BMO Financial Group | 208th Annual Report
2025 ANNUAL REPORT
TO SHAREHOLDERS
BMO
II BMO Financial Group 208th Annual Report 2025
WHO WE ARE
Canadian Personal and
Commercial Banking
serves clients across Canada with
a comprehensive range of financial
products, services and advice through
integrated branch, contact centre and
digital channels.
Bank of Montreal brands the organization’s
member companies as BMO Financial
Group. Note 26 of the consolidated
financial statements lists the intercorporate
relationships among Bank of Montreal and
its significant subsidiaries.
Escalator mural titled “Ring True”
by Panya Clark Espinal.
Business Review
1
Who We Are
2
Our Strategy
4
Chair’s Message
5
Chief Executive Officer’s Message
8
Financial Performance
10
World-Class Client Experience
12
Digital-First, AI-Powered
13
Winning Culture
14
Board of Directors and Executive
Committee
Financial Review
15
Enhanced Disclosure Task Force
16
Management’s Discussion
and Analysis
114 Supplemental Information
125 Statement of Management’s
Responsibility for Financial
Information
126 Independent Auditor’s Report
130 Reports of Independent Registered
Public Accounting Firm
133 Consolidated Financial Statements
138 Notes to Consolidated Financial
Statements
Resources and Directories
122 Glossary of Financial Terms
203 Where to Find More Information
204 Shareholder Information
BMO Financial Group 208th Annual Report 2025 1
BMO Financial Group is the seventh largest bank in North America by assets, with total assets of $1.5 trillion. Serving
clients for more than 200 years, BMO is a highly diversified financial institution, providing a broad range of personal and
commercial banking, wealth management, global markets and investment banking products and services to approximately
thirteen million clients in Canada, the United States and select markets globally. We operate through four integrated
operating segments: Canadian Personal and Commercial Banking, U.S. Banking, Wealth Management and Capital Markets.
U.S. Banking
serves clients across the United
States with a comprehensive range
of financial products, services and
advice through an extensive network
of branches, contact centres and
digital banking platforms, with
nationwide access to BMO and
Allpoint® automated teller machines.
Wealth Management
serves a full range of clients across
Canada, from individuals and families
to business owners and institutions,
offering a wide spectrum of wealth,
asset management and insurance
products and services aimed at
helping clients make real financial
progress through planning, growing,
protecting and transitioning their
wealth. Our asset management
business is focused on delivering
innovative financial solutions and
strategies for our clients.
Capital Markets
offers a comprehensive range of
products and services to corporate,
institutional and government clients
globally. Our extensive network of
approximately 2,700 professionals
in 38 locations around the world
supports the growth aspirations of
our clients across the enterprise.
BMO Financial Group 208th Annual Report 2025 1
OUR STRATEGY
At BMO, we continue to build a digital-first, future-ready bank, with engaged employees and
a high-performing, winning culture.
We are focused on helping our clients make real financial progress, and on financing their growth
and innovation, while also investing in our workforce.
Anchored by our Purpose, we are differentiated by our strategic priorities for growth, strengthened
by our approach to sustainability and guided by our values as we build a foundation of trust with
our colleagues, clients and communities.
Our Purpose
Boldly Grow the Good in business and life. BMO has a deep sense of purpose. We leverage our position
as a leading financial services provider to drive progress for our clients and communities.
Thriving economy
Provide access to capital
and valuable financial
advice – investing in
businesses, supporting
home ownership and
strengthening the
communities we serve,
while driving innovation
that makes banking
easier.
Sustainable future
Be our clients’ lead partner in
their transition to a net zero
world, offering products and
services to help them achieve
their sustainability and risk
management objectives.
Stronger communities
Act as a catalyst for
progress through capital
investment, sponsorships
and donations, as well
as financial literacy and
educational programming.
Our culture inspires
our colleagues to get
involved, give back and
volunteer their time to
make an impact.
2 BMO Financial Group 208th Annual Report 2025
Our Strategic Priorities
Our priorities support our enterprise-wide strategy and are the differentiators that allow us to
achieve our financial objectives and deliver competitive performance through consistent execution.
World-class client
experience,
grounded in One
Client advice and
guidance
High-performing,
winning culture
driven by alignment,
accountability and
recognition
Digital-first,
AI-powered
business for value
and future
readiness
Superior risk
management
BMO’s Purpose:
Boldly Grow the Good in business and life.
MONDAY GROW THE
GOOD
IN BUSINESS AND LIF
4 BMO Financial Group 208th Annual Report 2025
George A. Cope
Chair of the Board
Chair’s Message
her appointment at our Annual Meeting of Shareholders.
Tammy brings more than 30 years of experience in public
accounting to her role, including executive leadership
and governance roles within industrial markets, board
leadership, and human resources experience. A Fellow of
Chartered Professional Accountants of Ontario since 2021,
Tammy is a retired Partner at KPMG LLP and served as
Deputy Chair of the Board of Directors of KPMG Canada.
We look forward to the contribution Tammy will make to
our deliberations.
Finally, I want to acknowledge the trust that you, our fellow
shareholders, place in us as your representatives and, on
behalf of all my colleagues, I thank you for giving us the
privilege to serve. With your support, we will continue to
strive in the year ahead to help BMO make progress for our
clients, colleagues and the communities we serve.
BMO had a strong year in 2025, making progress on our
strategic priorities and financial performance. This positive
performance was achieved in a very dynamic environment
– one that continues to change rapidly in the face of
evolving global trade relationships, ongoing regulatory
reforms and the accelerating pace of AI adoption. BMO is
well positioned to navigate the future with a clear strategy
supported by a strong capital base.
During the past year, BMO generated strong earnings
growth, while returning capital to you, the shareholder,
through strategic share buybacks and dividend increases.
Continuing to build ROE – to 15% over the medium term
– will be our #1 imperative in the years ahead, as Darryl
White sets out in his message to you.
We have great confidence in Darryl and the management
team, and we continue to champion the high-performance
culture that permeates the organization, as evidenced by
the very high level of employee engagement. We thank all
members of Team BMO for continuing to fulfill our Purpose
to Boldly Grow the Good in business and life.
I am pleased to announce a new addition to your Board
of Directors. We have appointed Tammy L. Brown to
serve on the board and will be asking you to confirm
George A. Cope
BMO Financial Group 208th Annual Report 2025 5
2025 was a globally transformational year – economically,
politically and technologically. Through it all, BMO has
served as a pillar of strength and resilience for our clients
and the communities we serve. The combination of our
established Canadian franchises, growing U.S. businesses
and extensive network of bankers, wealth advisors and
capital markets professionals in select markets around the
world leveraged the momentum we’ve built in recent
years to deliver another strong year.
As the 7th largest bank in North America with total assets
of $1.5 trillion, our robust platform represents a strategic
advantage for both BMO and our clients, especially as the
state of North American trade and investment evolves.
This advantage has powered our track record of supporting
economic growth – and the businesses and strong
communities that drive it – throughout the countries
we’ve operated in for more than 208 years.
Within this dynamic operating environment, we’ve
focused on delivering our strategic priorities to accelerate
our performance. We’ve leveraged investments made in
our teams and capabilities and tapped into the Winning
Culture that we’ve cultivated to drive growth and deliver
shareholder value. This year’s Annual Report highlights
how far we’ve come as a leading North American bank
and how our performance helps drive progress for our
clients and shareholders.
Challenge and opportunity in a
new economic reality
Global trade is reorganizing. Amid higher tariffs and policy
changes initiated by various governments, long-held
economic alliances are undergoing change. For consumers
and businesses, this has brought economic challenge for
much of 2025, even as inflation moderated and financial
markets have generally been constructive.
Dialogue on trade relations between the U.S. and Canada
is ongoing. And it’s clear the shift away from greater trade
liberalization – which has defined decades of growth in
North America and around the world – is here to stay.
While this shift has introduced new complexities, it is
also bringing opportunities. In Canada, this external
pressure has refocused policymakers to address economic
competitiveness. A political consensus has emerged for
pro-growth policies and for major project investments
that aim to address longstanding issues of internal
trade, productivity, national security and natural resource
development. In the U.S., a focus on building the domestic
manufacturing sector, securing supply chains and energy,
and creating jobs, is the order of the day. In both cases,
our focus is providing the valuable guidance and support
clients need to thrive.
A critical issue for the U.S.-Canada relationship will be the
review of the USMCA. While it’s difficult to predict how
the 2026 review of the agreement will unfold, the fact is
that this trade agreement and its predecessors have helped
North America grow to become the most prosperous region
in the world. Preparing for the next form of North American
economic cooperation will be essential for individuals,
families and businesses in the months and year ahead –
and BMO is ready.
Darryl White
Chief Executive Officer
Chief Executive
Officer’s Message
6 BMO Financial Group 208th Annual Report 2025
CHIEF EXECUTIVE OFFICER’S MESSAGE
growth and provides greater access to capital for all by
advancing home ownership, growing small businesses
and strengthening communities. Across BMO’s footprint,
we have donated $350 million to thousands of non-profits
working to address critical issues. This includes investing
in the future of California, where we’re supporting non-
profits across the state with multi-year grants, and wildfire
recovery efforts in Los Angeles. We also continue to serve
as the Official Bank of the Canadian Defence Community,
supporting the unique needs of veterans and military
families. And we’ve anchored our presence with world-class
workspaces, including BMO Tower in Chicago and BMO Place
in Toronto.
Along the way, we earned global recognition for our
innovation, client service and ethical practices. This includes
being named one of the World’s Most Innovative Companies
by Fast Company, recognized as the Best Private Bank and
Best Commercial Bank in Canada and the Best Commercial
Bank in the U.S. for multiple consecutive years by World
Finance magazine, and named one of Canada’s Best 50
Corporate Citizens by Corporate Knights for 24 years straight.
A clear, focused strategy
Team BMO is focused on helping our clients make real
financial progress. This means delivering even greater
value for the individuals, families and businesses we serve
through world-class experiences and industry-leading
digital capabilities, all powered by our high-performing
Winning Culture.
Our world-class client experiences are grounded in One Client
advice and guidance to deliver seamless, personalized
interactions that help clients access the breadth of the whole
bank. Supporting these exceptional experiences is our
high-performing Winning Culture, with our teams aligning
across the bank to take accountability for outcomes that
help clients benefit from the best of BMO. Driven by an
BMO’s strength as a leading
North American bank
For 208 years, BMO has helped clients and communities
make real financial progress everywhere we do business.
Our growth as a leading North American bank continues to
deliver the performance and value that uphold this history –
and is reflected in our 2025 full-year results.
Across all operating segments, we drove significant
pre-provision pre-tax earnings growth with strong revenue
supported by disciplined expense management. This
resulted in Team BMO meeting our commitment to positive
operating leverage for the sixth time in the last seven
years. Superior management of risk is a key differentiator
for BMO, and throughout 2025, our teams worked diligently
to stabilize our credit performance and lower PCL.
As we deliver for our clients, we’re driving the performance
to achieve our potential. Our #1 imperative is rebuilding
our return on equity (ROE) towards our medium-term goal
of 15%. This year, we delivered strong progress, reaching
11.3% for the full year, a year-over-year improvement of
150 basis points. With strong operating performance, risk
management and a focus on optimizing capital allocation,
we’re executing against our plan and making the same
kinds of disciplined and agile decisions that have served
the bank and our clients for more than 200 years.
Our focus on consistent, profitable growth is reinforced by
our strong and stable balance sheet, which boasts solid
capital and liquidity ratios. And I’m deeply proud that for
the 197th consecutive year, BMO maintained the longest
dividend payout record of any company in Canada.
Five years of growth and progress
2025 was propelled by the momentum we’ve built over
the past five years. In that time, we evolved our North
American platform, reinforcing our leadership position in
the Canadian market and growing our U.S. businesses to
become a top 10 diversified U.S. bank.
We grew the bank, both organically and through strategic
acquisitions, like Burgundy Asset Management in Canada,
and we’ve been strong stewards of our shareholders’
equity; strategically investing to bolster our presence and
capabilities in areas we have a competitive advantage
and can best serve our clients.
Throughout the past five years we’ve also invested to
strengthen the communities we serve. In the U.S., our
$40-billion community benefits plan promotes economic
Driven by our Purpose, to Boldly
Grow the Good in business and
life, our teams are committed
to making progress for a thriving
economy, a sustainable future
and stronger communities.
BMO Financial Group 208th Annual Report 2025 7
to doing what’s right – for our clients and the communities
we serve. How we achieve our goals is just as important
as attaining them. This means operating with transparency,
good governance and integrity, and encouraging our
employees to speak up if something doesn’t align with
BMO’s Code of Conduct.
Because of this leading ethical culture, BMO has been
named one of the World’s Most Ethical Companies by
Ethisphere for eight years in a row, and we were recently
named to the 2026 Forbes list of the Most Trusted Companies
in America. These recognitions reflect our commitment to
delivering for our clients, empowering our colleagues and
strengthening communities.
That commitment to strong communities stretches back
almost two centuries, when we made one of the first
corporate donations on record in Canada in 1835. Today,
that tradition continues through our annual Employee
Giving Campaign. With industry-leading levels of
participation, this campaign is a point of pride for all of
us at BMO, with our employees raising nearly $250 million
for community organizations across North America in the
past decade alone.
Thank you to everyone at BMO for delivering world-class
experiences for clients, supporting strong communities and
making our Winning Culture best in class.
Looking ahead
The strides we’ve made over the past year will serve us
well as we look ahead to 2026 and beyond. Driven by our
Purpose, to Boldly Grow the Good in business and life,
our teams are committed to making progress for a thriving
economy, a sustainable future and stronger communities.
Our performance in 2025 reinforces my confidence that this
team can deliver on that Purpose.
As bankers, we stand at the intersection of capital and
our clients’ ambitions. With our strong Canadian businesses,
growing U.S. franchise, and investments in our people
and capabilities, we’re ready to serve. I’m proud of how
Team BMO works every day to help our clients make real
financial progress.
Thank you for your trust and for your investment in BMO.
innovative and entrepreneurial mindset, our teams leverage
our Digital-First, AI-powered capabilities responsibly to
enhance decision-making, streamline operations and
unlock value for our clients. And we do it all with superior
risk management to safeguard the bank and our clients.
As we drive a differentiated experience for clients, we
continue our focus on strengthening our ROE, optimizing
capital allocation and delivering sustained positive operating
leverage. Taken together, this supports our commitment
to delivering top-tier Total Shareholder Return. Throughout
2025, Team BMO delivered consistently high performance,
achieved significant Total Shareholder Return growth, and
delivered value to our shareholders.
Driving value with Digital-First,
AI-powered capabilities
The Digital-First evolution of our business continues with
pace, focused on delivering world-class client experiences
and driving tangible value across our business. Our
innovation spans the client and employee digital experience,
scaled deployment of data to drive insight and personalization,
process simplification through digitization, and the responsible
deployment of artificial intelligence.
Our commitment to leveraging AI-powered digital solutions
to help our clients make real financial progress is globally
recognized. This year, we received 11 recognitions from the
2025 Digital Bank Awards and the Qorus-Infosys Finacle
Banking Innovation Awards for our leadership in AI, digital
innovation and a continued commitment to client-focused
solutions. Our industry-leading AI development programs
are also globally recognized, with BMO recently ranked
in the top 20 for AI maturity among the world’s top 50
banks and jointly securing the #1 position in AI talent
development, according to Evident AI.
AI is an important tool for our teams, and we are
committed to leveraging this technology responsibly
and consistently with our values and in compliance with
regulations. Maintaining high standards of privacy, security
and confidentiality of client data is, and always will be,
critical to the trust that underpins our business.
A Winning Culture of ethics and leadership
BMO’s Winning Culture is deeply engaged and high
performing – and a key differentiator for our strategy.
As our strategy evolves, we continue strengthening our
Winning Culture by developing and recruiting talent that
help the bank and our clients succeed, with a commitment
Darryl White
8 BMO Financial Group 208th Annual Report 2025
FINANCIAL PERFORMANCE
Earnings Per Share
Growth (%)
Return on Equity (%)
Net Income (C$ billions)
Reported
Adjusted2
Reported
Adjusted2
Reported
Adjusted2
9.7 9.8
10.6
11.3
2025
2024
28.7
43.3
16.9
19.5
22.2
17.6
1-year
3-year
5-year
2025
2024
9.2
8.7
7.3
7.4
Total Shareholder
Return6 (%)
BMO
S&P/TSX Composite Index
20.2
65.1
25.6
(18.0)
2025
2024
2025 financial performance
3-year4 financial performance
Reported
Adjusted2
Reported
Adjusted2
Earnings per share growth of 7% to 10%
20.2%
25.6%
(17.0)%
(2.8)%
Return on equity of 15% or more
10.6%
11.3%
8.8%
11.2%
Return on tangible common equity of 18% or more
14.3%
14.7%
12.1%
14.7%
Operating leverage3 of 2% or more
2.4%
4.3%
(7.4)%
(0.3)%
Capital ratios that exceed regulatory requirements
13.3% CET1 Ratio5
na
1 We have established medium-term financial objectives for certain important performance measures. Medium-term is generally defined as three to five years, and performance
is assessed on an adjusted basis.
2 Adjusted results and measures are non-GAAP amounts and measures and are discussed in the Non-GAAP and Other Financial Measures section of Management’s Discussion
and Analysis (MD&A). Regarding the composition of non-GAAP and other financial measures, including supplementary financial measures, refer to the Glossary of Financial
Terms in the MD&A.
3 Prior to November 1, 2022, we presented adjusted revenue on a basis net of insurance claims, commissions and changes in policy benefit liabilities (CCPB) and operating
leverage was calculated based on revenue, net of CCPB. Beginning fiscal 2023, we no longer report CCPB, given the adoption and retrospective application of IFRS 17, Insurance
Contracts (IFRS 17). Revenue, net of CCPB, was $34,393 million in fiscal 2022 and $25,787 million in fiscal 2021. Measures and ratios presented on a basis net of CCPB are
non-GAAP amounts.
4 The 3-year EPS growth rate and operating leverage, net of CCPB, reflect compound annual growth rates (CAGR).
5 The CET1 Ratio is disclosed in accordance with OSFI’s Capital Adequacy Requirements (CAR) Guideline.
6 As at October 31, 2025.
7 Percentages determined excluding results in Corporate Services.
Certain comparative figures have been reclassified for changes in accounting policy.
Medium-term objectives1
BMO Financial Group 208th Annual Report 2025 9
$1.5 trillion
in total assets
Approximately
13 million
customers globally
1817
serving customers for 208 years
and counting
7th largest
bank in North America by assets
Net Income by Geography
Reported
Canada/Other 61%
59%
U.S.
39%
41%
Adjusted2
Canadian P&C
35%
U.S. Banking
30%
Wealth Management 14%
Capital Markets
21%
Reported Net Income by
Operating Segment7
A 197-year dividend record
BMO Financial Group has the longest-running dividend
payout record of any company in Canada, at 197 years.
BMO common shares had an annual dividend yield of
3.7% at October 31, 2025.
5.7%
BMO 15-year
8.7%
BMO 5-year
Compound annual growth rate
BMO
10 BMO Financial Group 208th Annual Report 2025
WORLD-
CLASS
CLIENT
EXPERIENCE
Real financial progress
BMO is committed to helping clients make real financial progress. We offer an
enhanced One Client experience with specialized products and accessible services
for individuals, families, entrepreneurs, small businesses, large corporations and
governments – all with the aim of helping economies thrive.
We provide access to capital and valuable financial expertise. From investing in
businesses to supporting home ownership, from supporting sustainable outcomes
to strengthening the communities we serve – we’re driving innovation that makes
banking easier.
Our One Client approach brings the power of our whole bank to each and every
client – because when they succeed, we all succeed.
BMO Tower Chicago
BMOM
BMOM
BMO Financial Group 208th Annual Report 2025 11
BMO purchased over
from suppliers and vendors in
Canada and the United States.
$8.4 billion
of goods and services
Canada’s Best Private Bank
for Philanthropic Advisory
Services
Euromoney Global Private Banking Awards
recognized BMO with two awards in 2025:
World Finance magazine recognized BMO
with three awards in 2025:
3rd consecutive year
Best Commercial Bank
in the U.S.
15th consecutive year
Best Private Bank
in Canada
Canada’s Best Private
Bank for Ultra-High-Net-
Worth clients
11th consecutive year
Best Commercial Bank
in Canada
North American thought leadership
We bring BMO experts together with clients and leaders at annual
conferences across a variety of sectors. For example, this year, we held
the Third Annual US-Canada Summit to discuss the biggest issues
facing these two nations. These events establish BMO’s leadership,
offering valuable industry insights, opportunities and connections.
We’re doing our part to contribute to greater understanding, awareness –
and a larger ambition for North America’s place in the world.
US-CANADA
SUMMIT
US CANADA
SUMMIT
12 BMO Financial Group 208th Annual Report 2025
DIGITAL-FIRST,
AI-POWERED
Progress in innovation
Our Digital-First strategy is unlocking the power of digital, AI and other emerging technologies to deliver
world-class client experiences and drive value.
Through industry-leading training programs and AI tools, we are empowering our people to leverage
digital tools to help clients make real financial progress. And as we innovate, we are committed to using AI
responsibly, deploying this technology in ways consistent with our values and in compliance with regulations.
Creating Value
Empowering our clients
We’re building tools to enhance the digital
client experience – like BMO Insights,
which gives mobile banking clients
a quick, personalized picture of their
spending. Or Lumi, an award-winning
digital assistant that helps us offer faster,
better customer service. And Rovr,
BMO’s industry-first AI digital assistant
that answers advisors’ underwriting
queries, freeing up time for client
engagement and tailored conversations.
Empowering our people
•
AI for All: Our AI training program provides every employee, regardless of
technical background, with a foundational understanding of AI, including
ethical use, governance and practical applications.
•
Talent development: We earned the joint #1 global ranking in talent
development in the 2025 Evident AI Index, a prestigious benchmark that
evaluates AI maturity across the world’s top 50 banks.
•
Widespread adoption: BMO surpassed industry benchmarks for active users with
over 80% of employees using AI tools, including over 3.7 million prompts used.
•
Investing in what’s next: As the first Canadian bank to join the IBM Quantum
Network, we’re exploring how quantum technologies can revolutionize
financial services.
Robust digital infrastructure
AI-powered code development
An integrated client experience
Faster advice and real-time insights
Hyper-personalized solutions
Cutting-edge digital banking
platforms and predictive modelling
World-leading talent development
BMO Financial Group 208th Annual Report 2025 13
WINNING
CULTURE
Progress for our people
Team BMO is responsible for providing a One Client experience
that fuels the bank’s – and our clients’ – success. We’re
relentlessly focused on training, talent recruitment and
recognition as part of our high-performing culture.
Our world-class learning and development programs keep
Team BMO ahead of the curve – from AI upskilling to the BMO
Climate Institute Fellowship Program, which enables staff to
advance initiatives led by the BMO Climate Institute.
BMO’s proud support for Team BMO’s volunteer activities and
donations is reflected in our industry-leading Employee Giving
Campaign – a testament to the culture of giving we’ve created.
We partner with community organizations to promote
economic opportunity across our footprint and strengthen the
communities where we live and work – because we know that
when communities thrive, economies thrive too.
* 2024 data. 2025 data will be available in early 2026.
Our industry-leading annual
Employee Giving Campaign
raised $31 million
for charities across Canada and the U.S., with
90% of employees participating*. Over the
past five years, BMO employees have
personally donated more than $130 million
to charities across North America through
the campaign.
A global leader in learning
and development
The Association for Talent Development
recognized BMO with the prestigious ATD
BEST Award, which celebrates organizations
that drive enterprise-wide success through
employee learning and development. BMO
was the only Canadian bank to win in 2025.
Named one of the
World’s Most Ethical
Companies for the 8th
consecutive year
by Ethisphere, a global leader in defining and
advancing the standards of ethical business
practices. This year, BMO was again the only
bank in Canada – and one of only four
worldwide – to be honoured.
14 BMO Financial Group 208th Annual Report 2025
Executive Committee
Board of Directors
George A. Cope, C.M.
Corporate Director
Board Chair
Committees:
Governance and Nominating,
Human Resources
Director since: 2006
Janice M. Babiak
Corporate Director
Committees:
Audit and Conduct Review (Chair),
Governance and Nominating
Director since: 2012
Craig W. Broderick
Corporate Director
Committees:
Audit and Conduct Review,
Governance and Nominating,
Risk Review (Chair)
Director since: 2018
Tammy L. Brown*
Corporate Director
Committees:
Risk Review
Director since: 2025
Hazel Claxton
Corporate Director
Committees:
Audit and Conduct Review
Director since: 2023
Diane L. Cooper
Corporate Director
Committees:
Audit and Conduct Review,
Risk Review
Director since: 2024
Stephen Dent
Managing Director
and Co-Founder,
Birch Hill Equity Partners
Committees:
Governance and Nominating,
Human Resources (Chair),
Risk Review
Director since: 2021
Martin S. Eichenbaum
Charles Moskos
Professor of Economics,
Northwestern University
Committees:
Audit and Conduct Review,
Risk Review
Director since: 2015
David Harquail
Chair of the Board,
Franco-Nevada Corporation
Committees:
Human Resources,
Risk Review
Director since: 2018
Eric R. La Flèche
President and
Chief Executive Officer,
Metro Inc.
Committees:
Human Resources
Director since: 2012
Brian McManus
Executive Chair, Polycor Inc.
Committees:
Risk Review
Director since: 2024
Lorraine Mitchelmore
Corporate Director
Committees:
Governance and Nominating (Chair),
Human Resources, Risk Review
Director since: 2015
Madhu Ranganathan
Corporate Director
Committees:
Audit and Conduct Review
Director since: 2021
Darryl White
Chief Executive Officer,
BMO Financial Group
Director since: 2017
Darryl White
Chief Executive Officer
Piyush Agrawal
Chief Risk Officer
Darrel Hackett
U.S. Chief Executive Officer
Sharon Haward-Laird
Group Head, Canadian
Commercial Banking & North
American Integrated Solutions,
and Co-Head, Canadian Personal
& Commercial Banking
Deland Kamanga
Group Head,
BMO Wealth Management
Aron Levine
Group Head & President,
BMO U.S. Banking
Mona Malone
Chief Administrative Officer,
Chief Human Resources Officer
and Head of People,
Culture & Brand
Mathew Mehrotra
Group Head, Canadian Personal
& Business Banking, and
Co-Head Canadian Personal
& Commercial Banking
Paul Noble
General Counsel
Alan Tannenbaum
Chief Executive Officer & Group Head,
BMO Capital Markets
Steve Tennyson
Chief Technology
and Operations Officer
Tayfun Tuzun
Chief Financial Officer
* Effective December 4, 2025.
MD&A
Enhanced Disclosure Task Force
The Enhanced Disclosure Task Force (EDTF) was established by the Financial Stability Board to provide guidance and recommendations for best
practice risk disclosures for banks. We have adopted these recommendations at BMO in order to prepare and deliver high-quality, transparent
risk disclosures. The index below details these recommendations and references the presentation of the disclosures in our 2025 Annual Report,
Supplementary Financial Information (SFI) and Supplementary Regulatory Capital Information (SRCI). Information on BMO’s website, including
information within the SFI or SRCI, is not, and should not be considered to be incorporated by reference into this 2025 Annual Report.
Topic
EDTF Disclosure
Page number
Annual Report
SFI
SRCI
General
1.
Risk-related information in each report, including an index for easy navigation
67-107
Index
Index
2.
Risk terminology, measures and key parameters
70-107,
122-124
3.
Top and emerging risks
67-69
4.
Plans to meet new key regulatory ratios once applicable rules are finalized
61
Risk Governance,
Risk Management and
Business Model
5.
Risk management and governance framework, processes and key functions
70-74
6.
Risk culture, risk appetite and procedures to support the culture
72-75
7.
Risks that arise from business models and activities
63,72-74
8.
Stress testing within the risk governance and capital frameworks
75
Capital Adequacy and
Risk-Weighted Assets
(RWA)
9.
Pillar 1 capital requirements
59-61,185
5-6,15
10. Composition of capital components and reconciliation of the accounting
balance sheet to the regulatory balance sheet. A main features template can
be found at: Regulatory Disclosure
62
5-7
11. Flow statement of movements in regulatory capital, including changes in
Common Equity Tier 1 Capital, Additional Tier 1 Capital and Tier 2 Capital
8
12. Capital management and strategic planning
58-63
13. Risk-weighted assets (RWA) by operating segment
63
16
14. Analysis of capital requirements for each method used in calculating RWA
59-63,76-80
16,22-49,
55-67,70-71,
78-82,85,
86-91
15. Tabulate credit risk in the banking book for Basel asset classes and
major portfolios
22-49,
51-67,
89-91
16. Flow statement that reconciles movements in RWA by credit risk and
market risk
50,71,83
17. Basel validation and back-testing process, including estimated and actual loss
parameter information
101-102
92-94
Liquidity
18. Management of liquidity needs and liquidity reserve held to meet
those needs
89-95
Funding
19. Encumbered and unencumbered assets disclosed by balance sheet category
91
48
20. Consolidated total assets, liabilities and off-balance sheet commitments by
remaining contractual maturity
96-97
21. Analysis of funding sources and funding strategy
92-93
Market Risk
22. Linkage of trading and non-trading market risk to the consolidated
balance sheet
88
23. Significant trading and non-trading market risk factors
84-88
24. Market risk model assumptions, validation procedures and back-testing
84-88,101-102
25. Primary techniques for risk measurement and risk assessment, including
risk of loss
84-88
Credit Risk
26. Analysis of credit risk profile, exposures and concentration
62-63,76-83,
145-152,163-164
24-45
16-81
27. Policies to identify impaired loans and renegotiated loans
146,151
28. Reconciliation of opening and closing balances of impaired loans and
allowance for credit losses
82,148
29. Counterparty credit risk arising from derivative transactions
76-78,83,163-164
55-73
30. Credit risk mitigation
76-78,147,154,
196-197
21,51-52,68
Other Risks
31. Discussion of other risks
70-73,98-107
32. Publicly known risk events involving material or potentially material
loss events
98-107,197-198
BMO Financial Group 208th Annual Report 2025 15
Management’s Discussion and Analysis
BMO’s Chief Executive Officer and Chief Financial Officer have signed a statement outlining management’s responsibility for financial information in
the audited annual consolidated financial statements and Management’s Discussion and Analysis (MD&A). The statement also explains the roles of
the Audit and Conduct Review Committee and Board of Directors in respect of that financial information.
The MD&A comments on our operations and financial condition for the years ended October 31, 2025 and 2024. The MD&A should be read in
conjunction with the audited annual consolidated financial statements for the year ended October 31, 2025. The MD&A commentary is as at
December 4, 2025. Unless otherwise indicated, all amounts are stated in Canadian dollars and have been derived from audited annual consolidated
financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB). We also comply with interpretations of IFRS by our regulator, the Office of the Superintendent of Financial Institutions (OSFI).
References to generally accepted accounting principles (GAAP) mean IFRS.
Index
17
Caution Regarding Forward-Looking Statements
18
About BMO
19
Corporate Events
19
Financial Objectives and Value Measures
22
Financial Highlights
23
Non-GAAP and Other Financial Measures
27
Economic Developments and Outlook
28
2025 Financial Performance Review
34
2025 Operating Segments Performance Review
34
How BMO Reports Operating Segments Results
35
Canadian Personal and Commercial Banking
39
U.S. Banking
43
Wealth Management
47
Capital Markets
50
Corporate Services, including Technology and Operations
52
Summary Quarterly Earnings Trends
53
Review of Fourth Quarter 2025 Performance
54
2024 Financial Performance Review
55
Financial Condition Review
55
Summary Balance Sheet
58
Enterprise-Wide Capital Management
65
Off-Balance Sheet Arrangements
67
Enterprise-Wide Risk Management
108
Accounting Matters and Disclosure and Internal Control
108
Critical Accounting Estimates and Judgments
111
Future Changes in Accounting Policies
111
Other Regulatory Developments
111
Transactions with Related Parties
112
Shareholders’ Auditors’ Services and Fees
113
Management’s Annual Report on Disclosure Controls and
Procedures and Internal Control over Financial Reporting
114
Supplemental Information
122
Glossary of Financial Terms
Regulatory Filings
BMO’s continuous disclosure materials, including our interim consolidated financial statements and interim MD&A, audited annual consolidated financial statements and
annual MD&A, Annual Information Form and Notice of Annual Meeting of Shareholders and Management Proxy Circular, are available on our website at www.bmo.com/
investorrelations, on the Canadian Securities Administrators’ website at www.sedarplus.ca and on the EDGAR section of the U.S. Securities and Exchange Commission’s
(SEC) website at www.sec.gov. BMO’s Chief Executive Officer and Chief Financial Officer certify the appropriateness and fairness of BMO’s annual and interim consolidated
financial statements, annual MD&A and Annual Information Form, the effectiveness of BMO’s disclosure controls and procedures and the effectiveness of, and any material
weaknesses relating to, BMO’s internal control over financial reporting. Information contained in, or otherwise accessible through, our website (www.bmo.com) or any
third-party websites mentioned herein, does not form part of this document.
Caution
The About BMO, Financial Objectives and Value Measures, Economic Developments and Outlook, Provision for Income Taxes and Other Taxes, 2026 Areas of Focus, Business
Environment and Outlook, Enterprise-Wide Capital Management, Off-Balance Sheet Arrangements, Enterprise-Wide Risk Management, Future Changes in Accounting
Policies and Other Regulatory Developments sections contain certain forward-looking statements. By their nature, forward-looking statements require us to make
assumptions and are subject to inherent risks and uncertainties. Refer to the Caution Regarding Forward-Looking Statements section for a discussion of such risks and
uncertainties and the material factors and assumptions related to the statements set forth in such sections.
16 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Factors That May Affect Future Results
As noted in the following Caution Regarding Forward-Looking Statements section, all forward-looking statements and information, by their nature,
are subject to inherent risks and uncertainties, both general and specific, which may cause actual results to differ materially from the expectations
expressed in any forward-looking statement. The Enterprise-Wide Risk Management section describes a number of risks, including credit and
counterparty, market, insurance, liquidity and funding, operational non-financial, legal and regulatory compliance, strategic, environmental and social,
and reputation risk. Should our risk management framework prove ineffective, there could be a material impact on our financial position and results.
Caution Regarding Forward-Looking Statements
Bank of Montreal’s public communications often include written or oral forward-looking statements. Statements of this type are included in this document and may be
included in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made
pursuant to the “safe harbor” provisions of, and are intended to be forward-looking statements under, the United States Private Securities Litigation Reform Act of 1995
and any applicable Canadian securities legislation. Forward-looking statements in this document may include, but are not limited to: statements with respect to our
objectives and priorities for fiscal 2026 and beyond; our strategies or future actions; our targets and commitments (including with respect to net zero emissions);
expectations for our financial condition, capital position, the regulatory environment in which we operate, the results of, or outlook for, our operations or the Canadian,
U.S. and international economies; and include statements made by our management. Forward-looking statements are typically identified by words such as “will”, “would”,
“should”, “believe”, “expect”, “anticipate”, “project”, “intend”, “estimate”, “plan”, “goal”, “commit”, “target”, “may”, “might”, “schedule”, “forecast”, “outlook”,
“timeline”, “suggest”, “seek” and “could” or negative or grammatical variations thereof.
By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, both general and specific in nature.
There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that our assumptions may not be correct, and that actual results
may differ materially from such predictions, forecasts, conclusions or projections. We caution readers of this document not to place undue reliance on our forward-looking
statements, as a number of factors – many of which are beyond our control and the effects of which can be difficult to predict – could cause actual future results,
conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.
The future outcomes that relate to forward-looking statements may be influenced by many factors, including, but not limited to: general economic and market
conditions in the countries in which we operate, including labour challenges and changes in foreign exchange and interest rates; political conditions, including changes
relating to, or affecting, economic or trade matters, including tariffs, countermeasures and tariff mitigation policies; changes to our credit ratings; cyber and information
security, including the threat of data breaches, hacking, identity theft and corporate espionage, as well as the possibility of denial of service resulting from efforts targeted
at causing system failure and service disruption; technology resilience, innovation and competition; failure of third parties to comply with their obligations to us;
disruptions of global supply chains; environmental and social risk, including climate change; the Canadian housing market and consumer leverage; inflationary pressures;
changes in laws, including tax legislation and interpretation, or in supervisory expectations or requirements, including capital, interest rate and liquidity requirements and
guidance, including if the bank were designated a global systemically important bank, and the effect of such changes on funding costs and capital requirements; changes
in monetary, fiscal or economic policy; weak, volatile or illiquid capital or credit markets; the level of competition in the geographic and business areas in which we
operate; exposure to, and the resolution of, significant litigation or regulatory matters, our ability to successfully appeal adverse outcomes of such matters and the timing,
determination and recovery of amounts related to such matters; the accuracy and completeness of the information we obtain with respect to our customers and
counterparties; our ability to successfully execute our strategic plans, complete acquisitions or dispositions and integrate acquisitions, including obtaining regulatory
approvals, and realize any anticipated benefits from such plans and transactions; critical accounting estimates and judgments, and the effects of changes in accounting
standards, rules and interpretations on these estimates; operational and infrastructure risks, including with respect to reliance on third parties; global capital markets
activities; the emergence or continuation of widespread health emergencies or pandemics, and their impact on local, national or international economies, as well as their
heightening of certain risks that may affect our future results; the possible effects on our business of war or terrorist activities; natural disasters, such as earthquakes or
flooding, and disruptions to public infrastructure, such as transportation, communications, power or water supply; and our ability to anticipate and effectively manage risks
arising from all of the foregoing factors.
We caution that the foregoing list is not exhaustive of all possible factors. Other factors and risks could adversely affect our results. For further information, please
refer to the discussion in the Risks That May Affect Future Results section, and the sections related to credit and counterparty, market, liquidity and funding, operational
non-financial, legal and regulatory compliance, strategic, environmental and social, and reputation risk in the Enterprise-Wide Risk Management section, as updated by
quarterly reports, all of which outline certain key factors and risks that may affect our future results. Investors and others should carefully consider these factors and risks,
as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. We do not undertake to update any forward-looking
statements, whether written or oral, that may be made from time to time by the organization or on its behalf, except as required by law. The forward-looking information
contained in this document is presented for the purpose of assisting shareholders and analysts in understanding our financial position as at and for the periods ended on
the dates presented, as well as our strategic priorities and objectives, and may not be appropriate for other purposes.
Material economic assumptions underlying the forward-looking statements contained in this document include those set out in the Economic Developments and
Outlook section and the Allowance for Credit Losses section, as updated by quarterly reports. Assumptions about the performance of the Canadian and U.S. economies, as
well as overall market conditions and their combined effect on our business, are material factors we consider when determining our strategic priorities, objectives and
expectations for our business. In determining our expectations for economic growth, we primarily consider historical economic data, past relationships between economic
and financial variables, changes in government policies, and the risks to the domestic and global economy.
BMO Financial Group 208th Annual Report 2025 17
MANAGEMENT’S DISCUSSION AND ANALYSIS
About BMO
BMO Financial Group (BMO, Bank of Montreal, the bank, we, our, us) is the seventh largest bank in North America by assets, with total assets
of $1.5 trillion. Serving clients for more than 200 years, BMO is a highly diversified financial institution, providing a broad range of personal and
commercial banking, wealth management, global markets and investment banking products and services to approximately thirteen million clients in
Canada, the United States and select markets globally. We operate through four integrated operating segments: Canadian Personal and Commercial
Banking, U.S. Banking, Wealth Management and Capital Markets. For further information on our operating segments, refer to the 2025 Operating
Segments Performance Review section.
At BMO, we continue to build a digital-first, future-ready bank, with engaged employees and a high-performing, winning culture. We are focused
on helping our clients make real financial progress, and on financing their growth and innovation, while also investing in our workforce. Anchored by
our Purpose, we are differentiated by our strategic priorities for growth, strengthened by our approach to sustainability and guided by our values as
we build a foundation of trust with our colleagues, clients and communities.
Our Purpose: Boldly Grow the Good in business and life
BMO has a deep sense of purpose. We leverage our position as a leading financial services provider in order to drive progress for our clients
and communities.
‰ Thriving economy – Provide access to capital and valuable financial advice – investing in businesses, supporting home ownership and
strengthening the communities we serve, while driving innovation that makes banking easier.
‰ Sustainable future – Be our clients’ lead partner in their transition to a net zero world, offering products and services to help them achieve their
sustainability and risk management objectives.
‰ Stronger communities – Act as a catalyst for progress through capital investment, sponsorships and donations, as well as financial literacy and
educational programming. Our culture inspires our colleagues to get involved, give back and volunteer their time to make an impact.
Our Strategic Priorities
Our priorities support our enterprise-wide strategy and are the differentiators that allow us to achieve our financial objectives and deliver competitive
performance through consistent execution.
‰ World-class client experience, grounded in One Client advice and guidance
‰ High-performing, winning culture driven by alignment, accountability and recognition
‰ Digital-first, AI-powered business for value and future readiness
‰ Superior risk management
The operating segment strategies are outlined in the 2025 Operating Segments Performance Review.
Our Approach to Sustainability
Sustainability is embedded in our Purpose. We take steps to manage our business in a manner that is consistent with our long-term risk management
and financial goals, while considering our impact on communities, society and other stakeholders. We integrate sustainability practices across our
value chain in key areas, including sustainable finance, financial inclusion, climate change, human rights and our workforce.
Our Values
Four core values shape our culture and underpin our choices and actions:
‰ Integrity
‰ Inclusion
‰ Responsibility
‰ Empathy
Caution
This About BMO section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
18 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Corporate Events
Burgundy Asset Management Ltd.
On November 1, 2025, we completed the acquisition of Burgundy Asset Management Ltd. (Burgundy), a leading independent wealth manager in
Canada, providing discretionary investment management for private clients, foundations, endowments, pensions and family offices. The acquisition
expands Wealth Management and strengthens our offering in the Canadian Investment Counsel space catering to high net worth and ultra-high net
worth clients. Acquisition and integration costs were recorded in our Wealth Management segment in non-interest expense as an adjusting item.
For further information, refer to Note 9 of the audited annual consolidated financial statements.
U.S. Branch Optimization
On October 16, 2025, we announced that we had entered into a definitive agreement to sell 138 BMO branches in select markets to First-Citizens
Bank & Trust Company (First Citizens Bank) to support the optimization of our U.S. branch network and the redeployment of capital and resources.
Under the terms of this agreement, First Citizens Bank will assume approximately US$5.7 billion (CAD$8 billion) in deposits and purchase
approximately US$1.1 billion (CAD$1.5 billion) in loans for a net deposit premium of approximately 5% paid on closing. The transaction is subject to
regulatory approvals and customary closing conditions and is expected to close in mid-2026. As a result, BMO recorded a write-down of goodwill
of US$73 million (CAD$102 million) pre-tax and after-tax in the fourth quarter of 2025, reported in Corporate Services in non-interest expense as an
adjusting item.
For further information, refer to Note 9 of the audited annual consolidated financial statements.
Realignment of Operating Segments
On October 28, 2025, we announced the realignment of business units associated with the previously announced changes in the bank’s organizational
structure effective the fourth quarter of 2025 and applied on a retrospective basis. The realignment combined U.S. Personal and Business Banking,
Commercial Banking and Private Wealth businesses to form a unified U.S. Banking operating segment. Previously, the U.S. Wealth business was
reported within Wealth Management. There was no impact to the bank’s consolidated results.
For further information, refer to the How BMO Reports Operating Segments Results section.
Financial Objectives and Value Measures
Results and measures in this section are presented on a reported and an adjusted basis, and management considers both to be useful in assessing
our performance. We believe that the non-GAAP measures and ratios presented here, read together with our GAAP results, provide readers with a
better understanding of how management assesses results and are a reflection of ongoing business performance.
Adjusted results and measures in this section, including earnings per share (EPS), EPS growth, return on equity (ROE), return on tangible common
equity (ROTCE), net income, revenue, non-interest expense, efficiency ratio and operating leverage, are non-GAAP amounts, measures and ratios,
which are discussed in the Non-GAAP and Other Financial Measures section.
Information regarding the composition of each of these measures is provided in the Glossary of Financial Terms.
Financial Objectives
BMO has established medium-term financial objectives for certain key performance measures, which are set out below. Medium-term is generally
defined as three to five years, and performance is assessed on an adjusted basis. These objectives serve as guideposts and assume a normal business
environment and credit cycle. We aim to deliver top-tier total shareholder return and achieve our financial objectives by aligning our operations with,
and executing on, our strategic priorities.
Our business planning process is rigorous, sets ambitious goals and considers factors such as the prevailing economic environment, our risk
appetite, customers’ evolving needs and opportunities available across our operating segments. It includes clear and direct accountability for annual
performance that is measured against both internal and external benchmarks and progress toward achieving our strategic priorities. We seek a
balance between current profitability and investing to create sustainable growth. Our ability to achieve these objectives may be affected by changes
in the economic, business or regulatory environment or extraordinary developments.
In fiscal 2025, our performance across each of these objectives strengthened, as the industry experienced moderate economic growth and strong
financial markets, as well as challenges from trade and tariff uncertainty. Our performance benefitted from the execution of initiatives to improve
return on equity towards achieving our medium-term target of 15%, including improving profitability in U.S. Banking, normalization of credit losses,
capital optimization and enhancing the efficiency and profitability of our businesses, and which we believe remains an appropriate target. Our
financial objectives and performance against these objectives are outlined in the table below and described in the sections that follow.
BMO Financial Group 208th Annual Report 2025 19
MANAGEMENT’S DISCUSSION AND ANALYSIS
TABLE 1
Financial objectives (adjusted)
Reported basis
Adjusted basis (1)
As at and for the periods ended October 31, 2025
1-year 3-year (2) (3) 5-year (2) (3)
1-year 3-year (2) (3)
5-year (2) (3)
Earnings per share growth (%)
7-10%
20.2
(17.0)
8.7
25.6
(2.8)
9.5
Return on equity (%)
15% or more
10.6
8.8
12.8
11.3
11.2
13.1
Return on tangible common equity (%)
18% or more
14.3
12.1
15.7
14.7
14.7
15.9
Operating leverage (%) (2)
2% or more
2.4
(7.4)
0.8
4.3
(0.3)
1.3
Common Equity Tier 1 Ratio (%)
Exceed regulatory requirement
13.3
na
na
na
na
na
Total shareholder return (%)
Top-tier
43.3
16.9
22.2
na
na
na
(1) Adjusted results and measures are non-GAAP amounts and measures and are discussed in the Non-GAAP and Other Financial Measures section.
(2) Prior to November 1, 2022, we presented adjusted revenue on a basis net of insurance claims, commissions and changes in policy benefit liabilities (CCPB) and operating leverage was calculated
based on revenue, net of CCPB. Beginning fiscal 2023, we no longer report CCPB, given the adoption and retrospective application of IFRS 17, Insurance Contracts (IFRS 17). Revenue, net of CCPB,
was $34,393 million in fiscal 2022 and $25,787 million in fiscal 2021. Measures and ratios presented on a basis net of CCPB are non-GAAP amounts.
(3) The 3-year and 5-year EPS growth rate and operating leverage, net of CCPB, reflect compound annual growth rates (CAGR).
na – not applicable
Certain comparative figures have been reclassified for changes in accounting policy.
Earnings per Share Growth
All references to earnings per share (EPS) are to diluted EPS, unless otherwise indicated.
Reported EPS was $11.44 in fiscal 2025, an increase of $1.93 or 20% from $9.51 in fiscal 2024. Adjusted EPS
was $12.16, an increase of $2.48 or 26% from $9.68 in fiscal 2024. Higher reported and adjusted EPS reflected
earnings growth, as well as a lower number of common shares outstanding. Net income available to common
shareholders increased 19% year-over-year on a reported basis and 25% on an adjusted basis, with higher
revenue and lower provisions for credit losses partially offset by higher expenses. The average number of diluted
common shares outstanding decreased 1% from fiscal 2024, due to shares repurchased in the current year.
EPS ($)
Reported EPS
Adjusted EPS
2025
2024
11.44
9.51
12.16
9.68
Earnings per Share (EPS) is calculated by dividing net income available to common shareholders, after deducting preferred share dividends and
distributions on other equity instruments, by the average number of common shares outstanding. Adjusted EPS is calculated in the same manner,
using adjusted net income attributable to common shareholders. Diluted EPS, which is BMO’s basis for measuring performance, adjusts for
possible conversions of financial instruments into common shares if those conversions would reduce EPS, and is more fully explained in Note 23
of the audited annual consolidated financial statements.
Return on Equity and Return on Tangible Common Equity
Reported return on equity (ROE) was 10.6% in fiscal 2025 and adjusted ROE was 11.3%, compared with 9.7% and 9.8%, respectively, in fiscal 2024.
Reported and adjusted ROE increased due to earnings growth, partially offset by an increase in average common shareholders’ equity.
Average common shareholders’ equity increased $6.3 billion or 9% from fiscal 2024, primarily due to growth in retained earnings and an
increase in accumulated other comprehensive income, partially offset by the impact of the purchase of common shares for cancellation in the
current year.
Reported return on tangible common equity (ROTCE) was 14.3%, compared with 13.5% in fiscal 2024, and adjusted ROTCE was 14.7%, compared
with 13.1% in fiscal 2024. Book value per share increased 7% from the prior year to $111.57, reflecting the increase in shareholders’ equity.
2025
2024
ROE (%)
Adjusted
Reported
9.7
10.6
9.8
11.3
14.3
14.7
ROTCE (%)
2024
Reported
13.5
Adjusted
13.1
2025
Return on Common Shareholders’ Equity (ROE) is calculated as net income, less preferred dividends and distributions on other equity
instruments, as a percentage of average common shareholders’ equity. Common shareholders’ equity comprises common share capital,
contributed surplus, accumulated other comprehensive income (loss) and retained earnings. Adjusted ROE is calculated using adjusted net income
rather than reported net income.
Return on Tangible Common Equity (ROTCE) is calculated as net income available to common shareholders, adjusted for the amortization of
acquisition-related intangible assets and any impairments, as a percentage of average tangible common equity. Average tangible common equity
comprises common shareholders’ equity, less goodwill and acquisition-related intangible assets, net of related deferred tax liabilities. Adjusted
ROTCE is calculated using adjusted net income rather than reported net income.
20 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Efficiency Ratio and Operating Leverage
BMO’s reported efficiency ratio in fiscal 2025 was 58.2%, an improvement from 59.5% in fiscal 2024, and adjusted efficiency ratio was 56.3%, an
improvement from 58.6% in fiscal 2024.
Reported operating leverage in fiscal 2025 was 2.4%, compared with 19.8% in fiscal 2024, and adjusted operating leverage was 4.3% in
fiscal 2025, compared with 1.6% in fiscal 2024.
2025
58.2
56.3
Reported Efficiency Ratio
Adjusted Efficiency Ratio
Efficiency Ratio (%)
2024
59.5
58.6
2025
2024
Operating Leverage (%)
Adjusted
Reported
4.3
1.6
2.4
19.8
Efficiency Ratio (or expense-to-revenue ratio) is a measure of productivity. It is a percentage calculated as non-interest expense divided by
total revenue (on a taxable equivalent basis in the operating segments).
Operating Leverage is the difference between the growth rates of revenue and non-interest expense. Adjusted operating leverage is calculated
using adjusted revenue and adjusted non-interest expense.
Common Equity Tier 1 Ratio
Our Common Equity Tier 1 (CET1) Ratio was 13.3% as at October 31, 2025, compared with 13.6% as at October 31, 2024. Our CET1 Ratio decreased
from the prior year, as internal capital generation was more than offset by the impact of the purchase of 22.2 million common shares for cancellation
and higher source-currency risk-weighted assets (RWA).
Common Equity Tier 1 (CET1) Ratio is calculated as CET1 Capital, which comprises common shareholders’ equity, including applicable contractual
service margin, net of deductions for goodwill, intangible assets, pension assets, certain deferred tax assets and other items (which may include a
portion of expected credit loss provisions or shortfall in allowances or other specified items), divided by risk-weighted assets. The CET1 Ratio is
calculated in accordance with OSFI’s Capital Adequacy Requirements (CAR) Guideline.
Total Shareholder Return and Other Information
TABLE 2
For the year ended October 31
2025
2024
2023
2022
2021
3-year
CAGR (1)
5-year
CAGR (1)
Closing market price per common share ($)
174.23
126.88
104.79
125.49
134.37
11.6
17.0
Dividends paid ($ per share)
6.36
6.04
5.72
5.11
4.24
7.6
8.6
Dividend yield (%)
3.7
4.8
5.5
4.3
3.2
nm
nm
Increase (decrease) in share price (%)
37.3
21.1
(16.5)
(6.6)
69.4
nm
nm
Total annual shareholder return (%) (2)
43.3
27.4
(12.5)
(3.1)
75.9
16.9
22.2
Canadian peer group average (excluding BMO) (3)
35.8
49.4
(8.8)
(6.2)
56.1
21.9
21.4
(1) Compound annual growth rate (CAGR) expressed as a percentage.
(2) Total annual shareholder return assumes reinvestment of quarterly dividends and therefore does not equal the sum of dividend and share price returns in the table.
(3) As at October 31, 2025. Canadian peer group: The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and The Toronto-Dominion Bank.
nm – not meaningful
The average annual total shareholder return (TSR) is a key measure of shareholder value, and we expect that execution on our strategic priorities will
drive value creation for our shareholders. The one-year, three-year and five-year average annual TSR was 43.3%, 16.9% and 22.2%, respectively,
compared with our Canadian peer group average (excluding BMO) of 35.8%, 21.9% and 21.4%, respectively.
The table above summarizes dividends paid on BMO’s common shares over the past five years and the movements in our share price.
An investment of $1,000 in BMO common shares made at the beginning of fiscal 2021 would have been worth $2,725 as at October 31, 2025,
assuming reinvestment of dividends, for a total return of 172.5%.
Dividends declared per common share in fiscal 2025 totalled $6.44, an increase of $0.32 from $6.12 in the prior year. Dividends paid over a
five-year period have increased at an average annual compound rate of approximately 9%.
The annual Total Shareholder Return (TSR) represents the average annual total return earned on an investment in BMO common shares made at
the beginning of the respective period. The return includes the change in share price and assumes dividends received were reinvested in
additional common shares.
Caution
This Financial Objectives and Value Measures section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
BMO Financial Group 208th Annual Report 2025 21
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financial Highlights
TABLE 3
(Canadian $ in millions, except as noted)
2025
2024
Summary Income Statement (1)
Net interest income
21,487
19,468
Non-interest revenue
14,787
13,327
Revenue
36,274
32,795
Provision for credit losses on impaired loans
3,147
3,066
Provision for credit losses on performing loans
470
695
Total provision for credit losses (PCL)
3,617
3,761
Non-interest expense
21,107
19,499
Provision for income taxes
2,825
2,208
Net income
8,725
7,327
Net income attributable to non-controlling interest in subsidiaries
16
9
Dividends on preferred shares and distributions on other equity instruments
436
386
Net income available to common shareholders
8,273
6,932
Adjusted net income
9,248
7,449
Adjusted net income available to common shareholders
8,796
7,054
Common Share Data ($, except as noted) (1)
Basic earnings per share
11.46
9.52
Diluted earnings per share
11.44
9.51
Adjusted diluted earnings per share
12.16
9.68
Book value per share
111.57
104.40
Closing share price
174.23
126.88
Number of common shares outstanding (in millions)
End of period
708.9
729.5
Average basic
721.9
727.7
Average diluted
723.3
728.5
Market capitalization ($ millions)
123,513
92,563
Dividends declared per common share
6.44
6.12
Dividend yield (%)
3.7
4.8
Dividend payout ratio (%)
56.2
64.3
Adjusted dividend payout ratio (%)
52.8
63.1
Financial Measures and Ratios (%) (1)
Return on equity
10.6
9.7
Adjusted return on equity
11.3
9.8
Return on tangible common equity
14.3
13.5
Adjusted return on tangible common equity
14.7
13.1
Efficiency ratio
58.2
59.5
Adjusted efficiency ratio
56.3
58.6
Operating leverage
2.4
19.8
Adjusted operating leverage
4.3
1.6
Net interest margin on average earning assets
1.65
1.58
Adjusted net interest margin, excluding trading net interest income, and trading and insurance assets
1.99
1.85
Effective tax rate
24.5
23.2
Adjusted effective tax rate
24.3
22.9
Total PCL-to-average net loans and acceptances
0.53
0.57
PCL on impaired loans-to-average net loans and acceptances
0.46
0.47
Balance Sheet and Other Information (as at October 31, $ millions, except as noted)
Assets
1,476,802
1,409,647
Average earning assets
1,305,072
1,235,830
Gross loans and acceptances
682,922
682,731
Net loans and acceptances
677,872
678,375
Deposits
976,202
982,440
Common shareholders’ equity
79,095
76,163
Total risk-weighted assets (2)
437,945
420,838
Assets under administration
864,891
770,584
Assets under management
506,661
422,701
Capital and Liquidity Measures (%) (2)
Common Equity Tier 1 Ratio
13.3
13.6
Tier 1 Capital Ratio
15.0
15.4
Total Capital Ratio
17.3
17.6
Leverage Ratio
4.3
4.4
TLAC Ratio
29.7
29.3
Liquidity Coverage Ratio
132
132
Net Stable Funding Ratio
117
117
Foreign Exchange Rates ($)
As at October 31, Canadian/U.S. dollar
1.4016
1.3909
Average Canadian/U.S. dollar
1.4029
1.3591
(1) Adjusted results exclude certain items from reported results and are used to calculate our adjusted measures as presented in the table above. Management assesses performance on a reported basis
and an adjusted basis, and considers both to be useful. For further information, refer to the Non-GAAP and Other Financial Measures section. For details on the composition of non-GAAP amounts,
measures and ratios, as well as supplementary financial measures, refer to the Glossary of Financial Terms.
(2) Capital and liquidity measures are disclosed in accordance with the Capital Adequacy Requirements (CAR) Guideline and the Liquidity Adequacy Requirements (LAR) Guideline, as set out by OSFI,
as applicable.
Certain comparative figures have been reclassified to conform with the current year’s presentation.
22 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Non-GAAP and Other Financial Measures
Results and measures in this document are presented on a generally accepted accounting principles (GAAP) basis. Unless otherwise indicated, all
amounts are in Canadian dollars and have been derived from our audited annual consolidated financial statements, prepared in accordance with
International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). References to GAAP mean IFRS.
We use a number of financial measures to assess our performance, as well as the performance of our operating segments, including amounts,
measures and ratios that are presented on a non-GAAP basis, as described below. We believe that these non-GAAP amounts, measures and ratios,
read together with our GAAP results, provide readers with a better understanding of how management assesses results.
Non-GAAP amounts, measures and ratios do not have standardized meanings under GAAP. They are unlikely to be comparable to similar
measures presented by other companies and should not be viewed in isolation from, or as a substitute for, GAAP results.
For further information regarding the composition of non-GAAP and other financial measures, including supplementary financial measures,
refer to the Glossary of Financial Terms.
Adjusted measures and ratios
Management considers both reported and adjusted results and measures to be useful in assessing underlying ongoing business performance.
Adjusted results and measures remove certain specified items from revenue, non-interest expense and income taxes, as detailed in the following
table. Adjusted results and measures presented in this document are non-GAAP. Presenting results on both a reported and an adjusted basis permits
readers to assess the impact of certain items on results for the periods presented, and to better assess results excluding those items that may not
reflect ongoing business performance. As such, the presentation may facilitate readers’ analysis of underlying trends. Except as otherwise noted,
management’s discussion of changes in reported results in this document applies equally to changes in the corresponding adjusted results.
Tangible common equity and return on tangible common equity
Tangible common equity is calculated as common shareholders’ equity, less goodwill and acquisition-related intangible assets, net of related deferred
tax liabilities. Return on tangible common equity (ROTCE) is calculated as net income available to common shareholders, adjusted for the amortization
of acquisition-related intangible assets and any impairments, as a percentage of average tangible common equity. ROTCE is commonly used in the
North American banking industry and is meaningful as a consistent measure of the performance of businesses, whether they were acquired or
developed organically.
Adjusting Items
Adjusted results in the current and prior years excluded the following items:
‰ Acquisition and integration costs of $13 million ($17 million pre-tax) in the current year and $129 million ($172 million pre-tax) in the prior year.
Amounts are recorded in non-interest expense in the related operating segment: Burgundy in Wealth Management; Bank of the West in Corporate
Services; AIR MILES in Canadian P&C; and Clearpool and Radicle in Capital Markets.
‰ Amortization of acquisition-related intangible assets of $352 million ($476 million pre-tax) in the current year, including a $64 million impairment
related to AIR MILES, and $334 million ($450 million pre-tax) in the prior year. Amounts are recorded in non-interest expense in the related
operating segment.
‰ Impact of divestitures related to the announced sale of 138 branches in select U.S. markets resulting in a write-down of goodwill of $102 million
(pre-tax and after-tax) in the current year, recorded in non-interest expense in Corporate Services.
‰ Impact of a U.S. Federal Deposit Insurance Corporation (FDIC) special assessment, recorded in non-interest expense in Corporate Services, which
included a partial reversal of $14 million ($19 million pre-tax) in the current year and a charge of $357 million ($476 million pre-tax) in the
prior year.
‰ Impact of aligning accounting policies for employee vacation across legal entities of $70 million ($96 million pre-tax) in the current year, recorded
in non-interest expense in Corporate Services.
‰ Reversal of the fiscal 2022 legal provision, including accrued interest, associated with a predecessor bank, M&I Marshall and Ilsley Bank,
of $834 million ($1,135 million pre-tax) in the prior year, comprising a reversal of interest expense of $547 million and a reversal of non-interest
expense of $588 million. For further information, refer to the Provisions and Contingent Liabilities section in Note 24 of the audited annual
consolidated financial statements.
‰ Net accounting loss of $136 million ($164 million pre-tax) on the sale of a portfolio of recreational vehicle loans related to balance sheet
optimization in the prior year, recorded in non-interest revenue in Corporate Services.
Adjusting items in aggregate decreased net income by $523 million in the current year, compared with a $122 million decrease in the prior year.
Caution
This Non-GAAP and Other Financial Measures section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
BMO Financial Group 208th Annual Report 2025 23
MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-GAAP and Other Financial Measures (1)
TABLE 4
(Canadian $ in millions, except as noted)
2025
2024
Reported Results
Net interest income
21,487
19,468
Non-interest revenue
14,787
13,327
Revenue
36,274
32,795
Provision for credit losses
3,617
3,761
Non-interest expense
21,107
19,499
Income before income taxes
11,550
9,535
Provision for income taxes
2,825
2,208
Net income
8,725
7,327
Dividends on preferred shares and distributions on other equity instruments
436
386
Net income attributable to non-controlling interest in subsidiaries
16
9
Net income available to common shareholders
8,273
6,932
Diluted EPS ($)
11.44
9.51
Adjusting Items Impacting Revenue (Pre-tax)
Legal provision/reversal (including related interest expense and legal fees)
–
547
Impact of loan portfolio sale
–
(164)
Impact of adjusting items on revenue (pre-tax)
–
383
Adjusting Items Impacting Non-Interest Expense (Pre-tax)
Acquisition and integration costs
(17)
(172)
Amortization of acquisition-related intangible assets (2)
(476)
(450)
Impact of divestitures
(102)
–
Legal provision/reversal (including related interest expense and legal fees)
–
588
FDIC special assessment
19
(476)
Impact of alignment of accounting policies
(96)
–
Impact of adjusting items on non-interest expense (pre-tax)
(672)
(510)
Impact of adjusting items on reported net income (pre-tax)
(672)
(127)
Adjusting Items Impacting Revenue (After-tax)
Legal provision/reversal (including related interest expense and legal fees)
–
401
Impact of loan portfolio sale
–
(136)
Impact of adjusting items on revenue (after-tax)
–
265
Adjusting Items Impacting Non-Interest Expense (After-tax)
Acquisition and integration costs
(13)
(129)
Amortization of acquisition-related intangible assets (2)
(352)
(334)
Impact of divestitures
(102)
–
Legal provision/reversal (including related interest expense and legal fees)
–
433
FDIC special assessment
14
(357)
Impact of alignment of accounting policies
(70)
–
Impact of adjusting items on non-interest expense (after-tax)
(523)
(387)
Impact of adjusting items on reported net income (after-tax)
(523)
(122)
Impact on diluted EPS ($)
(0.72)
(0.17)
Adjusted Results
Net interest income
21,487
18,921
Non-interest revenue
14,787
13,491
Revenue
36,274
32,412
Provision for credit losses
3,617
3,761
Non-interest expense
20,435
18,989
Income before income taxes
12,222
9,662
Provision for income taxes
2,974
2,213
Net income
9,248
7,449
Net income available to common shareholders
8,796
7,054
Diluted EPS ($)
12.16
9.68
(1) Adjusted results exclude certain items from reported results and are used to calculate our adjusted measures, as presented in the table above. Refer to the commentary in this Non-GAAP and Other
Financial Measures section for further information on adjusting items.
(2) Represents amortization of acquisition-related intangible assets and any impairment.
24 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Summary of Reported and Adjusted Results by Operating Segment
TABLE 5
(Canadian $ in millions, except as noted)
Canadian P&C
U.S. Banking
Wealth
Management
Capital
Markets
Corporate
Services
Total Bank
U.S. Operations (1)
(US$ in millions)
2025
Reported net income (loss)
3,295
2,810
1,381
1,977
(738)
8,725
2,431
Dividends on preferred shares and distributions on other
equity instruments
46
61
6
41
282
436
12
Net income attributable to non-controlling interest
in subsidiaries
–
14
–
–
2
16
12
Net income (loss) available to common shareholders
3,249
2,735
1,375
1,936
(1,022)
8,273
2,407
Adjusting Items
Acquisition and integration costs
–
–
4
–
9
13
6
Amortization of acquisition-related intangible assets
58
272
–
22
–
352
200
Impact of divestitures
–
–
–
–
102
102
73
Impact of FDIC special assessment
–
–
–
–
(14)
(14)
(10)
Impact of alignment of accounting policies
–
–
–
–
70
70
25
Adjusted net income (loss) (2)
3,353
3,082
1,385
1,999
(571)
9,248
2,725
Adjusted net income (loss) available to common
shareholders (2)
3,307
3,007
1,379
1,958
(855)
8,796
2,701
2024
Reported net income (loss)
3,457
2,010
1,067
1,492
(699)
7,327
2,112
Dividends on preferred shares and distributions on other
equity instruments
42
57
6
37
244
386
20
Net income attributable to non-controlling interest
in subsidiaries
–
2
–
–
7
9
7
Net income (loss) available to common shareholders
3,415
1,951
1,061
1,455
(950)
6,932
2,085
Adjusting Items
Acquisition and integration costs
17
–
–
15
97
129
76
Amortization of acquisition-related intangible assets
13
290
–
31
–
334
222
Legal provision/reversal (including related interest
expense and legal fees)
–
–
–
–
(834)
(834)
(616)
Impact of loan portfolio sale
–
–
–
–
136
136
102
Impact of FDIC special assessment
–
–
–
–
357
357
263
Adjusted net income (loss) (2)
3,487
2,300
1,067
1,538
(943)
7,449
2,159
Adjusted net income (loss) available to common
shareholders (2)
3,445
2,241
1,061
1,501
(1,194)
7,054
2,132
(1) U.S. Operations reported and adjusted results comprise net income recorded in U.S. Banking, and the U.S. operations in Capital Markets and Corporate Services.
(2) Refer to the commentary in this Non-GAAP and Other Financial Measures section for details on adjusting items.
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Return on Equity and Return on Tangible Common Equity
TABLE 6
(Canadian $ in millions, except as noted)
For the year ended October 31
2025
2024
Reported net income
8,725
7,327
Net income attributable to non-controlling interest in subsidiaries
16
9
Net income attributable to bank shareholders
8,709
7,318
Dividends on preferred shares and distributions on other equity instruments
436
386
Net income available to common shareholders (A)
8,273
6,932
After-tax amortization of acquisition-related intangible assets
352
334
Net income available to common shareholders after adjusting for amortization of acquisition-related intangible assets (B)
8,625
7,266
After-tax impact of other adjusting items (1)
171
(212)
Adjusted net income available to common shareholders (C)
8,796
7,054
Average common shareholders’ equity (D)
78,126
71,817
Goodwill
(16,886)
(16,385)
Acquisition-related intangible assets
(2,329)
(2,642)
Net of related deferred tax liabilities
953
960
Average tangible common equity (E)
59,864
53,750
Return on equity (%) (= A/D)
10.6
9.7
Adjusted return on equity (%) (= C/D)
11.3
9.8
Return on tangible common equity (%) (= B/E)
14.3
13.5
Adjusted return on tangible common equity (%) (= C/E)
14.7
13.1
(1) Refer to the commentary in this Non-GAAP and Other Financial Measures section for details on adjusting items.
BMO Financial Group 208th Annual Report 2025 25
MANAGEMENT’S DISCUSSION AND ANALYSIS
Return on Equity by Operating Segment (1)
TABLE 7
2025
(Canadian $ in millions, except as noted)
Canadian P&C
U.S. Banking
Wealth
Management
Capital
Markets
Corporate
Services
Total Bank
U.S. Operations (2)
(US$ in millions)
Reported
Net income (loss) available to common shareholders
3,249
2,735
1,375
1,936
(1,022)
8,273
2,407
Total average common equity
16,744
37,075
3,028
13,786
7,493
78,126
32,512
Return on equity (%)
19.4
7.4
45.4
14.0
na
10.6
7.4
Adjusted (3)
Net income (loss) available to common shareholders
3,307
3,007
1,379
1,958
(855)
8,796
2,701
Total average common equity
16,744
37,075
3,028
13,786
7,493
78,126
32,512
Return on equity (%)
19.8
8.1
45.6
14.2
na
11.3
8.3
2024
(Canadian $ in millions, except as noted)
Canadian P&C
U.S. Banking
Wealth
Management
Capital
Markets
Corporate
Services
Total Bank
U.S. Operations (2)
(US$ in millions)
Reported
Net income (loss) available to common shareholders
3,415
1,951
1,061
1,455
(950)
6,932
2,085
Total average common equity
15,986
35,100
2,905
13,172
4,654
71,817
31,782
Return on equity (%)
21.4
5.6
36.5
11.0
na
9.7
6.6
Adjusted (3)
Net income (loss) available to common shareholders
3,445
2,241
1,061
1,501
(1,194)
7,054
2,132
Total average common equity
15,986
35,100
2,905
13,172
4,654
71,817
31,782
Return on equity (%)
21.5
6.4
36.5
11.4
na
9.8
6.7
(1) Return on equity is based on allocated capital. Effective fiscal 2025, the capital allocation rate increased to 12.0% of risk-weighted assets, compared with 11.5% in fiscal 2024. Capital is allocated to
the operating segments based on the amount of regulatory capital required to support business activities, with unallocated capital reported in Corporate Services. Capital allocation methodologies are
reviewed annually. For further information, refer to the How BMO Reports Operating Segments Results section.
(2) U.S. Operations comprises reported and adjusted results and allocated capital recorded in U.S. Banking, and the U.S. operations in Capital Markets and Corporate Services.
(3) Refer to the commentary in this Non-GAAP and Other Financial Measures section for details on adjusting items.
na – not applicable
Certain comparative figures have been reclassified to conform with the current year’s presentation.
26 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Economic Developments and Outlook
Economic Developments in 2025 and Outlook for calendar 2026 (1)
Ongoing changes in U.S. trade policies have created a heightened sense of economic uncertainty that is impacting both Canada and the United States.
The ultimate impact on economic growth in both countries will depend on the level and duration of tariffs and the outcome of future trade
negotiations. Global trade uncertainties and tariffs likely caused the global economy to slow in 2025. However, recent U.S. trade agreements with
several regions, including the European Union, the United Kingdom and Japan, have shown progress toward stability in the global economic
environment. The United States and China have also agreed to a one-year pause on additional tariffs that has eased trade tensions. The renegotiation
of the United States-Mexico-Canada Agreement (USMCA) is expected to shape the direction of trade policies in 2026.
Canada’s real gross domestic product (GDP) growth is estimated to have slowed to an annual rate of 1.7% in 2025, compared with 2.0% in 2024.
Steady growth in consumer and government spending was partially offset by a decline in exports and business investment, as a result of tariff
uncertainty. Assuming trade tensions ease and the USMCA is renewed, real GDP is expected to grow 1.4% in 2026, in response to improved business
sentiment, lower interest rates, and expansionary fiscal policies aimed at increasing business investment and infrastructure, energy and mining
projects. The unemployment rate rose moderately in the past year to 6.9% in October 2025, reflecting economic weakness, and is expected to rise
further to 7.2%, before declining as economic growth improves in 2026. Lower immigration targets will also slow population growth, easing upward
pressure on the unemployment rate. Consumer price inflation remained moderate at 2.2% year-over-year as of October 2025, partially due to the
elimination of the consumer carbon tax, and is anticipated to average 2.5% in 2026. After holding policy rates steady since March 2025, the Bank of
Canada lowered its policy rate in September and October 2025 to address the weaker labour market. Policy rates have decreased by a total
of 100 basis points in 2025, and we anticipate a final 25 basis-point reduction to 2.0% in early 2026, though longer-term interest rates are likely to
decline only modestly thereafter. The Canadian dollar weakened against the U.S. dollar in 2025, but is projected to strengthen moderately in 2026,
assuming trade tensions subside and interest-rate differentials with the U.S. narrow. Housing market activity remained weak in Ontario and British
Columbia in 2025 due to affordability challenges and slower population growth. Industry-wide growth in residential mortgage balances of 4.8% year-
over-year in September 2025 is expected to moderate in the near term, before improving in 2026 as housing market activity responds to a stronger
economy and lower borrowing costs. Year-over-year growth in consumer credit (excluding mortgages) remained moderate at 4.0% in
September 2025, but is anticipated to strengthen somewhat amid lower interest rates. Industry-wide growth in non-financial corporate credit
balances remained modest at 2.3% year-over-year in September 2025 and will likely remain subdued until trade uncertainty improves.
