans mortgages in corporate-insured Included and (2) government Canadian are balance mortgages residential the in Included (1) year of end at balances loan Gross millions) in $ (Canadian e onblne tedo year of end at balances loan Net Total loans government and Business Total M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO fyear of te countries Other ntdStates United Canada Canada countries Other States United Canada te countries Other States United n 196mlini 05 flasdnmntdi te oeg currencies. foreign other in denominated loans of 2015) in million $1,966 and 2015). (1) te rdtinstruments credit Other (1) (2) (1) IACA STATEMENTS FINANCIAL : : : (2) (3) 2017 363,505 115,606 235,120 11 11 12,779 115,258 115,165 eieta mortgages Residential – – 2017 2017 118 (10) (27) 69 71 49 59 11 16 93 25 eieta otae (1) mortgages Residential rs amount Gross (1) (1) 062015 2016 411 24 12 11 39 13 1,7 105,918 112,277 1,7 105,769 112,173 –– 360,655 121,822 228,062 062015 2016 10,771 3 180 130 1 83 111 0 149 104 4)19 (42) 1)(19) (12) (83) (38) 1111 71 969 59 988 69 411 72 24 16 631 26 29 2016 2,174 1,273 1,377 2,174 rs mardamount impaired Gross 2017 556 345 747 2017 487 399 50 88 70,015 69,293 rdtcr,consumer card, Credit – ntletadother and instalment 2017 (654) 393 161 212 pcfcalwne(2) allowance Specific 2017 723 586 596 137 123 487 199 722 esnlloans personal (18) 20 (6) (4) rdtcr,consumer card, Credit ntletadother and instalment 1 062015 2016 1 497 510 1 393 417 esnlloans personal 27173,578 72,781 20272,751 72,062 3104 93 2,332 1,391 1,594 2,332 –– 10 7 (120) 68 (670) (648) 062015 2016 719 9 714 596 1 678 714 2 113 123 1 497 190 510 99 173 113 1 827 719 2016 2)(3) (25) 589 352 736 229 –– 2 2016 405 231 173 827 1 178,232 177,214 2017 352 238 1,015 1,018 1,155 21 93 (301) (117) 2017 393 233 136 161 212 393 pcfcalwne(3) allowance Specific 2017 1,440 921 234 352 250 137 (69) (25) 24 20 50 olciealwne(3) allowance Collective oenetloans government 2017 641 799 uiesand Business oenetloans government – 7,9 145,076 175,597 7,9 144,197 174,495 uiesand Business 062015 2016 8 104 281 6 8 164 1 97 117 ,1 835 1,015 ,0 879 1,102 ,6 1,045 1,265 31 (312) (361) 062015 2016 3 781 835 6 (26) 162 5 210 250 8 104 281 237 210 5 194 154 6 166 163 3)(13) (34) (1) – 880 18 $792mlini 06ad$659mlinin million $56,579 and 2016 in million ($57,922 2016 405 249 123 231 173 405 1,520 33 2016 1 687 833 – 363,505 361,672 2017 850 326 503 361,672 114,804 234,109 1,576 1,682 1,833 1,996 21 12,759 (145) (982) 2017 420 850 432 265 163 1,781 1,040 1,216 1,781 (30) (76) e fseii allowance specific of Net 2017 2017 321 420 535 30 6,5 324,572 360,655 5,3 322,717 358,730 e amount Net 107 (1,065) (1,047) 062015 2016 Total 1 612 815 6 114 268 4 499 547 ,8 1,660 1,682 ,6 1,542 1,660 ,2 1,855 1,925 ,1 2,052 2,114 062015 2016 Total 3 392 432 1 612 815 424 392 4 456 343 8 197 189 7)(35) (71) (1) – 2118 22 –– 358,730 120,904 227,056 10,770 1,927 1,142 1,363 1,927 2016 2016 319 466 563 1 Notes 155 2016 1,152 1,176 4,574 2,246 958 2017 1,106 4,104 2,040 33 88 139 260 2016 19 72 94 185 2017 BMO Financial Group 200th Annual Report 2017 451 364 422 2016 1,237 438 297 466 2017 1,201 668 673 2016 3,077 1,736 1 to 29 days 30 to 89 days 90 days or more Total 649 589 2017 2,718 1,480 (2) (1) Acquired loans are classified into the following categories: those for which on the acquisition date we expect to continue to receive timely The impact of the remeasurement of incurred credit losses for performing loans with fixed terms for the year ended October 31, 2017 was Renegotiated loans are permitted to remain in performing status ifThe the carrying modifications value are of not our considered renegotiated to loans be was significant, $1,064 or million are as returned at to October 31, 2017 ($988 million in 2016). Renegotiated loans of During the year ended October 31, 2017, we foreclosed onAs impaired at loans October and 31, received 2017, $62 real million estate of properties real held estate for properties sale that totalled we $55 classified million as ($76 million in 2016). These properties are disposed of when Credit card, consumer instalment and other personal loans Total Business and government loans (1) The percentage of loans(2) 90 Credit days card or loans more that past are due past but due not are impaired not that classified were as guaranteed impaired by loans the and Government are of written Canada off is when 5% 180 for days 2017 past and due. 7% for 2016. Residential mortgages (Canadian $ in millions) Purchased Loans We record all loans thatestimate we of purchase the at interest fair rate valueprevailing premium on interest or the rates discount day (the on that “interest the weacquisition rate loans, acquire date. mark”). calculated the The Also as loans. credit included the The mark in difference fairacquisition consists fair between value date of value the of but two is contractual the that components: an rate acquired haven’t an estimate of loanlosses been estimate of interest portfolio (the specifically of expected on includes “future identified the credit the an credit on amount losses loans mark”). that of (the and Sheet Because date losses “credit on we (the that mark”) the record “incurred exist as day the credit in of we loans mark”) the the loans acquire at and acquired and the fair an loan discounting loans. value, amount portfolio those Fair no that on cash value allowance represents the for flows is for future commercial at determined credit expected loans. a by losses For market estimating is retail rate the recordedloss loans, of principal in severity we interest. and our and use We interest Consolidated the models estimate cash Balance timing that cash flows of incorporate flows expected prepayments, management’s expected to as best to be well estimate be collected as of collected onprincipal collateral. current based the and key on interest assumptions, specific payments such loan (the as reviews principal “purchased default was performing rates, no loans”) longer and reasonably thoseacquisition assured for based (the which on “purchased on the credit the amount impaired acquisition expected loans” date to or theSubsequent be “PCI timely to collected, loans”). collection the none Because of acquisition of PCI interest date, the loans and we PCI are account loans recorded for are atPurchased each considered fair Performing type to value Loans of be at loan impaired as atFor follows: acquisition. performing loans with fixedeffective terms, interest the method. future The credit impact mark$26 on is million net fully in interest amortized 2015). income into The for netallowance incurred the interest and credit year income the losses ended over provision are October the for remeasured 31, expectedprovision credit at 2017 life for losses. each was of credit Decreases reporting $9 the losses in period, million loan until incurred with ($15 usinginterest the credit any million the income. accumulated losses increase in collective are recorded 2016 allowance recorded as and related as an to a increase these decrease in loans in the is the collective exhausted. collective$39 Any allowance million additional and in decrease the the is provision recorded$1 for in million credit net recovery losses and and $nil, $18 respectively, million in in 2015). net interest income ($50 million provision and $31 million, respectively, in 2016 and performing status when none of the criteria for classification as$509 impaired million continue were to classified apply. aswritten performing off during in the the year year ended ended October October 31, 31, 2017 2017 ($540 ($58 million million in in 2016). 2016). Renegotiated loans of $36 million were From time to time weimpairment modify consistent the with contractual our terms existing ofconcessions policies a are for loan for impairment. due economic When to or renegotiation theas legal leads poor impaired. reasons to financial We related significant condition consider to concessions of one the being theextension or borrower’s granted, borrower. of a financial and We the combination difficulty the assess maturity of that renegotiated date the we loans(3) or following would for forgiveness dates to not of at be otherwise principal a significant consider, or stated concessions: the accrued interest (1) loan interest. rate a is lower reduction classified than of the the current stated market interest rate rate, for (2) a an new loan with similar terms, or Renegotiated Loans Property or other assets thataccording we to receive management’s from intention borrowers and toon are satisfy market recorded their prices at loan where the commitments available. lower aresimilar Otherwise, of classified assets. fair carrying as value amount either is or held determined fair for using value use methods less or such costs held as to for analysis sell. sale held of Fair for discounted value sale cash is ($118 flows determined million or based in market 2016). prices for considered appropriate. During the yearheld ended for October sale 31, ($18 2017, million we in recorded 2016 an and impairment $22 loss million of in $10 2015). million on real estate properties classified as Foreclosed Assets Loans Past Due Not Impaired Loans that are past duewhich but we not expect classified the as full impairedclassified amount are as of loans impaired principal where as and our at interest customers October payments have 31, to failed 2017 be to and collected. make 2016. The payments following when table contractually presents due, loans but that for are past due but not Notes 156 report. this of 103 to 99 pages on Analysis and Discussion Management’s funding stability. of and earnings section liquidity and Management they including Managing confidence Risk as commitments, stress. depositor Wide prices financial of enterprise, reasonable meet times sound at to in and manner available even safe timely are commitments, a a capacity pledging maintaining in funding and to commitments and investment essential financial assets lending, is our liquid and risk meet sufficient suppliers, to that and unable ensure depositors are to to we policy liabilities if our loss is for It potential due. the become is report. risk this funding of and 98 Liquidity to Risk 94 our Funding pages in and on risk Analysis Liquidity market and structural Discussion of Management’s management of the section in Management migration and Risk credit activities Wide interest of underwriting as risk and such the trading variables includes our market and in in spreads, risk changes credit market activities. from and incur insurance resulting volatilities, We and liabilities implied book. banking and their trading assets and our our prices in of commodity default value and and the equity in rates, changes exchange adverse foreign for rates, loans potential to the related is risk risk credit Market on information Additional report. Risk respectively. this 8, Market of and 90 4 to Notes 86 in pages disclosed on is Analysis derivatives honour and and or Discussion loan face. Management’s a we of repay derivatives that section to cleared risk Management counterparty centrally measurable or and significant guarantor over-the-counter most endorser, loans, the borrower, to is a respect This of with instruments. failure predominantly credit the arises other to risk and due Credit loss obligation. for financial potential predetermined the another is risk. risk risks funding counterparty key and and The liquidity Credit organization. and Risk our market, Counterparty across counterparty, faced and and risks credit Credit of as control classified and are monitoring instruments measurement, financial identification, our the to to related approach enterprise-wide an have We Management Risk FDIC. the 5: by Note reimbursed be to expected amounts the of net FDIC are the amounts agreement, These this loans. 2015). Under covered in (“FDIC”). the million Corporation on $36 Insurance incur Deposit we Federal losses the net with the agreement of share 80% loss for a us to reimburses subject are loans acquired Certain Loans Covered FDIC CONSOLIDATED TO NOTES 07 h eann rdtmr eae oPIlasws$i $ ilo n2016). in 2015). million in ($3 recovery $nil 2017 million was 31, $86 loans October and PCI ended 2016 to specific year in related the the recovery mark to for million credit charge evaluations ($58 remaining a these losses the no in of credit 2017, if result impact for or, will The provision losses flows losses. specific credit cash credit the for expected for in allowance in allowance recovery flows recorded Decreases the million cash previously loans. in $1 expected any PCI increase a in in the an was Increases reduction of and loans. a value losses PCI either carrying credit the and current for on losses the provision collect credit in to for increase expect provision an we specific exists, flows the allowance cash in the recovery re-evaluate a regularly in we result be date, will will acquisition and that the mark mark to credit Subsequent credit incurred the the Loans represents represents Impaired million million Credit $110 $86 Purchased respectively million, of million, $196 balance $45 of remaining and loans The million performing portfolio. period. $151 for the reporting was mark of each loans credit life remeasured revolving total remaining and the the loans Of over term 2016). amortized performing in be on million was remaining $57 2017 mark and 31, credit million October the ($226 ended 2017, year 31, the October for at loans 2015). As performing in purchased million for $5 losses and credit 2016 for in of provision million expense specific ($32 an total million was The $72 2017 originate. 31, we October loans ended for year 2015). policy the in for million repayments $51 and and amortization 2016 in of in million income million ($41 interest ($53 million net million $39 to $40 was impact 2017 The 31, method. October rate ended interest year the for repayments million such 2015). $4 of in was income million 2017 interest $62 31, net and October on 2016 ended impact year The the received. for are amortization payments such of 2015). income in interest million net $15 on and impact 2016 The in loans. million the ($5 of terms contractual the over M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO u iudt n udn ikmngmn rcie n e esrsaedslsdi h etpeetdi letne oti h Enterprise- the in font blue-tinted a in presented text the in disclosed are measures key and practices management risk funding and liquidity Our Enterprise- the in font blue-tinted a in presented tables and text the in disclosed are measures key and practices management risk market Our Risk Enterprise-Wide the in font blue-tinted a in presented tables and text the in disclosed are measures key and practices management risk Our of provisions net and 2016 in million $25 of recoveries (net 2017 31, October ended year the for million $2 of provisions net recorded We sa coe 1 07 h muto C on eann nteblnesetws$8 ilo $7 ilo n21) sa coe 31, October at As 2016). in million ($275 million $187 was sheet balance the on remaining loans PCI of amount the 2017, 31, October at As 2016). in million ($9,415 million $5,973 was sheet balance the on remaining loans performing our purchased with of consistent amount is the that 2017, manner 31, a October in at arise As they as recorded are loans performing effective these the to using related loan losses the credit of for life provisions expected specific the Actual over income interest net into amortized is the premium which rate in interest period the the loans, during performing income all interest For net as recorded is remaining mark credit unamortized basis related straight-line the a repaid, on are income loans interest performing net As into amortized are marks credit future and incurred the terms, revolving with loans performing For IACA STATEMENTS FINANCIAL Notes 157 2016 2016 liabilities liabilities Associated Associated of assets of assets Fair value Fair value 7,210 7,210 4,324 5,534 5,564 5,566 797 11,689 17,223 17,318 16,880 12,774 12,776 5,121 of assets of assets Carrying amount Carrying amount BMO Financial Group 200th Annual Report 2017 2017 2017 liabilities liabilities Associated Associated of assets of assets Fair value Fair value 7,292 7,292 4,115 4,797 5,699 5,695 2,295 16,888 16,847 16,621 12,091 12,991 12,987 6,410 of assets of assets Carrying amount Carrying amount (1) (1) are held on behalf ofliabilities, the this investors amount in is the added securitization to vehicles the until carrying principal value payments of are the required securitized to assets be in made the on table the above. associated liabilities. In order to compare all assets supporting the associated In assessing whether we control a SE, we consider theWe entire perform arrangement a to re-assessment determine of the consolidation purpose if and facts design and of circumstances the indicate SE, that the there nature have of been any changes to one or more of the elements of Under these programs, we are entitled to the payment over time of the excess of the sum of interest and fees collected from customers, in Consumer instalment and other personal (1) Includes Canadian real estate lines of credit and Canadian auto loans. Credit card receivables (Canadian $ in millions) Total (1) Other related assets represent payments received on account of loans pledged under securitization programs that have not yet been applied against the associated liabilities. The payments received Residential mortgages (Canadian $ in millions) Other related assets Total U.S. Customer Securitization Vehicle We sponsor a customer securitizationsources vehicle of (also funding referred through to the aspaper securitization a (“ABCP”) of bank-sponsored markets their multi-seller by assets. conduit) allowing This that them vehicle provides to provides our either clients customers sell with with or access alternate transfer to a financing direct in or the indirect asset-backed interest commercial in their assets to the vehicle, which then issues ABCP to Bank Securitization Vehicles We use securitization vehicles toobtain securitize alternate our sources Canadian of credit funding. cardthe The loans, vehicles structure Canadian have of real limited these estate decision-making vehicles linesconsolidate authority. limits of these The the credit vehicles, vehicles activities and as issue they Canadian we term can auto have asset-backed undertake loans the securities and in key to the orderThe decision-making fund types to following powers their of table necessary activities. assets presents to We they the obtain control canliabilities carrying the and hold, issued amount majority and by and of our fair the bank value benefits securitization of of vehicles: transferred their assets activities. that did not qualify for derecognition and the associated Consolidated Structured Entities We enter into certain transactionssecure in customer the transactions ordinary and course to ofwhen obtain business we alternate which have sources involve power of the over funding. establishmentof the We of our SE, are structured returns. exposure required entities to to (“SEs”) variable consolidate to returns a facilitate as SE or a if result we of controlrights our the held involvement, entity. through and We contractual the control arrangements ability a and to SE whether exercise we power are to acting affectcontrol as the over a amount the principal SE. or See agent. Note 1 for more information on our basis of consolidation. Note 7: Structured Entities Securities Lent or Sold UnderSecurities lent Repurchase or Agreements sold undersimultaneously repurchase commit agreements to represent repurchase short-term the fundingand same transactions rewards securities in associated at which with a we the specified sellthese securities price securities securities and on that recorded we a we as continue specified own secured to date and accrual borrowing recognize in basis. transactions them the Additional at in future. information the our We on amount Consolidated retain securities owing. Balance substantially lent The Sheet, all or interest with of sold expense the the under related obligation risks repurchase to to agreements these repurchase is liabilities provided is in recorded Note on 14. an connection with the loans thatsubstantially were all sold, of over the the prepayment, yieldcontinue interest paid to rate to recognize and/or investors, the credit less loans risk creditnet and associated losses of the with and the related the other yield cash securitized costs. paid proceeds loans, Sincelosses to as they we associated investors, secured do continue with is financing not to the recorded in qualify be loans in our for exposedmortgage are net Consolidated derecognition. to loans recorded interest Balance We to in income Sheet. these the using The programs provision the interest ($6,803 for effective and million credit interest fees in losses. method collected, The 2016). During over following the the table year term presents ended of the October theliabilities: carrying 31, securitization. amount 2017, Credit and we fair sold value $8,707 of million transferred of assets that did not qualify for derecognition and the associated We sell Canadian mortgage loansparty to investors third-party under Canadian the securitization National programs,of Housing including the Act the risks Mortgage-Backed Canada and Securities Mortgage rewards program Bond of and program, the under and loans our directly have own to been program. third- transferred We to assess determine whether if substantially they all qualify for derecognition. Note 6: Transfer of Assets Loan Securitization Notes nteeetta eti vnsocr h oa omte n nrw mutudrteelqiiyfclte n n nrw mut fthe of amounts 2016). undrawn 31, any October and at facilities million 158 liquidity ($6,134 these million under $5,688 us. amount was with undrawn 2017 reside and 31, not committed October does total at assets, The vehicle program occur. funded of events BMO the servicing certain to the that related have activity, event investors services We relevant the to providing vehicles. key in ABCP for the their issue fees of as then earn operations entities, which We ongoing these vehicles, vehicles. the control the securitization supporting not the to customer for do in assets the fees we or their to arrangement that BMO in assets financial determined from interest sell and directly indirect not distribution either or do liquidity, financing direct We including to a purchases. securitizations, access transfer the with or fund alternate clients sell to with provide to BMO customers vehicles either or our These them provide assets. allowing that their by conduits) of markets multi-seller securitization ABCP bank-sponsored the as and through to default funding referred our of (also to sources vehicles exposed securitization are customer who sponsor to holders, We exposed note not the Vehicles are of Securitization we that vehicles. Customer situations, than these Canadian these less consolidate In is to assets. returns required underlying variable not their to are as exposure We us remaining risk. by Our credit issued risk. notes credit purchase or vehicles default funding significant and capital our of Certain Vehicles Funding and Capital SEs: unconsolidated in interests our to related no amounts is presents There below matured. table swaps The default credit consolidated Entities the and and Structured controlled notes Unconsolidated We medium-term vehicle. outstanding the its credit with of vehicle. through swaps all this portfolios offsetting redeemed in debt and vehicle activity corporate counterparties the remaining in swap 2016, investments with September on swaps In investors default vehicle. to credit the protection into credit entered provided We which swaps. vehicle default protection credit information a Additional sponsored redeemed. We were therefore vehicles and these Vehicle control of 16. Protection we one Note Credit and by in vehicles, issued provided the securities is of trust securities returns capital trust variable the capital the of to to all related exposure 2016, in significant During included have vehicles. were we these vehicles interest consolidate these equity vehicles by our the issued through to notes or assigned credit-linked 2016). arrangements or of 31, sold million October not $318 at are 2017, ($nil assets 31, Sheet Loan October Balance notes. at Consolidated credit-linked As our of Sheet. in notes. issuance Balance deposits us. promissory the Consolidated by for through our issued exchange fund on bonds in they remain on vehicles which and bondholders the vehicles to to these due assets from payments sell events guarantee may credit to we or or securities us, trust by capital issued or notes notes purchase issue may to vehicles created These at are million vehicles ($6,314 funding million and $6,765 Capital was 2017 Vehicles 31, Funding October and at Capital facilities these under amount undrawn decision-making agent. committed 2016). key servicing total 31, the and The October have provider occur. we liquidity events and as certain returns capacity that variable our event its in the to returns to have exposed those related We are of services vehicle. we amount providing the as the for of vehicle, affect fees operations this to earn ongoing consolidate necessary We the therefore powers vehicle. supporting and securitization for control customer fees we the arrangement that to financial determined assets and sell distribution not liquidity, do including We securitizations, purchases. the fund to investors CONSOLIDATED TO NOTES oa seso h entities the of assets Total 2 xouet osrpeet euiishl,udanlqiiyfclte,ttlcmitdaonso h M uddvhceaddrvtv assets. derivative and vehicle funded available-for-sale BMO and the securities of trading amounts as committed classified total are facilities, and liquidity paper undrawn commercial held, asset-backed securities of represents comprised loss are to vehicles Exposure securitization customer (2) Canadian our by issued are that held Securities (1) sheet balance the on recorded Interests millions) in $ (Canadian xouet loss to Exposure M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO Deposits Other Loans securities Available-for-sale securities Trading equivalents cash and Cash Other Derivatives epoielqiiyfclte otevhce htiseAC oivsoswihmyrqieta epoieadtoa iacn otevehicles the to financing additional provide we that require may which investors to ABCP issue that vehicles the to facilities liquidity provide We the of rights the on based that determined have we risk, credit our on pass to designed are or us from assets purchase that vehicles eligible those against For protection credit purchase We assets. loan corporate certain on exposure credit our transfer to vehicles capital use also may We the in vehicle the to financing additional provide we that require may which vehicle this to facilities support liquidity committed provide We euiis l seshl yteevhce eaet sesi Canada. in assets to relate vehicles these by held assets All securities. (2) IACA STATEMENTS FINANCIAL aia and Capital vehicles funding 7 ,9 209 4,592 476 6 0146 50 460 7 0209 50 476 7645209 6,425 57 777209 787 17 6–– – 16 2 – 725 7–– 2 850– 209 6 –6– – ––63 securitization vehicles customer Canadian (1) Structured vehicles finance 2017 aia and Capital vehicles funding ,8 ,3 1,056 5,131 1,285 ,6 3879 53 1,265 ,8 31,014 53 1,286 76761,056 6,796 57 26– 1,056 716 6 25 12 15 – 53 11 1–– – 21 4 – 643 2 41,056 14 – ––– 135 – – securitization eils(1) vehicles customer Canadian Structured vehicles finance 2016 Notes 159 BMO Financial Group 200th Annual Report 2017 For options written by us,For we options receive purchased a by premium us, from we the pay purchaser a for premium accepting for market the risk. right to exercise the option. Since we have no obligation to exercise the option, our Forwards are customized contracts transacted in the over-the-counter market. Futures are transacted in standardized amounts on regulated Derivative instruments are either regulated exchange-traded contracts or negotiated over-the-counter contracts. We use these instruments for For our largest plan, employees can direct a portion of their gross salary toward the purchase of our common shares and we match 50% of Total assets held under our share ownership arrangements amounted to $1,805 million as at October 31, 2017 ($1,616 million in 2016). Credit default swaps – oneoccurs, counterparty such pays as the bankruptcy other or aTotal failure fee return to in swaps pay. exchange – for one thatgroup counterparty other of agrees counterparty assets, to agreeing including pay to any or makefunding returns receive a rates. such from payment as the if interest other a earned cash credit on amounts event these based assets, on in changes exchange in for the amounts value that of are a based reference on asset prevailing or market Commodity swaps – counterparties generallyEquity exchange swaps fixed – and counterparties floating exchange rateinterest the payments rate return based or on on the an a return equity notional on security value another or of equity a a security group single or of commodity. group equity of securities equity for securities. a return based on a fixed or floating Interest rate swaps – counterpartiesCross-currency generally swaps exchange – fixed fixed and rate floatingCross-currency interest rate interest payments interest rate and payments swaps principal based – amounts on fixed are the and/or exchanged notional floating in value rate different in interest currencies. a payments single and currency. principal amounts are exchanged in different currencies. primary exposure to risk is the potential credit risk if the writer of an over-the-counter contract fails to meet the terms of the contract. Options Options are contractual agreements thatcurrency, convey commodity, to interest-rate-sensitive the financial purchaser instrument the or right security but at not a the fixed obligation future to date either or buy at or any sell time a within specified a amount fixed of future a period. exchanges and are subject to daily cash margining. Forwards and Futures Forwards and futures are contractualinstrument agreements or to security either at buy a or specified sell price a and specified date amount in of the a future. currency, commodity, interest-rate-sensitive financial ‰ ‰ ‰ ‰ ‰ ‰ ‰ Types of Derivatives Swaps Swaps are contractual agreements betweenfollows: two parties to exchange a series of cash flows. The various swap agreements that we enter into are as trading purposes, as well asmanagement to program. manage our exposures, mainly to foreign currency and interest rate fluctuations, as part of our asset/liability Note 8: Derivative Instruments Derivative instruments are financial contractsfinancial that or derive commodity their prices value or from indices. underlying changes in interest rates, foreign exchange rates or other Other Structured Entities We may be deemed tosponsor be of the a sponsor SE of if asponsored. market SE participants if would we reasonably are associate involved the in entity the with design, us. legal We set-up do or not marketing have of an the interest SE. in We certain may SEs also that be we deemed have to be the We purchase and hold unitsthrough of our non-BMO holding managed of funds units, forconstitute and investment control, because and and we other as may purposes. a act Weat result as are October our counterparty considered 31, interests in to 2017 in certain have ($2,525 these derivative an million funds contracts interest in are or in 2016), not other these which consolidated. interests. funds is Our These included total activities in interest do securities in not in non-BMO our managed Consolidated funds Balance was Sheet. $1,426 million Non-BMO Managed Funds BMO Managed Funds We have established a numberhave of in funds the that funds, we including alsoinvestment investments manage. manager. in We Based the assess on funds whether our and ormanaged assessment, management not funds we fees we was have earned control $774 determined from these million that the funds at we funds, based October do and on 31, not any the 2017 control investors’ economic ($798 these rights interest million funds. to we in Our remove 2016), total us which interest as is in included unconsolidated in BMO securities in our Consolidated Balance Sheet. We sponsor various share ownershipemployees arrangements, to certain purchase of bank which common are shares. administered through trusts. Generally theseemployees’ arrangements contributions permit up to 6%purchase of our their common individual shares gross on salarythe the to plan. open a We market maximum are for of not distribution $100,000.trusts. required to Our to employees matching consolidate once contributions our those are compensation employees paid trusts. are into These entitled trusts, trusts to which are the not shares included under in the the terms table of above, as we have no interest in the Compensation Trusts Structured Finance Vehicles We facilitate development of investmentsold products to by retail third investors. parties, We includingexposure enter mutual related into funds, to derivative unit these contracts investment derivative with trusts contracts these and by third other investing parties investment in to funds other provide that funds investors are through with SEs. their We desired are exposure, not and required we to hedge consolidate our these vehicles. Notes 160 compensation employee and liabilities and assets on recorded expense interest or and gain income unrealized interest hedged. entire the were the adjust that settled, will expense or This sold Income. tax). is of after item Statement million employee hedged Consolidated ($62 in the our and If in swaps earnings. income rate in interest interest recorded net for is in income item immediately interest hedged recognized is net the is item in as loss hedged Income swaps the of return of Statement total value Consolidated for fair our compensation the to in amortized changes is offset Income. income not of comprehensive does Statement that Consolidated derivative our the in of other, value revenue, fair non-interest in in change directly the recorded of excess The income. comprehensive hedge. years. the 18 of of life maturity the floating to over include term Income instruments remaining of and bearing maximum Statement assets rate a denominated interest have currency Variable hedges foreign risk. flow instruments, price cash bearing equity Our rate to deposits. interest subject and variable grants loans for payment rate flows share-based cash cash-settled in certain variability and to liabilities exposure modify hedges non-interest flow in Cash arises it as Hedges recognized Flow is Cash relationship Income. hedging of in the Statement either in Consolidated changes ineffectiveness our offsetting Any in in correlation. other, effective item. of revenue, highly hedged measures be the statistical hedged, must of quantitative being derivative flows using flow the cash primarily cash of future or value of liability fair amount asset, the the specific in in the Changes changes and assessed. or hedge being value the is fair for effectiveness the strategy its and how objective as management well risk as particular the hedge detailing accounting inception, currency in its foreign them and designate rate we interest requirements, our accounting hedge hedge to for contracts qualify derivative instruments various derivative relationships. into these enter extent we the strategy, To changes management exposures. with risk value, our fair with at Income. accordance recorded of In are Statement contracts Consolidated These our earnings. Derivatives in dollar revenues, Hedging U.S. trading our revenue, of non-interest translation in the recorded to value due fair income in as net recorded consolidated are our losses in unrealized fluctuations and assets instrument Sheet. derivative Balance as Consolidated recorded our are in derivatives liabilities trading instrument on derivative gains positions Unrealized risk indices. Income. market or of managing rates Statement involve prices, activities in Positioning movements volume. favourable and from spread profiting on of based expectation revenues the generating with of intention the (“economic with purposes participants accounting for hedges as qualify and not positions do trading that principal strategy our management from risk income our trading of facilitate generate part to to as hedges”). market-making basis executed needs, limited are management a that risk on derivatives their transacted certain accommodate derivatives to derivatives, customers for with demand into customer-driven entered derivatives include derivatives Trading forward and exchange Derivatives foreign spot Trading swaps, cross-currency options, currency foreign characteristics. futures, risk currency rate similar through interest contracts. with risk the transactions currency adjust of foreign and pool manage to specific We linked a are or which commitment, Risk options, firm Currency and or Foreign swaps transaction rate forecasted interest liability, futures, asset, rate specific interest a bonds, of through sensitivity risk rate interest manage We Risk Rate Interest Hedged Risks CONSOLIDATED TO NOTES ult,vleo h neligfnnilisrmn rcmoiy sapial,adtepsil nblt fcutrate ome h em fthe of terms the meet to counterparties credit of rates, inability exchange possible foreign the rates, and interest applicable, in as movements commodity, to or exposure instrument to financial contracts. related underlying are the instruments of derivative value these quality, with associated risks floor. main or The collar cap, the of rate prescribed the and rate market instrument. the this between selling difference for the premium amount, a notional receives specified writer a The on based purchaser, the pay M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO h muto nelzdgista eepc orcasf oorCnoiae ttmn fIcm vrtenx 2mnh s$4million $84 is months 12 next the over Income of Statement Consolidated our to reclassify to expect we that gains other unrealized in of recorded amount loss The or gain unrealized cumulative the term, hedge original other the in of recorded end are the they before item, discontinued hedged are the that of hedges value flow fair cash the For in Consolidated changes our offset in derivative income the interest of net value to fair adjustment the an in as changes derivatives that hedge extent flow the cash To these on receive or pay we that interest record We prospectively, and retrospectively basis, ongoing an on and relationship hedging the of inception the at evaluated is at effectiveness documented Hedge formally and designated be must relationship hedging the hedge, accounting an as qualify to instrument derivative a for order In minimize to options and/or contracts exchange foreign forward through earnings dollar U.S. our of portion Consolidated a our hedge in economically revenues also trading may in We recorded are losses and gains unrealized and Realized value. fair at recorded market are other derivatives to Trading prices offer risks. and expected bid or quoting current involves reduce Market-making or activities. modify positioning transfer, and to market-making customers include enable activities to trading products Principal derivative market and structure We wpini noto htcnest h ucae h ih u o h biaint ne noa neligswap. contract. underlying futures an single into a enter is to instrument obligation underlying the the not which but in right contract the option purchaser an the is to option to conveys future agrees that A writer option the an which is in swaption agreements A contractual are They options. purchased and written of types specialized are floors and collars Caps, IACA STATEMENTS FINANCIAL Notes 161 (8) na na 18 na 64 111 127 145 119 188 Reclassification of gains on designated hedges from other in non-interest revenue – other Hedge ineffectiveness recorded comprehensive income to net income Pre-tax gains (losses) recorded in income – – – – 1 3 2 (2) (4) (6) (7) BMO Financial Group 200th Annual Report 2017 Pre-tax gains (losses) recorded in income Fair value non-interest revenue – other Fair value change recorded in hedge adjustment (2) 33 39 63 97 (14) (22) 716 697 (124) (100) (1,158) (7) 124 (1,161) Fair value gains (losses) recorded in other comprehensive income hedging derivatives (1) Amount of gain (loss) on 201720162015 (200) (77) 225 193 72 (219) (7) (5) 6 (1) (1) (1) transferred from other comprehensive income to interest expense in our Consolidated Statement of Income. We record interest receivable or payable on these derivatives asFor an fair adjustment value to hedges, net the interest hedging income derivative in is our recorded Consolidated at Statement fair of value Income and any fixed rate assets and liabilities thatFor are fair part value of hedges a that hedging are discontinued, we cease adjusting the hedged item to fair value. The cumulative fair value adjustment of the Total Share-based payment awards (1) Unrealized gains (losses) on(2) hedging Unrealized derivatives gains are (losses) recorded on in hedged Other items assets, are derivative recorded instruments in or Securities, Other available-for-sale, liabilities, Subordinated derivative debt, instruments, Deposits in and the Other Consolidated liabilities. Balance Sheet. Interest rate contracts – (Canadian $ in millions) Contract type na – not applicable (1) Amortization of spot forward differential on foreign exchange contracts of $270 million loss for the year ended October 31, 2017 ($161 million loss in 2016 and $40 million loss in 2015) was Contract type Foreign exchange 2017 Interest rate (Canadian $ in millions) Share-based payment awards 2016 Interest rate Total Foreign exchange Share-based payment awards Total 2015 Interest rate Foreign exchange Embedded Derivatives From time to time, wecontract purchase and or carried issue at financial fair instrumentsembedded value containing derivative if embedded are the derivatives. the economic The same characteristics embeddedTo as of derivative the those the is extent of derivative separated that a are from we stand-alone not thevalue cannot derivative, closely host reflected reliably and related in identify the to income. and combined those Embedded measure contract of derivatives the is the in embedded not host certain derivative, held contract, of the for the our entire trading terms equity contract or of linked is designated the notes carried at are at fair accounted fair value. for value, separately with from changes the in host fair instrument. Net investment hedges mitigate ourDeposit exposure liabilities to denominated foreign in currency foreign exchangenet currencies rate investment are fluctuations in designated related foreign as to operations hedges ouroperations and for net in the a investment other corresponding portion in comprehensive hedging of foreign income. instrument this operations. Statement To is exposure. of the recorded The Income extent in foreign in that unrealized currency foreign the gains translationyears exchange, hedging (losses) of ended other instrument on our October than is translation 31, trading. not of 2017, There effective, netinstruments 2016 was amounts foreign in and no are net 2015. hedge included investment We ineffectiveness in hedges, use associated the and foreign with Consolidated the currency net fair deposits investment value with hedges of a for such term the deposits to was maturity $5,629 of million zero as to at six October months 31, as 2017 hedging ($4,795 million in 2016). Net Investment Hedges over the life of the hedge. relationship are adjusted for theoffset changes changes in in value the of fair theof value risk Income. of being the hedged. hedged To item, the the extent net that amount a is change recorded inhedged directly the item in fair is non-interest value then revenue, of amortized other, thevalue to in derivative adjustment net our does is interest Consolidated not included income Statement in over the its determination remaining of termThe the to following gain maturity. table or If presents loss the the on hedged impact sale item of or is fair settlement. sold value or hedges settled, on the our cumulative financial fair results. Fair Value Hedges Fair value hedges modify exposureconvert to fixed changes rate in assets a and fixeddebt liabilities rate and to instrument’s other floating fair liabilities. rate. value Our caused fair by value changes hedges in include interest hedges rates. of These fixed hedges rate economically securities, loans, deposits, subordinated The following table presents the impact of cash flow hedges on our financial results: Notes 162 a on contracts settle to intend we and amounts offset to right enforceable legally a have we where customers to basis. liabilities net of net shown are Assets follows: discussion as A are factors. instruments other derivative or 17. our conditions Note of market in values to included Fair due is periods derivatives reporting of subsequent measurement in value of change fair demands may the payment that of meet estimates or point-in-time collateral 2016). represents to post in value downgraded to respectively, Fair been required million, had been $984 rating have or credit would Value million our we ($841 Fair If Services), respectively million 2016). Ratings million, $6,006 in Poor’s $484 was million & or 2017 ($7,529 Standard million 31, million (per $100 October $4,223 2017 additional on of 31, an position collateral October liability posted on fair a have A- derivative aggregate in we or these The were which A to payment. that for counterparties immediate requirements 2016), certain request posting in credit downgraded, or collateral million our be positions with ($7,495 to to liability instruments pay were derivative derivative or ratings on all post credit collateralization of to our ongoing value required If and are agencies). immediate we rating demand collateral credit could of major instruments amount the the by link determined that (as provisions ratings contain instruments derivative over-the-counter Certain Features Contingent CONSOLIDATED TO NOTES Total agreements netting master of impact Less: oa arvle–taigadhdigderivatives hedging and trading – value fair Total oa arvle–hdigderivatives hedging – value fair Total contracts equity Total hedges flow Cash Contracts Equity contracts exchange foreign Total hedges flow Cash Contracts Exchange Foreign swaps Total swaps – hedges value Fair 1 h arvle fhdigdrvtvswol rprilyofe h hne nfi auso h eae nblnesetfnnilisrmnso uuecs flows. cash future or instruments financial sheet on-balance related presentation. the year’s of current values the fair with in conform changes to the reclassified offset been partially have or figures wholly comparative derivatives Certain hedging of values fair The (1) Swaps Contracts Rate Interest Trading millions) in $ (Canadian rte options Written options Purchased Futures qiyCnrcs138(,8)(1,998) (3,386) 1,388 swaps – hedges flow Cash Contracts Rate Interest Hedging derivatives trading – value fair Total Written Purchased Swaps Default Credit Contracts Equity options Written options Purchased Swaps Contracts Commodity options Written options Purchased contracts exchange foreign Forward swaps rate interest Cross-currency swaps Cross-currency Contracts Exchange Foreign agreements rate Forward M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO IACA STATEMENTS FINANCIAL (1) 1,0)1,0 – 19,909 (19,909) 891(784 1,147 (27,804) 28,951 739(612 1,237 (26,122) 27,359 ,4 785 1,147 (7,895) 9,042 ,9 162 (90) (1,682) 1,592 ,0 72 480 480 (722) (722) 1,202 1,202 ,9 707 1,363 (7,027) 8,390 ,5 318 1,776 (948) 935 (3,178) (9,051) (1,752) 4,954 8,103 2,687 assets Gross 5 90 (608) (128) (960) (402) 352 274 4 444 – 444 5 352 9 – 267 (717) – 352 726 267 8–38 38 – – 38 38 8(5)(480) (558) 78 41 – 41 7(1)6 39 (329) (329) – ––– 5)(54) (54) (357) (357) – (270) – (270) – iblte Net liabilities Gross 2017 2,3)2,3 – 27,538 (27,538) 913(827 956 (38,227) 39,183 165(069 956 (10,689) 11,645 778(612 1,636 (36,132) 37,768 668(507 1,631 (15,047) 16,678 ,1 205 (680) (2,095) 1,415 ,0 248 2,437 936 (1,944) (2,468) (10,996) (3,026) 4,905 9,052 3,962 assets Gross 4 159 (893) (893) 216 (1,539) (126) (1,539) 342 646 (553) 646 (453) (100) 769 327 442 5 555 – 555 0 238 (1,487) (2,388) 901 9 496 76 411 – (647) – 496 723 411 1()59 (2) 61 5(1 (16) (31) 15 1–1 8(1)7 3 (3) (3) (3) (3) – – 52 (552) (552) – 54 (524) (524) (450) – (450) – iblte Net liabilities Gross 2016 Notes 163 2016 Fair value Total Hedging 319 – 66,148 356 – – 356 981 – – 981 3,033 – – 3,033 2,8461,4414,643 – – – – – – 2,846 1,441 4,643 6,8284,672 – – – – 6,828 4,672 4,014 – – 4,014 6,0488,159 – – –7,835 – 6,048 8,159 – – 7,835 Trading Cash flow 29,50843,921 – –30,849 – – 29,508 – 43,921 – 30,849 30,821 –58,488 – 30,866 30,821 29,87630,405 – – 89,354 – – – 29,876 30,405 13,603 – – 13,603 25,10324,232 – – – 25,103 – 24,232 65,829 38,43963,54257,994 – – 319 – – 38,439 – 63,542 58,313 430,507 – – 430,507 133,864 – – 133,864 195,534 –382,525397,272 – 195,534 11,917 141898,566 – – 42,924 409,189 382,666 – 941,490 903,209 42,924 – 946,133 BMO Financial Group 200th Annual Report 2017 2,596,259 60,793 69,649 2,726,701 3,100,195 60,793 69,649 3,230,637 3,295,729 60,793 69,649 3,426,171 4,332,323 104,036 69,649 4,506,008 2017 Fair value Total – – 2,658 – – 448 – – 3,106 Hedging 448 794 – – 794 9,284 – – 9,284 2,658 6,0011,2498,044 – – – – – – 6,001 1,249 8,044 7,0804,905 – – – – 7,080 4,905 3,106 5,0316,896 – – – – 5,031 6,896 Trading Cash flow 29,10737,247 – – – – 29,107 37,247 89,05310,407 – – – – 89,053 10,407 23,81229,101 – – – – 23,812 29,101 50,534 35,052 – 85,586 18,713 – – 18,713 30,69828,139 – – – 30,698 – 28,139 77,437 344 – 77,781 40,06670,76463,184 –14,253 – 344 – – – 40,066 – 70,764 – 63,528 14,253 195,142 – – 195,142 108,744 –430,808392,924 – 3,402 108,744 9,784927,179 – 48,238 – 434,210 402,708 – 975,417 935,223 48,238 – 983,461 3,073,490 61,730 67,145 3,202,365 3,334,986 61,730 67,145 3,463,861 3,443,730 61,730 67,145 3,572,605 4,530,260 110,312 67,145 4,707,717 Swaps Forward rate agreements Purchased options Written options Written options Futures Purchased options Cross-currency interest rate swaps Forward foreign exchange contracts Purchased options Written options Futures Purchased options Cross-currency swaps Written options Swaps Purchased options Written options Futures Purchased options Written options Certain comparative figures have been reclassified to conform with the current year’s presentation. Interest Rate Contracts Over-the-counter (Canadian $ in millions) Exchange-traded Credit Default Swaps Over-the-counter purchased Over-the-counter written Total interest rate contracts Exchange-traded Foreign Exchange Contracts Over-the-counter Total foreign exchange contracts Commodity Contracts Over-the-counter Total credit default swaps Total Exchange-traded Total equity contracts Total commodity contracts Equity Contracts Over-the-counter Exchange-traded Derivative-Related Market Risk Derivative instruments are subject toof market income risk. due Market to risk adverse arisesinterest changes from rates, in the foreign the potential exchange value for rates, of adefault. equity derivative negative We and instruments impact strive commodity as on to prices a the limit and result balance market their of sheet risk implied changes and/or by volatilities, in statement employing as certain comprehensive well market governance as variables. and credit These management spreads, variables processes credit include for migration all and market risk-taking activities. Notional Amounts The notional amounts of ourexchanged derivatives under represent the the contract. amount Notional toSheet. amounts which do a not rate represent or assets price or is liabilities applied and in therefore order are to not calculate recorded the in amount our of Consolidated cash Balance that must be Notes 164 of cost risk: replacement ultimate the of is country below on out based Set countries, sectors. following industry the and in locations located geographic customers various with in contracts counterparties with conducted are Transactions OSFI. by prescribed as mitigants, risk credit other and netting collateral, settle assets to Risk-weighted either intend we and us Guideline. by Adequacy owed simultaneously. Capital specific amount liability a the the to with settle equivalent liability us and risk and to asset Credit asset owed the the amount realize of the to net offset or the to basis represent right net below enforceable a disclosed legally on costs a Replacement have instruments. we derivative where our counterparty on gains unrealized the effect follows: as cost are Replacement below table risk contracts. credit favourable the with in concurrently used netting settled Terms master be enforceable must legally counterparty by same mitigated the is with contracts contracts credit favourable unfavourable other with that and associated extent loans risk the to credit to applied The agreements that is counterparties. counterparties that with with process agreements dealing risk netting by credit master risk same credit the limit using payment. to derivatives on strive for defaults We risk counterparty instrument. credit the derivative our generally and the manage contracts unfavourably of we assets. Derivative position value and instrument. counterparty’s fair creditworthy, derivative a positive are the affect the believe of rates by we The amount market represented obligations. notional in is their the changes risk on of if credit default fraction loss The may small credit counterparties a potential that normally to possibility is us the derivative expose from a arising with risk associated credit risk to credit subject are instruments derivative Over-the-counter Risk Credit Derivative-Related CONSOLIDATED TO NOTES rs-urnyswaps Cross-currency Contracts Exchange Foreign contracts rate interest Total options Purchased Total 1 oohrcutyrpeetd1%o oeo u elcmn oti 07o 2016. or 2017 in cost replacement our of more or 15% represented country other No (1) Kingdom United States United Canada noted) as except millions, in $ (Canadian o value fair a with derivatives exchange-traded include not do cost replacement for agreements netting master of 2016). impact in the and derivatives total The agreements rate Forward Swaps Contracts Rate Interest millions) in $ (Canadian rs-urnyitrs aeswaps rate interest Cross-currency te countries Other owr oeg xhnecontracts exchange foreign Forward Total es mato atrntigagreements netting master of impact Less: derivatives Total Swaps Default Credit Contracts Equity contracts commodity Total options Purchased Swaps Contracts Commodity contracts exchange foreign Total options Purchased M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO xhnetae eiaie aelmtdptnilfrcei xoue ste r ete e al ihec exchange. each with daily net settled are they as exposure, credit into for entering potential by limited and have collateral derivatives through Exchange-traded including instruments, derivative on losses credit to exposure our reduce to opportunities pursue also We (1) ersnstecs frpaigalcnrcsta aeapstv arvle eemnduigcretmre ae.I ersnsin represents It rates. market current using determined value, fair positive a have that contracts all replacing of cost the represents ersn h rdtrs qiaet egtdo h ai fteceiwrhns ftecutrat,adconsidering and counterparty, the of creditworthiness the of basis the on weighted equivalent, risk credit the represent ersnstettlrpaeetcs lsa mutrpeetn h oeta uuecei xoue sotie nOSFI’s in outlined as exposure, credit future potential the representing amount an plus cost replacement total the represents IACA STATEMENTS FINANCIAL Replacement 1,0)(305 – (33,025) (19,909) 8545,9 5,697 55,191 28,594 2,701 34,364 17,196 ,2 ,4 – 1,537 8,345 3,727 12,026 9,223 ,4 163– 11,603 8,742 ,5 720– 17,210 8,157 ,6 ,8 – 8,389 5,062 ,8 2165,697 22,166 8,685 ,2 ,5 461 4,750 1,322 854100% 28,594 54754 15,447 4 8 – 381 440 4 ,0 971 – – 4,005 – 1,034 846 2,971 120 726 420 250 ,1 17 4,919 ,7 4 25 1,079 7,149 cost 14 – 42 41 2017 746 27 eoemse etn agreements netting master Before equivalent rdtrisk Credit 854100% 38,554 04253 20,472 Risk-weighted ,7 17 6,473 ,7 8 22 3,274 8,335 2016 assets 2017 37mlina tOtbr3,21 $2 million ($629 2017 31, October at as million $357 f Replacement 2,3)(228 – (42,248) (27,538) 8092,5 1,345 21,156 18,059 7472,0 – 20,506 17,447 1062,4 4,819 22,441 11,016 8546,8 4,819 64,689 38,554 2,444 35,737 18,945 ,1 18 1,518 ,8 100% 8,685 ,4 22 58 1,940 5,045 ,5 ,5 – 8,959 4,351 ,5 736– 17,386 9,054 ,6 ,0 – 8,806 5,160 2017 8 2 182 5 8 – 589 551 1 ,8 347 670 – 4,180 3,524 713 – 814 2,389 723 586 380 cost 16 – 61 61 39 13 92 – 23 1,135 91 fe atrntigagreements netting master After equivalent rdtrisk Credit 106100% 11,016 ,5 14 1,554 ,6 24 56 2,666 6,196 Risk-weighted 2016 0 6 600 assets 2016 Notes 165 2016 4,014 89,354 13,603 49,939 63,542 66,148 amounts 5 years 382,666 699,470 474,113 946,133 10 years 2,726,701 3,426,171 4,506,008 Total notional ––– 6,395 – 1,079 97 4,322 10 to 40 years 23 26,661 23 38,554 amounts Total notional years – – – Over 10 82 631 713 Lease term to a maximum of 10 years BMO Financial Group 200th Annual Report 2017 years 5to10 51 70 235 330 814 128 years 3to5 Term to maturity 2017 years 1to3 25 690 3,038 1,873 13,319 18,945 567 871 1,040 351 277 3,106 1 year Within 5,098 34,290 23,893 20,096 2,209 85,586 3,925 9,121 4,952 686 29 18,713 22,08726,012 25,72366,579 34,844 3,482 6,307 8,434 759 2,638 1,445 – 785 29 1,472 52,051 70,764 77,781 118,739 146,025 83,859 71,488 14,099 434,210 310,472 44,979 8,110 6,544 135 370,240 454,697 7,649 1,069 190 60 463,665 578,534 187,964 108,821 91,774 16,368 983,461 1,033,126 583,698 1,055,300 491,160 39,081 3,202,365 1,343,598 628,677 1,063,410 497,704 39,216 3,572,605 2,015,290 858,663 1,184,343 592,059 57,362 4,707,717 –2274––96 2 261 155 479 226 – – 860 3,306 2,037 6,0631,8951,1109,223 13,898 1,202 1,595 17,196 227 66 1,141 253 846 – 181 1,322 7 21,336 – – 7 3,163 28,594 3,139 12,453 18,059 Interest rate contracts Foreign exchange contracts Commodity contracts Equity contracts Credit default swaps Total Cross-currency interest rate swaps Buildings Forward rate agreements, futures and options Computer equipment and operating systemOther software equipment Interest Rate Contracts Swaps (Canadian $ in millions) As at October 31, 2016 (Canadian $ in millions)Financial institutions Governments Interest rate contracts Foreign exchange contracts Commodity contracts Equity contracts Credit default swaps Total Leasehold improvements As at October 31, 2017 (Canadian $ in millions) Financial institutions Governments Natural resources Energy Other Total Natural resources Energy Other Total Forward foreign exchange contracts, futures and options Foreign Exchange Contracts Cross-currency swaps Total interest rate contracts Futures and options Total commodity contracts Equity Contracts Credit Contracts Total notional amount Total foreign exchange contracts Commodity Contracts Swaps Amortization methods, useful lives andare the adjusted residual if values appropriate. of At premisesimpairment. each and If reporting equipment there period, are is we reviewed an review annuallyamount. indication whether for The that there any recoverable an are change amount asset any in is may indications circumstancesof calculated be that and the as impaired, premises future the we and cash higher test equipment flows of for needcarrying expected the impairment to value. to value by be There be in comparing tested were derived use the for no from and asset’s2016. significant the the carrying Gains write-downs asset. fair value and of An value to losses premises impairment less its on and charge costs recoverable disposal equipment is to are due recorded sell. included to when Value in impairment the in non-interest during recoverable use expense, the amount is premises years is the and ended less present equipment, October than value in 31, the our 2017 Consolidated and Statement of Income. We record all premises andcost. equipment Buildings, at computer cost equipment less and accumulatedbasis operating amortization, over system and their software, less estimated other any useful equipment accumulatedamortized lives. and impairment, over When leasehold except each the improvements land, component’s major are which estimated components amortized is useful of on recorded life. a a at The building straight-line maximum have estimated different useful useful lives lives, we they use are to accounted amortize for our separately assets and are as follows: Note 9: Premises and Equipment Term to Maturity Our derivative contracts have varyingare maturity set dates. out The below: remaining contractual terms to maturity for the notional amounts of our derivative contracts Transactions are conducted with variousagreements) counterparties. with Set customers out in below the is following the industries: replacement cost of contracts (before the impact of master netting Notes 166 follows: as are acquisition of date the at assumed liabilities and acquired related assets million the $410 of of values Goodwill fair basis. The period straight-line 15-year a a on to over years million amortized five $72 being over purposes. of is amortized tax adjustment asset being for value intangible is deductible fair relationship asset is a customer intangible acquisition recorded and technology this we dealer a to Additionally, A and portfolio. leases. basis, loan operating accelerated acquired to an the subject on on assets million of $41 value U.S. of the our premium reduce in rate included interest are an goodwill segments. and corresponding reporting million and Banking business Commercial acquired and the Personal and Canadian combination, and business Banking of a Commercial consideration as and cash for Personal for accounted business was Finance acquisition Transportation The Capital base. GE the of assets net the purposes. of billion). tax acquisition (CAD$12.1 for the billion deductible completed US$9.0 is we acquisition 2015, this TF”) 1, to (“BMO December related On Business million Finance $65 Transportation of Capital Goodwill basis. GE straight-line a and on business years acquired three the of and maximum combination, segment. a acquisitions business reporting and a Markets million). mergers as Capital (CAD$69 experienced for BMO million of accounted our US$53 number was in of the acquisition included consideration increasing The are cash by marketplace. goodwill for U.S. the corresponding Fisher the in Holcomb in presence Greene activity our of markets and business capital professionals the existing of our acquisition complements the acquisition completed The are we businesses 2016, acquired 1, of August consideration operations On the of (“GHF”) of results acquisition. aggregate Fisher The of the assumed. Holcomb date of liabilities the Greene excess and on contingent the acquired beginning and as assets statements assumed measured identifiable financial liabilities is of consolidated and Goodwill value our acquired acquisition. fair in assets of the included costs identifiable date of Acquisition-related The the net consideration. incurred. at the contingent are values over including they fair transferred transferred, which their consideration in at the period measured of the are value in consideration fair expense the an at as measured recognized is are acquisition an of cost The Acquisitions 10: Note CONSOLIDATED TO NOTES noefrteyaseddOtbr3,21,21 n 05ws$0 ilo,$0 ilo n 46mlin respectively. million, $476 and million $502 million, $501 was 2015 and 2016 2017, 31, October ended years the for Income h ucaepiealctosfrBOT n H aebe completed. been have GHF and TF BMO for allocations price purchase The price Purchase liabilities Other assets Total assets Other assets Intangible Goodwill Loans millions) in $ (Canadian off. written assets depreciated fully Includes (1) Disposals year of beginning at Balance and Depreciation Accumulated year of end at Balance other and exchange Foreign Disposals Additions year of beginning at Balance Cost millions) in $ (Canadian e arigvalue carrying Net year of end at Balance other and exchange Foreign Amortization M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO Impairment M Fcnrbtdapoiaey1%t eeu n xesso ..Proa n omrilBnigi 07(4 n2016). in (14% 2017 in Banking Commercial and Personal U.S. of expenses and revenue to 14% approximately contributed TF BMO $100 of mark credit a recorded We goodwill. and leases, operating to subject assets loans, acquired primarily customer we commercial acquisition, our this expanded of has part and As U.S. the and Canada both in activities banking commercial our with consistent is acquisition The over amortized being are assets intangible The million. $65 of goodwill and million $4 of assets intangible acquired we acquisition, this of part As e etepnefrpeie n qimn eotdi o-neetepne rmssadeupet norCnoiae ttmn of Statement Consolidated our in equipment, and premises expense, non-interest in reported equipment and premises for expense rent Net (1) (1) IACA STATEMENTS FINANCIAL 7 ,2 ,9 1 ,2 6,236 1,429 913 6,084 1,347 1,994 902 1,726 174 1,844 1,784 207 7 6 2 3 2 2,033 428 239 529 663 174 adBuildings Land 2)(5 1)(3 1)(159) (10) (13) (13) (95) (28) 5 3)7(5 1)(91) (13) (45) 7 (35) (5) 3)(1 (8) (11) (32) – ,5 ,0 4 2 3,937 927 402 649 105 1,306 69 1,055 – 156 72 – 2)(5 1)(2 (66) 4,203 (12) 1,001 674 49 (16) 1,465 (15) 185 1,063 (23) 63 – – – equipment Computer equipment Other mrvmnsTotal improvements Leasehold 4391 94 8 (59) (8) 2017 0 ,8 ,4 0 ,4 6,084 1,347 902 6,005 1,285 1,844 1,784 901 207 1,631 1,908 280 0 2 3 5 2 2,147 420 253 538 729 207 adBuildings Land 8)(3)(6 8)(2 (445) (22) (81) (26) (236) (80) 51 865 18 459 66 5 77 11 228 25 87 6 1 ,7 ,4 5 4 3,720 847 651 1,146 1,076 – ,5 ,0 4 2 3,937 927 11 649 7 1,306 1,055 34 – – 6125 2384 92 (225) (18) 54 (67) 172 (19) 66 (121) – – equipment Computer equipment Other mrvmnsTotal improvements 20869 69 12,078 12,353 – 10,793 M FGHF TF BMO ,8 – 1,087 Leasehold 7 – 275 65 410 34 63 58 6 2016 Notes 167 6,244 (6) BMO Capital – 8 67 Markets Total under Software (4) – (4) 24 (15) (133) (11) 65 462 development Other Total Wealth 2,139 289 Management (5) software – amortizing Developed 2 BMO Financial Group 200th Annual Report 2017 (4) Purchased software – amortizing (4) – 24 – (11) – (246) – (246) 7 (150) 2,374 2 2,376 232 6,069 2,117 2 2,119 304 6,381 2,137 Branch networks Management Insurance Total distribution Traditional Wealth Core – 89 deposits 408 3,816 Banking – – – 3 284 100 – 387 59 – – – – Commercial (38) 24 4 203 (183) 7 (64) (47) (33)(17) – (37) (7) – (4) 22 (35) 524 (11) (67) 11 – (100) 446 Personal and 704 968 194 768 2,421 476 365 5,896 683 944 190 562 2,320 369 421 5,489 654 931 187 786 2,910 398 376 6,242 Customer (3) relationships U.S. P&C Total 3,719 (2) – 89 –– – (142) (142) 68 3,393 3,461 2997 379 3,861 3,958 97 P&C Canadian (1) (1) AWMB and F&C Asset Management plc. In performing the impairment test, we utilize the fair value less costs to sell for each group of CGUs based on discounted cash flow projections. There were no write-downs ofThe goodwill key due assumptions to described impairment above during may the change years as ended market October and 31, economic 2017 conditions and change. 