U.S. real GDP growth is estimated to have moderated to an annual rate of 1.9% in 2025 from 2.8% in 2024, amid slower consumer spending and
housing market activity. Trade policy uncertainty, federal government cutbacks and the six-week partial government shutdown also weighed on
activity. However, business investment exceeded expectations due to substantial spending on AI technologies and data centres. With support from
lower interest rates and expansionary fiscal policies, real GDP is expected to grow 1.8% in 2026. Slowing job growth lifted the unemployment rate
to 4.4% in September 2025 from a cyclical low of 3.4% in April 2023, and the rate is expected to rise to 4.7% by the end of the year. Consumer price
inflation rose to 3.0% year-over-year in September 2025 from a recent low of 2.3% in April 2025, partially as a result of tariffs. Annual inflation is
projected to remain elevated in the near term before moderating in response to a softening labour market. After holding policy rates steady for most
of the year due to inflation concerns, the Federal Reserve reduced its policy rate in September and October 2025 to address downside risks to
employment. The central bank is anticipated to lower this rate by an additional 100 basis points before September 2026 to restore policy neutrality.
However, longer-term interest rates are expected to remain close to current levels, given lingering concerns about inflation and the large federal
budget deficit. Growth in industry-wide residential mortgage balances was modest at 2.1% year-over-year in October 2025 amid ongoing weakness
in home sales, but will likely strengthen in 2026 as mortgage rates decline. Year-over-year growth in consumer loan balances improved to 3.6% in
October 2025 and is projected to firm further in 2026. Year-over-year growth in business, industrial and commercial real estate credit was modest
at 2.5% in October 2025, constrained by somewhat elevated borrowing costs and uncertain trade policies, though some improvement is expected
in 2026.
The above economic outlook is subject to several risks that could lead to a less favourable outcome for North America. The most immediate
threats stem from a possible escalation of U.S. tariffs. Canadian businesses face longer-term risks if renegotiation of the USMCA is unsuccessful, as
significant tariffs could then apply to more goods exported to the U.S., rather than a small fraction, likely leading to a recession in Canada. Other risks
include an escalation of the Russia-Ukraine war or renewed conflict in the Middle East. Substantial business spending on AI is providing crucial support
to the economy, but also presents new risks for workers. While AI has not yet led to material job losses, it could increasingly influence hiring
decisions and cause dramatic shifts in workforce composition, requiring unemployed individuals to learn new skills.
Our operations, clients and customers may be affected by significant changes to the economic environment and heightened economic
uncertainty. An increase in provisions for credit losses, volatility in capital markets and slower loan growth could result if tariffs remain high and
persistent. Management regularly monitors the economic environment and takes proactive measures to respond to uncertainties and reduce the
impact on our results.
Caution
This Economic Developments and Outlook section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
(1) All periods in this section refer to the calendar quarter and calendar year, rather than the fiscal quarter or fiscal year.
BMO Financial Group 208th Annual Report 2025 27
MANAGEMENT’S DISCUSSION AND ANALYSIS
2025 Financial Performance Review
This section provides a review of BMO’s enterprise financial performance for fiscal 2025 that focuses on the Consolidated Statement of Income in
BMO’s audited annual consolidated financial statements. A review of the operating segments’ strategies and performance follows the enterprise
review, with the realignment of operating segments discussed in the How BMO Reports Operating Segments Results section.
Impact of Foreign Exchange
TABLE 8
(Canadian $ in millions, except as noted)
2025 vs.
2024
Canadian/U.S. dollar exchange rate (average)
2025
1.4029
2024
1.3591
Increased/(Decreased)
Effects on U.S. Operations Reported Results
Net interest income
300
Non-interest revenue
167
Total revenue
467
Provision for credit losses
(64)
Non-interest expense
(288)
Provision for income taxes
(22)
Net income
93
Impact on basic earnings per share ($)
0.13
Impact on diluted earnings per share ($)
0.13
Effects on U.S. Operations Adjusted Results (1)
Net interest income
282
Non-interest revenue
172
Total revenue
454
Provision for credit losses
(64)
Non-interest expense
(274)
Provision for income taxes
(21)
Net income
95
Impact on basic earnings per share ($)
0.13
Impact on diluted earnings per share ($)
0.13
(1) Adjusted results are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section.
The table above indicates the relevant average Canadian/U.S. dollar exchange rates and the impact of changes in those rates on reported and
adjusted results in BMO’s U.S. operations, comprising U.S. Banking and the U.S. operations in Capital Markets and Corporate Services.
The Canadian dollar equivalents of BMO’s U.S. operations results that are denominated in U.S. dollars increased in fiscal 2025 relative to
fiscal 2024, due to changes in the Canadian/U.S. dollar exchange rate. References in this document to the impact of the U.S. dollar do not include
U.S. dollar-denominated amounts recorded outside of BMO’s U.S. operations.
Economically, our U.S. dollar income stream was not hedged against the risk of changes in foreign exchange rates during fiscal 2025 and
fiscal 2024. Changes in exchange rates will affect future results measured in Canadian dollars, and the impact on those results is a function of the
periods in which revenue, expenses and provisions for (or recoveries of) credit losses and income taxes arise.
Refer to the Enterprise-Wide Capital Management section for a discussion of the impact that changes in foreign exchange rates can have on
BMO’s capital position.
Net Income
Reported net income was $8,725 million, an increase of $1,398 million or 19% from the prior year, and adjusted net income was $9,248 million, an
increase of $1,799 million or 24%.
Reported results in the current year included a write-down of goodwill related to the announced sale of branches in certain U.S. markets and the
impact of aligning accounting policies for employee vacation across legal entities, partially offset by lower acquisition and integration costs, while the
prior year benefitted from the reversal of a fiscal 2022 legal provision, partially offset by the impact of an FDIC special assessment charge and a net
accounting loss on the sale of a portfolio of recreation vehicle loans.
Reported and adjusted net income increased due to higher revenue and a lower provision for credit losses, partially offset by higher expenses,
with higher net income in U.S. Banking, Capital Markets and Wealth Management, partially offset by a decrease in Canadian P&C. On a reported basis,
Corporate Services recorded a higher net loss compared with the prior year, primarily due to the items noted above, and a lower net loss on an
adjusted basis.
Further discussion is provided in the 2025 Operating Segments Performance Review section and for further information on non-GAAP amounts,
measures and ratios in this Net Income section, refer to the Non-GAAP and Other Financial Measures section.
28 BMO Financial Group 208th Annual Report 2025
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Revenue (1)
TABLE 9
(Canadian $ in millions, on a pre-tax basis)
For the year ended October 31
2025
2024
Net interest income
21,487
19,468
Non-interest revenue
14,787
13,327
Total revenue
36,274
32,795
Legal provision/reversal (including related interest expense and legal fees)
–
(547)
Impact of loan portfolio sale
–
164
Impact of adjusting items on revenue
–
(383)
Adjusted revenue
36,274
32,412
(1) Adjusted results exclude certain items from reported results and are used to calculate our adjusted measures as presented in the table above. Management assesses performance on a reported basis
and an adjusted basis, and considers both to be useful. Refer to the Non-GAAP and Other Financial Measures section for details on adjusting items.
Reported and adjusted revenue was $36,274 million, an increase of $3,479 million or 11% from the prior year on a reported basis, and an increase
of $3,862 million or 12% on an adjusted basis.
Growth in reported revenue was impacted by the reversal of accrued interest related to the legal provision and the accounting loss on the sale
of the loan portfolio noted above. Reported and adjusted revenue increased across all operating segments and in Corporate Services.
Further discussion is provided in the 2025 Operating Segments Performance Review section.
For further information on non-GAAP amounts, measures and ratios in this Revenue section, refer to the Non-GAAP and Other Financial
Measures section.
Net Interest Income comprises earnings on assets, such as loans and securities, including interest and certain dividend income, less interest expense
paid on liabilities, such as deposits. Net interest income, excluding trading, is presented on a basis that excludes trading-related interest income.
Net Interest Margin is the ratio of net interest income to average earning assets, expressed as a percentage or in basis points. Net interest margin,
excluding trading net interest income, and trading and insurance average assets is calculated in the same manner, excluding trading-related interest
income, and trading and insurance earning assets.
Average Earning Assets represent the daily average balance of deposits at central banks, deposits with other banks, securities borrowed or
purchased under resale agreements, securities and loans over the period.
Trading-Related Revenue comprises net interest income and non-interest revenue earned from on-balance sheet and off-balance sheet positions
undertaken for trading purposes. We earn revenue from profitably managing our positions with clients and, on a limited basis, from our principal
trading positions, subject to prescribed limits. The management of these positions typically includes marking them to market on a daily basis. Since
trading activities and related risk management strategies can periodically shift trading income between net interest income and non-interest income,
we view total trading income as the most appropriate measure of trading performance.
Net Interest Income
Reported and adjusted net interest income was $21,487 million, an increase of $2,019 million or 10% from the prior year on a reported basis, and an
increase of $2,566 million or 14% on an adjusted basis. Net interest income increased, primarily due to an increase in Canadian P&C reflecting strong
growth driven by higher balances and net interest margin, higher net interest margin in U.S. Banking, higher margins and balance growth in Wealth
Management, higher non-trading net interest income in Capital Markets, as well as higher trading net interest income. Net interest income decreased
in Corporate Services on a reported basis due to the reversal of accrued interest on the legal provision in the prior year, and increased on an adjusted
basis due to treasury-related activities. Trading-related net interest income was $783 million, an increase of $614 million from the prior year.
BMO’s overall reported net interest margin of 1.65% increased 7 basis points from the prior year. Adjusted net interest margin, excluding
trading-related net interest income and trading and insurance assets was 1.99%, an increase of 14 basis points, primarily due to higher deposit
and loan margins, and higher net interest income and lower low-yielding assets in Corporate Services. Deposit margins benefitted from higher
reinvestment rates.
BMO Financial Group 208th Annual Report 2025 29
MANAGEMENT’S DISCUSSION AND ANALYSIS
Change in Net Interest Income, Average Earning Assets and Net Interest Margin (1)
TABLE 10
Net interest margin
(Canadian $ in millions, except as noted)
For the year ended October 31
Net interest income (2)
Average earning assets (3)
(in basis points)
2025
2024
2025
2024
2025
2024
Canadian P&C
9,667
8,852
342,361
319,518
282
277
U.S. Banking
9,017
8,602
235,855
230,500
382
373
All other operating segments and Corporate Services (4)
2,803
2,014
726,856
685,812
na
na
Total reported
21,487
19,468
1,305,072
1,235,830
165
158
Total adjusted
21,487
18,921
1,305,072
1,235,830
165
153
Trading net interest income and trading and insurance assets
783
169
264,786
222,149
na
na
Total reported, excluding trading and insurance
20,704
19,299
1,040,286
1,013,681
199
190
Total adjusted, excluding trading and insurance
20,704
18,752
1,040,286
1,013,681
199
185
U.S. Banking (US$ in millions)
6,427
6,330
168,096
169,596
382
373
(1) Adjusted results and ratios in this table are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section.
(2) Operating segment revenue is presented on a taxable equivalent basis (teb) in net interest income. For further information, refer to the How BMO Reports Operating Segments Results section.
(3) Average earning assets represent the daily average balance of interest-bearing deposits at central banks, deposits with other banks, securities borrowed or purchased under resale agreements,
securities and loans over a period. Average earning assets, excluding trading and insurance assets, exclude trading and insurance earning assets.
(4) For further information on net interest income for these other operating segments and Corporate Services, refer to the 2025 Operating Segments Performance Review section.
na – not applicable
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Non-Interest Revenue (1)
TABLE 11
(Canadian $ in millions)
For the year ended October 31
2025
2024
Securities commissions and fees
1,169
1,106
Deposit and payment service charges
1,791
1,626
Trading revenue
2,584
2,377
Lending fees
1,342
1,464
Card fees
831
847
Investment management and custodial fees
2,339
2,056
Mutual fund revenue
1,495
1,324
Underwriting and advisory fees
1,703
1,399
Securities gains, other than trading
287
200
Foreign exchange, other than trading
271
263
Insurance service results
421
340
Insurance investment results
124
105
Share of profit in associates and joint ventures
175
207
Other
255
13
Total reported
14,787
13,327
Impact of loan portfolio sale
–
164
Adjusted non-interest revenue
14,787
13,491
(1) Adjusted results exclude certain items from reported results and are used to calculate our adjusted measures as presented in the table above. Management assesses performance on a reported basis
and an adjusted basis, and considers both to be useful. Refer to the commentary in the Non-GAAP and Other Financial Measures section for details ion adjusting items.
Reported and adjusted non-interest revenue was $14,787 million, an increase of $1,460 million or 11% from the prior year on a reported basis, and
an increase of $1,296 million or 10% on an adjusted basis.
Reported and adjusted non-interest revenue increased across most categories, primarily driven by higher wealth management fees, underwriting
and advisory fee revenue, trading revenue and deposit fee revenue, as well as the impact of the stronger U.S. dollar, partially offset by lower lending
fee revenue, including the impact of the transition of bankers’ acceptances exposures to loans.
For further information on non-GAAP amounts, measures and ratios in this Revenue section, refer to the Non-GAAP and Other Financial
Measures section.
30 BMO Financial Group 208th Annual Report 2025
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Trading-Related Revenue
TABLE 12
(Canadian $ in millions)
(taxable equivalent basis)
For the year ended October 31
2025
2024
Interest rates
1,026
1,003
Foreign exchange
633
579
Equities
1,133
781
Commodities
365
150
Other
212
55
Total (teb) (1)
3,369
2,568
Teb offset
2
22
Reported total
3,367
2,546
Reported as:
Net interest income
785
191
Non-interest revenue – trading revenue
2,584
2,377
Total (teb)
3,369
2,568
Teb offset
2
22
Reported total, net of teb offset
3,367
2,546
(1) Trading-related revenue presented on a taxable equivalent basis (teb) is a non-GAAP measure. Similar to other banks, BMO analyzes trading-related revenue on a teb basis, which reflects an increase
in net interest income on tax-exempt securities to equivalent pre-tax amounts and is useful in facilitating comparisons of income from taxable and tax-exempt sources.
Trading-related revenue may be reflected in either net interest income or non-interest revenue, and a number of factors can shift trading revenue
between these categories. We view total trading-related revenue as the most appropriate measure of trading performance. Total trading-related
revenue on a teb basis was $3,369 million, an increase of $801 million or 31% from the prior year, primarily driven by higher equities and
commodities trading revenue supported by strong client flows, and the impact of the stronger U.S. dollar.
Refer to the Enterprise-Wide Risk Management – Market Risk section for more information on trading-related revenue.
Total Provision for Credit Losses
TABLE 13
(Canadian $ in millions)
Canadian P&C
U.S. Banking
Wealth
Management
Capital
Markets
Corporate
Services
Total Bank
2025
Provision for credit losses on impaired loans
1,952
1,010
8
133
44
3,147
Provision (recovery of provision) for credit losses on performing loans
412
33
2
68
(45)
470
Total provision (recovery of provision) for credit losses
2,364
1,043
10
201
(1)
3,617
Total PCL-to-average net loans and acceptances (%)
0.70
0.47
0.03
0.24
nm
0.53
PCL on impaired loans-to-average net loans and acceptances (%)
0.58
0.45
0.03
0.16
nm
0.46
2024
Provision for credit losses on impaired loans
1,326
1,285
15
367
73
3,066
Provision (recovery of provision) for credit losses on performing loans
333
392
2
2
(34)
695
Total provision for credit losses
1,659
1,677
17
369
39
3,761
Total PCL-to-average net loans and acceptances (%)
0.51
0.77
0.06
0.45
nm
0.57
PCL on impaired loans-to-average net loans and acceptances (%)
0.41
0.59
0.05
0.44
nm
0.47
nm – not meaningful
Certain comparative figures have been reclassified to conform with the current year’s presentation.
The total provision for credit losses was $3,617 million, compared with $3,761 million in the prior year. Total provision for credit losses as a
percentage of average net loans and acceptances was 53 basis points, compared with 57 basis points in the prior year. The provision for credit losses
on impaired loans was $3,147 million, an increase of $81 million from the prior year, largely due to higher provisions in Canadian P&C, partially offset
by lower provisions in U.S. Banking and Capital Markets. The provision for credit losses on impaired loans as a percentage of average net loans and
acceptances was 46 basis points, compared with 47 basis points in the prior year. There was a $470 million provision for credit losses on performing
loans in the current year, compared with a $695 million provision in the prior year. The provision for credit losses on performing loans in the current
year was primarily driven by the impact of the uncertain economic environment, including tariffs, on future credit conditions, and changes in portfolio
credit migration, partially offset by lower balances in certain portfolios.
Note 3 of the audited annual consolidated financial statements provides additional information on provision for credit losses, including on a
geographic basis. Table 70 in the Supplemental Information provides further segmented provision for credit losses information.
Provision for Credit Losses (PCL) is a charge to income that represents an amount deemed adequate by management to provide for impairment
in a portfolio of loans and acceptances and other credit instruments, given the composition of the portfolio, the probability of default, the
economic outlook and the allowance for credit losses already established. PCL can comprise both a provision for credit losses on impaired loans
and a provision for credit losses on performing loans. For further information, refer to the Credit and Counterparty Risk – Provision for Credit Losses
section, the Critical Accounting Estimates and Judgments – Allowance for Credit Losses section and Note 3 of the audited annual consolidated
financial statements.
Average Net Loans and Acceptances is the daily or monthly average balance of loans and customers’ liability under acceptances, net of the
allowance for credit losses, over a one-year period.
BMO Financial Group 208th Annual Report 2025 31
MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-Interest Expense (1)
TABLE 14
(Canadian $ in millions, on a pre-tax basis)
For the year ended October 31
2025
2024
Employee compensation
Salaries
6,238
5,747
Performance-based compensation
4,216
3,742
Employee benefits
1,564
1,383
Total employee compensation
12,018
10,872
Total premises and equipment
4,468
4,117
Amortization of intangible assets
1,152
1,112
Other expenses
Advertising and business development
806
837
Communications
342
388
Professional fees
678
583
Association, clearing and annual regulator fees
302
321
Other
1,341
1,269
Total other expenses
3,469
3,398
Total non-interest expense
21,107
19,499
Acquisition and integration costs
(17)
(172)
Amortization of acquisition-related intangible assets
(476)
(450)
Impact of divestitures
(102)
–
Legal provision/reversal (including related interest expense and legal fees)
–
588
FDIC special assessment
19
(476)
Impact of alignment of accounting policies
(96)
–
Impact of adjusting items on non-interest expense
(672)
(510)
Total adjusted non-interest expense
20,435
18,989
Efficiency ratio (%)
58.2
59.5
Adjusted efficiency ratio (%)
56.3
58.6
(1) Adjusted results exclude certain items from reported results and are used to calculate our adjusted measures as presented in the table above. Management assesses performance on a reported basis
and an adjusted basis, and considers both to be useful. Refer to the commentary in the Non-GAAP and Other Financial Measures section for details on adjusting items.
Reported non-interest expense was $21,107 million, an increase of $1,608 million or 8% from the prior year, and adjusted non-interest expense
was $20,435 million, an increase of $1,446 million or 8%.
The increase in reported and adjusted non-interest expense was driven by higher employee-related expenses, including performance-based
compensation, higher computer and equipment costs, premises costs and professional fees, as well as the impact of the stronger U.S. dollar.
For further information on non-GAAP amounts, measures and ratios in this Non-Interest Expense section, refer to the Non-GAAP and Other
Financial Measures section.
32 BMO Financial Group 208th Annual Report 2025
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Provision for Income Taxes and Other Taxes
TABLE 15
(Canadian $ in millions, except as noted)
For the year ended October 31
2025
2024
Income before income taxes
11,550
9,535
Provision for income taxes
2,825
2,208
Government levies other than income taxes (other taxes) (1)
Payroll levies
562
534
Property taxes
70
70
Provincial capital taxes
58
52
Business taxes
34
26
Harmonized sales tax, GST, VAT and other sales taxes
460
483
Sundry taxes
1
1
Total government levies other than income taxes (other taxes)
1,185
1,166
Provision for income taxes and other taxes (2) (3)
4,010
3,374
Reported Tax Rates
Effective income tax rate (%)
24.5
23.2
Effective total tax rate
31.5
31.5
Adjusted Results and Tax Rates (4)
Adjusted income before income taxes
12,222
9,662
Adjusted provision for income taxes
2,974
2,213
Adjusted effective income tax rate (%)
24.3
22.9
(1) Government levies other than income taxes (other taxes) are included in various non-interest expense categories.
(2) Provision for income taxes and other taxes are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section.
(3) Fiscal 2025 comprised $1,797 million ($1,266 million in fiscal 2024) incurred in Canada, with $1,015 million ($485 million in fiscal 2024) included in the provision for income taxes and the
remaining $782 million ($781 million in fiscal 2024) recorded in total government levies other than income taxes (other taxes).
(4) Adjusted results exclude certain items from reported results and are used to calculate our adjusted ratios. Refer to the Non-GAAP and Other Financial Measures table for further information on
adjusting items.
The provision for income taxes and other taxes was $4,010 million in the current year, comprising $2,825 million of provision for income taxes and
$1,185 million of government levies other than income taxes (other taxes), compared with $3,374 million in the prior year, comprising $2,208 million of
provision for income taxes and $1,166 million of government levies other than income taxes (other taxes).
The reported provision for income taxes was $2,825 million, an increase of $617 million from the prior year. The reported effective tax rate
was 24.5%, compared with 23.2% in the prior year. The adjusted provision for income taxes was $2,974 million, an increase of $761 million from the
prior year. The adjusted effective tax rate was 24.3%, compared with 22.9% in the prior year. The change in the reported and adjusted effective tax
rate relative to the prior year was primarily due to earnings mix, including the impact of lower income in the prior year and the Global Minimum Tax
Act (GMTA) in the current year.
BMO partially hedges, for accounting purposes, the foreign exchange risk arising from investments in foreign operations by funding the
investments in the corresponding foreign currency. A gain or loss on hedging activities and an unrealized gain or loss on translation of foreign
operations are charged or credited to other comprehensive income. For income tax purposes, a gain or loss on hedging activities results in an income
tax charge or credit in the current period that is charged or credited to other comprehensive income, while the associated unrealized gain or loss on
investments in foreign operations does not incur income taxes until the investments are liquidated. The income tax charge/benefit arising from a
hedging gain/loss is a function of the fluctuations in exchange rates from period to period. Hedging of investments in foreign operations has given
rise to an income tax recovery in other comprehensive income of $29 million in the current year, compared with a recovery of $38 million in the
prior year.
The provision for income taxes presented in the Consolidated Statement of Income is based on transactions recorded in income, regardless of
when such transactions are subject to taxation by tax authorities, with the exception of the repatriation of retained earnings from subsidiaries.
Management assesses BMO’s consolidated results and the associated provision for income taxes on a GAAP basis. We assess the performance of
our operating segments and associated income taxes on a tax equivalent basis, and we report accordingly.
Note 22 of the audited annual consolidated financial statements provides further information on the provision for income taxes.
For further information on non-GAAP amounts, measures and ratios in this Provision for Income Taxes and Other Taxes section, refer to the Non-GAAP
and Other Financial Measures section.
Effective tax rate is a percentage calculated as provision for income taxes divided by income before provision for income taxes.
Effective total tax rate is a percentage calculated as provision for income taxes and government levies other than income taxes (other taxes)
divided by income before provision for income taxes.
BMO Financial Group 208th Annual Report 2025 33
MANAGEMENT’S DISCUSSION AND ANALYSIS
2025 Operating Segments Performance Review
This section includes an analysis of the financial results of BMO’s operating segments and descriptions of their businesses, strategies, challenges,
achievements and outlooks.
BMO Financial Group
Operating Segments
Lines of Business
Canadian Personal and
Commercial Banking
U.S. Banking
Wealth Management
Capital Markets
Personal and Business Banking
Commercial Banking
Personal and Business Banking
Commercial Banking
Private Wealth
Private Wealth
BMO InvestorLine
Global Asset Management
Insurance
Investment and Corporate
Banking
Global Markets
Corporate Services, including Technology and Operations
How BMO Reports Operating Segments Results
Effective the fourth quarter of 2025, BMO combined its U.S. wealth management business, previously reported within Wealth Management, with U.S.
Personal and Commercial Banking to form a unified U.S. Banking operating segment. With this change, we no longer report a combined Personal and
Commercial Banking operating group. BMO now reports financial results for four operating segments: Canadian Personal and Commercial Banking,
U.S. Banking, Wealth Management and Capital Markets. Financial results for prior periods have been reclassified to conform with the current
presentation. Operating segments are supported by Corporate Units and Technology and Operations (T&O) within Corporate Services, and their results
include allocations from Corporate Services for treasury-related revenue, corporate and T&O expenses, taxes and capital.
BMO employs funds transfer pricing and liquidity transfer pricing between corporate treasury and the operating segments in order to assign
cost or credit on assets and liabilities to facilitate effective pricing and business decision-making, and to help assess the profitability of each
line of business. These practices also capture the cost of holding supplemental liquid assets to meet contingent liquidity requirements, as well as
facilitate the management of interest rate and liquidity risk within our risk appetite framework and regulatory requirements. We review our transfer
pricing methodologies at least annually in order to align with our interest rate, liquidity and funding risk management practices, and update these
as appropriate.
The costs incurred of services provided by Corporate Units and T&O are largely allocated to the four operating segments, with any remaining
amounts retained in Corporate Services. Certain expenses directly incurred to support a specific operating segment are generally allocated to that
operating segment. Other expenses not directly attributable to business segments are generally allocated in amounts that reasonably reflect the level
of support provided to each operating segment. We review our expense allocation methodologies at least annually, and update these as appropriate.
Capital is allocated to the operating segments based on the amount of regulatory capital required to support their business activities. Effective
fiscal 2025, our capital allocation rate increased to 12.0% of risk-weighted assets, compared with 11.5% in fiscal 2024. Unallocated capital is reported
in Corporate Services. We review our capital allocation methodologies at least annually, and update these as appropriate.
Periodically, certain lines of business and units within our organizational structure are realigned within an operating segment or transferred
between operating segments and Corporate Services to support our strategic priorities. Allocations of revenue, expenses, provisions for income taxes
and capital from Corporate Services to the operating segments are updated to reflect these changes.
We analyze revenue at the consolidated level based on GAAP revenue as reported in the audited annual consolidated financial statements, rather
than on a taxable equivalent basis (teb), which is consistent with our Canadian banking peer group. As with many banks, BMO analyzes revenue on a
teb basis at the operating segment level. Net interest income, total revenue and provision for (recovery of) income taxes in Capital Markets and
U.S. Banking are increased on tax-exempt securities to equivalent pre-tax amounts in order to facilitate comparisons of income from taxable and
tax-exempt sources, and are reflected in the key performance metrics. The offset to the segment teb adjustments is reflected in Corporate Services
net interest income, total revenue and provision for (recovery of) income taxes. In fiscal 2024, the Canadian government enacted legislation that,
under certain circumstances, denies deductions for dividends received after 2023. As a result, beginning January 1, 2024, we did not take the
deduction for certain Canadian dividends received by Capital Markets, and we no longer report this revenue on a teb basis. Refer to the Other
Regulatory Developments section in BMO’s 2024 Annual Report for further details.
34 BMO Financial Group 208th Annual Report 2025
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Canadian Personal and Commercial Banking
Canadian Personal and Commercial Banking serves clients across Canada with a comprehensive range of financial products,
services and advice through integrated branch, contact centre and digital channels.
Lines of Business
Personal and Business Banking provides clients with a wide range of banking solutions, including deposits, lending, cash management, everyday
financial and investment advice and other banking services, with a focus on providing clients with an exceptional experience and helping them make
real financial progress.
Commercial Banking provides clients with a comprehensive range of commercial products and services, including a variety of financing options and
treasury and payment solutions, as well as risk management products. Our commercial bankers partner with clients to anticipate their financial needs
and offer valuable industry expertise and knowledge to help them manage and grow their businesses.
2025 Strategic Priorities and Achievements
We aim to deliver insight-driven financial solutions that help our clients make real financial progress and foster business growth across Canada. We
strive to provide exceptional experiences and personalized advice, leveraging our leading digital capabilities, deep industry expertise and One Client
strategy. We are committed to growing and deepening client relationships, continuing to enhance our digital offerings and streamline processes with
a focus on improving return on equity.
Key Priority: Drive client loyalty and deliver enhanced One Client experiences
‰ Maintained strong client loyalty in Personal and Business Banking and Commercial Banking, as measured by Net Promoter Score (NPS) (1)
‰ Continued to advance an integrated and client-centric treasury and payment solutions approach in Business Banking, Commercial Banking and
Corporate Banking businesses across North America, delivering differentiated capabilities and an elevated client experience
‰ Named Best Commercial Bank in Canada for the 11th consecutive year by World Finance magazine, a testament to our understanding of clients’
evolving financial needs and our dedication to delivering a digitally enabled experience
Key Priority: In Personal and Business Banking, drive client acquisition, increase share of wallet, enhance digital
engagement and help clients make real financial progress
‰ Continued to drive top-tier, high-quality client growth with deep relationships, resulting in strong chequing account growth and increased share of
wallet, and gained market share (2) in key categories, including retail deposits, business banking deposits and mortgages
‰ Enhanced our digital capabilities and continued to provide innovative and award-winning customer experiences
‰ Received the 2025 Celent Model Bank Award for Payments Innovation for three digital payment client experience initiatives
‰ Ranked first in EMARKETER’s 2025 Canada Mobile Banking Features Benchmark for the second consecutive year, reflecting our leadership in
digitally-enabled, client-focused mobile banking
‰ Received 2025 Digital CX awards from The Digital Banker, including Outstanding Digital CX for Mobile Banking and Excellence in Omni-Channel
Customer Experience
‰ Continued to deliver differentiated products and services to help clients make real financial progress
‰ Launched BMO’s Preferred Program for Investors, designed to help families build and preserve their wealth with reduced fees and personalized
financial guidance, driving approximately $2 billion in added balances
‰ Launched My Financial Progress, a digital goal-planning tool providing comprehensive insights into clients’ finances and access to personalized
strategies to help them reach their goals
‰ Partnered with Porter Airlines to launch two new BMO VIPorter® Mastercards®, expanding our line of premium cards and offering immediate access
to Porter’s loyalty program and accelerated travel rewards, resulting in strong acquisition
(1) Net Promoter Score (NPS): The percentage of customers surveyed who would recommend BMO to a friend or colleague.
(2) Source: OSFI as at June 2025.
BMO Financial Group 208th Annual Report 2025 35
MANAGEMENT’S DISCUSSION AND ANALYSIS
Key Priority: In Commercial Banking, continue to invest in core sectors and geographies, while deepening client
relationships through simplification and digital innovation
‰ Maintained our second-place national lending market share (1) and achieved best-in-class commercial banking deposit growth for the third
consecutive year (2)
‰ Recognized for Best Innovation in Customer Experience in Commercial Banking and Payments by Datos Insights for the third consecutive year,
reflecting a simpler, faster and more intuitive user experience for small and mid-sized businesses (3)
‰ Strengthened our franchise by investing in front-line talent, expanding client-facing teams to support growth in core sectors and geographies and
enhance relationship coverage
‰ Named Best Bank for Collections in North America by Global Finance magazine for providing a comprehensive lockbox network and the only fully-
integrated remote deposit capture capability in North America for chequing deposits, delivering convenience, speed and choice for clients through a
portfolio of more than 25 receivable products
Key Priority: Drive efficiencies by simplifying and digitizing processes, and strengthening digital and AI capabilities to
enhance client experience
‰ Created differentiated and award-winning digital experiences to meet clients where they are in their financial journey, including BMO
SmartProgress, an online financial education platform accessible to all Canadians, with more than 40 interactive, customized modules on financial
planning topics
‰ Launched Lumi Assistant, an award-winning AI-powered tool that simplifies and accelerates employees’ access to critical information needed to
provide advice and guidance to clients
‰ Received two Best Supply Chain Finance awards from The Digital Banker for our Global Trade platform, designed to simplify and customize
client experiences
‰ Recognized by The Banker with the Best Bank/Fintech Partnership award in digital innovation for BMO Sync, a solution that in partnership with
FISPAN, integrates BMO Online Banking for business services directly into enterprise resource planning and accounting systems
‰ Received several 2025 Global AI Innovation Awards by The Digital Banker for our predictive analytics initiatives, use of AI in customer
personalization, best virtual assistant and best new AI product launch of the year – reinforcing our commitment to delivering innovative solutions
to our clients
Key Priority: Foster a winning culture, attract and develop top talent and promote an inclusive workplace
‰ Achieved strong employee engagement, with index scores that position us among leading global companies (4)
‰ Strengthened our leadership in Indigenous Banking through the establishment of the Office of Reconciliation and appointment of a dedicated
Head of the Indigenous Banking Unit
‰ Advanced inclusive recruitment through strategic partnerships with organizations that promote equitable access to employment opportunities
(1) Source: Canadian Bankers Association as at March 2025 in the $1MM-$100MM Loan Band.
(2) Source: OSFI as at June 2025.
(3) Received a Silver Award from Datos.
(4) Source: Qualtrics 2025.
2026 Areas of Focus
‰ Drive profitable growth in our Personal and Commercial Banking franchise, delivering differentiated products and enhanced One Client experiences
‰ In Personal and Business Banking, drive leading client growth and help clients make real financial progress through a digital-first focus and
personalized engagement with simplification, digitization and AI as key enablers
‰ In Commercial Banking, accelerate growth through targeted client acquisition, simplify to scale with AI and enhance products and solutions to
grow share of wallet
‰ Foster a winning, high-performance culture through collaboration, innovation and inclusion, with a focus on attracting, developing and
retaining talent
36 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Canadian P&C (1)
TABLE 16
(Canadian $ in millions, except as noted)
As at or for the year ended October 31
2025
2024
Net interest income
9,667
8,852
Non-interest revenue
2,595
2,587
Total revenue
12,262
11,439
Provision for credit losses on impaired loans
1,952
1,326
Provision for credit losses on performing loans
412
333
Total provision for credit losses
2,364
1,659
Non-interest expense
5,360
5,005
Income before income taxes
4,538
4,775
Provision for income taxes
1,243
1,318
Reported net income
3,295
3,457
Dividends on preferred shares and distributions on other equity instruments
46
42
Net income available to common shareholders
3,249
3,415
Acquisition and integration costs (2)
–
17
Amortization of acquisition-related intangible assets (3)
58
13
Adjusted net income
3,353
3,487
Adjusted net income available to common shareholders
3,307
3,445
Adjusted non-interest expense
5,279
4,964
Key Performance Metrics
Personal and Business Banking revenue
8,805
8,231
Commercial Banking revenue
3,457
3,208
Return on equity (%) (4)
19.4
21.4
Adjusted return on equity (%) (4)
19.8
21.5
Operating leverage (%)
0.1
2.3
Adjusted operating leverage (%)
0.9
2.7
Efficiency ratio (%)
43.7
43.8
Adjusted efficiency ratio (%)
43.1
43.4
PCL on impaired loans-to-average net loans and acceptances (%)
0.58
0.41
Net interest margin on average earning assets (%)
2.82
2.77
Average earning assets
342,361
319,518
Average gross loans and acceptances
340,635
324,082
Average net loans and acceptances
338,525
322,314
Average deposits
311,886
301,278
Full-time equivalent employees
15,500
16,140
(1) Adjusted results and ratios are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures
section.
(2) Acquisition and integration costs related to AIR MILES, recorded in non-interest expense.
(3) Amortization of acquisition-related intangible assets and any impairments, recorded in non-interest expense.
(4) Return on equity is based on allocated capital. Effective fiscal 2025, the capital allocation rate increased to 12.0% of risk-
weighted assets, compared with 11.5% in fiscal 2024. For further information, refer to the Non-GAAP and Other Financial
Measures section.
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Revenue by Line of Business
Personal and Business Banking
Commercial Banking
($ millions)
2025
2024
11,439
12,262
3,208
8,805
8,231
3,457
Average Deposits*
($ billions)
Personal and Business Banking
Commercial Banking
2025
2024
95.4
301.3
100.6
311.9
205.9
211.3
Average Gross Loans and Acceptances*
($ billions)
Commercial
Credit Cards
Residential Mortgages
Consumer Instalment and Other Personal
Business Banking
*Numbers may not add due to rounding.
2024
2025
324.1
52.4
139.5
6.8
13.4
112.0
340.6
53.7
146.8
7.0
13.8
119.3
BMO Financial Group 208th Annual Report 2025 37
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financial Review
Canadian P&C reported net income was $3,295 million, a decrease of $162 million or 5% from the prior year, as higher revenue was more than offset
by higher provisions for credit losses and higher expenses.
Total revenue was $12,262 million, an increase of $823 million or 7% from the prior year. Net interest income increased $815 million or 9%, due
to higher balances and net interest margin. Non-interest revenue increased $8 million from the prior year, due to higher mutual fund distribution and
deposit fee revenue, partially offset by lower lending fee revenue reflecting the impact of the transition of bankers’ acceptances (BA) exposures to
loans, which was offset in net interest income, and lower card-related revenue. Net interest margin of 2.82% increased 5 basis points from the prior
year, primarily due to higher loan and deposit margins, partially offset by loans growing faster than deposits.
Personal and Business Banking revenue increased $574 million or 7%, due to higher net interest income and non-interest revenue. Commercial
Banking revenue increased $249 million or 8%, due to higher net interest income, partially offset by lower non-interest revenue, including the impact
of the transition of BAs to loans.
Total provision for credit losses was $2,364 million, an increase of $705 million from the prior year. Total provision for credit losses as a
percentage of average net loans and acceptances was 70 basis points, compared with 51 basis points in the prior year. The provision for credit losses
on impaired loans was $1,952 million, an increase of $626 million from the prior year, reflecting higher provisions in Personal and Business Banking,
driven by unsecured segments of the consumer portfolio, and in Commercial Banking. The provision for credit losses on impaired loans as a
percentage of average net loans and acceptances was 58 basis points, compared with 41 basis points in the prior year. There was a $412 million
provision for credit losses on performing loans in the current year, compared with a $333 million provision in the prior year.
Non-interest expense was $5,360 million, an increase of $355 million or 7% from the prior year, primarily due to higher technology costs and
employee-related expenses, as well as higher amortization of acquisition-related intangible assets reflecting an impairment related to AIR MILES.
Average gross loans and acceptances increased $16.6 billion or 5% from the prior year. Personal and Business Banking balances increased 4%,
primarily reflecting growth in mortgages. Commercial Banking balances increased 7% and credit card balances increased 3%. Average deposits
increased $10.6 billion or 4% from the prior year, with higher operating deposits partially offset by lower term deposits. Personal and Business
Banking deposits increased 3% and Commercial Banking deposits increased 5%.
For further information on non-GAAP amounts, measures and ratios in this 2025 Operating Segments Performance Review section, refer to the
Non-GAAP and Other Financial Measures section.
Business Environment and Outlook
The Canadian economic environment in fiscal 2025 was impacted by trade uncertainty, including the introduction of tariffs on certain sectors, lower
immigration, as well as interest rate reductions by the Bank of Canada. While Canadian P&C loan and deposit growth was strong at the start of the
year, the combination of these factors resulted in a deceleration of commercial business investment activity and loan demand, as well as slower
housing market activity beginning in the second quarter. Deposit growth slowed due to a decrease in demand for term deposits reflecting lower
interest rates, which was largely offset by higher operating account balances and equity market investments, including mutual funds. Strong
customer acquisition, including through digital channels, also supported deposit growth in the year. Rising unemployment led to higher delinquencies
and provisions for credit losses in unsecured consumer lending products.
Trade uncertainty is expected to continue to impact business activity. However, the introduction of fiscal initiatives by the Canadian government
aimed at spurring investment in Canada, as well as support for tariff impacted industries, should lift GDP growth modestly in fiscal 2026 and support
moderate commercial and business loan growth through the year. The unemployment rate is expected to increase slightly, putting pressure on
consumer unsecured credit losses; however, continued policy rate easing and lower borrowing costs should ease pressure on business and consumer
balance sheets through the year and support mortgage customers renewing in fiscal 2026. Deposit growth is expected to continue to slow, as clients
seeking higher-yielding products migrate to equity markets. Mortgage growth is forecasted to remain modest, in line with market growth.
The environment in Canada remains competitive. Revenue growth will continue to be supported by investment in our business with a focus on
delivering exceptional customer experience and advice across channels, while executing on our strategy to drive business growth and closely
managing expenses.
The Canadian economic environment in calendar 2025 and the outlook for calendar 2026 are discussed in more detail in the Economic
Developments and Outlook section.
Caution
This Canadian Personal and Commercial Banking section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
38 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
U.S. Banking
U.S. Banking serves clients across the United States with a comprehensive range of financial products, services and advice
through an integrated network of branches, contact centres and digital banking platforms, with nationwide access to BMO
and Allpoint® automated teller machines.
Lines of Business
Personal and Business Banking provides clients with a wide range of products and services, including deposits, home lending, consumer credit,
small business lending, credit cards and cash management, with an overall focus on providing exceptional client experience and helping clients make
real financial progress.
Commercial Banking provides clients with a comprehensive range of commercial products and services, including a variety of financing options and
treasury and payment solutions, as well as risk management products. Our commercial bankers partner with clients to anticipate their financial needs,
and offer valuable expertise and industry knowledge to help them manage and grow their businesses.
Private Wealth supports a diverse client base and provides a comprehensive suite of financial services and wealth management solutions to mass
affluent, high net worth and ultra-high net worth individuals, families and business owners.
2025 Strategic Priorities and Achievements
We aim to serve our clients’ financial needs by delivering client-centric financial solutions and advice. We are committed to growing market share,
densifying our presence in key markets and deepening client relationships by bringing the best of BMO to our clients through our One Client strategy.
We are focused on delivering profitable growth and improving return on equity by leveraging our Commercial Banking strength, growing client
relationships in Personal and Business Banking and positioning our Private Wealth platform to meet the holistic needs of our private banking clients,
while continuing to modernize digital capabilities to improve efficiencies and enhance client experience.
Key Priority: Drive customer loyalty and deliver enhanced One Client experiences
‰ Improved strong client loyalty in Personal and Business Banking, Commercial Banking and Private Wealth, as measured by Net Promoter Score (1)
‰ Deepened One Client collaboration between Commercial Banking and Private Wealth, delivering integrated solutions that reflect our unified
approach to client needs, and driving increased referral flows
‰ Named Best Commercial Bank in the United States for the third consecutive year by World Finance magazine
‰ Received the 2025 Celent Model Bank Award for Payments Innovation for three digital payment and client experience initiatives:
‰ Direct Deposit Setup, a feature that connects payroll systems directly to BMO accounts
‰ Soft Credit Pull, which enables access to credit eligibility and empowers clients to explore credit options with confidence
‰ FundsNow, a chequing deposit solution that grants users immediate and guaranteed access to their eligible mobile-deposited cheques
‰ Expanded our Law Practice advisory services in Private Wealth and deepened relationships with law firms and lawyers, as we strengthened our
capabilities to provide curated solutions to clients and the commercial businesses they serve
Key Priority: Enhance client experience to drive client acquisition, increase share of wallet and expand digital engagement
through innovative products, solutions and capabilities that help clients make real financial progress
‰ Maintained our Top 10 market share (2) in commercial banking, based on total wholesale loans
‰ Expanded emerging middle market capabilities, with a focus on delivering tailored product solutions, building a high-performing team and refining
our service model for greater impact
‰ Broadened climate specialization across the agriculture and food, and industrial sectors, with new offerings such as sustainable agriculture and
clean energy solutions, including commercial and industrial solar finance, and project finance
‰ Delivered differentiated and award-winning products and services to better serve our clients, including our Premium Checking Account, offering
enhanced benefits such as low monthly fees and no foreign transaction fees for international debit purchases
‰ Launched co-branded BMO LAFCTM Debit Mastercard® and BMO Angel City FCTM Debit Mastercard®, offering exclusive game day offers and
experiences
‰ BMO Flex Rewards and Visa products for commercial clients, expanding client payment solutions and enhancing flexibility and value
‰ Achieved strong growth in net new assets in Private Wealth through expanded presence in 11 of the top 15 high net worth and ultra-high net
worth markets, with a focus on building local teams to provide clients with best-in-class service and enhanced engagement with local communities
(1) Net Promoter Score (NPS): The percentage of customers surveyed who would recommend BMO to a friend or colleague.
(2) National Information Center: FR Y-9c Report.
BMO Financial Group 208th Annual Report 2025 39
MANAGEMENT’S DISCUSSION AND ANALYSIS
Key Priority: Drive efficiencies by simplifying and digitizing processes, and strengthening digital capabilities
‰ Continued to enhance our Treasury and Payment Services platform, streamlining digital account opening and expanding BusinessWorks bundles
‰ Recognized by The Digital Banker with the 2025 Customer Experience (CX) Award for Best Use of Customer Feedback for BMO Commercial Bank’s
onboarding optimization model
‰ Enhanced our end-to-end mortgage application process, including the addition of a Spanish-language mortgage application, helping make
homeownership more accessible and achievable
‰ Ranked fourth by J.D. Power (1) in its 2025 Regional Mobile Banking App Satisfaction Study for making the mobile banking experience as convenient
as possible for our clients
‰ Enhanced our CreditView® Dashboard tool within our digital banking platform to provide alerts and actionable insights that help clients improve
their credit score
Key Priority: Foster a winning culture, attract and develop top talent and promote an inclusive workplace
‰ Achieved strong employee engagement and a high-performing culture, with index scores in key areas such as engagement and ethics that position
us among leading global companies
‰ Integrated our U.S. banking operations, combining Personal and Business Banking, Commercial Banking and Private Wealth, and invested in top
talent to strengthen collaboration and deliver exceptional client advice and service
‰ Supported internal talent development through rotational programs, leadership coaching and digital upskilling initiatives, fostering a high-
performing and future-ready workforce
(1) For more information, refer to www.jdpower.com/business.
2026 Areas of Focus
‰ Build on our U.S. Banking franchise to drive profitable growth and client loyalty by delivering integrated and personalized service and advice in
targeted client segments and markets
‰ Unlock opportunities to deepen relationships through an enhanced One Client focus to bring breadth of solutions to our commercial clients,
serve our mass affluent clients’ needs and strengthen our high-touch private bank platform
‰ Densify our presence in core markets by deepening our footprint and expanding in targeted markets to accelerate client growth
‰ Invest to advance digital capabilities to deliver innovative solutions and offerings to our clients, enhance client experience and improve
operating efficiency
‰ Foster a winning, high-performance culture through collaboration, innovation and inclusion, with a focus on attracting, developing and
retaining talent
40 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
U.S. Banking (1)
TABLE 17
(Canadian $ in millions, except as noted)
As at or for the year ended October 31
2025
2024
Net interest income (teb) (2)
9,017
8,602
Non-interest revenue
2,466
2,209
Total revenue (teb) (2)
11,483
10,811
Provision for credit losses on impaired loans
1,010
1,285
Provision for credit losses on performing loans
33
392
Total provision for credit losses
1,043
1,677
Non-interest expense
6,855
6,690
Income before income taxes
3,585
2,444
Provision for income taxes (teb) (2)
775
434
Reported net income
2,810
2,010
Dividends on preferred shares and distributions on other equity instruments
61
57
Net income attributable to non-controlling interest in subsidiaries
14
2
Net income available to common shareholders
2,735
1,951
Amortization of acquisition-related intangible assets (3)
272
290
Adjusted net income
3,082
2,300
Adjusted net income available to common shareholders
3,007
2,241
Adjusted non-interest expense
6,490
6,300
Average earning assets
235,855
230,500
Average gross loans and acceptances
225,104
219,167
Average deposits
244,795
237,855
(US$ equivalent in millions)
Net interest income (teb) (2)
6,427
6,330
Non-interest revenue
1,759
1,626
Total revenue (teb) (2)
8,186
7,956
Provision for credit losses on impaired loans
719
943
Provision for credit losses on performing loans
21
285
Total provision for credit losses
740
1,228
Non-interest expense
4,886
4,922
Income before income taxes
2,560
1,806
Provision for income taxes (teb) (2)
553
321
Reported net income
2,007
1,485
Dividends on preferred shares and distributions on other equity instruments
44
42
Net income attributable to non-controlling interest in subsidiaries
10
2
Net income available to common shareholders
1,953
1,441
Amortization of acquisition-related intangible assets (3)
192
214
Adjusted net income
2,199
1,699
Adjusted net income available to common shareholders
2,145
1,655
Adjusted non-interest expense
4,627
4,635
Key Performance Metrics (US$ basis)
Personal and Business Banking revenue
2,897
2,801
Commercial Banking revenue
4,458
4,384
Private Wealth revenue
831
771
Return on equity (%) (4)
7.4
5.6
Adjusted return on equity (%) (4)
8.1
6.4
Operating leverage (teb) (%)
3.6
(1.0)
Adjusted operating leverage (teb) (%)
3.1
(0.3)
Efficiency ratio (teb) (%)
59.7
61.9
Adjusted efficiency ratio (teb) (%)
56.5
58.3
Net interest margin on average earning assets (teb) (%)
3.82
3.73
PCL on impaired loans-to-average net loans and acceptances (%)
0.45
0.59
Average earning assets
168,096
169,596
Average gross loans and acceptances
160,437
161,261
Average net loans and acceptances
158,809
159,948
Average deposits
174,440
175,004
Assets under administration (5)
104,368
83,450
Assets under management (5)
83,036
69,504
Full-time equivalent employees
12,317
12,786
(1) Adjusted results and ratios are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures
section.
(2) Net interest income, total revenue and provision for income taxes are presented on a taxable equivalent basis (teb) and
reflected in the ratios. Teb amounts of $33 million in fiscal 2025 and $36 million in fiscal 2024 are offset in Corporate
Services. On a source currency basis: US$24 million for fiscal 2025 and US$25 million for fiscal 2024.
(3) Amortization of acquisition-related intangible assets and any impairments, recorded in non-interest expense. On a source
currency basis: US$259 million in fiscal 2025 and US$287 million in fiscal 2024.
(4) Return on equity is based on allocated capital. Effective fiscal 2025, the capital allocation rate increased to 12.0% of risk-
weighted assets, compared with 11.5% in fiscal 2024. For further information, refer to the Non-GAAP and Other Financial
Measures section.
(5) Relates to Private Wealth. Assets under administration excludes assets under custody.
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Revenue by Line of Business (teb) (2)
Personal and Business Banking
Commercial Banking
(US$ millions)
Private Wealth
2025
2024
7,956
4,384
771
2,801
8,186
4,458
831
2,897
Average Deposits*
(US$ billions)
Personal and Business Banking
Commercial Banking
Private Wealth
2025
2024
174.4
11.6
82.2
80.7
175.0
11.5
82.8
80.7
Average Gross Loans and Acceptances*
(US$ billions)
Personal and Business Banking
Commercial Banking
2025
2024
*Numbers may not add due to rounding.
160.4
35.2
113.3
11.9
161.3
33.6
117.1
10.6
Private Wealth
BMO Financial Group 208th Annual Report 2025 41
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financial Review
U.S. Banking (1) reported net income was $2,810 million, an increase of $800 million or 40% from the prior year. The impact of the stronger U.S. dollar
increased revenue and expenses by 3% and net income by 4%, respectively. All amounts in the remainder of this section are on a U.S. dollar basis.
Reported net income was $2,007 million, an increase of $522 million or 35% from the prior year, reflecting lower provisions for credit losses,
higher revenue and lower expenses.
Total revenue was $8,186 million, an increase of $230 million or 3% from the prior year. Net interest income increased $97 million or 2%,
primarily due to higher net interest margin, partially offset by lower balances. Non-interest revenue increased $133 million or 8%, due to higher
deposit fee revenue, including strong growth in treasury and payment fees, and higher wealth management fees driven by the impact of stronger
markets and net sales, partially offset by the impact of a loss on the strategic sale of a non-relationship credit card portfolio in the current year. Net
interest margin of 3.82% increased 9 basis points, primarily due to higher deposit margins driven by deposit optimization.
Personal and Business Banking revenue increased $96 million or 3%, due to higher net interest income, partially offset by lower non-interest
revenue. Commercial Banking revenue increased $74 million or 2%, primarily due to higher non-interest revenue. Private Wealth revenue
increased $60 million or 8%, due to higher non-interest revenue and higher net interest income.
Total provision for credit losses was $740 million, a decrease of $488 million from the prior year. Total provision for credit losses as a percentage
of average net loans and acceptances was 47 basis points, compared with 77 basis points in the prior year. The provision for credit losses on impaired
loans was $719 million, a decrease of $224 million, largely due to lower provisions in Commercial Banking. The provision for credit losses on impaired
loans as a percentage of average net loans and acceptances was 45 basis points, compared with 59 basis points in the prior year. There was
a $21 million provision for credit losses on performing loans in the current year, compared with a $285 million provision in the prior year.
Non-interest expense was $4,886 million, a decrease of $36 million or 1% from the prior year, reflecting disciplined expense management across
several categories, partially offset by higher employee-related expenses reflecting investments in talent.
Average gross loans and acceptances decreased $0.8 billion or 1% from the prior year to $160.4 billion. Commercial Banking balances
decreased 3% reflecting balance sheet optimization initiatives, Personal and Business Banking balances increased 5% and Private Wealth balances
increased 13%. Average total deposits decreased $0.6 billion to $174.4 billion. Personal and Business Banking deposits decreased 1% and Private
Wealth deposits increased 1%, with Commercial Banking relatively unchanged from the prior year.
Assets under management increased $13.5 billion or 19% from the prior year to $83.0 billion, driven by stronger global markets and higher client
assets. Assets under administration increased $20.9 billion or 25% to $104.4 billion, driven by stronger global markets.
For further information on non-GAAP amounts, measures and ratios in this 2025 Operating Segments Performance Review section, refer to the
Non-GAAP and Other Financial Measures section.
Business Environment and Outlook
The U.S. banking industry saw modest growth in loans and deposits in fiscal 2025, after an extended period of muted business loan demand and
activity, with higher net interest margins due to moderating deposit costs following initial rate cuts. Our performance was supported by disciplined
expense management and good revenue growth, including margin expansion and higher fee-based revenue, while loans and deposits declined
moderately reflecting balance sheet optimization to support improvement in return on equity. Credit performance has improved across the industry
and BMO’s impaired losses have moderated from peak levels in the fourth quarter of fiscal 2024.
While tariffs and trade disputes are having an impact on the economy, GDP growth remains solid and consumer spending resilient, with steady
growth expected to continue in fiscal 2026. With the Federal Reserve expected to continue easing interest rates, lower borrowing costs should
support stronger business and consumer lending demand and further improvement in credit performance, as well as stabilization of deposit costs. The
U.S. banking environment remains highly competitive with several bank merger and acquisition transactions announced that will impact banks’
strategies in the markets they serve.
We expect loan and deposit growth to strengthen, excluding the impact of the announced sale of branches in non-strategic markets, with
revenue growth supported by the alignment and deeper integration of our Personal and Business Banking, Commercial Banking and Private Wealth
franchises. We are focused on allocating resources to areas of competitive strength, advancing growth initiatives while maintaining disciplined
expense management to accelerate business momentum and capture growth opportunities as economic conditions improve.
The U.S. economic environment in calendar 2025 and the outlook for calendar 2026 are discussed in more detail in the Economic Developments
and Outlook section.
Caution
This U.S. Banking section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
(1) Effective the fourth quarter of 2025, BMO combined its U.S. wealth management business, previously reported within Wealth Management, with U.S. Personal and Commercial Banking to form a unified
U.S. Banking operating segment. Financial results for prior periods have been reclassified to conform with the current presentation. For further information, refer to the How BMO Reports Operating
Segments Results section.
42 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Wealth Management
Wealth Management serves a full range of clients across Canada, from individuals and families to business owners and
institutions, offering a wide spectrum of wealth, asset management and insurance products and services aimed at helping
clients make real financial progress through planning, growing, protecting and transitioning their wealth. Our asset
management business is focused on delivering innovative financial solutions and strategies for our clients.
Lines of Business
Private Wealth provides full-service investing, banking and wealth advisory services to mass affluent, high net worth and ultra-high net worth
clients, leveraging individualized financial planning and advice-based solutions such as investment management, business succession planning, trust
and estate services and philanthropy.
BMO InvestorLine leads Wealth Management’s digital investing services, offering three ways for Canadian clients to invest: a self-directed online
trading platform for investors who want to be in control of their investments; adviceDirect® for investors who want to make their own investment
decisions with personalized advice and support; and SmartFolio® for investors who want low-fee, professionally managed portfolios aligned with
their investment objectives.
Global Asset Management provides investment management services to institutional, retail and high net worth investors, offering a wide range of
innovative, client-focused solutions and strategies to help clients meet their investment objectives.
Insurance is a diversified insurance and wealth solutions provider and a leader in pension de-risking solutions. The Insurance group manufactures
individual life, critical illness and annuity products, as well as segregated funds. In addition, group creditor and travel insurance is available to clients
in Canada through BMO.
2025 Strategic Priorities and Achievements
We aim to deliver a world-class client experience by being a leader in financial advice. To achieve this, we provide investment and planning solutions
to solve both everyday investor needs, as well as complex financial challenges. Focusing on the best experience and outcomes for our clients, we
strive to provide dynamic full-service financial advice for current and next-generation clients, delivering superior, empathetic service and solutions
that meet their needs on an easy-to-navigate platform. Leveraging strong data and analytics capabilities, we are committed to utilizing technology
solutions to gain efficiencies, strengthen risk management practices and streamline processes with a focus on improving return on equity.
Key Priority: Advance our leadership in private wealth advisory services through a One Client approach to plan, grow,
protect and transition our clients’ wealth
‰ Achieved record-high loyalty scores across most of our businesses, as measured by Net Promoter Score (1), reflecting our continued investment in
improving client experience
‰ Named Best Private Bank in Canada for the 15th consecutive year by World Finance magazine
‰ Recognized as Canada’s Best Private Bank for both Ultra-High-Net-Worth Clients and Philanthropic Advisory Services at the Euromoney Global
Private Banking Awards 2025 for our commitment to providing personalized private banking services, customized lending solutions and support for
families in developing philanthropic plans that are aligned with their goals
‰ Acquired Burgundy Asset Management Ltd., a leading independent wealth manager in Canada, expanding our wealth management and financial
planning capabilities focused on high net worth individuals, families and institutions
‰ Provided curated insights on market trends from our global team of experts, including on the impact of U.S. policy changes, to educate clients and
offer practical advice and guidance
Key Priority: Extend our advantage as a solutions provider, expanding asset management and insurance offerings in key
growth areas to provide innovative, competitive product solutions that meet the evolving needs of our clients
‰ Introduced a broad suite of Canadian Depositary Receipts (CDRs), providing Canadian investors with enhanced access to foreign market-traded
companies, while effectively mitigating currency risk
‰ Sustained leadership in exchange-traded funds (ETFs) net flows (2) by launching a suite of innovative strategies, including the Human Capital Factor
U.S. Equity ETF, the AAA CLO ETF and the SPDR Select Sector Index ETFs. These were complemented by a series of actively managed ETFs designed
to deliver differentiated performance through tactical positioning and disciplined investment processes
‰ Launched innovative alternative investment strategies, including the Alpha Managers Hedge Fund, which leverages the combined strength of BMO
and Goldman Sachs Asset Management to deliver a differentiated absolute return strategy to Canadian investors
‰ Received 25 FundGrade A+® Awards from analytics firm Fundata Canada Inc. for consistent risk-adjusted performance, with three mutual funds
awards and 22 ETF awards – the most of any other financial institutions rated in 2024 (3)
‰ Received 12 2025 Canada LSEG Lipper Fund Awards, recognizing our commitment to deliver strong risk-adjusted performance for our clients across
a diverse range of investment solutions – seven BMO Mutual Funds and five BMO ETFs received top honours
(1) Net Promoter Score (NPS): The percentage of customers surveyed who would recommend BMO to a friend or colleague.
(2) National Bank ETF Report as at July 31, 2025.
(3) Announced in fiscal 2025.
BMO Financial Group 208th Annual Report 2025 43
MANAGEMENT’S DISCUSSION AND ANALYSIS
Key Priority: Deliver top-tier digital wealth management offerings, building on our differentiated digital advisory
capabilities to simplify, streamline and integrate digital client experiences
‰ Continued to enhance Rovr AI, the first external advisor-facing, generative AI-powered digital assistant in the Canadian individual insurance
market, laying the foundation for an agentic (autonomous) framework that improves efficiency, supports decision-making and enhances the
customer experience
‰ Launched expanded digital capabilities and new online features in BMO InvestorLine, including multi-leg option trading, digital enrolment for
Shareholder Dividend Reinvestment and Share Purchase Plans and enhanced views of position types, to improve user experience
‰ Empowered online clients through new digital planning capabilities, enabling them to create financial plans that position them for real
financial progress
‰ Achieved top-tier user rating for our BMO Invest mobile app for both iOS and Android platforms, reflecting our ongoing investment in the
digital client experience (1)
Key Priority: Foster a winning culture focused on alignment, empowerment and recognition, with a commitment to an
inclusive workplace that promotes innovation and collaboration
‰ Achieved strong employee engagement with notable year-over-year growth in index scores in specific areas, including alignment, empowerment
and recognition, which positions us among leading global companies
‰ Launched Innovation Program, designed to ignite internal idea sharing, visionary thinking and solutioning, including recognition of achievements
across the enterprise
‰ Held focused events and programs to attract and retain high-performing talent, reinforcing our commitment to ensuring an inclusive workforce
(1) App Store Rating as at October 31, 2025.
2026 Areas of Focus
‰ Be a Canadian leader in financial advisory services and accelerate our One Client approach to deliver a world-class client experience
‰ Strengthen our position as a solutions provider through innovative and competitive asset management and insurance offerings that help grow
and protect the financial interests of our clients
‰ Accelerate digital and AI-powered solutions that drive client value, while continuing to modernize technology and enhance productivity
‰ Foster a winning, high-performance culture through collaboration, innovation and inclusion, with a focus in attracting, developing and
retaining talent
44 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Wealth Management (1)
TABLE 18
(Canadian $ in millions, except as noted)
As at or for the year ended October 31
2025
2024
Net interest income
1,020
873
Non-interest revenue
4,282
3,726
Total revenue
5,302
4,599
Provision for credit losses on impaired loans
8
15
Provision for credit losses on performing loans
2
2
Total provision for credit losses
10
17
Non-interest expense
3,460
3,176
Income before income taxes
1,832
1,406
Provision for income taxes
451
339
Reported net income
1,381
1,067
Dividends on preferred shares and distributions on other equity instruments
6
6
Net income available to common shareholders
1,375
1,061
Acquisition and integration costs (2)
4
–
Adjusted net income
1,385
1,067
Adjusted net income available to common shareholders
1,379
1,061
Adjusted non-interest expense
3,454
3,176
Key Performance Metrics
Wealth and Asset Management reported net income
1,065
831
Wealth and Asset Management adjusted net income
1,069
831
Insurance reported net income
316
236
Return on equity (%) (3)
45.4
36.5
Adjusted return on equity (%) (3)
45.6
36.5
Operating leverage (%)
6.3
1.6
Adjusted operating leverage (%)
6.5
1.6
Efficiency ratio (%)
65.3
69.1
Adjusted efficiency ratio (%)
65.1
69.1
PCL on impaired loans-to-average net loans and acceptances (%)
0.03
0.05
Average assets
53,224
49,134
Average gross loans and acceptances
30,003
28,532
Average net loans and acceptances
29,979
28,511
Average deposits
52,359
45,874
Assets under administration (AUA) (4)
282,258
245,183
Assets under management (AUM)
390,282
326,032
Full-time equivalent employees
5,289
4,998
(1) Adjusted results and ratios are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures
section.
(2) Burgundy pre-tax acquisition and integration costs, recorded in non-interest expense.
(3) Return on equity is based on allocated capital. Effective fiscal 2025, the capital allocation rate increased to 12.0% of risk-
weighted assets, compared with 11.5% in fiscal 2024. For further information, refer to the Non-GAAP and Other Financial
Measures section.
(4) Certain assets under management that are also administered by BMO are included in assets under administration.
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Reported Net Income
($ millions)
2024
1,067
236
316
831
1,065
2025
Wealth and Asset Management
Insurance
1,381
AUA
AUM
AUA and AUM*
($ billions)
2024
571.2
2025
245.2
326.0
282.3
390.3
672.5
*Numbers may not add due to rounding.
2025 Net Revenue by Line of Business
(%)
9% Insurance
59% Private Wealth
22% Global Asset
Management
10% BMO InvestorLine
BMO Financial Group 208th Annual Report 2025 45
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financial Review
Wealth Management (1) reported net income was $1,381 million, an increase of $314 million or 29% from the prior year. Wealth and Asset
Management net income was $1,065 million, an increase of $234 million or 28%, and Insurance net income was $316 million, an increase
of $80 million or 34% from the prior year.
Total revenue was $5,302 million, an increase of $703 million or 15%. Revenue in Wealth and Asset Management was $4,799 million, an
increase of $567 million or 13%, primarily due to the impact of stronger global markets and net sales, strong growth in loan and deposit balances and
higher brokerage transaction volumes. Insurance revenue was $503 million, an increase of $136 million or 37%, primarily due to favourable market
movements in the current year and a gain on the sale of a portfolio of insurance contracts.
The provision for credit losses was $10 million, a decrease of $7 million from the prior year. The provision for credit losses on impaired loans
decreased $7 million and the provision for credit losses on performing loans was relatively unchanged from the prior year.
Non-interest expense was $3,460 million, an increase of $284 million or 9% from the prior year, primarily due to higher employee-related
expenses, including higher revenue-based costs and investment in talent.
Assets under management increased $64.3 billion or 20% from the prior year to $390.3 billion, and assets under administration increased
$37.1 billion or 15% to $282.3 billion, both driven by stronger global markets and higher client assets. Average gross loans increased 5% and
average deposits increased 14% from the prior year.
For further information on non-GAAP amounts, measures and ratios in this 2025 Operating Segments Performance Review section, refer to the
Non-GAAP and Other Financial Measures section.
Business Environment and Outlook
Wealth Management delivered strong performance in fiscal 2025, supported by favourable market conditions and ongoing strategic investments.
Revenue growth was driven by higher assets under management reflecting robust market activity and strong net asset flows, partially offset by the
impact of an industry-wide reduction in asset yields and declining interest rates. Operational efficiency remained a key focus, as we continued to
invest in AI, automation and technology platforms to simplify, streamline and integrate digital solutions for our clients, while enhancing advisor-
facing tools. Our Insurance and Global Asset Management businesses expanded their product offerings in key growth areas, delivering innovative
and competitive solutions tailored to the evolving needs of our clients.
Looking ahead to fiscal 2026, strong market activity and net asset flows should continue to support business growth. However, global
macroeconomic developments, geopolitical tensions and ongoing trade policy uncertainty may impact overall business performance.
We remain committed to supporting our clients with expert advice and comprehensive investment solutions to help them navigate market
volatility and macroeconomic uncertainty. This includes investments in digital-first products and innovative offerings designed to help clients achieve
their financial goals.
The Canadian economic environment in calendar 2025 and the outlook for calendar 2026 are discussed in more detail in the Economic
Developments and Outlook section.
Caution
This Wealth Management section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
(1) Effective the fourth quarter of 2025, BMO combined its U.S. wealth management business, previously reported within Wealth Management, with U.S. Personal and Commercial Banking to form a unified
U.S. Banking operating segment. Financial results for prior periods have been reclassified to conform with the current presentation. For further information, refer to the How BMO Reports Operating
Segments Results section.
46 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Capital Markets
Capital Markets offers a comprehensive range of products and services to corporate, institutional and government clients
globally. Our extensive network of approximately 2,700 professionals in 38 locations around the world supports the growth
aspirations of our clients across the enterprise.
Lines of Business
Investment and Corporate Banking offers debt and equity capital-raising services to clients, as well as loan origination and syndication, balance
sheet management solutions and treasury management services. We provide clients with strategic advice on mergers and acquisitions, restructurings
and recapitalizations, trade finance and risk mitigation services to support international business activities, along with a wide range of banking and
other operating services tailored to North American and international financial institutions.
Global Markets offers research and access to financial markets for institutional, corporate and retail clients through an integrated suite of sales and
trading solutions related to debt, foreign exchange, interest rates, credit, equities, securitization and commodities. New product development and
origination services are also offered, as well as risk management and advisory services for hedging strategies, including interest rates, foreign
exchange rates and commodities prices. In addition, Global Markets provides funding and liquidity management services to clients.
2025 Strategic Priorities and Achievements
We aim to deliver leading capital markets solutions to our North American and international clients through a differentiated platform with market
leadership across products, sectors and geographies. We are committed to delivering exceptional service and tailored solutions that meet the
evolving needs of our clients and working in close partnership across the organization to strengthen and deepen client relationships. We are focused
on boosting efficiency and supporting return on equity by modernizing technology, operations and data, and aligning our resources where we have
strength and opportunity.
Key Priority: Drive greater collaboration and connectivity across BMO to better serve our clients and grow market share
where we have competitive strength and opportunity
‰ Leveraged our diverse business mix to help lead several market firsts for our clients, including:
‰ Joint lead bookrunner for Groupe Dynamite Inc.’s $314 million initial public offering (IPO), the largest IPO in Canada since 2022
‰ Co-advisor to BCE Inc. in its USD$7 billion acquisition of Ziply Fiber, becoming the third-largest fibre internet provider in North America
‰ Joint lead arranger, joint bookrunner and administrative agent on senior secured credit facilities for e.l.f. Beauty to finance their acquisition
of rhode
‰ Advanced our position as a market leader across priority markets and products, including:
‰ U.S. agency collateral mortgage obligation new issuance
‰ Bank of Canada rates trading and Canadian government bond issuance
‰ Canadian investment banking M&A and equity capital markets
‰ Achieved industry-leading scores in Corporate Banking and Treasury and Payment Solutions, as measured by Net Promoter Score (1)
‰ Strengthened our position as a global leader in metals and mining:
‰ Named the Best Metals & Mining Investment Bank of the Year by Global Finance magazine for the 16th consecutive year
‰ Held leading market share in metals and mining mergers and acquisitions, including the second largest transaction in the sector with the
announced merger of Teck Resources Ltd. and Anglo American plc
‰ Expanded our offerings by joining the London Metal Exchange (LME) as an approved Category 2 bank
‰ Helped clients navigate a highly uncertain environment, including the evolution of trade and tariffs, by providing a broad array of comprehensive
resources and events featuring industry experts
‰ Deepened client relationships with expertise and insights through leading annual investor conferences, such as our 34th Global Metals, Mining and
Critical Minerals Conference, 20th Farm-to-Market Conference, 22nd Infrastructure and Utilities Conference, 12th Government, Reserve and Asset
Managers Conference and 11th High-Yield Conference
‰ Launched a new strategic direct lending partnership with Canal Road Group, building and expanding on our private credit financing capabilities
(1) Net Promoter Score (NPS): The percentage of customers surveyed who would recommend BMO to a friend or colleague.
BMO Financial Group 208th Annual Report 2025 47
MANAGEMENT’S DISCUSSION AND ANALYSIS
Key Priority: Continue to provide solutions to support our clients’ climate transition
‰ Supported our clients’ climate transition, including through a first-of-its-kind Carbon Advisory and exclusive Carbon Offset Marketing mandates
‰ Became the first North American bank to issue a labelled Indigenous bond in support of Indigenous-owned business and communities
‰ Ranked the top sustainable bond underwriter of the year in Canada with notable deals for the Government of Canada, Hydro One Inc., City of
Toronto, Desjardins and Hydro Ottawa (1)
‰ Advised and assisted Canada Development Investment Corp. in structuring Canada’s Indigenous Loan Guarantee Program (ILGP) as part of our
ongoing support for Indigenous equity participation in major Canadian infrastructure
Key Priority: Drive technology transformation, data-centric decision-making and innovative solutions, and build scale and
maximize return on investment with end-to-end delivery and execution
‰ Launched our first in-house agentic AI application, offering bankers an analysis of historical underwritten loan transactions
‰ Streamlined our technology ecosystem through the rationalization of applications and process reengineering to enhance scalability and accelerate
service delivery
‰ Enhanced analytics capabilities to optimize resource allocation, improve workflow efficiency and strengthen risk management and monitoring
Key Priority: Advance our winning culture, attract and develop top talent and promote an inclusive workplace
‰ Achieved strong employee engagement index scores, with notable year-over-year improvement in alignment, empowerment and recognition
‰ Invested in the growth and development of our talent through learning programs, such as our One Client and Leader Learning series
‰ Continued to attract top-tier talent with a focus on building high-performing teams that drive measurable impacts across the bank
‰ Supported the communities we serve through hallmark programs, including BMO’s Employee Giving Campaign and Equity Through Education
(1) Source: Bloomberg, Capital Markets.
2026 Areas of Focus
‰ Grow and deepen client relationships, delivering integrated solutions and leveraging our One Client approach
‰ Expand our product capabilities to drive client value with a focus on areas where we have a competitive advantage
‰ Continue to invest in technology and deploy AI-powered capabilities to deliver operational efficiencies and innovation
‰ Foster a winning, high-performance culture through collaboration, innovation and inclusion, with a focus on attracting, developing and
retaining talent
48 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Capital Markets (1)
TABLE 19
(Canadian $ in millions, except as noted)
As at or for the year ended October 31
2025
2024
Net interest income (teb) (2)
2,482
1,731
Non-interest revenue
4,965
4,785
Total revenue (teb) (2)
7,447
6,516
Provision for credit losses on impaired loans
133
367
Provision for credit losses on performing loans
68
2
Total provision for credit losses
201
369
Non-interest expense
4,616
4,278
Income before income taxes
2,630
1,869
Provision for income taxes (teb) (2)
653
377
Reported net income
1,977
1,492
Dividends on preferred shares and distributions on other equity instruments
41
37
Net income available to common shareholders
1,936
1,455
Acquisition and integration costs (3)
–
15
Amortization of acquisition-related intangible assets (4)
22
31
Adjusted net income
1,999
1,538
Adjusted net income available to common shareholders
1,958
1,501
Adjusted non-interest expense
4,586
4,216
Key Performance Metrics
Global Markets revenue
4,599
3,898
Investment and Corporate Banking revenue
2,848
2,618
Return on equity (%) (5)
14.0
11.0
Adjusted return on equity (%) (5)
14.2
11.4
Operating leverage (teb) (%)
6.4
1.9
Adjusted operating leverage (teb) (%)
5.5
2.6
Efficiency ratio (teb) (%)
62.0
65.7
Adjusted efficiency ratio (teb) (%)
61.6
64.7
PCL on impaired loans-to-average net loans and acceptances (%)
0.16
0.44
Average assets
551,491
468,963
Average gross loans and acceptances
84,273
83,024
Average net loans and acceptances
83,951
82,669
Full-time equivalent employees
2,740
2,710
U.S. Business Select Financial Data (US$ in millions)
Total revenue (teb) (2)
2,654
2,286
Non-interest expense
1,662
1,599
Reported net income
678
350
Adjusted non-interest expense
1,651
1,580
Adjusted net income
686
364
Average assets
192,595
157,876
Average gross loans and acceptances
32,088
31,795
(1) Adjusted results and ratios are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures
section.