2016. However, we estimate that reasonably possible Additions/disposals Acquisitions Foreign exchange and other Cost as at October 31, 2016 Foreign exchange and other Cost as at October 31, 2017 Additions/disposals Cost as at October 31, 2015 Other (Canadian $ in millions) (5) Relates to AIG. (6) Relates to Gerard Klauer Mattison, BMO Nesbitt Burns Inc., Paloma Securities L.L.C., M&I and Greene Holcomb Fisher. (1) Other changes in goodwill(2) included Relates the primarily effects to of bcpbank translating(3) Canada, goodwill Relates Diners denominated primarily Club, in to Aver foreign First(4) Media currencies National LP into Relates Bank and Canadian to & GE dollars BMO Trust, Transportation and Nesbitt Ozaukee Finance. purchase Burns Bank, accounting Inc., Merchants adjustments Guardian and related Group Manufacturers to of Bancorporation, prior-year Funds Inc., purchases. Ltd., Diners Pyrford Club, International AMCORE, plc, M&I LGM and Investments GE Limited, Transportation M&I, Finance. Harris, myCFO, Inc., Stoker Ostler Wealth Advisors, Inc., CTC Consulting LLC, Balance – October 31, 2015 (Canadian $ in millions) Acquisitions (disposals) during the year Balance – October 31, 2016 Acquisitions (disposals) during the year Other Balance – October 31, 2017 Intangible Assets Intangible assets related to ouramortization. acquisitions Software are is initially recorded recorded at atConsolidated cost their Statement less fair of accumulated value Income. amortization. at The Amortization the following expense acquisition table is date presents recorded and the in subsequently changes amortization at in of cost the intangible less balance assets accumulated of in these our intangible assets: Cash flows were projected for10 the years, first cash 10 flows years were basedrecoverable assumed on amounts to actual in grow operating 2017 at results, ranged perpetual expectedCGU. from annual future The 8.3% rates business cost to of performance of 12.2% up and capital (6.0% to pastcompanies for to 3% experience. that each 12.7% (3% Beyond are CGU in in comparable was 2016), 2016). to estimated and The the using were discount CGU. the based rates Capital on we Asset our applied Pricing estimate in Model, of determining based the the on cost the of historical capitalchanges betas for in of each these publicly assumptions traded are peer not expected toA cause continuity recoverable of amounts our of goodwill our by CGUs group to of decline CGUs below for their the carrying years amounts. ended October 31, 2017 and 2016 is as follows: When we complete an acquisition,liabilities we assumed. allocate Any the portion purchase of priceGoodwill the paid is consideration to not transferred the amortized that assets and is acquired, is in including instead excess identifiable tested of intangible for the assets, impairment fair and annually. value the of those net assets is considered to be goodwill. Note 11: Goodwill and Intangible Assets Goodwill Notes 168 Deposits 13: Note follows: as are call assets a other of within event other the of in components customers The acceptances our the against under claim Sheet. due equivalent Balance are potentially bank’s Consolidated Other earned amount the our fees The record on The acceptance. We assets fee. the Sheet. other a of Balance in for term Consolidated commitments guarantee the our these we over on on which Income liabilities customers, of other our Statement in by Consolidated recorded issued our is is in that fees debt lending short-term in negotiable recorded of form a represent Acceptances Acceptances under Liability Customers’ Assets Other 12: Note value. higher carrying the the amount, than recoverable less their is to this down when them sell, are write to assets we costs intangible impaired, less Indefinite-life be value recoverable. to fair be determined and not are use may assets in in value intangible value 2016) carrying any of 31, their If October that impairment. at indicate for as circumstances annually million in tested ($162 changes an 2017 or or 31, events straight-line October contracts. when a at management impairment either as fund on million to us, $169 primarily benefit have relate will We that assets years. lives the 15 indefinite believe exceed with we to assets which not intangible during period period a the over over basis, income accelerated to amortized are assets Intangible assets: intangible our of amortization accumulated the presents table following The CONSOLIDATED TO NOTES arigvlea coe 1 2016 31, October at value Carrying 2017 31, October at value Carrying 2017 31, October at amortization Accumulated other and exchange Foreign Disposals 3 sa coe 1 07ad21,ttldpst aal nafxddt nldd$049mlinad$621mlin epciey ffdrlfnsprhsd omrilpprise n other and issued paper commercial purchased, funds federal of respectively, million, $36,261 and million $30,419 included date fixed a on payable deposits total 2016, loss. and or 2017 profit 31, bearing through October Non-interest value at fair As at (3) designated notes structured Includes banks. (2) central and regulated Includes bearing Interest (1) by: Deposits millions) in $ (Canadian receivable items interest other Accrued and expenses prepaid receivable, Accounts millions) in $ (Canadian 2016 Amortization 31, October at amortization Accumulated other and exchange Foreign 2015 Amortization 31, October at amortization Accumulated millions) in $ (Canadian Total u rmcins elr n brokers and dealers clients, from Due okdin: Booked nuac-eae assets Insurance-related eso asset Pension Total Total M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO Banks Canada uiessadgovernments and Businesses ntdStates United Individuals te countries Other hr eewiedwso nagbeast f$ ilo uigteya ne coe 1 07(nli 2016). in ($nil 2017 31, October ended year the during million $5 of assets intangible of write-downs were There for assets intangible definite-life test We circumstances. in changes any for annually reviewed are assets intangible of lives useful The eoi iblte.Icue ndpst sa coe 1 07ad21 r 2929mlinad$3,0 ilo,rsetvl,o eoisdenom deposits of respectively, million, $233,005 and million currencies. $239,279 foreign are other 2016 in and denominated 2017 deposits 31, of October respectively, at million, as $24,097 deposits in Included liabilities. deposit 2 (3) (2) (1) Nt 22) (Note IACA STATEMENTS FINANCIAL 24,717 21,557 20,621 24,717 2,259 3,278 2017 818 901 21,335 18,937 17,578 21,335 aal ndemand on Payable 1,540 3,307 2016 450 858 relationships Customer 55,876 44,380 33,968 11,496 20,044 55,876 1,864 2 6 19738212,159 291 398 997 81 1,913 705 – 187 169 762 223 431 0 3 37746332,178 303 476 767 93 – 233 306 9 3 9 7 1,654 675 1,540 194 505 735 190 398 655 338 1)(9 7 1 (35) (1) (7) (29) (13) 2)–––(11) – – – (22) 1)1 3 (137) 138 4 17 (19) 85 1305 31 – 56 68 96 2251 32 – 63 79 2017 – deposits 54,387 40,037 35,378 14,229 17,594 54,387 Core 1,415 2016 121 distribution 155,931 155,931 networks 82,905 62,584 71,708 89,859 3,488 1,318 Branch 2017 fe notice after Payable amortizing otae– software Purchased 151,406 151,406 77,800 60,331 73,155 87,627 3,448 2016 451 246,964 145,648 166,897 246,964 24,937 25,799 75,517 55,130 Developed amortizing otae– software ntdi ..dlas n 2,1 ilo and million $27,914 and dollars, U.S. in inated 2017 ie aeTotal date fixed a aal on Payable 246,244 152,894 162,927 246,244 eeomn te Total Other development 28,958 27,500 65,850 54,359 2016 Software under 483,488 294,490 284,070 160,980 168,311 483,488 10,405 2 (87) (2) – 54,083 85 – (33) – – 5485 25 – 9444 19 – 23,718 (7) 62 (10) 3,281 – – 53 – 31,107 28,018 1,079 8,018 2017 508 156 644 2017 473,372 289,668 276,214 154,774 162,887 473,372 34,271 28,930 7,862 9,555 2016 2016 118 971 199 405 Notes 169 2016 24,683 20,637 11,659 18,005 15,712 246,244 155,548 2017 25,620 23,323 19,345 15,850 17,787 246,964 145,039 83 million mature after 12 months illion were booked in the United States and BMO Financial Group 200th Annual Report 2017 (1) $25,794 million were booked in$41,418 other million countries mature ($221,957 in million, less $136,382($136,382 than million, million, three $58,077 $54,904 million months, million, and $7,922 $5,020 $27,498 million million,deposit million, mature $13,737 liabilities respectively, in million ($197,722 in three and million 2016). to in $62,721 Of six million, 2016). the months, respectively, $130,197 $10,574 in million million 2016). of mature We deposits in have booked six unencumbered in to liquid Canada, twelve assets months of and $213,757 $70,2 million to support these and other Deposits payable after notice are comprised primarily of our customers’ savings accounts, on which we pay interest. Deposits payable on a fixed The cumulative change in fair value related to changes in our own credit spread thatThe has fair been value recognized and since notional the amount notes due were at designated contractual at maturity fair of these notes as at October 31, 2017 were $13,674 million and $13,563 million, (1) Includes $221,954 million of deposits, each greater than one hundred thousand dollars, of which $130,197 million were booked in Canada, $65,963 m Within 1 year Covered bonds, which totalled $23,108 million as at October 31, 2017 ($19,705 million in(Canadian 2016). $ in millions) Federal funds purchased, which areOctober overnight 31, borrowings 2017, of we other had banks’Commercial borrowed excess paper, $707 reserve which million funds totalled of at $8,430 federal the million funds United as ($906 States at million Federal October in Reserve 31, Bank. 2016). 2017 As ($9,461 at million in 2016). Various investment instruments purchased bycertificates. our The customers terms to of earn these interest deposits over can a vary fixed from period, one such day as to term 10 deposits years. and guaranteed investment 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Total Securities lent or sold undersimultaneously repurchase commit agreements to represent repurchase short-term the fundingsecurities same transactions is securities in recorded at which at a we the specified sellliabilities, amount price securities in owing. on that our The a we Consolidated interest specified own Statement expense date and of related in Income. to the these future. liabilities The is obligation recorded to on repurchase an these accrual basis in interest expense, other Securities Lent or Sold Under Repurchase Agreements Securities Sold but not yetSecurities sold Purchased but not yetrecorded purchased at represent their our fair obligations value. torecorded Adjustments deliver in to securities trading the that revenues fair we in value did our as not Consolidated at own Statement the at of balance the Income. sheet time date of and sale. gains These and obligations losses are on the settlement of these obligations are Securities Lending and Borrowing Securities lending and borrowing transactionsother are assets generally or collateralized other by liabilities, securitiesStatement respectively. or of Interest cash. Income, earned Cash and on advanced interest cash orIncome. expense collateral received The on is as transfer cash recorded collateral of collateral in is the is interest, recordedalso securities recorded dividend in been to in and transferred. counterparties interest fee Securities is expense, income borrowed only other incase are reflected liabilities, our the not in in Consolidated obligation recognized our our to in Consolidated Consolidated return our Balance Statementinterest the Consolidated Sheet of revenue, securities Balance if trading is Sheet the revenues. recorded unless risks in they and Securities are rewards sold then of but sold ownership not to have yet third purchased parties, at in fair which value, with any gains or losses recorded in non- Note 14: Other Liabilities Acceptances Acceptances represent a form ofrecorded negotiable in short-term lending debt fees that in isrecorded our issued in Consolidated by other Statement our liabilities of customers, on Income whichthese our over we commitments Consolidated the guarantee in Balance term for other Sheet. of a assets We the fee. on record acceptance. The our the The fees Consolidated bank’s amount earned Balance equivalent potentially are Sheet. claim due against under our acceptances customers is in the event of a call on value to October 31, 2017$227 was million an of unrealized this loss unrealized of loss approximately has $303 been million recorded (unrealized in lossrespectively other of ($11,604 comprehensive approximately million income $134 and ($58 million $11,768 million in million, in 2016), respectively, 2016). of in which 2016). Most of our structured noteaccounting liabilities result have with been the designated way atin the fair non-interest portfolio value revenue, is through trading managed. profit revenues, The orin and change loss our a in and own decrease fair are credit of value accounted spread $169 of fordecrease for million these at of the before structured fair $201 year tax notes value, million ended was was which related October recorded recorded alignsmovements to 31, in as the in changes 2017 other a our in (a comprehensive decrease own our decrease income of credit own of related $72 spread credit $73 to million year spread million changes over in recorded year. 2016). in The non-interest impact revenue, of trading changes revenues, in and our a own credit spread is measured based on ‰ ‰ ‰ date are comprised of: ‰ Deposits payable on demand arenot comprised notify primarily us of prior our to customers’ withdrawing chequing money accounts, from some their of chequing which accounts. we pay interest on. Our customers need The following table presents the maturity schedule for our deposits payable on a fixed date: Notes 170 below: table the in shown as 2015, and 2016 2017, 31, October ended years monitor the and for reinsurers Income the of of Statement condition insolvency. Consolidated financial reinsurer our not the from do evaluate losses arrangements We to greater reinsurance parties. exposure provide ceding insured our to These the minimize order growth. to to in future obligation ratings companies for direct credit reinsurance capacity their their and additional of insurance provide subsidiaries other and insurance to risks, our risks large relieve reinsure to subsidiaries exposure insurance loss our limit business, diversification, of course ordinary the In Reinsurance follows: as is liabilities insurance-related in are conditions. change assumptions market the These and of deviation. experience reconciliation adverse actual A for reflect morbidity, margins to mortality, and updated for costs and assumptions administration annually best-estimate dividends, least incorporates policy at which yields, reviewed Method, investment Liability future Asset surrenders, Canadian lapses, the policy reinsurance. using and determined annuities are insurance, contracts health insurance and life investments to of related value businesses of fair insurance impact the in The in engaged 2015). Changes are in year. We recorded million over was $20 year revenue. million of spread insurance $32 gain credit Liabilities revenue, of a own non-interest Insurance-Related loss and our in a 2016 in recorded 2017, in movements are 31, million on liabilities October $7 based contract ended ended of measured investment year year (loss is these the the spread spread backing investment for For credit credit these liabilities 2015). our own of benefit in in our value policy million changes in fair in $24 to changes in changes and related million change and 2016 income $749 The commissions in comprehensive of Sheet. claims, million other 2017 Balance insurance $55 in 31, Consolidated in of October our million (increase at in $41 2017 as liabilities of 31, liabilities other decrease October of contract in a value investment recorded in a fair these is resulted eliminates the of 2016) liabilities which in value 31, contract loss, changes fair October or offsetting The at profit and basis. as through liabilities different million value contract a ($682 fair investment on at the them business measuring supporting insurance from investments our arise the in otherwise contracts would investment that certain inconsistency to measurement related obligation the designate We follows: as are liabilities other Income. within of other interest Statement of The Consolidated components cost. our The amortized in These at liabilities, 7. measured other and subsequently expense, 6 are interest Other Notes and in in costs recorded provided attributable is Securities is directly liabilities Mortgage-Backed liabilities any these Act associated plus to Housing and value related National program fair expense the securitization at the program, our measured with Bond on initially associated Mortgage information are liabilities Canada Additional liabilities and the program. vehicles of own securitization part our bank as and consolidated loans program our mortgage by Canadian issued our notes of include securitization liabilities entities’ structured and Securitization Liabilities Entities’ Structured and Securitization CONSOLIDATED TO NOTES nuac-eae iblte,edo year of end liabilities, Insurance-related hnei te nuac-eae liabilities insurance-related other in Change e nraei ieisrneplc eei liabilities benefit policy insurance life in increase Net te mlyeftr eeisliability benefits future employee Other ee premiums Ceded income premium Direct millions) in $ (Canadian year of beginning liabilities, Insurance-related millions) in $ (Canadian presentation. year’s current the with conform to reclassified been have figures comparative Certain items other and expenses accrued payable, Accounts millions) in $ (Canadian Total cre neetpayable interest Accrued iblte fsbiire,ohrta deposits than other subsidiaries, of Liabilities nuac-eae liabilities Insurance-related eso liability Pension M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO nrae(erae nlf nuac oiybnftlaiiisfrom: liabilities benefit policy insurance life in (decrease) Increase enuac rmuscddaercre e gis ietpeimicm n r nlddi o-neetrvne nuac eeu,in revenue, insurance revenue, non-interest in included are and income premium direct against net recorded are ceded premiums Reinsurance life for Liabilities liabilities. benefit policy insurance future of estimates and claims current represent liabilities benefit policy and claims Insurance hne natailasmtosadmethodology and assumptions actuarial in Changes policies In-force oeg currency Foreign e business New Nt 22) (Note IACA STATEMENTS FINANCIAL Nt 22) (Note 1,593 1,750 (157) 2017 10,071 28,665 8,959 7,909 1,303 1,037 6,931 8,959 ,9 1,561 1,290 ,6 2,027 1,561 21 (466) (271) 2017 2017 492 558 545 364 062015 2016 (52) 66 (1) 10,030 28,024 7,909 7,060 1,343 1,037 7,250 7,909 2016 2016 161 688 300 348 455 41 (1) Notes – 171 900 100 150 Total 2016 1,000 1,000 1,250 4,400 – 900 850 150 Total 2017 1,000 1,000 1,250 5,150 (3) (4) (1) (2) (5) (6) rest to, but excluding, the redemption date. Redeemable at our option beginning in BMO Financial Group 200th Annual Report 2017 2.57 June 2022 3.12 September 2019 3.34 December 2020 3.32 June 2021 10.00 February 2012 Interest rate (%) 850 June 2027 100 February 2017 1,000 September 2024 1,000 December 2025 1,250 June 2026 Face value Maturity date (7) (7) (7) (7) (8) commencing March 28, 2018. commencing December 8, 2020. commencing June 1, 2021. commencing June 1, 2022. convertible into a variable numberthat of the our bank common has shares accepted if or OSFI agreed announces to that accept the a bank$121 capital is, million injection, or (increased or is by equivalent about $39 support, to million to become, in avoid non-viable 2016); non-viability. or see if Note a 8 federal for or further provincial details. government Subordinated in debt Canada that publicly we announces repurchase is excluded from the carrying value. Second Tranche First Tranche Second Tranche First Tranche First Tranche 900 March 2023 6.17 March 2018 Series H Medium-Term Notes Series I Medium-Term Notes Series I Medium-Term Notes Please refer to the offering circular related to each of the above issues for further details on Canada Yield Price calculations and the definition of CDOR. (3) Redeemable at(4) par together with Redeemable accrued at and the unpaid greater interest of to, par but and excluding,(5) the their Canada redemption Yield date Redeemable Price commencing at prior September the to 19, greater December 2019. of 8, par 2020, and and(6) the redeemable Canada at Yield par Redeemable Price together at prior with the to accrued greater June and of 1, unpaid par 2021, interest and and(7) to, the redeemable but Canada at excluding, Yield par These their Price together notes redemption prior with include date to accrued a June and non-viability 1, unpaid contingent 2022, interest capital and to, provision, redeemable but which at excluding, is par their necessary together redemption for with(8) date notes accrued issued and after unpaid Certain a interest amounts certain to, of date but subordinated to excluding, debt qualify their were as redemption issued regulatory date at capitalAll a under $700 premium Basel million or III. Series discount As D and such,All Medium-Term include the $1,500 Notes, fair notes million First value are Series Tranche hedge G were adjustments, Medium-Term redeemed which Notes, on together First April decreased Tranche 21, their were 2016 carrying redeemed for value on 100% as July of at 8, the October 2016 principal 31, for amount 2017 100% plus by of accrued the and principal unpaid amount interest plus to, accrued but and excluding, unpaid the inte redemption date. (1) All $100 million(2) Subordinated Debentures, Redeemable Series at 16 the matured greater on of February par 20, and 2017. the Canada Yield Price prior to March 28, 2018, and redeemable at par together with accrued and unpaid interest to, but excluding, their redemption date (Canadian $ in millions, except as noted) Debentures Series 16 Series H Medium-Term Notes Total Debentures Series 20Series F Medium-Term Notes 150 December 2025 to 2040 8.25 Not redeemable Note 15: Subordinated Debt Subordinated debt represents our directregulatory unsecured capital. obligations, Subordinated in debt the is formvalue recorded of hedges at notes to amortized and hedge cost debentures, the using tosubordinate risks the our to caused effective debt the by interest holders claims changes rate and of in method. formsdebt. depositors interest Where part and rates appropriate, of certain (see we our other Note enter creditors. 8). into We The fair require rights approval ofThe from the term OSFI holders to before of maturity we our and can notes repayments redeem and of any debentures our part are subordinated of debt our required subordinated over the next two years and thereafter are as follows: Notes 172 Privileges and Rights Share Preferred Capital Share Equity 16: Note CONSOLIDATED TO NOTES sudcneldudrteSokOto lnadohrsokbsdcompensation stock-based other and Plan Option Stock the under Issued/cancelled Dividend Shareholder the under Issued year of beginning at Balance Shares Common 8 fcnetd h odr aeteoto ocnetbc oteoiia rfre hrso usqetrdmto dates. redemption premium. subsequent reset on a shares plus preferred yield original shares. bill the preferred treasury to rate Canada back shares. floating of convert preferred are Government to 43 rate 3-month option and fixed the the 41 are 2024. at have 39, 25 25, declared holders 37, and August when the 34, 16 to and converted, 32, Series prior a as If 30, converted, redeemed to set 28, If (8) if converted be 26, redeemed. premium If will 17, not redemption noted. rate Series if a premium Floating converted, thereafter to reset If (7) years subject the redeemed. five is plus not every 35 yield if and bond Series thereafter noted Canada (6) years date of five the Government every on 5-year and Convertible the thereafter. noted to years (5) date equal five the rate every on a and Convertible at noted thereafter (4) date years the five on every Redeemable and Directors. redeemable (3) of date Board the the on by reset declared will when rate and dividend as The quarterly (2) payable are dividends Non-cumulative (1) ls eis3 ,0.0$14.6250 $ 1,000.00 42 Series – B Class 40 Series – B Class 38 Series – B Class 36 Series – B Class 35 Series – B Class 33 Series – B Class 31 Series – B Class 29 Series – B Class 27 Series – B Class 26 Series – B Class 25 Series – B Class 17 Series – B Class 16 Series – B Class million. $400 of proceeds gross million. for $500 share of per proceeds cash gross $25.00 million. for of noted) $600 share price as of per a except proceeds cash at $, gross $25.00 42, (Canadian for of Series share price Shares, per a Preferred cash at B $25.00 40, Class Dividends of Series Reset dividends. price Shares, Rate unpaid a Preferred 5-Year and at B Non-Cumulative declared 38, Class million all Series Reset 16 plus Shares, Rate issued share Preferred 5-Year we per B Non-Cumulative 2017, cash Class million 29, Dividends $25.00 Reset 20 June dividends. of Rate issued On unpaid price 5-Year we and a (5) Non-Cumulative 2017, declared at million 9, all 15, 24 March plus Series issued On share Shares, we per Preferred (4) 2016, cash B 21, $25.00 Class October of Perpetual On price Non-Cumulative a (3) million at 10 14, all Series redeemed Shares, we Preferred 2017, B 25, Class May Perpetual On Non-Cumulative (2) million 10 all redeemed we 2017, 25, May On (1) 27 Series – B Class 26 Series – B Class 25 Series – B Class 17 Series – B Class 16 Series – B Class 15 Series – B Class 14 Series – B Equity Class as Classified – Shares Preferred noted) as except millions, in $ (Canadian hr Capital Share Year of End at Balance cancellation for Repurchased ls eis42 Series – B Class 40 Series – B Class ls eis29 Series – B Class ls eis38 Series – B Class 31 Series – B Class ls eis36 Series – B Class 35 Series – B Class ls eis33 Series – B Class M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO plans Plan Purchase Share and Reinvestment laigrt eis h aewl esta n hndcae tte3mnhGvrmn fCnd rauybl il lsterstpeimnoted. premium reset the plus yield bill treasury Canada of Government 3-month the at declared when and as set be will rate the series, rate floating elrdfrteya ne coe 1 07wr 07 e hr n 0mlinsae eeottniga h ieo h iieddeclaration. dividend the of time the at outstanding were shares declaration. million dividend 10 the and of share time per the $0.73 at were outstanding 2017 were 31, shares October million ended 10 year and the share for per declared $0.66 were 2017 31, October ended year the for declared Nt 21) (Note (5) (4) (3) (2) (1) IACA STATEMENTS FINANCIAL eepinaon urel o-uuaiedvdn 1 ee rmu aerdeal ovril ovril to Convertible convertible / redeemable Date premium Reset (1) dividend non-cumulative Quarterly amount Redemption 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 0.2750 $ 0.28125 reset not $ Does $0.303125 0.3125 $ 0.2375 $ 0.2375 $ 0.24375 $ 0.2500 $ $0.112813 $0.211875 Floating Floating (2) (2) (2) (2) (2) (2) (2) (2) (7) (2) (7) (2) 4,6,3 12,539 645,761,333 4,1,1 3023.56 13,032 647,816,318 60000400.45 0.80 1.33 400 500 600 16,000,000 20,000,000 24,000,000 00000501.00 500 20,000,000 60000400.98 400 16,000,000 20000300.95 300 12,000,000 50000 (101) (5,000,000) ,2,8 448 4,821,184 ,7,9 40.43 0.45 54 0.55 0.85 236 143 2,174,393 157 9,425,607 5,732,609 6,267,391 ,3,0 146 2,233,801 ,0,0 5 1.25 150 6,000,000 ,0,0 0 0.95 200 8,000,000 .6 eray2,2022 25, February 2020 25, November 3.17% 3.33% 4.06% 2019 25, November 4.97% 2.71% 2.22% 2.24% 2.33% 1.15% 1.15% 1.65% 1.65% 0,0 0 58.50 600 600,000 fsae Amount shares of Number 0.73 0.66 – – – – 17,272 4,240 uut2,2020 25, August uut2,2020 25, August 2019 25, August 2021 25, August 2021 25, August 2018 25, August 2018 25, August uut2,2022 25, August a 5 2022 25, May 2019 25, May Dividends e share per declared 2017 4,8,4 12,313 642,583,341 4,6,3 2593.40 12,539 645,761,333 00000201.45 1.31 250 250 10,000,000 10,000,000 4000060– 600 24,000,000 00000501.00 500 20,000,000 60000400.98 400 16,000,000 20000300.95 300 12,000,000 (3)(4) (3)(4) (3)(4) (3)(4) (6) (3)(4) (3)(4) (3)(4) (3)(4) (3)(5) (3)(4) (3)(5) (3)(4) ,7,0 90 1,074,601 ,7,9 40.10 0.84 54 0.53 0.85 236 143 2,174,393 157 