(2) Net interest income, total revenue and provision for income taxes are presented on a taxable equivalent basis (teb) and
reflected in the ratios. Teb amounts of $6 million in fiscal 2025 and $22 million in fiscal 2024 are offset in Corporate Services.
Beginning January 1, 2024, we treated certain Canadian dividends as non-deductible for tax purposes, due to legislation that
was enacted in the third quarter of fiscal 2024. As a result, we no longer report this revenue on a teb basis.
(3) Acquisition and integration costs related to Clearpool and Radicle, recorded in non-interest expense.
(4) Amortization of acquisition-related intangible assets and any impairments, recorded in non-interest expense. Fiscal 2025 and
fiscal 2024 included an impairment related to Radicle of $10 million and $18 million, respectively.
(5) Return on equity is based on allocated capital. Effective fiscal 2025, the capital allocation rate increased to 12.0% of risk-
weighted assets, compared with 11.5% in fiscal 2024. For further information, refer to the Non-GAAP and Other Financial
Measures section.
Revenue by Line of Business (teb) (2)
Global Markets
Investment and Corporate Banking
($ millions)
2025
3,898
4,599
2,618
2,848
6,516
7,447
2024
2024
Revenue by Geography
Canada and Other Countries
United States
(%)
2025
52%
48%
50%
50%
BMO Financial Group 208th Annual Report 2025 49
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financial Review
Capital Markets reported net income was $1,977 million, an increase of $485 million or 33% from the prior year, as higher revenue and lower
provisions for credit losses were partially offset by higher expenses.
Total revenue was $7,447 million, an increase of $931 million or 14% from the prior year. Global Markets revenue increased $701 million
or 18%, due to higher trading revenue across all products, reflecting strong client activity, and the impact of the stronger U.S. dollar. Investment and
Corporate Banking revenue increased $230 million or 9% from the prior year, reflecting higher underwriting and advisory fee revenue driven by
strong Canadian M&A activity, higher corporate banking revenue driven by strong deposit and fee revenue growth and the impact of the stronger
U.S. dollar, partially offset by the impact of markdowns on investments.
Total provision for credit losses was $201 million, a decrease of $168 million from the prior year. The provision for credit losses on impaired loans
was $133 million, compared with a $367 million provision in the prior year. There was a $68 million provision for credit losses on performing loans in
the current year, compared with a $2 million provision in the prior year.
Non-interest expense was $4,616 million, an increase of $338 million or 8% from the prior year, driven by higher performance-based
compensation and technology costs, as well as the impact of the stronger U.S. dollar.
Average gross loans and acceptances of $84.3 billion increased $1.2 billion or 2% from the prior year.
For further information on non-GAAP amounts, measures and ratios in this 2025 Operating Segments Performance Review section, refer to the
Non-GAAP and Other Financial Measures section.
Business Environment and Outlook
Capital Markets delivered solid financial performance in fiscal 2025, demonstrating disciplined execution and adaptability in a complex operating
environment. We effectively managed our business through macroeconomic volatility, including tariff adjustments and trade disputes, by proactively
reallocating resources and optimizing risk across businesses.
Global Markets delivered strong results, led by broad-based trading strength, as we supported our clients amid market volatility, including
particularly strong commodities trading, where we are uniquely positioned to support a broad range of client needs. Investment and Corporate
Banking experienced a rebound in underwriting and advisory activity, with notable momentum in Canadian M&A, as market sentiment and client
confidence strengthened in the second half of the year.
Looking ahead to 2026, Investment Banking activity is poised to benefit from M&A momentum and equity and debt issuance, while ongoing
volatility across key asset classes is anticipated to drive trading revenue. However, geopolitical risks and trade uncertainty may impact market
performance and business activity. The business remains well positioned to capture profitable growth and sustainable returns through disciplined risk
management, targeted client coverage, and further investments in technology and AI-enabled platforms.
The Canadian and U.S. economic environment in calendar 2025 and the outlook for calendar 2026 are discussed in more detail in the Economic
Developments and Outlook section.
Caution
This Capital Markets section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
Corporate Services, including Technology and Operations
Corporate Services consists of Corporate Units and Technology and Operations (T&O). Corporate Units provide enterprise-wide expertise, governance
and support in a number of areas, including strategic planning, risk management, treasury, finance, legal and regulatory compliance, sustainability,
human resources, communications, marketing, real estate and procurement. T&O develops, monitors, manages and maintains governance
of information technology, including data and analytics and the development and use of AI-powered tools, and provides cyber security and
operations services.
Corporate Services focuses on enterprise-wide priorities for maintaining a sound internal control and risk management environment and
regulatory compliance, including the management, assessment and monitoring of BMO’s investment portfolios and funding, liquidity and capital
activities, as well as any exposures to credit, foreign exchange and interest rate risks. In support of the operating segments, Corporate Services
develops and implements enterprise-wide processes, systems and controls to maintain operating efficiency and enable our businesses to adapt and
meet their customer experience objectives.
The costs of Corporate Units and T&O services are largely allocated to the four operating segments, with any remaining amounts retained in
Corporate Services. As such, Corporate Services results largely reflect the impact of residual unallocated expenses, residual treasury-related activities
and the elimination of taxable equivalent adjustments. We review revenue and expense allocation methodologies annually.
50 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Corporate Services, including Technology and Operations (1)
TABLE 20
(Canadian $ in millions, except as noted)
As at or for the year ended October 31
2025
2024
Net interest income before segment teb offset
(660)
(532)
Segment teb offset
(39)
(58)
Net interest income (teb)
(699)
(590)
Non-interest revenue
479
20
Total revenue (teb)
(220)
(570)
Provision for credit losses on impaired loans
44
73
Provision (recovery of provision) for credit losses on performing loans
(45)
(34)
Total provision (recovery of provision) for credit losses
(1)
39
Non-interest expense
816
350
Loss before income taxes
(1,035)
(959)
Recovery of income taxes (teb)
(297)
(260)
Reported net loss
(738)
(699)
Dividends on preferred shares and distributions on other equity instruments
282
244
Net income attributable to non-controlling interest in subsidiaries
2
7
Net loss available to common shareholders
(1,022)
(950)
Acquisition and integration costs (2)
9
97
Impact of divestitures
102
–
Legal provision/reversal (including related interest expense and legal fees)
–
(834)
Impact of loan portfolio sale
–
136
FDIC special assessment
(14)
357
Impact of alignment of accounting policies
70
–
Adjusted net loss
(571)
(943)
Adjusted net loss available to common shareholders
(855)
(1,194)
Adjusted total revenue (teb)
(220)
(953)
Adjusted non-interest expense
626
333
Full-time equivalent employees
17,388
16,963
U.S. Business Select Financial Data (US$ in millions)
Total revenue (teb) (3)
(15)
401
Total provision (recovery of provision) for credit losses
(2)
3
Non-interest expense
348
47
Provision for (recovery of) income taxes (teb) (3)
(107)
74
Reported net income (loss)
(254)
277
Adjusted total revenue
(15)
118
Adjusted non-interest expense
246
36
Adjusted net income
(160)
96
(1) Adjusted results are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section.
(2) Acquisition and integration costs related to the acquisition of Bank of the West, recorded in non-interest expense.
(3) Segment taxable equivalent basis (teb) offset amounts recorded in net interest income, total revenue and provision for (recovery of) income taxes: $39 million in fiscal 2025 and $58 million in
fiscal 2024.
Financial Review
Corporate Services reported net loss was $738 million, compared with a reported net loss of $699 million in the prior year. Reported net loss reflected
higher revenue, more than offset by higher expenses.
The higher reported net loss in the current year included a write-down of goodwill related to the announced sale of branches in certain
U.S. markets and the impact of aligning accounting policies for employee vacation across legal entities, partially offset by lower acquisition and
integration costs, while the prior year benefitted from the reversal of the legal provision, partially offset by the impact of an FDIC special assessment
charge and a net accounting loss on the sale of a portfolio of recreation vehicle loans.
Adjusted net loss was $571 million, compared with $943 million in the prior year. Adjusted net loss excluded the items noted above and
reflected higher revenue, partially offset by higher expenses. Adjusted revenue increased, primarily due to higher treasury-related revenue, including
the impact of market volatility on hedge positions in the prior year. The increase in adjusted expenses was primarily due to higher employee-related
expenses, including the impact of the consolidation of certain U.S. retirement benefit plans in the prior year.
For further information on non-GAAP amounts, measures and ratios in this 2025 Operating Segments Performance Review section, refer to the
Non-GAAP and Other Financial Measures section.
BMO Financial Group 208th Annual Report 2025 51
MANAGEMENT’S DISCUSSION AND ANALYSIS
Summary Quarterly Earnings Trends
Summarized Statement of Income and Quarterly Financial Measures (1)
TABLE 21
(Canadian $ in millions, except as noted)
Q4-2025
Q3-2025
Q2-2025
Q1-2025
Q4-2024
Q3-2024
Q2-2024
Q1-2024
Net interest income
5,496
5,496
5,097
5,398
5,438
4,794
4,515
4,721
Non-interest revenue
3,845
3,492
3,582
3,868
3,519
3,398
3,459
2,951
Revenue
9,341
8,988
8,679
9,266
8,957
8,192
7,974
7,672
Provision for credit losses on impaired loans
750
773
765
859
1,107
828
658
473
Provision for credit losses on performing loans
5
24
289
152
416
78
47
154
Total provision for credit losses
755
797
1,054
1,011
1,523
906
705
627
Non-interest expense
5,556
5,105
5,019
5,427
4,427
4,839
4,844
5,389
Income before income taxes
3,030
3,086
2,606
2,828
3,007
2,447
2,425
1,656
Provision for income taxes
735
756
644
690
703
582
559
364
Reported net income (see below)
2,295
2,330
1,962
2,138
2,304
1,865
1,866
1,292
Acquisition and integration costs/reversal
3
4
(1)
7
27
19
26
57
Amortization of acquisition-related intangible assets
123
69
81
79
92
79
79
84
Impact of divestitures
102
–
–
–
–
–
–
–
Legal provision/reversal (including related interest expense and legal fees)
–
–
–
–
(870)
13
12
11
Impact of loan portfolio sale
–
–
–
–
–
–
–
136
FDIC special assessment
(9)
(4)
4
(5)
(11)
5
50
313
Impact of alignment of accounting policies
–
–
–
70
–
–
–
–
Adjusted net income
2,514
2,399
2,046
2,289
1,542
1,981
2,033
1,893
Operating Segment Reported Revenue (2)
Canadian P&C
3,125
3,098
2,974
3,065
2,934
2,908
2,819
2,778
U.S. Banking
2,875
2,830
2,814
2,964
2,735
2,722
2,639
2,715
Wealth Management
1,419
1,343
1,242
1,298
1,219
1,170
1,143
1,067
Capital Markets
1,819
1,776
1,779
2,073
1,600
1,666
1,661
1,589
Corporate Services
103
(59)
(130)
(134)
469
(274)
(288)
(477)
Total revenue
9,341
8,988
8,679
9,266
8,957
8,192
7,974
7,672
Key Performance Metrics
Diluted earnings per share ($) (3)
2.97
3.14
2.50
2.83
2.94
2.48
2.36
1.73
Adjusted diluted earnings per share ($)
3.28
3.23
2.62
3.04
1.90
2.64
2.59
2.56
PCL-to-average net loans and acceptances (annualized) (%)
0.44
0.47
0.63
0.58
0.91
0.54
0.44
0.38
Effective tax rate (%)
24.2
24.5
24.7
24.4
23.4
23.8
23.1
22.0
Adjusted effective tax rate (%)
23.6
24.5
24.7
24.5
21.7
23.9
23.3
22.4
Canadian/U.S. dollar average exchange rate ($)
1.3887
1.3730
1.4203
1.4303
1.3641
1.3705
1.3625
1.3392
(1) Adjusted results exclude certain items from reported results and are used to calculate our adjusted measures as presented in the table above. Management assesses performance on a reported basis
and an adjusted basis, and considers both to be useful. For further information, refer to the Non-GAAP and Other Financial Measures section. For details on the composition of non-GAAP amounts,
measures and ratios, as well as supplementary financial measures, refer to the Glossary of Financial Terms.
(2) Operating segment revenue, net interest income, total revenue and provision for income taxes are presented on a taxable equivalent basis (teb). The offset to the segments’ teb adjustments is
reflected in Corporate Services. For further information, refer to the How BMO Reports Operating Segments Results section.
(3) Net income and earnings from our business operations are attributable to shareholders by way of EPS and diluted EPS. Adjusted EPS and adjusted diluted EPS are non-GAAP measures. For further
information, refer to the Non-GAAP and Other Financial Measures section.
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Earnings in certain quarters are impacted by seasonal factors, such as higher employee expenses related to employee benefits and stock-based
compensation for employees eligible to retire, which are recorded in the first quarter of each year, as well as the impact of fewer days in the second
quarter relative to other quarters. Results are also impacted by foreign currency translation, primarily changes in the U.S. dollar relative to the
Canadian dollar. Quarterly EPS is impacted by the semi-annual payment of dividends on certain equity instruments. Economic conditions, such as
evolving trade policies and global events may also impact our results and the markets in which we operate. The table above outlines summary
results for the first quarter of fiscal 2024 through the fourth quarter of fiscal 2025.
A number of adjusting items impacted reported results in certain quarters. The fourth quarter of fiscal 2025 included a write-down of goodwill
related to the announced sale of certain U.S. branches. The first quarter of fiscal 2025 included the impact of aligning accounting policies for employee
vacation across legal entities. The fourth quarter of fiscal 2024 included a reversal of a fiscal 2022 legal provision, including accrued interest, associated
with a predecessor bank, M&I Marshall and Ilsley Bank. Fiscal 2024 and fiscal 2025 included the impact of an FDIC special assessment in each quarter.
The first quarter of fiscal 2024 included a loss on the sale of a portfolio of recreational vehicle loans related to balance sheet optimization. All periods
included acquisition and integration costs, as well as the amortization of acquisition-related intangible assets and any impairments.
Financial performance benefitted from the strength and diversification of our businesses, with improving revenue trends.
Revenue growth in Canadian P&C reflected good customer acquisition, volume growth and higher net interest margin. U.S. Banking revenue
performance continued to be impacted by muted industry loan demand over the period, with the past four quarters benefitting from higher net
interest margin, optimization and investment management activities. Wealth Management revenue benefitted from stronger global markets and
steady growth in client assets, as well as balance sheet growth. Insurance revenue is subject to variability resulting from market-related impacts.
Capital Markets revenue is largely driven by market conditions that affect client activity. Trading activity has been robust in fiscal 2025, supported by
strong client flows. Underwriting and advisory activity improved in recent quarters, with momentum in Canadian markets.
52 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Provisions for credit losses on impaired loans can vary depending on the economic environment and specific client circumstances. Provisions for
credit losses on impaired loans increased in fiscal 2024, reflecting the impact of prolonged higher interest rates, tightening credit conditions and
shifting consumer demand. In fiscal 2025, provisions for credit losses on impaired loans moderated, but remained elevated in Canadian P&C,
reflecting the impact of a weaker Canadian economy and high unemployment. Provisions on performing loans were impacted by the macroeconomic
outlook, credit migration and loan growth. Over the past eight quarters, the bank has added provisions on performing loans reflecting credit migration
and the impact of an uncertain economic environment on future credit conditions.
Non-interest expense was impacted by the specific items in certain quarters noted above, and reflected disciplined expense management, while
we continue to invest in our business to drive revenue growth. Expense growth has largely been driven by higher employee-related expenses,
including higher performance-based compensation in fiscal 2025, and technology costs.
The effective tax rate has varied with legislative changes; changes in tax policy, including their interpretation by tax authorities and the courts;
earnings mix, including the relative proportion of earnings attributable to the different jurisdictions in which we operate, the level of pre-tax income;
and the level of investments or securities which generate tax credits, or tax-exempt income from securities. The reported effective tax rate was
impacted by the elimination of the income tax deduction for certain Canadian dividends in fiscal 2024 and the implementation of the global minimum
tax rules beginning the first quarter of fiscal 2025.
Refer to the Non-GAAP and Other Financial Measures section for further information on non-GAAP amounts, measures and ratios, including
adjusting items in this Summary Quarterly Earnings Trends section.
Review of Fourth Quarter 2025 Performance
Q4 2025 vs. Q4 2024
Net Income
Reported net income was $2,295 million, a decrease of $9 million from the prior year, and adjusted net income was $2,514 million, an increase
of $972 million or 63%. Adjusted results excluded the specified items noted in the Summary Quarterly Earnings Trends section.
The decrease in reported net income reflected the reversal of a legal provision in the prior year and the write-down of goodwill related to the
announced sale of branches in certain U.S. markets in the current year. The increase in adjusted net income reflected higher revenue and a lower
provision for credit losses, partially offset by higher expenses. Reported and adjusted net income increased across all operating segments. On a
reported basis, Corporate Services recorded a net loss in the current year, compared with net income in the prior year, primarily due to the items
noted above, and a lower net loss on an adjusted basis.
Revenue
Reported and adjusted revenue was $9,341 million, an increase of $384 million or 4% from the prior year on a reported basis, and an increase
of $973 million or 12% on an adjusted basis. Growth in reported revenue was impacted by the reversal of accrued interest related to a legal provision
in the prior year. Reported net interest income was relatively unchanged from the prior year due to the item noted above, and increased on an
adjusted basis, driven by higher net interest margin, higher net interest income in Corporate Services, higher trading-related net interest income and
balance growth in Canadian P&C and Wealth Management. Reported and adjusted non-interest revenue increased across most categories, primarily
driven by higher wealth management fees, underwriting and advisory fee revenue, securities gains, excluding trading, and lower mark-downs on fair
value loans, partially offset by lower non-interest trading revenue.
Provision for Credit Losses
Total provision for credit losses was $755 million, compared with a provision of $1,523 million in the prior year. Total provision for credit losses as a
percentage of average net loans and acceptances ratio was 44 basis points, compared with 91 basis points in the prior year. The provision for credit
losses on impaired loans was $750 million, a decrease of $357 million, primarily due to lower provisions in U.S. Commercial Banking and Capital
Markets, partially offset by higher provisions in Canadian unsecured consumer lending. The provision for credit losses on impaired loans as a
percentage of average net loans and acceptances ratio was 44 basis points, compared with 66 basis points in the prior year. There was a $5 million
provision for credit losses on performing loans, compared with a $416 million provision in the prior year.
Non-Interest Expense
Reported non-interest expense was $5,556 million, an increase of $1,129 million or 26% from the prior year, and adjusted non-interest expense
was $5,294 million, an increase of $418 million or 9%. Reported results reflected the reversal of the legal provision in the prior year and the impact
of the write-down of goodwill in the current year. Adjusted non-interest expense increased, primarily due to higher employee-related expenses,
including performance-based compensation, higher computer and equipment costs, and higher premises costs.
Provision for Income Taxes
The reported provision for income taxes was $735 million, an increase of $32 million from the prior year, and the adjusted provision for income taxes
was $778 million, an increase of $351 million. The reported effective tax rate was 24.2%, compared with 23.4% in the prior year, with the change
primarily due to the impact of the Global Minimum Tax Act (GMTA) in the current year. The adjusted effective tax rate was 23.6%, compared
with 21.7%, primarily due to earnings mix, including the impact of lower income in the prior year and the impact of the GMTA in the current year.
BMO Financial Group 208th Annual Report 2025 53
MANAGEMENT’S DISCUSSION AND ANALYSIS
Q4 2025 vs. Q3 2025
Reported net income decreased $35 million or 1% from the prior quarter, reflecting the write-down of goodwill and higher amortization of
acquisition-related intangibles, and adjusted net income increased $115 million or 5%, with higher revenue and a lower provision for credit losses,
partially offset by higher expenses. Reported and adjusted revenue increased $353 million or 4% from the prior quarter. Net interest income was
unchanged from the prior quarter, with higher non-trading net interest income offset by lower trading-related net interest income. Non-interest
revenue increased, due to higher trading revenue, wealth management fees and higher net gains on investments compared with the prior quarter.
Total provision for credit losses decreased $42 million from the prior quarter, due to lower provisions on impaired and performing loans. Reported
non-interest expense increased $451 million or 9% from the prior quarter, primarily due to the specified items noted above. Adjusted non-interest
expense increased $282 million or 6%, primarily due to higher computer and equipment costs, professional fees, and premises costs.
For further information on non-GAAP amounts, measures and ratios in this Review of Fourth Quarter 2025 Performance section, refer to the
Non-GAAP and Other Financial Measures section.
2024 Financial Performance Review
The preceding discussions in the MD&A focused on BMO’s performance in fiscal 2025. This section summarizes BMO’s performance in fiscal 2024
relative to fiscal 2023.
On February 1, 2023, we completed the acquisition of Bank of the West, which contributed to the increase in revenue, expenses and provision for
credit losses beginning the second quarter of fiscal 2023, with operating results primarily allocated to our U.S. Banking business, previously known as
U.S. P&C. On June 1, 2023, we completed the acquisition of the AIR MILES Reward Program (AIR MILES), which contributed to the increase in revenue
and expenses in our Canadian P&C business beginning the third quarter of fiscal 2023.
Refer to How BMO Reports Operating Segments Results for further information on our operating segments and descriptions of their businesses.
TABLE 22
(Canadian $ in millions)
2024
2023
Net interest income (1)
19,468
18,681
Non-interest revenue
13,327
10,578
Revenue (1)
32,795
29,259
Provision for credit losses
3,761
2,178
Non-interest expense
19,499
21,134
Income before income taxes
9,535
5,947
Provision for income taxes (1)
2,208
1,510
Net income
7,327
4,437
Acquisition and integration costs
129
1,533
Amortization of acquisition-related intangible assets
334
264
Legal provision/reversal (including related interest expense and legal fees)
(834)
21
Impact of loan portfolio sale
136
–
Impact of FDIC special assessment
357
–
Management of fair value changes on the purchase of Bank of the West (2)
–
1,461
Initial provision for credit losses on purchased performing loans (3)
–
517
Impact of Canadian tax measures (4)
–
502
Adjusted net income
7,449
8,735
(1) Operating segment revenue, net interest income, total revenue and provision for income taxes are presented on a taxable equivalent basis (teb). The offset to the segments’ teb adjustments is
reflected in Corporate Services. For further information, refer to the How BMO Reports Operating Segments Results section.
(2) Management of the impact of interest rate changes between the announcement and closing of the acquisition of Bank of the West on its fair value and goodwill, recorded in Corporate Services.
Fiscal 2023 comprised $1,628 million of mark-to-market losses on certain interest rate swaps recorded in trading revenue and $383 million of losses on a portfolio of primarily U.S. treasuries and
other balance sheet instruments recorded in net interest income.
(3) Initial provision for credit losses on the purchased Bank of the West performing loan portfolio, recorded in Corporate Services.
(4) Impact of certain tax measures enacted by the Canadian government, recorded in Corporate Services. Fiscal 2023: $371 million one-time tax expense, comprising a $312 million Canada Recovery
Dividend and $59 million related to the pro-rated fiscal 2022 impact of the 1.5% tax rate increase, net of a deferred tax asset remeasurement; and a $131 million ($160 million pre-tax) charge related
to the amended GST/HST definition for financial services, comprising $138 million recorded in non-interest revenue and $22 million recorded in non-interest expense.
Refer to the Non-GAAP and Other Financial Measures section for further information on other adjusting items in fiscal 2024 reflected in the table above.
Net Income
Reported net income in fiscal 2024 was $7,327 million, an increase of $2,890 million or 65% from fiscal 2023, and adjusted net income was
$7,449 million, a decrease of $1,286 million or 15% from fiscal 2023. Reported results increased from fiscal 2023, primarily due to the impact of the
acquisition of Bank of the West recorded in fiscal 2023, including a loss related to the management of fair value changes between the announcement
and closing of the acquisition, an initial provision on purchased performing loans and acquisition and integration costs, as well as one additional
quarter of results in fiscal 2024, compared with fiscal 2023. In addition, fiscal 2024 reported results included the reversal of the legal provision
related to a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank.
Adjusted net income decreased, with higher revenue more than offset by higher provision for credit losses and higher expenses.
54 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Revenue
Reported revenue in fiscal 2024 was $32,795 million, an increase of $3,536 million or 12% from fiscal 2023, and adjusted revenue was
$32,412 million, an increase of $974 million or 3%. The increase in reported revenue was primarily driven by the adjusting items noted above.
Reported and adjusted revenue included one additional quarter of Bank of the West results, as well as the impact of the acquisition of AIR MILES.
Adjusted revenue increased, due to higher non-interest revenue reflecting higher trading and underwriting and advisory fee revenue, investment
management fees and custodial fee revenue, partially offset by lower insurance-related revenue due to the transition to IFRS 17 and lower lending
fee revenue due to the transition of bankers’ acceptances exposures to loans. Adjusted net interest income decreased, as higher balances in Canadian
P&C and U.S. Banking were offset by lower net interest margin and lower trading net interest revenue.
Provision for Credit Losses
The total provision for credit losses (PCL) in fiscal 2024 was $3,761 million, compared with $2,178 million on a reported basis and $1,473 million on
an adjusted basis in fiscal 2023. Adjusted PCL in fiscal 2023 excluded an initial provision of $705 million on the acquired Bank of the West loan
portfolio. PCL on impaired loans was $3,066 million in fiscal 2024, an increase of $1,886 million from fiscal 2023. PCL on performing loans in
fiscal 2024 was $695 million, compared with $998 million on a reported basis and $293 million on an adjusted basis in fiscal 2023.
Non-Interest Expense
Reported non-interest expense in fiscal 2024 was $19,499 million, a decrease of $1,635 million or 8% from fiscal 2023, and adjusted non-interest
expense was $18,989 million, an increase of $276 million or 1% from fiscal 2023. The decrease in reported non-interest expense reflected lower
acquisition and integration costs and the reversal of the fiscal 2022 legal provision, partially offset by the impact of the FDIC special assessment and
higher amortization of acquisition-related intangible assets. Reported and adjusted non-interest expense reflected the impact of one additional
quarter of Bank of the West results, net of realized cost synergies, the inclusion of AIR MILES and operational efficiencies, as well as lower severance
and legal provisions.
Provision for Income Taxes
The provision for income taxes in fiscal 2024 was $2,208 million, compared with $1,510 million in fiscal 2023. The reported effective tax rate in
fiscal 2024 was 23.2%, compared with 25.4% in fiscal 2023, primarily due to earnings mix, including the impact of certain Canadian tax measures
recorded in fiscal 2023. The adjusted provision for income taxes in fiscal 2024 was $2,213 million, compared with $2,517 million in fiscal 2023. The
adjusted effective tax rate was 22.9% in fiscal 2024, compared with 22.4% in fiscal 2023.
Financial Condition Review
Summary Balance Sheet
TABLE 23
(Canadian $ in millions)
As at October 31
2025
2024
Assets
Cash and cash equivalents and interest bearing deposits with banks
70,322
68,738
Securities
423,476
396,880
Securities borrowed or purchased under resale agreements
129,421
110,907
Net loans and acceptances
677,872
678,375
Derivative instruments
57,151
47,253
Other assets
118,560
107,494
Total assets
1,476,802
1,409,647
Liabilities and Equity
Deposits
976,202
982,440
Derivative instruments
58,729
58,303
Securities lent or sold under repurchase agreements
134,967
110,791
Other liabilities
210,304
165,450
Subordinated debt
8,500
8,377
Equity
88,051
84,250
Non-controlling interest in subsidiaries
49
36
Total liabilities and equity
1,476,802
1,409,647
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Overview
Total assets of $1,476.8 billion increased $67.2 billion from October 31, 2024. The stronger U.S. dollar increased assets by $5.7 billion, excluding the
impact on derivative assets. Total liabilities of $1,388.7 billion increased $63.3 billion from the prior year. The stronger U.S. dollar increased liabilities
by $5.2 billion, excluding the impact of derivative liabilities. Total equity of $88.1 billion increased $3.8 billion from October 31, 2024.
BMO Financial Group 208th Annual Report 2025 55
MANAGEMENT’S DISCUSSION AND ANALYSIS
Cash and Cash Equivalents and Interest Bearing Deposits with Banks
Cash and interest bearing deposits with banks increased $1.6 billion, primarily due to higher balances held with central banks.
Securities
TABLE 24
(Canadian $ in millions)
As at October 31
2025
2024
Trading
192,303
168,926
Fair value through profit or loss (FVTPL) (1)
21,354
19,064
Fair value through other comprehensive income – Debt and equity (2)
113,209
93,702
Debt securities at amortized cost (3)
96,610
115,188
Total securities
423,476
396,880
(1) Included securities mandatorily measured at FVTPL of $7,818 million as at October 31, 2025 ($6,850 million as at October 31, 2024) and securities designated at fair value of $13,536 million as at
October 31, 2025 ($12,214 million as at October 31, 2024).
(2) Included allowances for credit losses on debt securities recorded at fair value through other comprehensive income of $6 million as at October 31, 2025 ($4 million as at October 31, 2024).
(3) Net of allowances for credit losses of $4 million as at October 31, 2025 ($3 million as at October 31, 2024).
Securities increased $26.6 billion, primarily due to higher levels of client activity in Capital Markets, the impact of the stronger U.S. dollar and higher
balances in Corporate Services.
Securities Borrowed or Purchased Under Resale Agreements
Securities borrowed or purchased under resale agreements increased $18.5 billion, due to higher levels of client activity in Capital Markets.
Net Loans and acceptances
TABLE 25
(Canadian $ in millions)
As at October 31
2025
2024
Residential mortgages
196,033
191,080
Consumer instalment and other personal
92,741
92,687
Credit cards
12,649
13,612
Businesses and government loans and acceptances
381,499
385,352
Gross loans
682,922
682,731
Allowance for credit losses
(5,050)
(4,356)
Total net loans and acceptances
677,872
678,375
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Net loans and acceptances decreased $0.5 billion from October 31, 2024. Business and government loans and acceptances decreased $3.9 billion,
with lower balances in U.S. Banking, partially offset by higher balances in Canadian P&C. Consumer instalment and other personal loans were
relatively unchanged from the prior year, with lower balances in Corporate Services reflecting the exit and wind-down of our Canadian and
U.S. indirect retail auto financing business offset by higher balances in U.S. Banking, Canadian P&C and Wealth Management. Residential mortgages
increased $5.0 billion, driven by growth in Canadian P&C and U.S. Banking. Credit card balances decreased $1.0 billion.
Table 64 in the Supplemental Information provides a comparative summary of loans by geographic location and product. Table 65 in the
Supplemental Information provides a comparative summary of net loans in Canada by province. Loan quality is discussed in the Credit and
Counterparty Risk – Credit Quality Information section, and further details on loans are provided in Notes 3, 5 and 24 of the audited annual
consolidated financial statements.
Derivative Financial Assets
Derivative financial assets increased $9.9 billion, primarily reflecting an increase in the value of client-driven trading derivatives in Capital Markets,
with increases in the fair value of foreign exchange and equity contracts partially offset by a decrease in the fair value of interest rate and commodity
contracts. Further details on derivative financial assets are provided in Note 7 of the audited annual consolidated financial statements.
Other Assets
Other assets primarily include goodwill and intangible assets, cash collateral, insurance-related assets, premises and equipment, precious metals,
current and deferred tax assets, accounts receivable, prepaid expenses and investments in associates and joint ventures. Other assets increased
$11.1 billion, primarily in Capital Markets, due to changes in the balance of unsettled securities transactions. Further details on other assets are
provided in Notes 8, 10, 11 and 22 of the audited annual consolidated financial statements.
56 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Deposits
TABLE 26
(Canadian $ in millions)
As at October 31
2025
2024
Banks
27,621
32,546
Businesses and governments
585,497
575,019
Individuals
306,922
320,767
Deposits at FVTPL
56,162
54,108
Total deposits
976,202
982,440
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Deposits decreased $6.2 billion. Business and government deposits increased $10.5 billion, reflecting higher balances to fund Global Markets
client activity and the impact of a stronger U.S. dollar, partially offset by lower wholesale funding in Corporate Services. Deposits by individuals
decreased $13.8 billion, primarily due to lower customer deposits in U.S. Banking reflecting the impact of deposit optimization activities, and
Canadian P&C. Deposits by banks decreased $4.9 billion reflecting lower wholesale funding for Global Markets client activity. Further details on the
composition of deposits are provided in Note 12 of the audited annual consolidated financial statements and in the Liquidity and Funding Risk section.
Derivative Financial Liabilities
Derivative financial liabilities increased $0.4 billion, primarily due to an increase in the fair value of client-driven trading derivatives in Capital Markets,
with increases in foreign exchange contracts partially offset by a decrease in the fair value of equity and interest rate contracts. Further details on
derivative financial assets are provided in Note 7 of the audited annual consolidated financial statements.
Securities Lent or Sold Under Repurchase Agreements
Securities lent or sold under repurchase agreements increased $24.2 billion, primarily due to higher levels of client activity in Capital Markets.
Other Liabilities
Other liabilities primarily include securities sold but not yet purchased, securitization and structured entities liabilities, acceptances, insurance-related
liabilities and accounts payable. Other liabilities increased $44.9 billion, driven by changes in the balance of unsettled securities transactions in Capital
Markets, an increase in securities sold but not yet purchased due to client activity in Capital Markets, higher securitization liabilities in Capital Markets,
insurance-related liabilities and acceptances, partially offset by lower securitization liabilities in Corporate Services.
Further details on the composition of other liabilities are provided in Note 13 of the audited annual consolidated financial statements.
Subordinated Debt
Subordinated debt was relatively unchanged from the prior year, reflecting a new issuance, net of a redemption. Further details on the composition of
subordinated debt are provided in Note 15 of the audited annual consolidated financial statements.
Equity
TABLE 27
(Canadian $ in millions)
As at October 31
2025
2024
Share capital
Preferred shares and other equity instruments
8,956
8,087
Common shares
23,359
23,921
Contributed surplus
373
354
Retained earnings
47,377
46,469
Accumulated other comprehensive income
7,986
5,419
Total equity
88,051
84,250
Total equity increased $3.8 billion from October 31, 2024. Accumulated other comprehensive income increased $2.6 billion, primarily due to an
increase in accumulated other comprehensive income on cash flow hedges. Retained earnings increased $0.9 billion as a result of net income earned
in the year, partially offset by dividends and distributions on other equity instruments and the repurchase of common shares for cancellation.
Preferred shares and other equity instruments increased $0.9 billion, due to the issuance of Limited Recourse Capital Notes, Series 6 in the year, net
of redemptions of Preferred Shares, Series 27, 46 and 29.
The Consolidated Statement of Changes in Equity provides a summary of items that increase or reduce total equity, while Note 16 of the audited
annual consolidated financial statements provides details on the components of, and changes in, share capital. Details on our enterprise-wide capital
management practices and strategies can be found below.
BMO Financial Group 208th Annual Report 2025 57
MANAGEMENT’S DISCUSSION AND ANALYSIS
Enterprise-Wide Capital Management
Capital Management
Objective
BMO is committed to a disciplined approach to capital management that balances the interests and requirements of our depositors, regulators,
shareholders, fixed income investors and rating agencies. We recognize the global trend of evolving regulatory capital requirements, and manage our
capital position accordingly. Our objective is to maintain a strong and optimized capital position in a cost-effective structure that:
‰ Is appropriate given BMO’s target regulatory capital ratios and internal assessment of economic capital requirements.
‰ Underpins BMO’s operating segments’ business strategies and considers the market environment.
‰ Supports depositor, investor and regulator confidence, consistent dividends and long-term shareholder value.
‰ Is consistent with BMO’s target credit ratings.
Framework
Capital Supply
Capital available
to support risks
Capital Demand
Capital required to support
the risks underlying our
business activities
Capital adequacy
assessment of capital
demand and supply
The principles and key elements of our Capital Management Framework are outlined in our Capital Management Corporate Policy and in the annual
capital plan, which includes the results of the comprehensive Internal Capital Adequacy Assessment Process (ICAAP).
ICAAP is an integrated process that involves the application of stress testing and other tools to assess capital adequacy on both a regulatory and
an economic basis. The results of this process inform and support the establishment of capital targets and the implementation of capital strategies
that take into consideration the strategic direction and risk appetite of the enterprise. The annual capital plan is developed considering the results of
ICAAP and in conjunction with the annual business plan, promoting alignment between business and risk strategies, regulatory and economic capital
requirements and the availability of capital. Enterprise-wide stress testing and scenario analysis are conducted in order to assess the impact of various
stress conditions on our risk profile and capital requirements.
Our Capital Management Framework seeks to ensure that the bank is adequately capitalized given the risks we assume in the normal course of
business, as well as under stress conditions, and supports the determination of limits, targets and performance measures that are applied in
managing balance sheet positions, risk levels and capital requirements at the consolidated entity, legal entity and operating segment levels. We seek
to optimize our capital through efficient use of our balance sheet and the related risks we undertake, and may employ levers such as risk transfer
transactions and the sale of assets. We evaluate assessments of actual and forecasted capital adequacy against our capital targets throughout the
year, including the consideration of changes in our business activities and risk profile, the operating environment, our competitors, and current and
future regulatory expectations.
We allocate capital to operating segments in order to evaluate business performance and support resource allocation decisions, and we consider
capital implications in our strategic, tactical and transactional decision-making. By allocating capital to operating segments, setting and monitoring
capital limits and metrics, and measuring the segments’ performance against these limits and metrics, we seek to monitor and optimize risk-adjusted
returns to our shareholders, while maintaining a well-capitalized position.
Refer to the Enterprise-Wide Risk Management section for further discussion of the risks underlying our business.
Governance
The Board of Directors, either directly or through its Risk Review Committee, provides ultimate oversight and approval of capital management,
including the bank’s Capital Management Corporate Policy, capital plan and capital adequacy assessments. The Board of Directors regularly reviews
the bank’s capital position and key capital management activities. In addition, the capital adequacy assessment results determined by ICAAP are
approved by the Board of Directors on the recommendation of the Risk Review Committee. The Enterprise Capital Management Committee provides
senior management oversight, including the review of significant capital management policies, issues and activities, as well as the capital required to
support the execution of our enterprise-wide strategy. Finance and Risk Management are responsible for the design and implementation of our
corporate policies and frameworks related to capital and risk management, as well as ICAAP. The Corporate Audit Division, as the third line of
defence, verifies adherence to controls and identifies opportunities to strengthen our processes. Refer to the Enterprise-Wide Risk Management – Risk
Management Framework section for further discussion.
58 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Regulatory Capital Requirements
Regulatory capital requirements for BMO are determined in accordance with guidelines issued by the Office of the Superintendent of Financial
Institutions (OSFI), which are based on the Basel III framework developed by the Basel Committee on Banking Supervision (BCBS). The current
minimum risk-based capital ratios set out in OSFI’s Capital Adequacy Requirements (CAR) Guideline are a Common Equity Tier 1 (CET1) Ratio of 4.5%,
a Tier 1 Capital Ratio of 6.0% and a Total Capital Ratio of 8.0%. In addition to these minimum capital requirements, OSFI also requires domestic
systemically important banks (D-SIBs), including BMO, to hold Pillar 1 and Pillar 2 buffers, which are meant to be used as the normal first response in
periods of stress. Pillar 1 buffers include a capital conservation buffer of 2.5%, a D-SIB Common Equity Tier 1 surcharge of 1.0% and a countercyclical
buffer, which can range from 0% to 2.5%, depending on a bank’s exposure to jurisdictions that have activated the buffer. If a bank’s capital ratios fall
below the range of the combined minimum and Pillar 1 buffers, restrictions on discretionary distributions of earnings (such as dividends, share
repurchases and discretionary compensation) could ensue, with the degree of such restrictions varying according to the position of the bank’s ratios.
Pillar 2 buffers address risks associated with systemic vulnerabilities and include the domestic stability buffer (DSB), which can range from 0%
to 4.0% of risk-weighted assets (RWA) and was 3.5% as at October 31, 2025. The buffer level is set twice a year by OSFI, in June and December, but
OSFI can make a change at any time. Under OSFI guidelines, breaches of the DSB do not automatically trigger constraints on capital distributions. In
the event of a breach, OSFI would require a remediation plan and expect it to be executed in a timely manner. Banks may be required to hold
additional regulatory buffers that are applicable to the capital ratios, the Leverage and the Total Loss Absorbing Capital (TLAC) Ratios.
TLAC comprises the aggregate of Total Capital and Other TLAC instruments that allow conversion, in whole or in part, into common shares under the
Canada Deposit Insurance Corporation Act and meet the eligibility criteria under the TLAC Guideline. Other TLAC comprises senior unsecured debt, subject to
Canada’s Bank Recapitalization (Bail-In) Regime, with an original term to maturity of greater than 400 days and a remaining term to maturity of greater
than 365 days. The minimum TLAC requirements set by OSFI as at October 31, 2025 are a TLAC Ratio of 21.5% of RWA and a TLAC Leverage Ratio of 6.75% of
leverage exposures.
The current minimum Leverage Ratio set out in OSFI’s Leverage Requirements (LR) Guideline is 3.0%. D-SIBs are also required to meet an
additional 0.5% buffer requirement for the Leverage and TLAC Leverage Ratios.
The Parental Stand-Alone (Solo) TLAC Framework for D-SIBs became effective the first quarter of fiscal 2024 and aims to ensure a non-viable
D-SIB has sufficient loss absorbing capacity on a stand-alone legal entity basis to support its resolution. This would, in turn, facilitate an orderly
resolution of the D-SIB while minimizing adverse impacts on the stability of the financial sector, helping to ensure the continuity of critical functions
and minimizing taxpayers’ exposure to loss. We exceeded the minimum Solo TLAC requirement of 21.5%.
OSFI’s requirements as at October 31, 2025 are summarized in the following table.
TABLE 28
(% of risk-weighted assets
or leverage exposures)
Minimum
requirements
Total Pillar 1 Capital
buffers (1)
Tier 1 Capital
buffer (2)
Minimum
requirements before
domestic stability
buffer
Domestic stability
buffer (3)
Minimum capital,
leverage and TLAC
requirements including
capital buffers
BMO capital, leverage
and TLAC ratios as at
October 31, 2025
Common Equity Tier 1 Ratio
4.5%
3.5%
na
8.0%
3.5%
11.5%
13.3%
Tier 1 Capital Ratio
6.0%
3.5%
na
9.5%
3.5%
13.0%
15.0%
Total Capital Ratio
8.0%
3.5%
na
11.5%
3.5%
15.0%
17.3%
TLAC Ratio
21.5%
na
na
21.5%
3.5%
25.0%
29.7%
Leverage Ratio
3.0%
na
0.5%
3.5%
na
3.5%
4.3%
TLAC Leverage Ratio
6.75%
na
0.5%
7.25%
na
7.25%
8.5%
(1) Pillar 1 Capital buffers, which will be met with CET1 Capital, include a capital conservation buffer of 2.5%, a Common Equity Tier 1 surcharge for D-SIBs of 1.0% and a countercyclical buffer, as
prescribed by OSFI (immaterial for the fourth quarter of fiscal 2025).
(2) D-SIBs are required to meet a 0.5% Tier 1 Capital buffer requirement for Leverage and TLAC Leverage Ratios.
(3) The DSB buffer was confirmed by OSFI at 3.5% in June 2025.
na – not applicable
Regulatory Capital and Total Loss Absorbing Capacity Ratios
Common Equity Tier 1 (CET1) Capital comprises common shareholders’ equity, including applicable contractual service margin, less regulatory
deductions for goodwill, intangible assets, pension assets, certain deferred tax assets and other items, which may include a portion of expected
credit loss provisions or a shortfall in allowances or other specified items.
Tier 1 Capital comprises CET1 Capital and Additional Tier 1 (AT1) Capital. AT1 Capital consists of preferred shares and other AT1 capital
instruments, including limited recourse capital notes, less regulatory deductions.
Tier 2 Capital comprises subordinated debentures and may include certain credit loss provisions, less regulatory deductions.
Total Capital includes Tier 1 and Tier 2 Capital.
Total Loss Absorbing Capacity (TLAC) comprises Total Capital and senior unsecured debt subject to the Canadian Bail-In Regime, less
regulatory deductions.
Capital Ratios are calculated as the respective capital divided by risk-weighted assets.
Leverage Ratio is calculated as Tier 1 Capital divided by leverage exposures, which consist of on-balance sheet items and specified off-balance
sheet items, net of specified adjustments.
TLAC Leverage Ratio is calculated as TLAC divided by leverage exposures.
The above measures and ratios are calculated in accordance with OSFI’s CAR, LR and TLAC Requirements Guidelines
BMO Financial Group 208th Annual Report 2025 59
MANAGEMENT’S DISCUSSION AND ANALYSIS
Regulatory Capital and Total Loss Absorbing Capacity Elements
BMO maintains a capital structure that is diversified across instruments and tiers in order to provide an appropriate mix of loss absorbency. The major
components of regulatory capital and total loss absorbing capacity are summarized as follows:
• Common Shareholders’ Equity
• Contractual service margin
• Less regulatory deductions for items such as:
• May include portion of expected credit loss provisions
Goodwill
Intangible assets
Defined benefit pension assets
Certain deferred tax assets
Certain other items
• Subordinated debentures
• May include portion of expected credit loss provisions
• Less regulatory deductions
CET1 Capital
• Preferred shares
• Other AT1 asstes
• Less regulatory deductions
Additional Tier 1 (AT1) Capital
Tier 2 Capital
• Eligible bail-in senior debt
• Other regulatory adjustments
Other Total Loss Absorbing Capacity (TLAC)
Tier 1 Capital
Total Capital
TLAC
OSFI’s CAR Guideline includes non-viability contingent capital (NVCC) provisions, which require the conversion of Additional Tier 1 and Tier 2 capital
instruments into common shares if OSFI announces that a bank is, or is about to become, non-viable, or if the federal or a provincial government in
Canada publicly announces that the bank has accepted, or has agreed to accept, a capital injection or equivalent support to avoid non-viability.
Pursuant to the principles set out in the CAR Guideline, a conversion to common shares would respect the hierarchy of claims in liquidation, entitling
holders of Additional Tier 1 and Tier 2 instruments to a more favourable economic outcome than existing common shareholders.
Under the Bail-In Regime, eligible senior debt issued on or after September 23, 2018 is subject to statutory conversion requirements. Canada
Deposit Insurance Corporation has the power to trigger the conversion of bail-in debt into common shares. This statutory conversion supplements
NVCC securities, which must be converted in full prior to the conversion of bail-in debt.
Risk-Weighted Assets
Risk-weighted assets (RWA) measure a bank’s exposures, weighted for their relative risk and calculated in accordance with the regulatory capital
rules prescribed by OSFI, which include standardized and internal ratings or internal model approaches for credit and market risk, and standardized
approaches for operational risk.
We primarily use the Internal Ratings Based (IRB) Approach to determine credit RWA in our portfolio. The IRB Approach includes the Foundation
Internal Ratings Based (FIRB) Approach for exposures to financial institutions and large corporate portfolios, and the Advanced Internal Ratings Based
(AIRB) Approach for all other exposures. The AIRB Approach applies sophisticated techniques to measure RWA at the exposure level based on sound
risk management principles, including estimates of the probability of default (PD), loss given default (LGD) and exposure at default (EAD) risk
parameters, as well as term to maturity and asset class type, as prescribed by OSFI rules. These risk parameters are determined using internal models
that leverage historical portfolio data, supplemented by benchmarking, as appropriate, and are updated periodically. Validation procedures related
to these models are in place in order to quantify and differentiate risks appropriately. The FIRB Approach employs the same internal PD estimates
as the AIRB Approach, but LGD and EAD parameters are prescribed by OSFI. Credit risk RWA related to certain portfolios are determined under the
Standardized Approach (SA) using prescribed risk weights based on external ratings, counterparty type or product type. These portfolios reflect
current waivers and exemptions to the IRB Approach approved by OSFI. For further discussion of these respective approaches, refer to the Credit
and Counterparty Risk – Credit and Counterparty Risk Measurement section.
We use the standardized approaches in determining market risk and operational risk capital requirements.
In calculating regulatory capital ratios, total RWA must be increased when the capital floor amount calculated under the standardized approaches,
multiplied by a capital floor adjustment factor, set at 67.5% until further notice, is higher than a similar calculation using the more risk-sensitive
internal modelled approaches, where applicable. The capital floor was not operative for BMO in fiscal 2025 or fiscal 2024.
60 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Regulatory Capital Developments
On October 29, 2025, OSFI published an update to the Capital and Liquidity Treatment of Crypto-asset Exposures (Banking) Guideline published on
February 20, 2025, which described the comprehensive regulatory capital treatment options for crypto-assets. The update increased the cap on
Group 2 crypto-asset exposures and modified their treatment. These changes are effective the first quarter of fiscal 2026 and are not expected to
have a material impact.
On September 11, 2025, OSFI published the revised CAR Guideline, which becomes effective the first quarter of fiscal 2026. The key revisions
include updates and clarifications related to the treatment of U.S. Government Sponsored Entities, identification of residential real estate exposures as
income producing and guidance for the treatment of Combined Loan Products, as well as updates to the market risk capital rules for sovereign
exposures. These changes are not expected to have a material impact.
On February 12, 2025, OSFI announced the deferral of any increase in the capital floor adjustment factor, which is currently at 67.5%, until further
notice. Banks will be notified at least two years prior to an increase in the capital floor adjustment factor being resumed.
Regulatory Capital and Total Loss Absorbing Capacity Review
BMO is well-capitalized, with capital ratios that exceed OSFI’s published requirements for large Canadian banks, including a DSB of 3.5%. Our
CET1 Ratio was 13.3% as at October 31, 2025, compared with 13.6% as at October 31, 2024. Our CET1 Ratio decreased from the prior year, as internal
capital generation was more than offset by the impact of the purchase of 22.2 million common shares for cancellation and higher source currency
risk-weighted assets (RWA).
Our Tier 1 Capital and Total Capital Ratios were 15.0% and 17.3%, respectively, as at October 31, 2025, compared with 15.4% and 17.6%,
respectively, as at October 31, 2024. The Tier 1 and Total Capital Ratios were lower, due to the same factors noted above for the CET1 Ratio. The
impact on the Total Capital Ratio was partially offset by a higher provisioning excess as a result of the higher allowance for credit losses for
accounting purposes relative to the regulatory view of expected losses.
BMO’s investments in foreign operations are primarily denominated in U.S. dollars, and the foreign exchange impact of U.S. dollar-denominated
RWA and capital deductions may result in variability in the bank’s capital ratios. We manage the impact of foreign exchange movements on RWA and
capital deductions on our capital ratios, and during the current year this impact was largely offset.
Our Leverage Ratio was 4.3% as at October 31, 2025, a decrease from 4.4% as at October 31, 2024, driven by higher leverage exposures partially
offset by higher Tier 1 Capital.
As at October 31, 2025, our TLAC Ratio was 29.7% and our TLAC Leverage Ratio was 8.5%, compared with 29.3% and 8.3%, respectively, as at
October 31, 2024.
While the ratios discussed above reflect our consolidated capital base, we conduct business through a variety of corporate structures, including
subsidiaries. A framework is in place to manage capital and funding appropriately at the subsidiary level.
BMO Financial Corp. (BFC) is a Category III institution under the Enhanced Prudential Standards issued by the Federal Reserve Board (FRB) and is
required to meet certain regulatory standards related to capital, liquidity and risk management, including complying with FRB single counterparty
credit limits. BFC is also subject to the Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test (DFAST) requirements of the
FRB on an annual basis.
On June 27, 2025, the FRB released its 2025 CCAR and DFAST results, and on August 29, 2025 announced individual large bank capital
requirements, which were effective October 1, 2025. For BFC, the FRB determined a CET1 Ratio requirement of 8.8%, which includes the 4.5%
minimum CET1 Ratio and a 4.3% stress capital buffer. BFC is well-capitalized, with a CET1 Ratio of 13.7% as at September 30, 2025.
BMO Financial Group 208th Annual Report 2025 61
MANAGEMENT’S DISCUSSION AND ANALYSIS
Regulatory Capital and TLAC (1)
TABLE 29
(Canadian $ in millions, except as noted)
As at October 31
2025
2024
Common Equity Tier 1 Capital: Instruments and Reserves
Directly issued qualifying common share capital plus related stock surplus
23,732
24,275
Retained earnings
47,377
46,469
Accumulated other comprehensive income (and other reserves)
7,986
5,419
Goodwill and other intangibles (net of related tax liability)
(20,389)
(20,349)
Other common equity Tier 1 capital deductions
(420)
1,240
Common Equity Tier 1 Capital (CET1)
58,286
57,054
Additional Tier 1 Capital: Instruments
Directly issued qualifying Additional Tier 1 instruments plus related stock surplus
7,706
7,787
Total regulatory adjustments applied to Additional Tier 1 Capital
(102)
(106)
Additional Tier 1 Capital (AT1)
7,604
7,681
Tier 1 Capital (T1 = CET1 + AT1)
65,890
64,735
Tier 2 Capital: Instruments and Provisions
Directly issued qualifying Tier 2 instruments plus related stock surplus
8,353
8,230
General allowance
1,326
954
Total regulatory adjustments to Tier 2 Capital
(7)
(8)
Tier 2 Capital (T2)
9,672
9,176
Total Capital (TC = T1 + T2)
75,562
73,911
Non-Regulatory Capital Elements of TLAC
Directly issued qualifying Other TLAC instruments
54,510
49,465
Total regulatory adjustments applied to Other TLAC
(115)
(88)
Other TLAC
54,395
49,377
TLAC (TLAC = TC + Other TLAC)
129,957
123,288
Risk-Weighted Assets and Leverage Ratio Exposures
Risk-Weighted Assets
437,945
420,838
Leverage Ratio Exposures
1,521,813
1,484,962
Capital Ratios (%)
CET1 Ratio
13.3
13.6
Tier 1 Capital Ratio
15.0
15.4
Total Capital Ratio
17.3
17.6
TLAC Ratio
29.7
29.3
Leverage Ratio
4.3
4.4
TLAC Leverage Ratio
8.5
8.3
(1) Calculated in accordance with OSFI’s CAR Guideline and LR Guideline, as applicable. Non-qualifying Additional Tier 1 and Tier 2 Capital instruments were phased out at a rate of 10% per year from
January 1, 2013 to January 1, 2022.
Our CET1 Capital was $58.3 billion as at October 31, 2025, compared with $57.1 billion as at October 31, 2024. CET1 Capital increased, driven by
internal capital generation and the impact of foreign exchange movements, partially offset by the impact of common shares purchased for
cancellation.
Tier 1 Capital and Total Capital were $65.9 billion and $75.6 billion, respectively, as at October 31, 2025, compared with $64.7 billion and
$73.9 billion, respectively, as at October 31, 2024. The increase in Tier 1 and Total Capital was due to the same factors impacting CET1 Capital. The
increase in Total Capital also reflects higher provisioning excess. The impact of completed and announced AT1 and Tier 2 issuance and redemption
activity largely offset during the year.
Risk-Weighted Assets
RWA were $437.9 billion as at October 31, 2025, an increase from $420.8 billion as at October 31, 2024. Credit Risk RWA were $367.0 billion as at
October 31, 2025, an increase from $350.3 billion as at October 31, 2024, primarily driven by net asset quality changes, an increase in asset size and
the impact of foreign exchange movements. Market Risk RWA were $18.7 billion as at October 31, 2025, an increase from $17.8 billion as at
October 31, 2024, primarily attributable to portfolio changes and growth during the current year. Operational Risk RWA were $52.3 billion as at
October 31, 2025, a decrease from $52.8 billion as at October 31, 2024, primarily driven by the movement in three-year average revenue, with a
marginal increase in ten-year average loss activity.
62 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
TABLE 30
2025
2024
RWA (1)
(Canadian $ in millions)
As at October 31
Total
exposure (1) (2)
Average
risk weight
IRB
Standardized
FIRB
AIRB
Total
Total RWA
Credit Risk
Wholesale
Corporate, including specialized lending
422,061
46.0%
24,647
74,886
94,796
194,329
182,920
Corporate small and medium-sized enterprises
32,067
62.7%
2,659
20
17,423
20,102
19,981
Sovereign
285,861
1.9%
313
–
5,140
5,453
4,870
Bank
23,458
16.5%
–
3,876
–
3,876
4,180
Retail
Residential mortgages, excluding home equity line of credit
194,671
11.7%
3,805
–
18,947
22,752
21,517
Home equity line of credit
80,064
10.9%
886
–
7,854
8,740
8,018
Qualifying revolving retail
56,225
26.8%
392
–
14,696
15,088
13,926
Other retail, excluding small and medium-sized enterprises
29,948
58.0%
11,185
–
6,193
17,378
17,288
Retail small and medium-sized enterprises
21,258
62.1%
3,180
–
10,029
13,209
12,697
Equity
13,104
139.4%
18,262
–
–
18,262
16,154
Trading book
59,011
24.3%
5,391
7,766
1,171
14,328
12,200
Securitization
73,756
15.3%
2,459
8,847
11,306
13,425
Other credit risk assets – non-counterparty managed assets
20,220
109.7%
22,186
–
–
22,186
23,085
Total Credit Risk
1,311,704
–
95,365
86,548
185,096
367,009
350,261
Market Risk
–
–
18,672
–
–
18,672
17,797
Operational Risk
–
–
52,264
–
–
52,264
52,780
Risk-Weighted Assets before floor
1,311,704
–
166,301
86,548
185,096
437,945
420,838
Floor adjustment (3)
–
–
–
–
–
–
–
Total Risk-Weighted Assets
1,311,704
–
166,301
86,548
185,096
437,945
420,838
(1) Exposure and RWA are grouped by the obligor’s asset class.
(2) Exposure represents exposure at default (EAD) after the application of credit risk mitigation and the credit conversion factor for undrawn exposures.
(3) The bank is subject to capital floor requirements as prescribed in OSFI’s CAR Guideline. Total RWA is increased by a floor adjustment amount, which is calculated based on the standardized
methodology. The capital floor was not operative at October 31, 2025 and October 31, 2024.
na – not applicable
Economic Capital
Economic capital is an expression of the enterprise’s capital demand requirement relative to its assessment of the economic risks in its underlying
business activities. It represents management’s estimate of the likely magnitude of economic losses that could occur should severely adverse
situations arise. Economic loss is the loss in economic or market value incurred over a specified time horizon at a defined confidence level, relative
to the expected loss over the same time horizon. Economic capital is calculated for various types of risk, including credit, market (trading and
non-trading), operational, business and insurance, based on a one-year time horizon using a defined confidence level.
Economic Capital and RWA by Operating Segment and Risk Type
(As at October 31, 2025)
BMO Financial Group
Operating Segments
Corporate Services
Economic Capital by Risk Type (%)
Credit
Market
Operational/Other
Credit
Market
Operational
RWA by Risk Type
(Canadian $ in millions)
Canadian Personal and
Commercial Banking
19%
81%
-
-
28%
72%
Capital Markets
18%
63%
19%
U.S. Banking
15%
85%
-
Wealth Management
40%
35%
25%
145,028
-
170
-
103,599
17,377
-
14,712
17,251
55
5,474
77,186
18,447
14,701
23,945
BMO Financial Group 208th Annual Report 2025 63
MANAGEMENT’S DISCUSSION AND ANALYSIS
Capital Management Activity
On January 17, 2025, we announced a normal course issuer bid (NCIB) to purchase up to 20 million of our common shares for cancellation
commencing January 22, 2025 and ending no later than January 21, 2026 (January 2025 NCIB). We also established an automatic securities purchase
plan (ASPP) related to the January 2025 NCIB (January 2025 ASPP).
On September 2, 2025, we announced the termination of the January 2025 NCIB on September 4, 2025 and a new NCIB to purchase up
to 30 million of our common shares for cancellation commencing September 5, 2025 and ending no later than September 4, 2026 (September 2025
NCIB). The timing and amount of purchases under the September 2025 NCIB are determined by management, based on factors such as market
conditions and capital levels. We also terminated the January 2025 ASPP and established a new ASPP, under which our broker may purchase our
common shares within a defined set of criteria.
During the year ended October 31, 2025, we purchased for cancellation 16.4 million common shares under the January 2025 NCIB before its
termination and 5.8 million common shares under the September 2025 NCIB, for a total of 22.2 million common shares, at an average price
of $152.97 per common share for a total amount of $3,461 million, including tax.
On November 12, 2025, we redeemed the $1,250 million 4.300% LRCNs, Series 1 (NVCC) and corresponding $1,250 million
Non-Cumulative 5-year Rate Reset Class B Preferred Shares, Series 48 (NVCC) held in trust.
During fiscal 2025, we completed issuances and redemptions of Tier 1 and Tier 2 Capital instruments, as outlined in the table below.
Capital Instrument Issuances and Redemptions
TABLE 31
As at October 31, 2025
Issuance or
redemption date
Number of shares
(in millions)
Balance
(Canadian $ in millions,
except as noted)
Common shares issued
1.6
$
168
Common shares purchased for cancellation
22.2
$
730
Tier 1 Capital
Redemption of Non-Cumulative 5-year Rate Reset Class B Preferred Shares, Series 31
November 25, 2024
12.00
$
300
Issuance of 6.875% Limited Recourse Capital Notes, Series 6
July 29, 2025
US$ 1,000
Redemption of Non-Cumulative 5-year Rate Reset Class B Preferred Shares, Series 33
August 25, 2025
8.0
$
200
Tier 2 Capital
Issuance of Medium-Term Notes, Series N, First Tranche
March 5, 2025
$ 1,250
Redemption of Medium-Term Notes, Series J, Second Tranche
June 17, 2025
$ 1,250
Common Shares and NVCC Instruments
TABLE 32
Number of shares
or dollar amount
(in millions)
Dividends declared per share
As at October 31
2025
2024
2023
Common shares
709
$ 6.44
$ 6.12
$ 5.80
Class B Preferred shares
Series 27 (1)
–
–
$ 0.48
$ 0.96
Series 29 (2)
–
–
$ 0.68
$ 0.91
Series 31 (3)
–
–
$ 0.96
$ 0.96
Series 33 (4)
–
–
$ 0.76
$ 0.76
Series 44
$
400
–
$ 1.70
$ 1.21
Series 46 (5)
–
–
$ 0.64
$ 1.28
Series 50
$
500
–
$73.73
$73.73
Series 52
$
650
–
$70.57
$57.52
Additional Tier 1 Capital Notes
4.800% Additional Tier 1 Capital Notes (6)
US$
500
na
na
na
4.300% Limited Recourse Capital Notes, Series 1 (7) (8)
$1,250
na
na
na
5.625% Limited Recourse Capital Notes, Series 2 (8)
$
750
na
na
na
7.325% Limited Recourse Capital Notes, Series 3 (8)
$1,000
na
na
na
7.700% Limited Recourse Capital Notes, Series 4 (8)
US$1,000
na
na
na
7.300% Limited Recourse Capital Notes, Series 5 (8)
US$
750
na
na
na
6.875% Limited Recourse Capital Notes, Series 6 (8)
US$1,000
na
na
na
Medium-Term Notes (9)
3.803% Subordinated Notes
US$1,250
na
na
na
Series K – First Tranche
$1,000
na
na
na
3.088% Subordinated Notes
US$1,250
na
na
na
Series L – First Tranche
$ 750
na
na
na
Series M – First Tranche
$1,150
na
na
na
Series M – Second Tranche
$1,000
na
na
na
Series N – First Tranche
$1,250
na
na
na
Stock options
Vested
2.3
Non-vested
3.5
(1) Redeemed on May 25, 2024.
(2) Redeemed on August 25, 2024.
(3) Redeemed on November 25, 2024.
(4) Redeemed on August 25, 2025.
64 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
(5) Redeemed on May 25, 2024.
(6) The notes had an initial interest rate of 4.800% and reset on August 25, 2024 to 6.709%.
(7) Redeemed on November 12, 2025.
(8) Convertible into common shares by virtue of recourse to the Preferred Shares Series 48, Preferred Shares Series 49, Preferred Shares Series 51, Preferred Shares Series 53, Preferred Shares Series 54
and Preferred Shares Series 55, respectively. Refer to Note 16 of the audited annual consolidated financial statements for conversion details.
(9) Note 15 of the audited annual consolidated financial statements includes details on the NVCC Medium-Term Notes.
na – not applicable
Note 16 of the audited annual consolidated financial statements includes details on share capital and other equity instruments.
If an NVCC trigger event were to occur, NVCC instruments would be converted into BMO common shares pursuant to automatic conversion formulas,
with the conversion price based on the greater of: (i) a floor price of $5.00; and (ii) the current market price of BMO common shares at the time of
the trigger event (calculated using a 10-day weighted average). Based on a floor price of $5.00, these NVCC instruments would be converted into
approximately 4.5 billion BMO common shares, assuming no accrued interest and no declared and unpaid dividends.
Further details on subordinated debt and share capital are provided in Notes 15 and 16 of the audited annual consolidated financial statements.
Dividends
Dividends per common share declared in fiscal 2025 totalled $6.44, an increase of 5% from the prior year. Annual dividends declared
represented 56% of reported net income and 53% of adjusted net income available to common shareholders on a last-twelve-month basis.
Our target dividend payout range (common share dividends as a percentage of net income available to shareholders, less preferred share
dividends and distributions on other equity instruments, based on earnings over the last twelve months) is 40% to 50% on an adjusted basis. Our
target dividend payout range seeks to provide shareholders with stable income and a competitive dividend yield, while retaining sufficient earnings
to support anticipated business growth, fund strategic investments and support capital adequacy.
Our common shares provided an annualized dividend yield of 4% based on the closing share price as at October 31, 2025. On December 4, 2025,
we announced that the Board of Directors had declared a quarterly dividend on common shares of $1.67 per share, an increase of $0.04 per share
from the prior quarter and $0.08 or 5% from the prior year. The dividend is payable on February 26, 2026 to shareholders of record on
January 30, 2026.
Shareholder Dividend Reinvestment and Share Purchase Plan
Common shareholders may elect to have their cash dividends reinvested in common shares of BMO, in accordance with the Shareholder Dividend
Reinvestment and Share Purchase Plan (DRIP).
In the first and second quarters of fiscal 2024, common shares to supply the DRIP were issued from treasury at a 2% discount, calculated in
accordance with the terms of the DRIP. From the third quarter of fiscal 2024 and until further notice, common shares to supply the DRIP are being
purchased on the open market without a discount.
Eligible Dividends Designation
For the purposes of the Income Tax Act (Canada) or any similar provincial and territorial legislation, BMO designates all dividends paid or deemed to
be paid on both its common and preferred shares as “eligible dividends”, unless indicated otherwise.
Caution
This Enterprise-Wide Capital Management section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
Off-Balance Sheet Arrangements
We enter into a number of off-balance sheet arrangements in the normal course of operations, including structured entities (SEs), credit instruments
and guarantees.
Structured Entities and Securitization
We carry out certain business activities through arrangements involving SEs, using them to obtain sources of liquidity and manage capital by
securitizing certain of our financial assets, to secure customer transactions or to pass our credit risk exposure to holders of the vehicles’ securities. For
example, we enter into transactions with SEs in which we transfer assets, including mortgage loans, mortgage-backed securities, credit card loans,
real estate lines of credit, auto loans and equipment loans, in order to obtain alternate sources of funding or as part of our trading activities. Note 5 of
the audited annual consolidated financial statements describes the loan securitization activities carried out through third-party programs such as the
Canada Mortgage Bond Program and the National Housing Act Mortgage-Backed Securities Program. Note 6 of the audited annual consolidated
financial statements provides further details on our interests in both consolidated and unconsolidated SEs. Under IFRS, we consolidate a SE if we
control the entity. We consolidate our own securitization vehicles, certain capital and funding vehicles, and other structured entities created to meet
our customers’ needs, as well as our own. We do not consolidate our customer securitization vehicles, certain capital vehicles, various BMO-managed
funds or various other SEs where investments are held. Further details on our customer securitization vehicles are provided below.
BMO Financial Group 208th Annual Report 2025 65
MANAGEMENT’S DISCUSSION AND ANALYSIS
BMO-Sponsored Securitization Vehicles
We sponsor various vehicles that fund assets originated either by us (which are then securitized through a bank securitization vehicle) or by our
customers (which are then securitized through three Canadian customer securitization vehicles and one U.S. customer securitization vehicle). We earn
fees for providing services related to these customer securitization vehicles, including liquidity, distribution and financial arrangement fees for
supporting the ongoing operations of the vehicles. These fees totalled approximately $152 million in fiscal 2025 ($160 million in fiscal 2024).
Customer Securitization Vehicles
Our customer securitization vehicles provide customers with access to financing either from us or from the asset-backed commercial paper (ABCP)
markets. Customers sell either their assets or an interest in their assets into these vehicles, which then issue ABCP either to investors or to us, in
order to fund the purchases. The sellers remain responsible for servicing the transferred assets and are first to absorb any losses realized on those
assets. We are not responsible for servicing or absorbing the first loss and none of the sellers are affiliated with BMO.
Our exposure to potential losses arises from the purchase of ABCP issued by the vehicles, any related derivative contracts entered into with the
vehicles and the liquidity support provided to the market-funded vehicles. We use the credit adjudication process in deciding whether to enter into
these arrangements, just as we do when extending credit in the form of a loan.
Three of these customer securitization vehicles are market-funded, while the fourth is funded directly by the bank. We do not control these
entities and therefore they are not consolidated. Further information on the consolidation of customer securitization vehicles is provided in Note 6 of
the audited annual consolidated financial statements.
The market-funded vehicles had a total of $11.1 billion of ABCP outstanding as at October 31, 2025 ($11.2 billion as at October 31, 2024). The
ABCP issued by the Canadian market-funded vehicles is rated R-1 (high) by DBRS and P1 by Moody’s, and the ABCP issued by the U.S. market-funded
vehicle is rated A1 by S&P and P1 by Moody’s. Our holdings of ABCP, as distributing agent of ABCP issued by the market-funded vehicles, totalled
$12 million as at October 31, 2025 ($170 million as at October 31, 2024).
We provide liquidity facilities to the market-funded vehicles, which may require that we provide additional financing to the vehicles should
certain events occur. The total committed and undrawn amount under these liquidity facilities and the undrawn amount of the BMO funded vehicles
as at October 31, 2025 totalled $19.7 billion ($19.3 billion as at October 31, 2024). The amount for liquidity facilities comprises part of the
commitments outlined in Note 24 of the audited annual consolidated financial statements.
The assets of each of these market-funded vehicles consist primarily of exposures to diversified pools of automobile-related receivables and
conventional residential mortgages in Canada, and automobile-related receivables and equipment loans and leases in the United States. These two
asset classes represent 69% (67% in fiscal 2024) in Canada, and 85% (86% in fiscal 2024) in the United States, of the aggregate assets of their
respective vehicles as at October 31, 2025 and October 31, 2024, respectively.
Guarantees and Other Credit Instruments
To meet the financial needs of our clients, we use a variety of guarantees and commitments. Guarantees include contracts under which we may be
required to make payments to a counterparty based on changes in the value of an asset, liability or equity security that the counterparty holds. Contracts
under which we may be required to make payments if a third party does not perform according to the terms of a contract, and contracts under which we
provide indirect guarantees of indebtedness, are also considered guarantees. In the normal course of business, the types of guarantee products we offer
include letters of credit, derivatives contracts or instruments (including, but not limited to, credit default swaps) and indemnification agreements. The
maximum amount payable by BMO in relation to these guarantees was $53 billion as at October 31, 2025 ($47 billion as at October 31, 2024).
Other credit commitments are off-balance sheet arrangements that represent our commitment to customers to grant them credit in the form of
loans or other financings for specific amounts and maturities, subject to certain conditions. These include backstop liquidity facilities, documentary
and commercial letters of credit, and commitments to extend credit. The maximum amount payable by BMO in relation to these other credit
commitments was $269 billion as at October 31, 2025 ($261 billion as at October 31, 2024).
There is a large number of credit instruments outstanding at any one time. The amount above is not representative of our likely credit exposure
or the liquidity requirements for these instruments, as it does not take into account customer behaviour, which suggests that only a portion of our
customers would utilize the facilities related to these instruments, nor does it take into account any amounts that could be recovered under recourse
and collateral provisions. Our customer base is broadly diversified, and we do not anticipate events or conditions that would cause a significant
number of customers to fail to perform in accordance with the terms of their contracts. We use the credit adjudication process in deciding whether to
enter into these arrangements, just as we do when extending credit in the form of a loan. We monitor off-balance sheet credit instruments in order
to avoid undue concentrations in any single geographic region or industry.
For the credit commitments outlined in the preceding paragraphs, in the absence of an event that triggers a default, early termination by BMO
may result in a breach of contract.
Further information on these instruments can be found in Note 24 of the audited annual consolidated financial statements.
Caution
This Off-Balance Sheet Arrangements section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
66 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Enterprise-Wide Risk Management
As a diversified financial services company providing banking, wealth management, capital markets and insurance services,
BMO is exposed to a variety of risks that are inherent in each of these business activities. A disciplined and integrated
approach to managing risk is fundamental to the success of our operations. Our Risk Management Framework provides a
consistent, enterprise-wide approach to risk management and oversight that underpins our strategy, enables informed
decision-making and drives resilience and efficiency.
Enterprise-Wide Risk Management outlines BMO’s approach to managing the key financial risks and other related risks that are inherent in these
business activities, as discussed in the following sections:
67
Risks That May Affect Future Results
70
Risk Management Framework
76
Credit and Counterparty Risk
84
Market Risk
89
Liquidity and Funding Risk
98
Operational Non-Financial Risk
102
Legal and Regulatory Compliance Risk
104
Strategic Risk
105
Environmental and Social Risk
107
Reputation Risk
Text and tables presented in a blue-tinted font in the Enterprise-Wide Risk Management section of the MD&A form an integral part of the 2025 audited annual consolidated
financial statements. They present required disclosures as set out by the International Accounting Standards Board in IFRS 7, Financial Instruments: Disclosures,
which permits cross-referencing between the notes to the consolidated financial statements and the MD&A. Refer to Notes 1 and 4 of the audited annual consolidated
financial statements.
Risks That May Affect Future Results
Top and Emerging Risks That May Affect Future Results
BMO’s risk profile can be impacted by evolving internal and external events. Our risk management life cycle is a continuous process designed to
identify, assess, measure, manage and report on risks arising from these events. These event-related risks are presented to the Board of Directors,
senior management and business leaders for discussion at several forums, incorporating both bottom-up and top-down approaches. Risks are
examined and assessed through various review processes, including but not limited to regulatory and internal stress testing and scenario analysis.