9,425,607 5,732,609 6,267,391 ,0,9 136 2,103,391 ,0,0 5 1.25 150 6,000,000 ,0,0 0 0.95 200 8,000,000 0,0 0 65.03 600 600,000 fsae Amount shares of Number –– –– –– – –– ls eis43 Series – B Class 41 Series – B Class 39 Series – B Class 37 Series – B Class 34 Series – B Class 32 Series – B Class 30 Series – B Class 28 Series – B Class 25 Series – B Class 26 Series – B Class 16 Series – B Class ls eis17 Series – B Class 16,379 3,840 o convertible Not Dividends e share per declared 2016 (8) (8) (8) (8) (8) (8) (8) (8) (8) (8) (8) (8) Notes 173 In addition, common share BMO Financial Group 200th Annual Report 2017 Bank Act (Canada). We are prohibited from declaring dividends on our preferred or common shares when we would be, as a result of paying such a dividend, in For the dividends paid in the first two quarters of 2017, common shares to supplyFor the the DRIP dividends were paid issued in from the treasury first with two a quarters two of percent During 2016, the common year shares ended to October supply 31, the 2017, DRIP we were issued purchased a on total the of open 4,821,184 market. common For shares the from treasury (1,074,601 in 2016) and purchased In addition, we have agreed that if BMO Capital Trust II (the “Trust”), an unconsolidated structured entity, fails to payCurrently, any these required limitations distribution do on not restrict the payment of dividends on common or preferred shares. During the year ended October 31, 2017, we repurchased 5Our million previous of NCIB, our which common allowed shares us at to an repurchase average for cost cancellation of up $87.88 to per 15 share, million all of under our the common shares, expired on January 31, 2017. We did Shareholder Dividend Reinvestment and ShareWe offer Purchase a Plan Dividend ReinvestmentDRIP, and cash Share dividends Purchase on Plan common (“DRIP”)optional shares for cash are our payments reinvested shareholders. to to Participation acquire purchase in additional additional the common common plan shares. shares. is Shareholders optional. also Underdiscount. have the For the terms the opportunity of dividends to the paid make dividends in paid the in third the quarter fourth of quarter, 2017, common common shares shares to to supply supplydividends the the paid DRIP DRIP in were were the purchased issued last on from two the treasury quarters open without of market. a 2016, discount. common For504,873 shares the common to shares supply in the the DRIP open were market issued (1,279,488 from in treasury 2016) without for a delivery discount. to shareholders under the DRIP. its capital trust securities, weTrust’s will failure not to declare pay dividends the ofits required any capital distribution kind trust (as on securities. defined any in of the our applicable preferred prospectuses) or unless common the shares Trust for first a pays period such of distribution time to following the the holders of Share Redemption and Dividend Restrictions OSFI must approve any plan to redeem any of ourcontravention preferred of share the issues capital for adequacy, cash. dividends liquidity cannot or be any paid other unless regulatorydo all directive so. dividends issued declared under and the payable on our preferred shares have been paid or sufficient funds have been set aside to Normal Course Issuer Bid We renewed our normal coursecommon issuer shares bid for (“NCIB”), cancellation. effective In Mayshares June 1, under 2017, 2017 the the for NCIB Toronto one by Stock year.NCIB way Exchange Under are of approved this subject private amendments NCIB, to agreement to we management or the maymaking discretion under NCIB repurchase purchases based a that up under on specific allow to the factors share us 15 NCIB. such repurchase to million as program. repurchase of market The common our conditions timing and and capital amountcurrent levels. of NCIB. The purchases bank under will the consult with OSFI before not make any purchases under the previous NCIB. Non-Viability Contingent Capital Class B – Series 27,Series Class 40 B and – Class Series B 29,qualify – Class as Series B regulatory 42 – capital preferred Series under share 31,the Basel issues Class bank III. include B is, As a – or such, non-viability Series is the contingent 33,agreed about shares capital Class to to are provision, B accept become, convertible which – a non-viable into is Series capital or a necessary 35, injection, if variable for Class or a number the B equivalent federal of shares – support, or our to Series to provincial common 36, avoid government shares Class non-viability. in if B Canada OSFI – publicly announces Series announces that 38, that Class the B bank – has accepted or When we purchase our commonthose shares shares as are part resold of at ourprice a trading below price business, their higher we cost, than record the their thetotal discount cost, cost contributed is the of surplus recorded premium those related as is shares to a recorded as treasury reduction as a shares. first an reduction to increase in contributed in shareholders’ surplus contributed equity. and surplus. If then If to those retained shares earnings are for resold any at amount a in excess of We are authorized by ourseries, shareholders for to unlimited issue consideration. an Class unlimited B number Preferred of Shares ClassTreasury may A Shares be Preferred issued Shares in and a Class foreign B currency. Preferred Shares without par value, in Preferred Shares Common Shares We are authorized by ourcommon shareholders shares to are issue not an redeemable unlimitedDirectors or number has convertible. of declared Dividends our dividends are common on declared shares a by without quarterly our par basis Board value, and of for the Directors unlimited amount at consideration. can their Our vary discretion. from Historically, quarter the to Board quarter. of Authorized Share Capital We classify financial instruments thatsettled we by issue a as variable financial number liabilities,Dividends of equity and our instruments interest common or payments shares compound on upon instruments.instruments financial conversion Financial are liabilities by instruments classified are the that as classified holders will equity as are be instruments instruments interest classified that when expense as are there in liabilities not is our on mandatorily no Consolidated ourclassified redeemable contractual Statement Consolidated as or obligation of Balance equity that to Income. Sheet. and are transfer Financial presented not cash in convertible or share into other capital. a financial Dividend variable assets. payments number Further, on of issued equity our instruments common are shares recognized at as the a holder’s reduction option, in are equity. Notes eeu n te hr-at vdne saalbe h arvleo iie atesi netet sbsduo e se auspbihdby published values asset net upon based earnings, is flows, investments cash partnership 174 projected limited including is of factors, value value various fair fair consider Otherwise, The managers. available. models available. fund where These as third-party transactions, approach. evidence, market income third-party recent or other in market and observed a revenue prices using using models valued valuation are from securities derived equity and debt readily discounted issued not include Privately are which markets techniques, active valuation Securities in using Issued prices or Privately quoted securities Where similar earnings. available. for of where prices multiples markets, market and active quoted analysis in either flow prices using cash quoted determined on is based value is fair securities available, equity of value independent fair from The obtained are spreads quotations and Securities price curves Equity observable discounting Corporate When using transactions. models recent flow sources. most cash pricing the discounted multi-contributor in on and observed based brokers prices determined dealers, using is determined value is fair securities available, debt not corporate of value recoveries. fair mortgage- flow and The for cash spreads using assumptions credit determined Valuation prepayments, Securities instruments. is expected Debt value similar rates, Corporate fair for discount available, prices include not benchmark obligations are or mortgage prices inputs collateralized third- such market and from If observable securities obtained applicable. of backed prices as use independent indices, maximum using market make determined relevant that is and models obligations quotes mortgage broker duration. collateralized prices, from and and vendor derived maturity securities party yields coupon, mortgage-backed implied include of using model value modelled the fair is to Obligations The market inputs Mortgage broker active Market Collateralized prices, an spreads. and transaction in observable Securities recent traded and Mortgage-Backed to not securities reference are government by that traded determined securities actively is of similar markets value of active fair prices in The the securities prices. debt vendor guaranteed third-party or or issued quotes government information. of is market value which available fair on reasonably The depending all prices, using ask valued or are Securities bid exists Government on market based active below. is no described value which are market for methodologies Quoted Securities value value. value. fair fair fair Our be measure to to considered appropriate is most value the ensure market to quoted processes securities, other traded in with For changes concert explain in and works identify process appropriate. to This Securities and management Markets. reasonable usin by Capital are values used BMO reported fair process within being the assesses daily business values verifies process a of fair independently This is lines the and instruments. PAA operating that regularly financial valuations. all that of the across of process valuation validate positions impact a the and value The is in verify fair used. IPV used to are basis. inputs approaches models ongoing model different validated an or of only on prices variety ensure monitored market to also of approval is appropriateness independent inputs and to data accuracy subject and is models portfolios of or limitations products known (“PAA”), for analysis groups. models attribution operating valuation loss relevant of or the application profit of governance and independently established (“IPV”) applied financial have verification are all we price controls that purposes, independent These ensure reporting approval, practice. to financial and industry order and validation with In management model consistent committees. risk as risk for such and measured controls, valuation reasonably and various are structures through value provided fair is at processes carried valuation instruments an our in of Value realized oversight be Fair executive not Senior of best may Determination management’s values the using fair Over value the liability. fair Governance uncertainties, or determine involve asset we these the and price, since of exchanged market assumptions; settlement or quoted and immediate exchangeable no techniques or typically is valuation sale not there of actual are Where range subsequent instruments value. a in financial fair on change Some their based may factors. determine estimates that other to estimates or difficult point-in-time conditions is represent market it underlying disclosed in therefore or amounts changes entities value to legal fair due the The periods of date. reporting any measurement of the upon value at based fair participants are the market note of this estimate in an presented M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO eetbihadrglryudt auto ehdlge o ahfnnilisrmn hti eurdt emaue tfi au.The value. fair at measured be to required is that instrument financial each for methodologies valuation update regularly and establish We willing between transaction orderly an in liability a transfer to paid or asset an sell to received be would that amount the represents value Fair IACA STATEMENTS FINANCIAL ga Notes 175 BMO Financial Group 200th Annual Report 2017 Prices from brokers and multi-contributor pricing sources are corroborated as part of our independent review process, which may include using In determining the fair value of complex and customized derivatives, we consider all reasonably available information, including dealer and We calculate a credit valuation adjustment (“CVA”) to recognize the risk that any given derivative counterparty may not ultimately be able to The value of our loan balances determined using this approach is further adjusted by a credit mark that represents an estimate of the expected For fixed rate deposits withamount no payable defined on maturities, the we reporting considerFor date. fair floating value rate to deposits, equal changes carryingvalue in value, is interest based assumed rates on to have carrying equal minimal value carrying impact being value. on equivalent fair to value the since deposits reprice to market frequently. On that basis, fair For fixed rate, fixed maturitymarket deposits, interest we rates discount currently the offered remaining for contractual deposits cash with flows similar for terms these and deposits, risks. adjusted for expected redemptions, at valuation techniques or obtaining consensusobtaining or multiple composite quotes prices for from external othervendor market pricing employs prices services. a and We valuation input validate model values. theweighted-average which We estimates terms maximizes review of to the the fair maturity use approach value and of taken bypossible, prepayment observable by independently by rate inputs third-party reference assumptions. such vendors to Fair as to prices value benchmark ensure obtained estimates yields, that from from bid-ask the third-party internal spreads, vendors. valuation underlying techniques collateral, are verified, where Financial Instruments with a CarryingShort-term Financial Value Instruments Approximating Fair Value The carrying value of certainresale financial agreements, assets customers’ and liability liabilities, under suchcertain acceptances, as other certain interest liabilities, other bearing is assets, deposits a acceptances, withrates. securities reasonable banks, lent estimate securities or of borrowed sold fair or under value purchased repurchase due under agreements to and their short-term nature or because they are frequently repriced to current market Subordinated Debt The fair value of our subordinated debt is determined by referring to current market prices for the same or similar instruments. The determination of the fairsimilar value financial of instruments, securitization where and available. structureddiscounted Where entities’ cash quoted liabilities flows, prices is that are based maximize not on the available, quoted use fair market of value prices observable is or inputs. determined quoted using market valuation prices techniques, for such as The fair value of theseare obligations fully is collateralized, based the on method the used fair to value determine of fair the value underlyingSecuritization would securities, and be which Structured the can Entities’ same be as equity Liabilities that or used debt for securities. the As relevant these underlying obligations equity or debt securities. Securities Sold But Not Yet Purchased ‰ ‰ Deposits In determining the fair value‰ of our deposits, we incorporate the following assumptions: broker quotations, multi-contributor pricing sourcesspecific and to any the relevant type observable of marketvolatilities. contract, inputs. which Our may model include calculates stock fair prices, value correlation based for on multiple inputs assets,fulfill interest its rates, obligations. foreign The exchange CVA rates,credit is yield risk derived curves exposure, from and taking market-observed into creditcalculate account spreads a credit or funding mitigants proxy valuation such credit adjustment as spreadsFVA (“FVA”) collateral, and is to master our determined recognize netting assessment by the agreements of reference implicit and the to funding novation net market costs to counterparty funding associated central spreads. with counterparties. over-the-counter We derivative also positions. The A number of valuation techniquessimulation are and employed other to accepted estimate market fairexchange models. value, rates, These including equity independently discounted and validated cash commodity models flowcorrelation prices incorporate analysis, levels and current the and indices, market Black-Scholes other credit data model, market-based spreads, for Montefrom pricing recovery interest Carlo market factors. rates, rates, sources Option corresponding currency or implied market calculated volatilities, volatility from an levels, market input spot prices. into prices, Multi-contributor many pricing valuation sources models, are are used either wherever obtained possible. directly Derivative Instruments Loans In determining the fair valueprepayment, of at our market fixed interest rate rates performingrates currently loans, have offered we minimal for discount impact loans the on with remainingcarrying the similar contractual value. fair terms cash value and flows, since risks. adjusted interest For for rates floating estimated are rate repriced performing or loans, reset changescredit frequently. in losses On interest in that our basis, loan fair portfolio. value is assumed to be equal to A portion of our structuredcommodities note or liabilities equity that securities have have couponsinternally been or validated designated repayment valuation at terms models fair linked and value tointerest incorporates through the rate observable profit performance yield market or of curves, prices loss. interest option for The rates,management volatilities identical fair foreign judgment and or value currencies, is foreign comparable of required exchange securities, these to rates, as structuredinformation determine where well notes from the appropriate. as is similar fair Where other estimated transactions. value observable inputs using by prices such assessing or as other inputs relevant are sources not of available, information, such as historical data and proxy Notes 176 were value fair at carried currently not liabilities and assets financial all if reported be Sheet would Balance value. that values. the fair amounts fair measure on the their to are Value at techniques tables reported Fair valuation following at in the Carried use in we Not out inputs Set Instruments the Financial to of according Value instruments financial Fair categorize to hierarchy value fair a use We items. Hierarchy these Value for date. determined Fair sheet been balance has the value at fair as no issued therefore securities. be and other could instruments certain maturities and remaining equivalents similar cash with and liabilities cash which our at for rates value discount fair using of estimate reasonable a be to assumed is value Carrying Instruments Financial Other CONSOLIDATED TO NOTES uodntddebt Subordinated liabilities Other liabilities entities’ structured and Securitization uodntddebt Subordinated te liabilities Other euiiainadsrcue niis liabilities entities’ structured and Securitization edt auiy89590384829– 8,209 864 9,073 8,965 Other maturity to Held Securities millions) in $ (Canadian Other maturity to Held Securities millions) in $ (Canadian rdtcards Credit personal other and instalment Consumer mortgages Residential Loans Deposits governments and Businesses cards Credit personal other and instalment Consumer mortgages Residential Loans Deposits governments and Businesses 3 te iblte nldscranohrlaiiiso usdais te hndpst.Ecue 2,2 ilo fohrlaiiisfrwihcryn au prxmtsfi au raedsgae at designated are or value fair presentation. approximates year’s value current carrying the which with for conform liabilities value. to other sheet. fair reclassified of balance at been million the for have $27,321 on accounted figures Excludes value and comparative deposits. fair loss Certain than at or other carried profit subsidiaries, are through under of that value purchased liabilities business fair liabilities. or other banking at borrowed other certain merchant designated securities certain includes our liabilities and banks, liabilities to note agreements with Other related structured deposits repurchase securities (3) of bearing under of million sold interest million $11,604 or equivalents, $320 Excludes lent cash is and securities (2) securities cash acceptances, other as assets, from such other Excluded value, certain fair acceptances, (1) approximating under value liability carrying customers’ a agreements, with resale instruments financial excludes table This w for liabilities value. other sheet. fair of balance at million the for $28,665 on accounted Excludes value and deposits. fair loss than at or other carried profit subsidiaries, are through under of that value purchased liabilities business fair liabilities. or other banking at borrowed other certain merchant designated securities certain includes our liabilities and banks, liabilities to note agreements with Other related structured deposits repurchase securities (3) of bearing under of million sold interest million $13,674 or equivalents, $333 Excludes lent cash is and securities (2) securities cash acceptances, other as assets, from such other Excluded value, certain fair acceptances, (1) approximating under value liability carrying customers’ a agreements, with resale instruments financial excludes table This M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO eti ses nldn rmssadeupet odiladitnil ses swl ssaeodr’eut,aentcniee financial considered not are equity, shareholders’ as well as flows assets, cash intangible contractual and of goodwill value equipment, present and the premises as including determined assets, is Certain value fair liabilities, other within recorded instruments financial longer-term For arvletruhpoi rloss. or profit through value fair loss. or profit through value fair (1) (1) (2) (2) (3) (3) IACA STATEMENTS FINANCIAL 6,1 470,137 469,814 6,0 359,099 175,927 363,505 178,232 114,313 115,258 1,7 112,400 112,277 6,6 462,732 461,768 6,5 357,906 173,601 360,655 175,597 30423,148 23,054 19461,031 61,944 Carrying 23722,506 22,377 46064,043 64,680 Carrying ,2 ,5 ,5 – 5,255 – 5,255 5,029 ,9 ,9 ,2 ,7 – 6,574 2,522 9,096 9,094 ,7 7,828 8,071 ,2 2032,522 12,003 9,721 ,4 11,851 9,544 ,3 4,580 4,439 ,0 7,862 8,101 value value 2 2,907 627 0 1,104 703 2,778 579 ––––– value value Fair Fair utdmarket quoted utdmarket quoted ihcryn au prxmtsfi au raedsgae at designated are or value fair approximates value carrying hich audusing Valued audusing Valued prices prices 864 23,148 – 470,137 – – – – – – – – – 462,732 – – – – – – – – bevbeinputs) observable bevbeinputs) observable oes(with models audusing Valued oes(with models audusing Valued 22,506 6,574 8,209 1,104 4,580 359,099 175,927 61,031 – 114,313 – – – – – 112,400 – – – 357,906 173,601 – – – bevbeinputs) observable bevbeinputs) observable oes(without models oes(without models audusing Valued audusing Valued 64,043 7,828 2,907 2,907 2,778 2,778 7,862 2017 2016 – – – – – – Notes 3 2 177 2016 –– 18,479 – 1,171 2,391 –– 18,976 – 1,219 901 – 39,183 – 16,154 – 38,227 Valued using models (without observable inputs) Total 3 –2 2 –3 909 814 713 16,138 Valued using models (with observable inputs) BMO Financial Group 200th Annual Report 2017 –2 –3 –– 4,449 13,122– 1 4,450 – –– 13,122 – 11,613 682 320 320 – 11,613 – 682 –– 1,124– 1,062 – 139 1,124 – 1,062 – 139 5 18,059 – 18,064 16 17 18,462 69 2,322 31 18,945 33 126 1,456 1,615 262 629 38,554 405 188 364 37,863 316565 286 8,857 – 602 91 9,513 prices 3,0834,974 2,144 2,314 – 5,227 4 7,292 9,557 – – 9,557 3,4046,012 4,018 136 – 7,422 – 6,148 3,995 2,237 – 6,232 6,286 1,882 – 8,168 27,928 26,27423,552 1,461 1,55423,552 55,663 13,849 – 25,106 – 37,401 10,998 1,954 – 12,952 44,45965,754 1,037 18,613 – 91 45,496 84,458 Valued using quoted market 5 2017 – 8,316 – 14,973 –– 1,074 3,386 – 17,213 – 28,951 –– 1,078 1,426 – 27,804 Valued using models (without observable inputs) Total 5 –5 835 846 8,309 3,220 1,333 Valued using models (with observable inputs) –5 –7–7 – 13,216–– –– – 13,216 13,674 749 333 333 – 13,674 – 749 – 931 – 931 7 6 14,967 4 9,223 – 9,227 3 150 – 153 17 17,196 93 37 126 1,441 1,604 18 4,077 1 4,096 239 166 232 346 28,605 418 27,386 189 1,942 – 2,131 630 193 –920 823 2,707 – 3,627 prices 8,712 2,115 – 10,827 2,2901,551 1,268 2,972 – 3,558 2 4,525 3,1779,417 4,150 56 – 7,327 – 9,473 1,485 10,2788,283 – 11,763 897 – 9,180 22,992 2,171 – 25,163 27,368 25,263 1,444 54,075 22,992 16,594 – 39,586 14,269 – – 14,269 55,640 1 – 55,641 79,253 19,816 – 99,069 Valued using quoted market agencies governments agencies governments Our Level 2 trading securities are primarily valued using discounted cash flow models with observable spreads or broker quotes. TheThe fair extent value of of our use of actively quoted market prices (Level 1), internal models using observable market information as inputs (Level 2) and Canadian federal government Other governments collateralized mortgage obligations note liabilities U.S. states, municipalities and Canadian provincial and municipal U.S. federal government U.S. states, municipalities and U.S. federal government Other governments Canadian federal government Canadian provincial and municipal collateralized mortgage obligations Commodity contracts Equity contracts Credit default swaps Foreign exchange contracts Commodity contracts Equity contracts Credit default swaps Derivative Liabilities Interest rate contracts Certain comparative figures have been reclassified to conform with the current year’s presentation. Trading Securities Issued or guaranteed by: (Canadian $ in millions) Foreign exchange contracts Mortgage-backed securities and Corporate debt Corporate equity Other Securities Fair Value Liabilities Securities sold but not yetStructured purchased note liabilities and other Annuity liabilities Derivative Assets Interest rate contracts Corporate debt Corporate equity Available-for-Sale Securities Issued or guaranteed by: Mortgage-backed securities and Loans Valuation Techniques and Significant Inputs We determine the fair valueare of available. publicly When traded quoted fixed prices maturitydiscounted in debt cash active and flows, markets equity with are securities observable not usingquotes market available, quoted (Level data we prices 2). for determine in Fair inputs, the active value such fair marketsminimal may as value (Level market also yield of 1) activity be and financial when (Level determined prepayment instruments these 3). using rates using We models or models maximize where broker such the significant quotes as use market and of inputs otherLevel observable are third-party 2 market not vendor available-for-sale inputs observable securities to due is the tostructured determined extent inactive note using possible. markets liabilities discounted or are cash valued flowindustry-standard using models models models with and with observable observable observable spreads market market or information. information. third-party Level vendor 2 quotes. derivative Level assets 2 internal and models liabilities without are observable valued market using derivative information liabilities as was inputs as (Level follows: 3) in the valuation of securities, fair value liabilities, derivative assets and Notes 178 securities. these of quoted value million of to $156 availability used 2017, increased prices 31, to observable October due of ended 1 availability year Level the to During 2 securities. Level these from value transferred to were markets. used securities active inputs available-for-sale in the of prices of million observability $56 significant reduced and the 2017. to securities of 31, due trading discussion October 2 a ended Level is availability year to period, the following the 1 reporting in The for Level each changes conditions. balances of reflect market 3 end levels in Level the hierarchy changes and at value from 2 as fair result Level values various that 1, fair the inputs Level their between market between at Transfers observable transfers levels value. or hierarchy fair prices value of market fair determination quoted between the of liabilities of and date assets the securities. of with and transfers consistent assets record these to in is trading policy EV/EBITDA company- active Our The and of hold. transactions lack we recent the securities companies, for Transfers or listed account Significant assets comparable that multiple the for discounts EV/EBITDA of multiples liquidity the value as as using the such well (“EV”) determine factors as value to considering factors, enterprise structure in specific an capital judgment calculating company’s using by the determined derived of is is waterfall multiple investments a banking through merchant proceeding and then equity and of private valuation of The value manager. investment. fair fund our The or from investment derive the we from benefit Multiple received economic EV/EBITDA valuations the on on based based security is a securities of equity value private estimated certain the represents value asset Net Valuations Instrument Value 3 Asset Net Level in Inputs Unobservable Significant provided are values asset net the alternative as possible securities, reasonably banking values other merchant fair any and their applied investments managers. determine not equity fund to have private or used We of investment techniques valuations. categories the valuation the 3 by the in Level instruments, used significant financial inputs the 3 unobservable to Level significant assumption significant of our ranges of value values the fair and the Measurements presents Value below Fair table The 3 Level about Information Quantitative CONSOLIDATED TO NOTES 2 nlddi rvt qiyi 77mlino eea eev akadUS eea oeLa aksae htw odt etrgltr eurmns hs hrsaecrida ot hc is which cost, at carried are shares These requirements. regulatory meet to hold we reflect that not shares do Bank ranges Loan input Home These Federal category. U.S. product applicable and particular not Bank a – Reserve in na Federal instruments of financial million of $777 group is a equity value private to in used Included inputs of (2) level lowest and highest actual the represent values input high and low The (1) equity Private Securities noted) as except millions, in $ (Canadian 2017 31, October at As ecatbnigscrte Other securities banking Merchant M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO uigteya ne coe 1 07 3 ilo faalbefrsl euiiswr rnfre rmLvl3t ee u othe to due 1 Level to 3 Level from transferred were securities available-for-sale of million $33 2017, 31, October ended year the from During transferred were securities available-for-sale of million $107 and securities trading of million $176 2017, 31, October ended year the During h ee fiptucrany u r fetdb h pcfcudryn ntuet ihntepoutctgr.Teiptrne ilteeoevr rmpro opro ae nthe on market. based the period in to traded period not from are vary shares therefore these will since ranges value input fair The approximate category. to product date. deemed the sheet within balance instruments each underlying at specific held the instruments by underlying affected the are of but characteristics uncertainty, input of level the (2) IACA STATEMENTS FINANCIAL au irrh table hierarchy value oprt equity Corporate eotn iei fair in line Reporting arvalue Fair fassets of 1,441 333 e se Value Asset Net e se Value Asset Net EV/EBITDA EV/EBITDA ehiusLwHigh Low techniques Valuation nbevbeinputs unobservable e se Value Asset Net e se Value Asset Net Significant Multiple Multiple ag fiptvle (1) values input of Range 4.8x na na 6x 10.9x 17x na na Notes 179 (1) (losses) (losses) Change in Change in still held (1) still held for instruments unrealized gains for instruments unrealized gains recorded in income recorded in income 2016 2017 Fair value as Fair value as at October 31, at October 31, out of out of Level 3 Level 3 Transfers Transfers BMO Financial Group 200th Annual Report 2017 into into Level 3 Level 3 Transfers Transfers Settlement Maturities/ Settlement Maturities/ Purchases Sales (2) hensive in other compre- Included hensive in other income compre- Included –– ––––– – – –– –––––– 1 – na – (1) (1) – – 2 na 11 1 1 – – – – (93) (93) – – – – – – – – income (2) Purchases Sales (9) (7) 134 (102) (3) – – 333 (8) (40)(40) (15) (15) 190 (117) 190 (118) – (1) – – (33) (33) 1,441 1,444 na na Change in fair value earnings Change in fair value Included in earnings Included in 320 2016 Balance 365 (40) 7 42 (54) – – – 320 (38) 2015 Balance October 31, October 31, agenciesagencies 98 – – 1 – – – – – – – – (98) – – – – – 1 na and agenciesand agencies – 1 U.S. states, municipalities and U.S. states, municipalities and U.S. states, municipalities U.S. states, municipalities (1) Changes in unrealized gains(2) (losses) Foreign on exchange trading translation securities on andna trading other – securities securities not held still applicable by held foreign on subsidiaries October is 31, included 2016 in are other included comprehensive in income, earnings net for foreign the operations. year. Trading Securities Issued or guaranteed by: Corporate debtTotal trading securitiesAvailable-for-Sale Securities Issued or guaranteed by: Corporate debtCorporate equity 341Total available-for-sale securities 243Other Securities 1,258 2 2 4 (27) 1,251 4 6 44 – (27) – 292 – – (101) 44 – 283 – (158) (2) (158) (92) – 9 – – (9) (98) – (3) – – (2) 91 1,461 91 (3) – 1,456 – na 2 2 4 na na (1) Changes in unrealized gains(2) or Foreign losses exchange on translation other on securitiesna trading still – securities held not held on applicable by October foreign 31, subsidiaries 2017 is are included included in in other earnings comprehensive for income, the net year. foreign operations. Derivative Assets Credit default swaps 1 – – – – (1) – – – – Trading Securities Issued or guaranteed by: Corporate debtTotal trading securitiesAvailable-for-Sale Securities Issued or guaranteed by: Corporate debtCorporate equityTotal available-for-sale securities 91 Other Securities 91 1,461 1,456 4 For the year ended October(Canadian 31, $ 2017 in millions) For the year ended October(Canadian 31, $ 2016 in millions) Trading-Related Revenue Trading assets and liabilities, includingfair derivatives, value, securities with and gains financial and instrumentsrevenue losses designated includes recognized at net in fair interest Trading value income revenues, throughshown and Non-Interest profit separately non-interest Revenue, or in revenue in loss, the and the are Consolidated excludes Consolidated measuredliabilities Statement underwriting Statement at and of fees of is and Income. Income. reported commissions Net Trading-related net interest on of income securities interest arises transactions, expense which from associated are interest with and funding dividends these related assets to and trading liabilities assets in and the following table. Changes in Level 3 FairThe tables Value below Measurements present arealized reconciliation and of unrealized all gains changes (losses) in included Level in 3 earnings financial and instruments other during comprehensive the income. years ended October 31, 2017 and 2016, including Notes aesasaditrs aeotos ihvle htaesniiet hne nitrs ae.T h xetta ehl ses iblte and liabilities 180 assets, hold risk. we rate that interest extent to interest the exposed as To are such rates. we instruments, interest time, derivative in in hold changes points also to different We sensitive at liabilities. are repricing bearing that or interest values maturing on with instruments interest options, derivative pay rate we interest and and assets swaps bearing rate interest on interest earn We Risk Rate Interest 19: Note criteria offset the where or bankruptcy, or insolvency default, of or event agreement the netting in master only a amounts where the between transactions offset risk to to met. liquidity related right not and Sheet a otherwise credit Balance with are eliminate Consolidated place to the in achieved in is mechanism be offset arrangement liability settlement can not similar the market settlement amounts settle purchased a net are and securities under simultaneous presented asset including generally where Also the Sheet, instruments, house) counterparties. realize Balance derivative clearing or Consolidated and or legally basis, our agreements exchange a net in repurchase an is a offset under (e.g. there on been sold when settle have securities Sheet to that agreements, Balance intention amounts resale Consolidated an the under our is presents in there table reported and following is amounts The amount recognized simultaneously. net the the offset and to offset right are enforceable Liabilities liabilities financial Financial and and assets Financial Assets Financial of Offsetting 18: Note CONSOLIDATED TO NOTES e neetincome interest Net as: Reported revenue trading Total Other Commodities Equities oeg exchange Foreign eiaieisrmns5,7 5533,2 758567414,521 491 7,295 5,677 233 2,740 – 1,610 27,538 33,281 38,227 27,538 15,543 7,204 39,183 53,770 40,718 15,543 events. predetermined table). other 3,149 the of from occurrence excluded the is or over-collateralization default 54,726 any of (i.e. event exposure the sheet in balance except net repledged the or to sold limited being are from and restricted value are fair collateral at of disclosed amounts are Certain collateral (2) as received/pledged assets 43,867 Financial (1) agreements repurchase under sold or lent Securities instruments Derivative Liabilities Financial instruments Derivative resale under purchased or borrowed Securities Assets Financial millions) in $ (Canadian agreements repurchase under sold or lent Securities instruments Derivative Liabilities Financial instruments Derivative resale under purchased or borrowed Securities Assets Financial millions) in $ (Canadian expense. interest net denote brackets in Amounts (1) rates Interest millions) in $ (Canadian oa rdn revenue trading Total revenue trading – revenue Non-interest M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO gemns6,9 ,4 6667245,7 667 – 58,775 7,204 66,646 3,149 69,795 agreements agreements (1) IACA STATEMENTS FINANCIAL 0,3 2048,2 9214,9 ,4 5,291 1,642 46,699 5,827 29,291 2,903 65,977 82,923 29,291 22,014 103,998 104,937 22,014 126,012 2,2 86215893,4 0352707,962 2,740 60,385 34,742 105,829 18,692 124,521 amounts 1005915,1 ,8 546–301 – 4,990 1,642 621 45,436 5,206 1,263 – 2,903 9,382 933 19,909 65,044 55,119 27,804 19,909 9,382 5,901 16,113 28,951 75,047 61,020 43,917 16,113 5,901 45,064 80,948 amounts 7671,9 8953,4 898414,754 491 38,958 34,742 78,945 18,692 97,637 Gross Gross mut fstin offset Amounts h aac sheet balance the h aac sheet balance the mut fstin offset Amounts rsne nthe in presented rsne nthe in presented aac sheet balance aac sheet balance e amounts Net e amounts Net atrnetting master atrnetting master agreements agreements mut o fsti h aac sheet balance the in offset not Amounts matof Impact matof Impact mut o fsti h aac sheet balance the in offset not Amounts scollateral as sclaea 1 (2) (1) collateral as received/pledged received/pledged Securities Securities 1,219 1,219 1,352 (133) 1 (2) (1) 2017 239 369 480 47 84 oltrlNtamount Net collateral oltrlNtamount Net collateral ,9 1,019 1,291 ,9 1,019 987 1,291 1,192 Cash Cash 062015 2016 8 171 188 4 364 349 6 422 663 56 56 25 66 932 99 2017 2016 Notes 181 –– Non- interest sensitive Total 28,147 709,580 58,173 709,580 (11,566) – (26,766) – (15,200) – (16,790) – (30,026) – (13,236) – (30,026) – interest rate (%) Effective 705 399 years (124) (829) Over 5 6,412 (1,623) (1,224) (7,636) 31,930 39,566 BMO Financial Group 200th Annual Report 2017 interest rate (%) Effective years 1to5 9,508 13,056 22,564 58,009 17,839 12,805 30,644 (27,365) 126,986 154,351 interest rate (%) Effective Total 1 year within 7to12 months 4to6 months (84) – 157 73 na 3,789 na – na 40,492 44,354 (335) 4,653 (1,431) 2,887 0to3 (376) (1,772) 2,722 574 (121) 900 – 779 7.13 4,100 3.12 150 8.25 – 5,029 3,256 3,647 (2,577) 4,326 3,591 (1,006) (1,146) 1,439 months 9,875 (2,151)9,499 (7,692) (3,923) (4,970) 32 606 6,490 – – 6,490 0.84 – – – – – 6,490 29,450 75771,154 692 2,35442,389 30,899 1,490 0.57 372 74,998 1,054 2,522 0.5825,097 43,815 0.2054,809 49 na57,351 – 26 290 0.97 537 396 – – 1,460 20 –73,724 25,097 na 59,348 55,119 (848) (5,848) (1,265) 1.42 32,599 (2,849) 0.56 na – 65,027 na 11,501 27,628 54 – – 70,574 na 75,047 – 7,897 – 12 na 17,681 – 96,427 – – – 25,163 – 55,119 (64,225) 1,925 (2,121) (64,421) 102,922 3,232207,556 4,674 17,359 110,828 30,572459,961 1.34 255,487 24,074 22,697 38,482249,185 2.95 522,517 28,195 101,322 2.25 39,694 28,306 3.51 317,074 2.67 4,863 0.97 134,907 1,367 3.92 163,198 386,237 0.89 29,922 31,507 41,331 – 457,490 0.68 361,672 – 483,488 Interest bearing deposits on which the customer interest rate changesFixed with rate the and prime non-interest rate bearing or liabilities other with short-term no market defined rates maturity are are reported reported in based the upon an assumed maturity profile that considers Trading and underwriting (mark-to-market) assets and interest bearing assets onGoodwill which and the intangible customer and interest fixed rate assets changes are with reported the as prime non-interest rate sensitive. Other fixed rate and non-interest bearing assets with no defined The gap position presented is as at October 31, 2017 and 2016. It represents the position outstanding at the close of the business day and may resale agreements agreements Total interest rate gap positionCanadian – dollar 2017 Foreign currency Total gap na – not applicable Certain comparative figures have been reclassified to conform with the current year’s presentation. Interest bearing deposits with banks Securities Securities borrowed or purchased under Loans Other assets Total assets Liabilities and Equity Deposits Securities sold but not yetSecurities purchased lent or sold under repurchase Other liabilities Subordinated debt Total equity Total liabilities and shareholders’ equity Asset/liability gap position Notional amounts of derivatives Total interest rate gap positionCanadian – dollar 2016 Total gap Assets Cash and cash equivalents As at October 31, 2017 (Canadian $ in millions, except as noted) Foreign currency Interest Rate Gap Position Common shareholders’ equity is reported as non-interest sensitive. Yields Yields are based upon the effective interest rates for the assets or liabilities on October 31, 2017 and 2016. Capital Liabilities Fixed rate, fixed term liabilities,depositor such behaviour. as investment certificates, are reported at scheduled maturity withzero estimated to redemptions three that months reflect category. expected historical and forecasted trends in balances. Assets Fixed rate, fixed term assets,estimated such prepayments as that residential reflect mortgage expected loans borrower and behaviour. consumer loans, are reportedor based other upon short-term the market scheduled rates repayments are and reported in the zeromaturity to are three reported months based category. upon an assumed maturity profile that considers historical and forecasted trends in balances. Interest Rate Gap Position The determination of the interestdate rate or sensitivity maturity or date gap of position assets, by liabilities necessity and entails derivatives numerous used assumptions.change to It significantly manage is in interest based subsequent rate on periods risk. the based earlier on of customerThe the behaviour assumptions repricing and for the the application years of ended our October asset 31, and 2017 liability and management 2016 strategies. were as follows: Notes ehv e SIssae iiu aia ai eurmnsa tOtbr3,2017. 31, October at as requirements ratio capital minimum stated OSFI’s met have We 182 to Plan: granted Option options Stock stock our of about of value grant. information amount fair of summarizes the date date table record grant the following and estimated at The shares The expensed issue capital. is we share retire exercised, in to are surplus, eligible options contributed are stock in who these recorded employees When amount surplus. the performance contributed with certain to together once increase proceeds, exercised corresponding be a grant only with and their can date. vest, third from options grant options the starting Certain their on period period. from 50% four-year vesting years of a different 10 tranches over a expire our equal tranches with options of in in award All price vest vest separate met. closing 2013 2013 a are the December December as targets to after to treated equal or prior is price on granted tranche exercise granted Options Each an options date. date. at Stock grant granted date. their are grant of Options the anniversaries employees. before fourth and day officers the designated on for shares Plan common Option Stock a maintain We Plan Option Compensation Stock Share-Based – Compensation Employee 21: Note Assets Risk-Weighted and Measures Capital Regulatory ‰ ‰ in presented are position capital ‰ our of components the of ‰ Details capital. 2 Tier and 16. 1 and Tier 15 includes 12, capital 11, innovative Total Notes and deductions. shares capital preferred 2 equity, Tier common certain regulatory of comprised deductions. primarily capital is 1 capital Tier 1 of Tier net items. instruments, other hybrid certain and assets intangible goodwill, structure. capital cost-effective a obtain Guideline. to Requirements instruments capital redeeming and issuing and as strategies; well and business as ratios groups’ requirements, capital operating value. capital regulatory our shareholder target underpins long-term our ratings; building given credit while appropriate target confidence, is our regulator that: with and structure consistent investor cost-effective is depositor, a capital; supports in economic position required capital of strong assessment a internal maintain to is objective Our Management Capital 20: Note CONSOLIDATED TO NOTES 1 h egtdaeaeeecs rcsrfettecneso ffrincrec eoiae pin tteecag aea tOtbr3,21,Otbr3,21 n coe 1 2015, presentation. 31, year’s October current and 2016 the 31, with October conform 2017, to 31, reclassified October been at have as figures rate comparative exchange Certain the at options denominated currency foreign of conversion the reflect prices exercise weighted-average The shares outstanding (1) of percentage a as options stock Outstanding grant for Available year of end at Exercisable year of end at Outstanding Expired Forfeited/cancelled Exercised Granted year of beginning at Outstanding noted) as except $, (Canadian Ratio Leverage Ratio Capital Total Ratio Capital 1 Ratio Tier Capital 1 Tier Equity Common Assets Risk-Weighted Capital Total Assets Risk-Weighted Capital Assets 1 Risk-Weighted Tier Capital 1 Tier Equity Common Capital Total Capital 1 Tier Capital 1 Tier Equity Common noted) as except millions, in $ (Canadian specified of net items, sheet off-balance specified and items sheet on-balance of sum the by assets. divided risk-weighted capital assets. capital 1 risk-weighted Total Tier capital by as adjustments. assets. 1 divided defined risk-weighted Tier capital is capital by Total Ratio CET1 divided as Leverage by capital defined The divided 1 is adjustments, Tier Ratio capital as Capital of defined Total net is The equity, Ratio shareholders’ Capital common 1 as Tier defined The is Ratio Capital CET1 The l 07ad21 aacsaoeaeo n“l-n basis. “all-in” an on are above balances 2016 and 2017 All M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO edtrietefi au fsokotoso hi rn aeadrcr hsaon scmesto xes vrtepro httestock the that period the over expense compensation as amount this record and date grant their on options stock of value fair the determine We measures. capital regulatory primary the are Ratio Leverage and Ratio Capital Total of Ratio, net Capital losses, 1 credit Tier for Ratio, allowance Capital collective CET1 the of portion eligible the and debentures for subordinated deductions of less comprised equity primarily shareholders’ is common capital of 2 comprised Tier is It capital. of form permanent most Adequacy the Capital is OSFI’s capital with (CET1) accordance 1 in Tier determined Equity are Common and entity levels consolidated risk the positions, for sheet assets balance risk-weighted manage and to requirements used capital are Regulatory that measures performance and targets limits, establishing includes approach Our epciey o oeg urnydnmntdotoseecsdo xie uigteya,tewihe-vrg xriepie r rnltduigteecag ae sa h eteetand settlement the at as rates exchange the using translated are prices exercise weighted-average the year, the during expired or respectively. exercised date options expiry denominated currency foreign For respectively. IACA STATEMENTS FINANCIAL tc options stock ,8,7 67.42 72.05 3,811,157 4,584,375 57.80 7,525,296 77.41 2,233,801 9,805,299 ubrof Number 5,9 195.02 96.90 756,390 723,431 32366.89 13,243 1.16% xrieprice exercise Weighted- average 2017 (1) 211138.91,3,6 79.29 13,337,765 80.19 12,111,153 tc options stock ,0,8 33 ,5,6 91.16 4,275,858 80.19 54.41 6,959,569 12,111,153 83.34 77.41 842,821 4,151,676 5,605,485 55.32 9,805,299 2,103,391 ubrof Number 0,0 17 12164.49 151.68 78.09 954,385 71,281 179.53 641,875 71.76 77.23 852,571 104,606 754,714 .2 1.88% 1.52% xriepie(1) price exercise Weighted- average 062015 2016 tc options stock ubrof Number 269,466 269,466 269,466 40,596 35,108 30,633 15.1% 13.0% 11.4% 4.4% 2017 xriepie(1) price exercise Weighted- 277,562 277,562 277,562 average 37,862 32,236 28,159 13.6% 11.6% 10.1% 4.2% 2016 Notes 183 2016 average exercise price (2) Weighted- 6.5 – 7.0 average remaining Weighted- life (years) contractual 44 55 18 2.5 2.3 116 46 2016 2015 2016 2015 stock 5.5% 4.7% – 4.8% 81.41 76.05 options Number of 6.5 – 7.0 1.3% – 1.4% 1.9% – 2.0% 19.8% – 20.0% 16.9% – 17.0% average exercise price (2) Weighted- BMO Financial Group 200th Annual Report 2017 5 90 2.7 129 2017 2017 Options outstanding Options exercisable 4.3% average 98.05 remaining Weighted- life (years) contractual 6.5 – 7.0 1.7% – 1.8% stock 18.4% – 18.8% 5,683 1.4 45.00 5,683 1.4 45.00 options 302,174 2.1 34.13 302,174 2.1 34.13 Number of 3,291,8104,157,498 4.3 5.1 56.05 3,291,810 64.05 1,291,352 4.3 5.2 56.05 60.36 2,048,134 6.2 145.34 714,466 1.4 271.75 (2) 2017 average price exercise Weighted- average remaining Weighted- life (years) contractual stock options Number of (2) average price exercise Weighted- Options outstanding Options exercisable average remaining Weighted- life (years) contractual ––– ––– stock options 158,636 1.1 34.13 158,636 1.1 34.13 Number of 2,345,2362,637,146 3.3 5.1 55.85 2,345,236 64.25 1,753,324 3.3 5.0 55.85 62.70 2,384,278 7.2 99.13 327,179 1.0 191.74 (1) We account for our contributionEmployee as compensation employee expense compensation related expense to when these it plans is for contributed the to years the ended plan. October 31, 2017, 2016 and 2015 was $53 million, $51 million and Expected dividend yield is based on market expectations of future dividends on our common shares. Expected share price volatility is determined The intrinsic value of a stock option grant is the difference between the current market price of our common shares and the strike price of the Risk-free rate of return Expected period until exercise (in years) Expected share price volatility Range of exercise prices $40.01 to $50.00 $50.01 to $60.00 $60.01 to $70.00 $70.01 and over Weighted-average period over which thisTotal cost intrinsic will value be of recognized stock (inCash options years) proceeds exercised from stock options exercised Expected dividend yield (Canadian $ in millions, except as noted) Unrecognized compensation cost for non-vested stock option awards (1) Certain options were issued(2) as The part weighted-average of exercise the prices acquisition reflect ofCertain the M&I. comparative conversion figures of have foreign been currency reclassified denominated to options conform at with the the exchange current rate year’s as presentation. at October 31, 2017 and October 31, 2016. $30.01 to $40.00 Weighted-average share price for stock options exercised (in dollars) (Canadian $, except as noted) We offer mid-term incentive planschanges for in executives the and market certain value seniorthree-year of employees. period our Payment of common amounts the shares. are plan, Depending adjustedAmounts or on to payable cash the reflect under payments plan, reinvested such over the dividends awards the recipient and who are three receives are recorded years either eligible as of a to compensation the single retire expense plan. cashexpense are over As payment in expensed the the at the at vesting awards the period the period. are end in time Amounts cash of which of related settled, the they grant. to they arise. Subsequent units are changes granted recorded in to as the employees liabilities. fair value of the liability are recorded in compensation Mid-Term Incentive Plans $52 million, respectively. There were2017, 18.3 2016 million, and 18.9 2015, million respectively. and 19.0 million common shares held in these plans for the years ended October 31, Other Share-Based Compensation Share Purchase Plans We offer various employee sharesalary purchase toward plans. the The purchase largest of ofof our these $100,000. common plans Our shares. provides contributions We the during match employeeimmediately. the 50% the The first of option shares two employee of held years contributions directing in vest up acomputing the after to portion earnings employee two 6% of per share years of their share. purchase of their gross The plan participation individualopen dividends are in gross market. earned purchased the salary on on plan, to our the with a common open subsequent maximum shares market contributions held and vesting by are the considered plan outstanding are for used purposes to of purchase additional common shares on the based on the market consensusswap implied curve volatility with for maturities traded similar optionsyears to on ended the our October expected common 31, period shares. 2017, until The 2016 exercise risk-free and of rate 2015 the is was options. based $96.90, The on $77.23 weighted-average the and exercise yields $78.09, price of respectively. on a the Canadian grant date for the Changes to the input assumptions can result in different fair value estimates. The fair value of optionsyears granted ended was October estimated 31, using 2017, athe 2016 binomial grant and option date, 2015 pricing the was model. following $11.62, The ranges $7.60 weighted-average of and fair values $7.45, value were respectively. of used To options for determine granted each the during option fair the pricing value assumption: of the stock option tranches on The following table summarizes further information about our Stock Option Plan: Employee compensation expense related tobefore this tax, plan respectively for ($7 the million, years $6 ended million October and 31, $6 2017, million 2016option. after and The tax, 2015 aggregate respectively). was intrinsic $8 value million,$179 of $6 million, stock million respectively. options and The outstanding $6 aggregate at million $146 intrinsic October million value 31, and of 2017, $125 stock 2016 million, options and respectively. exercisable 2015 at was October $232Options 31, million, outstanding 2017, $211 and 2016 million exercisable and and at 2015 October was 31, $174 2017 million, and 2016 by range of exercise price were as follows: Notes fteepas ercre utimn ano 5 ilo nnnitrs xes,epoe opnain norCnoiae ttmn of closure Statement the Consolidated of our result in a compensation, As employee closure. expense, 184 the non-interest by in affected million employees $52 for of available gain 2016. made curtailment in was a Income plan recorded pension we contribution plans, defined these are A of expense, 2017. compensation 1, defined employee March provide in on we recorded accruals addition, plans, In these liabilities. of or costs plans. expense, assets The the compensation benefit subsidiaries. to employee defined our contributions in net of our recorded on some to earnings expenses, interest in equal annual benefit the employees average future minus to and employee or plans service other plus pension of and cost contribution years pension service employee’s Our current an retirement. the on to comprise based prior mainly benefits time retirement of provide period future we a employee plans over other these primary under the Generally, benefit and limits. defined States statutory by United arrangements, the Kingdom, these and United of Canada the largest in Canada. and The employees in States employees. for employees United current plans for the and pension plan Canada, retired benefit benefit in our defined located to primary arrangements benefits the such future are of employee obligation, largest other the and with pension globally, provide arrangements that of number Plans Benefits a Benefit sponsor Future We Future Employee Employee Other Other and and Pension Pension – Compensation Employee 22: Note tax, after million $10 and million $7 million, 31, ($10 respectively. million October respectively $57 ended tax, million, years before $78 the million were for $14 2015 expense and and compensation million the 2016 employee $10 in 2017, net million, expense 31, in $13 respectively). compensation October resulted of employee ended (losses) 2015 as years gains and to recorded the These 2016 instruments are for respectively. 2017, derivative derivatives derivatives tax, into these these before entered of on million have value (losses) $(16) We fair Gains and respectively). the arise. tax, in they after Changes which million plans. in $(1) these period and to million related were $50 exposure 2015 million, our and ($67 hedge 2016 respectively 2017, tax, 31, before October million ended $(2) years the for respectively. plans million, these $25 under and respectively. made million million, Payments $53 $26 respectively. million, and 2016, $32 million and $28 2017 million, 31, $32 October was at units in these decreases of or value increases fair as date recorded grant are the movements and price respectively, share and change. dividends the of of result period a the reinvested as in reflect payments expense to plan compensation adjusted incentive employee is the units of share amount these the of in value The years. three These of shares. shares. end common common the our our at of Wealth of vest value and units or market Markets share date the Capital as grant in BMO deferred the changes in be on and employees can vested dividends key commissions fully and and/or either executives payments are Directors, incentive units of annual share Board fees, our plans, of these members Under for Management. plans incentive deferred offer We Plans Incentive Deferred CONSOLIDATED TO NOTES epciey n h nrni au ftoeaad hc a etdws$,5 ilo,$8 ilo n 47mlin epciey Cash respectively. respectively. million, million, $127 $497 and and million million $131 $883 million, million, $343 $1,253 were was liabilities vested these had to which relation awards in those made million, of payments $520 value of intrinsic 2017, expense the 31, compensation and October employee respectively, ended net common years in our the resulting of for respectively, value recognized million, respectively. market swaps $(27) million, in return and $330 change total million and the on $111 million 2014, of (losses) million, $426 November impact Gains $183 in the contracts). were Beginning hedge (equity 2015 respectively). economically swaps and and $537 tax, we return 2016 2016 million, after however, total 2017, $703 million parties; into 31, of $224 third entering October expense and with by at compensation million agreements shares as employee $397 into awards recorded million, enter these we ($516 longer of which respectively no value for tax, we fair respectively, before date million, million grant $475 $303 The and and respectively. million million units, $492 million million, tax, 5.8 $515 after and was million million 2015 $60 6.4 and million, million 5.9 $19 totalled million, 2015 ($(5) respectively tax, before million $81 and million $26 these million, respectively). to $(7) amount relating was the compensation 2015 affect deferred and not remaining 2016 do all shares 2017, are common 31, and our October assets of ended recorded other value year is as market the liability Sheet the During recognized. no Balance in awards. was result Consolidated changes these arrangements a the Subsequent to as in period. related and deferred vesting expense payments are the compensation cash arrangements over of future such basis for under straight-line obligation made a any payments on have cash recognized longer All no awards. we these arrangements, to such related to subject units For payment. respectively. M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO h eie eei eso ln o u mlye nteUie ttswr lsdt e ebr nArl1 06adcoe ofuture to closed and 2016 1, April on members new to closed were States United the in employees our for plans pension benefit defined The of excess in benefits pension provide that arrangements supplementary as well as plans, pension benefit defined include arrangements Pension 2015, and 2016 2017, 31, October at as outstanding were units plan incentive deferred million 4.9 and million 4.8 million, 5.0 of total A and million $67 million, $91 was 2015 and 2016 2017, 31, October ended years the as for million plans $414 these and to million related $499 expense totalled compensation and Employee Sheet Balance million, Consolidated 0.3 our and in million liabilities 0.4 other million, in 0.3 recorded totalled are 2015 plans and these 2016 to 2017, related 31, Liabilities October ended years the during Changes granted earned. units are plan commissions incentive and/or Deferred payments incentive fees, the year bank. the the in from recorded departure is participant’s plans the these upon for cash expense in compensation paid Employee are payments plan incentive Deferred oa f1. ilo,1. ilo n 61mlinmdtr netv lnuiswr usadn sa coe 1 07 06ad2015, and 2016 2017, 31, October at as outstanding were units plan incentive mid-term million 16.1 and million 17.0 million, 17.0 of total A and 2016 2017, 31, October ended years the for parties third with agreements into enter not did we 2017, which 31, for October units ended plan years incentive the Mid-term for parties third with agreements into entered we where plans to related expense compensation Employee up-front fixed a for granted units of portion a to related liabilities million, our 5.8 assume and to million parties 6.4 third million, with 5.9 agreements totalled into 2015 entered and we 2016 2015, 2017, to 31, Prior October ended years the during granted units plan incentive Mid-term IACA STATEMENTS FINANCIAL Notes 185 2016 42% 44% 14% Actual 2017 Actual Pension benefit plans BMO Financial Group 200th Annual Report 2017 2017 Target Range 25% – 50%25% – 55%10% – 40% 40% 46% 14% represents the increase in the net defined benefit asset or liability that results from the passage of may arise in two ways. First, each year our actuaries recalculate the defined benefit obligations and compare them to represents benefits earned in the current year. The cost is determined with reference to the current workforce and the amount are changes in our defined benefit obligations that result from changes to provisions of the plans. The effects of plan occur when defined benefit obligations for plan participants are settled, usually through lump sum cash payments, and as a result we no We also provide other employee