We manage our exposure to events through action plans developed based on these risk assessments.
The following risks have the potential to materially impact BMO’s operations and financial results.
General Economic Conditions
BMO’s operations and financial results are impacted by prevailing economic conditions and the evolution of those conditions, including the rate of
GDP growth, monetary and fiscal policies, interest rates, unemployment rates, inflation, immigration levels and market volatility. As we operate in
various jurisdictions, foreign exchange fluctuations, particularly between the Canadian dollar and the U.S. dollar, can impact our earnings. Evolving
trade policies, including the impact of tariffs, may also affect the environment in which the bank and its clients operate. These factors, as well as
economic uncertainty, can constrain business investment and consumer spending.
The Canadian economy weakened in fiscal 2025, primarily due to the impact of changes in U.S. trade policies on certain Canadian exports,
although the United States-Mexico-Canada Agreement (USMCA) exempts the majority of Canadian exports from the new U.S. tariffs. Canadian and U.S.
unemployment rates increased in fiscal 2025, amid softening labour market conditions, which contributed to higher delinquencies and credit losses in
the bank’s consumer lending portfolios. Although the inflation rate moderated in response to weaker labour markets and lower commodity prices, a
heightened sense of economic uncertainty and the impact of tariffs may increase inflationary pressures. There is also a risk of asset overvaluation in
equity and credit markets which could lead to outsized asset value declines, with negative wealth and sentiment effects on our customers and the
broader economy. Refer to the Economic Developments and Outlook section for further discussion on the impact of rates and fiscal policies, and for
trade disputes, refer to the Escalating Trade Disputes and Geopolitical Developments section.
We have processes and controls in place to assess the impact of multiple stressed economic scenarios, including extensive regulatory and
internal stress testing that has delivered actionable insight into the potential impacts on BMO’s operations and financial results, as well as possible
mitigating actions. In addition, baseline forecasts and economic indicators are used to forecast and monitor economic conditions in order to identify
potential stresses on the bank and inform precautionary actions.
Escalating Trade Disputes and Geopolitical Developments
Global economies and markets have been, and may in the future be, impacted by geopolitical uncertainty and international conflicts. Ongoing
changes in U.S. trade policies are creating a heightened sense of economic uncertainty, with higher sectoral and country-specific tariffs, as well as
tariffs on USMCA non-compliant goods. As a result, the upcoming renegotiation of the USMCA in 2026 carries greater risk as termination could
lead to increasingly disruptive and costly trade tariffs. In addition, Canadian and U.S. relations with China have become more complex as a result
of trade disputes.
BMO Financial Group 208th Annual Report 2025 67
MANAGEMENT’S DISCUSSION AND ANALYSIS
Global conflicts, including the conflicts in the Middle East and Ukraine, remain unpredictable amid heightened tensions, and could result in further
global instability, significant energy price volatility and market shocks that could damage confidence, investment and consumption, and lead to
slower global growth.
Our customers rely on global trade and economic growth. In addition, many U.S. businesses face higher costs from tariffs and purchasing supplies
from domestic sources rather than foreign producers that were previously less expensive. We continue to monitor global geopolitical event risks,
including policy changes such as trade tariffs, and assess their potential impact on BMO’s operations and financial results by using multiple
approaches that include stress testing and scenario analysis to mitigate these risks.
BMO’s credit exposure by geographic region is set out in Tables 64 to 70 in the Supplemental Information and in Note 3 of the audited annual
consolidated financial statements.
Cyber and Information Security Risk
Cyber and information security risk arises from the reliance of our business operations on internet and cloud technologies, and dependence on
advanced digital technologies to process data. In addition, growing geopolitical tensions are contributing to increasing global exposures to cyber
security risks. These risks could impact the confidentiality, integrity or availability of BMO’s systems and data across our businesses and customer
base. BMO is the frequent target of attempted cyber attacks and we must continuously monitor and optimize our capabilities to protect the
confidentiality, integrity and availability of our data and technology infrastructure. Successful cyber attacks could lead to exposure or loss of data,
including customer or employee information and the bank’s strategic or other sensitive internal information, resulting in identity theft, fraud or
business losses. They could also result in system failures and disruption of services, exposure to litigation and regulatory risk, and reputational harm.
Threat campaigns are becoming more sophisticated and well-organized, including using artificial intelligence to automate and amplify attacks, and
often occur through suppliers, which can negatively impact our business, brand and reputation, as well as customer retention and acquisition. Our
response involves investing in our Financial Crimes Unit and security infrastructure, equipping our team with the capability to detect and address
current and emerging cyber security threats across North America, Europe and Asia in order to safeguard the confidentiality, integrity and availability
of our systems and information.
For further discussion of BMO’s cyber and information security program, refer to the Operational Non-Financial Risk section.
Technology Resilience and Innovation
Technology resilience supports the maintenance of acceptable service levels during, as well as after, severe disruptions to critical processes and the
underlying information technology systems. It is critical to providing our customers with a continuous and consistent experience across our digital
channels, solutions and platforms. Given the increasing reliance of our customers on these digital offerings to manage and support their personal,
business and investment banking activities, it is crucial that we maintain solutions and platforms that function at high levels of operational reliability
and resilience in order to protect and support the availability, integrity and recoverability of critical data, particularly with respect to business-critical
systems. Regulatory obligations and customer expectations related to operational resilience continue to increase.
Technological advancements and innovation, in particular AI and digital currencies, are evolving rapidly and creating new risks and competitive
pressures across the industry. Through innovation we aim to deliver digital solutions, services, processes and products that keep pace with industry
developments and rapidly evolving customer expectations, as well as new competitors, without disruption to business-critical systems. New
technologies may introduce more complex regulatory, strategic and reputation risks. In alignment with our digital-first strategy, we continue to invest
in emerging technologies, including AI, and talent to adapt to this dynamic environment and deliver competitive and digitally enabled products and
services to meet our customers’ expectations for personalized and on-demand banking, pursue new business growth opportunities and improve
operational efficiency. We remain committed to the prudent and responsible adoption of new technologies.
For further discussion of BMO’s technology risk program, refer to the Operational Non-Financial Risk section.
Third-Party Risk
Our use of third-party relationships continues to evolve and expand, helping us to deliver new and innovative solutions for our clients across the
bank. While third-party relationships are beneficial for the bank, they can also give rise to risks that may threaten BMO’s operational resilience, such
as compromised customer data or disruptions in the availability of critical products and services, which could financially impact the bank. We continue
to enhance and evolve our capabilities, including those around contingency and transition planning, in order to maintain effective third-party risk
management and oversight and the efficient delivery of products and services that depend on third parties.
For further discussion of BMO’s third-party risk program, refer to the Operational Non-Financial Risk section.
Environmental and Social Risk
BMO is exposed to environmental and social risks, in particular physical climate risks, such as extreme weather events that could potentially disrupt
our operations, impact our customers and counterparties, and result in potential losses. Factors contributing to heightened environmental risks include
weather events of increasing severity and frequency, and the further intensification of development in areas of greater environmental sensitivity.
Business continuity and disaster recovery plans provide us with the roadmap and tools to support the restoration, maintenance and management of
critical operations and processes in the event of a business disruption.
We are also exposed to risks related to borrowers that may experience financial losses or rising operating costs as a result of acute or chronic
changes in climate conditions, climate-related litigation and/or policies, such as carbon emissions pricing, or a decline in revenue as new and
emerging technologies and changing consumer preferences disrupt or displace demand for certain commodities, products and services. BMO’s climate
ambition is to be our clients’ lead partner in their transition to a net zero world. Our strategy seeks opportunities to generate commercial value
through partnering with our clients in achieving their decarbonization goals.
Legal and regulatory compliance risk or reputation risk could arise from actual or perceived actions, or inactions, by BMO or its clients related to
climate change, other environmental and social issues, or the bank’s climate-related disclosures. Risks related to these issues could also affect our
68 BMO Financial Group 208th Annual Report 2025
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customers, suppliers or other stakeholders, which could give rise to new risks. Globally, financial services regulators and supervisors are evolving their
approaches to the management of climate-related financial risk and disclosures of climate-related financial information. Litigation or enforcement
measures could arise from obligations to manage and report on climate-related risks.
Refer to the Environmental and Social Risk section for further discussion of these risks.
Canadian Housing Market and Consumer Leverage
High household debt continues to be a challenge for household spending and the broader economy. Despite recent rate reductions by the Bank of
Canada, many borrowers still face higher mortgage payments at renewal, as well as challenges such as increasing unemployment rates that could
lead to higher credit losses, particularly in unsecured consumer credit. Unsecured consumer loan losses could increase if economic weakness results in
further increases in the unemployment rate. The housing market recovery will likely be constrained by regional disparities in affordability in major
markets within Ontario and British Columbia, as well as lower immigration levels, which could impact mortgage origination volumes. The risk of credit
losses in our mortgage portfolio is partially mitigated by low loan-to-value and prudent underwriting practices that stress test customers’ ability to
service mortgage debt at higher interest rates. While portfolio stress test analysis suggests that even significant housing price declines and
challenging economic conditions would result in manageable losses, primarily due to insurance coverage and the level of equity held by owners
with seasoned loans, delinquencies and insolvencies in our portfolio could adversely affect our results and financial condition.
Regulatory Environment and Changes
The financial services industry is highly regulated, and BMO operates in an environment of increasingly complex regulatory requirements and
expectations, as governments and regulators globally continue to pursue major reforms intended to strengthen the stability of the financial system
and protect crucial markets and participants. These reforms may lead to further increases in regulatory capital or liquidity requirements and additional
compliance costs, which could lower returns and reduce growth. Such reforms could also affect the cost and availability of funding and the level of
the bank’s market-making activities. Regulatory reforms may also impact fees and other revenues for certain operating segments. In addition,
differences in the laws and regulations enacted by a range of national regulatory authorities may offer advantages to our international competitors,
which could affect our ability to compete. We monitor such developments, and other potential changes, so that we are well-positioned to respond
and implement any necessary changes. BMO is subject to legal proceedings, including reviews and investigations by governments and regulators,
arising in the normal course of business. Failure to comply with applicable legal and regulatory requirements and expectations could lead to further
legal proceedings, financial losses, regulatory sanctions and fines, enforcement actions, criminal convictions and penalties, operational restrictions or
an inability to execute certain business strategies, a decline in investor and customer confidence, and damage to our reputation.
Refer to the Legal and Regulatory Compliance Risk section for further discussion of these risks.
Other Factors That May Affect Future Results
Tax Legislation and Interpretations
Legislative changes and changes in tax policy, including their interpretation by tax authorities and the courts, may impact earnings. Tax laws, as well
as interpretations of tax laws and policy by tax authorities, may change as a result of efforts by the Canadian and U.S. governments, other G20
governments and the Organisation for Economic Co-operation and Development (OECD) to increase taxes, broaden the tax base globally and improve
tax-related reporting. For example, in fiscal 2024, the Canadian government enacted the Global Minimum Tax Act (GMTA) to adopt the OECD/G20
Inclusive Framework on Base Erosion and Profit Shifting two-pillar plan (Pillar 2) for international tax reform, which levied a 15% minimum tax on
operations globally.
Changes to Business Portfolio
As part of its overall business strategy, BMO may acquire companies, businesses and assets. Although we conduct thorough due diligence before
completing these acquisitions, some may not perform in accordance with our financial or strategic objectives or expectations, and may be dependent,
among others, on timely regulatory and shareholder approvals, changes in the competitive and economic environment and acquisition-related
integration costs. Successful post-acquisition performance depends on retaining the clients and key employees of acquired companies and businesses
and integrating key systems and processes without disruption.
BMO also evaluates potential dispositions of assets and businesses that may no longer meet our strategic and financial objectives. Dispositions
may be impacted by the terms and timeliness of exit strategies and greater than expected disruption, and may also be subject to the satisfaction of
conditions and the granting of governmental or regulatory approvals on acceptable terms that, if not satisfied or obtained, may prevent the
completion of a disposition as intended, or at all.
Critical Accounting Estimates, Judgments and Accounting Standards
BMO prepares its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). Future changes in
accounting policies are discussed in the Future Changes in Accounting Policies section, as well as in Note 1 of the audited annual consolidated
financial statements.
The application of IFRS requires management to make significant judgments and estimates that affect the carrying amounts of certain assets and
liabilities, certain amounts reported in net income and other related disclosures. BMO’s financial results could be affected for the period during which
any such new information or change in circumstances becomes apparent, and the extent of the impact could be significant. More information is
included in the Critical Accounting Estimates and Judgments section.
Caution
The Risks That May Affect Future Results section and the remainder of this Enterprise-Wide Risk Management section contain forward-looking statements. Please refer to the Caution Regarding Forward-
Looking Statements. Other factors beyond BMO’s control that may affect its future results are noted in the Caution Regarding Forward-Looking Statements. BMO cautions that the preceding discussion of risks
that may affect future results is not exhaustive.
BMO Financial Group 208th Annual Report 2025 69
MANAGEMENT’S DISCUSSION AND ANALYSIS
Risk Management Framework
BMO’s integrated and disciplined approach to risk management is fundamental to the success of our business. Our Enterprise Risk and Portfolio
Management (ERPM) group oversees the implementation and operation of the BMO Risk Management Framework (RMF), and provides independent
review and oversight across the enterprise of risk-related issues, in order to enable prudent and measured risk-taking that is integrated with business
strategy. All elements of the RMF work together to support informed and effective risk management, while striking an appropriate balance between
risk and return.
The RMF guides our risk-taking activities in order to align them with our goals, including meeting customer needs, shareholder expectations
and regulatory requirements. Achieving these goals requires taking appropriate risks, while maintaining long-term stability – an outcome enabled
by a strong RMF. An effective RMF is the foundation that allows BMO to take risks within its appetite, while protecting the bank, its customers,
shareholders and the financial system, thus driving the bank to achieve its strategic goals responsibly and sustainably. The RMF is embedded in
everything BMO does, providing a structured approach through which to identify, assess, measure, manage and report risk, and maintain the risk
management life cycle across the organization. It promotes enterprise resilience and supports making the consideration of risk an integral part of
decision-making, with clear accountability across business lines, independent oversight and escalation mechanisms, while reinforcing adherence to
BMO’s risk appetite, internal policies, regulatory requirements and our commitment to sustainable growth.
An effective RMF helps BMO to:
‰ Maintain strong capital and liquidity positions and optimize risk return.
‰ Protect its reputation and limit potential loss from unpredictable and infrequent risk events.
‰ Innovate responsibly, balancing digital transformation against current and emerging risks.
‰ Foster trust by enforcing compliance, responsible lending and ethical decision-making.
‰ Adapt to emerging risks and evolving market conditions.
‰ Enable a sound risk culture with appropriate behaviour and mindsets.
The RMF comprises integrated foundational components that enable a common language, consistent risk practices and shared understanding across
the enterprise. These components articulate how BMO governs risk, manages it across its life cycle and develops risk awareness through culture,
people, data and technology. This MD&A explains each component and why it is important, how the components of the RMF work together and how
every employee and agent of BMO plays a role in putting them into action. For simplicity, the RMF components have been grouped into four
categories: Risk Management Approach (including Tier 1 risks), Risk Governance, Risk Management Life Cycle and Risk Enablement.
Enterprise-Wide Risk Management Framework
Risk Management Approach
Risk Governance
Risk Management Life Cycle
Tier 1 Risks
Risk Enablement
Governance Routines
Authority and Decision Rights
Legal Entity Governance
Committee Structure and Governance Forums
Purpose and Scope
Overview | Accountability | Tier 1 Risks
1st Line
Operating Groups, Corporate
Services, Control Functions,
Specialized Groups
2nd Line
Enterprise Risk and Portfolio
Management, Legal and
Regulatory Compliance
3rd Line
Corporate Audit
Division
Identify
Market
Risk Culture
* Includes Operational Non-Financial Risk and Legal and Regulatory Compliance Risk.
People Management
Data and Technology
Strategic
Reputation
Liquidity and
Funding
Environmental
and Social
Maintain
Credit and
Counterparty
Assess
Measure
Manage
Report
Non-Financial*
70 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Risk Governance
BMO’s approach to risk governance promotes effective, efficient and consistent risk management oversight through well-defined decision rights. It
establishes clear roles and responsibilities, and defines how decision rights are conferred and exercised, as well as the structures under which risk
matters are reviewed, effectively challenged and escalated. This supports consistent, timely and transparent decision-making across the enterprise.
BMO’s Board of Directors and senior management set the tone from the top. A defined committee structure enables the evaluation of risk
decisions at the appropriate level, with clear input and documented outcomes. Escalation protocols and delegation of authority set the parameters for
who can act, under what conditions and within which limits. Legal entity governance helps to define similar standards of discipline and accountability,
as appropriate, across all jurisdictions and legal entities. The three-lines-of-defence operating model separates the responsibilities for managing,
overseeing and independently validating risk management activities, reinforcing a culture of clarity and control, while enterprise policy management
provides the guidance required for consistent delivery. The Risk Appetite Framework defines the types and levels of risk that BMO is willing to accept
in order to achieve its strategic objectives and business plans.
Board of Directors and Senior Management Oversight
Specific policies approved by our Board of Directors govern our approach to the management of material risks, and oversight is exercised at every
level of the enterprise through a hierarchy of committees and individual responsibilities, as outlined in the following diagram. The Board of Directors
seeks to ensure that corporate objectives are supported by a sound risk strategy, prudent risk appetite and an effective RMF that is appropriate to the
nature, scale, complexity and risk profile of our lines of business and other operations. The Board of Directors also has overall responsibility for
oversight of the bank’s governance framework and its corporate culture. Senior management reviews and discusses significant risk issues and action
plans as they arise in the implementation of the enterprise-wide strategy, exercising oversight and governance of the risks taken across the
enterprise, and that they are held within approved limits and risk tolerances.
The RMF is reviewed on a regular basis by the Risk Review Committee (RRC) and recommended to the Board of Directors at least annually for
approval, in order to exercise oversight and guide risk-taking activities.
Board/Board Committees
Management Committees
Board of Directors
Risk Review
Committee (RRC)
Audit and Conduct Review
Committee (ACRC)
(2) Co-chaired by the Chief Financial Officer and Chief Risk Officer.
(3) Chaired by the Chief Risk Officer.
(4) Chaired by the General Counsel.
(5) Co-chaired by the Chief Financial Officer and Chief Risk Officer.
(6) Co-chaired by the General Counsel and Chief Risk Officer.
(1) Reporting relationships shown in dotted lines, sub-committees shown as solid lines.
Board and Senior Management Oversight (1)
Enterprise Capital Management
Committee (ECMC) (2)
Risk Management
Committee (RMC) (3)
Reputation Risk Management
Committee (RRMC) (4)
Asset Liability
Committee (ALCO) (5)
Enterprise Regulatory
Committee (ERC) (6)
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MANAGEMENT’S DISCUSSION AND ANALYSIS
In addition to the oversight exercised by the Board of Directors and senior management, effective governance of the bank’s risks is overseen by
management committees and supported by the three-lines-of-defence operating model, which addresses risks across the operating segments and
Corporate Services.
Board of Directors is responsible for supervising the management
of the business and affairs of BMO. The Board of Directors, either
directly or through its committees, is responsible for oversight of the
following areas: strategic planning; defining risk appetite; identifying
and managing risk; managing capital; fostering a culture of integrity;
internal controls; succession planning and evaluation of senior
management; communication; public disclosure; and corporate
governance.
Risk Review Committee (RRC) of the Board of Directors assists
the Board of Directors in fulfilling its risk management oversight
responsibilities. This includes overseeing a strong risk culture;
overseeing the identification, assessment and management of
BMO’s risks; monitoring adherence to risk management corporate
policies and compliance with risk-related regulatory requirements;
and evaluating the effectiveness of the Chief Risk Officer (CRO), in
conjunction with the Human Resources Committee, including input
into succession planning for the CRO. The RMF is reviewed at least
annually by the RRC and guides risk-taking activities, and sets out
the bank’s approach to risk management.
Audit and Conduct Review Committee (ACRC) of the Board of
Directors assists the Board of Directors in fulfilling its oversight
responsibilities for the integrity of BMO’s financial and sustainability
reporting, including climate disclosures, as well as the effectiveness
of BMO’s internal controls; the internal audit function; the
qualifications, independence and performance of the independent
auditors; BMO’s compliance with laws and regulations; transactions
involving related parties; conflicts of interest and confidential
information; standards of business conduct and ethics; cyber security;
and consumer protection measures and complaints.
Chief Executive Officer (CEO) is directly accountable to the Board of
Directors for all of BMO’s risk-taking activities. The CEO is supported
by the CRO and ERPM.
Chief Risk Officer (CRO) reports directly to the CEO, is head of ERPM,
chair of RMC and reports to the RRC on risk-related matters. The
CRO is responsible for providing independent review and oversight
of enterprise-wide risks and leadership on risk issues, developing
and maintaining the RMF and fostering a strong risk culture across
the enterprise.
Management Level Committees overseeing risk matters, including
the Enterprise Capital Management Committee (ECMC), Risk
Management Committee (RMC), Reputation Risk Management
Committee (RRMC), Asset Liability Committee (ALCO) and Enterprise
Regulatory Committee (ERC), bring together senior executive
members of BMO management to oversee risk management across
the enterprise. The committees are chaired by members of the
Executive Committee, exercising risk oversight and governance for
their respective risks at the highest levels of management.
Enterprise Risk and Portfolio Management (ERPM) and Legal and
Regulatory Compliance (LRC), within the second line of defence,
provide risk management oversight, effective challenge and
independent assessment of risk and risk-taking activities. ERPM
supports a disciplined approach to risk-taking by exercising its
responsibility for independent transactional approval and portfolio
management, policy formulation, risk reporting, stress testing,
modelling and risk education. LRC supports the identification of
applicable laws and regulations and potential risks, recommends
mitigation measures and strategies, and oversees internal
investigations, legal proceedings and enforcement actions. This
approach promotes consistency in risk management practices and
standards across the enterprise, and verifies that any risks accepted
are consistent with BMO’s risk appetite.
Operating Segments and Corporate Services, including Technology
and Operations, within the first line of defence, are responsible for
effectively managing risks by identifying, assessing, measuring,
managing and reporting exposures to risk within their respective
businesses and operations, in accordance with their established risk
appetite. They exercise business judgment and maintain effective
policies, processes and internal controls, so that significant risk
issues are escalated and reviewed by the second line of defence.
Risk Appetite Framework
We believe that risk management is every employee’s responsibility. This is guided by the five key principles that define our approach to managing
risk across the enterprise and comprise our risk appetite:
‰ Understand and manage by only taking risks that are transparent and understood.
‰ Protect BMO’s reputation by adhering to principles of honesty, integrity, respect and high ethical standards, in line with our Code of Conduct.
‰ Diversify. Limit tail risk by targeting a business mix that minimizes earnings volatility and exposure to low-probability, high-impact events.
‰ Maintain strong capital and liquidity positions that meet, or exceed, regulatory requirements and market expectations.
‰ Optimize risk return by managing risk-adjusted exposures and making decisions that create value for shareholders.
Our Risk Appetite Framework consists of a Risk Appetite Statement, risk limits and an outline of the responsibilities of the Board of Directors, its
committees and senior management. The Risk Appetite Statement incorporates a risk appetite, comprising both qualitative statements and
quantitative measures (including risk limits), that indicates the aggregate level and types of risk that the bank is willing to assume in order to support
sound business initiatives and drive appropriate returns and targeted growth. Our risk appetite is integrated within our strategic and business
objectives and our capital and liquidity plans, as well as the bank’s recovery and resolution plans. It is established by following the framework’s
principles, supported by corporate policies, standards and committee mandates, and is developed to meet regulatory requirements under both
normal and stressed conditions. The framework assists senior management and the Board of Directors in assessing the bank’s risk profile against our
risk appetite. Both the framework and Risk Appetite Statement are reviewed and approved by the Board of Directors annually. Our risk appetite is
articulated and applied consistently across the enterprise, with operating segments, key businesses and entities developing their own respective risk
appetite statements within the framework.
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Risk Limits
Risk limits are set so that risk-taking activities remain within BMO’s risk appetite, balancing risk diversification, exposure to loss and risk-adjusted
returns. These limits inform business strategies and decisions, and are reviewed and approved by the Board of Directors, its committees or
management, as appropriate, based on the level and granularity of the limits. These include:
‰ Credit and Counterparty Risk – limits on group and single-name exposures and material country, industry and portfolio/product segments.
‰ Market Risk – limits on economic value and earnings exposures to stress scenarios and significant market movements, as well as limits on value at
risk and stress related to trading and underwriting activities.
‰ Insurance Risk – limits on policy exposures and reinsurance arrangements.
‰ Liquidity and Funding Risk – minimum limits governing the internal liquidity stress testing scenario, minimum regulatory liquidity ratio
requirements, and maximum levels of asset pledging and wholesale funding, as well as limits related to liability diversification and exposure to
credit and liquidity facilities.
‰ Operational Non-Financial Risk – key metrics for measuring operational and other non-financial risks that may have financial consequences.
The Board of Directors, after considering recommendations from the RRC and RMC, annually reviews and approves key risk limits and then delegates
overall authority for these limits to the CEO. The CEO in turn delegates more specific authorities to the senior executives of the operating segments
(first line of defence), who are responsible for the management of risk in their respective operations, and to the CRO. The criteria under which more
specific authorities may be delegated across the organization, as well as the requirements relating to documentation, communication and monitoring
of those specific delegated authorities, are set out in corporate policies and standards.
Enterprise Policy Management
An effective policy management program is essential for sound risk governance. Policy documents codify BMO’s risk expectations, and guide business
decisions and strategy execution, monitor compliance, define accountability and mitigate risk through internal controls.
The objectives of BMO’s policy management program are to establish clarity, consistency, compliance, adaptability and scalability. This helps
maintain risk-related policy documents that are structured, scalable and consistently applied across the bank, including its subsidiaries. The program
supports the RMF by promoting transparency, traceability and accountability in how risk is governed.
BMO has created a five-tier policy document hierarchy to structure how governance expectations are documented and maintained. This hierarchy
supports consistent application across the enterprise by aligning document purpose, authority and governance rigour.
The diagram below shows BMO’s policy document hierarchy. Distinctions between the levels of documentation express the expectations of their
intended audience, purpose and approach to conformance. The policy document hierarchy is designed with the flexibility to allow risk program
owners to structure higher- and lower-level documents that promote consistency, while adapting to the needs of individual businesses.
Sets the strategic foundation for
enterprise programs and processes
High-level principles mapped to
regulations and best practices
Minimum and measurable
requirements for enabling policies
“How” we implement
step-by-step
Guidelines, templates,
job aids, etc.
Framework
Standards
Supporting Documents
Policies
Procedures
Three-Lines-of-Defence Operating Model
Our RMF is operationalized through the three-lines-of-defence approach to managing risk:
‰ Operating segments and Corporate Services, which includes Technology and Operations, serve as our first line of defence and are accountable for
the risks arising from their businesses, operations and exposures. They are expected to pursue business opportunities within their established risk
appetite and to identify, assess, measure, manage and report risk, and maintain risk management in, or arising from their businesses, operations
and exposures. The first line fulfills its responsibilities by applying risk management and reporting methodologies, establishing appropriate internal
controls in accordance with the RMF and monitoring the effectiveness of such controls. These processes and controls serve as the basis for our lines
of business to act within their delegated risk-taking authority and risk limits, as set out in corporate policies and the Risk Appetite Statement.
Corporate Services, which are part of our first line of defence, may also serve in a governance capacity when specific roles and responsibilities are
assigned to individuals or groups under BMO’s policy document requirements. In such instances, governance accountabilities will be carried out
separate from the individuals or groups responsible for risk-taking.
‰ The second line of defence comprises ERPM and Legal and Regulatory Compliance. The second line exercises independent oversight, performs
effective challenge and provides independent assessment of risks and risk management practices, including transactions, product and portfolio risk
management decisions, regulatory compliance, and processes and controls applied in the first line of defence. The second line establishes
enterprise-wide risk management policy documents, processes, methodologies and practices that the first and second lines use across the phases
of the risk management life cycle for risks across the enterprise.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
‰ The Corporate Audit Division is the third line of defence. It provides an independent assessment of the effectiveness of internal controls across the
enterprise, including controls that support the risk management and governance processes, and reports its findings to the Board of Directors.
Risk Management Life Cycle
Risk Identification and Assessment
Risk identification enables BMO to recognize, categorize and assess current and emerging risks in a structured and consistent manner. It promotes
transparency and enables the identification of jurisdictional, business level and legal entity risks through a comprehensive understanding of the risks
that the bank faces, regardless of probability or likely impact. Risk identification relies on two primary components: a well-defined risk taxonomy to
classify risks consistently; and a structured emerging risks and scenarios program that identifies, categorizes and monitors emerging risks.
Risk assessment is the process by which the bank evaluates the impact and probability of identified risks across the enterprise determining their
materiality to inform decision-making and maintain alignment with strategic plans. Risk assessments are conducted regularly and are revisited in
response to material organizational or business changes in order to maintain resilience against significant and emerging threats, and include a
structured evaluation of exposures across business units, legal entities and risk types.
Our risk taxonomy is the classification of risk types using key terms and definitions to establish a common risk language that is independent of
organizational structure, to support consistent and comprehensive risk identification and assessment across BMO. Our risk taxonomy has Tier 1
financial risks (credit and counterparty, market, and liquidity and funding risks), non-financial risks (operational non-financial, and legal and regulatory
compliance risks) and transverse risks (strategic risk, including insurance, environmental and social, and reputation risks). Each Tier 1 risk includes
sub-tiers to support effective risk management as part of the overall RMF. Financial consequences for the bank could occur if we fail to manage these
risks adequately or control our exposures to them.
Risk Measurement, Management and Reporting
Risk measurement translates identified and assessed risks into quantifiable measures that can be tracked, monitored and analyzed over time.
Measuring risk effectively and in a timely manner enables BMO to detect elevated exposures, evaluate risk profiles against the bank’s risk appetite
and capacity limits, and support proactive risk responses. Effective risk measurement provides a basis for timely escalation, informed decision-making
and enterprise-wide risk governance. This section outlines how BMO structures and governs risk measurement activities through the Risk Appetite
Framework, metrics, stress testing and scenario analysis. Refer to the Risk Appetite Framework section for further discussion.
The management phase is when the risk management life cycle shifts into active risk mitigation, applying controls, processes and decisions to
reduce exposures and enable sound execution, or risk acceptance, where applicable. It focuses on how BMO implements risk-mitigating measures,
through the establishment of policies and other governing documents, internal controls and oversight mechanisms, to proactively manage risk
exposure for both inherent risks and residual risks (the level of risk remaining after controls are implemented and operating). This phase acts
to reinforce that the expectations set in BMO’s risk appetite, policy management program and strategy are translated into effective day-to-day
risk operations.
Risk reporting is the final phase of the risk management life cycle and brings together insights from risk identification, assessment, measurement
and management to support effective oversight, strategic decision-making and regulatory accountability. Reporting is dependent on risk data that is
accurate, timely, traceable to source and adaptable under stress. Through reporting, the bank enables risk information to be communicated clearly,
escalated appropriately and aligned with both internal governance requirements and external supervisory expectations. Reporting completes the risk
management life cycle and allows leaders to understand the current state of risk, and what actions, if any, are required to address or mitigate these
identified risks.
Maintenance
BMO‘s risk profile is not static. As BMO’s operating environment, business strategies and regulatory landscape evolve, we continuously review and
update our RMF and supporting risk programs and practices in order to respond to emerging risks and changes in our business and the environment.
RMF maintenance reflects BMO’s commitment to strong governance, learning from experience and adapting to change. Regular reviews, clear
accountabilities and a structured approach to improvement contribute to making the RMF a reliable foundation for risk management, risk oversight
and decision-making.
Risk-Based Capital Assessment and Stress Testing
Risk-Based Capital Assessment
BMO uses two measures of risk-based capital: economic capital and regulatory capital. Both are aggregate measures of the risk that the bank
assumes in pursuit of its financial objectives and enable the evaluation of returns on a risk-adjusted basis. Our operating model provides for the direct
management of each type of risk, as well as the management of material risks on an integrated basis. Measuring the economic profitability of
transactions or portfolios involves a combination of both expected and unexpected losses to assess the extent and correlation of risk before
authorizing new exposures. Both expected and unexpected loss measures for a current transaction or portfolio reflect current and future market
conditions, the inherent risk in the position and, as appropriate, its credit quality. Risk-based capital methods and material models are reviewed
at least annually and updated as appropriate. The risk-based capital models provide a forward-looking estimate of the difference between
the maximum potential loss in economic (or market) value and expected loss, measured over a specified time interval and using a defined
confidence level.
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Stress Testing
Stress testing is a key element of our risk management and capital management frameworks. It is integrated into our enterprise and segment
risk appetite statements and embedded in our management processes. To evaluate risks, we regularly test a range of scenarios, which vary in
frequency, severity and complexity, in portfolios and businesses across the enterprise. In addition, we participate in regulatory stress tests in
multiple jurisdictions.
Quantitative models and tools, along with qualitative evaluations, are utilized to assess the impact of changes in the macroeconomic
environment on the income statement and balance sheet, as well as the resilience of the bank’s capital position over a forecast horizon. Models
utilized for stress testing are approved and governed under the Model Risk Management Framework and are used to form a better understanding
of our risks and test our capital adequacy.
BMO’s stress testing framework integrates stress testing at the line of business, portfolio, industry, geographic and product level, and embeds
the test results in strategy, business planning and decision-making. Targeted portfolio, industry and geographic analysis is conducted by ERPM and
the lines of business to test risk appetite, limits, concentration and strategy. Ad hoc stress testing is conducted in response to changing economic or
market conditions and to assess business strategies.
Enterprise stress testing is performed to support BMO’s Internal Capital Adequacy Assessment Process (ICAAP) and target-setting through analysis
of the potential effects of low-frequency, high-severity events on our earnings, balance sheet, and liquidity and capital positions. Scenario selection is
a multi-step process that considers material and idiosyncratic risks and the potential impact of new or emerging trends on risk profiles, as well as
the macroeconomic environment. Scenarios may be defined by senior management or regulators. The economic impacts are determined by the
Economics group, which distills the scenarios into macroeconomic and market variables that include, but are not limited to, GDP growth, yield curve
estimates, unemployment rates, real estate prices, stock index growth and changes in corporate profits. These macroeconomic variables drive stress
loss models, tools and qualitative assessments that are applied to determine estimated stress impacts. The scenarios are used by the operating, risk
and finance groups to assess a broad range of financial impacts that BMO could experience as a result of a specific stress scenario, as well as in the
ordinary course of business, and extraordinary actions anticipated in response to that stress.
Governance of the stress testing framework resides with senior management, including the Enterprise Capital Management Committee. This
committee comprises business, risk and finance executives, and is accountable for reviewing enterprise-wide scenarios and stress test results. Stress
testing and enterprise-wide scenarios associated with the ICAAP, including recommendations for actions that the enterprise could take in order to
manage the impact of a stress event, are established by senior management and presented to the Board of Directors. Oversight and governance of
the stress testing associated with the Horizontal Capital Exam, which is a U.S. regulatory requirement for BMO Financial Corp. (BFC), are exercised at
the BFC level by its Board of Directors through its Risk Oversight and Capital Committee.
Refer to the Environmental and Social Risk section for a discussion of our climate scenario analysis program.
Risk Culture
Risk culture at BMO is the set of shared norms, attitudes and behaviours related to risk awareness, risk-taking and risk management. Sound risk
culture supports appropriate behaviours and judgments about risk-taking, and promotes effective risk management and the alignment of risk-taking
activities with BMO’s risk appetite. Our risk culture informs and supports our overall organizational culture. We are committed to high ethical
standards, grounded in our values of integrity, empathy, diversity and responsibility. ERPM is responsible for the development and promotion of a
healthy, strong risk culture across the enterprise. In pursuing this mandate, ERPM works closely with Legal and Regulatory Compliance and its Ethics
Office, as well as People and Culture. BMO’s risk culture is founded on six guiding principles that together reinforce its effectiveness across the bank.
‰ Leadership: Our risk culture is grounded in an approach to risk management that encourages openness, constructive challenge and personal
accountability. Each member of senior management plays a critical role in fostering this strong risk culture among employees by effectively
communicating this responsibility and through the example of their actions. The Board of Directors oversees BMO’s corporate objectives and the
requirement that they be supported by a sound risk strategy and an effective RMF that is appropriate to the nature, scale, complexity and risk
profile of our operations.
‰ Accountability: BMO’s RMF is anchored in the three-lines-of-defence approach to managing risk. Our risk culture promotes clear accountability by
reinforcing that employees at all levels should understand their role in managing risk, in alignment with BMO’s values, risk appetite and strategy.
It also encourages the escalation of concerns associated with potential or emerging risks to senior management so those concerns can be
appropriately evaluated and addressed. BMO supports an environment in which concerns can be raised without retaliation.
‰ Decision-Making: Our risk culture guides our behaviours and decision-making. BMO integrates risk considerations into the strategic and business
decision-making processes, guided by our risk appetite, and seeks to ensure decisions reflect an appropriate balance between business
opportunities and our risk tolerance. Employees are equipped and empowered to make decisions and take action in a coordinated and consistent
manner, supported by a strong and effective monitoring and control framework.
‰ Communication and Challenge: Timely and transparent sharing of information is integral to engaging business partners in key decisions and
strategy discussions, bringing added rigour and discipline to BMO’s decision-making. This not only leads to the timely identification, escalation
and resolution of issues, but also encourages open communication, independent challenge and an understanding of the key risks faced by
the organization.
‰ Learning: Training programs are designed to create a deep understanding of BMO’s Capital Management Framework and RMF across the
enterprise, providing employees and management with the tools and insights they need to fulfill their responsibilities for risk management and
independent oversight as appropriate to their role in the organization.
‰ Incentives: Compensation and other incentives are aligned with prudent risk-taking. These are designed to reward the appropriate use of capital
and respect for the rules and principles of the RMF, and discourage excessive risk-taking. Risk managers have input into the design of incentive
programs that may have an effect on risk-taking.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Credit and Counterparty Risk
Credit and Counterparty Risk is the potential for financial loss due to the failure of an obligor (i.e., a borrower, endorser, guarantor or
counterparty) to repay a loan or honour another predetermined financial obligation.
Credit and counterparty risk underlies every lending activity that we enter into, and also arises in the holding of investment securities, transactions
related to trading and other capital markets products, and activities related to securitization. Credit and counterparty risk represents the most
significant measurable risk we face. Effective management of credit and counterparty risk is integral to our success, since failure to do so could have
an immediate and significant impact on our earnings, financial condition and reputation.
Credit and Counterparty Risk Governance
The credit risk program seeks to ensure that material credit risks to which the enterprise is exposed are identified, assessed, managed, monitored
and reported regularly. The Risk Review Committee (RRC) has oversight of the management of material risks that BMO faces, including the credit risk
program. The program incorporates governing principles that are defined in a series of corporate policies and standards and are put into effect
through specific operating procedures. These policies and standards are reviewed on a regular basis and modified as necessary, so that they are
current and consistent with our risk appetite. The structure, limits (both notional and capital-based), collateral requirements, monitoring, reporting
and ongoing management of credit and counterparty exposures are governed by these credit risk management principles.
Lending officers in the operating segments are responsible for recommending credit decisions based on the completion of appropriate due
diligence, and they assume accountability for the related risks. In some instances, relatively small transactions may be assessed by an automated
decision-making process, or they may be approved by first-line underwriters with appropriate training and review authority. Credit officers in
Enterprise Risk and Portfolio Management (ERPM) approve larger transactions or those involving greater risk, and are accountable for providing an
objective independent assessment of the relevant lending recommendations and risks assumed by the lending officers. All of the individuals in the
first and second lines of defence are subject to a lending qualification process and operate in a disciplined environment with clear delegation of
decision-making authority, including individually delegated lending limits where appropriate, which are reviewed annually or more frequently, as
needed. The Board of Directors annually delegates to the Chief Executive Officer discretionary lending limits for further specific delegation to senior
officers. Credit decision-making is conducted at the management level based on the size and risk of each transaction, in accordance with a range of
corporate policies, standards and procedures governing the conduct of activities in which credit risk arises. The Corporate Audit Division reviews and
tests management processes and controls, and samples credit transactions in order to assess adherence to acceptable lending standards as set out in
BMO’s Risk Appetite Statement, as well as compliance with applicable corporate policies, standards and procedures.
For wholesale borrowers presenting a higher than normal risk of default, BMO has formal policies in place that outline the process for managing
such accounts, as well as specialized groups that manage them, as appropriate. We strive to identify borrowers facing financial difficulty as early as
possible, and to return such accounts to an acceptable level of risk through the application of good business judgment and the implementation of
sound and constructive workout solutions.
All credit risk exposures are subject to regular monitoring. Performing wholesale accounts are reviewed on a regular basis, generally no less
frequently than annually, with most subject to internal monitoring of triggers that, if breached, lead to an interim review. The frequency of review
rises in accordance with the likelihood and size of potential credit losses, and deteriorating higher-risk situations are referred to specialized account
management groups for closer attention, as appropriate. In addition, regular portfolio and sector reviews are conducted, including stress testing and
scenario analysis based on current, emerging or prospective risks. Reporting is provided at least quarterly, and more frequently where appropriate, to
the Board of Directors and senior management committees in order to keep them informed of credit risk developments in our portfolios, including
changes in credit risk concentrations, watchlist accounts, impaired loans, provisions for credit losses, negative credit migration and significant
emerging credit risk issues. This supports the RRC and senior management committees in any related decisions they may make.
Counterparty credit risk (CCR) involves a bilateral risk of loss because the market value of a transaction can be positive or negative for either
counterparty. CCR exposures are subject to the credit oversight, limits, Risk Management Framework (RMF) and approval process outlined above.
However, given the nature of the risk, CCR exposures are also monitored under the market risk program. In order to reduce our exposure to CCR,
transactions are often collateralized and trades may be cleared through a regulated central counterparty (CCP), which reduces overall systemic risk by
standing between counterparties, maximizing netting across trades and insulating counterparties from each other’s defaults. CCPs mitigate the risk
of default by any member through margin requirements (both initial and variation) and a default management process, including a default fund
and other provisions. Our exposures to CCPs are subject to the same credit risk governance, monitoring and rating process we apply to all other
corporate accounts.
Credit and Counterparty Risk Management
Collateral Management
Collateral is used for credit risk mitigation purposes in order to minimize losses that would otherwise be incurred in the event of a default. Depending
on the type of borrower or counterparty, the assets available and the structure and term of the credit obligations, collateral can take various forms.
For wholesale borrowers, collateral can take the form of pledges of the assets of a business, such as accounts receivable, inventory, machinery or real
estate, or personal assets pledged in support of guarantees. For trading counterparties, BMO may enter into legally enforceable netting agreements
for on-balance sheet credit exposures, when possible. In the securities financing business (including repurchase agreements and securities lending
agreements), we obtain eligible financial collateral that we control and can readily liquidate.
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
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Collateral for BMO’s derivatives trading counterparty exposures primarily comprises cash and eligible liquid securities that are monitored and
revalued on a daily basis. Collateral is obtained under the contractual terms of standardized industry documentation.
With limited exceptions, we utilize the Master Agreement provided by International Swaps and Derivatives Association Inc., frequently with a
Credit Support Annex (CSA), to document our collateralized trading relationships with counterparties for over-the-counter (OTC) derivatives that are
not centrally cleared.
A CSA entitles a party to demand a transfer of collateral (or other credit support) when its exposure to OTC derivatives of the other party exceeds
an agreed threshold. Collateral to be transferred can include variation margin or initial and variation margin. CSAs contain, among other measures,
certain thresholds and provisions setting out acceptable types of collateral, a method for their valuation (discounts are often applied to market
values), the availability of the collateral for re-pledging by the recipient and the manner in which interest is to be calculated.
To document our contractual securities financing relationships with counterparties, we utilize master repurchase agreements for repurchase
transactions, and master securities lending agreements for securities lending transactions.
On a periodic basis, collateral is subject to revaluation based on the specific asset type. For loans, the value of collateral is initially established at
the time of origination, and the frequency of revaluation is dependent on the type of collateral. For certain types of collateral that change frequently
(e.g., accounts receivable and inventory), monitoring consists of borrower reporting, covenants and/or triggers, as appropriate, to provide early
warning signs of collateral value deterioration. Periodic inspections of physical collateral may be performed, where appropriate, taking into
consideration collateral type, borrower risk profile and the feasibility of conducting such inspections. For commercial real estate collateral, a full
external appraisal of the property is typically obtained at the time of loan origination, unless the exposure is below a specified threshold amount, in
which case an internal evaluation and a site inspection are conducted. Internal evaluations may consider property tax assessments, purchase prices,
real estate listings or realtor opinions. The case for an updated appraisal is reviewed annually, with consideration given to the borrower risk rating,
existing tenants and lease contracts, as well as current market conditions.
In the event a loan is classified as impaired, depending on its size, a current external appraisal, valuation or restricted use appraisal is obtained
and updated every 12 months, or more frequently as appropriate, as long as the loan remains classified as impaired. In Canada, for residential real
estate that has an original loan-to-value (LTV) ratio of less than 80%, an independent property valuation is routinely obtained at the time of loan
origination. For U.S. residential loans secured by real estate, an independent property valuation is obtained for loans that will be retained in BMO’s
loan portfolio. For certain real estate loans originated for sale to government-sponsored agencies, this requirement may be waived based on an
existing valuation already on file with that agency.
We may use an external service provided by Canada Mortgage and Housing Corporation (CMHC) or an automated valuation model from a third-
party appraisal management provider to assist in determining either the current value of a property or the need for a full property appraisal.
For insured residential mortgages in Canada with an original LTV ratio greater than 80%, the default insurer is responsible for confirming the
current value of the property.
Portfolio Management and Concentrations of Credit and Counterparty Risk
Our credit risk governance policies require an acceptable level of diversification, which is intended to avoid undue concentrations of credit risk.
Concentrations of credit risk may occur when a relatively large number of clients are engaged in similar activities, are located in the same geographic
region or have similar economic characteristics such that their ability to meet contractual obligations could be similarly affected by changes in
economic, political or other conditions. Limits may be specified for several portfolio dimensions, including industry, specialty segments, country,
product and single-name concentrations. We use a range of tools to reduce the credit risk exposures in our loan portfolio. These include asset sales,
traditional securitizations, or the purchase of credit protection in the form of credit default swaps or credit insurance and risk transfer transactions.
Credit risk is mitigated by obtaining protection from better-rated counterparties or high-quality collateral. Credit risk mitigation activities support our
management of capital, as well as individual and portfolio credit concentration.
Our credit assets consist of a well-diversified portfolio representing millions of clients, the majority of them individual consumers and small to
medium-sized businesses. On a drawn loans and commitments basis, our most significant credit exposure at default as at October 31, 2025 was to
individual consumers, comprising $360,814 million ($353,309 million as at October 31, 2024).
Credit valuation adjustments (CVA) are fair value adjustments to capture counterparty credit risk in our derivative valuations. CVA profit and loss
(P&L) is recognized daily to help mitigate any loss from a counterparty default by recognizing the expected credit loss given the counterparty’s
probability of default, as well as our credit exposure. The risks that arise from CVA are subject to our RMF and actively monitored by a business unit
reporting to trading management that has been designated to manage CVA P&L for the bank. Market hedging is performed to manage CVA risks. This
activity is subject to the bank’s RMF in order to manage the effectiveness of hedges, and provide independent review and oversight. The bank
calculates CVA capital using both the standardized and basic approach methodologies for CVA.
Our loan portfolio includes sponsored loans and mezzanine financing to private equity-owned businesses, which may be exposed to a higher
level of credit risk. We manage these loans through specialized teams and a credit risk approach, which includes structural elements, limits
and risk mitigation. As at October 31, 2025, total non-investment grade loans outstanding related to this portfolio, gross of risk mitigation, were
$31.6 billion ($31.9 billion as at October 31, 2024), of which 31% (31% as at October 31, 2024) represented a lower level of credit risk due to
high-quality collateral assets, including asset-based lending and real estate. As at October 31, 2025, $1.4 billion or 5% of this portfolio was classified
as impaired (4% as at October 31, 2024).
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
BMO Financial Group 208th Annual Report 2025 77
MANAGEMENT’S DISCUSSION AND ANALYSIS
Wrong-Way Risk
Wrong-way risk occurs when our exposure to a counterparty increases at the same time that the credit quality of that counterparty deteriorates.
Specific wrong-way risk arises when the credit quality of the counterparty and the market risk factors affecting collateral or other risk mitigants
display a high correlation, and general wrong-way risk arises when the credit quality of the counterparty, for non-specific reasons, is highly correlated
with macroeconomic or other factors that affect the value of the risk mitigant. Our procedures require that specific wrong-way risk be identified in
transactions and accounted for in the assessment of risk, including any heightened level of exposure.
Credit and Counterparty Risk Measurement
BMO quantifies credit risk at both the individual borrower or counterparty level and the portfolio level. In order to limit earnings volatility, manage
expected credit losses and minimize unexpected losses, credit risk is assessed and measured using the following risk-based parameters:
‰ Probability of Default (PD) represents the likelihood that a borrower or counterparty will go into default over a one-year time horizon.
‰ Exposure at Default (EAD) represents an estimate of the outstanding amount of a credit exposure at the time a default may occur.
‰ Loss Given Default (LGD) is a measure of BMO’s economic loss, such as the amount that may not be recovered in the event of a default, presented
as a proportion of the exposure at default.
‰ Expected Loss (EL) is a measure of the loss that BMO is expected to incur in the normal course of business in a given period of time. EL is
calculated as a function of PD, EAD and LGD.
Under Basel III, the Office of the Superintendent of Financial Institutions (OSFI) permits three approaches to the measurement of credit risk:
Standardized, Foundation Internal Ratings Based (FIRB) and Advanced Internal Ratings Based (AIRB). BMO primarily uses the Internal Ratings Based
(IRB) Approach, which includes both FIRB and AIRB, to determine credit risk-weighted assets (RWA) in its portfolios, including portfolios of the bank’s
subsidiary BMO Financial Corp. Under the Basel III Reform requirement, it is mandatory to apply FIRB to a subset of IRB exposures for which LGD and
EAD are based on regulatory prescribed values. Refer to the Supplementary Regulatory Capital Information disclosure for details regarding the total
exposure (measured as EAD) of Retail and Wholesale portfolios under the IRB Approach. The remaining exposures reflect waivers and exemptions to
the IRB Approach and are measured under the Standardized Approach (SA), subject to OSFI’s approval. We continue to transition all material
exposures in this category to the IRB Approach. For securitization exposures, we apply the Basel hierarchy of approaches, including the Securitization
Internal Ratings Based Approach and the External Ratings Based Approach, as well as the SA as appropriate.
BMO’s regulatory capital and economic capital approaches both use EAD to assess credit and counterparty risk. Capital is calculated based on
exposures that, where applicable, have been redistributed to a more favourable PD band or LGD measure, or a different Basel asset class, as a result
of the application of credit risk mitigation and consideration of credit risk mitigants, including collateral and netting.
Total credit exposures at default by type and industry sector, as at October 31, 2025 and 2024, based on the Basel III classifications, are disclosed in
the table below.
TABLE 33
(Canadian $ in millions)
Drawn (3) (7)
Commitments
(undrawn) (3) (8)
Other off-balance
sheet items (3) (9)
OTC derivatives (4) (10)
Repo-style
transactions (4) (5) (11)
Total (1)
2025
2024
2025
2024
2025
2024
2025
2024
2025
2024
2025
2024
Individual
293,947
287,741
66,867
65,568
–
–
–
–
–
–
360,814
353,309
Financial institutions
79,224
105,378
22,460
20,484
5,750
7,447
26,790
27,393
18,756
17,712
152,980
178,414
Governments
259,618
230,353
3,137
3,024
1,663
1,760
8,631
4,481
2,426
1,070
275,475
240,688
Manufacturing
34,540
33,561
15,840
15,555
1,726
1,696
1,182
1,049
–
–
53,288
51,861
Real estate
72,516
66,650
10,750
8,632
1,265
1,234
520
412
–
–
85,051
76,928
Retail trade
29,470
30,595
4,258
4,262
855
645
158
152
–
–
34,741
35,654
Service industries
59,153
54,433
14,793
13,830
2,674
3,192
1,334
990
–
–
77,954
72,445
Wholesale trade
22,848
21,868
7,328
7,212
706
670
306
268
–
–
31,188
30,018
Oil and gas
3,479
3,180
3,064
3,010
510
623
677
610
–
–
7,730
7,423
Utilities
7,141
10,068
11,840
9,304
4,446
3,799
2,344
2,444
–
–
25,771
25,615
Others (2)
55,231
54,173
21,482
19,247
4,753
4,343
3,106
2,306
–
–
84,572
80,069
Total exposure at
default (6)
917,167
898,000
181,819
170,128
24,348
25,409
45,048
40,105
21,182
18,782
1,189,564 1,152,424
(1) Credit exposure excluding equity, securitization and other assets, such as non-significant investments, goodwill, deferred tax assets and intangibles.
(2) Includes remaining industries that individually comprise less than 2% of total exposures.
(3) Represents gross credit exposures without accounting for collateral.
(4) Credit exposure at default is inclusive of collateral.
(5) Repo-style transactions include repos, reverse repos and securities lending transactions, which represent both asset and liability exposures. The impact of collateral on the credit exposure for
repo-style transactions is $332,756 million ($270,482 million in fiscal 2024).
(6) Excludes exposures arising from derivative and repo-style transactions that are cleared through a clearing house or a central counterparty totalling $8,137 million ($7,086 million in fiscal 2024).
(7) Drawn exposures include loans, acceptances, deposits with regulated financial institutions and certain securities.
(8) Undrawn commitments cover unutilized authorizations associated with the drawn exposures noted above, including any authorizations that are unconditionally cancellable. EAD for undrawn
commitments is model-generated, based on internal empirical data.
(9) Other off-balance sheet exposures include items such as guarantees, standby letters of credit and documentary credits.
(10) Over-the-counter (OTC) derivatives are those in proprietary accounts that result in exposure to credit risk in addition to market risk. EAD for OTC derivatives is calculated inclusive of collateral.
(11) EAD for repo-style transactions is the calculated exposure, net of collateral.
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
78 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Credit Risk Rating Systems
BMO’s credit risk rating systems are designed to assess and measure the risk of exposure.
Credit risk parameters for both the wholesale and retail models are monitored for performance on a quarterly basis, and reviewed or revalidated
regularly. Refer to the Model Risk section for a discussion of model risk mitigation processes.
Retail (Consumer and Small Business)
The retail portfolios comprise a diversified group of individual customer accounts and include residential mortgages, personal loans, credit cards, auto
loans, recreational vehicle loans, marine loans and small business loans. These loans are managed in pools of homogeneous risk exposures for risk
rating purposes. Decision support processes are developed using established statistical techniques and expert systems for underwriting and monitoring
purposes. We combine adjudication models, behavioural scorecards, decision trees and expert knowledge to generate optimal credit decisions in a
centralized and automated environment.
The retail risk rating system assesses risk by evaluating each loan based on key borrower and transaction characteristics. We have a range of
internally developed PD, LGD and EAD models for each of the major retail portfolios. The principal product lines within each of the retail portfolios are
modelled separately, so that the risk-based parameters capture the distinct nature of each product. The models, in general, are based on internal
historical data recorded over a multi-year period that includes at least one full economic cycle, in compliance with regulatory requirements.
Adjustments are incorporated into the parameters, as appropriate, to account for uncertainties. The retail parameters are tested and calibrated on
an annual basis, if required, to incorporate additional data points and recent experience in the parameter estimation process. Risk drivers used in
the retail credit models may include customer attributes such as delinquency status and credit scores, and account attributes such as loan amounts
and utilization.
‰ A PD estimate is assigned to each homogeneous pool to reflect the long-run average of one-year default rates over the full economic cycle.
‰ An LGD estimate is calculated by discounting future recovery payments to the time of default, including collection costs.
‰ An EAD estimate is calculated as the balance at default divided by the credit limit at the beginning of the year. For non-revolving products, such as
mortgages, EAD is equal to 100% of the current outstanding balance and has no undrawn component.
For capital purposes, the LGD and EAD estimates are calibrated to reflect downturn conditions. The PD, LGD and EAD estimates are updated annually
and recalibrated as required by comparing the estimates to observed historical experience.
Retail Credit Probability of Default Bands by Risk Rating
TABLE 34
Risk profile
Probability of default band
Exceptionally low
≤0.05%
Very low
> 0.05% to 0.20%
Low
> 0.20% to 0.75%
Medium
> 0.75% to 7.00%
High
> 7.00% to 99.99%
Default
100%
Wholesale (Sovereign, Bank, Corporate and Commercial)
Within our wholesale portfolios, an enterprise-wide risk rating approach is applied to all sovereign, bank, corporate and commercial counterparties.
One key element of this approach is the assignment of appropriate borrower or counterparty risk ratings (BRRs). We have a range of internally
developed general and sector-specific BRR models, as well as LGD and EAD models.
The BRR models capture the key financial and non-financial characteristics of the borrowers and generate a borrower-level rating that reflects the
relative ranking of the default risk. The models are primarily based on internal data, supplemented by judgment as necessary for low-default portfolios.
BRRs are assessed and assigned at the time of loan origination, and reassessed when borrowers request changes to credit facilities or when
events trigger a review, such as an external rating change or a covenant breach. BRRs are typically reviewed no less frequently than annually, and
more frequent reviews are conducted for borrowers with less acceptable risk ratings. The assigned ratings are mapped to a PD reflecting the
likelihood of default over a one-year time horizon. As a borrower migrates between risk ratings, the PD associated with the borrower also changes.
We employ a master scale with 14 BRRs above default, and PDs specific to the risk rating system for the sovereign, bank, corporate and
commercial counterparties are assigned to each rating to reflect the long-run average of one-year default rates over a full economic cycle,
supplemented by external benchmarking, as necessary.
An LGD estimate captures the priority of claim, collateral, and sector characteristics of the credit facility extended to a borrower. LGD estimates
are at the facility level.
An EAD estimate captures the facility type, sector, and utilization rate characteristics of the credit facility extended to a borrower. EAD estimates
are at the facility level. An EAD credit conversion factor is calculated for eligible facilities by comparing amounts drawn at the time of default and one
year prior to default. LGD and EAD models have been developed using internal data recorded over a multi-year period that includes at least one full
economic cycle, in compliance with regulatory requirements. Results are benchmarked using external data, when necessary, and adjustments are
incorporated into the parameters, as appropriate, to account for uncertainties.
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
BMO Financial Group 208th Annual Report 2025 79
MANAGEMENT’S DISCUSSION AND ANALYSIS
For capital purposes, the LGD and EAD parameters are calibrated to reflect downturn conditions. The PD, LGD and EAD estimates are updated
annually and recalibrated as required by comparing the estimates to observed historical experience.
As demonstrated in the table below, our internal risk rating system is aligned with those of external rating agencies.
Wholesale Borrower Risk Rating Scale
TABLE 35
BMO rating
Moody’s Investors Service
implied equivalent
Standard & Poor’s
implied equivalent
Acceptable
I-1 to I-7
Aaa to Baa3
AAA to BBB-
S-1 to S-4
Ba1 to B1
BB+ to B+
Watchlist
P-1 to P-3
B2 to Caa3
B to CC
Default/Impaired
D-1 to D-4
C
C to D
Credit Quality Information
Portfolio Review
Total enterprise-wide outstanding credit risk exposures were $1,189.6 billion as at October 31, 2025, with $596.4 billion recorded in
Canada, $542.7 billion in the United States and $50.5 billion in other jurisdictions. This represented an increase of $37.1 billion or 3% from the
prior year.
BMO’s loan book continues to be well-diversified by industry and geographic region. Total gross loans and acceptances were largely unchanged
at $682.9 billion as at October 31, 2025. The geographic mix of BMO’s Canadian and U.S. portfolios represented 58.3% and 40.0% of total loans,
respectively, compared with 57.5% and 40.7% in the prior year. The loan portfolio is well-diversified, with the consumer loan portfolio
representing 44.1% of the total portfolio, an increase from 43.6% in the prior year, and business and government loans representing 55.9% of
the total portfolio, a slight decrease from 56.4% in the prior year.
Commercial Real Estate Lending
Commercial real estate (CRE) lending refers to loans made for the purpose of financing buildings or land intended to generate a profit, derived either
from the sale of property or from rental income. CRE primarily refers to two distinct types of real estate businesses: income-producing real estate
(office, industrial and retail space, and multi-family residential buildings with more than four dwelling units), including the construction of these
assets; and development of land and construction of properties for sale (subdivisions, condominiums and other types of property). Our primary focus
is income-producing commercial real estate portfolios with stable operating performance, diversified holdings, modest leverage and continued access
to capital, including those legally structured as real estate investment trusts (REITs), real estate investment funds and real estate operating companies
(REOCs), as well as pension funds and other established owners of income-producing commercial real estate.
Our CRE portfolio was $77.0 billion as at October 31, 2025 ($75.4 billion as at October 31, 2024) and accounted for 11% of total gross loans and
acceptances (11% as at October 31, 2024). The portfolio is well-managed, with consistent and conservative underwriting standards, strict lending
criteria and structural resilience. Our CRE portfolio is well-diversified across businesses, property types and geographic regions. The exposure is
monitored with an overall limit, as well as lower limits on each segment, to mitigate risks. As at October 31, 2025, impaired loans represented 1%
of the portfolio (1% as at October 31, 2024).
Residential Real Estate
Residential real estate secured lending comprises residential mortgages and home equity lines of credit (HELOCs) we extend to individuals, and
secured by residential real estate, which is defined as residential structures with one to four dwelling units.
We regularly perform stress tests on our residential mortgage and HELOC portfolios to assess the potential effects of high-impact events. These
stress tests incorporate scenarios ranging from moderately to severely adverse. The credit losses forecast in these tests vary with the severity of the
scenario and are currently considered to be manageable.
The following tables provide a breakdown of residential mortgages and HELOCs by geographic region, as well as insured and uninsured balances.
Residential mortgages and HELOCs are secured by residential properties.
Canadian Real Estate Secured Lending
TABLE 36
(Canadian $ in millions)
Residential
mortgages
Amortizing
home equity
lines of credit
Total amortizing
real estate
secured lending
Non-amortizing
real estate
secured lending
Total Canadian
real estate
secured lending
As at October 31, 2025
162,340
38,089
200,429
13,969
214,398
As at October 31, 2024
158,910
36,326
195,236
13,614
208,850
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
80 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Residential Mortgages (1)
TABLE 37
As at October 31, 2025
As at October 31, 2024
(Canadian $ in millions, except as noted)
Outstanding balances
For the 12 months
ended
Outstanding balances
For the 12 months
ended
Region (2)
Insured (3)
Uninsured
Total
% of total
Average LTV
uninsured (4)
Insured (3)
Uninsured
Total
% of total
Average LTV
uninsured (4)
Atlantic
3,274
4,024
7,298
3.7%
69%
3,261
3,802
7,063
3.7%
70%
Quebec
8,145
13,427
21,572
11.0%
70%
8,811
13,647
22,458
11.8%
71%
Ontario
14,495
68,506
83,001
42.3%
70%
14,199
64,107
78,306
41.0%
70%
Alberta
9,234
8,546
17,780
9.1%
73%
9,551
8,175
17,726
9.3%
73%
British Columbia
4,303
24,663
28,966
14.8%
68%
4,504
25,011
29,515
15.4%
68%
All other Canada
2,109
1,614
3,723
1.9%
72%
2,180
1,662
3,842
2.0%
72%
Total Canada
41,560
120,780
162,340
82.8%
70%
42,506 116,404 158,910
83.2%
70%
United States
60
33,633
33,693
17.2%
73%
67
32,103
32,170
16.8%
76%
Total
41,620
154,413
196,033
100%
71%
42,573 148,507 191,080
100%
71%
(1) Reporting methodologies are in accordance with OSFI’s Residential Mortgage Underwriting Practices and Procedures (B-20) Guideline.
(2) Region is based upon address of the property mortgaged.
(3) Insured mortgages are defined as mortgages that are insured individually or in bulk through an eligible insurer (i.e., CMHC, Sagen MI CanadaTM).
(4) LTV is based on original outstanding balances for mortgages and authorized amounts for HELOCs, divided by the value of the collateral at point of origination.
Home Equity Lines of Credit (1)
TABLE 38
As at October 31, 2025
As at October 31, 2024
(Canadian $ in millions, except as noted)
Portfolio
For the 12 months
ended
Portfolio
For the 12 months
ended
Region (2)
Outstanding
balances
%
Authorizations
%
Average LTV (4)
Outstanding
balances
%
Authorizations
%
Average LTV (4)
Atlantic
1,149
2.0%
2,180
1.8%
65%
1,051
1.9%
2,028
1.7%
62%
Quebec
9,364
15.9%
19,123
15.8%
70%
9,216 16.3%
18,530
15.9%
68%
Ontario
26,177
44.5%
48,939
40.5%
64%
25,313 44.8%
47,222
40.6%
60%
Alberta
3,328
5.7%
7,471
6.2%
64%
3,200
5.7%
7,156
6.1%
61%
British Columbia
11,311
19.2%
21,338
17.7%
62%
10,432 18.5%
19,867
17.1%
59%
All other Canada
729
1.2%
1,485
1.2%
69%
728
1.3%
1,485
1.3%
65%
Total Canada
52,058
88.5%
100,536
83.2%
64%
49,940 88.5%
96,288
82.7%
61%
United States
6,762
11.5%
20,288
16.8%
57%
6,497 11.5%
20,146
17.3%
59%
Total
58,820
100%
120,824
100%
63%
56,437
100%
116,434
100%
61%
Refer to footnote references in the Residential Mortgages table above.
Residential Mortgages by Remaining Term of Amortization (1) (2)
TABLE 39
Amortization period
As at October 31, 2025
< 5 years
6-10 years
11-15 years
16-20 years
21-25 years
26-30 years
31-35 years
> 35 years
Canada (3)
0.7%
2.8%
8.1%
19.5%
34.6%
27.1%
2.5%
4.7%
United States (4)
0.3%
1.6%
3.3%
2.9%
11.1%
80.6%
0.1%
0.1%
Total
0.7%
2.6%
7.3%
16.6%
30.6%
36.2%
2.1%
3.9%
Amortization period
As at October 31, 2024
< 5 years
6-10 years
11-15 years
16-20 years
21-25 years
26-30 years
31-35 years
> 35 years
Canada (3)
0.7%
2.6%
6.6%
16.1%
33.8%
26.5%
3.6%
10.1%
United States (4)
0.4%
1.7%
4.0%
2.4%
9.0%
82.3%
0.1%
0.1%
Total
0.6%
2.5%
6.2%
13.8%
29.6%
35.9%
3.0%
8.4%
(1) In Canada, the remaining amortization is based on the current balance, interest rate, customer payment amount and payment frequency. The contractual payment schedule is used in the United States.
(2) Reporting methodologies are in accordance with OSFI’s B-20 Guideline.
(3) As a result of increases in interest rates, the portfolio included less than $0.1 billion ($9.3 billion as at October 31, 2024) of variable-rate mortgages in negative amortization, with all of the
contractual payments in the current period being applied to interest, and the portion of interest due that is not met by each payment added to the principal.
(4) A large proportion of U.S.-based mortgages in the longer-amortization band are primarily associated with modification programs for troubled borrowers and regulator-initiated mortgage
refinancing programs.
Gross Impaired Loans
Total gross impaired loans and acceptances (GIL) were $7,091 million, an increase from $5,843 million in the prior year. The increase in impaired
loans was due to higher balances in business and government lending, with increases in several sectors, and in consumer lending. GIL as a
percentage of gross loans and acceptances was 1.04% in fiscal 2025, an increase from 0.86% in the prior year.
Factors contributing to the change in GIL are outlined in the table below. Loans classified as impaired during the year increased to $7,775 million
from $7,419 million in fiscal 2024, reflecting higher impaired loan formations in the consumer portfolios. On a geographic basis, Canada accounted
for 50% of total formations in fiscal 2025, compared with 38% in fiscal 2024.
Detailed breakdowns of impaired loans by geographic region and industry can be found in Table 66 in the Supplemental Information and in
Note 3 of the audited annual consolidated financial statements.
BMO Financial Group 208th Annual Report 2025 81
MANAGEMENT’S DISCUSSION AND ANALYSIS
Changes in Gross Impaired Loans and Acceptances
TABLE 40
(Canadian $ in millions, except as noted)
For the year ended October 31
2025
2024
GIL, beginning of year
5,843
3,960
Classified as impaired during the year
7,775
7,419
Transferred to not impaired during the year
(1,454)
(1,086)
Net repayments
(2,781)
(1,938)
Amounts written off
(2,069)
(2,430)
Disposals of loans
(221)
(107)
Foreign exchange and other movements
(2)
25
GIL, end of year
7,091
5,843
GIL as a % of gross loans and acceptances
1.04
0.86
Allowance for Credit Losses
We employ a disciplined approach to provisioning and loan loss evaluation across our loan portfolios, with the prompt identification of problem loans
a key risk management objective. We maintain both an allowance for credit losses on impaired loans and an allowance for credit losses on
performing loans, in accordance with International Financial Reporting Standards (IFRS). An allowance on performing loans is maintained to cover
impairment in the existing portfolio for loans that have not yet been individually identified as impaired. Our approach to establishing and maintaining
the allowance on performing loans is based on the requirements of IFRS, considering the guideline issued by our regulator, OSFI. Under the IFRS 9,
Financial Instruments (IFRS 9) expected credit loss (ECL) methodology, an allowance is recorded for ECL on financial assets regardless of whether there
has been an actual loss event. We recognize an allowance for loss at an amount generally based on 12 months of ECL, if the credit risk at the
reporting date has not increased significantly since initial recognition (Stage 1). We record ECL over the remaining life of performing financial assets
that are considered to have experienced a significant increase in credit risk (Stage 2).
An allowance on impaired loans is maintained to reduce the carrying value of individually identified impaired loans (Stage 3) to the expected
recoverable amount.
We maintain an allowance for credit losses (ACL) at a level that we consider appropriate to absorb credit-related losses. As at October 31, 2025,
the total ACL was $5,739 million, an increase of $803 million from the prior year, reflecting higher allowances on both performing and impaired loans.
The allowance on impaired loans was $1,030 million as at October 31, 2025, and the allowance on performing loans was $4,709 million. These
amounts included an allowance on impaired loans of $56 million and an allowance on performing loans of $633 million related to undrawn
commitments and letters of credit that are considered other credit instruments and recorded in other liabilities. The allowance on impaired loans
increased $299 million from $731 million in the prior year. The allowance on performing loans increased $504 million from $4,205 million in the prior
year, largely driven by the impact of the uncertain economic environment on future credit conditions, portfolio credit migration and changes in the
macroeconomic outlook, partially offset by lower balances in certain portfolios.
Further details on the key assumptions used in the measurement of ACL can be found in the Critical Accounting Estimates and Judgments section;
continuity in ACL by each product type can be found in Tables 68 and 69 in the Supplemental Information and in Note 3 of the audited annual
consolidated financial statements.
International Exposures
BMO’s geographic exposures to regions outside of Canada and the United States are subject to a RMF that incorporates assessments of economic and
political risks in each region or country. These exposures are also managed within limits based on product, entity and country of ultimate risk. Our
total net exposure to these regions is set out in the table below.
The table outlines total net exposure for funded lending and undrawn commitments, securities (including cash products, traded credit and credit
default swap activity), repo-style transactions and derivatives. Repo-style transactions and derivatives exposures are reported at mark-to-market
value. Derivatives exposures incorporate transaction netting where master netting agreements with counterparties have been entered into, and
collateral offsets for counterparties where a CSA is in effect.
Exposure by Region
TABLE 41
As at October 31, 2025
As at
October 31, 2024
(Canadian $ in millions)
Funded lending and commitments
Securities
Repo-style transactions and derivatives
Region
Bank
Corporate
Sovereign
Total
Bank
Corporate
Sovereign
Total
Bank
Corporate
Sovereign
Total
Total net
exposure
Total net
exposure
Europe (excluding
United Kingdom)
758
2,902
–
3,660
259
56
8,083
8,398
1,049
679
36 1,764
13,822
10,670
United Kingdom
80
6,627
257
6,964
130
102
1,297
1,529
174
742
31
947
9,440
10,493
Latin America
2,699
5,052
–
7,751
–
96
–
96
3
330
22
355
8,202
8,628
Asia-Pacific
2,529
2,633
85
5,247
357
19
610
986
185
180
128
493
6,726
10,304
Middle East and Africa
1,848
1,339
106
3,293
–
–
23
23
8
18
2,158 2,184
5,500
3,939
Other (1)
–
3
24
27
–
–
4,291
4,291
2
–
188
190
4,508
5,205
Total
7,914 18,556
472 26,942
746
273
14,304 15,323
1,421
1,949
2,563 5,933
48,198
49,239
(1) Primarily exposure to supranational entities.
82 BMO Financial Group 208th Annual Report 2025
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Derivative Transactions
The following table presents the notional amounts of BMO’s OTC derivative contracts, comprising contracts that are centrally cleared and settled
through a designated clearing house or CCP and contracts that are not centrally cleared.
CCPs are established under the supervision of central banks or other similar regulatory authorities and, as financial market infrastructure, must
satisfy certain financial resilience requirements. Generally speaking, in order to centrally clear OTC derivative contracts, we acquire a membership
in the CCP and, in addition to providing collateral to protect the CCP against risk of loss related to BMO, we are exposed to risk as a member for
our contribution to a default fund. We may also be required to make additional contributions or provide other support in the event of default by
another member.
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
must be exchanged under each contract. Notional amounts do not represent assets or liabilities and therefore are not recorded on the Consolidated
Balance Sheet. The fair values of OTC derivative contracts are recorded on the Consolidated Balance Sheet.