future benefits, including health andShort-term dental employee care benefits, benefits such and as life salaries, insurance, paid for absences, eligible bonuses current and and other retired benefits, are accounted for on an accrual basis over the period The discount rates for the primary Canadian and U.S. pensionThe and fair other value employee of future plan benefit assets plans is were deducted selected from based the on defined the benefit yields obligation of to determine the net defined benefit asset or liability. For defined The plans are managed under a framework that considers both assets and liabilities in theThe development plans of invest an in investment asset policy classes and that in include managing equities, fixed income and alternative strategies, under established investment guidelines. Plan ongoing monitoring of exposures, performance and risk levels. stress testing and scenario analyseshedging to of evaluate currency the exposures volatility and ofcontrols interest the related rate plans’ to risk financial asset within positions mix policy andcounterparty allocations, limits; any limits geographic potential and allocations, impact others; portfolio on and duration, the credit bank; quality of debt securities, sector guidelines, issuer/ monitoring surplus-at-risk, which measures a plan’s risk in an asset-liability framework; Our pension and other employee future benefit plan assets are measured at fair value on a recurring basis. Equities Fixed income investments Other employees. in which the employees provide the related services. time and is determined by applying theActuarial discount gains rate and losses to the net defined benefit asset or liability. ‰ Pension and Other Employee FutureOur actuaries Benefit perform Liabilities valuations ofusing our the defined projected benefit unit obligations credit formortality method pension and based and health on other care management’s employee cost assumptions future trend about benefits rates. discount as rates, at rates October of 31high-quality compensation of AA increase, each rated retirement year corporate age, bond yields with terms matching thebenefit plans’ pension cash plans flows. that areavailable in in a the net form defined of benefitare future asset recognized refunds position, in from the other the recognized comprehensive plan assetemployee income. or is future Components reductions limited benefit of in to expense the future the are change contributions present as in to value follows: ourCurrent the of service net plan economic cost defined (the benefits benefit “asset assets ceiling”). or Changes liabilities in and the our asset pension ceiling and other longer have any obligation to provide such participants with benefit payments in the future. ‰ ‰ ‰ of benefits to which employees will beInterest entitled on upon net retirement, defined based benefit asset on or the liability provisions of our benefit plans. those estimated as at themember previous experience year being end. different Any from differencesactuarial management’s that gains expectations result and at from losses the changes arise previous inrecognized when year demographic immediately there end and in are are economic other differences considered assumptions comprehensive between actuarial or income the gains from as discountPlan or plan they rate amendments losses. occur and Second, and actual are returns notamendments on subsequently are plan reclassified recognized assets. to immediately Actuarial income in gains in income and future when lossesSettlements periods. a are plan is amended. The plans are exposed toand various longevity risks, risk. including We market follow risk‰ a (interest number rate, of equity approaches and to foreign monitor currency and risks), actively credit manage risk, these operational risks, risk, including: surplus risk Risk Management The asset allocation ranges andOctober weighted-average 31, actual are asset as allocations follows: of our primary pension plans, based on the fair market values at Asset Allocations The assets of the definedunder benefit a pension defined plans governance are structure, managed with in the accordance oversight with resting all with applicablerisk. the laws Over Board and the of regulations. past Directors. The several plansreturns years, are while we administered reducing have the implemented plan’s a surplus liability-driven volatility. investment This strategy strategy for has theassets reduced primary are the Canadian diversified impact plan across of to asset the enhanceselection classes plan risk-adjusted of and on investment by our securities. geographic regulatory Derivative exposure. capital. exposures, instruments They manage are are interest permitted managed rate under by exposures policy asset or guidelines management replicate and firms the are that return generally are of used responsible an to for asset. hedge the foreign currency Investment Policy Notes egtdaeaeasmtosue odtriebnftexpenses benefit determine to used assumptions Weighted-average 186 follows: as are plans The primary applicable. our when for experience, obligations plan benefit to defined calibrated the tables of mortality amounts and the statistics underlying published expectancies on life based current are mortality future regarding Assumptions follows: as determined are expenses benefit future employee Expenses other Benefit and Pension Future Employee Other and Pension follows: be as to is estimated years are three 2018 past fiscal the most for for the payments information and Benefit plan 2017 2017. of 31, 1, summary October January A at at as as and performed performed Canada was was in plan plan plans pension pension our Canadian U.S. million. for primary primary $508 performed our our in is for for arrangements valuation valuation valuation pension funding funding funding our annual recent recent for An most requirements valuation”). The funding “funding States. minimum (our United our framework the determining statutory for relevant valuations the prepare with to accordance required are us. we by purposes, directly accounting or plan respective the is through plan either to pension paid order supplementary are in the plans contributions States these voluntary United plans make the these to in in eligible while assets also funded, the are is and employees Canada requirements, of in statutory groups plan with Some pension unfunded. accordance employees. supplementary in other Our States and benefits. United retirees enhanced the to receive and benefits Canada pay in to plans used pension are Plans benefit Benefit defined Future our Employee fund We Other and Pension of Funding CONSOLIDATED TO NOTES Females 45 age currently those for Males 65 age at expectancy Life Females 65 age Males currently those for expectancy Life (Years) respectively. 2016, and 2017 for 4.66% and 3.78% of respectively. 2016, rate and discount 2017 separate for a 4.48% using and calculated 3.68% is of cost rate service discount current separate plans a benefit using future calculated employee is other thereafter. cost The level service (3) that current at benefit remaining pension and The 2031 (2) in 4.5% to Trending (1) year of beginning at rate Discount in recognized expenses benefit future employee other and pension annual Total expense contribution Defined benefits long-term other of Remeasurement expenses Administrative liability (asset) benefit settlement defined on net Gain on expense (income) interest Net cost service Current expense benefits Annual millions) in $ (Canadian (liability) asset benefit defined net and (deficit) Surplus of: comprised is (deficit) (liability) Surplus asset benefit defined net and (deficit) Surplus assets plan of value Fair obligation benefit Defined millions) in $ (Canadian aaaadQee eso lnexpense plan pension Quebec and Canada expense Benefits aeo opnainincrease compensation of Rate sue vrl elhcr ottedrate trend cost care health overall Assumed a–ntapplicable not – na M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO h osldtdSaeeto Income of Statement Consolidated the plans Unfunded plans funded partially or Funded emauetefi au fpa sesfrorpasi aaaadteUie ttsa tOtbr3.I diint cura autosfor valuations actuarial to addition In 31. October at as States United the and Canada to in related plans payments our Benefit for unfunded. assets or plan funded of partially value either fair are the States measure United We the and Canada in plans benefit future employee other Our IACA STATEMENTS FINANCIAL (2)(3) 8,990 8,846 (195) 2017 144 339 144 eso eei ln te mlyeftr eei plans benefit future employee Other plans benefit Pension 3.4% 2.8% 2017 2017 464 123 254 266 75 na ,5 8,072 7,934 8,655 8,992 20 (224) (210) 37 138 362 (337) 138 (127) (337) 5 7 – – 062015 2016 eso eei plans benefit Pension plans benefit future employee Other plans benefit Pension 24.9 24.6 24.0 23.6 .%4.1% 4.2% .%2.9% 2.7% 2017 062015 2016 2015 2016 8 431 388 286 224 1 272 219 1)(5) (10) 686 96 373 73 ana na 54 (13) –– – aaaUie States United Canada 24.9 24.5 23.9 23.5 2016 (1,331) (1,303) (1,303) 1,460 2017 157 28 te mlyeftr eei plans benefit future employee Other 3.6% 2.4% 5.2% 2017 2017 73 47 32 73 (6) – – – – (1) 130 (1,160) (1,350) 133 (1,192) (1,343) (1,192) (1,343) 24.6 23.2 23.4 22.0 2017 ,9 1,323 1,493 062015 2016 5 131 150 5.3% .%4.2% 4.4% .%2.6% 2.4% 062015 2016 2015 2016 (32) 7 383 83 50 29 52 25 383 83 64 –– –– –– –– (1) 5.5% 25.0 23.4 23.8 22.2 2016 (1) Notes (1) 187 – – – 5 4 5 4 4 (6) 25 57 10 38 10 34 12 (42) (37) (42) 143 164 131 150 2016 (160) (104) 3.6% 2.4% 5.3% 1,493 1,350 1,493 1,323 (1,343) (1,343) (1,343) (1) – – – – 5 5 8 5 8 (2) (7) (6) 32 52 39 40 71 (45) (45) (41) 129 150 157 104 2017 (107) 5.2% 3.6% 2.0% 1,460 1,331 1,460 1,493 (1,303) (1,303) (1,303) 9 (9) (5) (8) na 13 13 34 (34) (97) 210 224 326 336 532 118 235 532 2016 (406) (337) (406) (122) (337) (455) (474) 3.4% 2.8% 8,992 8,782 8,992 1,041 7,934 8,072 8,655 (1,041) BMO Financial Group 200th Annual Report 2017 Pension benefit plans Other employee future benefit plans (5) (3) na 45 15 15 (35) (16) (45) 195 254 300 293 277 508 219 144 144 277 127 150 506 2017 (448) (127) (150) (448) (364) 3.5% 2.4% 8,846 8,651 8,846 8,992 8,655 8,990 Plan member experience Changes in demographic assumptions Changes in financial assumptions Plan member experience Changes in demographic assumptions Changes in financial assumptions Weighted-average assumptions used to determineDiscount the rate defined at benefit end obligation of year Rate of compensation increase Assumed overall health care cost trend rate Unfunded defined benefit obligation Total defined benefit obligation Wholly or partially funded defined benefit obligation Foreign exchange and other Defined benefit obligation at end of year Current service cost Interest cost Benefits paid Interest income Employee contributions Actuarial (gains) losses due to: Return on plan assets (excluding interest income) (1) Trending to 4.5% in 2031na and – remaining not at applicable that level thereafter. Fair value of plan assets Fair value of plan assets at beginning of year Defined benefit obligation Defined benefit obligation at beginning of year (Canadian $ in millions, except as noted) Recorded in: Other assets Employer contributions Employee contributions Surplus (deficit) and net defined benefit asset (liability) at end of year Benefits paid Administrative expenses Foreign exchange and other Fair value of plan assets at end of year Other liabilities Surplus (deficit) and net defined benefit assetActuarial (liability) gains at (losses) end recognized of in year Net other actuarial comprehensive gains income on plan assets Actuarial gains (losses) on defined benefit obligation due to: Foreign exchange and other Actuarial gains (losses) recognized in other comprehensive income for the year Changes in the estimated financial positions of our pension benefit plans and other employee future benefit plans are as follows: Notes 188 follows: as is plans primary our for obligation benefit defined the of Disaggregation Obligation Benefit Defined of Disaggregation Actual sensitivities. variables. certain key reduce not other or may in amplify assumption changes would key of which each impact assumptions, in the key changes of of of independently number impact calculated a the been in The and have changes table. hypothetical variable simultaneous following is key in the it each result in as in may outlined caution changes experience are with to plans used sensitivities primary be The our should linear. for table be obligations the benefit in defined provided the analysis measuring sensitivity in used assumptions weighted-average Key Assumptions of any Sensitivity hold primary not rendered. our do services 2017, plans administrative 31, The and October shares. custodial at common record-keeping, As our management, 2016. of and 2016) 2017 in use. 31, million we October ($13 assets at million other as $3 or securities approximately occupy parties’ funds, we related pooled property or through bank’s held, the indirectly in plan invested Canadian directly are assets plan No our by held assets plan of values fair The basis. recurring a on value follows: fair as at are measured 31 are October assets at plan as benefit plans future primary employee other and pension Our CONSOLIDATED TO NOTES oprt debt Corporate instruments Derivative Cnda nmlin,ecp snoted) as except millions, in $ (Canadian ncieadrtrdmembers retired and Inactive ciemembers Active plans pension Canadian thereafter. level that at remaining and 2031 in 4.5% to Trending (1) ($) increase (%) 1% rate of: trend Impact cost care health overall Assumed ($) expectancy life shorter year 1 of: Impact Mortality ($) increase 0.25% of: Impact (%) increase compensation of Rate ($) increase 1% of: Impact (%) rate Discount markets. markets. active active in in prices prices quoted quoted have markets. has 2016 markets. active plans and active in Canadian 2017 in by prices 31, prices held quoted October quoted debt have agencies. at have plans corporate and as plans Canadian of municipalities plans Canadian 2016) by states, Canadian by in held U.S. by held funds million by held governments ($7 pooled guaranteed are by million of or equity guaranteed 2016) $9 issued corporate or in securities (5) and issued million and funds securities ($1,607 debt market of million corporate money 2016) $1,743 funds, and in pooled (4) cash million except the ($537 markets, of million active 2016) $622 in in (3) prices million quoted ($61 have million assets $80 plans’ (2) U.S. the of All (1) funds market money and Cash millions) in $ (Canadian oprt equity Corporate ncieadrtrdmembers retired and Inactive ciemembers Active plans pension U.S. euiisise rgaate by: guaranteed or issued Securities ncieadrtrdmembers retired and Inactive ciemembers plans Active benefit future employee other Canadian oldfunds Pooled a–ntapplicable not – na M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO aainfdrlgovernment federal Canadian ..sae,mncplte n agencies and municipalities states, U.S. aainpoica n uiia governments municipal and provincial Canadian ..fdrlgovernment federal U.S. h ln ad$ ilo nteya ne coe 1 07(4mlini 06 otebn n eti forsbiire o investment for subsidiaries our of certain and bank the to 2016) in million ($4 2017 31, October ended year the in million $4 paid plans The %dces ($) decrease 1% ($) decrease 0.25% erlne ieepcac ($) expectancy life longer year 1 ($) decrease 1% (4) (5) (2) IACA STATEMENTS FINANCIAL (2) (3) eso eei ln te mlyeftr eei plans benefit future employee Other plans benefit Pension 1,125 (150) (891) 3,673 6,423 147 (42) . 3.6 2.4 3.5 43 a(82) 81 na na na 2017 938 747 192 797 (29) 85 20 aainpasUS ln (1) plans U.S. plans Canadian – eie eei obligation benefit Defined 3,451 6,075 2016 832 881 144 722 (26) 68 3 – 100% 100% 100% 57% 43% 34% 66% 59% 41% 2017 1,334 2017 354 520 307 82 55 16 – – – 100% 100% 100% 1,337 (170) 55% 45% 32% 68% 56% 44% 216 2016 2016 (34) 106 539 481 145 2.0 5.2 35 (1) 48 18 1 – – – (1) Notes 189 8.3 2016 16.0 17.2 –– –– 38 35 38 35 8.0 2016 2015 2017 14.7 16.5 – – 40 40 2017 on plans and $45 million to our other employee BMO Financial Group 200th Annual Report 2017 96 86 43 33 192 198 331 317 2016 2015 Pension benefit plans Other employee future benefit plans 32 187 123 342 2017 In addition, we record an income tax expense or benefit in other comprehensive income or directly in shareholders’ equity whenCurrent the tax taxes is relate the amount of income tax recoverable (payable) in respect of the taxable loss (profit) for a period. Deferred income tax assets and Included in deferred income tax assets is $126 million ($nil in 2016) related to Canadian tax loss carryforwards that will expire in 2037, Income that we earn in foreign countries through our branches or subsidiaries is generally subject to tax in those countries.Taxable We temporary are differences also associated subject with investments in certain subsidiaries, branches, associates and interests in joint ventures for which Our best estimate of the contributions we expect to make for the year ending October 31, 2018 is approximately $196 million to our defined benefit pensi U.S. pension plans (Canadian $ in millions) Contributions to defined benefit plans Contributions to defined contribution plans Benefits paid directly to pensioners future benefit plans. (Years) Canadian pension plans Canadian other employee future benefit plans We report our provision forstatements income regardless taxes of in when our they Consolidatedsubsidiaries, are Statement as recognized of noted for Income below. income based tax upon purposes, transactions with recorded the in exception our of consolidatedto repatriation financial amounts of recorded retained in earnings other fromrelated comprehensive our to income our or net shareholders’ investment equity.(losses) in For on foreign example, translation operations income of is tax net recorded expense foreign in (recovery) operations. our on Consolidated hedging Statement gains of (losses) liabilities Comprehensive are Income measured as at part the ofrelated tax unrealized to rates gains a expected change to in applyfrom tax when a rates temporary transaction are differences or recorded reverse. event in Changesare which income in only is in deferred offset recognized the income when either period tax they in the assetsto are other tax and offset. levied comprehensive rate liabilities by income is the or substantively same directly enacted, taxing in except authority, shareholders’ to levied equity. the on Current extent the and that$1,091 same deferred the million entity taxes tax ($1,328 or arises million group in ofthrough 2016) entities 2034 related and and to when $16 U.S. there million tax isgenerated ($15 loss a in million carryforwards legal the in that right U.K. 2016) will On related expiregenerated the to in by evidence U.K. various our available, tax amounts business including loss in operations management carryforwards U.S.unused to projections that taxation tax support of are years credits these income, available from for deferred we for 2029 which tax believe use($240 no assets. that indefinitely million deferred The there against as tax amount will relevant at asset of be profits October is tax sufficientrealization 31, recognized on taxable of 2016). in temporary income these Deferred our differences, assets tax Consolidated unused will assets Balance tax occur. have Sheet losses not as and been at recognized October in 31,to respect 2017 Canadian of is taxation these $282 on items million the becauserepatriation income it of earned is retained in not earnings our probable from foreign that such certain branches. earnings foreign Canada is subsidiaries, allows not we a planned would credit in be for the required certain foreseeable to foreign future, pay taxes we tax paiddeferred have on on tax not certain this liabilities recorded of income. have the these Upon not related earnings. been deferred As recognized income repatriation are tax of $12 liability. billion as at October 31, 2017 ($11 billion in 2016). Note 23: Income Taxes Cash Flows Cash payments we made during the year in connection with our employee future benefit plans are as follows: Maturity Profile The duration of the defined benefit obligation for our primary plans is as follows: Notes 190 rates tax income effective the to rates these Income: at of payable Statement be Consolidated would our that in taxes recorded income have and we rates that tax taxes statutory income our for of provision reconciliation and a is below out Set Taxes Income for Provision CONSOLIDATED TO NOTES Total oa foreign Total oeg:Creticm taxes income Current Foreign: oa Canadian Total aaa eerdicm taxes income Deferred Canada: Total noetxepne(eoey eae to: related (recovery) expense tax Equity Income Shareholders’ and Income Comprehensive Other Deferred rvso o noetxsadefcietxrate tax effective and taxes income for Provision from: resulting (decrease) Increase 1 h obndsauoytxrt hne uigteya sarsl flgsainta eaesbtnieyeatdwt epc oteyear. the to respect with enacted presentation. substantively year’s became current that the legislation with of conform result to a reclassified as been year have the figures during comparative changed Certain rate tax statutory combined The (1) rate tax statutory the at taxes income provincial and federal Canadian Combined noted) as except millions, in $ (Canadian presentation. year’s current the with conform to reclassified been have figures comparative Certain taxes income Current Canada: millions) in Taxes $ Income (Canadian for Provision Total presentation. of year’s Components current the with conform to reclassified been have figures comparative Certain Current Income of Statement Consolidated millions) in $ (Canadian M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO egn furaie gis osso rnlto fntfrinoperations foreign net of translation on hedges losses flow (gains) cash unrealized on of value losses Hedging fair (gains) at of designated earnings liabilities to hedges financial Reclassification flow on cash risk on credit (losses) own Gains of remeasurement securities on available-for-sale (losses) on activities Gains (gains) hedging of of earnings net to securities, Reclassification available-for-sale on (losses) gains Unrealized hr-ae compensation Share-based an lse)o eesrmn fpninadohrepoe uuebnftplans benefit future employee other and pension of remeasurement on (losses) Gains period prior a of difference temporary or credit tax loss, tax unrecognized rates Previously tax in changes of differences Effect temporary of reversal and Origination periods prior for tax current of respect in Adjustments dutet nrseto urn a o ro periods prior for tax Other current of respect in Adjustments taxes income deferred for rate tax rates in tax Change different to subject operations Foreign securities from income Tax-exempt rvso o noetxsfrtecretperiod current the for taxes income for Provision noeatiual oivsmnsi soitsadjitventures period joint prior and a associates of in difference investments temporary to or attributable credit Income tax loss, tax unrecognized Previously eerdicm taxes income Deferred Provincial Federal Provincial Federal IACA STATEMENTS FINANCIAL ,9 19.5% 1,296 ,6 26.6% 1,768 49 (6.2) (409) 13 (1.5) (103) 5)(0.8) (54) 60.9 0.2 56 18 0.3 22 2 – (2) 2017 ,0 92 3 17.5% 936 19.2% 1,101 ,2 26.6% 1,525 37 64 38 (7.1) (378) (6.4) (367) 1)(.)(6 (0.3) (16) (0.3) (14) 4)(.)(4 (0.8) (44) (0.8) (47) 1)(.)()(0.1) (5) (0.3) (15) 303(4 (0.6) (34) 0.3 13 2 1)(0.3) (15) – (2) . 80.3 18 0.1 8 1,080 1,080 1,296 1,254 (322) 2017 2017 336 281 744 742 272 157 470 062015 2016 (53) (36) (12) (54) 55 21 21 80 18 (2) 2 2 8 – (1) ,0 936 1,101 ,1 26.4% 1,410 17 202 (187) 10 131 (120) 16 51 (156) 062015 2016 2015 2016 6 950 963 6 205 468 4 102 103 248 220 9 745 495 8 543 191 682 248 950 963 3 352 434 685 927 8 253 183 5)43 (24) (55) (11) 6)71 (67) 1)(5) (15) 4(63) 64 0(167) 10 2 (15) (2) 188 4 (14) 6 818 –– Notes 191 – 122 – (17) – (143) (1) 2 (5) 21 (1) 41 23 (81) 11 (85) 12 110 (98) (863) (18) (108) 692 3,722 674 3,799 2016 2015 6.94 6.59 6.92 6.57 (150) (117) 4,472 4,253 4,6224,472 4,370 4,253 8,706 9,470 (6,629) (7,245) 644,049 644,916 644,049 644,916 646,126 647,141 – – – – 1 7 9 (108) (902) 2 (2) 12 12 11 21 (117) (1,073) (18) 106 84 2017 7.95 7.92 (184) 5,164 5,348 5,164 6,859 Tax loss (4,548) 649,650 649,650 651,961 rage exercise prices of $182.70, $238.45 and carryforwards Other Total BMO Financial Group 200th Annual Report 2017 – – – – – (2) (3) (92) (36) (211) 65 27 1,233 774 3,705 15 (82) 1,343 (31) 1,324 (51) (23) 112 (253) (316) (261) income Goodwill and intangible assets Securities Other Total Other comprehensive – – 1 3 5 (3) (3) 89 30 (33) (19) (52) 462 431 122 545 102 (143) Pension benefits Deferred compensation benefits – – – 8 1 (6) 34 32 12 (83) (14) 424 382 (613) (454) (160) (664) Employee equipment Premises and future benefits – – 13 (55) 883 710 416 (149) (118) 1,019 Allowance for credit losses (1) (2) (1) $226.11 for the years ended October 31, 2017, 2016 and 2015, respectively, as the average share price for the period did not exceed the exercise price. Diluted earnings per share is calculated in the same manner, with further adjustments made to reflect the dilutive impact of instruments The U.S. government is currently working on comprehensive tax reform legislation. The final legislation is currently unknown and any changes in Common shares potentially repurchased Stock options potentially exercisable Benefit (expense) to equity Translation and other As at October 31, 2017 As at October 31, 2016 Benefit (expense) to income statement Translation and other Translation and other As at October 31, 2017 Translation and other As at October 31, 2016 Benefit (expense) to income statement Diluted Earnings per Share Net income available to common shareholders adjusted for impact of dilutive instruments (1) In computing diluted earnings per share, we excluded average stock options outstanding of 1,330,564, 1,353,464 and 1,909,518 with weighted-ave Basic Earnings per Share (Canadian $ in millions, except as noted) Net income attributable to bank shareholders Benefit (expense) to equity Net income available to common shareholders Weighted-average number of common shares outstanding (in thousands) (1) Deferred tax assets of(2) $2,865 Deferred million tax and liabilities $3,101 of million $233 as million at and October $242 31, million 2017 as and at 2016, October respectively, 31, are 2017 presented and on 2016, the respectively, balance are sheet presented net on by the legal balance jurisdiction. sheet net by legal jurisdiction. As at October 31, 2015 Benefit (expense) to income statement Dividends on preferred shares Weighted-average number of common shares outstanding (in thousands) Deferred Income Tax Assets As at October 31, 2015 (Canadian $ in millions) Benefit (expense) to equity Deferred Income Tax Liabilities Benefit (expense) to income statement Benefit (expense) to equity Weighted-average number of diluted common shares outstanding (in thousands) Certain comparative figures have been reclassified to conform with the current year’s presentation. Effect of dilutive instruments Basic earnings per share (Canadian $) Diluted earnings per share (Canadian $) convertible into our common shares. The following table presents our basic and diluted earnings per share: Note 24: Earnings Per Share Basic earnings per share isaverage calculated number by of dividing fully net paid income common attributable shares to outstanding our throughout shareholders, the after year. deducting preferred share dividends, by the daily During the year ended Octoberamount 31, of 2017, approximately we $116 were million reassessedwe in by were respect the reassessed of Canada by certain Revenue the 2012 Agencyits CRA Canadian (“CRA”) reassessments, for corporate for the additional dividends. additional CRA income Previously, income denied taxes during taxestax dividend of the and rules deductions approximately year interest dealing on $76 ended in with the million October an dividend basis in 31,May rental that respect 2016, 1, arrangements the of 2017. were dividends certain It revised were 2011 is in received Canadianview possible the as corporate that that 2015 part dividends. our we Canadian of In tax may Federal a filing be Budget, “dividend positions reassessed which rental were for introduced arrangement.” appropriate significant rules The and income that intend tax appliedtax to for as law challenge similar of will any activities be reassessment. in incorporated 2013 in and our subsequent financial years. statements We when remain they of are the enacted. Components of Deferred Income Tax Balances Notes esn rnatos ae nhsoia xeine eepc h iko ost eremote. be to loss 192 and of contracts risk occu derivative the typically arrangements, expect indemnifications clearing we These agreements, experience, indemnifications. membership historical general contracts, on provide service Based that offerings, transactions. agreements securities leasing various assets, into of enter sales we, we with which operations, connection under of issuances investors. course new to normal certain resale the for for In underwriter issue as new act the we Agreements purchase addition, institutions, Indemnification In financial drawn. of are syndicate commitments a the with time together the or at alone value market at securities debt conditions. certain meeting their to subject maturities, and amounts borrowed. specific securities the of value fair the of 100% As of securities. excess activities. marketable in or or cash to basis. from with equal daily resulting collateralized is a losses fully which on against are collateral revalued clients borrowings maintain is to All to collateral indemnification due. borrowers The provide when require years. may securities we several we loaned loaned, be activities, return are these can these to securities to but with borrower money year, connection the advance one In of to than assets. failure us longer credit the require no other not generally and do are loans of facilities terms to measures liquidity facilities’ applied performance backstop The predetermined the borrower. when of the or terms of markets The insolvency an ABCP met. of as access not event parties to are the third unable programs in details. or are these programs for us programs by 8 either such held Note by that assets to administered event financial Refer programs the the years. (“ABCP”) in 10 paper financing to commercial of year asset-backed source one to alternative than provided less are from facilities range liquidity contracts Backstop these of Instruments terms Credit The loan. Other a or a bond of a guarantee as credit our such of include obligation, letters guarantees reference required standby and the for credit make requirements of party. to Collateral letters third unable less. Standby a are or loans. to they year for provided if one requirements directly customers of collateral debt of term our subsidiary’s behalf a with on have consistent parties majority are third The guarantees to requirements. and payments contractual make other to meet obligation or our payments represent credit of letters Standby Guarantees Financial follows: as is commitments assets. various credit our other to and related loans payable to amount applied maximum is The that process risk credit same the using instruments commitments. these for required be to contractual loans. likely The collateral for funding variable. and requirements the other recourse collateral liability or under with asset, rate recoveries consistent an exchange possible are of foreign before instruments value rate, exposure, these the interest potential for These in underlying undiscounted requirements customers. changes an maximum Collateral our on in our provisions. of based changes represents needs counterparty, to commitments financial