Over-the-Counter Derivative Contracts (Notional amounts)
TABLE 42
(Canadian $ in millions)
Non-centrally cleared
Centrally cleared
Total
As at October 31
2025
2024
2025
2024
2025
2024
Interest Rate Contracts
Swaps
475,142
469,244
14,184,925
16,376,733
14,660,067
16,845,977
Forward rate agreements
9,063
7,464
832,484
3,406,985
841,547
3,414,449
Purchased options
369,216
253,694
–
–
369,216
253,694
Written options
385,166
255,721
–
–
385,166
255,721
Total interest rate contracts
1,238,587
986,123
15,017,409
19,783,718
16,255,996
20,769,841
Foreign Exchange Contracts (1)
Cross-currency swaps
125,728
102,302
–
–
125,728
102,302
Cross-currency interest rate swaps
1,245,779
900,021
–
–
1,245,779
900,021
Forward foreign exchange contracts
936,278
673,839
4,362
6,088
940,640
679,927
Purchased options
98,355
76,576
36
–
98,391
76,576
Written options
107,532
88,210
38
–
107,570
88,210
Total foreign exchange contracts
2,513,672
1,840,948
4,436
6,088
2,518,108
1,847,036
Commodity Contracts
Swaps
22,120
20,326
8
2
22,128
20,328
Purchased options
6,706
5,495
–
–
6,706
5,495
Written options
4,090
4,268
–
–
4,090
4,268
Total commodity contracts
32,916
30,089
8
2
32,924
30,091
Equity Contracts
187,637
138,194
194
320
187,831
138,514
Credit Contracts (2)
Purchased
2,830
1,902
28,930
21,448
31,760
23,350
Written
904
1,279
22,603
14,932
23,507
16,211
Total credit default swaps
3,734
3,181
51,533
36,380
55,267
39,561
Total
3,976,546
2,998,535
15,073,580
19,826,508
19,050,126
22,825,043
(1) Gold contracts are included with foreign exchange contracts.
(2) Credit contracts exclude loan commitment derivatives with notional amounts of $6,219 million as at October 31, 2025 ($2,498 million as at October 31, 2024).
BMO Financial Group 208th Annual Report 2025 83
MANAGEMENT’S DISCUSSION AND ANALYSIS
Market Risk
Market Risk is the potential for financial loss as a result of the impact to capital and earnings from adverse changes in market variables that may
affect the bank’s trading, underwriting and banking book positions, such as interest rates, foreign exchange rates, credit spreads, equity and
commodity prices and their implied volatilities.
Market risk arises from our trading and underwriting activities, as well as our structural banking activities. The magnitude and importance of these
activities to the enterprise, along with the potential volatility of market variables, call for diligent governance and a robust market risk program that
can provide effective identification, measurement, reporting and control of market risk exposures.
Trading and Underwriting Market Risk Governance
Our market risk-taking activities are subject to an extensive governance process. The Risk Review Committee (RRC) oversees the management of
market risk on behalf of the Board of Directors and approves limits governing market risk exposures that are consistent with our risk appetite. The
Risk Management Committee (RMC) regularly reviews and assesses significant market risk exposures and positions, and exercises ongoing senior
management oversight of our risk-taking activities. Both of these committees are kept apprised of specific market risk exposures and any
developments that could expose BMO to unusual, unexpected or unquantified risks associated with those market risk exposures, as well as other
current and emerging market risks. In addition, all businesses and individuals authorized to conduct trading and underwriting activities on behalf of
BMO are required to work within our governance approach and, as part of their first-line-of-defence responsibilities, must adhere to all relevant
corporate policies, standards and procedures, and maintain and manage market risk exposures within specified limits and risk tolerances. In support
of our Risk Management Framework (RMF), our market risk management program comprises processes, infrastructure and supporting documentation
which together enable the identification, assessment, measurement, management and reporting of our market risk exposures.
Trading and Underwriting Market Risk
Our trading and underwriting businesses give rise to market risk associated with buying and selling financial products in the course of meeting our
customers’ needs, such as market-making and related financing activities, and assisting clients to raise funds through securities issuance.
Identification and Assessment of Trading and Underwriting Market Risk
As the first step in the management of market risk, rigorous assessment processes are in place to identify market risk exposures associated with both
new products and the evolving risk profile of existing products, including on- and off-balance sheet positions, trading and non-trading positions,
leveraged loan, bond and equity underwriting, and market risk exposures arising from the domestic and foreign operations of our operating segments.
Various metrics and techniques are employed to measure identified market risk exposures. These include Value-at-Risk (VaR) and stress tests, as
well as sensitivity to market risk factors and position concentrations. Results are reported to the appropriate line of business, the RMC and RRC on a
regular basis.
Value-at-Risk (VaR) measures the maximum loss likely to be experienced in the trading and underwriting portfolios, measured at a 99%
confidence level over a one-day holding period. It incorporates the risk to the value of the bank’s trading and underwriting portfolios from
changes in interest rates, foreign exchange rates, credit spreads, equity and commodity prices, and their implied volatilities and correlations.
Although it is a useful indicator of risk, VaR has limitations, as with any model-driven metric. It assumes that all portfolio positions can be
liquidated within one day and that historical data can be used as a proxy to forecast future market events. In addition, VaR calculations are based
on portfolio positions at the close of business and do not reflect the impact of intra-day activity.
Stress Tests are used to determine the potential impact of low-frequency, high-severity events on the trading and underwriting portfolios. The
portfolios are measured daily against a variety of hypothetical and historical event scenarios, including the 2008 global financial crisis and the
COVID-19 pandemic, along with portfolio-specific impacts and asset class scenarios. Scenarios are continuously refined to reflect the latest market
conditions and portfolio risk exposures. Market liquidity horizons are reviewed for suitability and scenarios updated where appropriate. In addition,
a range of assumptions, including the duration of scenarios and management actions, are incorporated into the stress tests to better reflect the
anticipated impact on the trading and underwriting business.
VaR and stress testing metrics should not be viewed as definitive predictors of the maximum amount of losses that could be experienced in the
trading and underwriting portfolios in any one day, as their results are based on models and estimates and are subject to confidence levels, and the
estimates could be exceeded under unforeseen market conditions.
Our VaR model is back-tested daily, assuming there are no changes to the previous day’s closing position, and isolates the effects of each day’s
price movements against those closing positions. The one-day 99% confidence level VaR at the local and consolidated BMO levels is compared with
the estimated daily profit and loss (P&L) that would be recorded if the portfolio composition remained unchanged. If this P&L result is negative and its
absolute value is greater than the previous day’s VaR, a back-testing exception occurs. Each exception is investigated, explained and documented.
Models support the measurement of our exposure to the risk of adverse outcomes for income, retained earnings and capital. We use a variety
of methods to verify the integrity of our risk models, including the application of back-testing against hypothetical losses and approval by an
independent model validation team. The data and correlations that underpin our models are updated frequently, so that risk metrics reflect current
market conditions.
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
84 BMO Financial Group 208th Annual Report 2025
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Market risk risk-weighted assets (RWA) are calculated using a standardized approach under Basel III for trading book activities along with foreign
exchange risk in the banking book. Policies defining the activities eligible for trading book capital treatment and banking book capital treatment are
used to delineate in-scope activity. Exceptions to general assumptions about trading book and banking book categories are reported to OSFI. Such
exceptions principally arise from instruments that are designated as trading under International Financial Reporting Standards (IFRS) but used to
hedge banking book market risks, along with deferred compensation plan hedging. The fair value of instruments under exception is $1,378 million
net asset and $12,996 million gross.
Monitoring and Control of Trading and Underwriting Market Risk
Limits are set for our trading and underwriting activities, and are subject to regular monitoring and reporting. Reporting and escalation of exposures
to senior management are performed based on our risk policies. Other significant controls include the independent valuation of financial assets and
liabilities, as well as compliance with our model risk program to mitigate model risk.
Internal risk transfer (IRT) transactions are used to hedge interest rate, credit spread and equity banking book market risks by way of the trading
book. This activity is governed by policies intended to ensure compliance with OSFI’s CAR Guideline. No instruments were reassigned between the
trading and banking books in fiscal 2025.
Trading Market Risk Measures
Average Total Trading Value at Risk (VaR) increased year-over-year, due to higher commodity and equity exposures, as well as increased market
volatility, partially offset by lower interest rate exposures.
Total Trading Value at Risk (VaR) Summary (1)
TABLE 43
As at or for the year ended October 31
(Pre-tax Canadian $ equivalent in millions)
2025
2024
Year-end
Average
High
Low
Year-end
Average
High
Low
Commodity VaR
8.2
8.0
16.1
2.0
2.1
3.8
5.4
2.0
Equity VaR
12.8
20.1
35.7
11.7
24.0
16.1
24.0
8.1
Foreign exchange VaR
0.8
1.8
5.1
0.8
1.0
1.2
2.9
0.4
Interest rate VaR (2)
30.0
28.2
41.9
21.4
23.0
30.8
44.7
22.1
Diversification
(25.9)
(21.1)
nm
nm
(17.6)
(19.7)
nm
nm
Total Trading VaR
25.9
37.0
48.1
25.9
32.5
32.2
45.5
23.1
(1) One-day measure using a 99% confidence interval. Gains are presented in brackets and losses are presented as positive numbers.
(2) Interest rate VaR includes general credit spread risk.
nm – not meaningful
Trading-Related Net Revenue
The charts below present daily net revenues plotted against Total Trading VaR, along with a representation of daily net revenue distribution. In
fiscal 2025, net trading losses occurred on four days, with none of these losses exceeding Total Trading VaR. The losses on these days were primarily
attributable to unfavourable market movements, which had a negative impact on some of our positions.
Trading Net Revenues versus Value at Risk
(pre-tax basis and in millions of Canadian dollars)
Daily Revenue
Total Trading VaR
(60)
(40)
(30)
(20)
(10)
0
10
20
30
60
40
50
1-Nov-24
29-Nov-24
31-Dec-24
31-Jan-25
28-Feb-25
31-Mar-25
30-Apr-25
30-May-25
30-Jun-25
31-Jul-25
29-Aug-25
30-Sep-25
31-Oct-25
(50)
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
BMO Financial Group 208th Annual Report 2025 85
MANAGEMENT’S DISCUSSION AND ANALYSIS
Daily net revenues (pre-tax)
Frequency in number of days
0
10
20
30
40
50
60
60
-17
-13
-9
-5
-1
3
7
11
15
19
23
27
31
35
39
43
47
51
55
Frequency Distribution of Daily Net Revenues
Nov 1, 2024 to Oct 31, 2025 ($ millions)
Structural (Non-Trading) Market Risk
Structural market risk comprises interest rate risk arising from our banking activities, such as those involving loans and deposits, and foreign
exchange risk arising from our foreign currency operations and exposures.
Structural Market Risk Governance
BMO’s Corporate Treasury group is responsible for the ongoing management of structural market risk across the enterprise, with independent
oversight provided by the Market Risk group. In addition to the limits approved by our Board of Directors on earnings at risk and the sensitivity of
economic value to changes in interest rates, more granular management limits are in place to guide the daily management of this risk.
The RRC oversees structural market risk management, regularly reviews structural market risk positions and annually approves the structural
market risk plan and limits. The RMC and the Asset Liability Committee (ALCO) provide ongoing senior management oversight of risk positions and
related activities.
Structural Market Risk Measurement
Interest Rate Risk
Structural interest rate risk arises when changes in interest rates affect the market value, cash flows and earnings of assets and liabilities related to
our banking activities. The objective of structural interest rate risk management is to maintain high-quality earnings and maximize sustainable
product spreads, while managing risk to the economic value of our net assets arising from changes in interest rates.
Structural interest rate risk primarily comprises interest rate mismatch risk and product-embedded option risk.
Interest rate mismatch risk arises when there are differences in the scheduled maturities, repricing dates or reference rates of assets, liabilities
and derivatives. The net interest rate mismatch, representing residual assets funded by common shareholders’ equity, is managed to align with a
target maturity profile through interest rate swaps and securities.
Product-embedded option risk arises when product features allow customers to alter the timing of cash flows, such as scheduled maturity or
repricing dates, usually in response to changes in market conditions. Product-embedded options include loan prepayments, deposit redemption
privileges and committed rates on unadvanced mortgages. These options and associated customer behaviour are captured in risk modelling, and
hedging programs may be used to limit the level of exposure to this risk.
Structural interest rate risk is measured using simulations, analyses of the sensitivity of earnings and economic value, stress testing and gap
analysis, in addition to other risk metrics.
Earnings Sensitivity is a measure of the impact of potential changes in interest rates on the projected 12-month pre-tax net income from a portfolio
of assets, liabilities and off-balance sheet positions in response to prescribed parallel interest rate movements, with interest rates floored at zero.
Economic Value Sensitivity is a measure of the impact of potential changes in interest rates on the market value of a portfolio of assets,
liabilities and off-balance sheet positions in response to prescribed parallel interest rate movements, with interest rates floored at zero.
The models that measure structural interest rate risk incorporate projected changes in interest rates and predict the likely reaction of our customers to
these changes. For customer loans and deposits with scheduled maturity and repricing dates (such as mortgages and term deposits), the models
measure the extent to which customers are likely to use embedded options to alter those scheduled dates. For customer loans and deposits without
scheduled maturity and repricing dates (such as credit card loans and chequing accounts), exposure is measured using models that adjust for elasticity
in product pricing and reflect historical and forecasted trends in balances. The results generated by these structural market risk models are inherently
uncertain, as they reflect potential future pricing and customer behaviour, which may differ from actual experience. These models have been
developed using statistical analysis and are independently validated and periodically updated through regular model performance assessment, back-
testing and ongoing dialogue with the lines of business. Models developed to predict customer behaviour are also used to support product pricing.
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
86 BMO Financial Group 208th Annual Report 2025
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All models are subject to BMO’s model risk program, which is described in more detail in the Risk Management Framework section.
The sensitivity of structural interest rate earnings and economic value to an immediate parallel increase or decrease of 100 basis points in the
yield curve is disclosed in the table below.
The sensitivity of structural economic value to rising interest rates primarily reflects a lower market value for fixed-rate loans. The sensitivity of
structural economic value to falling interest rates primarily reflects the impact of a higher market value for fixed-rate loans and minimum modelled
client deposit rates. The exposure of structural economic value to rising interest rates and the benefit of falling interest rates increased relative to
October 31, 2024, largely due to asset portfolio lengthening in response to a steeper curve. Structural earnings sensitivity quantifies the potential
impact of interest rate changes on structural balance sheet pre-tax net income over the next 12 months. The sensitivity of structural earnings to
falling interest rates primarily reflects the risk of fixed-rate and floating-rate loans repricing at lower rates and the more limited ability to reduce
deposit pricing as rates fall. The benefit of rising interest rates to structural earnings primarily reflected the positive impact of reinvesting our net
equity and non-rate sensitive deposits into assets with higher-term rates. The benefit of rising interest rates to structural earnings remained relatively
unchanged compared with October 31, 2024. The exposure of falling interest rates to structural earnings increased relative to October 31, 2024,
primarily due to the impact of lower modelled prepayment penalty fees collected on certain prepayable instruments.
During 2025, both economic value sensitivity and earnings sensitivity remained within the limits established by the Board of Directors.
Structural Interest Rate Sensitivity (1) (2)
TABLE 44
Economic value sensitivity
Earnings sensitivity
(Pre-tax Canadian $ equivalent in millions)
October 31, 2025
October 31, 2024
October 31, 2025
October 31, 2024
Canada (3)
United States
Total
Total
Canada (3)
United States
Total
Total
100 basis point increase
(986)
(750)
(1,736)
(1,483)
104
252
357
367
100 basis point decrease
983
80
1,063
660
(26)
(296)
(322)
(210)
(1) Losses are presented in brackets and gains are presented as positive numbers.
(2) Interest rate sensitivities assume an immediate and sustained parallel shift in assumed interest rates across the entire yield curve as at the end of the period, using a constant balance sheet.
(3) Includes Canadian dollar and other currencies.
The table below presents net loans and acceptances by interest rate sensitivity.
TABLE 45
(Canadian $ in millions)
2025
2024
Fixed rate (1)
Contractual amounts that will reprice/repay within 3 months
216,506
213,314
Contractual amounts that will reprice/repay after 3 months
236,771
254,872
Floating rate (2)
217,120
202,031
Non-rate sensitive (3)
7,475
8,158
Total
677,872
678,375
(1) Includes index-based loans.
(2) Floating rate only includes loans that reprice immediately upon a change in interest rates.
(3) Includes credit card balances that are paid when due, customers’ liability under acceptances, impaired loans and allowance for credit losses.
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
BMO Financial Group 208th Annual Report 2025 87
MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-Trading Foreign Exchange Risk
Structural foreign exchange risk arises primarily from translation risk related to our net investment in U.S. operations and from transaction risk
associated with U.S. dollar-denominated net income.
Translation risk arises from the potential impact that changes in foreign exchange rates could have on our reported shareholders’ equity and
capital ratios. We economically manage the impact of changes in foreign exchange rates on our capital ratios. Refer to the Enterprise-Wide Capital
Management section for further discussion.
Exchange rate fluctuations will affect future results measured in Canadian dollars, and the impact on those results is a function of the periods
during which revenue, expenses and provisions for credit losses arise. Hedging positions may be taken to partially offset the pre-tax effects of
Canadian dollar/U.S. dollar exchange rate fluctuations on financial results, although we did not enter into any hedging arrangements in the current or
prior year. If future results are consistent with results in fiscal 2025, each one cent increase (decrease) in the Canadian dollar/U.S. dollar exchange
rate would be expected to increase (decrease) the Canadian dollar equivalent of U.S. operations net income before income taxes for the year
by $35 million, in the absence of hedging arrangements. Refer to the 2025 Financial Performance Review – Foreign Exchange section for a more
complete discussion of the effects of changes in foreign exchange rates on our results.
Linkages between Balance Sheet Items and Market Risk Disclosures
The table below presents items reported on the Consolidated Balance Sheet that are subject to market risk, comprising balances that are subject to
either traded risk or non-traded risk measurement techniques.
TABLE 46
As at October 31, 2025
As at October 31, 2024
Subject to market risk
Subject to market risk
Primary risk factors
for non-traded
risk balances
(Canadian $ in millions)
Consolidated
Balance Sheet
Traded
risk (1)
Non-traded
risk (2)
Not subject to
market risk
Consolidated
Balance Sheet
Traded
risk (1)
Non-traded
risk (2)
Not subject to
market risk
Assets Subject to Market Risk
Cash and cash equivalents
67,484
–
67,484
–
65,098
–
65,098
– Interest rate
Interest bearing deposits with banks
2,838
456
2,382
–
3,640
201
3,439
– Interest rate
Securities
423,476 172,680
250,796
–
396,880 153,833
243,047
– Interest rate,
credit spread, equity
Securities borrowed or purchased
under resale agreements
129,421
–
129,421
–
110,907
–
110,907
– Interest rate
Loans and acceptances (net of
allowance for credit losses)
677,161
6,271
670,890
–
678,016
6,085
671,931
–
Interest rate,
foreign exchange
Derivative instruments
57,151
51,829
5,322
–
47,253
42,879
4,374
– Interest rate,
foreign exchange
Customers’ liability under acceptances
711
–
711
–
359
–
359
– Interest rate
Other assets
118,560
6,411
12,460
99,689
107,494
9,783
11,001
86,710 Interest rate
Total Assets
1,476,802 237,647
1,139,466
99,689
1,409,647 212,781 1,110,156
86,710
Liabilities Subject to Market Risk
Deposits
976,202
49,093
927,109
–
982,440
45,223
937,217
– Interest rate,
foreign exchange
Derivative instruments
58,729
54,770
3,959
–
58,303
54,713
3,590
– Interest rate,
foreign exchange
Acceptances
711
–
711
–
359
–
359
– Interest rate
Securities sold but not yet purchased
54,876
54,876
–
–
35,030
35,030
–
– Interest rate
Securities lent or sold under
repurchase agreements
134,967
–
134,967
–
110,791
–
110,791
– Interest rate
Other liabilities
154,717
–
91,688
63,029
130,061
–
78,583
51,478 Interest rate
Subordinated debt
8,500
–
8,500
–
8,377
–
8,377
– Interest rate
Total Liabilities
1,388,702 158,739
1,166,934
63,029
1,325,361 134,966 1,138,917
51,478
(1) Primarily comprises balance sheet items that are subject to the trading and underwriting RMF and recorded at fair value through profit or loss.
(2) Primarily comprises balance sheet items that are subject to the structural balance sheet insurance RMF and secured financing transactions.
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
88 BMO Financial Group 208th Annual Report 2025
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MD&A
Liquidity and Funding Risk
Liquidity and Funding Risk is the potential for financial loss if the bank is unable to meet its financial commitments in a timely manner at
reasonable prices as they come due. Financial commitments include liabilities to depositors and suppliers, as well as lending, investment and
pledging commitments.
Managing liquidity and funding risk is integral to maintaining enterprise soundness and safety, depositor confidence and earnings stability. It is BMO’s
policy to maintain a level of liquid assets and funding capacity sufficient to meet our financial commitments, even in times of stress.
Liquidity and Funding Risk Governance
The Corporate Treasury group and the operating segments, as the first line of defence, are responsible for the ongoing identification, assessment,
measurement, management and reporting of liquidity and funding risk. The Corporate Treasury group is responsible for monitoring and reporting on
exposures to liquidity and funding risk across the enterprise; develops and recommends for approval the Liquidity and Funding Risk Management
Framework and the related Risk Appetite Statement and limits; monitors adherence to relevant corporate policies; and assesses the impact of market
events on liquidity and funding requirements on an ongoing basis.
Enterprise Risk and Portfolio Management (ERPM), as the second line of defence, exercises oversight, conducts independent risk assessment and
provides effective challenge of liquidity and funding management frameworks, policies, limits, monitoring and reporting across the enterprise.
The Risk Management Committee (RMC) and Asset Liability Committee (ALCO) provide senior management oversight, and review and discuss
significant liquidity and funding policies, issues and developments that arise in the pursuit of BMO’s strategic priorities. The Risk Review Committee
(RRC) provides oversight of the management of liquidity and funding risk, annually approves the applicable policies, limits and contingency plan, and
regularly reviews liquidity and funding positions.
Liquidity and Funding Risk Management
BMO’s liquidity and funding risk program is defined and authorized in alignment with corporate policies approved by our Board of Directors and
standards approved by management. These policies and standards set out key management principles, liquidity and funding metrics and related
limits, as well as roles and responsibilities in the management of liquidity and funding risk across the enterprise.
We have a robust limit structure in place in order to manage liquidity and funding risk. These limits define BMO’s risk appetite for the key Stress
Net Liquidity Position (stress NLP) measure, regulatory liquidity ratios, secured and unsecured funding appetite (for both trading and structural
activities), as well as enterprise collateral pledging. Limits also establish the tolerance for concentrations of maturities, as well as requirements for
counterparty liability diversification, business pledging activity, and the size and type of committed and uncommitted credit and liquidity facilities that
may be outstanding.
Operating within these limits helps to confirm that liquidity and funding risk is appropriately managed. An enterprise-wide contingency plan
intended to facilitate effective risk management in the event of a disruption is also in place. Early warning indicators identified in the contingency
plan are regularly monitored in order to detect any signs of rising levels of liquidity or funding risk in the market, or any exposure to other risks
specific to BMO.
BMO legal entities include regulated and foreign subsidiaries and branches, and as a result, movements of funds between entities in the
corporate group are subject to, among other things, the liquidity, funding and capital adequacy requirements of these entities. As such, liquidity and
funding positions are managed on both a consolidated and key legal entity basis. Liquidity and funding risk management policies and limits, informed
by the laws and regulations that apply to each entity, are in place for key legal entities, and positions are regularly reviewed at the key legal entity
level to confirm compliance with applicable laws and regulations.
BMO continued to maintain a strong liquidity position during fiscal 2025. Customer deposits continued to grow, while customer loans declined
during the year. Wholesale funding decreased, reflecting net maturities. Our liquidity metrics, including the Liquidity Coverage Ratio (LCR) and Net
Stable Funding Ratio (NSFR), exceeded internal targets and regulatory requirements throughout fiscal 2025.
Liquidity and Funding Risk Measurement
A key component of liquidity risk management is the measurement of liquidity risk under stress. We use stress NLP as a key measure of liquidity risk.
Stress NLP represents the amount by which liquid assets exceed potential funding needs under severe systemic and enterprise-specific stress
scenarios, and a combination thereof. Potential funding needs may arise from obligations to repay retail, commercial and wholesale deposits that are
withdrawn or not renewed, or to fund drawdowns on available credit and liquidity lines, as well as from obligations to pledge collateral due to ratings
downgrades or market volatility, along with the ongoing need to fund new assets and strategic investments. Potential funding needs are quantified
by applying factors to various business activities based on management’s view of the relative level of liquidity risk related to each activity. These
factors vary by deposit classification (e.g., retail, small business, non-financial corporate or wholesale counterparties) and deposit type (e.g., insured,
uninsured, operational or non-operational deposits), as well as by commitment type (e.g., committed or uncommitted credit or liquidity facilities by
counterparty type). Stress scenarios also consider the time horizon over which liquid assets can be monetized and management’s assessment of the
liquidity value of those assets under conditions of market stress. These potential funding needs are assessed under severe systemic and enterprise-
specific stress scenarios, and a combination thereof.
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
BMO Financial Group 208th Annual Report 2025 89
MANAGEMENT’S DISCUSSION AND ANALYSIS
Stress testing results are evaluated against our stated risk appetite and are considered in management’s decisions on limit-setting and internal
transfer cost of liquidity, and also help to inform and shape the design of business plans and contingency plans. The liquidity and funding risk
program is integrated with enterprise-wide stress testing.
In addition to stress NLP, we regularly monitor positions in relation to the limits and liquidity ratios noted in the Liquidity and Funding Risk
Management section above. These include regulatory metrics such as LCR, net cumulative cash flow and NSFR.
Unencumbered Liquid Assets
Unencumbered liquid assets comprise high-quality assets that are marketable, can be pledged as security for borrowings and can be converted to
cash in a time frame that meets liquidity and funding requirements. Liquid assets are primarily held in our trading businesses, as well as in
supplemental liquidity pools that are maintained for contingent liquidity risk management purposes. The liquidity values recognized for different asset
classes under BMO’s liquidity and funding risk program reflect management’s assessment of the liquidity values of those assets under a severe stress
scenario. Liquid assets held in our trading businesses comprise cash on deposit with central banks, short-term deposits with other financial
institutions, highly-rated debt securities, equity securities and short-term reverse repurchase agreements. Supplemental liquidity pool assets primarily
comprise cash on deposit with central banks, securities, and short-term reverse repurchase agreements for highly-rated Canadian federal and
provincial government debt and U.S. federal government and agency debt. Substantially all supplemental liquidity pool assets meet the definition of
high-quality liquid assets under Basel III. The size of the supplemental liquidity pool is integrated with our assessment of liquidity risk. In order to
comply with local regulatory requirements, certain legal entities maintain their own minimum liquidity positions. There may be legal and regulatory
restrictions on BMO’s ability to use liquid assets held at one legal entity to support the liquidity requirements of another legal entity.
In the normal course of business, we may encumber a portion of cash and securities holdings as collateral in support of trading activities and
participation in clearing and payment systems in Canada and abroad. In addition, we may receive liquid assets as collateral and may re-pledge these
assets in exchange for cash or as collateral in support of trading activities. Net unencumbered liquid assets, defined as on-balance sheet assets, such
as BMO-owned cash and securities and securities borrowed or purchased under resale agreements, plus other off-balance sheet eligible collateral
received, less assets encumbered as collateral, totalled $393.5 billion as at October 31, 2025, compared with $396.3 billion as at October 31, 2024.
The decrease in unencumbered liquid assets was primarily due to lower securities balances, partially offset by higher cash balances. Net
unencumbered liquid assets are primarily held at the parent bank level, at BMO Bank N.A. and in our broker/dealer operations. In addition to liquid
assets, we have access to the Bank of Canada’s lending assistance programs, the Federal Reserve Bank discount window in the United States, the
Bank of England’s Sterling Monetary Framework and European Central Bank standby liquidity facilities. We do not consider central bank facilities a
source of available liquidity when assessing the soundness of our liquidity position.
In addition to cash and securities holdings, we may also pledge other assets, including mortgages and loans, to raise long-term secured funding.
As part of the liquidity and funding risk program, a Pledging of Assets corporate policy sets out the approach and limits for pledging financial and
non-financial assets.
BMO’s total encumbered assets and unencumbered liquid assets are summarized in the table below. Refer to Note 24 of the audited annual
consolidated financial statements for further information on pledged assets.
Liquid Assets
TABLE 47
As at October 31, 2025
As at October 31, 2024
(Canadian $ in millions)
Bank-owned
assets
Other cash
and securities
received
Total gross
assets (1)
Encumbered
assets
Net
unencumbered
assets (2)
Net
unencumbered
assets (2)
Cash and cash equivalents
67,484
–
67,484
108
67,376
65,018
Deposits with other banks
2,838
–
2,838
–
2,838
3,640
Securities and securities borrowed or purchased under resale agreements
Sovereigns/Central banks/Multilateral development banks
194,986
120,935
315,921
164,319
151,602
150,126
NHA mortgage-backed securities and U.S. agency mortgage-backed
securities and collateralized mortgage obligations
121,253
12,851
134,104
71,248
62,856
61,729
Corporate and other debt
37,156
21,550
58,706
20,820
37,886
43,722
Corporate equity
70,081
77,504
147,585
96,196
51,389
52,329
Total securities and securities borrowed or purchased under
resale agreements
423,476
232,840
656,316
352,583
303,733
307,906
NHA mortgage-backed securities (reported as loans at amortized cost) (3)
26,278
–
26,278
6,690
19,588
19,774
Total liquid assets
520,076
232,840
752,916
359,381
393,535
396,338
(1) Gross assets include bank-owned assets and cash and securities received from third parties.
(2) Net unencumbered liquid assets are defined as total gross assets less encumbered assets.
(3) Under International Financial Reporting Standards (IFRS), National Housing Act (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 value and are included as liquid assets under BMO’s liquidity and funding risk program. This amount is shown as a separate
line item, NHA mortgage-backed securities.
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
90 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Asset Encumbrance
TABLE 48
Encumbered (2)
Net unencumbered
(Canadian $ in millions)
As at October 31, 2025
Total gross
assets (1)
Pledged as
collateral
Other
encumbered
Other
unencumbered (3)
Available as
collateral (4)
Cash and deposits with other banks
70,322
–
108
–
70,214
Securities (5)
682,594
271,748
87,525
25,739
297,582
Loans
650,883
58,052
1,834
435,852
155,145
Other assets
Derivative instruments
57,151
–
–
57,151
–
Customers’ liability under acceptances
711
–
–
711
–
Premises and equipment
6,252
–
–
6,252
–
Goodwill
16,797
–
–
16,797
–
Intangible assets
4,758
–
–
4,758
–
Current tax assets
1,970
–
–
1,970
–
Deferred tax assets
2,732
–
–
2,732
–
Receivable from brokers, dealers and clients
43,167
–
–
43,167
–
Other
42,884
11,149
–
31,735
–
Total other assets
176,422
11,149
–
165,273
–
Total assets
1,580,221
340,949
89,467
626,864
522,941
Encumbered (2)
Net unencumbered
(Canadian $ in millions)
As at October 31, 2024
Total gross
assets (1)
Pledged as
collateral
Other
encumbered
Other
unencumbered (3)
Available as
collateral (4)
Cash and deposits with other banks
68,738
–
80
–
68,658
Securities (5)
617,217
233,907
55,630
24,824
302,856
Loans
652,750
69,615
1,804
427,863
153,468
Other assets
Derivative instruments
47,253
–
–
47,253
–
Customers’ liability under acceptances
359
–
–
359
–
Premises and equipment
6,249
–
–
6,249
–
Goodwill
16,774
–
–
16,774
–
Intangible assets
4,925
–
–
4,925
–
Current tax assets
2,219
–
–
2,219
–
Deferred tax assets
3,024
–
–
3,024
–
Receivable from brokers, dealers and clients
31,916
–
–
31,916
–
Other
42,387
10,314
–
32,073
–
Total other assets
155,106
10,314
–
144,792
–
Total assets
1,493,811
313,836
57,514
597,479
524,982
(1) Gross assets include on-balance sheet and off-balance sheet assets.
(2) Pledged as collateral refers to the portion of on-balance sheet assets and other cash and securities that is pledged through repurchase agreements, securities lending, derivative contracts and
requirements associated with participation in clearing houses and payment systems. Other encumbered assets include assets that are restricted for legal or other reasons, such as minimum required
deposits at central banks, short sales and certain U.S. agency securities that have been sold to third parties but are consolidated under IFRS.
(3) Other unencumbered assets include select liquid asset holdings that management believes are not readily available to support BMO’s liquidity requirements. These include securities of $25.7 billion as
at October 31, 2025, and include securities held at BMO’s insurance subsidiary, seller financing securities and certain investments held at our merchant banking business. Other unencumbered assets
include mortgages and loans that may be securitized to access secured funding.
(4) Loans included in available as collateral represent loans currently lodged at central banks that may be used to access central bank funding. Loans available for pledging as collateral do not include
other sources of additional liquidity that may be realized from BMO’s loan portfolio, such as incremental securitization, covered bond issuances and U.S. Federal Home Loan Bank (FHLB) advances.
(5) Includes securities, securities borrowed or purchased under resale agreements and NHA mortgage-backed securities (reported as loans at amortized cost).
Net Unencumbered Liquid Assets by Legal Entity
TABLE 49
(Canadian $ in millions)
As at October 31, 2025
As at October 31, 2024
BMO (parent)
232,874
240,796
BMO Bank N.A.
127,012
128,521
Broker dealers
33,649
27,021
Total net unencumbered liquid assets by legal entity
393,535
396,338
BMO Financial Group 208th Annual Report 2025 91
MANAGEMENT’S DISCUSSION AND ANALYSIS
Funding Strategy
BMO’s funding strategy requires that secured and unsecured wholesale funding used to support loans and less liquid assets must have a term
(typically two to ten years) that will support the effective term to maturity of these assets. Secured and unsecured wholesale funding for liquid
trading assets is largely shorter-term (maturing in one year or less), is aligned with the liquidity of the assets being funded and is subject to limits on
aggregate maturities across different periods. Supplemental liquidity pools are funded largely with wholesale term funding.
We maintain a large and stable base of customer deposits that, in combination with our strong capital position, is a source of strength. This
supports the maintenance of a sound liquidity position and reduces our reliance on wholesale funding. Customer deposits totalled $715.0 billion as
at October 31, 2025, increasing from $711.7 billion in fiscal 2024.
Total secured and unsecured wholesale funding outstanding, which largely consists of negotiable marketable securities, was $258.6 billion as at
October 31, 2025, with $68.2 billion sourced as secured funding and $190.4 billion sourced as unsecured funding. Total wholesale funding outstanding
decreased from $259.0 billion as at October 31, 2024, primarily due to net maturities of wholesale funding during the year, partially offset by the
impact of the stronger U.S. dollar. The mix and maturities of BMO’s wholesale term funding are outlined later in this section. Additional information
on deposit maturities can also be found in the Contractual Maturities of Assets and Liabilities and Off-Balance Sheet Commitments section. We
maintain a sizeable portfolio of unencumbered liquid assets, totalling $393.5 billion as at October 31, 2025 and $396.3 billion as at October 31, 2024,
that can be monetized to meet potential funding requirements, as described in the Unencumbered Liquid Assets section above.
Wholesale Funding Maturities (1)
TABLE 50
As at October 31, 2025
As at October 31, 2024
(Canadian $ in millions)
Less than
1 month
1 to 3
months
3 to 6
months
6 to 12
months
Subtotal less
than 1 year
1 to 2
years
Over
2 years
Total
Total
Deposits from banks
1,472
1,603
483
845
4,403
–
–
4,403
5,599
Certificates of deposit and
commercial paper
7,502
25,957
23,280
32,467
89,206
456
–
89,662
90,349
Bearer deposit notes
1,935
1,485
1,655
724
5,799
–
–
5,799
4,638
Asset-backed commercial paper (ABCP)
1,788
4,970
5,775
2,744
15,277
–
–
15,277
9,612
Senior unsecured medium-term notes
–
1,150
1,748
10,480
13,378
19,764
31,583
64,725
67,913
Senior unsecured structured notes (2)
215
161
59
288
723
1,077
15,535
17,335
14,621
Secured funding
Mortgage and HELOC securitizations
4
835
291
1,677
2,807
2,129
13,447
18,383
18,187
Covered bonds
–
2,192
3,105
7,608
12,905
6,928
4,220
24,053
26,969
Other asset-backed securitizations (3)
–
816
–
–
816
742
4,153
5,711
7,116
Federal Home Loan Bank advances
–
1,752
10
175
1,937
1,402
1,402
4,741
5,633
Subordinated debt
–
25
–
–
25
–
8,474
8,499
8,403
Total
12,916
40,946
36,406
57,008
147,276
32,498
78,814
258,588
259,040
Of which:
Secured
1,792
10,565
9,181
12,204
33,742
11,201
23,222
68,165
67,517
Unsecured
11,124
30,381
27,225
44,804
113,534
21,297
55,592
190,423
191,523
Total (4)
12,916
40,946
36,406
57,008
147,276
32,498
78,814
258,588
259,040
(1) Wholesale unsecured funding primarily includes funding raised through the issuance of negotiable marketable securities. Wholesale funding excludes repo transactions, which are disclosed in
the Contractual Maturities of Assets and Liabilities and Off-Balance Sheet Commitments section, and also excludes ABCP issued by certain ABCP conduits that are not consolidated for financial
reporting purposes.
(2) Includes structured notes issued to institutional investors and exchange-traded notes.
(3) Includes credit card loan securitizations.
(4) Total wholesale funding comprised Canadian dollar-denominated funding of $54.3 billion ($51.8 billion as at October 31, 2024) and U.S. dollar-denominated and other foreign currency-denominated
funding of $204.3 billion as at October 31, 2025 ($207.2 billion as at October 31, 2024).
Certain comparative figures have been reclassified to conform with the current period’s presentation.
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
92 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Diversification of our wholesale term funding sources is an important part of our overall liquidity management strategy. Our wholesale term
funding is well-diversified by jurisdiction, currency, investor segment, instrument type and maturity profile. We maintain ready access to long-term
wholesale funding through various borrowing programs, including a European Note Issuance Program, Canadian, Australian and U.S. Medium-Term
Note programs, Canadian and U.S. mortgage securitizations, Canadian credit card loans, auto loans and home equity line of credit (HELOC)
securitizations, U.S. transportation finance loans, covered bonds, and Canadian and U.S. senior unsecured deposits.
Wholesale Capital Market Term Funding Composition (%)
Covered Bonds
Mortgage, Credit Card, HELOC Securitization, and FHLB Advances
Senior Debt (Canadian dollar)
Senior Debt (Global issuances)
2025
2024
21%
25%
19%
35%
20%
25%
21%
34%
Our wholesale term funding plan seeks to ensure sufficient funding capacity is available to execute our business strategies. The funding plan
considers expected maturities, as well as asset and liability growth projected for businesses in our forecasting and planning processes, and assesses
funding needs in relation to the sources available. The plan is reviewed annually by the senior management committees with specific related
responsibilities and approved by the RRC, and regularly updated to reflect actual results and incorporate updated forecast information.
Regulatory Developments
OSFI has conducted an industry consultation on proposed changes to its Liquidity Adequacy Requirement (LAR) Guideline that are expected to
become effective the third quarter of fiscal 2026. Under the proposal, OSFI is updating its guidance on the regulatory treatment for retail structured
products and introducing new run-off categories for such products. These changes are not expected to have a material impact on our liquidity
and funding practices.
OSFI has also released a discussion paper on designing an Internal Liquidity Adequacy Assessment Process (ILAAP) for Canadian deposit-taking
institutions and is expected to open industry consultation on this topic in fiscal 2026. BMO will seek to work closely with OSFI on this process and plan
for any expected changes.
Credit Ratings
The credit ratings assigned to BMO’s short-term and senior long-term debt securities by external rating agencies are important in raising both capital
and funding to support the bank’s business operations. Maintaining strong credit ratings allows us to access the wholesale markets at competitive
pricing levels. Should BMO’s credit ratings experience a downgrade, our cost of funding could increase and our access to funding and capital through
the wholesale markets be constrained. A material downgrade of BMO’s ratings could also have other consequences, including those set out in Note 7
of the audited annual consolidated financial statements.
The credit ratings assigned to BMO’s senior debt by rating agencies are indicative of high-grade, high-quality issues. In fiscal 2025, Moody’s,
Standard & Poor’s (S&P), Fitch and DBRS affirmed their ratings and maintained their stable outlook on BMO.
TABLE 51
As at October 31, 2025
Rating agency (1)
Short-term debt
Senior debt (2)
Long-term deposits/
Legacy senior debt (3)
Subordinated
debt (NVCC)
Outlook
Moody’s
P-1
A2
Aa2
Baa1 (hyb)
Stable
S&P
A-1
A-
A+
BBB+
Stable
Fitch
F1+
AA-
AA
A
Stable
DBRS
R-1 (high)
AA (low)
AA
A (low)
Stable
(1) Credit ratings are not recommendations to purchase, hold or sell a financial obligation and do not address the market price or suitability for a particular investor. Ratings are subject to revision or
withdrawal at any time by the rating organization.
(2) Subject to conversion under the Bank Recapitalization (Bail-In) Regime.
(3) Long-term deposits / Legacy senior debt includes senior debt issued prior to September 23, 2018 and senior debt issued on or after September 23, 2018 that is excluded from the Bank
Recapitalization (Bail-In) Regime.
We are required to deliver collateral to certain counterparties in the event of a downgrade of BMO’s current credit rating. The incremental collateral
required is based on mark-to-market exposure, collateral valuations and collateral threshold arrangements, as applicable. As at October 31, 2025, we
would be required to provide additional collateral to counterparties totalling $178 million, $450 million and $1,093 million as a result of a one-notch,
two-notch and three-notch downgrade, respectively.
BMO Financial Group 208th Annual Report 2025 93
MANAGEMENT’S DISCUSSION AND ANALYSIS
Liquidity Coverage Ratio
The Liquidity Coverage Ratio (LCR) is calculated on a daily basis as the ratio of high-quality liquid assets (HQLA) held to total net stressed cash
outflows over the next 30 calendar days, in accordance with OSFI’s LAR Guideline, as summarized in the table below. BMO’s HQLA primarily comprises
cash, highly-rated debt issued or backed by governments, highly-rated covered bonds and non-financial corporate debt, and non-financial equities
that are part of a major stock index. Net cash flows include outflows from deposits, secured and unsecured wholesale funding, commitments and
potential collateral requirements, offset by permitted inflows from loans, securities lending activities and other non-HQLA debt maturing over
a 30-day horizon. Weightings prescribed by OSFI are applied to cash flows and HQLA to arrive at the weighted values and the LCR. The LCR does not
reflect liquidity in BMO Financial Corp. (BFC) in excess of 100%, because of limitations on the transfer of liquidity between BFC and the parent bank.
Canadian domestic systemically important banks (D-SIBs), including BMO, are required to maintain a minimum LCR of 100%. The average daily LCR for
the quarter ended October 31, 2025 was 132%, equivalent to a surplus of $60.7 billion above the regulatory minimum. The LCR remained unchanged
from 132% in fiscal 2024, as lower HQLA was offset by a decrease in net cash outflows. While banks are required to maintain an LCR of greater
than 100% in normal conditions, they are also expected to be able to utilize HQLA during a period of stress, which may result in an LCR of less
than 100% during such a period. The LCR is only one measure of a bank’s liquidity position and does not fully capture all of its liquid assets or the
funding alternatives that may be available during a period of stress. BMO’s total liquid assets are shown in the table below.
TABLE 52
As at October 31, 2025
(Canadian $ in billions, except as noted)
Total unweighted value
(average) (1) (2)
Total weighted value
(average) (2) (3)
High-Quality Liquid Assets
Total high-quality liquid assets (HQLA)
*
252.1
Cash Outflows
Retail deposits and deposits from small business customers, of which:
305.5
21.7
Stable deposits
141.2
4.2
Less stable deposits
164.3
17.5
Unsecured wholesale funding, of which:
324.2
139.4
Operational deposits (all counterparties) and deposits in networks of cooperative banks
163.0
40.3
Non-operational deposits (all counterparties)
141.3
79.2
Unsecured debt
19.9
19.9
Secured wholesale funding
*
31.9
Additional requirements, of which:
257.3
59.8
Outflows related to derivatives exposures and other collateral requirements
40.2
14.2
Outflows related to loss of funding on debt products
2.6
2.6
Credit and liquidity facilities
214.5
43.0
Other contractual funding obligations
1.0
–
Other contingent funding obligations
563.7
12.3
Total cash outflows
*
265.1
Cash Inflows
Secured lending (e.g., reverse repos)
192.4
32.9
Inflows from fully performing exposures
19.0
10.6
Other cash inflows
30.2
30.2
Total cash inflows
241.6
73.7
Total adjusted value (4)
Total HQLA
252.1
Total net cash outflows
191.4
Liquidity Coverage Ratio (%)
132
For the quarter ended October 31, 2024
Total adjusted value (4)
Total HQLA
253.4
Total net cash outflows
192.4
Liquidity Coverage Ratio (%)
132
* Disclosure is not required under the LCR disclosure standard.
(1) Unweighted values are calculated at market value (for HQLA) or as outstanding balances maturing or callable within 30 days (for inflows and outflows).
(2) Values are calculated based on the simple average of the daily LCR over 62 business days in the fourth quarter of fiscal 2025.
(3) Weighted values are calculated after the application of the weights prescribed under the OSFI LAR Guideline for HQLA and cash inflows and outflows.
(4) Adjusted values are calculated based on total weighted values after applicable caps, as defined in the LAR Guideline.
94 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Net Stable Funding Ratio
The Net Stable Funding Ratio (NSFR) is a regulatory metric that assesses the stability of a bank’s funding profile in relation to the liquidity value of its
assets, calculated in accordance with OSFI’s LAR Guideline. Unlike the LCR, which is a short-term metric, the NSFR assesses a bank’s medium-term and
long-term resilience. The NSFR is defined as the ratio of the amount of available stable funding (ASF) to the amount of required stable funding (RSF).
ASF represents the proportion of own and third-party resources that are expected to be reliably available to a bank over a one-year time horizon
(including customer deposits, long-term wholesale funding and capital). The stable funding requirements for each institution are set by OSFI based on
the liquidity and maturity characteristics of its balance sheet assets and off-balance sheet exposures. Weightings prescribed by OSFI are applied to
notional asset and liability balances to determine ASF, RSF and the NSFR. Canadian D-SIBs, including BMO, are required to maintain a minimum NSFR
of 100%. BMO’s NSFR was 117% as at October 31, 2025, equivalent to a surplus of $114.5 billion above the regulatory minimum, and remained
unchanged from 117% as at October 31, 2024, as lower ASF was offset by a decrease in RSF.
TABLE 53
For the quarter ended October 31, 2025
Unweighted value by residual maturity
Weighted
value (2)
(Canadian $ in billions, except as noted)
No
maturity (1)
Less than 6
months
6 to 12
months
Over 1 year
Available Stable Funding (ASF) Item
Capital:
88.6
–
–
8.4
97.0
Regulatory capital
88.6
–
–
8.4
97.0
Other capital instruments
–
–
–
–
–
Retail deposits and deposits from small business customers:
244.9
61.1
30.0
61.6
368.0
Stable deposits
120.5
26.3
12.8
12.4
164.1
Less stable deposits
124.4
34.8
17.2
49.2
203.9
Wholesale funding:
339.0
290.8
72.4
95.9
285.4
Operational deposits
158.5
–
–
0.5
79.8
Other wholesale funding
180.5
290.8
72.4
95.4
205.6
Liabilities with matching interdependent assets
–
1.0
0.7
15.3
–
Other liabilities:
2.1
*
*
100.5
32.9
NSFR derivative liabilities
*
*
*
5.5
*
All other liabilities and equity not included in the above categories
2.1
61.9
0.3
32.8
32.9
Total ASF
*
*
*
*
783.3
Required Stable Funding (RSF) Item
Total NSFR high-quality liquid assets (HQLA)
*
*
*
*
13.6
Deposits held at other financial institutions for operational purposes
–
0.2
–
–
0.1
Performing loans and securities:
205.2
233.0
79.8
339.4
524.9
Performing loans to financial institutions secured by Level 1 HQLA
–
100.5
2.2
–
3.1
Performing loans to financial institutions secured by non-Level 1 HQLA and unsecured performing
loans to financial institutions
32.1
74.3
10.7
15.5
61.4
Performing loans to non-financial corporate clients, loans to retail and small business customers,
and loans to sovereigns, central banks and public sector entities, of which:
126.8
34.6
35.3
168.6
285.4
With a risk weight of less than or equal to 35% under the Basel II standardized approach for
credit risk
–
–
–
–
–
Performing residential mortgages, of which:
14.0
21.3
31.4
129.7
124.5
With a risk weight of less than or equal to 35% under the Basel II standardized approach
for credit risk
14.0
21.3
31.4
129.7
124.5
Securities that are not in default and do not qualify as HQLA, including exchange-traded equities
32.3
2.3
0.2
25.6
50.5
Assets with matching interdependent liabilities
–
1.0
0.7
15.3
–
Other assets:
44.2
*
*
127.1
108.1
Physical traded commodities, including gold
6.4
*
*
*
5.4
Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs
*
*
*
20.8
17.7
NSFR derivative assets
*
*
*
3.1
–
NSFR derivative liabilities before deduction of variation margin posted
*
*
*
15.2
0.8
All other assets not included in the above categories
37.8
50.8
0.5
36.7
84.2
Off-balance sheet items
–
–
–
638.5
22.1
Total RSF
*
*
*
*
668.8
Net Stable Funding Ratio (%)
*
*
*
*
117
For the quarter ended October 31, 2024
Weighted
value (2)
Total ASF
788.7
Total RSF
673.3
Net Stable Funding Ratio (%)
117
* Disclosure is not required under the NSFR disclosure standard.
(1) Items in the no maturity column do not have a stated maturity. These may include, but are not limited to, capital with perpetual maturity, non-maturity deposits, short positions, open maturity
positions, non-HQLA equities, physical traded commodities and demand loans.
(2) Weighted values are calculated after the application of the weights prescribed under the OSFI LAR Guideline for ASF and RSF.
BMO Financial Group 208th Annual Report 2025 95
MANAGEMENT’S DISCUSSION AND ANALYSIS
Contractual Maturities of Assets and Liabilities and Off-Balance Sheet Commitments
The tables below show the remaining contractual maturities of on-balance sheet assets and liabilities and off-balance sheet commitments. The
contractual maturity of financial assets and liabilities is an input to, but is not necessarily consistent with, the expected maturity of assets and
liabilities used in the management of liquidity and funding risk. We forecast asset and liability cash flows, under both normal market conditions and a
number of stress scenarios, to manage liquidity and funding risk. Stress scenarios incorporate assumptions for loan repayments, deposit withdrawals,
and credit commitment and liquidity facility drawdowns by counterparty and product type. Stress scenarios also consider the time horizon over which
liquid assets can be monetized and the related discounts (“haircuts”) and potential collateral requirements that may arise from both market volatility
and credit rating downgrades, among other assumptions.
TABLE 54
2025
(Canadian $ in millions)
0 to 1
month
1 to 3
months
3 to 6
months
6 to 9
months
9 to 12
months
1 to 2
years
2 to 5
years
Over 5
years
No specific
maturity
Total
Assets
Cash and cash equivalents
65,232
–
–
–
–
–
–
–
2,252
67,484
Interest bearing deposits with banks
2,461
328
47
2
–
–
–
–
–
2,838
Securities
4,613
5,026
7,358
6,635
11,121
43,792
84,041
190,809
70,081
423,476
Securities borrowed or purchased under resale
agreements
105,268
15,571
6,399
1,880
303
–
–
–
–
129,421
Loans (1)
Residential mortgages
2,596
6,037
10,583
14,475
13,025
46,764
66,853
35,365
335
196,033
Consumer instalment and other personal
691
1,584
3,079
4,292
3,376
12,991
20,184
19,079
27,465
92,741
Credit cards
–
–
–
–
–
–
–
–
12,649
12,649
Business and government
11,283
14,430
18,395
23,398
20,399
61,935
98,451
36,768
95,729
380,788
Allowance for credit losses
–
–
–
–
–
–
–
–
(5,050)
(5,050)
Total loans, net of allowance
14,570
22,051
32,057
42,165
36,800
121,690
185,488
91,212
131,128
677,161
Other assets
Derivative instruments
6,336
10,429
5,146
4,122
3,997
7,688
10,420
9,013
–
57,151
Customers’ liability under acceptances
711
–
–
–
–
–
–
–
–
711
Receivable from brokers, dealers and clients
43,167
–
–
–
–
–
–
–
–
43,167
Other
3,752
1,155
455
26
8
15
14
7,990
61,978
75,393
Total other assets
53,966
11,584
5,601
4,148
4,005
7,703
10,434
17,003
61,978
176,422
Total assets
246,110
54,560
51,462
54,830
52,229
173,185
279,963
299,024
265,439 1,476,802
TABLE 55
2025
(Canadian $ in millions)
0 to 1
month
1 to 3
months
3 to 6
months
6 to 9
months
9 to 12
months
1 to 2
years
2 to 5
years
Over 5
years
No specific
maturity
Total
Liabilities and Equity
Deposits (2) (3)
37,399
65,186
66,458
58,424
49,572
55,403
68,983
29,023
545,754
976,202
Other liabilities
Derivative instruments
5,789
9,844
6,317
4,517
4,264
7,180
10,924
9,894
–
58,729
Acceptances
711
–
–
–
–
–
–
–
–
711
Securities sold but not yet purchased (4)
54,876
–
–
–
–
–
–
–
–
54,876
Securities lent or sold under repurchase
agreements (4)
113,549
17,158
762
–
–
3,498
–
–
–
134,967
Securitization and structured entities’ liabilities
1
2,375
200
481
1,377
2,980
10,287
33,861
–
51,562
Insurance-related liabilities
90
82
21
23
33
91
220
745
19,131
20,436
Payable to brokers, dealers and clients
45,170
–
–
–
–
–
–
–
–
45,170
Other
11,733
5,244
222
339
120
2,567
2,784
2,659
11,881
37,549
Total other liabilities
231,919
34,703
7,522
5,360
5,794
16,316
24,215
47,159
31,012
404,000
Subordinated debt
–
25
–
–
–
–
25
8,450
–
8,500
Total equity
–
–
–
–
–
–
–
–
88,100
88,100
Total liabilities and equity
269,318
99,914
73,980
63,784
55,366
71,719
93,223
84,632
664,866 1,476,802
(1) Loans receivable on demand have been included under no specific maturity.
(2) Deposits payable on demand and payable after notice have been included under no specific maturity.
(3) Deposits totalling $27,819 million as at October 31, 2025 have a fixed maturity date; however, they can be redeemed early (either fully or partially) by customers without penalty. These are classified
as payable on a fixed date due to their stated contractual maturity date.
(4) These are presented based on their earliest maturity date.
TABLE 56
2025
(Canadian $ in millions)
0 to 1
month
1 to 3
months
3 to 6
months
6 to 9
months
9 to 12
months
1 to 2
years
2 to 5
years
Over 5
years
No specific
maturity
Total
Off-Balance Sheet Commitments
Commitments to extend credit (1)
2,889
4,405
10,029
15,588
22,066
55,191
130,267
6,417
–
246,852
Letters of credit (2)
2,372
5,167
6,192
5,787
5,982
2,530
3,807
76
–
31,913
Backstop liquidity facilities
429
72
–
2,304
2,845
4,543
7,804
361
–
18,358
Other commitments (3)
59
92
154
144
136
444
805
256
–
2,090
(1) Commitments to extend credit exclude personal lines of credit and credit cards that are unconditionally cancellable at BMO’s discretion. 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 commitments.
(2) Letters of credit can be drawn down at any time. These are classified based on their stated contractual maturity.
(3) Other commitments comprise purchase obligations and lease commitments for leases signed but not yet commenced.
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
96 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
TABLE 57
2024
(Canadian $ in millions)
0 to 1
month
1 to 3
months
3 to 6
months
6 to 9
months
9 to 12
months
1 to 2
years
2 to 5
years
Over 5
years
No specific
maturity
Total
Assets
Cash and cash equivalents
62,827
–
–
–
–
–
–
–
2,271
65,098
Interest bearing deposits with banks
2,513
628
481
18
–
–
–
–
–
3,640
Securities
6,787
14,011
7,840
6,707
9,720
21,264
84,775
172,886
72,890
396,880
Securities borrowed or purchased under
resale agreements
85,185
16,803
5,701
2,330
888
–
–
–
–
110,907
Loans (1)
Residential mortgages
1,683
3,284
6,413
6,653
9,252
52,489
77,867
33,227
212
191,080
Consumer instalment and other personal
581
974
1,703
1,827
2,671
14,815
24,595
18,830
26,691
92,687
Credit cards
–
–
–
–
–
–
–
–
13,612
13,612
Business and government
8,647
14,418
16,461
19,448
21,828
63,613
105,740
32,444
102,394
384,993
Allowance for credit losses
–
–
–
–
–
–
–
–
(4,356)
(4,356)
Total loans, net of allowance
10,911
18,676
24,577
27,928
33,751
130,917
208,202
84,501
138,553
678,016
Other assets
Derivative instruments
5,573
7,996
7,211
2,482
1,660
6,365
8,374
7,592
–
47,253
Customers’ liability under acceptances
359
–
–
–
–
–
–
–
–
359
Receivable from brokers, dealers
and clients
31,916
–
–
–
–
–
–
–
–
31,916
Other
3,847
1,012
948
31
14
13
13
7,717
61,983
75,578
Total other assets
41,695
9,008
8,159
2,513
1,674
6,378
8,387
15,309
61,983
155,106
Total assets
209,918
59,126
46,758
39,496
46,033
158,559
301,364
272,696
275,697 1,409,647
TABLE 58
2024
(Canadian $ in millions)
0 to 1
month
1 to 3
months
3 to 6
months
6 to 9
months
9 to 12
months
1 to 2
years
2 to 5
years
Over 5
years
No specific
maturity
Total
Liabilities and Equity
Deposits (2) (3)
47,637
74,759
69,479
68,110
48,835
51,789
87,297
25,602
508,932
982,440
Other liabilities
Derivative instruments
6,769
10,541
10,828
3,311
2,160
6,470
9,112
9,112
–
58,303
Acceptances
359
–
–
–
–
–
–
–
–
359
Securities sold but not yet purchased (4)
35,030
–
–
–
–
–
–
–
–
35,030
Securities lent or sold under
repurchase agreements (4)
99,364
7,777
721
106
1,016
1,807
–
–
–
110,791
Securitization and structured
entities’ liabilities
44
981
1,072
2,183
152
4,353
9,913
21,466
–
40,164
Insurance-related liabilities
93
89
18
18
30
83
195
701
17,543
18,770
Payable to brokers, dealers and clients
34,407
–
–
–
–
–
–
–
–
34,407
Other
12,409
2,968
805
144
1,611
2,492
4,058
2,799
9,434
36,720
Total other liabilities
188,475
22,356
13,444
5,762
4,969
15,205
23,278
34,078
26,977
334,544
Subordinated debt
–
–
–
–
–
25
25
8,327
–
8,377
Total equity
–
–
–
–
–
–
–
–
84,286
84,286
Total liabilities and equity
236,112
97,115
82,923
73,872
53,804
67,019
110,600
68,007
620,195 1,409,647
(1) Loans receivable on demand have been included under no specific maturity.
(2) Deposits payable on demand and payable after notice have been included under no specific maturity.
(3) Deposits totalling $29,136 million as at October 31, 2024 have a fixed maturity date; however, they can be redeemed early (either fully or partially) by customers without penalty. These are classified
as payable on a fixed date due to their stated contractual maturity date.
(4) These are presented based on their earliest maturity date.
TABLE 59
2024
(Canadian $ in millions)
0 to 1
month
1 to 3
months
3 to 6
months
6 to 9
months
9 to 12
months
1 to 2
years
2 to 5
years
Over 5
years
No specific
maturity
Total
Off-Balance Sheet Commitments
Commitments to extend credit (1)
3,720
5,220
10,229
16,052
16,284
47,054
130,664
7,048
–
236,271
Letters of credit (2)
2,109
5,235
6,113
6,761
6,163
2,310
3,689
36
–
32,416
Backstop liquidity facilities
283
213
213
3,408
1,132
3,047
9,110
818
–
18,224
Other commitments (3)
30
78
94
87
187
399
486
98
–
1,459
(1) Commitments to extend credit exclude personal lines of credit and credit cards that are unconditionally cancellable at BMO’s discretion. 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 commitments.
(2) Letters of credit can be drawn down at any time. These are classified based on their stated contractual maturity.
(3) Other commitments comprise purchase obligations and lease commitments for leases signed but not yet commenced.
Caution
This Liquidity and Funding Risk section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
Material presented in a blue-tinted font above is an integral part of Note 4 of the audited annual consolidated financial statements.
BMO Financial Group 208th Annual Report 2025 97
MANAGEMENT’S DISCUSSION AND ANALYSIS
Operational Non-Financial Risk
Operational Non-Financial Risk encompasses a wide range of non-financial risks, including those related to business change, customer trust,
reputation and data, all of which can result in financial loss. These losses can stem from inadequate or failed internal processes or systems,
human error or misconduct, and external events that may directly or indirectly impact the fair value of assets we hold in our credit or
investment portfolios.
Operational non-financial risk (ONFR) is inherent in all our business and banking activities and can lead to significant impacts on our operating and
financial results, including financial loss, restatements of financial results and damage to BMO’s reputation.
Our ability to conduct business may be adversely affected by disruption to the infrastructure that supports our operations and the communities
in which we do business, including, but not limited to, public health or other emergencies, civil disorder, acts of war or terrorism. We have an
established Risk Management Framework (RMF) to manage and mitigate these risks, including internal controls, limits and governance processes,
as well as plans/playbooks to maintain operations, serve our clients, and minimize adverse impacts of disruptions.
We regularly review top and emerging risk exposures that could impact BMO’s business and operations, and we assess our preparedness to
proactively manage the risks we face or potentially face. Consistent with the management of risk across the enterprise, we employ a three-
lines-of-defence approach in managing our exposures to non-financial risk.
Refer to the Risks That May Affect Future Results – Top and Emerging Risks That May Affect Future Results section for further discussion of
these risks.
Operational Non-Financial Risk Governance
The Enterprise Operational Risk Committee (EORC), a sub-committee of the Risk Management Committee (RMC), is the primary governance committee
exercising oversight of operational non-financial risk management matters. The EORC provides oversight of all material operational non-financial risks,
monitors the bank’s resilience capabilities, and supports a proactive approach to risk management to prevent avoidable failures. As part of its
governance responsibilities, the EORC acts to support the review and recommendation for approval of ONFR corporate policies and standards to the
Risk Review Committee (RRC), the RMC and senior executives as required, as well as the methodologies and tools that comprise the governing
principles of the Operational Non-Financial Risk Management (ONFRM) program. The documentation that gives effect to these governing principles is
reviewed on a regular basis to confirm that it incorporates sound governance practices and is consistent with BMO’s risk appetite. Regular analysis
and reporting of our enterprise operational risk profile to the various committees (ORC, RMC and RRC) are important elements of our RMF. Operational
risk reporting provides an integrated view of top and emerging risks, trends in loss data, capital consumption, key risk indicators (KRIs) and operating
segment profiles. We continue to invest in our reporting platforms, supporting timely and comprehensive reporting capabilities to enhance risk
transparency and facilitate the proactive management of operational risk exposures.
Operational Non-Financial Risk Management
As the first line of defence, the operating segments and Corporate Services, which includes Technology and Operations, are accountable for the
day-to-day management of their non-financial risk. Operational Risk Officers within the second line of defence independently assess the operational
risk profiles of our operating segments, identify material exposures and potential weaknesses in our product, service and process-based risk and
control environment, and recommend appropriate mitigation strategies and actions.
Independent operational risk management oversight is provided by ONFRM, which is responsible for developing effective risk-related strategies,
the RMF and policies, and for exercising independent second-line oversight, effective challenge and governance. ONFRM sets out and maintains the
ONFRM program, which defines the processes to be used by the first line of defence to identify, assess, measure, manage and report key operational
risk exposures, losses and near-miss operational risk events with significant potential impact. In addition, the ONFRM program sets out the processes
by which ONFRM, as the independent second line of defence, guides, monitors, assesses and communicates with the first line in the management of
operational non-financial risks.
Through the implementation and oversight of the ONFRM program, we seek to maintain an operational risk profile that is consistent with our risk
appetite and supported by adequate capital. The program reflects our commitment to an ethical culture defined by BMO’s values, including integrity
and responsible risk management, reinforced by enhanced operational resilience. Operational resilience is an organization’s ability to protect and
sustain core business products and services that are essential to its clients, both during the normal course of business and when experiencing
operational stress or disruption. It involves the ability to respond to unpredictable events, adapt to changes and external circumstances, and is an
outcome of effective management of ONFRM.
BMO is well positioned to meet the requirements outlined in the August 2024 release of OSFI’s Operational Risk and Resilience Guideline.
The following are the key programs, methodologies and processes set out in the ONFRM program that assist us in the ongoing review of our
operational non-financial risk profile:
‰ BMO’s Product/Service and Process Risk Assessment program is used by our operating segments and Corporate Services to assess the controls
and residual risk exposures in their business operations by focusing on the key controls applied to their products, services, internal activities and
processes, which are subject to second-line effective challenge. It provides a current and forward-looking view of the impact of both our internal
controls and the external business environment on the risk profiles of our operating segments and Corporate Services, supporting the proactive
identification, assessment, measurement, management and reporting of risk.
‰ BMO’s Initiative Assessment and Approval Process is used to assess, document and approve new products and services, or enhancements to
existing products and services, as well as review projects which could impact the existing control environment. This process supports continuous
oversight of change in risk exposure by setting out specific requirements for due diligence, approval, monitoring and reporting that apply at all
levels of the organization.
98 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
‰ KRIs, Issues Management and Internal Loss Data Events are integral components of the ONFRM program that inform the operational risk profile
and are utilized to monitor and manage specific risk exposures in relation to BMO’s overall risk appetite. Our policies and standards require the
timely, complete and accurate reporting of KRIs, issues and events, including managing an effective second-line challenge, within the bank’s
operational risk platform. Root cause analysis is undertaken on KRI breaches, issues and material events, and mitigating actions are monitored for
completion, if required.
‰ Operational Risk Capital Measurement: The bank’s operational risk capital is determined using the Basel III Standardized Approach (SA), which is
an outcome of the Business Indicator Component (BIC) and Internal Loss Multiplier (ILM). BIC is a financial statement-based proxy representing
activity within the bank and ILM is a proxy representing the control environment relative to activity. ILM is a mathematical calculation based
on 10-year average historical losses (net of recoveries) and the three-year average BIC.
‰ Stress Testing Scenario Analysis assesses the potential impact of severe, hypothetical but plausible scenarios covering material and emerging
risks, as well as critical business processes at the bank. Results of the stress test scenarios are leveraged to derive operational loss projections that
can be used for risk management (understanding areas of concentration, susceptibility, prioritizing incremental risk mitigation strategies, etc.) and
risk measurement (understanding exposures, benchmarking, developing KRIs, controls and supporting regulatory stress submissions).
‰ BMO’s Corporate Risk and Insurance (CR&I) group provides a second layer of mitigation for certain operational risk exposures. CR&I is also
accountable for establishing and maintaining the enterprise-wide insurance program. CR&I purchases insurance when required by law, regulation or
contractual agreement, and when it is economically attractive and practicable to mitigate our risks, to provide adequate protection against
unexpected material loss. The policy structures and coverage provisions of our insurance programs are assessed annually to confirm their alignment
with BMO’s overall risk tolerance.
The following are operational non-financial risks that may adversely affect BMO’s business and financial results.
Anti-Money Laundering, Terrorist Financing and Sanctions Risk
Money laundering, terrorist financing and sanctions risks are associated with laundering the proceeds of crime, financing terrorist activity or violating
economic sanctions by making use of the bank’s products or services. Compliance with applicable anti-money laundering, anti-terrorist financing
(AML/ATF) and sanctions measures is critical for safeguarding BMO, our customers and the financial community. We are committed to managing AML/
ATF and sanctions risks effectively, and complying with the relevant laws and regulations of the jurisdictions in which we operate. The consequences
of non-compliance with these requirements include legal proceedings, financial losses, regulatory enforcement actions, sanctions and fines, criminal
convictions and penalties, operational restrictions or an inability to execute certain business strategies, a decline in investor and customer confidence,
and damage to our reputation. Under the direction of the Chief Anti-Money Laundering Officer (CAMLO), BMO’s enterprise AML/ATF and sanctions
compliance program promotes effective governance and oversight across our businesses, and sets out policies, risk assessments, due diligence
processes, controls, and mandatory annual training for all employees. BMO’s compliance program applies data analytics, technology, and professional
expertise in order to deter, detect and report suspicious activity. BMO has a Know-Your-Customer program which aims to understand its customers
and their financial activities, as well as the beneficial ownership of entities holding BMO products. BMO’s AML program applies enhanced due
diligence measures to high-risk transactional activity and adheres to strict record-keeping requirements. In addition, customers and transactions are
routinely screened against current sanctions, terrorist and other designated watch lists to confirm that only permitted transactions are processed. The
CAMLO reports regularly to the Audit and Conduct Review Committee (ACRC) of the Board of Directors and senior management on the effectiveness of
the compliance program. The effectiveness of our AML/ATF and sanctions compliance program is subject to regular review and independent
assessment by the Corporate Audit Division. BMO monitors evolving AML/ATF and sanctions regulatory requirements in order to further enhance our
AML/ATF and sanctions compliance program, and we are committed to effective compliance and the ongoing effort to protect the financial system.
Artificial Intelligence Risk
AI risk arises from the potential for loss or harm from incorrect or biased use of AI to support business decision-making, risk management or
productivity. AI capabilities available to the industry have been evolving rapidly, creating new opportunities for innovation across a broad range of
products and services. As BMO expands the adoption and use of AI tools to drive operational efficiencies and improve client experience, our objective
is to integrate them into our processes in a responsible manner. In addition to the risks inherent in our own use of AI, these technologies and their
adoption outside of BMO have the potential to impact existing risks such as model, cyber and information security, legal and third-party risks.
Our management and oversight of AI risk, including risks arising from the use of generative AI, are consistent with our RMF, employ our three-
lines-of-defence model and conform to industry standard frameworks, as well as current and evolving regulatory requirements. BMO has
implemented an AI risk directive that outlines a comprehensive governance structure to guide the ethical and responsible development, deployment
and use of AI technologies across the bank. Our risk directive sets consistent risk management standards across the life cycle of each AI initiative,
including expectations for risk assessment, clear documentation, testing, monitoring and change management. Before implementation, significant AI
initiatives are reviewed by the Responsible AI Forum, a cross-functional group, which considers potential risks and adverse impacts, including unfair
or biased output from AI systems, and measures to mitigate such risks. We are committed to serving our customers in a way that fosters confidence
and trust in our fair, secure, transparent and ethical use of these technologies, utilizing our risk management practices, global privacy principles and
internal safeguards, such as oversight, monitoring and testing, to deploy AI responsibly. Our approach to the responsible use of AI, including
generative AI, continues to evolve and adapt to ongoing regulatory developments in the jurisdictions in which we operate.
Business Continuity Risk
Business continuity risk arises from the possibility that we may be unable to maintain, continue or restore essential business operations during and/
or after an event that prevents BMO from conducting business in the normal course.
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Business continuity management is designed to enable BMO to recover, maintain and manage critical processes, as well as safeguard the
interests and well-being of our customers, shareholders and employees. In the event of an operational disruption, effective business continuity plans
aim to minimize adverse impacts on our customers, employees and other stakeholders. These operational disruptions could result from severe
weather, technology failures, cyber attacks or any other event that can lead to process failure. We have a program in place that facilitates the rapid
recovery and timely resumption of critical operations, including availability of our people, processes, facilities and technology, and maintenance of our
third-party relationships. Our comprehensive business continuity management strategy involves developing, testing and maintaining recovery
strategies and plans with the objective of maintaining the resilience of our critical processes and third-party relationships throughout any disruption.
Data and Analytics Risk
Data and analytics risk arises from the potential for loss or harm from the inadequate identification, management, accuracy or timeliness of structured
and unstructured data used to support business processes and decisions.
Our ability to effectively manage critical data has a direct impact on our successful deployment of digital products and our ability to develop and
introduce innovative new capabilities with tools and systems driven by AI. Our governance and management of data and analytics risk is focused on
the quality, resilience, retention and governance of BMO’s data assets, which are foundational to our business operations, strategy and future growth,
including BMO’s digital-first strategy.
Information Security (including Cyber) Risk
Information security (including cyber) risk arises from the possibility that BMO’s business could be materially affected by information security and
cyber incidents, including the loss, theft or misuse of information or data (e.g., client data, employee data and the organization’s proprietary data),
disruption of services, or the potential failure to comply with rules around information or cyber security. BMO is the frequent target of attempted
cyber attacks and must continuously monitor and optimize our systems to protect the confidentiality, integrity and availability of our technology
infrastructure, and the underlying data. Successful cyber attacks may lead to exposure or loss of data, including customer or employee information
and the bank’s strategic or other sensitive internal information, resulting in identity theft, fraud or business losses; system failures and disruption of
services; and exposure to litigation, regulatory risk and reputational harm. Due to our interconnectivity with third-party vendors (and their respective
service providers), central agents, exchanges, clearing houses and other financial institutions, BMO could be adversely impacted if any of these are
subject to a successful cyber attack or other information security event. Impacts could include the loss of access to information or services from the
third party or result in unauthorized access to or disclosure of client, employee or other confidential information, which could negatively impact our
business, brand and reputation.
Our response to these increasing risks involves investing in our Financial Crimes Unit and security infrastructure, equipping our team with the
capability to detect and address current and emerging cyber security threats across North America, Europe, and Asia, in order to protect the
confidentiality, integrity and availability of our systems and information. In addition, we test our resiliency capabilities by conducting simulations and
scenario-based testing. There is a risk that we may not be able to anticipate, detect or implement effective preventive measures against all cyber
threats, as the techniques used are increasingly sophisticated, change frequently and are often not recognized until launched. As a result of these
risks, we could become subject to legal or regulatory action, suffer reputational or operational harm, as well as financial losses that are either not
insured against, or not fully covered through any insurance maintained by BMO.
Internal and External Fraud Risk
Fraud risk arises from the possibility that an intentional act, misstatement or omission designed to deceive others may result in the intended target
experiencing a loss or the perpetrator achieving a gain. Fraud risk is categorized as either internal fraud risk or external fraud risk, with distinct threat
actors and risk landscapes. Internal fraud risk arises from fraudulent activities committed by individuals within the organization, including employees
or contractors, while external fraud risk arises from fraudulent acts perpetrated by parties outside the organization. Fraudsters continue to target the
financial industry with increasingly sophisticated methods that facilitate fraud and remit funds to fraudulent accounts. Banks face ongoing challenges
in detecting and preventing fraud, while balancing customer experience and regulatory expectations. BMO maintains a fraud risk management
program intended to proactively manage fraud risks across the bank. We continue to invest in advanced analytics, data capabilities and controls to
strengthen fraud prevention and mitigation.
Physical Security and Property Risk
The management of physical security and property risk seeks to ensure that the bank, its customers, employees and third parties are protected
against the risk of loss, interference, unauthorized physical access, damage or injury to which they could be exposed as a result of the bank’s
operations. Physical security risks may emerge through various potential threats, including criminal activities, terrorist attacks, sociopolitical unrest,
human error, natural disasters and/or geopolitical threats. Physical security measures may also support the management of other risks, including risks
related to information security, privacy and fraud.
Technology Risk
Technology risk, including risks related to emerging technology and digital platforms, is the possibility that the inadequacy, misuse, disruption or
failure of information technology systems, infrastructure or data could result in an inability to meet business needs. Technology risk management
measures are designed to protect BMO’s systems, data and assets, and help safeguard their confidentiality, integrity and availability. As the adoption
of digital banking channels accelerates, we continue to invest in emerging and innovative technologies to meet our customers’ expectations and keep
their data secure. We follow a program that addresses exposures to technology risk in alignment with our ONFRM program, supported by a team of
technology risk management experts.
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Third-Party Risk
Third-party risk is the risk of loss associated with an entity failing to provide goods, business activities, functions and/or services, failing to protect
data or systems of the bank, or exposing BMO to other negative outcomes.
BMO’s Third-Party Risk Management (TPRM) program sets the requirements for the identification, assessment, management, monitoring,
mitigation and reporting of third-party risk across the third-party life cycle. This program is overseen by the Third-Party Risk Management Committee,
which is a sub-committee of the EORC and supported by a centrally maintained TPRM program. Third-party providers critical to our operations are
monitored for their ability to deliver services to us. We continue to enhance and evolve our capabilities to maintain robust risk management practices,
support operational resilience objectives and comply with regulatory requirements.
For further discussion of third-party risk, refer to the Cyber and Information Security Risk section.
The following are operational non-financial risk drivers that can be an underlying cause or amplifier of other risks that may adversely affect BMO’s
business and financial results.
Culture and Behaviour Risk
Culture and behaviour risk arises from the possibility that our actual culture does not align with BMO’s desired culture. Deviations from our desired
culture could lead to unintended or unwanted behaviours that could prevent the achievement of our expected outcomes.
We have established a culture and behaviour risk program that defines BMO’s approach to culture and behaviour risk management, including risk
culture, in alignment with OSFI’s Regulatory Notice on Culture Risk Management. The program outlines expected outcomes, including BMO’s Culture
and Behaviour Risk governance model, with clear accountabilities and oversight, proactive promotion and reinforcement of BMO’s desired culture and
expected behaviours, and proactive management of risks arising from behavioural patterns that can allow for future predictive assessments.
Payment Risk
Payment risk is the risk of loss or harm arising from failure of a payment or disruption in a payment transaction. Payment risk can occur at any stage
of the End-to-End (E2E) Payment Life Cycle and is intended to be assessed across the enterprise, considering ONFR, credit, liquidity and other risks
that may impact payments.
Management and oversight of payment risk supports BMO’s commitment to offer competitive payment products and services to our customers
with the aim of fostering confidence in our ability to consistently deliver payment products and services, and utilize our robust risk management
practices and internal safeguards to align and comply with regulatory expectations.
Payment risk oversight serves as the second line of defence, responsible for transverse payment risk oversight with a product focus and our
mandate encompasses ongoing oversight of enterprise-wide payment risk management throughout the payment life cycle, as well as operational risk
oversight of financial market infrastructure.
Model Risk
Model Risk is the potential for adverse outcomes resulting from decisions that are based on incorrect or misused model results or reports. These
adverse outcomes can include financial loss, poor business decision-making and damage to our reputation.
BMO uses models in various circumstances to support decision-making, risk management and business operations. A model is a quantitative method,
system or approach that processes input data into quantitative estimates by applying statistical, mathematical, economic, algorithmic or other
advanced techniques such as AI and machine learning (ML). Models range from simple quantitative methods that produce straightforward estimates
to highly sophisticated approaches used to value complex transactions or provide a broad range of forward-looking estimates. Model risk arises from
the use of models that may be flawed, improperly implemented or used outside of their intended purpose, potentially resulting in inaccurate or
unreliable outputs. It also arises from the use of non-modelled approaches, such as model overlays used for key business decision-making.
We are committed to identifying, assessing, measuring, managing and reporting model risk across the enterprise in order to develop and
regularly enhance models that are reliable and used responsibly to drive business and risk outcomes, and support innovation. This is achieved through
a robust, risk-based program that sets clear roles, responsibilities and expectations.
Model Risk Program
The model risk management program sets out an approach for governing model risk across the model life cycle and managing model risk within our
risk appetite.
Initiation &
Identification
1
2
3
6
7
4
Model Life Cycle
Development
Validation
Implementation
Use &
Maintenance
Ongoing
Monitoring
& Validation
Decommission
5
The program applies to all models, ranging from market, credit and non-financial risk models to stress testing, pricing and valuation, as well as anti-
money laundering. It incorporates guidance on the management of risk, the responsible adoption of advances in automated decision-making, such as
large language models and algorithmic trading, and other AI and ML applications. The program is documented through our model risk corporate policy,
model risk guidelines and supporting operating procedures, which outline the governing principles for managing model risk, describe processes in
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detail and define the roles and responsibilities of interested parties. In this program, the first line of defence consists of model owners, developers and
users; the second line of defence is the Model Risk Management group; and the third line of defence is the Corporate Audit Division.
BMO’s Model Risk Management group is responsible for developing and maintaining the program in alignment with regulatory expectations, as
well as overseeing the effectiveness of model processes, the model inventory, and the overall assessment and reporting of model risk. Our Enterprise
Model Risk Management Committee is a sub-committee of the RMC and acts on behalf of the RMC, pursuant to the model risk corporate policy in
order to provide enterprise-wide model and non-model risk management oversight.
Validation and Ongoing Monitoring
All models used within BMO, including those making use of AI, are subject to validation and periodic review to confirm that they are being used in
alignment with our program and in compliance with regulatory expectations, including those related to ethics, privacy, fairness and explainability.
Once models are approved and in use, they are subject to performance monitoring, including outcomes analysis, at varying frequencies. A key
component of this analysis is back-testing, which confirms the validity of a model’s performance over time by comparing model results to actual
observed outcomes.
Caution
This Operational Non-Financial Risk section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
Legal and Regulatory Compliance Risk
Legal and Regulatory Compliance Risk is the potential for loss or harm resulting from failure to comply with laws or satisfy contractual
obligations or regulatory requirements. This includes the risk arising from any failure to: comply with the law (in letter or in spirit) or maintain
standards of care; implement legal or regulatory requirements; enforce or comply with contractual terms; assert non-contractual rights; effectively
manage disputes; or act in a manner so as to maintain our reputation.
The financial services industry is highly regulated and subject to strict enforcement of legal and regulatory requirements. Banks globally continue to
be subject to fines and other penalties for a number of regulatory and conduct issues. We are exposed to risks in connection with regulatory and
governmental inquiries, investigations and enforcement actions, as well as criminal prosecutions. As rulemaking and supervisory expectations
continue to evolve, we monitor developments and implement changes as required.
Under the direction of BMO’s General Counsel, our Legal and Regulatory Compliance group maintains enterprise-wide programs that set out the
steps needed to identify, assess, measure, manage and report exposure to legal and regulatory compliance risk. We identify applicable laws and
regulations and potential risks, recommend mitigation measures and strategies, conduct internal investigations, and oversee legal proceedings and
enforcement actions, including civil claims and litigation, criminal charges, and regulatory examinations and audits.
Working with the operating segments and Corporate Services, Legal and Regulatory Compliance assesses and analyzes the implications of
changes in regulatory and supervisory expectations. We devote substantial resources to the implementation of systems and processes required to
comply with new regulations. Failure to comply with applicable legal and regulatory requirements may lead to legal proceedings, financial losses,
regulatory sanctions or fines, enforcement actions, criminal convictions and penalties, operational restrictions or an inability to execute certain
business strategies, a decline in investor and customer confidence, and damage to our reputation. Certain businesses are also subject to fiduciary
requirements, including policies and practices that address the responsibilities of a business to a customer, such as service requirements and
expectations, customer suitability determinations, disclosure obligations and communications.
BMO is subject to legal proceedings, including reviews and investigations by governments and regulators, arising in the ordinary course of
business. The unfavourable resolution of a legal proceeding could have a material adverse effect on our business, financial condition, results of
operations, cash flows, capital position or credit rating. In addition, it could require material changes in our operations, lead to operational restrictions
or an inability to execute certain business strategies, result in loss of customers and damage our reputation. The volume of legal proceedings and the
amount of damages and penalties assessed in such legal proceedings could grow in the future. Information regarding material legal proceedings to
which we are a party is included in the Legal Proceedings section in Note 24 of the audited annual consolidated financial statements. Our disclosure
controls and procedures are designed to provide reasonable assurance that relevant information is gathered and reported to senior management on a
timely basis, so that appropriate decisions can be made regarding public disclosure. In assessing the materiality of legal proceedings, factors
considered include a case-by-case assessment of specific facts and circumstances, past experience and the opinions of legal experts. However, some
legal proceedings may be highly complex and could involve novel or untested legal claims or theories. The outcome of such proceedings may be
difficult to anticipate until late in the proceedings, which may last several years.
BMO’s Anti-Corruption Office, through its global program, formulates key principles and procedures that support the effective oversight of
compliance with anti-corruption legislation in the jurisdictions in which we operate. These include guidance on identifying, avoiding and reporting
corrupt practices and rigorously investigating allegations of corrupt activity. Evolving competition or antitrust risk is managed globally through BMO’s
Competition/Antitrust Office, which is responsible for the design, implementation and maintenance of a compliance program that supports the
oversight of competition/antitrust laws or regulatory expectations.
Governments and regulators around the world continue to focus on anti-money laundering and related concerns, raising their expectations for
the quality and efficacy of anti-money laundering programs and penalizing institutions that fail to meet these expectations. Failure to meet such
expectations may lead to legal proceedings, financial losses, regulatory sanctions or fines, enforcement actions, criminal convictions and penalties,
operational restrictions or an inability to execute certain business strategies, a decline in investor and customer confidence, and damage to our
reputation. Under the direction of the Chief Anti-Money Laundering Officer (CAMLO), BMO’s Anti-Money Laundering Office is responsible for the
assessment, governance and oversight of the principles and procedures that support the effective oversight of compliance with laws and regulations
and internal risk parameters related to anti-money laundering, anti-terrorist financing and sanctions measures. For further discussion, refer to the
Operational Non-Financial Risk Management – Anti-Money Laundering, Terrorist Financing and Sanctions Risk section.
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BMO has built its reputation on a strong foundation of ethical business practices, a client service culture and our track record of responsible risk
management. We have adopted a wide range of practices, in addition to BMO’s Code of Conduct, to support the ethical conduct of our employees and
Board of Directors and mitigate the risk of potential misconduct. Misconduct is defined as behaviour that falls short of legal, professional, internal
conduct and ethical standards. Acting with integrity and competing ethically and responsibly reinforce our value of maintaining a strong risk culture.
For further discussion, refer to the Risk Management Framework – Risk Culture section.
All of these programs reflect our three-lines-of-defence operating model. The operating segments and Corporate Services, including Technology
and Operations, manage day-to-day risks by implementing and monitoring corporate policies and standards, while Legal and Regulatory
Compliance units specifically assigned to each of the operating segments provide advice and independent legal and regulatory compliance risk
management oversight.
The General Counsel and the Chief Compliance Officer regularly report to the Audit and Conduct Review Committee (ACRC) of the Board of
Directors and senior management on the effectiveness of our enterprise compliance program. The program takes a risk-based approach to identify,
assess, measure, manage and report any risks related to compliance with applicable laws and regulations, and directs operating segments and
Corporate Services to maintain policies, procedures and controls that address these laws and regulations. Under the direction of the Chief Compliance
Officer, we identify and report on gaps and deficiencies, and track remedial action plans.
All BMO employees must regularly complete legal and regulatory training on topics such as anti-corruption, anti-money laundering, competition/
antitrust and privacy policies and standards. This is carried out in conjunction with our Code of Conduct training, which tests employees’ knowledge
and understanding of the behaviour expected of BMO employees.
We continue to respond to other global regulatory developments, including the impact of changes in capital and liquidity requirements. These
developments, which include consumer protection and privacy measures and other specific financial reforms, are discussed further below. For
additional discussion of regulatory developments related to capital management and liquidity and funding risk, refer to the Enterprise-Wide Capital
Management section and the Liquidity and Funding Risk section. For a discussion of the impact of certain other regulatory developments, refer to the
Critical Accounting Estimates and Judgments – Income Taxes and Deferred Tax Assets section, the Tax Legislation and Interpretations section, the
Environmental and Social Risk – Risk Management section and the Other Regulatory Developments section.
Consumer Protection
Consumer protection continues to be a focus for regulators and governments. In Canada, the federal government continues to focus on the cost of
banking, seeking to improve choice and lower costs for consumers. Several provinces are also enhancing protection for consumers by amending their
consumer protection regimes to provide additional disclosures, limit fees and protect consumers from fraudulent transactions. Key consumer
concerns, including fair lending and unfair, deceptive or abusive acts or practices, are now subject to heightened regulatory scrutiny in bank
examination programs. In both Canada and the United States, there is a growing focus on consumer data rights and both jurisdictions have started to
introduce regulatory frameworks for open banking that will require banks to share data, as permitted by consumers, with authorized third parties.
Privacy
Protection of personal information is critical to maintaining the trust of our customers. Our handling of personal information is increasingly important
in light of the introduction of new technologies such as artificial intelligence. There is a growing focus on regulation related to privacy and the use
and safeguarding of personal information, and we continue to advance our privacy program to comply with new and amended legislation in the
jurisdictions where we do business. In Quebec, Law 25 has modernized the province’s private-sector privacy regime, introducing new requirements
related to biometrics, data portability and automated decisions, and giving new powers to regulators to impose monetary administrative penalties.
Outside of Canada, large fines and settlements have been imposed for breaches of privacy rights and failure to comply with regulatory privacy
requirements – evidence of heightened regulatory vigilance and enforcement. In the United States, the California Consumer Privacy Act (CCPA)
includes privacy rights for California residents, and new CCPA regulations have been finalized to include requirements relating to cybersecurity audits
and automated decision-making. Other states have introduced privacy legislation, which is leading to a growing patchwork of privacy laws in the
United States. In the European Union and the United Kingdom, there are ongoing concerns regarding the transfer of personal data to countries lacking
adequate privacy protection. Privacy-related risks, including risks of privacy breaches, have escalated as a result of the threat landscape. For further
discussion, refer to the Top and Emerging Risks That May Affect Future Results – Cyber and Information Security Risk section, the Operational
Non-Financial Risk – Artificial Intelligence Risk section and the Operational Non-Financial Risk – Information Security (including Cyber) Risk section.
U.S. Regulatory Developments
BMO closely monitors U.S. regulatory developments, as new or changing requirements could apply to BMO’s U.S. operations. Recently, U.S. banking
agencies have signalled a shift toward enhancing transparency and refocusing supervision on material financial risks. It is still expected that these
agencies will issue new rules related to capital requirements and the implementation of risk-based capital standards in the Basel III Reforms,
published by the Basel Committee on Banking Supervision (referred to as Basel III Endgame). These rules, if issued, would likely revise the regulatory
capital framework for large bank holding companies and their depository institutions, including BMO Financial Corp. (BFC), BMO’s U.S. holding
company, and BMO Bank N.A. It is currently not clear when the rules will be proposed or issued, and the impact on BMO’s U.S. operations and our
results will depend on the final rules, if issued. We currently do not expect a material change to our enterprise-level funding activities if these rules
are enacted as previously proposed.
BFC is regulated as a Category III firm under the Enhanced Prudential Standards issued by the Federal Reserve Board. Additional information
regarding regulatory requirements that apply to BFC is set out in the Enterprise-Wide Capital Management section.
Caution
This Legal and Regulatory Compliance Risk section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
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Strategic Risk
Strategic Risk is the potential for financial loss or reputational damage stemming from ineffective strategies, challenges in executing chosen
strategies, or inadequate responses to shifts in the business environment, such as market dynamics. Strategic risk also includes corporate structure
and insurance risk.
In recognition of its unique characteristics, strategic risk is classified in BMO’s risk taxonomy as a transverse risk that may manifest itself through
other risk types. Strategic risk arises from the risk that the adoption of enterprise or business strategies may not result in the intended outcome due
to unsound decision-making, ineffective implementation of strategies or failure to address changes in the business environment that could impact the
effective execution of such strategies. This risk is limited through a robust strategic risk program, complemented by stress testing.
BMO’s Corporate Strategy group oversees the strategic planning process and works with the lines of business and Corporate Services to identify,
monitor and mitigate risks across the enterprise. We apply a disciplined strategic risk program that supports consistent strategic planning through a
multi-year, integrated strategic and financial approach, aligned with our enterprise risk appetite.
The program promotes consistency and adherence to management standards, including a consideration of stress testing results in our decision-
making and capital planning. The potential impacts of changes in the business environment, including macroeconomic developments, broader
industry trends, the actions of existing and new competitors and regulatory developments, are considered in this process and inform decision-making
within each line of business. Oversight of strategic risk is the responsibility of the Executive Committee and the Board of Directors. This is carried out
through an annual review of enterprise and operating segment strategies, which involves interactive sessions that challenge assumptions and
strategies in the context of both the current and potential future business environment. Enterprise Risk and Portfolio Management reviews business
strategies to confirm that they are developed and executed in accordance with the Risk Management Framework and are within our established risk
appetite, tolerances and limits. Where required, these strategies are revised to address new or unexpected developments.
Strategic risk also includes business risk arising from specific enterprise activities and the effects these could have on earnings. Within BMO, each
operating segment is responsible for controlling its respective business risk by assessing, managing and mitigating risks. To manage exposure to
transverse business risks (i.e., those spanning multiple lines of business), the Corporate Strategy group works in tandem with the relevant business
partners to develop effective mitigation approaches.
Our ability to implement the strategic plans developed by management influences our financial performance. Performance objectives are
established through the strategic planning process and our progress toward those objectives is monitored regularly and reported on quarterly, using
both leading and lagging indicators of absolute and relative performance, so that strategies can be reviewed and adjusted where necessary. Regular
strategic and financial updates are also reviewed closely in order to identify any significant emerging risk issues.
Insurance Risk
Insurance Risk is the potential for loss as a result of actual experience differing from that assumed when an insurance product was designed and
priced, and comprises claims risk, policyholder behaviour risk and expense risk.
It generally entails the inherent unpredictability that can arise from the assumption of long-term policy liabilities or uncertainty around future events.
Insurance provides protection against the financial consequences of insured risks by transferring those risks to the insurer (under specific terms and
conditions) in exchange for premiums. Insurance risk is inherent in all of our insurance products, comprising life insurance, annuities (which include
the pension risk transfer business), accident and sickness insurance, and creditor insurance, as well as the reinsurance business. Insurance risk
consists of:
‰ Claims risk – the risk that the actual magnitude or frequency of claims will differ from those assumed in the pricing or underwriting process,
including mortality risk, morbidity risk, longevity risk and catastrophic risk.
‰ Policyholder behaviour risk – the risk that the behaviour of policyholders in regard to premium payments, withdrawals or loans, as well as policy
lapses and surrenders and other voluntary terminations, will differ from the behaviour assumed in the pricing process.
‰ Expense risk – the risk that actual expenses arising from acquiring and administering policies and processing claims will exceed the expenses
assumed in the pricing process.
Our risk governance practices provide effective independent oversight and control of insurance risk within our businesses. The insurance risk
management program addresses the identification, assessment, measurement, management and reporting of risks. The program includes: the risk
appetite statement and key risk metrics; insurance risk policies and processes, including limits; capital requirements; stress testing; risk reports; the
Own Risk and Solvency Assessment; and ongoing monitoring of experience. Senior management within the various lines of business uses this
program, serving as the first line of defence and assuming the primary responsibility for managing insurance risk. Second-line-of-defence oversight is
provided by the Chief Risk Officer (CRO), BMO Insurance, who reports to the CRO, Wealth Management. Internal risk committees, the boards of
directors of the BMO Insurance subsidiaries and senior management provide senior governance and review. In particular, the Risk Committee of BMO
Insurance oversees and reports on risk management activities to the insurance companies’ boards of directors on a quarterly basis. In addition, the
Audit and Conduct Review Committee of the Board of Directors acts as the Audit and Conduct Review Committee for BMO Life Insurance Company.
A robust product approval process is a cornerstone of the insurance risk management program, as it identifies, assesses, measures, manages
and reports risks associated with new insurance products or changes to existing products. This process, along with guidelines and practices for
underwriting and claims management, promotes the effective identification, assessment and management of insurance risk. Reinsurance transactions
that transfer or cede insurance risk from BMO Insurance to independent reinsurance companies also mitigate our exposure to insurance risk by
diversifying risk and limiting claims.
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Environmental and Social Risk
Environmental and Social Risk is the potential for loss or harm directly or indirectly resulting from environmental and social factors that impact
BMO or its customers, and BMO’s impact on the environment and society.
Environmental and social (E&S) risk may arise over a range of time frames, from short- to long-term. Factors that may give rise to E&S risk include,
but are not limited to: climate change; pollution and waste; the use of energy, water and other resources; biodiversity and land use; human rights;
talent and inclusion; labour standards; community health, safety and security; land acquisition and involuntary resettlement; Indigenous Peoples’
rights; and cultural heritage. We are furthering our risk identification efforts by defining these factors and identifying risk exposures that may be
affected by the transverse impact of these factors.
Governance
The Board of Directors oversees relevant aspects of E&S risk, in accordance with its mandate and the charters of its standing committees. The Board of
Directors approves the E&S risk appetite statement on the recommendation of the Risk Review Committee (RRC), which also approves the E&S risk
corporate policy, as discussed below. The RRC assists the Board of Directors in meeting its oversight responsibilities for the identification, assessment
and management of our exposure to E&S risk, including risks arising from climate change, and our adherence to risk management corporate policies
and compliance with risk-related regulatory requirements. The Audit and Conduct Review Committee (ACRC) oversees issues related to sustainability
governance and disclosure, and approves our annual Sustainability and Climate Report. The Audit and Conduct Review Committee and Risk Review
Committee jointly review climate-related targets and BMO’s Climate Transition Action Plan. The Human Resources Committee oversees and monitors
compensation principles and policies, and their alignment with risk management and sustainability, including climate change. The Governance and
Nominating Committee regularly reviews the charters of our Board of Directors and its committees to assess alignment of their responsibilities for
overseeing sustainability issues within their respective mandates.
Senior management oversees E&S risk through management committees and forums that provide oversight, receive updates on sustainability
matters and E&S risk, and support a coordinated, enterprise-wide approach to sustainability governance. These committees include, but are not
limited to, Disclosure Committee, Risk Management Committee (RMC), E&S Risk Committee (a subcommittee of RMC), Reputation Risk Management
Committee (RRMC), Enterprise Regulatory Committee, and BMO Global Asset Management Investment Committee. Our Environmental, Social and
Governance (ESG) Executive Committee comprises Executive Committee members and provides oversight of our sustainability strategy and Climate
Ambition. In addition to the ESG Executive Committee, BMO has a Sustainability Council which acts as a leadership forum for dialogue on sustainability
efforts. Additional committees, forums and working groups are established as needed. In addition, the Board of Directors and any management
committees active in other jurisdictions receive updates and oversee E&S risk for the relevant jurisdiction, as well as receive updates on sustainability
matters and E&S risk across the enterprise. We engage with stakeholders, including clients, investors and civil society, to inform our E&S risk practices
and disclosures.
The Chief Risk Officer (CRO), as Head of Enterprise Risk and Portfolio Management (ERPM), and supported by the risk leadership team, acts as
the second line of defence in regard to E&S risk, including climate risk, and its transverse impacts on credit and counterparty, market, liquidity and
funding, and operational non-financial risks; oversees risk appetite in the context of these risks; and reports on E&S risk to the RMC, RRC and Board
of Directors.
BMO’s General Counsel, as Head of Legal and Regulatory Compliance (LRC) and supported by the LRC leadership team, acts as the second line of
defence for E&S-related risks, including climate risk and its transverse impacts on legal and regulatory compliance risk and reputation risk; and is
accountable for BMO’s exposure to these risks and business conduct and ethics. The Group Head of Canadian Commercial Banking and North American
Integrated Solutions and Co-Head of Canadian Personal and Commercial Banking is the Executive Committee sponsor for sustainability and Chair of the
BMO Climate Institute, overseeing the bank’s sustainability strategy and approach to topics such as sustainability disclosure, sustainability-related
advisory support to operating segments, external sustainability-related stakeholder relations and thought leadership, as well as the bank’s Enterprise
Accessibility Office, Office of Reconciliation and Climate Institute. The Chief Sustainability Officer leads the Sustainability Office and advises the General
Counsel on E&S risk related to legal and regulatory compliance risk and reputation risk.
Risk Management
We seek to understand the impact that E&S risk factors could have on the business environment, as well as on our clients, and our portfolio and
operations, in order to make informed strategic decisions.
Our E&S risk corporate policy, applicable to all BMO employees, underscores the Board of Directors’ commitment to managing E&S risk at a level
consistent with the management of other top risks, in compliance with applicable regulations. The E&S risk corporate policy supports a more
comprehensive integration of E&S risk considerations into and across our existing Risk Management Framework (RMF), and improves our ability to
identify, assess, measure, manage and report E&S risk, including risks arising from climate change. This policy is supported by BMO’s three-
lines-of-defence operating model and underpinned by our risk culture. The E&S risk corporate policy is complemented by two enterprise-wide policy
documents: a Climate Risk Corporate Standard to enable ongoing integration of climate risk considerations across the bank’s current RMF, facilitate
effective management of climate risk and define roles and responsibilities across the enterprise; and a second-line E&S RMF directive providing
greater clarity and detail regarding the management of E&S risk. Our E&S risk program supports ongoing implementation of the policy and standard.
We have updated our risk taxonomy to define the E&S factors that may give rise to E&S risk. We have a risk appetite statement for E&S risk,
inclusive of climate risk, comprised of a qualitative statement and risk appetite metrics and limits. We also have an E&S risk aggregate report and a
climate risk dashboard.
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E&S risk is addressed in key policy documents, including those comprising our credit risk program, which contain provisions for governance and
accountabilities, enhanced due diligence and thresholds for escalations or exceptions. Sector-specific financing guidelines help us to identify and
manage the bank’s exposure to E&S risk in higher-risk sectors and integrate consideration of these risks into our decision-making, which also
considers factors such as climate change and consultation with Indigenous Peoples.
The E&S Risk General Financing Guideline outlines the bank’s risk appetite with respect to E&S and climate-related risks, and provides guidance
on how to identify, assess, measure and manage these risks in the context of wholesale lending. We apply enhanced due diligence to transactions
with clients that operate in environmentally-sensitive industries, including through our Environmental and Social Risk Rating Assessment tools for
petroleum, mining, and utilities and power generation projects. Transactions involving significant environmental or social concerns may be escalated
to the RRMC for consideration.
We continue to assess the credibility, reliability, comparability and decision-making usefulness of various measurement, assessment and
reporting approaches, as well as the ways in which we could incorporate these into our E&S risk management program and associated disclosures. To
remain informed about emerging E&S risks, we participate in global forums with other financial institutions and maintain open dialogue with other
external parties.
Human Rights and Codes of Conduct
The E&S risk corporate policy defines E&S risk with reference to multiple factors that may give rise to E&S risk, including human rights, talent and
inclusion, labour standards and Indigenous Peoples’ rights. We outline our approach in our Statement on Human Rights, Code of Conduct, Supplier
Code of Conduct and Statement Against Modern Slavery and Human Trafficking. Through these statements, codes, policies and practices, we affirm
BMO’s support for the International Bill of Human Rights, the United Nations Universal Declaration of Human Rights, the International Covenant on
Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights, and the principles and eight core conventions of the
International Labour Organization.
BMO’s anti-money laundering program, which is intended to prevent the use of BMO’s financial products and services for the purposes of money
laundering, terrorist financing or facilitating sanctioned activities, also seeks to identify the risks associated with human trafficking and modern
slavery. BMO is committed to respecting human rights and stands against all forms of modern slavery (a term that encompasses forced labour, child
labour and human trafficking), and we report annually on the steps we take to prevent and mitigate the risks associated with modern slavery in our
supply chain.
BMO’s Code of Conduct has been approved by our Board of Directors and supports our commitment to manage our business responsibly.
We engage with Indigenous customers, colleagues and communities across three themes – education, employment and economic
empowerment. BMO recognizes the importance of Free, Prior and Informed Consent (FPIC), along with the rights of Indigenous Peoples to participate
in decision-making, and integrates FPIC in our risk management policies and processes. We also offer internal Indigenous cultural competency and
shared history training, including on FPIC, for BMO employees.
Regulatory Developments
E&S risk-related regulations, frameworks and guidance are rapidly evolving, and we continue to monitor such developments in the jurisdictions where
we operate, updating our compliance programs, risk management practices and disclosures as necessary.
We are participating in programs and consultations that focus on risk management and disclosures related to sustainability, as well as trends in
climate-related litigation. Globally, we are also tracking developments in formal supervisory regulatory frameworks that govern the analysis and
reporting of risks related to sustainability and climate change, including frameworks in Canada, the United States, the United Kingdom and the
European Union. In addition, current and emerging regulatory regimes in the United States may restrict or penalize the imposition of environmental
standards that exceed the legal or regulatory requirements of the states to which they apply. Trends in litigation and regulatory investigation are
evolving, and legislation and regulatory guidance pertaining to disclosure practices or financing activities related to climate or sustainability matters,
as well as allegations of “greenwashing”, continue to evolve. We are monitoring these trends and assessing their potential impact in the context of
BMO’s climate-related sustainable financing and responsible investment activities, environmental and social risk management, and disclosure
practices related to climate or sustainability matters.
OSFI’s Guideline B-15, Climate Risk Management establishes OSFI’s expectations related to banks’ governance, management and disclosure of
climate-related risks. BMO’s disclosures to meet OSFI’s climate-related financial disclosure expectations, as set out in Guideline B-15, are found in
our 2024 Sustainability and Climate Reporting.
In June 2024, Bill C-59 introduced amendments to the Competition Act (Canada) regarding environmental claims (commonly referred to as
“greenwashing”). In June 2025, the Competition Bureau of Canada issued final guidelines pertaining to greenwashing, providing guidance on how
businesses should make environmental claims. On June 20, 2025, a new private right of action came into effect, whereby private parties can apply
directly to the Competition Tribunal to challenge certain types of anti-competitive conduct, including greenwashing.
In October 2025, the U.S. Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC) and Federal Reserve Board
(FRB) announced the withdrawal of the interagency principles for climate-related financial risk management for large financial institutions; the
principles were jointly issued by the OCC, FDIC and FRB in October 2023. We continue to manage the risks associated with climate change consistent
with the agencies’ expectation that BMO maintain a sound RMF commensurate with the size, complexity and risk of its activities.
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Climate Risk
Risk Management
Climate risk is the risk of potential adverse impacts from climate change or from efforts to mitigate climate change, their related effects, and their
financial and non-financial consequences. Climate risk is categorized as either physical risk or transition risk. Physical risks are associated with a
changing climate, which can have both acute and chronic physical effects. These risks may include an increase in the frequency and intensity of
weather-related events, such as storms, floods, wildfires and heatwaves, or longer-term changes, such as temperature changes, rising sea levels and
changes in soil productivity. To date, key climate change indicators, weather-related events and associated scientific research indicate that global
exposure to climate change risks is accelerating. Transition risks are associated with the shift to a lower greenhouse gas (GHG) economy. These
risks may arise from climate-related policy, technological and behavioural changes involving carbon-pricing mechanisms, or a shift in consumer
preferences toward lower-carbon products and services. We continue to closely monitor these changes, some of which may unfold more rapidly
than others as consumers, clients, investors, governments and communities act to enhance their resilience to climate-related risks.
BMO has integrated climate risk considerations across the bank’s RMF and has been compliant with OSFI’s Guideline B-15 since October 31, 2024.
We have a climate scenario analysis program in place that leverages existing risk capabilities in combination with climate-specific expertise, tools
and data. This program includes the evaluation of both physical and transition risks through comprehensive climate-based scenarios across portfolios
and risk types. Scenario analysis also considers integration of climate impacts at the enterprise level through an integrated loss assessment that
is considered as part of the bank’s Internal Capital Adequacy Assessment Process. These analyses help to identify potential exposures to and
concentrations of short-, medium- and long-term climate risks and may inform our business strategy.
BMO’s Climate Ambition
Our Climate Ambition is to be our clients’ lead partner in their transition to a net zero world. We have developed a Climate Transition Action Plan that
outlines the enterprise-wide and sector-specific steps we are taking to manage risks and capture opportunities in the transition to a lower GHG
economy, as well as the metrics and targets we use to track our progress. Action takes place across our value chain, including our upstream supply
chain, our own operations and downstream financing activity.
Our climate commercialization strategy seeks to capture opportunities by partnering with our clients to achieve their decarbonization objectives.
We aim to be responsive to market demand for financing solutions that help our clients adopt economically viable technologies and processes to
reduce GHG emissions and/or enhance climate resilience, and that fall within the bank’s risk appetite. The strategy is coordinated across operating
segments, overseen by the ESG Executive Committee, implemented through the Climate Commercialization Forum and supported by the BMO Climate
Institute, which coordinates climate action both across the bank and externally.
Our Corporate Real Estate team implements an operational efficiency program that seeks to reduce GHG emissions in an economical way and,
where possible, reduces operational costs over time.
A more detailed discussion of BMO’s Climate Ambition can be found in our 2024 Sustainability and Climate Reporting.
Caution
This Environmental and Social Risk section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
Reputation Risk
Reputation Risk is the potential for loss or harm to the BMO brand or reputation. It may arise even if other risks are managed effectively.
Reputation risk is classified in BMO’s risk taxonomy as a transverse risk that may manifest itself through other risk types. Our reputation is built on
our commitment to high standards of business conduct and is one of our most valuable assets. By protecting and maintaining our reputation, we
safeguard our brand, increase shareholder value, reduce our cost of capital, improve employee engagement and preserve our customers’ loyalty
and trust.
We manage risks to our reputation by considering the potential reputational impact of all business activities, including strategy development and
implementation, transactions and initiatives, data and technology use (including artificial intelligence), product and service offerings, and events or
incidents that impact BMO, as well as day-to-day decision-making and conduct. We consider our reputation in everything we do.
BMO’s Code of Conduct is the foundation of our ethical culture, and it provides employees with guidance on the behaviour that is expected of
them, so that they can make the right choices when making decisions. Ongoing reinforcement of the commitments set out in the Code of Conduct
mitigates risks to our reputation that may result from inappropriate behaviour or poor decision-making. We actively promote a culture in which
employees are encouraged to raise concerns and are supported in doing so, with zero tolerance for retaliation.
We manage reputation risk in accordance with our corporate governance practices and Risk Management Framework. We use quantitative
metrics, including the impact to BMO’s brand, client and employee confidence and long-term stability to monitor BMO’s reputation and assess risk.
We seek to identify business activities and events that could impact our reputation with customers, regulators or other stakeholders. Where we
identify a potential risk to our reputation, we take steps to assess and manage that risk. Instances of significant reputation risk are escalated to the
Reputation Risk Management Committee for review.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Accounting Matters and Disclosure and Internal Control
Critical Accounting Estimates and Judgments
The most significant assets and liabilities for which we must make estimates and judgments include the allowance for credit losses; financial
instruments measured at fair value; pension and other employee future benefits; impairment of securities and investments in associates and joint
ventures; income taxes and deferred tax assets; goodwill and intangible assets; insurance contract liabilities; provisions, including legal proceedings
and restructuring charges; transfers of financial assets; and consolidation of structured entities (SEs). We make judgments in assessing the business
model for financial assets, as well as whether substantially all risks and rewards have been transferred in respect of transfers of financial assets and
whether we control SEs, as discussed in Notes 5 and 6, respectively, of the audited annual consolidated financial statements. Note 17 of the audited
annual consolidated financial statements provides further details on the estimates and judgments made in determining the fair value of financial
instruments. If actual results were to differ from the estimates, the impact would be recorded in future periods.
By their very nature, the estimates and judgments we make for the purposes of preparing our consolidated financial statements relate to matters
that are inherently uncertain. However, we have detailed policies and internal controls in place that are intended to ensure the judgments made in
estimating these amounts are well-controlled and independently reviewed, and that our policies are consistently applied from period to period. We
believe that our estimates of the value of our assets and liabilities are appropriate as at October 31, 2025.
For a more detailed discussion of the use of estimates, refer to Note 1 of the audited annual consolidated financial statements.
Allowance for Credit Losses
The allowance for credit losses primarily consists of allowances for impaired loans and allowances for performing loans. Our approach to establishing
and maintaining the allowance on performing loans is based on the requirements of IFRS 9, Financial Instruments (IFRS 9), and considers the
guideline issued by OSFI. Under the IFRS 9 expected credit loss (ECL) methodology, an allowance is recorded for expected credit losses on financial
assets, regardless of whether there has been an actual loss event. In particular, the ECL requirements of IFRS 9 incorporate the following elements
that are subject to a high level of judgment: measuring 12-month and lifetime credit losses; determining when a significant increase in credit risk has
occurred; forecasting forward-looking information for multiple scenarios and determining the probability weighting of each scenario; and the
application of experienced credit judgment.
ECL is calculated on a probability-weighted basis, based on four economic scenarios, and is calculated for each exposure in the portfolio as a
function of the probability of default (PD), exposure at default (EAD) and loss given default (LGD), with the timing of the loss also considered. Where
there has been a significant increase in credit risk, lifetime ECL is recorded; otherwise, 12 months of ECL is generally recorded. Determining a
significant increase in credit risk involves consideration of many different factors that will vary by product and risk segment. The principal factors
considered in making this determination are the change in PD since origination and certain other criteria, such as 30-day past due and watchlist
status. We may apply experienced credit judgment to reflect factors not captured in the results produced by the ECL models, as we deem necessary.
We apply experienced credit judgment to reflect the impact of the uncertain environment on credit conditions and the economy. We have controls
and processes in place to govern the ECL process, including judgments and assumptions used in determining the allowance on performing loans.
These judgments and assumptions will change over time, with the impact of any such change recorded in future periods.
In establishing our allowance on performing loans, we attach probability weightings to economic scenarios that are representative of our view of
economic and market conditions at the reporting date. The base scenario represents our view of the most probable outcome, as well as upside,
downside and severe downside scenarios, all of which have been developed by our Economics group.
The allowance on performing loans is sensitive to changes in economic forecasts and the probability weight assigned to each forecast scenario.
When changes in economic performance in the forecasts are measured, we use real GDP as the basis, which acts as the key driver for movements in
many of the other economic and market variables used, including equity market and volatility indices, corporate credit spreads, unemployment rates,
housing prices and consumer credit. In addition, we consider industry-specific variables, where applicable. Many of the variables have a high degree
of interdependency, and as such, there is no single variable to which the allowance is sensitive. Holding all else constant, as economic variables
worsen, the allowance on performing loans would increase and conversely, as variables improve, the allowance would decrease. Assuming all
variables are held constant, an increase in loan balances or a deterioration in the credit quality of the loan portfolio would each drive an increase in
the allowance on performing loans.
Information on the provision for credit losses for the years ended October 31, 2025 and 2024 can be found in the Total Provision for Credit Losses
section. Additional information on the process and methodology for determining the allowance for credit losses can be found in the discussion of
Credit and Counterparty Risk, as well as in Note 3 of the audited annual consolidated financial statements.
Financial Instruments Measured at Fair Value
We record assets and liabilities classified as held for trading, assets and liabilities designated at fair value, derivatives, certain equity and debt
securities and securities sold but not yet purchased at fair value. Fair value represents the amount that would be received on the sale of an asset or
paid on the transfer of a liability in an orderly transaction between willing parties at the measurement date. We employ a fair value hierarchy based
on inputs we use in valuation techniques to measure the fair value of our financial instruments. The extent of our use of quoted market prices
(Level 1), internal models with observable market information (Level 2) and internal models with one or more significant unobservable market inputs
(Level 3) in the valuation of loans, securities, derivatives, certain other assets and liabilities recorded at fair value as at October 31, 2025 and
October 31, 2024 is disclosed in Note 17 of the audited annual consolidated financial statements. For instruments that are valued using models, we
consider all reasonable available information and maximize the use of observable market data.
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Valuation Product Control (VPC), a group independent of the trading lines of business, seeks to ensure that the recorded fair values of financial
instruments are materially accurate by:
‰ Developing and maintaining valuation policies, procedures and methodologies in accordance with International Financial Reporting Standards (IFRS)
and regulatory requirements.
‰ Establishing official rate sources for valuation data inputs.
‰ Providing independent review of portfolios for which prices supplied by traders are used for valuation.
When VPC determines that adjustments to valuations are needed to better reflect fair value estimates based on data inputs from official rate
sources, the adjustments are subject to review and approval by the Valuation Steering Committee (VSC).
The VSC is our senior management valuation committee. It meets at least monthly to address the more challenging valuation issues related to
our portfolios, approves valuation methodology changes as needed to enhance the reliability of our fair value estimates, and is a key forum for
the discussion of sources of valuation uncertainty and how these are being addressed by management. Certain financial instruments, including
corporate equities, are valued by the respective business groups. Senior management oversees our valuation processes through various valuation
and risk committees.
As at October 31, 2025, total valuation adjustments were a net decrease in value of $139 million for financial instruments carried at fair value
on the Consolidated Balance Sheet (net decrease of $268 million as at October 31, 2024).
Pension and Other Employee Future Benefits
Our pension and other employee future benefits expense is calculated by independent actuaries using assumptions determined by management.
Differences between actual experience and the assumptions used are recognized in other comprehensive income.
The calculation of pension and other employee future benefits expense, plan assets and defined benefit obligations depends on various
assumptions such as discount rates, healthcare cost trend rates, projected salary increase rates, retirement age and mortality rates. These
assumptions are management’s best estimate based on relevant historical experience in conjunction with market-related data and reviewed by
actuaries. We determine discount rates at each year-end for all plans, using high-quality corporate bonds with terms matching the plans’ specific
cash flows.
Additional information regarding accounting for pension and other employee future benefits, including a sensitivity analysis for key assumptions,
is included in Note 21 of the audited annual consolidated financial statements.
Impairment of Securities and Investments in Associates and Joint Ventures
Debt securities measured at amortized cost or fair value through other comprehensive income (FVOCI) are assessed for impairment using the
expected credit loss model. For securities determined to have low credit risk, the allowance for credit losses is measured at an amount equal
to 12-month ECL.
We review our investments in associates and joint ventures, included within other assets, at each quarter-end reporting period in order to
identify and evaluate any investments that show indications of possible impairment. For these investments, objective evidence of impairment may
include, among other factors, a significant or prolonged decline in fair value to an amount below their cost.
Additional information regarding our accounting for debt securities measured at amortized cost or FVOCI and allowance for credit losses,
investments in associates and joint ventures, and the determination of fair value is included in Notes 2, 11 and 17 of the audited annual consolidated
financial statements.
Income Taxes and Deferred Tax Assets
Our approach to tax matters is guided by our Statement on Tax Principles, elements of which are described below, and governed by our Tax Risk
Management Framework, which is implemented through internal controls and processes. We operate with due regard to risks, including tax and
reputation risks. We actively seek to identify, assess, measure, manage and report any tax risks that may arise in order to understand our financial
exposure to those risks. Our intention is to comply fully with tax laws. We consider all applicable laws in connection with our commercial activities,
and where tax laws change in our business or for our customers, we adapt and make adjustments accordingly. We monitor applicable tax-related
developments, including legislative proposals, case law and guidance from tax authorities. When an interpretation or application of tax laws is not
clear, we take well-reasoned positions based on available case law and administrative positions of tax authorities, and we engage external advisors,
when necessary. We do not engage in tax planning that does not have commercial substance, and we do not knowingly work with customers we
believe use tax strategies to evade taxes. We are committed to maintaining productive relationships and cooperating with tax authorities on all tax
matters. We seek to resolve disputes in a collaborative manner; however, when our interpretation of tax law differs from that of tax authorities, we
are prepared to defend our position.
The provision for income taxes is calculated based on the expected tax treatment of transactions recorded in either our Consolidated Statement
of Income, Consolidated Statement of Comprehensive Income or Consolidated Statement of Changes in Equity. In determining the provision for
income taxes, we interpret tax legislation, case law and administrative positions in numerous jurisdictions and, based on our judgment, record the
estimate of the amount required to settle tax obligations. We also make assumptions about the expected timing of the reversal of deferred tax assets
and liabilities. If our interpretations and assumptions differ from those of tax authorities, or if the timing of reversals is not as expected, the provision
for income taxes could increase or decrease in future periods. The amount of any such increase or decrease cannot be reasonably estimated.
Deferred tax assets are recognized only when it is probable that sufficient taxable profit will be available in future periods against which
deductible temporary differences or unused tax losses and tax credits may be utilized. We are required to assess whether it is probable that deferred
tax assets will be realized. The factors used to assess the probability of realization are past experience of income and capital gains, forecasts of future
net income before taxes, and the remaining expiration period of tax loss carryforwards and tax credits. Changes in our assessment of these factors
could increase or decrease the provision for income taxes in future periods.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Canadian tax authorities have reassessed us for additional income tax and interest in an amount of approximately $1,465 million in respect of
certain 2011-2018 Canadian corporate dividends. These reassessments denied certain dividend deductions on the basis that the dividends were
received as part of a “dividend rental arrangement”. In general, the tax rules raised by Canadian tax authorities were prospectively addressed in
the 2015 and 2018 Canadian federal budgets. We filed Notices of Appeal with the Tax Court of Canada and the matter is in litigation. We remain of
the view that our tax filing positions were appropriate and intend to challenge all reassessments. However, if such challenges are unsuccessful, the
additional expense would negatively impact net income.
Additional information regarding accounting for income taxes is included in Note 22 of the audited annual consolidated financial statements.
Goodwill and Intangible Assets
Goodwill is assessed for impairment at least annually. This assessment includes a comparison of the carrying values and the recoverable amounts of
the cash-generating units (CGUs) to which goodwill has been allocated, in order to determine whether the recoverable amount of each CGU is greater
than its carrying value. If the carrying value of the CGU was to exceed its recoverable amount, an impairment calculation would be performed. The
recoverable amount of a CGU is the higher of its fair value less costs to sell and its value in use.
Fair value less costs to sell has been used to perform the impairment tests in all periods. In determining fair value less costs to sell, we employ a
discounted cash flow model, consistent with those we use when we acquire a business. This model is dependent on assumptions related to revenue
growth, discount rates, synergies achieved on acquisition and the availability of comparable acquisition data. Changes in any of these assumptions would
affect the determination of fair value for each CGU in a different manner. We exercise judgment and make assumptions in determining fair value less costs
to sell, and differences in judgment and assumptions could affect the determination of fair value and any resulting impairment.
As at October 31, 2025 and October 31, 2024, no goodwill impairment was recorded as a result of this annual assessment, as the estimated fair
value of the CGUs was greater than their carrying value. As noted in the Non-GAAP and Other Financial Measures section, we recorded a write-down
in goodwill related to the announced sale of 138 branches in select U.S. markets.
Intangible assets with a definite life are amortized to income on either a straight-line or an accelerated basis over a period not
exceeding 15 years, depending on the nature of the asset. We test definite-life intangible assets for impairment when circumstances indicate that the
carrying value may not be recoverable.
Indefinite-life intangible assets are tested annually for impairment. If any indefinite-life intangible assets are determined to be impaired,
we write them down to their recoverable amount, which is the higher of value in use and fair value less costs to sell, when this is less than the
carrying value.
Additional information regarding goodwill and intangible assets is included in Note 10 of the audited annual consolidated financial statements.
Insurance Contract Liabilities
Insurance contract liabilities represent estimates of fulfilment cash flows, which include a risk adjustment, and the contractual service margin (CSM).
Fulfilment cash flows include estimates of future cash flows related to the remaining coverage period and for previously incurred claims, which are
then discounted and probability weighted. This is based on non-financial risk assumptions including mortality, policy lapses and expenses, which are
based on a combination of industry and entity specific data, and in the case of expenses, on historical analysis of which expenses are attributable to
insurance operations. These assumptions are reviewed at least annually and updated to reflect actual experience and market conditions. The CSM is a
component of the liability representing the unearned profit we recognize as we provide services.
Additional information regarding insurance contract liabilities is included in Note 14 of the audited annual consolidated financial statements.
Provisions
Provisions are recognized if, as a result of a past event, we have a present legal or constructive obligation that can be estimated reliably and it is
probable that an outflow of economic benefits will be required to settle the obligation. Provisions are recorded at the best estimate of the amount
required to settle an obligation as at the balance sheet date, taking into consideration the risks and uncertainties associated with the obligation.
For example, BMO and its subsidiaries are involved in various legal actions in the normal course of business. Factors considered in estimating any
obligation related to these legal actions include a case-by-case assessment of specific facts and circumstances, past experience and the opinions of
legal experts. Management and external experts are involved in estimating any provision. Certain provisions also relate to restructuring initiatives that
we have undertaken. These provisions are recorded at management’s best estimate of the amounts that will ultimately be paid out.
The actual costs of settling some obligations may be substantially higher or lower than the amount of the provisions.
Additional information regarding provisions is included in the Legal and Regulatory Compliance Risk section and in Note 24 of the audited annual
consolidated financial statements.
Transfers of Financial Assets
We sell Canadian residential and commercial mortgages to third-party Canadian securitization programs, including the Canada Mortgage Bond
Program, and directly to third-party investors under the National Housing Act Mortgage-Backed Securities program.
We also purchase or originate certain commercial mortgage loans that are subsequently sold and derecognized, and we purchase U.S.
government agency collateralized mortgage obligations (CMOs) issued by third-party sponsored vehicles, which we may further securitize by
repackaging into new CMOs prior to selling them to third-party investors.
We assess whether substantially all of the risks and rewards of, or control over, the assets have been transferred in order to determine whether
they qualify for derecognition. Where we have transferred substantially all of the risks and rewards of ownership, the assets are derecognized. Where
we continue to be exposed to substantially all of the prepayment, interest rate and/or credit risk associated with the securitized assets, they do not
qualify for derecognition. We continue to recognize the assets and the related cash proceeds as secured financing in our Consolidated Balance Sheet.
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Where we have neither transferred nor retained substantially all of the risks and rewards, we derecognize the asset only if we no longer control it.
If we have retained control, we continue to recognize the transferred assets to the extent of our continuing involvement.
Consolidation of Structured Entities
In the normal course of business, we enter into arrangements with SEs as described in the Off-Balance Sheet Arrangements section. We are required
to consolidate a SE if we control the SE. We control a SE when we have power over it, exposure or rights to variable returns as a result of our
involvement and the ability to exercise power to affect the amount of those returns. For certain SEs, we exercise judgment in determining whether
we control the entity.
Additional information concerning our interests in SEs is included in the Off-Balance Sheet Arrangements section, as well as in Note 6 of the
audited annual consolidated financial statements.
Caution
This Critical Accounting Estimates and Judgments section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
Future Changes in Accounting Policies
Amendments to the Classification and Measurement of Financial Instruments
In May 2024, the International Accounting Standards Board (IASB) issued Amendments to the Classification and Measurement of Financial
Instruments, which amended IFRS 9, Financial Instruments (IFRS 9) and IFRS 7, Financial Instruments: Disclosures. These amendments clarify how to
assess the contractual cash flow characteristics of financial assets that include contingent features, and the treatment of non-recourse assets and
contractually-linked instruments. The amendments also introduce an accounting policy choice to derecognize certain financial instruments settled,
using an electronic payment system before the settlement date, if certain conditions are met. The amendments will be effective for our fiscal year
beginning November 1, 2026. To meet the requirements of the amendments, we have established an enterprise-wide project and are currently
evaluating the impact of adoption.
IFRS 18 Presentation and Disclosure in Financial Statements
In April 2024, the IASB issued IFRS 18, Presentation and Disclosure in Financial Statements (IFRS 18), which will replace IAS 1, Presentation of
Financial Statements, and will be effective for our fiscal year beginning November 1, 2027. In order to meet the requirements of IFRS 18, we have
established an enterprise-wide project and are currently evaluating the impact of adoption. IFRS 18 will modify the formatting of our Consolidated
Statement of Income with the presentation of income and expenses under three categories (operating, investing and financing), based on our main
business activities and the addition of certain new subtotals. IFRS 18 also requires that certain management performance measures be included as a
note in our consolidated financial statements.
Caution
This Future Changes in Accounting Policies section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.
Other Regulatory Developments
We continue to monitor and prepare for other regulatory developments, including those referenced elsewhere in this MD&A.
For a comprehensive discussion of other regulatory developments, refer to the Enterprise-Wide Capital Management section, the Risks That May
Affect Future Results section, the Liquidity and Funding Risk section, and the Legal and Regulatory Compliance Risk section.
Transactions with Related Parties
In the normal course of business, we provide banking services to key management personnel on the same terms that we offer these services to
preferred customers. Key management personnel are those persons having authority and responsibility for planning, directing and/or controlling the
activities of an entity, being the directors and the most senior executives of the bank. Banking services are provided to joint ventures and equity-
accounted investees on the same terms that we offer these services to our customers. We also offer employees a subsidy on annual credit card fees.
Details of our investments in joint ventures and associates and the compensation of key management personnel are disclosed in Note 27 of the
audited annual consolidated financial statements.
BMO Financial Group 208th Annual Report 2025 111
MANAGEMENT’S DISCUSSION AND ANALYSIS
Shareholders’ Auditors’ Services and Fees
Review of Shareholders’ Auditors
The Audit and Conduct Review Committee (ACRC) of the Board of Directors is responsible for the appointment, compensation and oversight of the
shareholders’ auditors, and conducts an annual assessment of the performance and effectiveness of the shareholders’ auditors, considering factors
such as: the quality of the services provided by the engagement team of the shareholders’ auditors during the audit period; the qualifications,
experience and geographic reach relevant to serving BMO Financial Group; the quality of communications received from the shareholders’ auditors;
and the independence, objectivity and professional skepticism of the shareholders’ auditors.
The ACRC has a robust review process in place to monitor audit quality and oversee the work of the shareholders’ auditors, including the lead audit
partner, which includes:
‰ Annually reviewing the audit plan in two separate meetings, including a consideration of the impact of business risks on the audit plan and an
assessment of the reasonableness of the audit fee
‰ Reviewing the qualifications of the senior engagement team members
‰ Monitoring the execution of the audit plan of the shareholders’ auditors, with a focus on the more complex and challenging areas of the audit
‰ Reviewing and evaluating the audit findings, including during in-camera sessions
‰ Evaluating audit quality and performance, including recent Canadian Public Accountability Board (CPAB) and Public Company Accounting Oversight
Board (PCAOB) inspection reports on the shareholders’ auditors and their peer firms
‰ At a minimum, holding quarterly meetings with the chair of the ACRC and the lead audit partner to discuss audit-related issues independently
of management
‰ Performing a comprehensive review of the shareholders’ auditors every five years, and performing an annual review in the years between these
comprehensive reviews, following the guidelines set out by the Chartered Professional Accountants of Canada (CPA Canada) and the CPAB.
The most recent comprehensive review of the shareholders’ auditors by the ACRC was completed in 2025. This comprehensive review was based on
the latest recommendations of CPA Canada and the CPAB, and focused on: (i) the independence, objectivity and professional skepticism of the
shareholders’ auditors; (ii) the quality of the engagement team; and (iii) the quality of communications and interactions with the shareholders’
auditors. As a result of the review, the ACRC was satisfied with the performance of the shareholders’ auditors.
Independence of the shareholders’ auditors is overseen by the ACRC in accordance with BMO’s Auditor Independence Standard. The ACRC
considered the risks and benefits of audit firm rotation, including reports issued by the CPAB and CPA Canada. The ACRC concluded that existing
requirements, including audit firm review and audit team member rotation, ensure auditor independence while maintaining and enhancing audit
quality, which may be impaired by audit firm rotation. The ACRC also confirmed that the lead audit partner rotates out of that role after five
consecutive years and does not return to that role for a further five years.
Pre-Approval Policies and Procedures
As part of BMO Financial Group’s corporate governance practices, the ACRC oversees the application of its policy limiting the services provided by the
shareholders’ auditors that are not related to their role as auditors. All services must comply with BMO’s Auditor Independence Standard, as well as
professional standards and securities regulations governing auditor independence. The ACRC pre-approves the types of services (permitted services)
that can be provided by the shareholders’ auditors, as well as the annual audit plan, which includes fees for specific types of services. For permitted
services that are not included in the pre-approved annual audit plan, approval to proceed with the engagement is provided in accordance with BMO’s
Auditor Independence Standard.
Shareholders’ Auditors’ Fees (1)
TABLE 60
(Canadian $ in millions)
2025
2024
Audit fees (2)
32.9
30.5
Audit-related fees (3)
3.5
3.4
Tax services fees (4)
–
0.1
All other fees (5)
1.6
2.1
Total
38.0
36.1
(1) The classification of fees is based on applicable Canadian securities laws and U.S. Securities and Exchange Commission definitions.
(2) Includes fees paid for the audit of the consolidated financial statements of the bank, including the audit of the bank’s internal controls over financial reporting and any financial statement audits of
the bank’s subsidiaries. Audit fees also include fees paid for services in connection with statutory and regulatory filings, including those related to prospectuses.
(3) Includes fees paid for specified procedures on BMO’s Proxy Circular and other services, and French translation of financial statements, related continuous disclosures and other public documents
containing financial information.
(4) Includes fees paid for tax compliance services provided to various BMO-managed investment company complexes.
(5) Includes other fees paid by BMO-managed investment company complexes, and for ESG-related services.
112 BMO Financial Group 208th Annual Report 2025
MD&A
MD&A
Management’s Annual Report on Disclosure Controls and Procedures
and Internal Control over Financial Reporting
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior
management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), on a timely basis, so that appropriate decisions can be
made regarding public disclosure.
As at October 31, 2025, under the supervision of the CEO and the CFO, the management of BMO Financial Group (BMO) evaluated the
effectiveness of the design and operation of its disclosure controls and procedures, as defined in Canada by National Instrument 52-109, Certification
of Disclosure in Issuers’ Annual and Interim Filings, and in the United States by Rule 13a-15(e) of the Securities Exchange Act of 1934 (the Exchange
Act). Based on this evaluation, the CEO and the CFO have concluded that BMO’s disclosure controls and procedures were effective as at
October 31, 2025.
Internal Control over Financial Reporting
Internal control over financial reporting is a process designed under the supervision of the CEO and the CFO to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of consolidated financial statements in accordance with IFRS and the requirements of the
Securities and Exchange Commission (SEC) in the United States, as applicable. Management is responsible for establishing and maintaining adequate
internal control over financial reporting for BMO.
Internal control over financial reporting at BMO includes policies and procedures that:
‰ Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of BMO.
‰ Are designed to provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial
statements in accordance with IFRS and the requirements of the SEC in the United States, as applicable, and that receipts and expenditures of
BMO are being made only in accordance with authorizations by management and directors of BMO.
‰ Are designed to provide reasonable assurance that any unauthorized acquisition, use or disposition of BMO’s assets that could have a material
effect on the consolidated financial statements is prevented or detected in a timely manner.
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent or detect
misstatements. Furthermore, 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 related policies and procedures may deteriorate.
BMO’s management, under the supervision of the CEO and the CFO, has evaluated the effectiveness of internal control over financial reporting
using the framework and criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission in May 2013 (2013 COSO Framework). Based on this evaluation, management has concluded that internal control over financial
reporting was effective as at October 31, 2025.
At the request of BMO’s Audit and Conduct Review Committee, KPMG LLP (the shareholders’ auditors), an independent registered public
accounting firm, has conducted an audit of the effectiveness of our internal control over financial reporting. The audit report states in its conclusion
that, in KPMG’s opinion, BMO maintained, in all material respects, effective internal control over financial reporting as at October 31, 2025, in
accordance with the criteria established in the 2013 COSO Framework.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the year ended October 31, 2025 which materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
BMO Financial Group 208th Annual Report 2025 113
Supplemental Information
Ten-Year Statistical Review
TABLE 61
($ millions)
As at or for the year ended October 31
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
Condensed Consolidated Balance Sheet
Assets
Cash and cash equivalents
67,484
65,098
77,934
87,466
93,261
57,408
48,803
42,142
32,599
31,653
Interest bearing deposits with banks
2,838
3,640
4,109
5,677
8,303
9,035
7,987
8,305
6,490
4,449
Securities
423,476
396,880
320,084
272,551 232,849 234,260 189,438
180,935
163,198
149,985
Securities borrowed or purchased under resale agreements
129,421
110,907
115,662
113,194 107,382 111,878 104,004
85,051
75,047
66,646
Loans, net of allowances
677,161
678,016
656,665
551,814 458,262 447,420 426,984
384,172
358,507
357,518
Other
176,422
155,106
172,552
142,695
88,118
89,260
74,979
72,688
73,763
77,709
Total assets
1,476,802 1,409,647 1,347,006 1,173,397 988,175 949,261 852,195
773,293
709,604
687,960
Liabilities
Deposits
976,202
982,440
910,879
776,547 685,631 659,034 568,143
520,928
479,792
470,281
Other
404,000
334,544
351,776
317,662 238,128 225,218 225,981
199,862
180,438
170,910
Subordinated debt
8,500
8,377
8,228
8,150
6,893
8,416
6,995
6,782
5,029
4,439
Total liabilities
1,388,702 1,325,361 1,270,883 1,102,359 930,652 892,668 801,119
727,572
665,259
645,630
Total equity
88,100
84,286
76,123
71,038
57,523
56,593
51,076
45,721
44,345
42,330
Total liabilities and equity
1,476,802 1,409,647 1,347,006 1,173,397 988,175 949,261 852,195
773,293
709,604
687,960
Condensed Consolidated Statement of Income
Net interest income
21,487
19,468
18,681
15,885
14,310
13,971
12,888
11,438
11,275
10,945
Non-interest revenue
14,787
13,327
10,578
17,825
12,876
11,215
12,595
11,467
10,832
10,015
Total revenue
36,274
32,795
29,259
33,710
27,186
25,186
25,483
22,905
22,107
20,960
Insurance claims, commissions and changes in policy benefit
liabilities (CCPB) (1)
–
–
–
(683)
1,399
1,708
2,709
1,352
1,538
1,543
Provision for credit losses (PCL)
3,617
3,761
2,178
313
20
2,953
872
662
746
771
Non-interest expense
21,107
19,499
21,134
16,194
15,509
14,177
14,630
13,477
13,192
12,916
Income before income taxes
11,550
9,535
5,947
17,886
10,258
6,348
7,272
7,414
6,631
5,730
Provision for income taxes
2,825
2,208
1,510
4,349
2,504
1,251
1,514
1,961
1,292
1,100
Net income
8,725
7,327
4,437
13,537
7,754
5,097
5,758
5,453
5,339
4,630
Net income available to common shareholders
8,273
6,932
4,094
13,306
7,510
4,850
5,547
5,269
5,153
4,471
Condensed Consolidated Statement of Changes in Equity
Preferred shares and other equity instruments
8,956
8,087
6,958
6,308
5,558
6,598
5,348
4,340
4,240
3,840
Common shares
23,359
23,921
22,941
17,744
13,599
13,430
12,971
12,929
13,032
12,539
Contributed surplus
373
354
328
317
313
302
303
300
307
294
Retained earnings
47,377
46,469
44,006
45,117
35,497
30,745
28,725
25,850
23,700
21,207
Accumulated other comprehensive income
7,986
5,419
1,862
1,552
2,556
5,518
3,729
2,302
3,066
4,426
Non-controlling interest in subsidiaries
49
36
28
–
–
–
–
–
–
24
Total equity
88,100
84,286
76,123
71,038
57,523
56,593
51,076
45,721
44,345
42,330
BMO adopted IFRS 9 Financial Instruments (IFRS 9) in 2018 and IFRS 16 Leases (IFRS 16) in 2020 prospectively, with no changes to prior periods. In 2019, BMO adopted IFRS 15 Revenue from Contracts
with Customers (IFRS 15) and elected to reclassify 2017 and 2018 amounts. Effective 2024, BMO adopted IFRS 17 Insurance Contracts (IFRS 17). BMO also voluntarily changed our accounting policy for the
measurement of investment properties under IAS 40 Investment Properties (IAS 40), from cost to fair value upon IFRS 17 transition and our accounting policy for securities transactions from settlement
date to trade date. These changes were retrospectively applied to fiscal 2023 results.
(1) Beginning 2023, the Bank no longer reports insurance claims, commissions and changes in policy benefit liabilities (CCPB), and non-GAAP measures and metrics net of CCPB, given the adoption and
retrospective application of IFRS 17.
114 BMO Financial Group 208th Annual Report 2025
Supplemental Information
Supplemental Information
TABLE 61 (continued)
($ millions, except as noted)
As at or for the year ended October 31
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
Other Financial Measures
Common Share Data ($)
Basic earnings per share
11.46
9.52
5.77
20.04
11.60
7.56
8.68
8.19
7.93
6.94
Diluted earnings per share
11.44
9.51
5.76
19.99
11.58
7.55
8.66
8.17
7.90
6.92
Dividends declared per common share
6.44
6.12
5.80
5.44
4.24
4.24
4.06
3.78
3.56
3.40
Book value per share
111.57
104.40
95.90
95.60
80.18
77.40
71.54
64.73
61.91
59.57
Closing share price
174.23
126.88
104.79
125.49
134.37
79.33
97.50
98.43
98.83
85.36
Number outstanding (in millions)
End of year
708.9
729.5
720.9
677.1
648.1
645.9
639.2
639.3
647.8
645.8
Market capitalization
123,513
92,563
75,544
84,970
87,090
51,238
62,325
62,929
64,024
55,122
Price-to-earnings multiple
15.2
13.3
18.2
6.3
11.6
10.5
11.3
12.0
12.5
12.3
Market to book value ratio
1.56
1.22
1.09
1.31
1.68
1.02
1.36
1.52
1.60
1.43
Dividend yield (%)
3.7
4.8
5.5
4.3
3.2
5.3
4.2
3.8
3.6
4.0
Dividend payout ratio (%)
56.2
64.3
100.5
27.1
36.5
56.1
46.8
46.1
44.9
49.0
Financial Measures and Ratios (%)
Return on equity
10.6
9.7
6.2
22.9
14.9
10.1
12.6
13.3
13.2
12.1
Efficiency ratio
58.2
59.5
72.2
48.0
57.0
56.3
57.4
58.8
59.7
61.6
Net interest margin on average earning assets
1.65
1.58
1.63
1.62
1.59
1.64
1.70
1.67
1.74
1.76
Total PCL-to-average net loans and acceptances
0.53
0.57
0.35
0.06
–
0.63
0.20
0.17
0.20
0.22
PCL on impaired loans-to-average net loans and acceptances
0.46
0.47
0.19
0.10
0.11
0.33
0.17
0.18
0.22
0.22
Return on average assets
0.59
0.53
0.34
1.22
0.79
0.54
0.69
0.72
0.74
0.65
Return on average risk-weighted assets (%) (2)
2.02
1.74
1.10
3.89
2.38
1.51
1.86
1.97
1.98
1.71
Average assets ($ millions)
1,480,561
1,369,415
1,299,524
1,106,512
981,140
942,450
833,252
754,295
722,626
707,122
Capital Measures (%) (2)
Common Equity Tier 1 Ratio
13.3
13.6
12.5
16.7
13.7
11.9
11.4
11.3
11.4
10.1
Tier 1 Capital Ratio
15.0
15.4
14.1
18.4
15.4
13.6
13.0
12.9
13.0
11.6
Total Capital Ratio
17.3
17.6
16.2
20.7
17.6
16.2
15.2
15.2
15.1
13.6
Leverage Ratio
4.3
4.4
4.2
5.6
5.1
4.8
4.3
4.2
4.4
4.2
Other Statistical Information
Number of employees
53,234
53,597
55,767
46,722
43,863
43,360
45,513
45,454
45,200
45,234
Number of bank branches
1,832
1,861
1,890
1,383
1,405
1,409
1,456
1,483
1,503
1,522
Number of automated teller machines
5,710
5,766
5,765
4,717
4,851
4,820
4,967
4,828
4,731
4,599
BMO adopted IFRS 9 Financial Instruments (IFRS 9) in 2018 and IFRS 16 Leases (IFRS 16) in 2020 prospectively, with no changes to prior periods. In 2019, BMO adopted IFRS 15 Revenue from Contracts
with Customers (IFRS 15) and elected to reclassify 2017 and 2018 amounts. Effective 2024, BMO adopted IFRS 17 Insurance Contracts (IFRS 17). BMO also voluntarily changed our accounting policy for the
measurement of investment properties under IAS 40 Investment Properties (IAS 40), from cost to fair value upon IFRS 17 transition and our accounting policy for securities transactions from settlement
date to trade date. These changes were retrospectively applied to fiscal 2023 results.
(2) Capital ratios and risk-weighted assets are disclosed in accordance with the CAR Guideline, as set out by OSFI, as applicable.
Certain comparative figures have been reclassified to conform with the current year’s presentation.
BMO Financial Group 208th Annual Report 2025 115
SUPPLEMENTAL INFORMATION
Average Assets, Liabilities and Interest Rates
TABLE 62
2025
2024
($ millions, except as noted)
For the year ended October 31
Average
balances
Average
interest
rate (%)
Interest
income/
expense
Average
balances
Average
interest
rate (%)
Interest
income/
expense
Assets
Canadian Dollar
Interest bearing deposits with banks and other interest bearing assets (1)
48,337
0.94
456
33,804
3.87
1,307
Securities
123,179
3.41
4,201
105,225
4.32
4,546
Securities borrowed or purchased under resale agreements
37,092
4.02
1,489
35,340
5.62
1,988
Loans
Residential mortgages
160,203
4.12
6,594
152,790
4.46
6,816
Consumer instalment and other personal
68,517
5.42
3,714
68,681
6.20
4,256
Credit cards
11,558
16.15
1,867
11,225
15.44
1,733
Business and government
137,223
5.22
7,169
127,928
5.54
7,090
Total loans
377,501
5.12
19,344
360,624
5.52
19,895
Total Canadian dollar
586,109
4.35
25,490
534,993
5.18
27,736
U.S. Dollar and Other Currencies
Interest bearing deposits with banks and other interest bearing assets (1)
38,175
7.41
2,828
57,512
5.60
3,221
Securities
296,246
3.94
11,661
268,401
3.91
10,492
Securities borrowed or purchased under resale agreements
82,542
5.55
4,583
80,168
6.06
4,855
Loans
Residential mortgages
33,226
5.01
1,663
28,485
4.90
1,395
Consumer instalment and other personal
23,097
7.31
1,688
23,931
6.73
1,611
Credit cards
1,334
13.67
182
1,509
12.23
185
Business and government
244,343
6.32
15,442
240,831
6.85
16,490
Total loans
302,000
6.28
18,975
294,756
6.68
19,681
Total U.S. dollar and other currencies
718,963
5.29
38,047
700,837
5.46
38,249
Other non-interest bearing assets
175,489
–
–
133,585
–
–
Total All Currencies
Total assets and interest income
1,480,561
4.29
63,537
1,369,415
4.82
65,985
Liabilities
Canadian Dollar
Deposits
Banks
4,314
1.44
62
4,362
2.47
108
Business and government
213,652
2.86
6,107
199,249
3.94
7,846
Individuals
186,717
2.16
4,035
181,924
2.72
4,950
Total deposits
404,683
2.52
10,204
385,535
3.35
12,904
Securities sold but not yet purchased and securities lent or sold
under repurchase agreements
47,920
4.23
2,028
43,159
5.03
2,171
Subordinated debt and other interest bearing liabilities
27,288
3.18
869
26,076
3.83
999
Total Canadian dollar
479,891
2.73
13,101
454,770
3.53
16,074
U.S. Dollar and Other Currencies
Deposits
Banks
28,356
4.29
1,217
27,243
5.12
1,395
Business and government
415,530
3.51
14,589
399,499
4.17
16,661
Individuals
139,241
2.33
3,245
136,679
2.65
3,620
Total deposits
583,127
3.27
19,051
563,421
3.85
21,676
Securities sold but not yet purchased and securities lent or sold
under repurchase agreements
135,530
5.19
7,036
118,474
5.69
6,736
Subordinated debt and other interest bearing liabilities
42,356
6.76
2,862
34,188
5.94
2,031
Total U.S. dollar and other currencies
761,013
3.80
28,949
716,083
4.25
30,443
Other non-interest bearing liabilities
153,366
–
–
119,016
–
–
Total All Currencies
Total liabilities and interest expense
1,394,270
3.02
42,050
1,289,869
3.61
46,517
Shareholders’ equity
86,251
–
–
79,516
–
–
Non-controlling interest in subsidiaries
40
–
–
30
–
–
Total Liabilities, Equity and Interest Expense
1,480,561
2.84
42,050
1,369,415
3.40
46,517
Net interest margin
– based on earning assets
–
1.65
–
–
1.58
–
– based on total assets
–
1.45
–
–
1.42
–
Net interest income
–
–
21,487
–
–
19,468
(1) Includes cheques and other items in transit, which represent the net position of the uncleared cheques and other items in transit between BMO and other banks.
Certain comparative figures have been reclassified to conform with the current year’s presentation.