a due our the to holds, of meeting payments counterparty amount of make the method to that a required security as be equity the credit, may or of extend we estimate Income. to where best of commitments contracts the Statement and include and Consolidated swaps commitments period, our default the in credit are over reported credit, guarantees earned is of Subsequently, income liability letters received. fee the fee any in the recognize change generally to Any is amortization obligation. which less the value, value, settle fair fair to at initial required recorded the amount initially of is higher terms considered liability the the are the at under which derivatives, recorded due of as when all qualify payments party, not make another do not of that a does indebtedness reimburse or the to contract of payments a guarantees make of indirect to terms provide required the we be to which may according under we perform contracts guarantees. which not and under does instrument, contracts party debt of third a variety a of a if into loss enter a we Liabilities for business, counterparty Contingent of course and normal Provisions the In Assets, Pledged Guarantees, Commitments, 25: Note CONSOLIDATED TO NOTES te commitments Other Total aktplqiiyfacilities liquidity Backstop Instruments Credit Other 1 h arvleo h eae eiaie nlddi u osldtdBlneSetws$ ilo sa coe 1 07(7mlini 2016). discretion. in million our ($7 at 2017 cancellable 31, unconditionally October are at that as cards million credit $6 and was credit Sheet of Balance lines Consolidated personal our exclude in credit included extend derivatives to related Commitments the (2) of value fair The (1) lending Securities swaps default Credit credit of letters Standby Guarantees Financial millions) in $ (Canadian ouetr n omrillteso credit of letters commercial and Documentary omtet oetn credit extend to Commitments M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO sapriiati ecatbnigatvte,w ne nocmimnst udetra rvt qiyfnsadivsmnsi qiyand equity in investments and funds equity private external for fund financings to other commitments or into loans enter of we form activities, the banking in merchant credit in them participant grant a specific to As of customers completion our upon to party commitment third our a represent by credit presented extend drafts to honour Commitments to agreement our represent credit of letters commercial and Documentary is that process risk credit same the using risk credit for evaluated been have who borrowers third-party to securities customers’ eligible lend We specified a to relation in event credit a of occurrence the following counterparty a compensate to us require swaps default credit Written these for risk credit our manage we and creditworthy, are believe of we representative that be counterparties not with may only amounts dealing contractual by total risk the credit result, limit a to As strive upon. We drawn being without expire commitments these of majority large A lending, securities facilities, liquidity backstop as such instruments credit sheet off-balance including commitments, of variety a into enter guarantees We For 8). Note (see instruments derivative for policy the with accordance in for accounted are derivatives as qualify that Guarantees (1) IACA STATEMENTS FINANCIAL (2) 122,881 157,194 18,126 4,329 5,044 5,336 1,030 2017 448 121,499 156,645 16,853 4,379 5,776 6,022 1,135 2016 981 rin Notes 193 2 3 (34) 211 274 268 2016 2016 2016 (185) 7,818 6,018 7,502 1,518 26,530 20,285 13,965 52,164 82,667 49,218 29,014 148,351 148,351 3 (4) (75) 268 153 170 2017 2017 2017 (172) 2,471 6,170 7,440 1,757 24,983 14,516 27,632 99,474 51,848 51,120 42,450 164,932 164,932 BMO Financial Group 200th Annual Report 2017 (1) (1) (1) Contingent liabilities are potential obligations arising from past events, the existence of which will only be confirmed by the occurrence or non- The fair value of counterparty collateral that we are permitted to sell or repledge (in the absence of default by the owner of the collateral) was Other Issued or guaranteed by a Canadian province, municipality or school corporation Issued or guaranteed by the Government of Canada Balance at end of year Exchange differences and other movements Covered bonds Other Total pledged assets and collateral Securitization Mortgages, securities borrowed or purchased under resale agreements and other Derivatives transactions Securities borrowing and lending Obligations related to securities sold under repurchase agreements Additional provisions/increase in provisions Provisions utilized Amounts reversed (1) Balance included severance obligations, restructuring charges and legal provisions. (Canadian $ in millions) Balance at beginning of year Foreign governments and central banks (1) Excludes cash pledged with central banks disclosed as restricted cash in Note 2. (Canadian $ in millions) Assets pledged in relation to: Central counterparties, payment systems and depositories (Canadian $ in millions) Bank Assets Cash and securities occurrence of one or more future events not wholly within our control and are not included in the table above. Provisions and Contingent Liabilities Provisions are recognized when weobligations have where a we legal can or reliably constructivethe estimate obligation best the as estimate obligation, a of and result the it ofsurrounding amount is past the required probable events, obligations. to we such settle will as the be contractual obligations required commitments, as to legal of settle orChanges the the in other balance obligation. the sheet We provision date, recognize balance taking as during into a the account provision year the were risks as and follows: uncertainties Lease Commitments We have entered into aterm number and of our non-cancellable premises leases leases for$2,433 have premises million. various and The renewal equipment. commitments options Our for and computer2020, each rights. and $232 of Our software million the total leases for next contractual are 2021, five rental typicallyleased $189 years commitments fixed branch million and as for locations for thereafter at one as 2022 are October at and $360 31, October $1,032 million 2017 31, million for were 2017. thereafter. 2018, Included $329 in million these for amounts 2019, are $291 commitments million related for to 1,045 $118,324 million as at October$76,909 31, million 2017 as ($115,895 at million October as 31, at 2017 October ($67,917 31, million 2016). as The at fair October value 31, of 2016). collateral that we have sold or repledged was Collateral When entering into trading activitiesderivative such transactions, as we purchases require under our resaleCollateral counterparties agreements, transactions to securities (received provide borrowing or us and pledged) with lendingno are collateral activities default, typically that or the conducted will financing securities under protect for or terms us certain their that from equivalents are losses must usual in be and the returned customary event to in of or standard their returned trading default. by activities. the If counterparty there at is the end of the contract. Pledged Assets In the normal course of business, we pledgeThe assets following as tables security summarize for our various pledged liabilities assets that and we collateral, incur. and the activities to which they relate: Exchange and Clearinghouse Guarantees We are a member ofus several to securities pay and a futures pro exchangesmaximum rata and exposure share central under of counterparties. these Membership the membership in losseshave agreements, certain incurred not since of by yet this these the occurred. would organizations organization Based require may in on an require the historical assessment event experience, of of we future default expect claims of the that another risk may member. of be It loss made is to against difficult be us to remote. that estimate our Notes ae r eeal ple oec emn ae nasauoytxrt n a eajse o tm n ciiisseii oec emn.A segment. each to specific activities and items for below. adjusted described Income be as operate. may adjustment we and basis where rate 194 equivalent jurisdiction tax taxable the each statutory the throughout in a is and paid on difference 1 taxes based measurement are Note of segment accounting segments in reflective each notable these disclosed be to in as not applied used statements, may generally policies financial below are accounting consolidated presented taxes The our taxes systems. of Income reporting preparation statements. financial the financial internal in consolidated our followed on those based with are consistent groups generally operating these has of from investments results results equity The and from Services, income Corporate Presentation 2016, and of of Management Basis quarter Wealth first P&C, Purchased the Canadian Services. in in reclassified. Corporate effective revenue been in Also non-interest have reclassified. recognized P&C. to periods been be U.S. income prior not to in interest the have continue recognized net for periods 2011 are from accounting prior in TF reclassified income the for acquired BMO been interest with Results portfolio to net consistent size. loan related in P&C, in impaired impacts reflected U.S. substantially credit accounting is in reduced purchased loan credit that recognized have the of mark being amounts on recoveries credit are these provisions and the portfolio that or provisions in loan given Recoveries and reduction performing and loans the purchased TF, purchased 2016, the BMO the of on of of quarter losses acquisition term first credit the the for over in provision income Beginning the interest portfolio. and net loan in purchased reflected the is on that losses mark credit the to in adjustments reduction and assets, costs secured restructuring estate costs, and real integration losses. treasury impaired acquisition credit residual certain certain for of from expenses, allowance impact results unallocated collective the the residual the reflect adjustments, impacts, largely equivalent accounting results taxable loan operating of purchased Services elimination certain Corporate the such, activities, As management results. liability Services asset Corporate in retained amounts real related services, marketing, operations compliance, technology, regulatory information and over bank. legal governance the finance, provides for management, and procurement expertise risk maintains and enterprise-wide planning, manages, estate provide strategic T&O CSAs including resources. (“T&O”). areas, human Operations of and and variety communications Technology a including in (“CSAs”), support Areas governance Support and Corporate of consists in Services operate Corporate we business, to of America. services lines North Services and Products in Corporate products Trading offices of and 16 range Banking including complete Corporate world, a and the offering Investment around provider our locations services Through 30 financial clients. American-based government North and a institutional is corporate, CM”) (“BMO Markets business Capital global Asia. BMO a and institutional, is Europe and (“WM”) States, Markets worth Management United Capital net Wealth the high BMO products. Canada, ultra insurance across to including markets mainstream services, in from and presence segments products active client management an of wealth with range of full offering a broad serves a businesses with solutions. management markets wealth capital of strategic group eight as banking BMO’s across well business machines as mid-sized banking knowledge, and automated industry Management small and specific and Wealth platforms in-depth retail banking offered Our mobile are services. and customers and online banking products centres, commercial of contact Our range branches, states. broad our a through offers served P&C”) are (“U.S. customers as Banking well Commercial as and products, Personal markets U.S. capital Banking and Commercial commercial and integrated Personal Banking of U.S. Commercial suite needs. broad customers. insurance a million creditor with eight and customers services. to card banking advisory services credit commercial financial and investing, and products financing, business financial banking, small of everyday our range for provides full solutions a financial provides provides P&C”) Banking (“Canadian Personal Banking Commercial and and Personal Personal U.S. Canadian and Banking Banking Commercial Commercial and and Personal Personal Canadian Canadian segments: operating two of comprised Banking. is Commercial (“P&C”) equity, Banking on Commercial return and growth, Personal revenue services income, Banking financial net Commercial other as leverage. and of such operating our Personal those measures as on with adjusted well based comparable and as grou M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO oprt evcsrslspirt 06rfetdcraniesi epc ftela otoi ucae n21,icuigrcgiino the of recognition including 2011, in purchased portfolio loan the of respect in items certain reflected 2016 to prior results Services Corporate remaining with CM), BMO and WM (P&C, groups operating client three the to transferred largely are services T&O and CSAs these of costs The class proposed and actions individual several in defendant a as named been has bank, the of subsidiary indirect an Inc., Burns Nesbitt BMO IACA STATEMENTS FINANCIAL Notes 195 Corporate Corporate Corporate Services (1) Total Services (1) Total Services (1) Total BMO Financial Group 200th Annual Report 2017 Wealth Wealth Wealth Management BMO CM Management BMO CM Management BMO CM U.S. U.S. U.S. P&C P&C P&C – ––– 2––2 1,538 – – 1,538 P&C P&C P&C 276 433 233 105 – 1,047 236 223 231 98 – 788 505308 295827 434 8 370 241 44 120 346 487 (78) – 774 (734) 1,103 1,296 5,060 3,538 614 1,483 (823) 9,872 4,806 2,845 565 1,307 (760) 8,763 5,2622,1827,444 3,607 1,066 4,6733,292 700 5,4923,339 6,192 1,288 2,508 3,3362,512 1,436 4,624 (850) 3,106 1,066 1772,512 1,299 (673) 10,007 2,658 12,253 1,066 22,260 1,802 953 635 (1,230) 1,315 951 12,199 6,646 1,315 (496) 5,350 (496) 5,348 Canadian Canadian Canadian 217,685 104,090 32,562 306,319 61,970 722,626 (2) (2) (2) Periodically, certain business lines and units within the business lines are transferred between client and corporate support groups to more Non-interest revenue Total Revenue Provision for credit losses Insurance claims, commissions andAmortization changes in policy benefitNon-interest liabilities expense Income before taxes andProvision non-controlling for interest income in taxes subsidiaries Reported net income (loss) Non-controlling interest in subsidiaries Net Income (loss) attributable to bankAverage shareholders Assets (1) Corporate Services includes Technology(2) and Operating Operations. groups report onCertain a comparative taxable equivalent figures have basis – been see reclassified Basis to of conform Presentation with section. the current year’s presentation. (Canadian $ in millions) 2015 Net interest income 2016 Net interest income (Canadian $ in millions) 2017 Net interest income (Canadian $ in millions) Non-interest revenueTotal RevenueProvision for credit lossesInsurance claims, commissions andAmortization changes in policy benefitNon-interest liabilities expenseIncome before taxes andProvision non-controlling for interest income in taxes subsidiariesReported net income (loss)Non-controlling interest in subsidiariesNet Income (loss) attributable to bankAverage shareholders Assets – 2,963 –Non-interest revenue 1,494Total RevenueProvision 1,543 for credit lossesInsurance claims, commissions andAmortization changes in policy benefit 999Non-interest liabilities expense 1,909 –Income before taxes 1,683 and 2,202Provision non-controlling 542 for interest income in taxes subsidiaries 1,119Reported net income 6,969 (loss) (1,407) 1,085Non-controlling interest in 3,188 subsidiaries – 257Net – 5,274 Income (loss) 5,732 attributable 4,657 761 to bank 2,202Average shareholders Assets – 2,473 1,543 2,855 759 1,085 5,888 409 9 – 1,253 3,104 2,801 – 4,338 58 2,469 81 1,121 (677) 208,018 761 238 11,215 1,254 2 (765) 105,998 1,253 4,622 716 430 1,144 (74) 21,087 1,833 30,642 11,950 – – 1,329 (670) 304,031 (737) 2,103 815 496 4,631 787 (1,054) 58,433 6,639 1,101 3,106 837 7 – 119 707,122 5,341 – 3,632 698 5,198 2,103 2,169 1,254 2,528 844 9 5,763 284 7 – 837 3,127 1,009 3,835 280 2,382 26 197,209 295 (423) 849 10,626 5 (480) 88,954 1,009 610 320 4,370 (36) 19,389 11,394 – 29,147 (393) (661) 612 290,672 4,405 58,409 30 936 664,391 35 closely align our organizational structurealign with with our current strategic experience. priorities. Results In for addition, prior revenue periods and are expense restated allocations to are conform updated to to the more current accurately year’s presentation. Inter-Group Allocations Various estimates and allocation methodologiesdirectly are related used to in earning the revenue preparationexpenses, to of are the the allocated groups operating to that groups’ operating earned financialinternal groups the information. funding using related We charges allocation revenue. allocate and formulas Expenses expenses credits applied notconsiderations. on on directly The the a related offset groups’ consistent to of assets, basis. earning the liabilities Operating revenue,applied net and group such to impact capital, as net the of at overhead interest geographical these market income segmentation. charges rates, reflects and taking credits into isOur account reflected relevant results in terms and Corporate and average Services. assets, currency These grouped inter-group by allocations operating are segment, also are as follows: Taxable Equivalent Basis We analyze revenue on atax-exempt taxable securities equivalent to basis an (“teb”) equivalent atthe before-tax the groups’ basis operating teb to group adjustments facilitate level. is comparisons RevenueOctober reflected of and 31, in income the 2017 Corporate between provision was Services taxable for $567 revenue and income million and tax-exempt taxes ($510 provision sources. are million for The increased in income offset on 2016 taxes. to and The $524 teb million adjustment in for 2015). the year ended Notes 196 follows: as related are the region, managing geographic are for by which responsible grouped Asia, unit assets, and the average Caribbean of and the location results Europe, the Our Kingdom, on United based the region in geographic expenses. operations by and have results revenues also our liabilities, we allocate assets, but We States, countries. United other the in and grouped Canada in primarily operate We Information Geographic CONSOLIDATED TO NOTES noebfr ae n o-otoln neeti usdais381110305,341 300 1,190 5,732 322 3,851 1,550 3,860 presentation. year’s current the with conform to reclassified been have figures comparative Certain Assets Average subsidiaries income in net interest Reported non-controlling and taxes before Income Revenue Total 2015 millions) in $ (Canadian Assets Average subsidiaries income in net interest Reported non-controlling and taxes before Income Revenue Total 2016 millions) in $ (Canadian Assets Average subsidiaries income in net interest Reported non-controlling and taxes before Income Revenue Total 2017 millions) in $ (Canadian M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO IACA STATEMENTS FINANCIAL 3,7 6,7 753722,626 27,583 264,473 430,570 0,9 3,7 777664,391 27,717 234,475 707,122 402,199 26,949 260,018 420,155 34071417622,260 1,706 7,134 13,420 17459217319,389 1,723 5,902 21,087 11,764 1,414 6,847 12,826 ,8 ,5 1 5,350 6,646 313 449 1,255 1,649 3,782 4,548 aaaUie ttsOhrcutisTotal countries Other States United Canada Total countries Other States United Canada Total countries Other States United Canada ,0 5 5 4,405 255 950 4,631 233 3,200 1,141 3,257 Notes 197 2 112 788 307 432 729 969 1,059 2,967 23,844 20,425 (Canadian $ in millions) Book value of shares owned by the bank BMO Financial Group 200th Annual Report 2017 Beijing, China Dublin, Ireland Halifax, Canada Calgary, Canada Calgary, Canada Toronto, Canada Toronto, Canada Toronto, Canada Toronto, Canada Toronto, Canada Toronto, Canada Toronto, Canada London, England London, England London, England London, England London, England London, England Hong Kong, China Hong Kong, China Head or principal office Vancouver, Canada Hamilton, Bermuda Hamilton, Bermuda Chicago, United States Chicago, United States Chicago, United States Chicago, United States Chicago, United States St. Michaels, Barbados Palo Alto, United States New York, United States Las Vegas, United States BMO Life Assurance Company BMO Reinsurance Limited BMO Nesbitt Burns Inc. BMO Harris Investment Company LLC Markets Corp., BMO Harris FinancialManagement Advisors, plc Inc., is BMO incorporated Harris under Financing, the Inc., laws and of CTC Scotland. myCFO, LLC, which are incorporated under the laws of the State of Delaware, United States. F&C Asset BMO Global Asset Management (Asia)LGM Limited Investments Limited BMO Life Holdings (Canada), ULC BMO Capital Markets Limited Pyrford International Limited BMO Investments Limited BMO Nesbitt Burns Holdings Corporation BMO Investments Inc. BMO InvestorLine Inc. BMO Asset Management Corp. andBMO subsidiaries Capital Markets Corp. BMO Harris Bank National Association and subsidiaries, including: BMO Harris Financial Advisors, Inc. BMO Harris Financing, Inc. andCTC subsidiaries my CFO, LLC BMO Mortgage Corp. F&C Asset Management plc and subsidiaries LGM (Bermuda) Limited and subsidiaries, including: BMO Trust Company BMO Trustee Asia Limited Assets held by our insuranceRegulatory subsidiaries. and Refer statutory to requirements Note that 12Funds reflect for required capital details. to and be liquidity held requirements. with Refer central to banks. Note Refer 20 to for Note details. 2 for details. Assets pledged as security forAssets various of liabilities our we consolidated incur. structured Refer entities to that Note are 25 held for for details. the benefit of the note holders. Refer to Note 7 for details. (1) Each subsidiary is incorporated or organized under the law of the state or country in which the principal office is situated, except for BMO Financial Corp., BMO Asset Management Corp., BMO Capital Significant subsidiaries (1) Bank of Montreal Capital Markets (Holdings) Limited and subsidiaries, including: Bank of Montreal (China) Co.Bank Ltd. of Montreal Holding Inc. and subsidiaries, including: Bank of Montreal Ireland plc Bank of Montreal Mortgage Corporation BMO Global Asset Management (Europe) Limited and subsidiaries, including: BMO Financial Corp. and subsidiaries, including: BMO Life Insurance Company and subsidiaries, including: ‰ ‰ ‰ ‰ ‰ Significant Restrictions Our ability to transfer fundsinclude: between our subsidiaries may be restricted by statutory, contractual, capital and regulatory requirements. Restrictions Note 27: Significant Subsidiaries As at October 31, 2017, the bank, either directly or indirectly through its subsidiaries, controls the following significant operating subsidiaries. Notes 198 we which over associates: associates and in ventures investments joint a Our 2016). our in 2016). in with investment in million transactions Our million ($390 presents services. ($187 2017 table these 2017 31, following for 31, October The customers October at our at as to as million offered million $444 terms $182 totalled same totalled influence the 50% significant on own exert associates we and which ventures of joint venture our joint to services banking provide We Associates and Ventures common units. Joint cash, stock either in deferred of remuneration of form other form the and the in fees in fees retainer fees other such other and of retainer remainder annual the their receive of to 100% elect units. take may stock to They deferred required units. or are stock shares they deferred retainer, or annual shares their common personnel than our management greater key of times suite to eight select loans are a 2017, units) and 31, fees, October card At credit customers. 2016). annual preferred in on to million accorded subsidy ($7 fee-based normally million a rates $10 balances, at totalled card products credit mortgage on and rates loan interest customer preferential executives senior offer We personnel: management key executives. of activitie senior compensation the certain the controlling and presents and/or (“directors”) table directing Directors following planning, of The for Board responsibility our and of authority members having the persons being those entity, as an defined is personnel management Key our transactions. Compensation with party Personnel Transactions related Management plans. as benefit disclosed Key future not employee are and and personnel consolidation, management on key eliminated ventures, are joint subsidiaries associates, subsidiaries, include parties Related Transactions Party Related 28: Note CONSOLIDATED TO NOTES neetexpense Interest loans income, Interest oa e aaeetpronlcompensation personnel management key Total esrcie o evcsprovided services for received Fees received services for paid Fees Deposits Loans millions) in $ (Canadian year. the in granted awards of values fair the are payments share-based in included Amounts (1) payments Share-based benefits Post-employment incentives and salary Base millions) in $ (Canadian M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO ietr forwol we usday M iaca op,aerqie otk pcfe iiu muto hi nulrtiesand retainers annual their of amount minimum specified a take to required are Corp., Financial BMO subsidiary, owned wholly our of Directors stock deferred (including shareholdings director’s a Until units. stock deferred in retainers annual their of amount specified a receive Directors (1) IACA STATEMENTS FINANCIAL 2017 62 38 23 1 2017 132 178 062015 2016 66 649 27 56 32 220 22 1 4 3 22 2016 205 323 sof 83 3 5 – Notes 199 2017 32,599 16,546 No 8,071 8,071 2,0336,244 2,033 2,159 6,244 1,371 2,159 2,865 1,371 2,865 (1,833) (1,833) maturity Total years Over 5 years 2to5 BMO Financial Group 200th Annual Report 2017 years 1to2 9to12 months ––––– – 6to9 months 3to6 months –––––––958 1to3 months – 7 ––––––––– ––––––––– – 9–––––––– –––––––– –––––––– 25–––––––– –––––––– 38 881 960 150 501 865 553517 712 371 523 1,084 836 1,374 4,954 1,285 4,211 20,845 – 8,590 9,094 23,667 61,944 0to1 month 3,784 1,5791,0362,434 626 1,470 1,975 939 3193,620 2,643 3,093 182 2,917 2,054 2,649 5,933 4,424 859 – 5,845 8,9301,045 2,719 20,896 3,625 1,551 13,051 55,641 7,675 26,727 – 4,531 22,842 99,069 7,687 1,604 52,615 – 6,201 54,075 58,126 19,866 163,198 1,701 65,547 3,748 – 8,830 1,580 6,490 1,229 – 1,306 115,258 1,340 3,272 7,426 475 8,689 129 17 – 28,951 11 11 131 4,431 3,860 10,405 31,641 57,919 13,236 2,353 1,24113,379 249 7,35214,941 6,454 49 9,274 6,169 12,069 18,69414,179 15,230 17,948 – 26,180 2,263 63,614 42,025 11,380 150,006 104 28,800 – 33,242 178,232 63,147 361,672 17,220 – 6,486 75,047 1,813 1,246 1,317 3,283 7,557 13,120 18,532 70,574 129,125 33,492 22,794 23,881 31,553 53,032 180,405 94,535 140,763 709,580 Sheet Commitments Trading securities Available-for-sale securities Held-to-maturity securities Other securities agreements Residential mortgages Consumer instalment and other personal Credit cards Businesses and governments Allowance for credit losses Derivative instruments Customers’ liability under acceptances Premises and equipment Goodwill Intangible assets Current tax assets Deferred tax assets Other On-Balance Sheet Financial Instruments Assets Cash and cash equivalents (Canadian $ in millions) Interest bearing deposits with banks Securities Total securities Securities borrowed or purchased under resale Loans Total loans and acceptances, net of allowance Other Assets Total other assets Total Assets The tables below show thecontractual remaining maturity contractual of maturity financial of assets on-balanceliabilities and sheet that liabilities assets is is and used an liabilities in input andconditions the to, off-balance and management but sheet under of is commitments. a liquidity not The number and necessarilydeposit of funding consistent withdrawals, stress risk. with, and scenarios, We the credit to forecast expected commitment manage asset maturitytime and liquidity and of horizon liquidity and liability assets over facility funding cash and which drawdowns risk. flows, liquid by Stress bothmarket assets counterparty scenarios under volatility can and include normal and be product assumptions market credit monetized type. for rating and Stress loanFunding downgrades, the scenarios repayments, Risk among related also section other haircuts consider of assumptions. and the Management’s For potential Discussion further collateral and details, requirements Analysis. see that the may blue-tinted result font from portion both of the Liquidity and Note 29: Contractual Maturities of Assets and Liabilities and Off-Balance Notes 200 CONSOLIDATED TO NOTES ucaeobligations Purchase 1 ag aoiyo hs omtet xiewtotbigdanuo.A eut h oa otata mut a o erpeettv ftefniglkl ob eurdfrthese for required be to likely funding the of representative be not may amounts contractual total the result, a As upon. drawn being without expire commitments these of majority large A (1) lending Securities leases Operating facilities liquidity Backstop credit extend to Commitments Commitments Sheet Off-Balance millions) maturity. in no $ under (Canadian included been have notice after payable and demand on payable Deposits (1) Equity and Liabilities Total Equity Total debt Subordinated liabilities other Total liabilities Other deposits Total Deposits Equity and Liabilities millions) in $ (Canadian M iaca ru 0t nulRpr 2017 Report Annual 200th Group Financial BMO Other liabilities entities’ structured and Securitization liabilities tax Deferred liabilities tax Current repurchase under sold or lent purchased Securities yet not but sold Securities Acceptances instruments Derivative Individuals governments and Businesses Banks commitments. agreements (1) IACA STATEMENTS FINANCIAL (1) 4,2 0053,6 1142,2 3707,6 6962063709,580 290,683 36,956 176,709 9,805 77,369 33,780 14,140 21,120 18,851 21,184 8,160 31,260 2,290 50,005 147,223 2,129 3,946 10,379 107,009 315164202 55,119 – 28,665 16,546 9,447 – – 2,361 154 – – 752 – – 239 31,107 43 – – 6,170 517 – – 20 2,536 – 12,616 – 290 483,488 1,644 236,524 – 17,787 104 53,165 284,070 58,518 117,173 25,620 2,263 15,712 25,163 25 18,830 42,707 14,179 19,055 16,522 27,314 496 10,806 39,626 12,897 40,214 19,112 2,633 25,224 9,321 23,917 12,462 ,7 ,0 ,5 ,1 4502,8 141223–127,055 – 2,283 71,481 21,985 14,560 8,312 4,755 2,302 1,377 5,336 27,804 – 8,111 6,885 168,311 3,477 113,181 2,075 1,206 15,811 1,510 9,098 1,512 7,999 3,227 5,662 1,876 5,569 5,081 3,835 month month 0to1 0to1 28 2 2 2 1 7 5 1,759 – 157 577 519 129 124 128 83 42 16 18 73972102–2,433 – 1,032 712 329 87 89 91 62 31 23,054 – 3,668 11,812 3,931 845 556 1,523 709 10 –––––– – ––––––– ––––––– –233233––––––– –125125––––––– months months 1to3 1to3 ––––– – –––––– – – –––––– months months 3to6 3to6 months months 6to9 6to9 months months 9to12 9to12 1to2 1to2 years years ,4 5,044 – – 5,044 2to5 2to5 years years ,2 5,029 – 5,029 vr5 Over 5 Over years years 43444,354 44,354 auiyTotal maturity Total maturity No No 25,163 5,336 2017 2017 Notes 201 2016 2016 2016 6,022 31,653 25,106 No No No 8,101 8,101 2,147 2,147 6,381 6,381 2,178 2,178 3,101 3,101 (1,925) (1,925) maturity Total maturity Total maturity Total 42,328 42,328 years years years Over 5 Over 5 Over 5 years years years 2to5 2to5 2to5 BMO Financial Group 200th Annual Report 2017 years years years 1to2 1to2 1to2 5,776 – – – 5,776 9to12 9to12 9to12 months months months 6to9 6to9 6to9 months months months 3to6 3to6 3to6 months months months ––––– –– – ––––– –– – ––––– ––908 1to3 1to3 1to3 months months months ––––– –––––85413824899 –––––– –– –––––– ––8181 –––––– ––242242 ––––––– –– – 100 – – – – 4,339 – 4,439 –––––– –– –––––– –– –––––– –– –––––– –– –––––– ––906906 –––––– –– 7 1,881 589 648 876 3,248 9,756 5,372 – 22,377 0to1 0to1 0to1 month month month 2,267 2,120 3,776 8,293 12,289 16,236 75,998 3,013 – 123,992 2,733 5,072 6,0821,956 5,632 3,064 7,252 2,315 8,684 1,373 16,198 1,240 2,706 5,434 108,528 162,887 9,303 13,542 – 38,227 8,651 1,152 701 22 4,809 1,704 140 2,444 8,401 28,024 11,94033,833 12,327 29,737 2,239 15,21648,506 1,488 13,174 47,136 23,537 8,359 464 20,29411,230 15,499 16,07525,106 1,748 34,103 500 24,683 13,006 50,301 113,287 42 15,712 276,214 – 227,128 473,372 – – 1 5,313 34,271 – – – – 13,021 51,085 10,993 4,167 338 – 63 – – – 66,646 84,954 10,377 3,829 2,043 6,926 10,386 19,199 21,358 8,724 167,796 133,460 57,513 27,466 22,337 23,001 35,069 69,500 41,409 278,180 687,935 (1) (1) commitments. Trading securitiesAvailable-for-sale securitiesHeld-to-maturity securitiesOther securities 826 740 – 412 1,401 1,449 – 1,058 431 2,794 294 376 2,645 5,771 6,507 – 19,695 7,122 24,808 350 16,975 1,615 2,841 45,496 55,663 84,458 1,270 4,210 –Banks Businesses and governments 8,965 Individuals Derivative instruments Acceptances Securities sold but not yet purchased agreements Residential mortgagesConsumer instalment and other personalCredit cards 371 374 1,001 791 1,212 828 3,347 4,772 887 3,930 5,431 24,555 24,041 64,044 8,542 9,416 23,415 64,680 – 112,277 Deferred tax liabilities Securitization and structured entities’ liabilities Other Securities lent or sold underCurrent repurchase tax agreements liabilities 38,004 2,532 182 – – – – – – 40,718 Businesses and governmentsAllowance for credit losses 11,473 5,904 7,155 6,727 20,547 18,140 63,049 11,380 31,222 175,597 Derivative instrumentsCustomers’ liability under acceptancesPremises and equipment 11,230 1,748 42 2,508 4,483 – 1,443 1,480 1 1,804 3,826 – 9,796 13,843 – – 39,183 – – 13,021 Goodwill Intangible assets Current tax assets Deferred tax assets Other 1,274 453 106 18 4 3 – 4,324 3,373 9,555 Purchase obligations 45 96 128 132 129 148 172 99 – 949 Operating leasesSecurities lendingCertain comparative figures have been reclassified to conform with the current year’s presentation. 6,022 30 61 90 88 88 317 709 602 – 1,985 (1) A large majority of these commitments expire without being drawn upon. As a result, the total contractual amounts may not be representative of the funding likely to be required for these Off-Balance Sheet Commitments Commitments to extend credit (1) Deposits payable on demand and payable after notice have(Canadian been $ included in under millions) no maturity. Backstop liquidity facilities Interest bearing deposits with banksSecurities 2,930 728 421 363 7 – – – – 4,449 Total deposits Other liabilities Total Liabilities and Equity Liabilities and Equity Deposits (Canadian $ in millions) Total securitiesSecurities borrowed or purchased under resale Loans 1,238 2,189 2,753 3,225 3,371 15,127 28,141 46,006 47,935 149,985 Total other liabilities Subordinated debt Total Equity On-Balance Sheet Financial Instruments Assets Cash and cash equivalents 30,745 (Canadian $ in millions) Total loans and acceptances, net of allowanceOther Assets 12,845 7,490 11,293 12,327 25,364 48,126 151,134 29,338 60,813 358,730 Total other assetsTotal Assets 15,012 6,684 113,855 1,591 28,084 1,498 20,225 17,751 1,809 30,551 3,829 67,145 189,071 9,796 93,511 18,167 127,742 18,086 687,935 76,472 GLOSSARY OF FINANCIAL TERMS Glossary of Financial Terms