116 BMO Financial Group 208th Annual Report 2025
Supplemental Information
Supplemental Information
Volume/Rate Analysis of Changes in Net Interest Income
TABLE 63
2025/2024
Increase (decrease) due to change in
($ millions)
For the year ended October 31
Average
balance
Average
rate
Total
Assets
Canadian Dollar
Interest bearing deposits with banks and other interest bearing assets
562
(1,413)
(851)
Securities
775
(1,120)
(345)
Securities borrowed or purchased under resale agreements
99
(598)
(499)
Loans
Residential mortgages
331
(553)
(222)
Consumer instalment and other personal
(10)
(532)
(542)
Credit cards
51
83
134
Business and government
515
(436)
79
Total loans
887
(1,438)
(551)
Change in Canadian dollar interest income
2,323
(4,569)
(2,246)
U.S. Dollar and Other Currencies
Interest bearing deposits with banks and other interest bearing assets
(1,084)
691
(393)
Securities
1,090
79
1,169
Securities borrowed or purchased under resale agreements
144
(416)
(272)
Loans
Residential mortgages
232
36
268
Consumer instalment and other personal
(56)
133
77
Credit cards
(21)
18
(3)
Business and government
240
(1,288)
(1,048)
Total loans
395
(1,101)
(706)
Change in U.S. dollar and other currencies interest income
545
(747)
(202)
Total All Currencies
Change in total interest income (a)
2,868
(5,316)
(2,448)
Liabilities
Canadian Dollar
Deposits
Banks
(2)
(44)
(46)
Business and government
567
(2,306)
(1,739)
Individuals
130
(1,045)
(915)
Total deposits
695
(3,395)
(2,700)
Securities sold but not yet purchased and securities lent or sold
under repurchase agreements
239
(382)
(143)
Subordinated debt and other interest bearing liabilities
47
(177)
(130)
Change in Canadian dollar interest expense
981
(3,954)
(2,973)
U.S. Dollar and Other Currencies
Deposits
Banks
57
(235)
(178)
Business and government
670
(2,742)
(2,072)
Individuals
68
(443)
(375)
Total deposits
795
(3,420)
(2,625)
Securities sold but not yet purchased and securities lent or sold
under repurchase agreements
969
(669)
300
Subordinated debt and other interest bearing liabilities
485
346
831
Change in U.S. dollar and other currencies interest expense
2,249
(3,743)
(1,494)
Total All Currencies
Change in total interest expense (b)
3,230
(7,697)
(4,467)
Change in total net interest income (a – b)
(362)
2,381
2,019
BMO Financial Group 208th Annual Report 2025 117
SUPPLEMENTAL INFORMATION
Net Loans and Acceptances (1)(2)
TABLE 64
($ millions)
Canada
United States
Other countries
Total
As at October 31
2025
2024
2025
2024
2025
2024
2025
2024
Consumer
Residential mortgages
162,328
158,902
33,693
32,168
–
–
196,021
191,070
Consumer instalment and other personal
69,721
69,557
22,860
22,962
–
–
92,581
92,519
Credit cards
11,528
12,271
1,121
1,341
–
–
12,649
13,612
Total consumer
243,577
240,730
57,674
56,471
–
–
301,251
297,201
Business and government
Commercial real estate
44,061
41,317
32,829
34,032
29
3
76,919
75,352
Construction (non-real estate)
2,950
2,712
4,790
4,402
–
82
7,740
7,196
Retail trade
17,429
17,682
13,485
15,555
61
58
30,975
33,295
Wholesale trade
7,006
6,968
17,969
18,470
94
51
25,069
25,489
Agriculture
14,003
13,449
4,328
5,031
–
–
18,331
18,480
Communications
806
817
376
559
–
–
1,182
1,376
Financing products
12
–
10,750
7,070
–
–
10,762
7,070
Manufacturing
8,551
7,949
28,575
30,678
1,921
1,593
39,047
40,220
Mining
1,139
1,015
196
433
2,118
1,876
3,453
3,324
Oil and gas
2,884
2,345
400
860
263
261
3,547
3,466
Transportation
3,978
4,594
8,850
9,936
87
16
12,915
14,546
Utilities
3,086
7,031
3,853
3,365
407
589
7,346
10,985
Forest products
616
708
558
648
3
–
1,177
1,356
Service industries
28,809
27,695
33,533
36,052
310
386
62,652
64,133
Financial
14,035
11,965
53,700
52,757
6,104
7,076
73,839
71,798
Government
1,963
1,870
308
341
283
459
2,554
2,670
Other
2,649
3,232
512
873
28
16
3,189
4,121
Total business and government
153,977
151,349
215,012
221,062
11,708
12,466
380,697
384,877
Total loans and acceptances, net of
allowance for credit losses on impaired loans
397,554
392,079
272,686
277,533
11,708
12,466
681,948
682,078
Allowance for credit losses on performing loans
(1,842)
(1,531)
(2,203)
(2,141)
(31)
(31)
(4,076)
(3,703)
Total net loans and acceptances
395,712
390,548
270,483
275,392
11,677
12,435
677,872
678,375
(1) Segmented credit information by geographic area is based upon the country of ultimate risk.
(2) Consumer and Business and government Net Loans and Acceptances balances are net of allowance for credit losses on impaired loans only.
Net Loans and Acceptances – Canada by Province (1)
TABLE 65
($ millions)
As at October 31
2025
2024
Net Loans and Acceptances in Canada by Province
Atlantic provinces
20,314
19,431
Quebec
56,654
57,974
Ontario
184,771
177,878
Prairie provinces
57,866
60,975
British Columbia and territories
76,107
74,290
Total net loans and acceptances in Canada
395,712
390,548
(1) Segmented credit information by geographic area is based upon the country of ultimate risk.
118 BMO Financial Group 208th Annual Report 2025
Supplemental Information
Supplemental Information
Gross Impaired Loans (1)
TABLE 66
($ millions, except as noted)
Canada
United States
Other countries
Total
As at October 31
2025
2024
2025
2024
2025
2024
2025
2024
Consumer
Residential mortgages
693
444
210
213
–
–
903
657
Consumer instalment and other personal
449
369
178
208
–
–
627
577
Total consumer
1,142
813
388
421
–
–
1,530
1,234
Business and government
Commercial real estate
541
270
450
463
–
–
991
733
Construction (non-real estate)
134
82
106
162
–
–
240
244
Retail trade
351
269
153
239
–
–
504
508
Wholesale trade
142
75
130
294
–
–
272
369
Agriculture
303
84
111
85
–
–
414
169
Communications
9
7
39
2
–
–
48
9
Financing products
–
–
2
–
–
–
2
–
Manufacturing
185
155
974
635
–
–
1,159
790
Mining
13
15
2
1
–
–
15
16
Oil and gas
1
1
–
2
–
–
1
3
Transportation
187
246
398
218
–
–
585
464
Utilities
1
2
2
3
–
–
3
5
Forest products
7
4
–
1
–
–
7
5
Service industries
465
410
742
760
1
3
1,208
1,173
Financial
6
4
15
22
–
–
21
26
Government
21
–
–
–
–
–
21
–
Other
42
76
28
19
–
–
70
95
Total business and government
2,408
1,700
3,152
2,906
1
3
5,561
4,609
Total gross impaired loans and acceptances (GIL)
3,550
2,513
3,540
3,327
1
3
7,091
5,843
Condition Ratios
GIL as a % of gross loans and acceptances
Consumer
0.47
0.34
0.67
0.75
–
–
0.51
0.41
Business and government
1.56
1.12
1.46
1.31
0.01
0.02
1.46
1.20
Total
0.89
0.64
1.30
1.20
0.01
0.02
1.04
0.86
(1) Segmented credit information by geographic area is based upon the country of ultimate risk.
Changes in Gross Impaired Loans (1)
TABLE 67
($ millions, except as noted)
Canada
United States
Other countries
Total
As at October 31
2025
2024
2025
2024
2025
2024
2025
2024
Gross impaired loans and acceptances (GIL), beginning of year
Consumer
813
539
421
434
–
–
1,234
973
Business and government
1,700
1,090
2,906
1,897
3
–
4,609
2,987
Total GIL, beginning of year
2,513
1,629
3,327
2,331
3
–
5,843
3,960
Additions to impaired loans and acceptances
Consumer
1,809
1,355
285
351
–
–
2,094
1,706
Business and government
2,095
1,491
3,586
4,219
–
3
5,681
5,713
Total additions
3,904
2,846
3,871
4,570
–
3
7,775
7,419
Reductions to impaired loans and acceptances (2)
Consumer
(955)
(649)
(141)
(168)
–
–
(1,096)
(817)
Business and government
(896)
(480)
(2,484)
(1,810)
18
1
(3,362)
(2,289)
Total reductions to impaired loans and acceptances
(1,851)
(1,129)
(2,625)
(1,978)
18
1
(4,458)
(3,106)
Write-offs (3)
Consumer
(525)
(432)
(177)
(196)
–
–
(702)
(628)
Business and government
(491)
(401)
(856)
(1,400)
(20)
(1)
(1,367)
(1,802)
Total write-offs
(1,016)
(833)
(1,033)
(1,596)
(20)
(1)
(2,069)
(2,430)
GIL, end of year
Consumer
1,142
813
388
421
–
–
1,530
1,234
Business and government
2,408
1,700
3,152
2,906
1
3
5,561
4,609
Total GIL, end of year
3,550
2,513
3,540
3,327
1
3
7,091
5,843
(1) Segmented credit information by geographic area is based upon the country of ultimate risk.
(2) Includes impaired amounts returned to performing status, sales, repayments, the impact of foreign exchange fluctuations and offsets for consumer write-offs which have not been recognized in formations.
(3) Excludes certain loans that are written off directly and not classified as new formations.
BMO Financial Group 208th Annual Report 2025 119
SUPPLEMENTAL INFORMATION
Total Allowance for Credit Losses (1)
TABLE 68
($ millions, except as noted)
Canada
United States
Other countries
Total
As at October 31
2025
2024
2025
2024
2025
2024
2025
2024
Consumer
Residential mortgages
12
8
–
2
–
–
12
10
Consumer instalment and other personal
143
136
17
32
–
–
160
168
Total consumer
155
144
17
34
–
–
172
178
Business and government
Commercial real estate
57
24
11
15
–
–
68
39
Construction (non-real estate)
52
33
23
11
–
–
75
44
Retail trade
85
28
14
18
–
–
99
46
Wholesale trade
32
24
24
14
–
–
56
38
Agriculture
17
2
10
5
–
–
27
7
Communications
3
1
14
1
–
–
17
2
Financing products
–
–
–
–
–
–
–
–
Manufacturing
61
48
121
44
–
–
182
92
Mining
1
–
–
–
–
–
1
–
Oil and gas
1
1
–
1
–
–
1
2
Transportation
42
46
29
22
–
–
71
68
Utilities
1
2
–
–
–
–
1
2
Forest products
4
3
–
–
–
–
4
3
Service industries
141
93
47
17
–
–
188
110
Financial
2
2
1
–
–
–
3
2
Government
–
–
–
–
–
–
–
–
Other
9
10
–
10
–
–
9
20
Total business and government
508
317
294
158
–
–
802
475
Total allowance for credit losses on impaired loans
663
461
311
192
–
–
974
653
Total allowance for credit losses on performing loans
1,842
1,531
2,203
2,141
31
31
4,076
3,703
Total allowance for credit losses on loans
2,505
1,992
2,514
2,333
31
31
5,050
4,356
Allowance for credit losses related to off-balance sheet instruments (2)
253
193
378
318
58
69
689
580
Total allowance for credit losses
2,758
2,185
2,892
2,651
89
100
5,739
4,936
Coverage Ratios
Allowance for credit losses (ACL) on impaired loans as a % of gross
impaired loans and acceptances
Consumer
13.57
17.71
4.38
8.08
–
–
11.24
14.42
Business and government
21.10
18.65
9.33
5.44
–
–
14.42
10.31
Total
18.68
18.34
8.79
5.77
–
–
13.74
11.18
(1) Segmented credit information by geographic area is based upon the country of ultimate risk.
(2) Reported in Other Liabilities.
Changes in Allowance for Credit Losses (1)
TABLE 69
($ millions, except as noted)
Canada
United States
Other countries
Total
As at October 31
2025
2024
2025
2024
2025
2024
2025
2024
Allowance for credit losses (ACL), beginning of year
Consumer
1,365
1,074
444
462
–
–
1,809
1,536
Business and government
820
824
2,207
1,885
100
22
3,127
2,731
Total ACL, beginning of year
2,185
1,898
2,651
2,347
100
22
4,936
4,267
Provision for credit losses (2)
Consumer
1,426
1,225
181
258
–
–
1,607
1,483
Business and government
950
407
1,054
1,778
7
83
2,011
2,268
Total provision for credit losses
2,376
1,632
1,235
2,036
7
83
3,618
3,751
Recoveries
Consumer
259
230
110
143
–
–
369
373
Business and government
52
106
262
88
–
–
314
194
Total recoveries
311
336
372
231
–
–
683
567
Write-offs
Consumer
(1,308)
(1,032)
(297)
(316)
–
–
(1,605)
(1,348)
Business and government
(491)
(401)
(856)
(1,400)
(20)
(1)
(1,367)
(1,802)
Total write-offs
(1,799)
(1,433)
(1,153)
(1,716)
(20)
(1)
(2,972)
(3,150)
Other, including foreign exchange rate changes
Consumer
(180)
(132)
(47)
(103)
–
–
(227)
(235)
Business and government
(135)
(116)
(166)
(144)
2
(4)
(299)
(264)
Total other, including foreign exchange rate changes
(315)
(248)
(213)
(247)
2
(4)
(526)
(499)
ACL, end of year
Consumer
1,562
1,365
391
444
–
–
1,953
1,809
Business and government
1,196
820
2,501
2,207
89
100
3,786
3,127
Total ACL, end of year
2,758
2,185
2,892
2,651
89
100
5,739
4,936
Net write-offs as a % of average net loans and acceptances (3)
0.38
0.29
0.28
0.54
0.17
0.01
0.34
0.39
(1) Segmented credit information by geographic area is based upon the country of ultimate risk.
(2) Excludes provision for credit losses on other assets.
(3) Aggregate Net Loans and Acceptances balances are net of allowance for credit losses on performing loans and impaired loans (excluding those related to off-balance sheet instruments).
120 BMO Financial Group 208th Annual Report 2025
Supplemental Information
Supplemental Information
Provision for Credit Losses (1)
TABLE 70
($ millions)
Canada
United States
Other countries
Total
For the year ended October 31
2025
2024
2025
2024
2025
2024
2025
2024
Consumer
Residential mortgages
59
38
1
10
–
–
60
48
Consumer instalment and other personal
498
420
96
80
–
–
594
500
Credit cards
682
496
90
108
–
–
772
604
Total consumer
1,239
954
187
198
–
–
1,426
1,152
Business and Government
Commercial real estate
76
29
37
143
–
–
113
172
Construction (non-real estate)
56
16
55
49
–
–
111
65
Retail trade
135
(4)
107
106
–
–
242
102
Wholesale trade
71
23
65
229
–
–
136
252
Agriculture
21
8
(6)
8
–
–
15
16
Communications
2
6
21
2
–
–
23
8
Financing products
–
–
–
–
–
–
–
–
Manufacturing
129
50
270
315
–
–
399
365
Mining
1
37
–
–
–
–
1
37
Oil and gas
–
1
(2)
(7)
–
–
(2)
(6)
Transportation
62
71
134
188
–
–
196
259
Utilities
–
–
–
1
–
–
–
1
Forest products
2
1
–
–
–
–
2
1
Service industries
139
95
236
354
–
1
375
450
Financial
4
1
7
63
4
62
15
126
Government
1
–
–
–
–
–
1
–
Other
68
53
26
13
–
–
94
66
Total business and government
767
387
950
1,464
4
63
1,721
1,914
Total provision for credit losses on impaired loans
2,006
1,341
1,137
1,662
4
63
3,147
3,066
Provision for credit losses on performing loans
366
296
100
378
4
21
470
695
Total provision for credit losses
2,372
1,637
1,237
2,040
8
84
3,617
3,761
Performance Ratios (%)
Total PCL-to-average net loans and acceptances
0.60
0.44
0.45
0.75
0.07
0.73
0.53
0.57
PCL on impaired loans-to-average net loans and acceptances
Consumer
0.52
0.41
0.33
0.36
–
–
0.48
0.40
Business and government
0.50
0.27
0.44
0.67
0.03
0.55
0.45
0.51
Total PCL on impaired loans-to-average net loans and acceptances
0.51
0.36
0.41
0.61
0.03
0.55
0.46
0.47
(1) Segmented credit information by geographic area is based upon the country of ultimate risk.
Average Deposits (1)(2)
TABLE 71
2025
2024
($ millions, except as noted)
Average
balance
Average
rate paid (%)
Average
balance
Average
rate paid (%)
Deposits Booked in Canada
Payable on demand – interest bearing
73,504
3.19
62,464
4.58
Payable on demand – non-interest bearing
67,292
–
64,555
–
Payable after notice
157,775
2.50
135,487
3.59
Payable on a fixed date
322,715
3.89
329,317
4.55
Total deposits booked in Canada
621,286
3.03
591,823
3.84
Deposits Booked in the United States
Payable on demand – interest bearing
10,261
3.98
10,577
5.00
Payable on demand – non-interest bearing
10,640
–
10,244
–
Payable after notice
204,155
1.98
195,017
2.19
Payable on a fixed date
87,247
4.27
93,339
4.97
Total deposits booked in the United States
312,303
2.61
309,177
3.05
Deposits Booked in Other Countries
Payable on demand – interest bearing
66
3.10
106
2.64
Payable on demand – non-interest bearing
2
–
6
–
Payable after notice
1,966
4.34
2,202
5.20
Payable on a fixed date
52,187
4.15
45,642
5.07
Total deposits booked in other countries
54,221
4.15
47,956
5.07
Total average deposits
987,810
2.96
948,956
3.64
(1) As at October 31, 2025 and 2024: deposits by foreign depositors in our Canadian bank offices amounted to $121,150 million and $123,141 million, respectively.
(2) Average deposits payable on a fixed date included $24 million, $45,361 million and $19,042 million of federal funds purchased, commercial paper issued and other deposit liabilities, respectively, as
at October 31, 2025 ($26 million, $44,501 million and $18,427 million, respectively, as at October 31, 2024).
BMO Financial Group 208th Annual Report 2025 121
Glossary of Financial Terms
Adjusted Earnings and Measures are
non-GAAP and exclude certain specified items
from revenue, non-interest expense, provision
for credit losses and income taxes that may not
reflect ongoing business performance.
Management considers both reported and
adjusted results to be useful in assessing
underlying ongoing performance, as set out in
the Non-GAAP and Other Financial Measures
section.
Allowance for Credit Losses represents an
amount deemed appropriate by management
to absorb credit-related losses on loans and
acceptances and other credit instruments, in
accordance with applicable accounting
standards.
Allowance on Impaired Loans is maintained
to reduce the carrying value of individually
identified impaired loans to the expected
recoverable amount.
Allowance on Performing Loans is maintained
to cover impairment in the existing portfolio for
loans that have not yet been individually
identified as impaired.
Allowance on Performing Loans Ratio is
calculated as the allowance for credit losses on
performing loans as a percentage of gross
performing loans and acceptances.
Allowance for Credit Losses Ratio is calculated
as the allowance for credit losses on impaired
loans as a percentage of gross impaired loans
and acceptances.
Assets under Administration (AUA) refers to
the assets administered by the bank, including
assets under custody, that are beneficially
owned by clients and therefore not reported on
the bank’s consolidated balance sheet. BMO
provides administrative services for these
assets, including safekeeping, recordkeeping,
income collection and distribution, and
reporting.
Assets under Management (AUM) refers to
the total market value of assets beneficially
owned by clients and managed by the bank.
Services provided in respect of AUM include
the provision of investment advice and
discretionary portfolio management. AUM
is not reported on the bank’s consolidated
balance sheet.
Asset-Backed Commercial Paper (ABCP) is
backed by assets such as trade receivables, and
is generally used for short-term financing
needs.
Average Earning Assets represents the daily
average balance of deposits at central banks,
deposits with other banks, securities borrowed
or purchased under resale agreements,
securities and loans over a period.
Bankers’ Acceptances (BAs) are bills of
exchange or negotiable instruments drawn by a
borrower for payment at maturity and accepted
by a bank. BAs constitute a guarantee of
payment by the issuer’s bank for a fee and
can be traded in the money market.
Basis Point is one one-hundredth of a
percentage point.
Book Value per Share represents common
shareholders’ equity divided by the number of
common shares at the end of a period.
Collateral is assets pledged as security to
secure loans or other obligations.
Collateralized Mortgage Obligations (CMOs)
are debt securities with multiple tranches,
issued by structured entities and collateralized
by a pool of mortgages. Each tranche carries
different terms, interest rates and risks.
Common Equity Tier 1 (CET1) Capital
comprises common shareholders’ equity,
including applicable contractual service margin,
less regulatory deductions for goodwill,
intangible assets, pension assets, certain
deferred tax assets and other items, which may
include a portion of expected credit loss
provisions or a shortfall in allowances or other
specified items.
Common Equity Tier 1 (CET1) Ratio is
calculated as CET1 Capital divided by risk-
weighted assets. The CET1 Ratio is calculated in
accordance with OSFI’s Capital Adequacy
Requirements (CAR) Guideline.
Common Shareholders’ Equity is the most
permanent form of capital. For regulatory
capital purposes, common shareholders’ equity
comprises common shareholders’ equity, net
of capital deductions.
Contractual Service Margin (CSM) represents
the unearned profit of a group of insurance
contracts that we expect to recognize in the
income statement as services are provided.
Credit Valuation Adjustment (CVA) represents
fair value adjustments to capture counterparty
credit risk in our derivative valuations.
Derivatives are contracts, requiring no or little
initial investment, with a value that is derived
from movements in underlying interest or
foreign exchange rates, equity or commodity
prices, or other indices. Derivatives are used to
transfer, modify or reduce current or expected
risks from changes in rates and prices.
Dividend Payout Ratio represents common
share dividends as a percentage of net income
available to common shareholders. It is
calculated by dividing dividends per share by
basic earnings per share.
Dividend Yield is calculated as dividends
per common share divided by the closing
share price.
Earnings per Share (EPS) is calculated by
dividing net income available to common
shareholders, after deducting preferred share
dividends and distributions on other equity
instruments, by the average number of
common shares outstanding. Diluted EPS, which
is BMO’s basis for measuring performance,
adjusts for possible conversions of financial
instruments into common shares if those
conversions would reduce EPS.
Earnings Sensitivity is a measure of the impact
of potential changes in interest rates on the
projected 12-month pre-tax net income from a
portfolio of assets, liabilities and off-balance
sheet positions in response to prescribed
parallel interest rate movements, with interest
rates floored at zero.
Economic Capital is an expression of the
enterprise’s capital demand requirement
relative to its view of the economic risks in its
underlying business activities. It represents
management’s estimate of the likely magnitude
of economic losses that could occur should
severely adverse situations arise. Economic
capital is calculated for various types of risk,
including credit, market (trading and
non-trading), operational non-financial, business
and insurance, based on a one-year time
horizon using a defined confidence level.
Economic Value Sensitivity is a measure of the
impact of potential changes in interest rates on
the market value of a portfolio of assets,
liabilities and off-balance sheet positions in
response to prescribed parallel interest rate
movements, with interest rates floored at zero.
Effective Tax Rate is a percentage calculated as
provision for income taxes divided by income
before provision for income taxes.
122 BMO Financial Group 208th Annual Report 2025
Efficiency Ratio (or Expense-to-Revenue
Ratio) is a measure of productivity. It is a
percentage calculated as non-interest expense
divided by total revenue (on a taxable
equivalent basis in the operating segments).
Fair Value is the amount of consideration that
would be agreed upon in an arm’s-length
transaction between knowledgeable, willing
parties, who are under no compulsion to act,
in an orderly market transaction.
Forwards and Futures are contractual
agreements to either buy or sell a specified
amount of a currency, commodity, interest-rate-
sensitive financial instrument or security at a
specified price and date in the future. Forwards
are customized contracts transacted in the
over-the-counter market. Futures are transacted
in standardized amounts on regulated
exchanges and are subject to daily cash margin
requirements.
Gross Impaired Loans and Acceptances (GIL)
is calculated as the credit impaired balance
of loans and customers’ liability under
acceptances.
Gross Impaired Loans and Acceptances (GIL)
Ratio is calculated as gross impaired loans and
acceptances as a percentage of gross loans
and acceptances.
Guarantees and Standby Letters of Credit
represent our obligation to make payments to
third parties on behalf of a customer if the
customer is unable to make the required
payments or meet other contractual
requirements.
Hedging is a risk management technique used
to neutralize, manage or offset interest rate,
foreign currency, equity, commodity or credit
risk exposures arising from normal banking
activities.
High-Quality Liquid Assets (HQLA) are cash
or assets that can be converted into cash with
little or no loss in value to meet short-term
liquidity needs.
Impaired Loans are loans for which there is no
longer a reasonable assurance of the timely
collection of principal or interest.
Insurance Investment Results represent net
returns on insurance-related assets and the
impact of the change in discount rates and
financial assumptions on insurance contract
liabilities.
Insurance Service Results represent insurance
revenue, insurance service expenses and
reinsurance results.
Leverage Exposures (LE) consist of on-balance
sheet items and specified off-balance sheet
items, net of specified adjustments.
Leverage Ratio is a Basel III regulatory
measure calculated as Tier 1 Capital divided by
LE, in accordance with OSFI’s Capital Adequacy
Requirements (CAR) Guideline.
Liquidity and Funding Risk is the potential for
financial loss if the bank is unable to meet its
financial commitments in a timely manner at
reasonable prices as they come due. Financial
commitments include liabilities to depositors
and suppliers, as well as lending, investment
and pledging commitments.
Liquidity Coverage Ratio (LCR) is a Basel III
regulatory metric calculated as the ratio of high-
quality liquid assets to total net stressed cash
outflows over a thirty-day period under a stress
scenario, in accordance with guidelines issued
by OSFI.
Market Risk is the potential for financial loss as
a result of the impact to capital and earnings
from adverse changes in market variables that
may affect the bank’s trading, underwriting and
banking book positions, such as interest rates,
foreign exchange rates, credit spreads, equity
and commodity prices and their implied
volatilities.
Mark-to-Market represents the valuation of
financial instruments at fair value as of the
balance sheet date.
Master Netting Agreements are agreements
between two parties designed to reduce the
credit risk of multiple derivative transactions
through the provision of a legal right to offset
exposure in the event of default.
Net Interest Income comprises earnings on
assets, such as loans and securities, including
interest and certain dividend income, less
interest expense paid on liabilities, such as
deposits. Net interest income, excluding trading,
is presented on a basis that excludes trading-
related interest income.
Net Interest Margin is the ratio of net interest
income to average earning assets, expressed as
a percentage or in basis points. Net interest
margin, excluding trading net interest income,
and trading and insurance average assets is
calculated in the same manner, excluding
trading-related interest income, and trading and
insurance earning assets.
Net Stable Funding Ratio (NSFR) is a
regulatory liquidity measure that assesses the
stability of a bank’s funding profile in relation to
the liquidity value of its assets, calculated in
accordance with OSFI’s Liquidity Adequacy
Requirements (LAR) Guideline.
Notional Amount refers to the principal
amount used to calculate interest and other
payments under derivative contracts. The
principal amount does not change hands under
the terms of a derivative contract, except in the
case of cross-currency swaps.
Off-Balance Sheet Financial Instruments
comprise a variety of financial arrangements
offered to clients, including credit derivatives,
written put options, backstop liquidity facilities,
standby letters of credit, performance
guarantees, credit enhancements, commitments
to extend credit, securities lending,
documentary and commercial letters of credit,
and other indemnifications.
Office of the Superintendent of Financial
Institutions (OSFI) is the government agency
responsible for regulating banks, insurance
companies, trust companies, loan companies
and pension plans in Canada.
Operating Leverage is the difference between
the growth rates of revenue and non-interest
expense.
Options are contractual agreements that
convey to the purchaser the right but not the
obligation to either buy or sell a specified
amount of a currency, commodity, interest-rate-
sensitive financial instrument or security at a
fixed future date or at any time within a fixed
future period.
Pre-Provision, Pre-Tax Earnings (PPPT) is a
non-GAAP measure, calculated as income
before provision for income taxes and provision
for (recovery of) credit losses. We use PPPT on
both a reported and an adjusted basis to assess
our ability to generate sustained earnings
growth excluding credit losses, which are
impacted by the cyclical nature of a credit cycle.
Provision for Credit Losses (PCL) is a charge to
income that represents an amount deemed
adequate by management to provide for
impairment in a portfolio of loans and
acceptances and other credit instruments, given
the composition of the portfolio, the probability
of default, the economic outlook and the
allowance for credit losses already established.
PCL can comprise both a provision for credit
losses on impaired loans and a provision for
credit losses on performing loans.
Provision for Credit Losses (PCL) Ratio is
calculated as the annualized total provision for
credit losses as a percentage of average net
loans and acceptances.
BMO Financial Group 208th Annual Report 2025 123
GLOSSARY OF FINANCIAL TERMS
Provision for Credit Losses (PCL) Impaired
Loans Ratio is calculated as the annualized
total provision for credit losses on impaired
loans as a percentage of average net loans and
acceptances.
Provision for Credit Losses (PCL) Performing
Loans Ratio is calculated as the annualized
provision for credit losses on performing loans
as a percentage of average net loans and
acceptances.
Return on Assets (ROA) is calculated as net
income, as a percentage of average assets.
Return on Equity or Return on Common
Shareholders’ Equity (ROE) is calculated as
net income, less preferred dividends and
distributions on other equity instruments, as a
percentage of average common shareholders’
equity. Common shareholders’ equity comprises
common share capital, contributed surplus,
accumulated other comprehensive income
(loss) and retained earnings.
Return on Tangible Common Equity (ROTCE)
is calculated as net income available to
common shareholders, adjusted for the
amortization of acquisition-related intangible
assets and any impairments, as a percentage
of average tangible common equity.
Risk-Weighted Assets (RWA) are on- and
off-balance sheet exposures adjusted by a
regulatory risk-weighted factor to a comparable
risk level, in accordance with guidelines issued
by OSFI.
Securities Borrowed or Purchased under
Resale Agreements are low-cost, low-risk
instruments, often supported by the pledge of
cash collateral, which arise from transactions
that involve the borrowing or purchasing of
securities.
Securities Lent or Sold under Repurchase
Agreements are low-cost, low-risk liabilities,
often supported by cash collateral, which arise
from transactions that involve the lending or
selling of securities.
Securitization is the practice of selling pools of
contractual debts, such as residential mortgages
and credit card debt obligations, to third parties
or trusts, which then typically issue a series of
asset-backed securities to investors to fund the
purchase of the contractual debts.
Structured Entities (SEs) include entities for
which voting or similar rights are not the
primary factor in determining control of the
entity. BMO is required to consolidate a SE if it
controls the entity by having power over the
entity, exposure to variable returns as a result
of its involvement and the ability to exercise
power to affect the amount of those returns.
Structural (Non-Trading) Market Risk
comprises interest rate risk arising from banking
activities (loans and deposits) and foreign
exchange risk arising from foreign currency
operations and exposures.
Swaps are contractual agreements between
two parties to exchange a series of cash flows
based on notional amounts over a specified
period.
Tangible Common Equity is calculated as
common shareholders’ equity, less goodwill
and acquisition-related intangible assets, net
of related deferred tax liabilities.
Taxable Equivalent Basis (teb): Operating
segment revenue is presented on a taxable
equivalent basis (teb). Net interest income,
total revenue and provision for income taxes in
Capital Markets and U.S. Banking are increased
on tax-exempt securities to an equivalent
pre-tax basis to facilitate comparisons of income
between taxable and tax-exempt sources, and
are reflected in the key metrics. The offset to
operating segment teb adjustments is reflected
in Corporate Services net interest income,
revenue and provision for (recovery of) income
taxes.
Tier 1 Capital comprises CET1 Capital and
Additional Tier 1 (AT1) Capital. AT1 Capital
consists of preferred shares, limited recourse
capital notes, less regulatory deductions.
Tier 2 Capital comprises subordinated
debentures and may include certain credit loss
provisions, less regulatory deductions.
Total Capital comprises Tier 1 and Tier 2
Capital.
Total Loss Absorbing Capacity (TLAC)
comprises Total Capital and senior unsecured
debt subject to the Canadian Bail-In Regime,
less regulatory deductions, in accordance with
guidelines issued by OSFI.
Total Loss Absorbing Capacity (TLAC) Ratio is
calculated as TLAC divided by risk-weighted
assets.
Total Loss Absorbing Capacity (TLAC)
Leverage Ratio is calculated as TLAC divided by
leverage exposures.
Total Shareholder Return (TSR) represents the
average annual total return earned on an
investment in BMO common shares made at the
beginning of the respective period. It includes
the change in share price and assumes
dividends received were reinvested in
additional common shares.
Trading-Related Revenue comprises net
interest income and non-interest revenue
earned from on-balance sheet and off-balance
sheet positions undertaken for trading purposes.
The management of these positions typically
includes marking them to market on a daily
basis.
Value-at-Risk (VaR) measures the maximum
loss likely to be experienced in the trading and
underwriting portfolios, measured at a 99%
confidence level over a one-day holding period.
VaR is calculated for specific classes of risk in
BMO’s trading and underwriting activities
related to interest rates, foreign exchange rates,
credit spreads, equity and commodity prices and
their implied volatilities.
124 BMO Financial Group 208th Annual Report 2025
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 given 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, 2025, 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, 2025 is set forth on page 132.
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.
KPMG LLP, the independent auditors appointed by the shareholders of the Bank who have audited the consolidated financial statements, have
also audited the effectiveness of the Bank’s internal control over financial reporting as at October 31, 2025 and have issued their report below.
Darryl White
Tayfun Tuzun
Toronto, Canada
Chief Executive Officer
Chief Financial Officer
December 4, 2025
BMO Financial Group 208th Annual Report 2025 125
INDEPENDENT AUDITOR’S REPORT
Independent Auditor’s Report
To the Shareholders and the Board of Directors of Bank of Montreal
Opinion
We have audited the consolidated financial statements of Bank of Montreal (the Bank), which comprise:
‰ the consolidated balance sheets as at October 31, 2025 and October 31, 2024;
‰ the consolidated statements of income for the years then ended;
‰ the consolidated statements of comprehensive income for the years then ended;
‰ the consolidated statements of changes in equity for the years then ended;
‰ the consolidated statements of cash flows for the years then ended;
‰ and notes to the consolidated financial statements, including a summary of material accounting policy information
(Hereinafter referred to as the “consolidated financial statements”).
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the
Bank as at October 31, 2025 and October 31, 2024, and its consolidated financial performance and its consolidated cash flows for the years then
ended in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our auditor’s report.
We are independent of the Bank in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in
Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial
statements for the year ended October 31, 2025. These matters were addressed in the context of our audit of the consolidated financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated in our auditor’s report.
(i) Assessment of the Allowance for Credit Losses for Loans
Refer to Notes 1 and 3 to the consolidated financial statements.
Description of the matter
The Bank’s allowance for credit losses (ACL) for loans as at October 31, 2025 was $5,050 million. The Bank’s ACL consists of an allowance for impaired
loans and an allowance for performing loans (APL), both calculated under the IFRS 9 Financial Instruments expected credit losses framework. The APL
is calculated for each exposure in the loan portfolio as a function of the key modelled inputs being probability of default (PD), exposure at default
(EAD) and loss given default (LGD). In establishing the APL, the Bank’s methodology attaches probability weightings to four economic scenarios,
which represent the Bank’s judgment about a range of forecast economic variables – a base case scenario being the Bank’s view of the most probable
outcome, as well as upside, downside and severe downside scenarios. Where there has been a significant increase in credit risk, a lifetime APL is
recorded; otherwise, 12 months of an APL is generally recorded. The Bank’s methodology for determining significant increase in credit risk is primarily
based on the change in PD between the origination date and reporting date and is assessed using probability weighted scenarios. The Bank uses
Experienced Credit Judgment (ECJ) to reflect factors not captured in the results produced by the APL models. The allowance for individually significant
impaired loans is determined based on estimated recoveries for a specific loan based on all events and conditions that are relevant to the loan.
Why the matter is a key audit matter
We identified the assessment of the ACL for loans as a key audit matter. Significant auditor judgment was required due to a high degree of
measurement uncertainty in the Bank’s key modelled inputs, methodology and judgments and their resulting impact on the APL, as described above,
including the impact of the macroeconomic environment. Assessing the APL also required significant auditor attention and complex auditor judgment
to evaluate the results of audit procedures. Significant auditor judgment was also required due to a high degree of measurement uncertainty and
management judgment involved in the assessment of the estimated recoveries for individually significant impaired loans. Further, specialized skills
and knowledge, including experience in the industry, were required to apply audit procedures and evaluate the results of those procedures.
How the matter was addressed in the audit
The following are the primary procedures we performed to address this key audit matter. We evaluated the design and tested the operating
effectiveness of certain internal controls over the Bank’s ACL process, with the involvement of credit risk, economics, valuations, and information
technology professionals with specialized skills, industry knowledge and relevant experience. This included internal controls related to (1) monitoring
and periodic validation of the models used to derive the key modelled inputs, (2) monitoring of the methodology for identifying significant increase
in credit risk, and (3) review of the economic variables, probability weighting of scenarios and ECJ. We also evaluated the design and tested the
operating effectiveness of certain internal controls over the Bank’s ACL process related to loan reviews and the allowance for individually significant
impaired loans. This included internal controls related to the determination of loan risk grades for wholesale loans and the assessment of estimated
recoveries for individually significant impaired loans.
126 BMO Financial Group 208th Annual Report 2025
We involved credit risk and economics professionals with specialized skills, industry knowledge and relevant experience, who assisted in evaluating
the (1) key modelled inputs and the APL methodology including the determination of significant increases in credit risk by evaluating the
methodology for compliance with IFRS 9 and re-calculating model monitoring tests in respect of the key modelled inputs and thresholds used for
significant increases in credit risk, (2) economic variables and probability weighting of scenarios used in the models by assessing the variables and
scenarios against external economic data, and (3) ECJ overlays to the modelled APL used by the Bank by applying our knowledge of the industry and
credit judgment to assess management’s judgments. For a selection of wholesale loans, we developed an independent estimate of the loan risk
grades using the Bank’s borrower risk rating scale and compared that to the Bank’s assigned loan risk grade. For a selection of individually significant
impaired loans, we evaluated the adequacy of the impaired loans allowance by assessing the estimated recoveries relevant to each loan, and, where
appropriate, we involved credit risk and valuations professionals with specialized skills, industry knowledge and relevant experience to assist in the
evaluation.
(ii) Assessment of the Measurement of the Fair Value of Certain Securities
Refer to Notes 1, 2 and 17 to the consolidated financial statements.
Description of the matter
The Bank’s securities portfolio included $326,866 million of securities as at October 31, 2025 that are measured at fair value. Included in these
amounts are certain securities for which the Bank determines fair value using models that use significant unobservable inputs and third-party net
asset valuations (NAVs). Unobservable inputs require the use of significant judgment. Certain of the significant unobservable inputs used in the
valuation of such securities include NAVs and multiples.
Why the matter is a key audit matter
We identified the assessment of the measurement of the fair value of certain securities as a key audit matter. Significant auditor judgment was
required because there was a high degree of measurement uncertainty in the significant unobservable inputs. Significant auditor attention and
complex auditor judgment was required to evaluate the results of audit procedures. Further, specialized skills and knowledge, including experience in
the industry, were required to apply audit procedures and evaluate the results of those procedures.
How the matter was addressed in the audit
The following are the primary procedures we performed to address this key audit matter. We evaluated the design and tested the operating
effectiveness of certain internal controls over the Bank’s process to determine the fair value of certain securities with the involvement of valuation
and information technology professionals with specialized skills, industry knowledge and relevant experience. This included controls related to (1) the
assessment of rate sources used in independent price verification, and (2) segregation of duties and access controls. We also evaluated the design
and tested the operating effectiveness of the controls related to (1) independent price verification, and (2) review of third-party NAVs or fair value
determined by model-based valuation approaches. We tested, with involvement of valuation professionals with specialized skills, industry knowledge
and relevant experience, the fair value of a selection of securities, and we (1) compared the NAVs to external information or (2) tested
management’s process of estimating the fair value by testing the appropriateness of the methods used, evaluating the reasonableness of certain
assumptions including multiples, and testing the mathematical accuracy of calculations.
(iii) Assessment of Income Tax Uncertainties
Refer to Notes 1 and 22 to the consolidated financial statements.
Description of the matter
In determining the provision for income taxes, the Bank interprets tax legislation, case law and administrative positions, and, based on its judgment,
records a provision for an estimate of the amount required to settle tax obligations.
Why the matter is a key audit matter
We identified the assessment of income tax uncertainties as a key audit matter. Significant auditor judgment was required because there was a high
degree of subjectivity in assessing the need to record a provision, based on interpretation of tax legislation, case law and administrative positions, for
these uncertainties and estimating the amount of such provision, if necessary. This required significant auditor attention and complex auditor
judgment to evaluate the results of audit procedures. Further, specialized skills and knowledge, including experience in the industry, were required to
apply audit procedures and evaluate the results of those audit procedures.
How the matter was addressed in the audit
The following are the primary procedures we performed to address this key audit matter. We evaluated the design and tested the operating
effectiveness of certain internal controls over the Bank’s process for evaluating income tax uncertainties with the involvement of tax professionals
with specialized skills, industry knowledge and relevant experience. This included controls related to the (1) interpretation of tax legislation, case law
and administrative positions and the evaluation of the technical merits of tax positions, and (2) determination of the best estimate of the provision
required for these uncertainties. We involved tax professionals with specialized skills, industry knowledge and relevant experience, who assisted
in (1) evaluating, based on their knowledge and experience, the Bank’s interpretations of tax legislation, case law and administrative positions and
the assessment of certain tax uncertainties and expected outcomes, including, if applicable, the measurement thereof, (2) reading advice obtained by
the Bank from external counsel and evaluating its impact on the Bank’s provision, if necessary, and (3) reading correspondence with taxation
authorities and evaluating its impact on the Bank’s provision, if necessary.
(iv) Assessment of the Valuation of Insurance-related Liabilities
Refer to Notes 1 and 14 to the consolidated financial statements.
Description of the matter
The Bank’s insurance-related liabilities as at October 31, 2025 were $20,436 million. The Bank’s methodology for determining insurance-related
liabilities incorporates judgments regarding financial and non-financial risk assumptions. The key financial risk assumption is the discount rate which
is comprised of a risk-free rate and an illiquidity premium that reflects the characteristics of the underlying insurance-related liabilities. The key
non-financial risk assumptions include mortality, policy lapse and expenses.
BMO Financial Group 208th Annual Report 2025 127
INDEPENDENT AUDITOR’S REPORT
Why the matter is a key audit matter
We identified the assessment of the valuation of insurance-related liabilities as a key audit matter. Significant auditor judgment was required due to
the high degree of measurement uncertainty in the Bank’s modelled inputs, methodology and key assumptions, and their resulting impact on
insurance-related liabilities. Assessing the insurance-related liabilities also required significant auditor attention and complex auditor judgment to
evaluate the results of the audit procedures performed. Further, specialized skills and knowledge, including experience in the industry, were required
to apply audit procedures and evaluate the results of those procedures.
How the matter was addressed in the audit
The following are the primary procedures we performed to address this key audit matter. We evaluated the design and tested the operating
effectiveness of certain internal controls related to the Bank’s valuation of insurance-related liabilities process. This included controls related to the
development and review of key financial and non-financial risk assumptions, and the actuarial models used to calculate insurance-related liabilities
with the assistance of actuarial professionals with specialized skills, industry knowledge and relevant experience. We involved actuarial professionals
with specialized skills, industry knowledge and relevant experience, who assisted in evaluating (1) the key non-financial assumptions, being
mortality, policy lapses and expenses, by comparing them to the Bank’s internal and external experience studies, and (2) the impact of assumption
changes on the contractual service margin (CSM) on the consolidated statement of income, by assessing assumption changes and other evidence. We
also tested a selection of the underlying evidence and documentation, such as executed policyholder insurance contracts. We assessed the illiquidity
premiums used in the determination of the discount rate by comparing a selection against market data for financial instruments with similar illiquidity
characteristics.
Other Information
Management is responsible for the other information. Other information comprises:
‰ the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions; and
‰ the information, other than the consolidated financial statements and the auditor’s report thereon, included in a document entitled the “Annual
Report”.
Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance
conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing
so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the
audit and remain alert for indications that the other information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis and the Annual Report filed with the relevant Canadian Securities
Commissions as at the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a
material misstatement of this other information, we are required to report that fact in the auditor’s report. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS as issued by the
IASB, 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.
In preparing the consolidated financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern,
disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to
liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Bank’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted
auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of the consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional
skepticism throughout the audit.
We also:
‰ Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
‰ Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.
‰ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by
management.
‰ Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.
‰ Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the
consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
128 BMO Financial Group 208th Annual Report 2025
‰ Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we identify during our audit.
‰ Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and
communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
‰ Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business units
within the group as a basis for forming an opinion on the group consolidated financial statements. We are responsible for the direction, supervision
and review of the audit work performed for the purposes of the group audit. We remain solely responsible for our audit opinion.
‰ Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the
consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditor’s report is Naveen Kumar Kalia.
Toronto, Canada
December 4, 2025
BMO Financial Group 208th Annual Report 2025 129
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Bank of Montreal
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Bank of Montreal (the Bank) as of October 31, 2025 and 2024, the related
consolidated statements of income, comprehensive income, changes in equity, and cash flows for the years then ended, and the related notes
(collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Bank as of October 31, 2025 and 2024, and its financial performance and its cash flows for the years then ended, in
conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Bank’s
internal control over financial reporting as of October 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated December 4, 2025 expressed an unqualified
opinion on the effectiveness of the Bank’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Bank in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were
communicated or required to be communicated to the Audit and Conduct Review Committee and that: (1) relate to accounts or disclosures that are
material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication
of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
(i) Assessment of the Allowance for Credit Losses for Loans
As discussed in Notes 1 and 3 to the consolidated financial statements, the Bank’s allowance for credit losses (ACL) for loans as at October 31, 2025
was $5,050 million. The Bank’s ACL consists of an allowance for impaired loans and an allowance for performing loans (APL), both calculated under
the IFRS 9 Financial Instruments expected credit losses framework. The APL is calculated for each exposure in the loan portfolio as a function of the
key modelled inputs being probability of default (PD), exposure at default (EAD) and loss given default (LGD). In establishing the APL, the Bank’s
methodology attaches probability weightings to four economic scenarios, which represent the Bank’s judgment about a range of forecast economic
variables – a base case scenario being the Bank’s view of the most probable outcome, as well as upside, downside and severe downside scenarios.
Where there has been a significant increase in credit risk, a lifetime APL is recorded; otherwise, 12 months of an APL is generally recorded. The Bank’s
methodology for determining significant increase in credit risk is primarily based on the change in PD between the origination date and reporting
date and is assessed using probability weighted scenarios. The Bank uses Experienced Credit Judgment (ECJ) to reflect factors not captured in the
results produced by the APL models. The allowance for individually significant impaired loans is determined based on estimated recoveries for a
specific loan based on all events and conditions that are relevant to the loan.
We identified the assessment of the ACL for loans as a critical audit matter. Significant auditor judgment was required due to a high degree of
measurement uncertainty in the Bank’s key modelled inputs, methodology and judgments and their resulting impact on the APL, as described above,
including the impact of the macroeconomic environment. Assessing the APL also required significant auditor attention and complex auditor judgment
to evaluate the results of audit procedures. Significant auditor judgment was also required due to a high degree of measurement uncertainty and
management judgment involved in the assessment of the estimated recoveries for individually significant impaired loans. Further, specialized skills
and knowledge, including experience in the industry, were required to apply audit procedures and evaluate the results of those procedures.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating
effectiveness of certain internal controls over the Bank’s ACL process, with the involvement of credit risk, economics, valuations, and information
technology professionals with specialized skills, industry knowledge and relevant experience. This included internal controls related to (1) monitoring
and periodic validation of the models used to derive the key modelled inputs, (2) monitoring of the methodology for identifying significant increase
in credit risk, and (3) review of the economic variables, probability weighting of scenarios and ECJ. We also evaluated the design and tested the
operating effectiveness of certain internal controls over the Bank’s ACL process related to loan reviews and the allowance for individually significant
impaired loans. This included internal controls related to the determination of loan risk grades for wholesale loans and the assessment of estimated
recoveries for individually significant impaired loans. We involved credit risk and economics professionals with specialized skills, industry knowledge
and relevant experience, who assisted in evaluating the (1) key modelled inputs and the APL methodology including the determination of significant
increases in credit risk by evaluating the methodology for compliance with IFRS 9 and re-calculating model monitoring tests in respect of the key
modelled inputs and thresholds used for significant increases in credit risk, (2) economic variables and probability weighting of scenarios used in the
models by assessing the variables and scenarios against external economic data, and (3) ECJ overlays to the modelled APL used by the Bank by
applying our knowledge of the industry and credit judgment to assess management’s judgments. For a selection of wholesale loans, we developed
an independent estimate of the loan risk grades using the Bank’s borrower risk rating scale and compared that to the Bank’s assigned loan risk grade.
For a selection of individually significant impaired loans, we evaluated the adequacy of the impaired loans allowance by assessing the estimated
recoveries relevant to each loan, and, where appropriate, we involved credit risk and valuations professionals with specialized skills, industry
knowledge and relevant experience to assist in the evaluation.
130 BMO Financial Group 208th Annual Report 2025
(ii) Assessment of the Measurement of the Fair Value of Certain Securities
As discussed in Notes 1, 2 and 17 to the consolidated financial statements, the Bank’s securities portfolio included $326,866 million of securities as at
October 31, 2025 that are measured at fair value. Included in these amounts are certain securities for which the Bank determines fair value using
models that use significant unobservable inputs and third-party net asset valuations (NAVs). Unobservable inputs require the use of significant
judgment. Certain of the significant unobservable inputs used in the valuation of such securities include NAVs and multiples.
We identified the assessment of the measurement of the fair value of certain securities as a critical audit matter. Significant auditor judgment was
required because there was a high degree of measurement uncertainty in the significant unobservable inputs. Significant auditor attention and
complex auditor judgment was required to evaluate the results of audit procedures. Further, specialized skills and knowledge, including experience in
the industry, were required to apply audit procedures and evaluate the results of those procedures.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating
effectiveness of certain internal controls over the Bank’s process to determine the fair value of certain securities with the involvement of valuation
and information technology professionals with specialized skills, industry knowledge and relevant experience. This included controls related to (1) the
assessment of rate sources used in independent price verification, and (2) segregation of duties and access controls. We also evaluated the design
and tested the operating effectiveness of the controls related to (1) independent price verification, and (2) review of third-party NAVs or fair value
determined by model-based valuation approaches. We tested, with involvement of valuation professionals with specialized skills, industry knowledge
and relevant experience, the fair value of a selection of securities, and we (1) compared the NAVs to external information or (2) tested
management’s process of estimating the fair value by testing the appropriateness of the methods used, evaluating the reasonableness of certain
assumptions including multiples, and testing the mathematical accuracy of calculations.
(iii) Assessment of Income Tax Uncertainties
As discussed in Notes 1 and 22 to the consolidated financial statements, in determining the provision for income taxes, the Bank interprets tax
legislation, case law and administrative positions, and, based on its judgment, records a provision for an estimate of the amount required to settle tax
obligations.
We identified the assessment of income tax uncertainties as a critical audit matter. Significant auditor judgment was required because there was a
high degree of subjectivity in assessing the need to record a provision, based on interpretation of tax legislation, case law and administrative
positions, for these uncertainties and estimating the amount of such provision, if necessary. This required significant auditor attention and complex
auditor judgment to evaluate the results of audit procedures. Further, specialized skills and knowledge, including experience in the industry, were
required to apply audit procedures and evaluate the results of those audit procedures.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating
effectiveness of certain internal controls over the Bank’s process for evaluating income tax uncertainties with the involvement of tax professionals
with specialized skills, industry knowledge and relevant experience. This included controls related to the (1) interpretation of tax legislation, case law
and administrative positions and the evaluation of the technical merits of tax positions, and (2) determination of the best estimate of the provision
required for these uncertainties. We involved tax professionals with specialized skills, industry knowledge and relevant experience, who assisted
in (1) evaluating, based on their knowledge and experience, the Bank’s interpretations of tax legislation, case law and administrative positions and
the assessment of certain tax uncertainties and expected outcomes, including, if applicable, the measurement thereof, (2) reading advice obtained by
the Bank from external counsel and evaluating its impact on the Bank’s provision, if necessary, and (3) reading correspondence with taxation
authorities and evaluating its impact on the Bank’s provision, if necessary.
(iv) Assessment of the Valuation of Insurance-related Liabilities
As discussed in Notes 1 and 14 to the consolidated financial statements, the Bank’s insurance-related liabilities as at October 31, 2025
were $20,436 million. The Bank’s methodology for determining insurance-related liabilities incorporates judgments regarding financial and
non-financial risk assumptions. The key financial risk assumption is the discount rate which is comprised of a risk-free rate and an illiquidity premium
that reflects the characteristics of the underlying insurance-related liabilities. The key non-financial risk assumptions include mortality, policy lapse
and expenses.
We identified the assessment of the valuation of insurance-related liabilities as a critical audit matter. Significant auditor judgment was required due
to the high degree of measurement uncertainty in the Bank’s modelled inputs, methodology and key assumptions, and their resulting impact on
insurance-related liabilities. Assessing the insurance-related liabilities also required significant auditor attention and complex auditor judgment to
evaluate the results of the audit procedures performed. Further, specialized skills and knowledge, including experience in the industry, were required
to apply audit procedures and evaluate the results of those procedures.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating
effectiveness of certain internal controls related to the Bank’s valuation of insurance-related liabilities process. This included controls related to the
development and review of key financial and non-financial risk assumptions, and the actuarial models used to calculate insurance-related liabilities
with the assistance of actuarial professionals with specialized skills, industry knowledge and relevant experience. We involved actuarial professionals
with specialized skills, industry knowledge and relevant experience, who assisted in evaluating (1) the key non-financial assumptions, being
mortality, policy lapses and expenses, by comparing them to the Bank’s internal and external experience studies, and (2) the impact of assumption
changes on the contractual service margin (CSM) on the consolidated statement of income, by assessing assumption changes and other evidence. We
also tested a selection of the underlying evidence and documentation, such as executed policyholder insurance contracts. We assessed the illiquidity
premiums used in the determination of the discount rate by comparing a selection against market data for financial instruments with similar illiquidity
characteristics.
Chartered Professional Accountants, Licensed Public Accountants
We have served as the Bank’s auditor since 2004 and as joint auditor for the prior 14 years.
Toronto, Canada
December 4, 2025
BMO Financial Group 208th Annual Report 2025 131
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Bank of Montreal
Opinion on Internal Control Over Financial Reporting
We have audited Bank of Montreal’s internal control over financial reporting as of October 31, 2025, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, Bank of
Montreal (the Bank) maintained, in all material respects, effective internal control over financial reporting as of October 31, 2025, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Bank as of October 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, changes in
equity, and cash flows for each of the years then ended, and the related notes (collectively, the consolidated financial statements), and our report
dated December 4, 2025 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
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, on page 113 of 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 are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Bank in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal
control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
December 4, 2025
132 BMO Financial Group 208th Annual Report 2025
Consolidated Financial Statements
Consolidated Statement of Income
For the Year Ended October 31 (Canadian $ in millions, except as noted)
2025
2024
Interest, Dividend and Fee Income
Loans
$
38,747
$
40,069
Securities (Note 2) (1)
15,862
15,038
Securities borrowed or purchased under resale agreements
6,072
6,843
Deposits with banks
2,856
4,035
63,537
65,985
Interest Expense
Deposits
29,255
34,580
Securities sold but not yet purchased and securities lent or sold under repurchase agreements
9,064
8,907
Subordinated debt
456
456
Other liabilities (Note 13)
3,275
2,574
42,050
46,517
Net Interest Income
21,487
19,468
Non-Interest Revenue
Securities commissions and fees
1,169
1,106
Deposit and payment service charges
1,791
1,626
Trading revenues (Note 17)
2,584
2,377
Lending fees
1,342
1,464
Card fees
831
847
Investment management and custodial fees
2,339
2,056
Mutual fund revenues
1,495
1,324
Underwriting and advisory fees
1,703
1,399
Securities gains, other than trading (Note 2)
287
200
Foreign exchange gains, other than trading
271
263
Insurance service results (Note 14)
421
340
Insurance investment results (Note 14)
124
105
Share of profit in associates and joint ventures
175
207
Other revenues
255
13
14,787
13,327
Total Revenue
36,274
32,795
Provision for Credit Losses (Note 3)
3,617
3,761
Non-Interest Expense
Employee compensation (Notes 20 and 21)
12,018
10,872
Premises and equipment (Note 8)
4,468
4,117
Amortization of intangible assets (Note 10)
1,152
1,112
Advertising and business development
806
837
Communications
342
388
Professional fees
678
583
Association, clearing and annual regulator fees
302
321
Other
1,341
1,269
21,107
19,499
Income Before Provision for Income Taxes
11,550
9,535
Provision for income taxes (Note 22)
2,825
2,208
Net Income
$
8,725
$
7,327
Attributable to:
Bank shareholders
$
8,709
$
7,318
Non-controlling interest in subsidiaries
16
9
Net Income
$
8,725
$
7,327
Earnings Per Common Share (Canadian $) (Note 23)
Basic
$
11.46
$
9.52
Diluted
11.44
9.51
Dividends per common share
6.44
6.12
(1) Includes interest income on securities measured at fair value through other comprehensive income (FVOCI) and amortized cost, calculated using the effective interest rate method, of $7,136 million
for the year ended October 31, 2025 ($7,826 million in 2024).
The accompanying notes are an integral part of these consolidated financial statements.
Darryl White
Jan Babiak
Chief Executive Officer
Chair, Audit and Conduct Review Committee
BMO Financial Group 208th Annual Report 2025 133
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
For the Year Ended October 31 (Canadian $ in millions)
2025
2024
Net Income
$
8,725
$
7,327
Other Comprehensive Income, net of taxes (Note 22)
Items that will subsequently be reclassified to net income
Net change in unrealized gains on fair value through OCI debt securities
Unrealized gains on fair value through OCI debt securities arising during the year
308
217
Reclassification to earnings of (gains) during the year
(65)
(83)
243
134
Net change in unrealized gains on derivatives designated as cash flow hedges
Gains on derivatives designated as cash flow hedges arising during the year (Note 7)
995
2,512
Reclassification to earnings of losses on derivatives designated as cash flow hedges during the year
1,051
1,417
2,046
3,929
Net gains on translation of net foreign operations
Unrealized gains on translation of net foreign operations
473
287
Unrealized (losses) on hedges of net foreign operations
(76)
(100)
397
187
Items that will not be subsequently reclassified to net income
Net unrealized gains (losses) on fair value through OCI equity securities arising during the year
(11)
9
Net gains (losses) on remeasurement of pension and other employee future benefit plans (Note 21)
137
(69)
Net (losses) on remeasurement of own credit risk on financial liabilities designated at fair value
(245)
(633)
(119)
(693)
Total Other Comprehensive Income, net of taxes (Note 22)
2,567
3,557
Total Comprehensive Income
$
11,292
$
10,884
Attributable to:
Bank shareholders
$
11,276
$
10,875
Non-controlling interest in subsidiaries
16
9
Total Comprehensive Income
$
11,292
$
10,884
The accompanying notes are an integral part of these consolidated financial statements.
134 BMO Financial Group 208th Annual Report 2025
Consolidated Financial Statements
Consolidated Financial Statements
Consolidated Balance Sheet
As at October 31 (Canadian $ in millions)
2025
2024
Assets
Cash and Cash Equivalents
$
67,484
$
65,098
Interest Bearing Deposits with Banks
2,838
3,640
Securities (Note 2)
Trading
192,303
168,926
Fair value through profit or loss
21,354
19,064
Fair value through other comprehensive income
113,209
93,702
Debt securities at amortized cost
96,610
115,188
423,476
396,880
Securities Borrowed or Purchased Under Resale Agreements (Note 3)
129,421
110,907
Loans (Notes 3 and 5)
Residential mortgages
196,033
191,080
Consumer instalment and other personal
92,741
92,687
Credit cards
12,649
13,612
Business and government
380,788
384,993
682,211
682,372
Allowance for credit losses (Note 3)
(5,050)
(4,356)
677,161
678,016
Other Assets
Derivative instruments (Note 7)
57,151
47,253
Customers’ liability under acceptances
711
359
Premises and equipment (Note 8)
6,252
6,249
Goodwill (Note 10)
16,797
16,774
Intangible assets (Note 10)
4,758
4,925
Current tax assets
1,970
2,219
Deferred tax assets (Note 22)
2,732
3,024
Receivable from brokers, dealers and clients
43,167
31,916
Other (Note 11)
42,884
42,387
176,422
155,106
Total Assets
$
1,476,802
$
1,409,647
Liabilities and Equity
Deposits (Note 12)
$
976,202
$
982,440
Other Liabilities
Derivative instruments (Note 7)
58,729
58,303
Acceptances
711
359
Securities sold but not yet purchased (Note 13)
54,876
35,030
Securities lent or sold under repurchase agreements (Note 5)
134,967
110,791
Securitization and structured entities’ liabilities (Notes 5 and 6)
51,562
40,164
Insurance-related liabilities (Note 14)
20,436
18,770
Payable to brokers, dealers and clients
45,170
34,407
Other (Note 13)
37,549
36,720
404,000
334,544
Subordinated Debt (Note 15)
8,500
8,377
Total Liabilities
$
1,388,702
$
1,325,361
Equity
Preferred shares and other equity instruments (Note 16)
8,956
8,087
Common shares (Note 16)
23,359
23,921
Contributed surplus
373
354
Retained earnings
47,377
46,469
Accumulated other comprehensive income
7,986
5,419
Total shareholders’ equity
88,051
84,250
Non-controlling interest in subsidiaries
49
36
Total Equity
88,100
84,286
Total Liabilities and Equity
$
1,476,802
$
1,409,647
The accompanying notes are an integral part of these consolidated financial statements.
BMO Financial Group 208th Annual Report 2025 135
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Changes in Equity
For the Year Ended October 31 (Canadian $ in millions)
2025
2024
Preferred Shares and Other Equity Instruments (Note 16)
Balance at beginning of year
$
8,087
$
6,958
Issued during the year
1,369
2,379
Redeemed during the year
(500)
(1,250)
Balance at end of year
8,956
8,087
Common Shares (Note 16)
Balance at beginning of year
23,921
22,941
Issued under the Shareholder Dividend Reinvestment and Share Purchase Plan
–
905
Issued under the Stock Option Plan
161
74
Treasury shares sold
7
1
Purchased for cancellation
(730)
–
Balance at end of year
23,359
23,921
Contributed Surplus
Balance at beginning of year
354
328
Stock option expense, net of options exercised (Note 20)
14
15
Net premium on sale of treasury shares
5
11
Balance at end of year
373
354
Retained Earnings
Balance at beginning of year
46,469
44,006
Net income attributable to bank shareholders
8,709
7,318
Dividends on preferred shares and distributions payable on other equity instruments (Note 16)
(436)
(386)
Dividends on common shares (Note 16)
(4,630)
(4,458)
Equity issue expense
(4)
(11)
Common shares purchased for cancellation (Note 16)
(2,731)
–
Balance at end of year
47,377
46,469
Accumulated Other Comprehensive (Loss) on Fair Value through OCI Securities, net of taxes
Balance at beginning of year
(321)
(464)
Unrealized gains on fair value through OCI debt securities arising during the year
308
217
Unrealized gains (losses) on fair value through OCI equity securities arising during the year
(11)
9
Reclassification to earnings of (gains) during the year
(65)
(83)
Balance at end of year
(89)
(321)
Accumulated Other Comprehensive Income (Loss) on Cash Flow Hedges, net of taxes
Balance at beginning of year
(1,519)
(5,448)
Gains on derivatives designated as cash flow hedges arising during the year (Note 7)
995
2,512
Reclassification to earnings of losses on derivatives designated as cash flow hedges during the year
1,051
1,417
Balance at end of year
527
(1,519)
Accumulated Other Comprehensive Income on Translation of Net Foreign Operations, net of taxes
Balance at beginning of year
6,381
6,194
Unrealized gains on translation of net foreign operations
473
287
Unrealized (losses) on hedges of net foreign operations
(76)
(100)
Balance at end of year
6,778
6,381
Accumulated Other Comprehensive Income on Pension and Other Employee Future Benefit Plans, net of taxes
Balance at beginning of year
874
943
Gains (losses) on remeasurement of pension and other employee future benefit plans (Note 21)
137
(69)
Balance at end of year
1,011
874
Accumulated Other Comprehensive Income (Loss) on Own Credit Risk on Financial Liabilities Designated
at Fair Value, net of taxes
Balance at beginning of year
4
637
(Losses) on remeasurement of own credit risk on financial liabilities designated at fair value
(245)
(633)
Balance at end of year
(241)
4
Total Accumulated Other Comprehensive Income
7,986
5,419
Total Shareholders’ Equity
88,051
84,250
Non-Controlling Interest in Subsidiaries
Balance at beginning of year
36
28
Net income attributable to non-controlling interest in subsidiaries
16
9
Dividends to non-controlling interest in subsidiaries
(3)
(3)
Other
–
2
Balance at end of year
49
36
Total Equity
$
88,100
$
84,286
The accompanying notes are an integral part of these consolidated financial statements.
136 BMO Financial Group 208th Annual Report 2025
Consolidated Financial Statements
Consolidated Financial Statements
Consolidated Statement of Cash Flows
For the Year Ended October 31 (Canadian $ in millions)
2025
2024
Cash Flows Provided by Operating Activities
Net Income
$
8,725
$
7,327
Adjustments to determine net cash flows provided by operating activities:
Securities (gains), other than trading (Note 2)
(287)
(200)
Depreciation of premises and equipment (Note 8)
1,015
970
Depreciation of other assets
13
28
Amortization of intangible assets (Note 10)
1,152
1,112
Write-down of goodwill and intangible assets (Notes 9 and 10)
178
26
Provision for credit losses (Note 3)
3,617
3,761
Deferred taxes (Note 22)
12
153
Share of (profit) in associates and joint ventures
(175)
(207)
Changes in operating assets and liabilities:
Trading securities
(21,315)
(42,700)
Derivative assets
(7,984)
(85)
Derivative liabilities
(1,182)
2,123
Current income taxes
104
257
Accrued interest receivable and payable
(1,403)
785
Insurance-related liabilities
1,666
4,312
Brokers, dealers and clients receivable and payable
(592)
1,529
Other items and accruals, net
3,479
(7,125)
Deposits
(13,233)
66,114
Loans
(82)
(24,636)
Securities sold but not yet purchased
19,582
(8,786)
Securities lent or sold under repurchase agreements
23,166
3,766
Securities borrowed or purchased under resale agreements
(17,682)
5,480
Securitization and structured entities’ liabilities
11,466
12,699
Net cash provided by operating activities
10,240
26,703
Cash Flows (Used in) Financing Activities
Net (decrease) in liabilities of subsidiaries
(945)
(12,071)
Proceeds from issuance of subordinated debt (Note 15)
1,250
1,000
Repayment of subordinated debt (Note 15)
(1,250)
(1,000)
Proceeds from issuance of preferred shares, net of issuance costs (Note 16)
1,365
2,368
Redemption of preferred shares (Note 16)
(500)
(1,250)
Net proceeds from issuance of common shares (Note 16)
146
67
Net sale of treasury shares (Note 16)
12
1
Common shares purchased for cancellation (Note 16)
(3,396)
–
Cash dividends and distributions paid
(5,031)
(3,840)
Cash dividends paid to non-controlling interest
(3)
(3)
Repayment of lease liabilities
(321)
(357)
Net cash (used in) financing activities
(8,673)
(15,085)
Cash Flows Provided by (Used in) Investing Activities
Interest bearing deposits with banks
854
515
Purchases of securities, other than trading
(78,686)
(86,980)
Maturities of securities, other than trading
37,244
27,323
Proceeds from sales of securities, other than trading
42,922
36,177
Net purchases of premises and equipment and software (Notes 8 and 10)
(1,729)
(1,564)
Net cash provided by (used in) investing activities
605
(24,529)
Effect of exchange rate changes on cash and cash equivalents
214
75
Net increase (decrease) in cash and cash equivalents
2,386
(12,836)
Cash and cash equivalents at beginning of year
65,098
77,934
Cash and Cash Equivalents at End of Year (1)
$
67,484
$
65,098
Supplemental Disclosure of Cash Flow Information
Net cash provided by operating activities includes:
Interest paid in the year (2)
$
43,135
$
45,092
Income taxes paid in the year
2,831
2,450
Interest received in the year
61,067
63,108
Dividends received in the year
2,423
2,481
(1) We are required to maintain reserves or minimum balances with certain central banks, regulatory bodies and counterparties, totalling $108 million as at October 31, 2025 ($80 million as at
October 31, 2024).
(2) Includes dividends paid on securities sold but not yet purchased.
The accompanying notes are an integral part of these consolidated financial statements.
BMO Financial Group 208th Annual Report 2025 137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
Bank of Montreal (the bank or BMO) is a chartered bank under the Bank Act (Canada) and is a public company incorporated in Canada. We are a
highly diversified financial services company, providing a broad range of personal and commercial banking, wealth management and investment
banking products and services. The bank’s head office is at 129 rue Saint-Jacques, Montreal, Quebec. Our executive offices are at 100 King Street
West, 1 First Canadian Place, Toronto, Ontario. Our common shares are listed on the Toronto Stock Exchange (TSX) and the New York Stock Exchange.
We have prepared these consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB). We also comply with interpretations of IFRS by our regulator, the Office of the Superintendent of
Financial Institutions (OSFI).
Our consolidated financial statements have been prepared on a historical cost basis, except for the revaluation of the following items: assets and
liabilities held for trading; financial assets and liabilities measured or designated at fair value through profit or loss (FVTPL); financial assets measured
or designated at FVOCI; financial assets and liabilities designated as hedged items in qualifying fair value hedge relationships; investment properties;
cash-settled share-based payment liabilities; defined benefit pension and other employee future benefit liabilities; and insurance-related liabilities.
These consolidated financial statements were authorized for issue by the Board of Directors on December 4, 2025.
Basis of Consolidation
These consolidated financial statements are inclusive of the financial statements of our subsidiaries as at October 31, 2025. We conduct business
through a variety of corporate structures, including subsidiaries, structured entities (SEs), associates and joint ventures. Subsidiaries are those entities
where we exercise control through our ownership of the majority of the voting shares. We also hold interests in SEs, which we consolidate when we
control the SEs. These are more fully described in Note 6. All of the assets, liabilities, revenues and expenses of our subsidiaries and consolidated SEs
are included in our consolidated financial statements. All intercompany transactions and balances are eliminated on consolidation.
We hold investments in associates, where we exert significant influence over operating and financing decisions (generally companies in which
we own between 20% and 50% of the voting shares). These are accounted for using the equity method. The equity method is also applied to our
investments in joint ventures, which are entities where we exercise joint control through an agreement with other shareholders. Under the equity
method of accounting, investments are initially recorded at cost, and the carrying amount is increased or decreased to recognize our share of an
investee’s net income or loss, including other comprehensive income or loss. Additional information regarding accounting for investments in
associates and joint ventures is included in Note 11.
Material Accounting Policies
To facilitate a better understanding of our consolidated financial statements, we have disclosed our material accounting policies throughout the
following notes with the related financial disclosures by major caption:
Note Topic
Page
1
Basis of Presentation
138
2
Securities
143
3
Loans and Allowance for Credit Losses
145
4
Risk Management
152
5
Transfers of Financial Assets
152
6
Structured Entities
154
7
Derivative Instruments
156
8
Premises and Equipment
165
9
Acquisitions and Divestitures
166
10
Goodwill and Intangible Assets
167
11
Other Assets
169
12
Deposits
169
13
Other Liabilities
170
14
Insurance
171
15
Subordinated Debt
174
Note Topic
Page
16
Equity
175
17
Fair Value Measurements and Trading-Related Revenue
177
18
Offsetting of Financial Assets and Financial Liabilities
184
19
Capital Management
185
20
Employee Compensation – Share-Based Compensation
186
21
Employee Compensation – Pension and Other Employee
Future Benefits
188
22
Income Taxes
192
23
Earnings Per Share
195
24
Commitments, Guarantees, Pledged Assets, Provisions
and Contingent Liabilities
195
25
Operating and Geographic Segmentation
198
26
Significant Subsidiaries
201
27
Related Party Transactions
201
Translation of Foreign Currencies
We conduct business in a variety of foreign currencies and present our consolidated financial statements in Canadian dollars, which is our functional
currency. Monetary assets and liabilities, as well as non-monetary assets and liabilities measured at fair value, that are denominated in foreign
currencies are translated into Canadian dollars at the exchange rate in effect at the balance sheet date. Non-monetary assets and liabilities not
measured at fair value are translated into Canadian dollars at historical rates. Revenues and expenses denominated in foreign currencies are
translated using the average exchange rate for the year.
Unrealized gains and losses arising from translating our net investment in foreign operations into Canadian dollars, net of related hedging
activities and applicable income taxes, are included in our Consolidated Statement of Comprehensive Income within net gains on translation of net
foreign operations. When we dispose of a foreign operation such that control, significant influence or joint control is lost, the cumulative amount of
the gain (loss) on translation and any applicable hedging activities and related income taxes is reclassified to our Consolidated Statement of Income
as part of the gain or loss on disposition.
Foreign currency translation gains and losses on equity securities measured at FVOCI that are denominated in foreign currencies are included in
net unrealized gains (losses) on FVOCI equity securities arising during the period in our Consolidated Statement of Comprehensive Income. All other
foreign currency translation gains and losses are included in foreign exchange gains, other than trading, in our Consolidated Statement of Income as
they arise.
138 BMO Financial Group 208th Annual Report 2025
Notes
Notes
From time to time, we enter into foreign exchange hedge contracts to reduce our exposure to changes in the value of foreign currencies.
Realized and unrealized gains and losses that arise on the mark-to-market of foreign exchange contracts related to economic hedges are included in
non-interest revenue, foreign exchange gains, other than trading, in our Consolidated Statement of Income. Changes in the fair value of derivative
contracts that qualify for hedge accounting are recorded in our Consolidated Statement of Comprehensive Income within net change in unrealized
gains (losses) on derivatives designated as cash flow hedges, with the spot/forward differential (the difference between the foreign currency
exchange rate at the inception of the contract and the rate at the end of the contract) recorded in interest income (expense) over the term of the
hedge.