Adjusted Earnings and Measures Common Equity Tier 1 (CET1) Economic capital is calculated for Insurance Risk is the potential for present results adjusted to exclude capital is comprised of common various types of risk, including credit, loss as a result of actual experience the impact of certain items, as set shareholders’ equity less deductions market (trading and non-trading), being different from that assumed out in the Non-GAAP Measures for goodwill, intangible assets, operational and business, based on a when an insurance product was section. Management considers both pension assets, certain deferred tax one-year time horizon using a designed and priced. It generally reported and adjusted results to be assets and certain other items. defined confidence level. entails the inherent unpredictability useful in assessing underlying Pages 72, 182 Pages 74, 85 that can arise from assuming long- ongoing business performance. term policy liabilities or from the Page 29 Common Equity Tier 1 Ratio reflects Economic Value Sensitivity is a uncertainty of future events. CET1 capital divided by CET1 capital measure of the impact of potential Insurance provides protection against Allowance for Credit Losses risk weighted assets. changes in interest rates on the the financial consequences of insured represents an amount deemed Pages 35, 69, 70, 182 market value of a portfolio of assets, risks by transferring those risks to adequate by management to absorb liabilities and off-balance sheet the insurer (under specific terms credit-related losses on loans and Common Shareholders’ Equity is positions in response to prescribed and conditions) in exchange for acceptances and other credit the most permanent form of capital. parallel interest rate movements. premiums. Insurance risk is inherent instruments. Allowance for credit For regulatory capital purposes, Page 97 in all our insurance products, losses can be specific or collective common shareholders’ equity is including annuities and life, accident and is recorded on the balance sheet comprised of common shareholders’ Efficiency Ratio (or Expense-to- and sickness, and creditor insurance, as a deduction from loans and equity, net of capital deductions. Revenue Ratio) is a measure of as well as in our reinsurance acceptances or, as they relate to productivity. It is calculated as non- business. credit instruments, as other liabilities. Credit and Counterparty Risk is the interest expense divided by total Page 99 Pages 78, 91, 113 potential for loss due to the failure of revenue, expressed as a percentage. a borrower, endorser, guarantor or The adjusted efficiency ratio is Legal and Regulatory Risk is the Assets under Administration and counterparty to repay a loan or calculated in the same manner, potential for loss or harm created by under Management refers to assets honour another predetermined utilizing adjusted total revenue and failing to comply with laws or satisfy administered or managed by a financial obligation. non-interest expense. contractual obligations or regulatory financial institution that are Pages 86, 156 Page 43 requirements. This includes the risks beneficially owned by clients and of failing to: comply with the law Derivatives are contracts with a therefore not reported on the Environmental and Social Risk is (in letter or in spirit) or maintain value that is “derived” from balance sheet of the administering the potential for loss or damage to standards of care; implement movements in interest or foreign or managing financial institution. BMO’s reputation resulting from legislative or regulatory exchange rates, equity or commodity environmental or social concerns requirements; enforce or comply Asset-Backed Commercial Paper prices or other indices. Derivatives related to BMO or its customers. with contractual terms; assert non- (ABCP) is a short-term investment. allow for the transfer, modification or Environmental and social risk is often contractual rights; effectively manage The commercial paper is backed by reduction of current or expected risks associated with credit, operational disputes; or act in a manner so as to physical assets such as trade from changes in rates and prices. receivables, and is generally used and reputation risk. maintain our reputation. for short-term financing needs. Dividend Payout Ratio represents Page 111 Page 109 Pages 76, 104 common share dividends as a Fair Value is the amount of Leverage Ratio reflects Tier 1 capital Average Earning Assets represents percentage of net income available consideration that would be agreed divided by the sum of on-balance the daily or monthly average balance to common shareholders. It is upon in an arm’s-length transaction sheet items and specified off-balance of deposits with other banks and computed by dividing dividends per between knowledgeable, willing sheet items, net of specified loans and securities, over a one-year share by basic earnings per share. parties who are under no compulsion adjustments. Page 70 period. Earnings Per Share (EPS) is to act. Liquidity and Funding Risk is the Bankers’ Acceptances (BAs) are calculated by dividing net income Forwards and Futures are bills of exchange or negotiable attributable to bank shareholders, potential for loss if BMO is unable to contractual agreements to either meet financial commitments in a instruments drawn by a borrower for after deduction of preferred buy or sell a specified amount of a payment at maturity and accepted dividends, by the average number of timely manner at reasonable prices currency, commodity, interest-rate- as they become due. Financial by a bank. BAs constitute a common shares outstanding. Diluted sensitive financial instrument or guarantee of payment by the bank EPS, which is our basis for measuring commitments include liabilities security at a specified price and date to depositors and suppliers, and and can be traded in the money performance, adjusts for possible in the future. Forwards are market. The bank earns a “stamping conversions of financial instruments lending, investment and pledging customized contracts transacted in commitments. fee” for providing this guarantee. into common shares if those the over-the-counter market. Futures conversions would reduce EPS. Pages 99, 156 Basis Point is one one-hundredth are transacted in standardized Adjusted EPS is calculated in the Market Risk is the potential for of a percentage point. amounts on regulated exchanges and same manner, using adjusted net are subject to daily cash margining. adverse changes in the value of Business Risk arises from the income. Page 159 BMO’s assets and liabilities resulting specific business activities of an Pages 34, 191 from changes in market variables enterprise and the effects these Hedging is a risk management such as interest rates, foreign could have on its earnings. Earnings Sensitivity is a measure of technique used to neutralize, exchange rates, equity and Page 111 the impact of potential changes in manage or offset interest rate, commodity prices and their implied interest rates on the projected 12- Collective Allowance is maintained foreign currency, equity, commodity volatilities, and credit spreads, and month before-tax net income of a or credit exposures arising from includes the risk of credit migration to cover impairment in the existing portfolio of assets, liabilities and off- credit portfolio that cannot yet be normal banking activities. and default in our trading book. balance sheet positions in response Pages 94, 156 associated with specific credit assets. to prescribed parallel interest rate Impaired Loans are loans for Our approach to establishing and movements. which there is no longer reasonable Mark-to-Market represents the maintaining the collective allowance Page 97 assurance of the timely collection of valuation of financial instruments is based on the requirements of IFRS, principal or interest. at market rates as of the balance considering guidelines issued by our Economic Capital is an expression sheet date, where required by regulator, OSFI. The collective of the enterprise’s capital demand Innovative Tier 1 Capital is a form accounting rules. allowance is assessed on a quarterly requirement relative to the bank’s of Tier 1 capital issued by structured Model Risk is the potential for basis and a number of factors are view of the economic risks in its entities that can be included in adverse consequences following considered when determining its underlying business activities. It calculating a bank’s Tier 1 Capital from decisions that are based on level, including the long-run represents management’s estimation Ratio, Total Capital Ratio and incorrect or misused model results. expected loss amount and of the likely magnitude of economic Leverage Ratio. Under Basel III, These adverse consequences can management’s credit judgment with losses that could occur should Innovative Tier 1 Capital is non- include financial loss, poor business respect to current macroeconomic severely adverse situations arise, and qualifying and is part of the decision-making or damage to and portfolio conditions. allows returns to be measured on a grandfathered capital being phased reputation. Pages 42, 91, 153 consistent basis across such risks. out between 2013 and 2022. Page 107

202 BMO Financial Group 200th Annual Report 2017 Net Interest Income is comprised Return on Equity or Return on Structured Entities (SEs) include to an equivalent before-tax basis to of earnings on assets, such as loans Common Shareholders’ Equity entities for which voting or similar facilitate comparisons of income and securities, including interest (ROE) is calculated as net income, rights are not the dominant factor between taxable and tax-exempt and dividend income, less interest less non-controlling interest in in determining control of the entity. sources. expense paid on liabilities, such subsidiaries and preferred dividends, We are required to consolidate an SE Pages 38, 195 as deposits. as a percentage of average common if we control the entity by having Page 39 shareholders’ equity. Common power over the entity, exposure to Tier 1 Capital is comprised of CET1 shareholders’ equity is comprised of variable returns as a result of our and additional Tier 1 Capital which Net Interest Margin is the ratio common share capital, contributed involvement and the ability to consists of preferred shares and of net interest income to average surplus, accumulated other exercise power to affect the amount innovative hybrid instruments subject earning assets, expressed as a comprehensive income (loss) and of our returns. to phase-out, less certain regulatory percentage or in basis points. retained earnings. Adjusted ROE is Pages 77, 157 deductions. Net interest margin is sometimes calculated using adjusted net income Pages 70, 182 computed using total assets. Structural (Non-Trading) Market rather than net income. Tier 1 Capital Ratio reflects Tier 1 Page 39 Pages 35, 65 Risk is comprised of interest rate risk arising from banking activities (loans capital divided by Tier 1 capital Net Non-Interest Revenue is non- Return on Tangible Common Equity and deposits) and foreign exchange risk-weighted assets. interest revenue, net of insurance (ROTCE) is calculated as net income risk arising from our foreign currency Pages 70, 182 available to common shareholders claims, commissions and changes operations and exposures. Total Capital includes Tier 1 and in policy benefit liabilities. adjusted for the amortization of Page 97 acquisition-related intangible assets Tier 2 capital. Tier 2 capital is Notional Amount refers to the as a percentage of average tangible Swaps are contractual agreements primarily comprised of subordinated principal amount used to calculate common equity. Adjusted ROTCE is between two parties to exchange a debentures and a portion of the interest and other payments under calculated using adjusted net income series of cash flows. The various collective and individual allowances derivative contracts. The principal rather than net income. swap agreements that we enter into for credit losses, less certain amount does not change hands Pages 35, 65 are as follows: regulatory deductions. Pages 70, 182 under the terms of a derivative Risk-Weighted Assets (RWA) are • Commodity swaps – counterparties contract, except in the case of defined as on- and off-balance sheet Total Capital Ratio reflects Total generally exchange fixed-rate and cross-currency swaps. exposures that are risk-weighted capital divided by Total capital floating-rate payments based on based on guidelines established by risk-weighted assets. Off-Balance Sheet Financial a notional value of a single OSFI. The term is used for capital Pages 70, 182 Instruments consist of a variety of commodity. management and regulatory financial arrangements offered to reporting purposes. Total Shareholder Return: The clients, which include credit • Credit default swaps – one counter- Page 70 three-year and five-year average derivatives, written put options, party pays the other a fee in annual total shareholder return (TSR) backstop liquidity facilities, standby Securities Borrowed or Purchased exchange for that other counter- represents the average annual total letters of credit, performance under Resale Agreements are party agreeing to make a payment return earned on an investment in guarantees, credit enhancements, low-cost, low-risk instruments, if a credit event occurs, such as BMO common shares made at the commitments to extend credit, often supported by the pledge bankruptcy or failure to pay. beginning of a three-year and five- securities lending, documentary and of cash collateral, which arise • Cross-currency interest rate swaps – year period, respectively. The return commercial letters of credit, and from transactions that involve includes the change in share price other indemnifications. the borrowing or purchasing fixed-rate and floating-rate interest payments and principal amounts and assumes dividends received of securities. were reinvested in additional Office of the Superintendent are exchanged in different Securities Lent or Sold under currencies. common shares. The one-year TSR of Financial Institutions Canada also assumes that dividends were (OSFI) is the government agency Repurchase Agreements are • Cross-currency swaps – fixed-rate reinvested in shares. responsible for regulating banks, low-cost, low-risk liabilities, often interest payments and principal Page 34 insurance companies, trust supported by cash collateral, which amounts are exchanged in different companies, loan companies and arise from transactions that involve Trading and Underwriting Market currencies. pension plans in Canada. the lending or selling of securities. Risk gives rise to market risk Securitization is the practice of • Equity swaps – counterparties associated with buying and selling Operational Risk is the potential selling pools of contractual debts, exchange the return on an equity financial products in the course of for loss resulting from inadequate or such as residential mortgages, security or a group of equity secu- servicing customer requirements, failed internal processes or systems, auto loans and credit card debt rities for a return based on a fixed market making and related financing human interactions or external obligations, to third parties. or floating interest rate or the activities, and from assisting clients events, but excludes business risk, Page 76 return on another equity security or to raise funds by way of securities credit risk and market risk. issuance. Specific Allowance reduces the group of equity securities. Page 105 Page 94 carrying value of specific credit assets • Interest rate swaps – counterparties Options are contractual agreements to the amount we expect to recover Trading-Related Revenues include if there is evidence of deterioration generally exchange fixed-rate and that convey to the purchaser the floating-rate interest payments net interest income and non-interest right but not the obligation to either in credit quality. revenue earned from on- and off- Pages 91, 153 based on a notional value in a buy or sell a specified amount of a single currency. balance sheet positions undertaken currency, commodity, interest-rate- Strategic Risk is the potential for for trading purposes. The sensitive financial instrument or loss due to changes in the external • Total return swaps – one counter- management of these positions security at a fixed future date or business environment and/or failure party agrees to pay or receive from typically includes marking them to at any time within a fixed to properly respond to these changes the other cash amounts based on market on a daily basis. Trading- future period. as a result of inaction, ineffective changes in the value of a reference related revenues include income Page 159 strategies or poor implementation asset or group of assets, including (expense) and gains (losses) from of strategies. any returns such as interest earned both on-balance sheet instruments Provision for Credit Losses is a Page 111 on these assets, in exchange for and interest rate, foreign exchange charge to income that represents amounts that are based on (including spot positions), equity, an amount deemed adequate by Stressed Value at Risk (SVaR) is prevailing market funding rates. commodity and credit contracts. management to fully provide for measured for specific classes of risk Page 159 Page 40 impairment in a portfolio of loans in BMO’s trading and underwriting and acceptances and other credit activities related to interest rates, Tangible Common Equity is Value at Risk (VaR) is measured instruments, given the composition foreign exchange rates, credit calculated as common shareholders’ for specific classes of risk in BMO’s of the portfolio, the probability of spreads, equity and commodity equity less goodwill and acquisition- trading and underwriting activities default, the economic environment prices and their implied volatilities, related intangible assets, net of related to interest rates, foreign and the allowance for credit losses where model inputs are calibrated related deferred tax liabilities. exchange rates, credit spreads, already established. to historical data from a period of Page 35 equity and commodity prices and Pages 42, 65, 153 significant financial stress. This their implied volatilities. This measure calculates the maximum Taxable Equivalent Basis (teb): measure calculates the maximum Reputation Risk is the potential loss likely to be experienced in the Revenues of operating groups are loss likely to be experienced in the for loss or harm to the BMO brand. trading and underwriting portfolios, presented in our MD&A on a taxable trading and underwriting portfolios, It may arise even if other risks are measured at a 99% confidence level equivalent basis (teb). Revenue and measured at a 99% confidence level managed effectively. over a specified holding period. the provision for income taxes are over a specified holding period. Page 112 Page 94 increased on tax-exempt securities Pages 94, 95

BMO Financial Group 200th Annual Report 2017 203 Where to Find More Information

Corporate Governance Shareholders Employees Our website provides information on our Contact our Transfer Agent and Registrar for: For information on BMO’s Employee Share corporate governance practices, including our • Dividend information Ownership Plan: code of conduct, our Director Independence Change in share registration or address • Call: 1-877-266-6789 Standards and our board mandate and • Lost certificates committee charters. • Estate transfers Duplicate mailings www.bmo.com/corporategovernance • General Direct registration • To obtain printed copies of the Computershare Trust Company of Canada annual report or make inquiries Management Proxy Circular 100 University Avenue, 8th Floor, Toronto, ON M5J 2Y1 about company news and initiatives: Email: [email protected] Our management proxy circular contains Corporate Communications Department information on our directors, board committee www.computershare.com/ca/en BMO Financial Group reports and a detailed discussion of our corporate 28th Floor, 1 First Canadian Place Canada and the United States governance practices. It will be published in Toronto, ON M5X 1A1 Call: 1-800-340-5021 Fax: 1-888-453-0330 March 2018 and will be available on our website. On peut obtenir sur demande International un exemplaire en français. www.bmo.com/corporategovernance Call: 514-982-7800 Fax: 416-263-9394 www.bmo.com Computershare Trust Company, N.A. Stock Exchange Co-Transfer Agent (U.S.) Governance Requirements Customers For assistance with your investment portfolio A summary of the significant ways in which Online filing information: our corporate governance practices differ or other financial needs: BMO filings in Canada from the corporate governance practices BMO Bank of Montreal Canadian Securities Administrators required to be followed by U.S. domestic English and French: 1-877-225-5266 companies under New York Stock Exchange www.sedar.com Cantonese and Mandarin: 1-800-665-8800 Outside Canada and the continental United States: Listing Standards and NASDAQ Stock Market BMO filings in the United States 514-881-3845 Rules is posted on our website. Securities and Exchange Commission TTY service for hearing impaired customers: www.sec.gov/edgar.shtml www.bmo.com/corporategovernance 1-866-889-0889 www.bmo.com Sustainability Performance For all other shareholder inquiries: BMO InvestorLine: 1-888-776-6886 BMO’s Environmental, Social and Governance Shareholder Services www.bmoinvestorline.com Report and Public Accountability Statement BMO Financial Group BMO Harris Bank (ESG Report/PAS) outlines how we manage Corporate Secretary’s Office 21st Floor, 1 First Canadian Place United States: 1-888-340-2265 the environmental, social and governance Outside the United States: 1-847-238-2265 impacts of our business while creating value Toronto, ON M5X 1A1 Email: [email protected] www.bmoharris.com for our many stakeholders. We use the Global Call: 416-867-6785 Fax: 416-867-6793 Reporting Initiative (GRI) as a framework for BMO Nesbitt Burns: 416-359-4000 reporting on our sustainability performance. www.bmonesbittburns.com The 2017 report will be available on our Institutional Investors website in February 2018. and Research Analysts To obtain additional financial information: www.bmo.com/corporateresponsibility Head, Investor Relations BMO Financial Group Have Your Say 10th Floor, 1 First Canadian Place If you have a question you would like to ask Toronto, ON M5X 1A1 at our annual meeting of shareholders, you Email: [email protected] can submit your question in person or during Call: 416-867-4770 Fax: 416-867-3367 the webcast. You can also submit a question to the board by writing to the Corporate Secretary at Corporate Secretary’s Office, 21st Floor, The following are trademarks of Bank of Montreal or its subsidiaries: 1 First Canadian Place, Toronto, ON M5X 1A1, BMO, BMO SmartFolio, BMO InvestorLine, adviceDirect, BMO Harris Mobile Banking or emailing [email protected]. The following are trademarks owned by other parties: Mastercard, Masterpass are trademarks of Mastercard International Incorporated. Android Pay is a trademark of Google Inc. Allpoint is a trademark owned by ATM National, Inc. Samsung Pay is a trademark owned by Samsung Electronics Co., Ltd. Interac Flash is a trademark of Interac Inc.

204 BMO Financial Group 200th Annual Report 2017 Strategic design: Ove Brand|Design www.ovedesign.com Auditors and Canton, Massachusetts, respec common shares in Bristol, United Kingdom for Registrars and Agents Transfer as serve N.A. Company, Trust Computershare and PLC Services Investor Computershare Vancouver. in Montreal, Toronto, Winnipeg, Calgary and facilities transfer with shares, preferred and as Transfer Agent and Registrar for common serves Canada of Company Trust Computershare Our Transfer Agent andRegistrar YourManaging Shares Canada or Shareholder Services for details. of Company Trust Computershare Contact year. fiscal per $40,000 to up amounts in shares common additional purchase also You can charge. service or commission a paying without shares common BMO additional purchase to shares common BMO your from dividends cash reinvest can you Plan, Purchase Share and Reinvestment Through the Shareholder Dividend Purchasing Additional Common Shares Reinvesting Your Dividendsand See previous page for contact information. Avenue. BMO Institute for Learning,3550 Pharmacy be heldin will Toronto, Ontario, at the annualmeeting ofThe shareholders common or preferred shares. payment of of Montreal’s dividendsonBank tendent of FinancialInstitutions Canada Currently, thislimitation doesnot restrict the dealing with adequacy of or capital liquidity. Super contravention of regulations or anorder from the paying adividendifitisor would thereby bein prohibits Act Bank abankfromThe declaringor to approval*Subject by theBoard of Directors. August 27 February 26 Preferred shares payment dates August 28 February 27 Common shares payment dates August 1 February 1 Common andpreferred shares record dates 2018 DividendPayment Dates* Details are available onour website. Annual Meeting Fiscal Year End DatesImportant www.bmo.com/investorrelations ­in

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Shareholder Information Series 5 and 105 of thisannualreport andonour website. Credit rating information appears onpages 25 Credit Ratings 1 were issued inMarch 2009 andredeemed inMay 2014. (i) (h) (g) (f) (e) were issued inFebruary 1998 andredeemed in (d) (c) (b) (a) Series 42 Series 40 Series 38 Series 36 Series 35 Series 33 Series 31 Series 29 Series 27 Series 26 Series 25 Series 23 Series 21 Series 18 Series 17 Series 16 Series 15 Series 14 Series 13 Preferred Class B Common Issue/Class record of any company inCanada. of MontrealBank haspaiddividendsfor 189 years –thelongest-running dividendpayout Dividends Paid per Share in2017 andPrior Years June 23, 1967 March 20, 1993 March 14, 2001 Date Common Share History NYSE TSX exchanges Primary stock Common Share Trading inFiscal2017 New York Stock Exchange (NYSE). preferredThe shares of of Montreal Bank are listed onthe TSX. commonThe shares of of Montreal Bank are listed onthe Toronto Stock and Exchange (TSX) Market for Shares of of Montreal Bank

As of October*As 31, 2017. the company. – aclear indication of their commitment to in theBMO Employee Share OwnershipPlan 85.1% Employee Ownership

February 2014. was includedintheredemption price. February 2013. Dividendamount declared in2013 of $0.33 in May 2017. Series 2 Series 18 Series 17 Series 16 Series 15 Series 14 Series 13 Series 5 declared in2017 was $3.56. Dividend amoun

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1.35 1.16 0.95 0.98 1.00 0.98 0.54 0.85 1.45 1.31 3.36 High 2016 6 were issued in August 2016. 2 (NVCC) were issued inJune2017. – – – – – – – – – were issued in March 2011. were issued inJune2009 andredeemed in NVCC) were issued inJuly 2014. NVCC) were issued inOctober 2016. NVCC) were issued inOctober 2015 by way of NVCC) were issued inJune2014.

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Healthy Investment.

In September 2017, BMO announced a $21 million gift to support research and enhanced patient care at seven academic hospitals affiliated with the University of Toronto’s Faculty of Medicine. The largest donation in the bank’s history, it reflects our deep commitment to advancing both social and economic well-being in the communities we serve. Over the next decade, this phased investment will help to reinforce Canada’s role as a global hub for innovative health-related research and practice. Funding will be divided among the following initiatives:

A new geriatric The ambulatory care area The BMO Financial Group services wing. in a new state-of-the-art Chair in Precision Genomics – A unique diabetes clinic, as emergency department. a global first. well as prevention programs for Indigenous communities.

Founding partner of the Kids A unique new centre for The BMO Education & Health Alliance technology prostate cancer research, Conference Centre for healthcare platform serving Ontario diagnosis and treatment. professionals. communities.

Printed on Rolland Enviro Print and Satin, which contain 100% post-consumer fibre and are manufactured using renewable biogas energy. They are certified FSC®, Processed Chlorine Free, Ancient Forest Friendly and ECOLOGO 2771. 100%