Revenue
Dividend Income
Dividend income is recognized when the right to receive payment is established. This is the ex-dividend date for listed equity securities.
Fee Income
Fee income is recognized based on the purpose of the fee and the terms specified in the contract with customers, generally when we have
completed our obligations as specified in the contract. Payment is typically due when our obligation has been satisfied or shortly thereafter, so there
is generally no significant financing component associated with payments due to us. For contracts where the transaction price includes variable
consideration, revenue is only recognized to the extent that it is highly probable. When another party is involved in providing a service to a customer,
we determine whether we act as a principal or an agent, which may require judgment. If we act as a principal (i.e. when we control the services in
the contract before they are transferred to customers), we present revenue separately from the amount paid to the other party; otherwise, we
present revenue net of the amount paid to the other party.
Securities commissions and fees are earned in Wealth Management and Capital Markets on brokerage transactions executed for customers,
generally as a fixed fee per share traded, and the commissions and related clearing expense are recognized on trade date. There are also fees based
on a percentage of the customer’s portfolio holdings that entitle them to investment advice and a certain number of trades, which are recorded over
the period to which the fees relate.
Deposit and payment service charges are primarily earned in Canadian Personal and Commercial Banking (Canadian P&C) and U.S. Banking, and
include monthly account maintenance fees and other activity-based fees earned on deposit and cash management services. Fees are recognized over
time when account maintenance and cash management services are provided, or at a point in time when an income-generating activity is performed.
Card fees are earned in Canadian P&C and U.S. Banking and primarily include interchange income, late fees and annual fees. Card fees are recorded
when the related services are provided, except for annual fees, which are recorded evenly throughout the year. Interchange income is calculated as a
percentage of the transaction amount and/or a fixed price per transaction, as established by the payment network, and is recognized when the card
transaction is settled. Reward costs for our cards are recorded as a reduction in card fees when redeemed.
Investment management and custodial fees are earned in Wealth Management and are based primarily on the balance of assets under
management or assets under administration, as at the period end, for investment management, custodial, estate and trustee services provided. Fees
are recorded over the period the services are performed.
Mutual fund revenues are earned in Wealth Management as fees for fund management services, which are primarily calculated and recorded based
on a percentage of the fund’s net asset value. The fees are recorded over the period the services are performed.
Underwriting and advisory fees are earned in Capital Markets and arise from securities offerings in which we act as an underwriter or agent,
structuring and administering loan syndications, as well as fees earned from providing mergers and acquisitions services and structuring advice.
Underwriting and advisory fees are generally recognized when the services are completed.
Leases
We are lessors in both financing leases and operating leases. Leases are classified as financing leases if they transfer substantially all of the risks and
rewards incidental to ownership of the leased asset to the lessee. Otherwise they are classified as operating leases, as we retain substantially all of
the risks and rewards of asset ownership.
As lessor in a financing lease, a loan is recognized equal to the investment in the lease, which is calculated as the present value of the minimum
payments to be received from the lessee, discounted at the interest rate implicit in the lease, plus any unguaranteed residual value we expect to
recover at the end of the lease. Finance lease income is recognized in interest, dividend and fee income, loans, in our Consolidated Statement of
Income.
Assets under operating leases are recorded in other assets in our Consolidated Balance Sheet. Rental income is recognized on a straight-line basis
over the term of the lease in non-interest revenue, other revenues, in our Consolidated Statement of Income. Depreciation on these assets is
recognized on a straight-line basis over the term of the lease in non-interest expense, other, in our Consolidated Statement of Income.
Refer to Note 8 for our policy on lessee accounting.
Assets Held for Sale
Non-current non-financial assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell and are
presented within other assets in our Consolidated Balance Sheet. Subsequent to its initial classification, a non-current asset is no longer depreciated
or amortized, and any subsequent write-down in fair value less costs to sell is recognized in non-interest expense, other, in our Consolidated
Statement of Income.
BMO Financial Group 208th Annual Report 2025 139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates and Judgments
The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the carrying amounts of
certain assets and liabilities, certain amounts reported in net income and other related disclosures.
The most significant assets and liabilities for which we must make estimates and judgments include the allowance for credit losses (ACL);
financial instruments measured at fair value; pension and other employee future benefits; impairment of securities and investments in associates and
joint ventures; income taxes and deferred tax assets; goodwill and intangible assets; insurance contract liabilities; provisions, including legal
proceedings and restructuring charges; transfers of financial assets; and consolidation of SEs. We make judgments in assessing the business model for
financial assets, as well as whether substantially all risks and rewards have been transferred in respect of transfers of financial assets and whether
we control SEs, as discussed in Notes 5 and 6, respectively. If actual results were to differ from the estimates, the impact would be recorded in future
periods.
The economic outlook is subject to several risks that could lead to a less favourable outcome for North America. The most immediate threats
stem from a possible escalation of U.S. tariffs. Canadian businesses face longer-term risks if renegotiation of the United States-Mexico-Canada
Agreement is unsuccessful, as significant tariffs could then apply to more goods exported to the U.S., rather than a small fraction, likely leading to a
recession in Canada. Other risks include an escalation of the Russia-Ukraine war or renewed conflict in the Middle East. Substantial business spending
on AI is providing crucial support to the economy, but also presents new risks for workers. While AI has not yet led to material job losses, it could
increasingly influence hiring decisions and cause dramatic shifts in workforce composition, requiring unemployed individuals to learn new skills. The
impacts on our business, results of operations, reputation, financial performance and condition, including the potential for credit, counterparty and
mark-to-market losses, and on our credit ratings and regulatory capital and liquidity ratios, as well as the impacts on our customers and competitors,
will depend on future developments, which remain uncertain. By their very nature, the estimates and judgments we make for the purposes of
preparing our consolidated financial statements relate to matters that are inherently uncertain. However, we have detailed policies and internal
controls in place that are intended to ensure the judgments made in estimating these amounts are well controlled and independently reviewed, and
that our policies are consistently applied from period to period. We believe that our estimates of the value of our assets and liabilities are appropriate
as at October 31, 2025.
Allowance for Credit Losses
The expected credit loss (ECL) model requires the recognition of credit losses generally based on 12 months of expected losses for performing loans
and the recognition of lifetime losses on performing loans that have experienced a significant increase in credit risk since origination.
The determination of a significant increase in credit risk takes into account many different factors and varies by product and risk segment. The
bank’s methodology for determining a significant increase in credit risk is based on the change in probability of default (PD) between origination and
reporting date, assessed using probability-weighted scenarios, as well as certain other criteria, such as 30 days past due and watchlist status. The
assessment of a significant increase in credit risk requires experienced credit judgment.
In determining whether there has been a significant increase in credit risk and in calculating the amount of ECL, we must rely on estimates and
exercise judgment, based on what we know at the end of the reporting period, regarding matters for which the ultimate outcome is unknown. These
judgments include changes in circumstances that may cause future assessments of credit risk to be materially different from current assessments,
which could require an increase or decrease in the ACL. The calculation of ECL includes the explicit incorporation of forecasts of future economic
conditions. We have developed models incorporating specific macroeconomic variables that are relevant to each portfolio. Key economic variables for
our retail portfolios include our primary operating markets of Canada and the United States, and regional markets where considered significant.
Forecasts are developed internally by our Economics group, considering external data and our view of future economic conditions. We exercise
experienced credit judgment to incorporate multiple economic forecasts, which are probability-weighted in the determination of the final ECL. The
allowance is sensitive to changes in both economic forecasts and the probability weight assigned to each forecast scenario.
Additional information regarding the ACL is included in Note 3.
Financial Instruments Measured at Fair Value
Fair value measurement techniques are used to value various financial assets and financial liabilities, and are also used in performing impairment
testing on certain non-financial assets.
Additional information regarding our fair value measurement techniques is included in Note 17.
Pension and Other Employee Future Benefits
Our pension and other employee future benefit expense is calculated by independent actuaries using assumptions determined by management.
Differences between actual experience and the assumptions used are recognized in other comprehensive income.
The calculation of pension and other employee future benefit expense, plan assets and defined benefit obligations depends on various
assumptions such as discount rates, healthcare cost trend rates, projected salary increase rates, retirement age and mortality rates. These
assumptions are management’s best estimate based on relevant historical experience, in conjunction with market-related data, and as reviewed by
actuaries. We determine discount rates at each year end for all plans, using high-quality corporate bonds with terms matching the plans’ specific cash
flows.
Additional information regarding our accounting for pension and other employee future benefits is included in Note 21.
Impairment of Securities and Investments in Associates and Joint Ventures
Debt securities measured at amortized cost or FVOCI are assessed for impairment using the ECL model. For securities determined to have low credit
risk, the ACL is measured at an amount equal to 12-month ECL.
We review our investments in associates and joint ventures, included within other assets, at each quarter-end reporting period in order to
identify and evaluate any investments that show indications of possible impairment. For these investments, objective evidence of impairment may
include, among other factors, a significant or prolonged decline in fair value to an amount below their cost.
Additional information regarding our accounting for debt securities measured at amortized cost or FVOCI and ACL, investments in associates and
joint ventures and the determination of fair value is included in Notes 2, 11 and 17.
140 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Income Taxes and Deferred Tax Assets
The provision for income taxes is calculated based on the expected tax treatment of transactions recorded in either our Consolidated Statement of
Income, Consolidated Statement of Comprehensive Income or Consolidated Statement of Changes in Equity. In determining the provision for income
taxes, we interpret tax legislation, case law and administrative positions in numerous jurisdictions and, based on our judgment, record our estimate
of the amount required to settle tax obligations. We also make assumptions about the expected timing of the reversal of deferred tax assets and
liabilities. If our interpretations and assumptions differ from those of tax authorities, or if the timing of reversals is not as expected, our provision for
income taxes could increase or decrease in future periods. The amount of any such increase or decrease cannot be reasonably estimated.
Deferred tax assets are recognized only when it is probable that sufficient taxable profit will be available in future periods against which
deductible temporary differences or unused tax losses and tax credits may be utilized. We are required to assess whether it is probable that our
deferred tax assets will be realized. The factors used to assess the probability of realization are our past experience of income and capital gains, our
forecast of future net income before taxes, and the remaining expiration period of tax loss carryforwards and tax credits. Changes in our assessment
of these factors could increase or decrease our provision for income taxes in future periods.
Additional information regarding our accounting for income taxes is included in Note 22.
Goodwill and Intangible Assets
For the purpose of impairment testing, goodwill is allocated to our groups of cash-generating units (CGUs), which represent the lowest level within
the bank at which goodwill is monitored for internal management purposes. Impairment testing is performed at least annually, by comparing the
carrying values and recoverable amounts of the CGUs to which goodwill has been allocated in order to determine whether the recoverable amount of
each CGU is greater than its carrying value. If the carrying value of the CGU were to exceed its recoverable amount, an impairment calculation would
be performed. The recoverable amount of a CGU is the higher of its fair value less costs to sell and value in use.
Fair value less costs to sell has been used to perform the impairment tests in all periods. In determining fair value less costs to sell, we employ a
discounted cash flow model, consistent with those we use when we acquire a business. This model is dependent on assumptions related to revenue
growth, discount rates, synergies achieved on acquisition and the availability of comparable acquisition data. Changes in any of these assumptions
would affect the determination of fair value for each CGU in a different manner. We exercise judgment and make assumptions in determining fair
value less costs to sell, and differences in judgment and assumptions could affect the determination of fair value and any resulting impairment.
Intangible assets with a definite life are amortized to income on either a straight-line or an accelerated basis over a period not exceeding 15
years, depending on the nature of the asset. We test definite-life intangible assets for impairment when circumstances indicate the carrying value
may not be recoverable. Indefinite-life intangible assets are tested annually for impairment. If any indefinite-life intangible assets are determined to
be impaired, we write them down to their recoverable amount, which is the higher of value in use and fair value less costs to sell, when this is less
than the carrying value.
Additional information regarding goodwill and intangible assets is included in Note 10.
Insurance Contract Liabilities
Insurance contract liabilities represent estimates of fulfilment cash flows, which include a risk adjustment, and the contractual service margin (CSM).
Fulfilment cash flows include estimates of future cash flows related to the remaining coverage period and for previously incurred claims, which are
then discounted and probability-weighted. This is based on non-financial risk assumptions including mortality, policy lapses and expenses, which are
based on a combination of industry and entity-specific data and, in the case of expenses, on historical analysis of which expenses are attributable to
insurance operations. These assumptions are reviewed at least annually and updated to reflect actual experience and market conditions. The CSM is a
component of the liability representing the unearned profit we recognize as we provide services.
Additional information regarding insurance contract liabilities is included in Note 14.
Provisions
Provisions, including those for legal proceedings and restructuring charges, are recognized if, as a result of a past event, the bank has a present legal
or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are recorded at the best estimate of the amount required to settle an obligation as at the balance sheet date, taking into
consideration the risks and uncertainties associated with the obligation. Management and external experts are involved in estimating any provision,
as necessary. The actual costs of settling some obligations may be substantially higher or lower than the amount of the provisions.
Additional information regarding provisions is included in Note 24.
Transfers of Financial Assets
We enter into transactions in which we transfer financial assets, typically loans or mortgage-backed securities, to a structured entity or third party to
obtain alternate sources of funding or as part of our trading activities. We assess whether substantially all of the risks and rewards of, or control over,
the assets have been transferred in order to determine whether they qualify for derecognition. Where we have transferred substantially all of the
risks and rewards of ownership, the assets are derecognized. Where we continue to be exposed to substantially all of the prepayment, interest rate
and/or credit risk associated with the securitized assets, they do not qualify for derecognition. We continue to recognize the assets and the related
cash proceeds as secured financing in our Consolidated Balance Sheet. Where we have neither transferred nor retained substantially all of the risks
and rewards, we derecognize the asset only if we no longer control it. If we have retained control, we continue to recognize the transferred assets to
the extent of our continuing involvement.
Additional information regarding transferred financial assets is included in Note 5.
BMO Financial Group 208th Annual Report 2025 141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidation of Structured Entities
The securitization vehicles we sponsor typically have limited decision-making authority. The structure of these vehicles limits the activities they can
undertake, the types of assets they can hold and the funding of their activities. We control and consolidate these vehicles when we have the key
decision-making powers necessary to obtain the majority of the benefits from their activities.
For certain investments in limited partnerships, we exercise judgment in determining whether we control an entity. Based on an assessment of our
interests and rights, we have determined that we do not control certain entities, even though we may have an ownership interest of greater than 50%.
This may be the case when we are not the general partner in an arrangement and the general partner’s rights most significantly affect the returns of
the entity. Additionally, we have determined that we control certain entities despite having an ownership interest of less than 50%. This may be the
case when we are the general partner in an arrangement and the general partner’s rights most significantly affect the returns of the entity.
Additional information regarding SEs is included in Notes 6 and 20.
Changes in IFRS and Accounting Policies
IFRS 17 Insurance Contracts
Effective November 1, 2023, we adopted IFRS 17 Insurance Contracts (IFRS 17), which provides a comprehensive approach to accounting for all types of
insurance contracts and replaced existing IFRS 4 Insurance Contracts (IFRS 4). Refer to Note 14 for additional details on our policy for insurance contract
liability accounting.
On transition, we were required to apply a full retrospective approach, where we restated prior periods as if we had always applied IFRS 17,
unless impracticable, in which case we applied the fair value approach. CSM recognized on November 1, 2022 using the fair value approach was
$1,550 million, of which $1,210 million remained in insurance contract liabilities as at October 31, 2025 ($1,370 million as of October 31, 2024).
IAS 40 Investment Property
On transition to IFRS 17, we voluntarily changed our accounting policy for the measurement of investment properties, included in insurance-related
assets in other assets in our Consolidated Balance Sheet, from cost to fair value. This better aligns our returns on investment properties with gains
and losses from our insurance business. IAS 40 Investment Property (IAS 40) permits either measurement approach. We applied the change
retrospectively, as if we had always accounted for investment properties at fair value. The result was an increase in other assets of $132 million and
an increase in shareholders’ equity of $132 million after-tax at November 1, 2022.
IFRS 9 Financial Instruments
Effective November 1, 2023, we voluntarily changed our accounting policy to account for regular way contracts to buy or sell financial assets on trade
date, instead of on settlement date. This change was applied retrospectively, as is required for changes in accounting policy, as if we had always
recorded securities transactions on trade date. Regular way contracts are those that will be settled within a timeframe established by market
convention or regulation. The change resulted in an increase in both assets and liabilities of $52.5 billion as at October 31, 2023.
IAS 12 Income Taxes
Effective November 1, 2023, we adopted an amendment to IAS 12 Income Taxes (IAS 12). This amendment narrows the IAS 12 exemption to exclude
transactions that give rise to equal and offsetting temporary differences (e.g. leases and asset retirement obligations). Upon adoption of the
amendment, we record separate deferred tax assets and liabilities related to the assets and liabilities that give rise to these temporary differences.
There was no impact on our Consolidated Balance Sheet, as the balances are eligible for offset when levied by the same tax authority.
Future Changes in IFRS and Accounting Policies
Amendments to the Classification and Measurement of Financial Instruments
In May 2024, the IASB issued Amendments to the Classification and Measurement of Financial Instruments which amended IFRS 9 Financial
Instruments (IFRS 9) and IFRS 7 Financial Instruments: Disclosures. These amendments clarify how to assess the contractual cash flow characteristics
of financial assets that include contingent features, and the treatment of non-recourse assets and contractually linked instruments. The amendments
also introduce an accounting policy choice to derecognize certain financial instruments settled using an electronic payment system before the
settlement date, if certain conditions are met. The amendments will be effective for our fiscal year beginning November 1, 2026. To meet the
requirements of the amendments, we have established an enterprise-wide project and are currently evaluating the impact of adoption.
IFRS 18 Presentation and Disclosure in Financial Statements
In April 2024, the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements (IFRS 18), which will replace IAS 1 Presentation of Financial
Statements and will be effective for our fiscal year beginning November 1, 2027. In order to meet the requirements of IFRS 18, we have established
an enterprise-wide project and are currently evaluating the impact of adoption. IFRS 18 will modify the formatting of our Consolidated Statement of
Income with the presentation of income and expenses under three categories (operating, investing and financing), based on our main business
activities and the addition of certain new subtotals. IFRS 18 also requires that certain management performance measures be included as a note in
our consolidated financial statements.
142 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Note 2: Securities
Securities are divided into five types, each with a different purpose and accounting treatment. The types of securities we hold are as follows:
Trading securities are securities purchased for resale over a short period of time. Trading securities are recorded at FVTPL. Transaction costs and
changes in fair value are recorded in our Consolidated Statement of Income in trading revenues.
Fair value through profit or loss securities are measured at fair value, with changes in fair value and related transaction costs recorded in our
Consolidated Statement of Income in securities gains, other than trading, except as noted below. This category includes the following:
Securities Designated at FVTPL
In order to qualify for this designation, the security must have a reliably measurable fair value, and the designation eliminates or significantly reduces
the inconsistent treatment that would otherwise arise from measuring the gains and losses on a different basis. Securities must be designated on
initial recognition, and the designation is irrevocable. If these securities are not designated at FVTPL, they would be accounted for at either FVOCI or
amortized cost.
We designate certain securities held by our insurance subsidiaries that support our insurance and investment contract liabilities at FVTPL, since
the changes in financial variables used to calculate insurance and investment contract liabilities are recorded through our Consolidated Statement of
Income in each period. This designation aligns the accounting result with the way the portfolio is managed in order to reduce an accounting
mismatch with respect to unrealized gains and losses, as the change in fair value of the securities, investment contract liabilities designated at fair
value and the impact of the change in discount rates and financial assumptions on insurance contract liabilities are all recorded through the
Consolidated Statement of Income in non-interest revenue, insurance investment results. These securities had a fair value of $13,536 million as at
October 31, 2025 ($12,214 million as at October 31, 2024). The maximum exposure to credit risk from securities designated at FVTPL is the carrying
value of these securities.
Securities Mandatorily Measured at FVTPL
Securities managed on a fair value basis, but not held for trading, or debt securities with cash flows that do not represent solely payments of
principal and interest, and equity securities not held for trading or designated at FVOCI, are classified as FVTPL. These securities had a fair value
of $7,818 million as at October 31, 2025 ($6,850 million as at October 31, 2024).
Investments in Low Income Housing Tax Credit (LIHTC) entities are included in this balance as they are classified as FVTPL, with both changes in
fair value of the investments and the benefit of tax credits received recorded in non-interest revenue, securities gains, other than trading. The fair
value of these investments was $1,136 million as at October 31, 2025 ($900 million as at October 31, 2024).
Debt securities at FVOCI are debt securities purchased with the objective of both collecting contractual cash flows and selling the securities. The
securities’ cash flows represent solely payments of principal and interest. These securities may be sold in response to, or in anticipation of, changes in
interest rates and any resulting prepayment risk, changes in credit risk, changes in foreign currency risk or changes in funding sources or terms, or in
order to meet liquidity needs.
Debt securities measured at FVOCI are initially recorded at fair value plus transaction costs. They are subsequently measured at fair value, with
unrealized gains and losses recorded in our Consolidated Statement of Comprehensive Income until the security is sold or impaired. Gains and losses
on disposal and impairment losses (recoveries) are recorded in our Consolidated Statement of Income in non-interest revenue, securities gains, other
than trading. Interest income earned is recorded in our Consolidated Statement of Income in interest, dividend and fee income, securities, using the
effective interest method.
Equity securities at FVOCI are equity securities for which we have elected to record changes in the fair value of the instrument in other
comprehensive income as opposed to FVTPL. Gains or losses recorded on these instruments will never be recognized in profit or loss. Equity securities
measured at FVOCI are not subject to an impairment assessment.
Debt securities at amortized cost are debt securities purchased or originated with the objective of collecting contractual cash flows, and those cash
flows represent solely payments of principal and interest. These securities are initially recorded at fair value plus transaction costs and are
subsequently measured at amortized cost, using the effective interest method. Impairment losses (recoveries) are recorded in our Consolidated
Statement of Income in non-interest revenue, securities gains, other than trading. Interest income earned and amortization of premiums, discounts
and transaction costs are recorded in our Consolidated Statement of Income in interest, dividend and fee income, securities.
We account for all of our securities transactions using trade date accounting in our Consolidated Balance Sheet.
Impairment Review
Debt securities measured at amortized cost or FVOCI are assessed for impairment using the ECL model, with the exception of those determined to
have low credit risk, where the ACL is measured at an amount equal to 12-month ECL. A debt security is considered to have low credit risk if it has a
low risk of default, and if the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and adverse changes in
economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfill its contractual cash flow
obligations. All of our debt securities have a credit risk rating of investment grade.
Debt securities measured at amortized cost totalled $96,610 million as at October 31, 2025 ($115,188 million as at October 31, 2024), net of ACL
of $4 million as at October 31, 2025 ($3 million as at October 31, 2024).
Debt securities measured at FVOCI totalled $113,209 million as at October 31, 2025 ($93,702 million as at October 31, 2024). ACL related to these
FVOCI debt securities of $6 million as at October 31, 2025 ($4 million as at October 31, 2024) is included in Accumulated Other Comprehensive
Income.
Fair Value Measurement
For traded securities, quoted market value is considered to be fair value. Quoted market value is based on bid or ask prices, depending on which is
the most appropriate to measure fair value. Where market quotes are not available, we use estimation techniques to determine fair value. Additional
information regarding fair value measurement techniques is included in Note 17.
BMO Financial Group 208th Annual Report 2025 143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Remaining Term to Maturity of Securities
The following table shows the remaining terms to maturity of securities:
(Canadian $ in millions, except as noted)
Term to maturity
2025
2024
Within 1
year
1 to 3
years
3 to 5
years
5 to 10
years
Over 10
years
No specific
maturity
Total
Total
Trading Securities
Issued or guaranteed by:
Canadian federal government
$
1,170
$
2,342
$
1,003
$
3,481
$
4,315
$
–
$
12,311
$
10,036
Canadian provincial and municipal governments
715
316
1,494
2,007
4,503
–
9,035
7,585
U.S. federal government
4,123
9,180
3,237
6,135
8,227
–
30,902
24,248
U.S. states, municipalities and agencies
–
34
214
429
467
–
1,144
565
Other governments
592
1,177
1,348
740
269
–
4,126
3,849
NHA MBS, U.S. agency MBS and CMO (1)
1,103
176
467
928
53,776
–
56,450
40,995
Corporate debt
1,377
3,030
2,259
2,365
2,583
–
11,614
10,172
Trading loans
1
976
1,641
1,950
–
–
4,568
5,493
Corporate equity
–
–
–
–
–
62,153
62,153
65,983
Total trading securities
9,081
17,231
11,663
18,035
74,140
62,153
192,303
168,926
FVTPL Securities
Issued or guaranteed by:
Canadian federal government
876
7
146
342
248
–
1,619
403
Canadian provincial and municipal governments
1
6
19
116
1,436
–
1,578
1,578
U.S. federal government
4
–
–
–
1,491
–
1,495
1,527
Other governments
–
–
–
–
–
–
–
25
NHA MBS, U.S. agency MBS and CMO (1)
–
11
–
7
–
–
18
21
Corporate debt
227
273
246
1,133
7,029
–
8,908
8,780
Corporate equity
–
–
–
–
–
7,736
7,736
6,730
Total FVTPL securities
1,108
297
411
1,598
10,204
7,736
21,354
19,064
FVOCI Securities
Issued or guaranteed by:
Canadian federal government
Amortized cost
15,795
15,202
10,077
3,820
–
–
44,894
33,892
Fair value
15,819
15,287
10,271
3,958
–
–
45,335
34,177
Yield (%)
2.29
2.48
2.78
3.08
–
–
2.53
3.33
Canadian provincial and municipal governments
Amortized cost
470
1,041
2,925
1,072
17
–
5,525
5,939
Fair value
470
1,061
2,986
1,112
15
–
5,644
5,996
Yield (%)
2.52
3.05
3.32
3.47
4.07
–
3.23
3.61
U.S. federal government
Amortized cost
844
3,769
9,270
6,358
274
–
20,515
17,033
Fair value
845
3,797
9,434
6,458
275
–
20,809
16,965
Yield (%)
3.61
3.88
3.75
3.92
4.64
–
3.83
4.06
U.S. states, municipalities and agencies
Amortized cost
399
538
732
3,408
545
–
5,622
5,125
Fair value
398
534
733
3,423
546
–
5,634
5,068
Yield (%)
2.89
2.87
3.06
3.02
4.77
–
3.17
4.04
Other governments
Amortized cost
1,521
1,607
911
–
–
–
4,039
5,643
Fair value
1,521
1,624
920
–
–
–
4,065
5,656
Yield (%)
2.28
3.49
3.66
–
–
–
3.07
3.15
NHA MBS, U.S. agency MBS and CMO (1)
Amortized cost
112
1,451
10,628
3,783
10,972
–
26,946
21,570
Fair value
111
1,457
10,776
3,834
10,837
–
27,015
21,293
Yield (%)
2.46
3.46
4.19
3.90
4.02
–
4.03
3.92
Corporate debt
Amortized cost
1,663
523
550
1,686
69
–
4,491
4,391
Fair value
1,664
530
557
1,699
65
–
4,515
4,370
Yield (%)
4.48
2.69
3.35
4.79
5.02
–
4.26
2.67
Corporate equity
Cost
–
–
–
–
–
165
165
135
Fair value
–
–
–
–
–
192
192
177
Total cost or amortized cost
20,804
24,131
35,093
20,127
11,877
165
112,197
93,728
Total fair value
20,828
24,290
35,677
20,484
11,738
192
113,209
93,702
Yield (%)
2.54
2.86
3.55
3.65
4.07
–
3.28
3.61
Amortized Cost Securities (2)
Issued or guaranteed by:
Canadian federal government
Amortized cost
538
376
–
35
–
–
949
2,465
Fair value
532
376
–
35
–
–
943
2,403
Yield (%)
3.43
2.74
–
3.12
–
–
3.15
1.81
Canadian provincial and municipal governments
Amortized cost
720
1,099
1,495
2,868
–
–
6,182
4,488
Fair value
719
1,106
1,506
2,889
–
–
6,220
4,216
Yield (%)
2.84
2.50
2.86
3.45
–
–
3.07
2.38
U.S. federal government
Amortized cost
773
17,536
12,377
8,992
3,790
–
43,468
55,421
Fair value
765
17,037
11,601
7,980
3,049
–
40,432
51,319
Yield (%)
3.87
2.74
2.32
2.69
3.96
–
2.74
1.49
U.S. states, municipalities and agencies
Amortized cost
–
–
–
165
–
–
165
182
Fair value
–
–
–
167
–
–
167
180
Yield (%)
–
–
–
4.66
–
–
4.66
4.65
Other governments
Amortized cost
186
217
122
–
–
–
525
681
Fair value
186
217
120
–
–
–
523
675
Yield (%)
3.76
3.96
4.00
–
–
–
3.90
1.80
NHA MBS, U.S. agency MBS and CMO (1)
Amortized cost
1,127
3,783
455
2,532
29,873
–
37,770
42,773
Fair value
1,119
3,670
425
2,317
27,307
–
34,838
38,619
Yield (%)
2.51
1.78
1.84
1.69
2.81
–
2.61
2.58
Corporate debt
Amortized cost
392
664
140
58
6,297
–
7,551
9,178
Fair value
387
660
141
57
6,080
–
7,325
9,049
Yield (%)
3.73
3.97
2.94
3.73
5.06
–
4.85
4.57
Total carrying value
3,736
23,675
14,589
14,650
39,960
–
96,610
115,188
Total fair value
3,708
23,066
13,793
13,445
36,436
–
90,448
106,461
Yield (%)
3.18
2.62
2.38
2.69
3.27
–
2.89
2.19
Total carrying value of securities
34,753
65,493
62,340
54,767
136,042
70,081
423,476
396,880
Total by Currency (Canadian $ equivalent)
Canadian dollar
23,158
24,896
16,194
15,622
18,796
27,159
125,825
111,370
U.S. dollar
10,390
39,787
45,617
38,820
116,911
41,434
292,959
278,558
Other currencies
1,205
810
529
325
335
1,488
4,692
6,952
Total securities
$
34,753
$
65,493
$
62,340
$
54,767
$
136,042
$
70,081
$
423,476
$
396,880
(1) These amounts are either supported by insured mortgages or issued by U.S. agencies and government-sponsored enterprises. NHA refers to the National Housing Act, MBS refers to mortgage-backed securities and
CMO refers to collateralized mortgage obligations.
(2) The carrying values of securities that are part of fair value hedging relationships are adjusted for related gains (losses) on hedge contracts.
Yields in the table above are calculated using the cost of the security and the contractual interest rate associated with each security, adjusted for any amortization of premiums and discounts. Tax effects are not taken into
consideration. The terms to maturity included in the table above are based on the contractual maturity dates of the securities. Actual maturities could differ, as issuers may have the right to call or prepay obligations.
Certain comparative figures have been reclassified to conform with the current year’s presentation.
144 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Unrealized Gains and Losses on FVOCI Securities
The following table summarizes unrealized gains and losses on FVOCI securities:
(Canadian $ in millions)
2025
2024
Cost or
amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Cost or
amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Issued or guaranteed by:
Canadian federal government
$
44,894
$
443
$
(2)
$
45,335
$
33,892
$
303
$
(18)
$
34,177
Canadian provincial and municipal governments
5,525
132
(13)
5,644
5,939
82
(25)
5,996
U.S. federal government
20,515
327
(33)
20,809
17,033
100
(168)
16,965
U.S. states, municipalities and agencies
5,622
77
(65)
5,634
5,125
24
(81)
5,068
Other governments
4,039
35
(9)
4,065
5,643
20
(7)
5,656
NHA MBS, U.S. agency MBS and CMO
26,946
291
(222)
27,015
21,570
58
(335)
21,293
Corporate debt
4,491
37
(13)
4,515
4,391
31
(52)
4,370
Corporate equity
165
27
–
192
135
42
–
177
Total
$
112,197
$
1,369
$
(357)
$
113,209
$
93,728
$
660
$
(686)
$
93,702
Unrealized gains (losses) may be offset by related (losses) gains on hedge contracts.
Interest, Dividend and Fee Income
Interest, dividend and fee income has been included in our Consolidated Statement of Income as follows. Related income for trading securities is
included under trading-related revenue in Note 17.
(Canadian $ in millions)
2025
2024
FVTPL securities
$
143
$
161
FVOCI securities
4,427
3,874
Amortized cost securities
2,709
3,952
Total
$
7,279
$
7,987
Non-Interest Revenue
Net gains and losses from securities, excluding gains and losses on trading securities, have been included in our Consolidated Statement of Income as
follows:
(Canadian $ in millions)
2025
2024
FVTPL securities
$
201
$
87
FVOCI securities – realized gains (1)
89
114
Impairment on FVOCI and amortized cost securities
(3)
(1)
Securities gains, other than trading
$
287
$
200
(1) Gains are net of (losses) on hedge contracts.
Gains and losses on trading securities are included under trading-related revenue in Note 17.
Interest and dividend income and gains on securities held in our Insurance business are recorded in non-interest revenue, insurance investment
results, in our Consolidated Statement of Income as follows:
(Canadian $ in millions)
2025
2024
Interest and dividend income
$
546
$
515
Gains from securities designated at FVTPL (1)
374
1,270
Realized gains from FVOCI securities
–
1
Total interest and dividend income and gains held in our Insurance business
$
920
$
1,786
(1) Gains (losses) on these securities may be offset by certain (losses) gains from changes in insurance-related liabilities, as described above under Securities Designated at FVTPL.
Note 3: Loans and Allowance for Credit Losses
Loans
Loans are initially measured at fair value plus directly attributable costs, and are subsequently measured at amortized cost using the effective interest
method, where the objective of the business model is to collect contractual cash flows, and the cash flows of those loans represent solely payments
of principal and interest; otherwise, the loans are measured at FVTPL. Where the loans are held with the objective of both collecting contractual cash
flows and selling the loans, and the cash flows represent solely payments of principal and interest, the loans are measured at FVOCI. The effective
interest method allocates interest income over the expected term of the loan by applying the effective interest rate to the carrying amount of the
loan. The effective interest rate is defined as the rate that discounts estimated future cash flows through the expected term of the loan to the gross
carrying amount of the loan. Under the effective interest method, the amount recognized in interest, dividend and fee income, loans, varies over the
term of the loan based on the principal outstanding. The treatment of interest income for impaired loans is described below.
BMO Financial Group 208th Annual Report 2025 145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities Borrowed or Purchased Under Resale Agreements
Securities borrowed or purchased under resale agreements represent the amounts we will receive as a result of our commitment to return or resell
securities that we have borrowed or purchased, back to the original lender or seller, on a specified date at a specified price. We account for these
instruments as if they were loans.
Lending Fees
Lending fees primarily arise in Canadian P&C, U.S. Banking and Capital Markets. The accounting treatment for lending fees varies depending on the
transaction. Certain loan origination, restructuring and renegotiation fees are recorded as interest income over the term of the loan, while other
lending fees are taken into income at the time of loan origination. Commitment fees are calculated as a percentage of the facility balance at the end
of each period. The fees are recorded as interest income over the term of the loan, unless we believe the loan commitment will not be used. In the
latter case, commitment fees are recorded as lending fees earned over the commitment period. Loan syndication fees are payable and included in
lending fees at the time the syndication is completed.
Impaired Loans
We classify a loan as impaired (Stage 3) when one or more loss events have occurred, such as bankruptcy or payment default, or when collection of
the full amount of principal and interest is no longer reasonably assured. Loans are in default when the borrower is unlikely to pay its credit
obligations in full without recourse by the bank, such as realizing security, or when the borrower’s payments are more than a defined number of days
past due.
Generally, consumer loans in both Canada and the United States are classified as impaired when payment is contractually 90 days past due, or
one year past due for residential mortgages if guaranteed by the Government of Canada. Credit card loans are immediately written off when principal
or interest payments are 180 days past due, and are not reported as impaired. In Canada, consumer instalment loans, other personal loans and some
small business loans are normally written off when payment is one year past due. In the United States, consumer loans are generally written off
when payment is 180 days past due, except for non-real estate term loans, which are generally written off when payment is 120 days past due. For
the purpose of measuring the amount to be written off, the determination of the recoverable amount includes the value of any collateral and an
estimate of future recoveries.
Corporate and commercial loans are classified as impaired when we determine there is no longer reasonable assurance that principal or interest
will be collected in their entirety on a timely basis. Generally, we consider corporate and commercial loans to be impaired when payments are 90
days past due. Corporate and commercial loans are written off following a review on an individual loan basis that confirms all reasonable recovery
attempts have been exhausted.
Overdrafts are considered to be past due once the customer has breached an advised limit or has been advised of a limit lower than currently
outstanding or, in the case of retail overdrafts, has not brought the overdraft down to a $nil balance within a specified time period.
A loan will be reclassified to performing status when we determine that there is reasonable assurance of full and timely repayment of interest
and principal in accordance with the terms and conditions of the loan, and that none of the criteria for classification of the loan as impaired continue
to apply.
Once a loan has been identified as impaired, we continue to recognize interest income based on the original effective interest rate on the loan
amount net of its related allowance. In the periods following the recognition of impairment, adjustments to the allowance for these loans to reflect
the time value of money are recognized as interest income. Interest income on impaired loans of $358 million was recognized for the year ended
October 31, 2025 ($306 million in 2024).
Allowance for Credit Losses
The ACL recorded in our Consolidated Balance Sheet is maintained at a level that we consider adequate to absorb credit-related losses on our
loans and other credit instruments. The ACL amounted to $5,739 million as at October 31, 2025 ($4,936 million as at October 31, 2024), of
which $5,050 million ($4,356 million as at October 31, 2024) was recorded in loans and $689 million ($580 million as at October 31, 2024) was
recorded in other liabilities in our Consolidated Balance Sheet. Changes in the gross balances, including originations, maturities, sales, write-
offs and repayments in the normal course of operations, impact the ACL.
Allowance on Performing Loans
We maintain an allowance in order to cover impairment in the existing portfolio for loans that have not yet been individually identified as impaired.
Our approach to establishing and maintaining the allowance on performing loans is based on the requirements of IFRS 9, considering guidelines
issued by OSFI.
Under the IFRS 9 ECL methodology, an allowance is recorded for ECL on financial assets regardless of whether there has been an actual
impairment. We recognize an ACL at an amount generally equal to 12-month ECL, if the credit risk at the reporting date has not increased significantly
since initial recognition (Stage 1). We will record ECL over the remaining life of performing financial assets that are considered to have experienced a
significant increase in credit risk (Stage 2).
The determination of a significant increase in credit risk takes into account many different factors and varies by product and risk segment. Our
methodology for determining a significant increase in credit risk is based on the change in PD between origination and reporting date, assessed using
probability-weighted scenarios, as well as certain other criteria, such as 30-day past due and watchlist status.
For each exposure, ECL is a function of PD, exposure at default (EAD) and loss given default (LGD), with the timing of the expected loss also
considered, and is estimated by incorporating forward-looking economic information and using experienced credit judgment to reflect factors not
captured in ECL models.
146 BMO Financial Group 208th Annual Report 2025
Notes
Notes
PD represents the likelihood that a loan will not be repaid and will go into default within either a 12-month horizon for Stage 1 or a lifetime
horizon for Stage 2. PD for each individual financial asset is modelled based on historical data and is estimated based on current market conditions
and reasonable and supportable information about future economic conditions.
EAD is modelled based on historical data and represents an estimate of the amount of credit exposure outstanding at the time a default may
occur. For off-balance sheet and undrawn amounts, EAD includes an estimate of any further amounts to be drawn at the time of default.
LGD is the amount that may not be recovered in the event of default and is modelled based on historical data and reasonable and supportable
information about future economic conditions, where appropriate. LGD takes into consideration the amount and quality of any collateral held.
We consider past events, current market conditions and reasonable and supportable forward-looking information about future economic
conditions in determining the amount of expected losses. In assessing information about possible future economic conditions, we utilize multiple
economic scenarios, including our base case scenario, which in our view represents the most probable outcome, as well as upside, downside and
severe downside scenarios, all of which are developed by our Economics group. Key economic variables used in determining the ACL reflect the
geographic diversity of our portfolios, where appropriate.
In considering the lifetime of a loan, the contractual period of the loan, including prepayment, extension and other options, is generally used. For
revolving instruments, such as credit cards, which may not have a defined contractual period, the lifetime is based on historical behaviour.
Our ECL methodology also requires the use of experienced credit judgment to incorporate the estimated impact of factors that are not captured in
the modelled ECL results. We applied experienced credit judgment to reflect the continuing impact of the uncertain environment on credit conditions
and the economy.
Allowance on Impaired Loans
We review our loans on an ongoing basis to assess whether any loans should be classified as impaired and whether an allowance or write-off should
be recorded (excluding credit card loans, which are written off when principal or interest payments are 180 days past due). The review of individually
significant impaired loans is conducted at least quarterly by account managers, each of whom assesses the ultimate collectability and estimated
recoveries for a specific loan based on all events and conditions that are relevant to the loan. This assessment is then reviewed and approved by an
independent credit officer.
Individually Significant Impaired Loans
To determine the amount we expect to recover from an individually significant impaired loan, we use the value of the estimated future cash flows
discounted at the loan’s original effective interest rate. The determination of estimated future cash flows of a collateralized impaired loan reflects our
best estimate of the realization of the underlying security, net of expected costs and any amounts legally required to be paid to the borrower. This
estimate may change over time as new information becomes available or as work-out strategies evolve, resulting in revisions to the allowance.
Security can vary by type of loan and may be in the form of cash, securities, real estate properties, accounts receivable, guarantees, inventory or
other capital assets.
Individually Insignificant Impaired Loans
Residential mortgages, consumer instalment loans, other personal loans and some small business loans are individually insignificant and may be
assessed individually or collectively for losses at the time of impairment, taking into account historical loss experience and expectations of future
economic conditions.
Collectively assessed loans are grouped together by similar risk characteristics, such as type of instrument, geographic location, industry, type of
collateral and term to maturity.
BMO Financial Group 208th Annual Report 2025 147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the continuity in the loss allowance, by product type, for the years ended October 31, 2025 and 2024. Transfers represent
the amount of ECL that moved between stages during the year; for example, from a 12-month (Stage 1) to a lifetime (Stage 2) ECL measurement
basis. Net remeasurement represents the ECL impact due to transfers between stages, as well as changes in economic forecasts and credit quality.
Model changes include the ECL impact of new calculation models or methodologies.
(Canadian $ in millions)
2025
2024
Stage 1
Stage 2
Stage 3 (1)
Total
Stage 1
Stage 2
Stage 3 (1)
Total
Loans: Residential mortgages
Balance as at beginning of year
$
56
$
186
$
19
$
261
$
73
$
151
$
10
$
234
Transfer to Stage 1
151
(148)
(3)
–
132
(130)
(2)
–
Transfer to Stage 2
(15)
50
(35)
–
(26)
42
(16)
–
Transfer to Stage 3
–
(44)
44
–
(1)
(29)
30
–
Net remeasurement of loss allowance
(135)
154
54
73
(142)
170
36
64
Loan originations
23
–
–
23
24
–
–
24
Derecognitions and maturities
(5)
(16)
–
(21)
(3)
(13)
–
(16)
Model changes
(20)
(3)
–
(23)
(1)
(5)
–
(6)
Total PCL (2)
(1)
(7)
60
52
(17)
35
48
66
Write-offs (3)
–
–
(10)
(10)
–
–
(5)
(5)
Recoveries of previous write-offs
–
–
9
9
–
–
7
7
Foreign exchange and other
1
–
(66)
(65)
–
–
(41)
(41)
Balance as at end of year
$
56
$
179
$
12
$
247
$
56
$
186
$
19
$
261
Loans: Consumer instalment and
other personal
Balance as at beginning of year
$
197
$
471
$
175
$
843
$
220
$
434
$
152
$
806
Transfer to Stage 1
331
(310)
(21)
–
301
(283)
(18)
–
Transfer to Stage 2
(62)
114
(52)
–
(44)
91
(47)
–
Transfer to Stage 3
(7)
(177)
184
–
(7)
(133)
140
–
Net remeasurement of loss allowance
(317)
421
483
587
(237)
355
437
555
Loan originations
32
–
–
32
54
–
–
54
Derecognitions and maturities
(19)
(40)
–
(59)
(16)
(38)
(12)
(66)
Model changes
46
77
–
123
15
46
–
61
Total PCL (2)
4
85
594
683
66
38
500
604
Write-offs (3)
–
–
(692)
(692)
–
–
(623)
(623)
Recoveries of previous write-offs
–
–
151
151
–
–
195
195
Foreign exchange and other
(1)
(1)
(68)
(70)
(89)
(1)
(49)
(139)
Balance as at end of year
$
200
$
555
$
160
$
915
$
197
$
471
$
175
$
843
Loans: Credit cards
Balance as at beginning of year
$
233
$
472
$
–
$
705
$
188
$
308
$
–
$
496
Transfer to Stage 1
239
(239)
–
–
226
(226)
–
–
Transfer to Stage 2
(115)
116
(1)
–
(64)
64
–
–
Transfer to Stage 3
(9)
(453)
462
–
(6)
(290)
296
–
Net remeasurement of loss allowance
(194)
633
311
750
(182)
633
308
759
Loan originations
52
–
–
52
76
–
–
76
Derecognitions and maturities
(13)
(50)
–
(63)
(8)
(27)
–
(35)
Model changes
(2)
135
–
133
4
9
–
13
Total PCL (2)
(42)
142
772
872
46
163
604
813
Write-offs (3)
–
–
(903)
(903)
–
–
(720)
(720)
Recoveries of previous write-offs
–
–
209
209
–
–
171
171
Foreign exchange and other
(3)
(11)
(78)
(92)
(1)
1
(55)
(55)
Balance as at end of year
$
188
$
603
$
–
$
791
$
233
$
472
$
–
$
705
Loans: Business and government
Balance as at beginning of year
$
892
$
1,698
$
537
$
3,127
$
1,043
$
1,155
$
533
$
2,731
Transfer to Stage 1
553
(510)
(43)
–
601
(575)
(26)
–
Transfer to Stage 2
(254)
362
(108)
–
(278)
394
(116)
–
Transfer to Stage 3
(8)
(388)
396
–
(9)
(310)
319
–
Net remeasurement of loss allowance
(419)
1,166
1,476
2,223
(599)
1,189
1,748
2,338
Loan originations
285
–
–
285
278
8
–
286
Derecognitions and maturities
(146)
(402)
–
(548)
(147)
(308)
(11)
(466)
Model changes
24
27
–
51
53
57
–
110
Total PCL (2)
35
255
1,721
2,011
(101)
455
1,914
2,268
Write-offs (3)
–
–
(1,367)
(1,367)
–
–
(1,802)
(1,802)
Recoveries of previous write-offs
–
–
314
314
–
–
194
194
Foreign exchange and other
4
44
(347)
(299)
(50)
88
(302)
(264)
Balance as at end of year
$
931
$
1,997
$
858
$
3,786
$
892
$
1,698
$
537
$
3,127
Total as at end of year
$
1,375
$
3,334
$
1,030
$
5,739
$
1,378
$
2,827
$
731
$
4,936
Comprising: Loans
$
1,119
$
2,957
$
974
$
5,050
$
1,143
$
2,560
$
653
$
4,356
Other credit instruments (4)
256
377
56
689
235
267
78
580
(1) Includes changes in allowance for purchased credit impaired (PCI) loans.
(2) Excludes PCL on other assets of $(1) million for the year ended October 31, 2025 ($10 million for the year ended October 31, 2024).
(3) Generally, we continue to seek recovery on amounts that were written off during the year, unless the loan is sold, we no longer have the right to collect or we have exhausted all reasonable efforts to collect.
(4) Other credit instruments, including off-balance sheet items, are recorded in other liabilities in our Consolidated Balance Sheet.
148 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Credit Risk Exposure
The following table sets out our credit risk exposure for all loans carried at amortized cost, FVOCI or FVTPL as at October 31, 2025 and 2024. Stage 1
represents performing loans carried with up to a 12-month ECL, Stage 2 represents performing loans carried with a lifetime ECL and Stage 3
represents loans with a lifetime ECL that are credit impaired.
(Canadian $ in millions)
2025
2024
Stage 1
Stage 2
Stage 3 (1) (2)
Total
Stage 1
Stage 2
Stage 3 (1) (2)
Total
Loans: Residential mortgages (3)
Exceptionally low
$
1
$
–
$
–
$
1
$
1
$
–
$
–
$
1
Very low
110,299
844
–
111,143
86,730
5,631
–
92,361
Low
50,148
3,051
–
53,199
52,111
15,080
–
67,191
Medium
7,048
6,713
–
13,761
7,402
5,329
–
12,731
High
240
3,032
–
3,272
268
2,622
–
2,890
Not rated (4)
12,802
952
–
13,754
14,207
1,042
–
15,249
Impaired
–
–
903
903
–
–
657
657
Gross residential mortgages
180,538
14,592
903
196,033
160,719
29,704
657
191,080
ACL
56
178
12
246
56
185
10
251
Carrying amount
180,482
14,414
891
195,787
160,663
29,519
647
190,829
Loans: Consumer instalment and
other personal
Exceptionally low
9,984
1
–
9,985
9,162
145
–
9,307
Very low
21,962
35
–
21,997
20,466
903
–
21,369
Low
26,238
2,682
–
28,920
26,125
4,575
–
30,700
Medium
6,991
5,566
–
12,557
7,405
5,526
–
12,931
High
670
2,164
–
2,834
789
2,017
–
2,806
Not rated (4)
14,812
1,009
–
15,821
14,522
475
–
14,997
Impaired
–
–
627
627
–
–
577
577
Gross consumer instalment and
other personal
80,657
11,457
627
92,741
78,469
13,641
577
92,687
ACL
182
532
160
874
183
447
168
798
Carrying amount
80,475
10,925
467
91,867
78,286
13,194
409
91,889
Loans: Credit cards (5)
Exceptionally low
1,643
–
–
1,643
1,660
–
–
1,660
Very low
2,129
4
–
2,133
2,166
1
–
2,167
Low
1,846
80
–
1,926
2,110
60
–
2,170
Medium
3,550
1,191
–
4,741
4,544
824
–
5,368
High
592
1,232
–
1,824
746
922
–
1,668
Not rated (4)
260
122
–
382
430
149
–
579
Impaired
–
–
–
–
–
–
–
–
Gross credit cards
10,020
2,629
–
12,649
11,656
1,956
–
13,612
ACL
125
527
–
652
161
421
–
582
Carrying amount
9,895
2,102
–
11,997
11,495
1,535
–
13,030
Loans: Business and government (3) (6)
Acceptable
Investment grade
188,707
3,873
–
192,580
191,742
3,437
–
195,179
Sub-investment grade
139,069
22,700
–
161,769
147,713
15,078
–
162,791
Watchlist
123
21,466
–
21,589
238
22,535
–
22,773
Impaired
–
–
5,561
5,561
–
–
4,609
4,609
Gross business and government
327,899
48,039
5,561
381,499
339,693
41,050
4,609
385,352
ACL
756
1,720
802
3,278
743
1,507
475
2,725
Carrying amount
327,143
46,319
4,759
378,221
338,950
39,543
4,134
382,627
Total gross loans and acceptances
599,114
76,717
7,091
682,922
590,537
86,351
5,843
682,731
Total net loans and acceptances
597,995
73,760
6,117
677,872
589,394
83,791
5,190
678,375
Commitments and financial
guarantee contracts
Acceptable
Investment grade
202,913
1,544
–
204,457
198,132
787
–
198,919
Sub-investment grade
65,393
13,733
–
79,126
68,177
6,647
–
74,824
Watchlist
6
9,086
–
9,092
59
8,765
–
8,824
Impaired
–
–
1,660
1,660
–
–
1,373
1,373
Gross commitments and financial
guarantee contracts
268,312
24,363
1,660
294,335
266,368
16,199
1,373
283,940
ACL
256
377
56
689
235
267
78
580
Carrying amount (7) (8)
$ 268,056
$
23,986
$
1,604
$ 293,646
$ 266,133
$
15,932
$
1,295
$ 283,360
(1) Includes PCI loans.
(2) 94% of Stage 3 loans were either fully or partially collateralized as at October 31, 2025 (92% as at October 31, 2024).
(3) Includes $79 million ($163 million as at October 31, 2024) of residential mortgages and $13,231 million ($12,431 million as at October 31, 2024) of business and government loans that are classified
and measured at FVTPL, and not subject to ECL.
(4) Includes purchased portfolios and certain cases where an internal risk rating is not assigned. Alternative credit risk assessments, rating methodologies, policies and tools are used to manage credit
risk for these portfolios.
(5) Credit card loans are immediately written off when principal or interest payments are 180 days past due, and as a result are not reported as impaired in Stage 3.
(6) Includes customers’ liability under acceptances.
(7) Represents the total contractual amounts of undrawn credit facilities and other off-balance sheet exposures, excluding personal lines of credit and credit cards, which are unconditionally cancellable at
our discretion.
(8) Certain commercial borrower commitments are conditional and may include recourse to counterparties.
BMO Financial Group 208th Annual Report 2025 149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans and ACL by geographic region as at October 31, 2025 and 2024 are as follows:
(Canadian $ in millions)
2025
2024
Gross
amount
ACL on
impaired loans (1)
ACL on
performing loans (2)
Net
amount
Gross
amount
ACL on
impaired loans (1)
ACL on
performing loans (2)
Net
amount
By geographic region (3)
Canada
$
398,001
$
663
$
1,842
$
395,496
$
392,398
$
461
$
1,531
$
390,406
United States
272,996
311
2,203
270,482
277,718
192
2,141
275,385
Other countries
11,214
–
31
11,183
12,256
–
31
12,225
Total
$
682,211
$
974
$
4,076
$
677,161
$
682,372
$
653
$
3,703
$
678,016
(1) Excludes ACL on impaired loans of $56 million for other credit instruments, which is included in other liabilities ($78 million as at October 31, 2024).
(2) Excludes ACL on performing loans of $633 million for other credit instruments, which is included in other liabilities ($502 million as at October 31, 2024).
(3) Geographic region is based upon the country of ultimate risk.
Impaired (Stage 3) loans, including the related allowances, as at October 31, 2025 and 2024 are as follows:
(Canadian $ in millions)
2025
2024
Gross impaired
amount
ACL on
impaired loans (1)
Net impaired
amount
Gross impaired
amount
ACL on
impaired loans (1)
Net impaired
amount
Residential mortgages
$
903
$
12
$
891
$
657
$
10
$
647
Consumer instalment and other personal
627
160
467
577
168
409
Business and government (2)
5,561
802
4,759
4,609
475
4,134
Total
$
7,091
$
974
$
6,117
$
5,843
$
653
$
5,190
By geographic region (3)
Canada
$
3,550
$
663
$
2,887
$
2,513
$
461
$
2,052
United States
3,540
311
3,229
3,327
192
3,135
Other countries
1
–
1
3
–
3
Total
$
7,091
$
974
$
6,117
$
5,843
$
653
$
5,190
(1) Excludes ACL on impaired loans of $56 million for other credit instruments, which is included in other liabilities ($78 million as at October 31, 2024).
(2) Includes customers’ liability under acceptances.
(3) Geographic region is based upon the country of ultimate risk.
Loans Past Due Not Impaired
Loans that are past due but not classified as impaired are loans for which customers have failed to make payments when contractually due but for
which we expect the full amount of principal and interest payments to be collected. The following table presents loans that are past due but not
classified as impaired as at October 31, 2025 and 2024. Loans for which payment is less than 30 days past due have been excluded, as they are not
generally representative of the borrowers’ ability to meet their payment obligations.
(Canadian $ in millions)
2025
2024
30 to 89 days
90 days or more (1)
Total
30 to 89 days
90 days or more (1)
Total
Residential mortgages
$
854
$
7
$
861
$
696
$
15
$
711
Credit cards, consumer instalment and other personal
661
171
832
734
173
907
Business and government
616
8
624
689
16
705
Total
$
2,131
$
186
$
2,317
$
2,119
$
204
$
2,323
(1) Fully secured loans with amounts between 90 and 180 days past due that we have not classified as impaired totalled $7 million as at October 31, 2025 ($16 million as at October 31, 2024).
ECL Sensitivity and Key Economic Variables
The allowance for performing loans is sensitive to changes in both economic forecasts and the probability weight assigned to each forecast scenario.
Many of the factors have a high degree of interdependency, although there is no single factor to which loan loss allowances as a whole are sensitive.
The upside scenario as at October 31, 2025 assumes a materially stronger economic environment than the base case forecast, with lower
unemployment rates.
As at October 31, 2025, our base case scenario depicts an economic environment with somewhat higher unemployment rates in the near term,
largely in response to tariffs, and a moderate economic recovery over the medium term as trade policy uncertainty diminishes and interest rates
decline further. Our base case forecast as at October 31, 2024 depicted a stronger economic environment prior to new tariffs taking effect.
If we assumed a 100% weight on the base case forecast and included the impact of loan migration by restaging, with other assumptions held
constant, including the application of experienced credit judgment, the allowance for performing loans would be approximately $3,125 million as at
October 31, 2025 ($2,625 million as at October 31, 2024) compared to the reported allowance for performing loans of $4,709 million ($4,205 million
as at October 31, 2024).
Effective the second quarter of 2024, we added a fourth scenario to reflect a less severe downside (downside scenario), which improves the
continuum of economic forecasts used in the allowance estimation. As at October 31, 2025, our downside scenario assumes a sharp contraction in the
Canadian and U.S. economies in the near term, followed by a relatively slow recovery. Our severe downside scenario depicts an even deeper
contraction in the Canadian and U.S. economies than in the downside scenario. The severe downside scenario as at October 31, 2024 broadly depicted
a similar economic environment over the projection period. If we assumed a 100% severe downside economic forecast and included the impact of
loan migration by restaging, with other assumptions held constant, including the application of experienced credit judgment, the allowance for
performing loans would be approximately $7,975 million as at October 31, 2025 ($7,500 million as at October 31, 2024) compared to the reported
allowance for performing loans of $4,709 million ($4,205 million as at October 31, 2024).
Actual results in a recession will differ, as our loan portfolio will change through time due to migration, growth, risk mitigation actions and other
factors. In addition, our allowance will reflect the four economic scenarios used in assessing the allowance, with often unequal weightings attached
to each scenario, which can change through time.
150 BMO Financial Group 208th Annual Report 2025
Notes
Notes
The following tables show the key economic variables used to estimate the allowance for performing loans forecast over the next 12 months or
lifetime measurement period. The variables as at October 31, 2025 include the impact of tariffs and trade policy uncertainty on the economic outlook.
While the values disclosed below are national variables, we use regional variables in the underlying models and consider factors impacting particular
industries where appropriate.
As at October 31, 2025
Scenarios
All figures are average annual values
Upside
Base
Downside
Severe downside
First 12
months
Remaining
horizon (1)
First 12
months
Remaining
horizon (1)
First 12
months
Remaining
horizon (1)
First 12
months
Remaining
horizon (1)
Real GDP growth rates (2)
Canada
3.6%
2.8%
1.1%
2.1%
(2.7)%
1.6%
(4.0)%
1.2%
United States
4.5%
2.4%
1.7%
1.8%
(2.3)%
1.4%
(3.5)%
1.3%
Corporate BBB 10-year spread
Canada
1.2%
1.8%
1.7%
2.0%
3.4%
3.0%
4.2%
3.5%
United States
0.8%
1.5%
1.5%
1.9%
3.5%
3.0%
4.6%
3.6%
Unemployment rates
Canada
6.0%
5.5%
7.1%
6.4%
9.4%
9.6%
9.9%
10.5%
United States
3.6%
3.1%
4.5%
4.4%
6.8%
7.5%
7.5%
8.4%
Housing Price Index (2)
Canada (3)
3.9%
5.8% (0.4)%
3.4%
(10.5)%
(0.7)%
(19.4)%
(5.0)%
United States (4)
3.7%
3.9%
0.7%
2.4%
(11.6)%
(1.1)%
(20.0)%
(4.3)%
As at October 31, 2024
Scenarios
All figures are average annual values
Upside
Base
Downside
Severe downside
First 12
months
Remaining
horizon (1)
First 12
months
Remaining
horizon (1)
First 12
months
Remaining
horizon (1)
First 12
months
Remaining
horizon (1)
Real GDP growth rates (2)
Canada
4.6%
2.6%
1.8%
1.9%
(2.3)%
1.3%
(3.6)%
1.2%
United States
4.3%
2.4%
1.9%
1.9%
(2.1)%
1.4%
(3.4)%
1.3%
Corporate BBB 10-year spread
Canada
1.3%
1.8%
1.9%
2.0%
3.6%
3.0%
4.2%
3.5%
United States
0.9%
1.6%
1.6%
2.0%
3.4%
3.1%
4.6%
3.6%
Unemployment rates
Canada
5.3%
4.8%
7.0%
6.8%
8.8%
9.4%
9.8%
10.5%
United States
3.4%
3.0%
4.7%
4.4%
6.7%
7.3%
7.6%
8.4%
Housing Price Index (2)
Canada (3)
5.9%
5.4%
1.6%
3.0%
(10.9)%
(1.0)%
(19.0)%
(5.0)%
United States (4)
5.9%
4.0%
2.8%
2.6%
(9.6)%
(1.0)%
(19.3)%
(4.3)%
(1) The remaining forecast period is two years.
(2) Real gross domestic product (GDP) and housing price index are averages of quarterly year-over-year growth rates.
(3) In Canada, we use the Housing Price Index Benchmark Composite.
(4) In the United States, we use the National Case-Shiller House Price Index.
The ECL approach requires the recognition of credit losses generally based on 12 months of expected losses for performing loans (Stage 1) and the
recognition of lifetime expected losses on performing loans that have experienced a significant increase in credit risk since origination (Stage 2).
Under our current probability-weighted scenarios, if all of our performing loans were in Stage 1, our models would generate an allowance for
performing loans of approximately $3,375 million ($3,050 million as at October 31, 2024) compared to the reported allowance for performing loans
of $4,709 million as at October 31, 2025 ($4,205 million as at October 31, 2024).
Renegotiated Loans
From time to time we modify the contractual terms of a loan due to the poor financial condition of the borrower. Modifications may include
reductions in interest rates, maturity date extensions, payment holidays, payment forgiveness or debt consolidation. We assess renegotiated loans for
impairment in line with our existing policies for impairment. When an impaired loan is renegotiated, it will return to performing status when none of
the criteria for classification as impaired continue to apply and the borrower has demonstrated good payment behaviour on the restructured terms
over a period of time.
The net carrying value of loans with lifetime ACL modified during the year ended October 31, 2025 was $2,606 million ($1,595 million in 2024).
As at October 31, 2025, loans previously modified with gross carrying value of $2 million ($3 million as at October 31, 2024) had their loss allowance
during the year change from lifetime to 12-month ECL.
Foreclosed Assets
Property or other assets that we receive from borrowers to satisfy their loan commitments are classified as either held for own use or held for sale,
according to management’s intention, and recorded initially at fair value for assets held for own use and at the lower of carrying value or fair value
less costs to sell for any assets held for sale. Assets held for own use are subsequently accounted for in accordance with the relevant asset
classification and assets held for sale are assessed for impairment.
As at October 31, 2025, real estate properties held for sale totalled $52 million ($67 million as at October 31, 2024). These properties are
disposed of when considered appropriate. We do not occupy foreclosed properties for our own business use.
BMO Financial Group 208th Annual Report 2025 151
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Collateral
Collateral is used to manage credit risk related to securities borrowed or purchased under resale agreements, residential mortgages, consumer
instalment and other personal loans, and business and government loans. Additional information on our collateral requirements is included in
Notes 13 and 24, as well as in the blue-tinted font in the Enterprise-Wide Risk Management section of our Management’s Discussion and Analysis.
Note 4: Risk Management
We have an enterprise-wide approach to the identification, assessment, management (including mitigation), monitoring and reporting of risks faced
across our organization. The key risks related to our financial instruments are classified as credit and counterparty, market, and liquidity and funding
risks. Macroeconomic factors, including interest rates and unemployment rates, impact certain risks as outlined in the Enterprise-Wide Risk
Management section of our Management’s Discussion and Analysis, and where those risks are related to financial instruments, they have been
included in the blue-tinted font as referenced below. The blue-tinted text and tables in the Enterprise-Wide Risk Management section of our
Management’s Discussion and Analysis form an integral part of these consolidated financial statements.
Credit and Counterparty Risk
Credit and counterparty risk is the potential for financial loss due to the failure of an obligor (i.e., a borrower, endorser, guarantor or counterparty) to
repay a loan or honour another predetermined financial obligation. Credit and counterparty risk underlies every lending activity that we enter into,
and also arises in the holding of investment securities, transactions related to trading and other capital markets products, and activities related to
securitization. This is the most significant measurable risk that we face.
Our risk management practices and key measures are disclosed in the blue-tinted font in the Enterprise-Wide Risk Management section of our
Management’s Discussion and Analysis. Additional information on credit risk related to loans and derivatives is included in Notes 3 and 7,
respectively.
Market Risk
Market risk is the potential for financial loss as a result of the impact to capital and earnings arising from adverse changes in market variables that
may affect the bank’s trading, underwriting and banking book positions, such as interest rates, foreign exchange rates, credit spreads, equity and
commodity prices and their implied volatilities.
Our market risk management practices and key measures are disclosed in the blue-tinted font in the Enterprise-Wide Risk Management section
of our Management’s Discussion and Analysis.
Liquidity and Funding Risk
Liquidity and funding risk is the potential for financial loss if the bank is unable to meet its financial commitments in a timely manner at reasonable
prices as they come due. Financial commitments include liabilities to depositors and suppliers, as well as lending, investment and pledging
commitments. It is our policy to maintain a level of liquid assets and funding capacity sufficient to meet our financial commitments, even in times of
stress. Managing liquidity and funding risk is essential to maintaining enterprise soundness and safety, depositor confidence and earnings stability.
Our liquidity and funding risk management practices and key measures are disclosed in the blue-tinted font in the Enterprise-Wide Risk
Management section of our Management’s Discussion and Analysis.
Note 5: Transfers of Financial Assets
Transfers of Financial Assets that do not Qualify for Derecognition
Loan Securitization
We sell Canadian residential and commercial mortgages to third-party Canadian securitization programs, including the Canada Mortgage Bond
program, and directly to third-party investors under the National Housing Act Mortgage-Backed Securities (NHA MBS) program. We assess whether
substantially all of the risks and rewards of, or control over, the loans have been transferred in order to determine whether they qualify for
derecognition. Under these programs, we are entitled to payment over time of the excess of the sum of interest and fees collected from customers in
connection with the mortgages that were sold, over the yield paid to investors, less credit losses and other costs. We also act as counterparty in
interest rate swap agreements, where we pay the interest due to Canada Mortgage Bond holders and receive the interest on the underlying
mortgages, which are converted into MBS through the NHA MBS program and sold to Canada Housing Trust.
For some of these sales, we continue to be exposed to substantially all of the prepayment, interest rate and credit risk associated with the
securitized mortgages, so they did not qualify for derecognition. We continue to recognize the mortgages in our Consolidated Balance Sheet and the
related cash proceeds are recognized as secured financing as part of securitization and structured entities’ liabilities in our Consolidated Balance Sheet.
The interest and fees collected, net of the yield paid to investors, are recorded in net interest income using the effective interest method over the term
of the securitization. Credit losses associated with the mortgages are recorded in the PCL. During the year ended October 31, 2025, we sold
$4,621 million of mortgages to these programs ($3,687 million in 2024).
152 BMO Financial Group 208th Annual Report 2025
Notes
Notes
The following table presents the carrying values and fair values of transferred assets that did not qualify for derecognition and the associated
liabilities relating to loan securitizations:
(Canadian $ in millions)
2025
2024
Carrying value (1)
Fair value
Carrying value (1)
Fair value
Assets
Trading securities (2)
$
22
$
–
$
106
$
–
Loans
10,525
–
9,277
–
Other related assets (3)
6,752
–
6,952
–
Total
$
17,299
$
17,209
$
16,335
$
16,118
Associated liabilities (4)
$
16,977
$
16,815
$
15,790
$
15,598
(1) Carrying value of loans is net of ACL, where applicable.
(2) Trading securities represent CMO issued by third-party sponsored vehicles, where we do not substantially transfer all of the risks and rewards of ownership to third-party investors.
(3) Other related assets represent payments received on account of mortgages pledged under securitization programs that have not yet been applied against the associated liabilities. The payments
received are held in permitted instruments on behalf of investors in the securitization vehicles until principal payments are required to be made on the associated liabilities. In order to compare all
assets supporting the associated liabilities, this amount is added to the carrying value of the securitized assets in the table above.
(4) Associated liabilities are recognized in securitization and structured entities’ liabilities in our Consolidated Balance Sheet.
Securities Lent or Sold Under Repurchase Agreements
Securities lent or sold under repurchase agreements represent short-term funding transactions in which we sell securities that we own and
simultaneously commit to repurchase the same securities at a specified price on a specified date in the future. We retain substantially all of the risks
and rewards associated with the securities and we continue to recognize them in our Consolidated Balance Sheet, with the obligation to repurchase
these securities recorded as secured borrowing transactions at the amount owing. The carrying value of these securities approximates the carrying
value of the associated liabilities due to their short-term nature. As at October 31, 2025, the carrying values of securities lent and securities sold under
repurchase agreements were $15,011 million and $119,956 million, respectively ($12,913 million and $97,878 million, respectively, as at October 31,
2024). The interest expense related to these liabilities is recorded on an accrual basis in interest expense, securities sold but not yet purchased and
securities lent or sold under repurchase agreements, in our Consolidated Statement of Income.
Continuing Involvement in Transferred Financial Assets that Qualify for Derecognition
We retain the servicing rights, representing our continuing involvement, for certain mortgage and recreational vehicle loans purchased or
originated in the United States that have been sold and derecognized. During the year ended October 31, 2025, we sold and derecognized
$849 million of these loans ($10,249 million in 2024) and recognized a gain of $24 million (loss of $153 million in 2024) in non-interest revenue,
other revenues. As at October 31, 2025, the carrying value of the servicing rights was $146 million ($169 million as at October 31, 2024) and the fair
value was $170 million ($192 million as at October 31, 2024).
We retain residual interests, representing our continuing involvement, for certain commercial mortgage loans purchased or originated in the
United States that have been sold and derecognized. During the year ended October 31, 2025, we sold and derecognized $3,863 million of these
loans ($4,412 million in 2024) and recognized a gain of $44 million upon transfer ($49 million in 2024). The carrying values of our retained interests
classified as debt securities at amortized cost and loans carried at amortized cost were $7 million and $92 million, respectively, as at October 31,
2025 ($7 million and $40 million, respectively, as at October 31, 2024). Fair value was equal to carrying value on these dates.
In addition, we hold U.S. government agency CMO issued by third-party sponsored vehicles, which we may further securitize by packaging them
into new CMO prior to selling to third-party investors. If we have not substantially transferred all of the risks and rewards of ownership to third-party
investors, we continue to recognize these CMO and the related cash proceeds as secured financing in our Consolidated Balance Sheet. During the year,
we sold CMO that qualified for derecognition, where retained interests represent our continuing involvement and are managed as part of larger
portfolios held for trading, liquidity or hedging purposes. Where we sold these CMO, associated gains and losses are recognized in non-interest
revenue, trading revenues. As at October 31, 2025, the fair value of our retained interests in these CMO was $6 million, classified as trading securities
in our Consolidated Balance Sheet ($6 million as at October 31, 2024). Refer to Note 2 for further information.
As noted above, we sell Canadian residential and commercial mortgages to third-party Canadian securitization programs, including the Canada
Mortgage Bond program, and directly to third-party investors under the NHA MBS program. Some of these sales qualified for derecognition as we
have transferred substantially all of the risks and rewards associated with the securitized mortgages. During the year ended October 31, 2025, we
sold and derecognized $3,019 million of these loans ($2,157 million in 2024) and recognized a loss of $1 million (gain of $90 million in 2024) in
non-interest revenue, other revenues. We retain some residual interests associated with the loans, representing our continuing involvement. The
carrying value of our retained interests, classified as loans carried at fair value, was $145 million as at October 31, 2025 ($146 million as at
October 31, 2024).
BMO Financial Group 208th Annual Report 2025 153
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6: Structured Entities
We enter into certain transactions in the ordinary course of business which involve the establishment of SEs to facilitate or secure customer
transactions and to obtain alternate sources of funding. We are required to consolidate a SE if we control the entity. We control a SE when we have
power over the SE, exposure to variable returns as a result of our involvement and the ability to exercise power to affect the amount of our returns.
In assessing whether we control a SE, we consider the entire arrangement to determine the purpose and design of the SE, the nature of any
rights held through contractual arrangements and whether we are acting as principal or agent.
We perform a reassessment of consolidation if facts and circumstances indicate that there have been changes to one or more of the elements of
control over the SE. If the reassessment determines that we no longer control the SE, we will derecognize the related assets (including goodwill),
liabilities and non-controlling interest at their carrying amounts and recognize any consideration received or retained interest at fair value, with any
difference recognized as a gain or loss in our Consolidated Statement of Income. Information regarding our basis of consolidation is included in
Note 1.
Consolidated Structured Entities
Bank Securitization Vehicles
We use securitization vehicles to securitize our Canadian credit card loans, Canadian real estate lines of credit and Canadian auto loans in order to
obtain alternate sources of funding. The structure of these vehicles limits the activities they can undertake and the types of assets they can hold, and
the vehicles have limited decision-making authority. The vehicles issue term asset-backed securities (ABS) to fund their activities. We control and
consolidate these vehicles, as we have the key decision-making powers necessary to obtain the majority of the benefits of their activities.
The following table presents the carrying values and fair values of assets and liabilities related to these consolidated securitization vehicles:
(Canadian $ in millions)
2025
2024
Carrying value (1)
Fair value
Carrying value (1)
Fair value
Assets
Credit cards
$
10,071
$
10,071
$
10,964
$
10,964
Consumer instalment and other personal (2)
5,158
5,152
3,732
3,728
Total
$
15,229
$
15,223
$
14,696
$
14,692
Associated liabilities (3)
$
7,017
$
7,068
$
9,151
$
9,146
(1) Carrying value of loans is net of ACL.
(2) Includes real estate lines of credit in 2025 and real estate lines of credit and auto loans in 2024.
(3) Associated liabilities are recognized in securitization and structured entities’ liabilities in our Consolidated Balance Sheet.
Capital and Funding Vehicles
We sponsor a trust established in connection with the issuance of our Limited Recourse Capital Notes (LRCNs), which holds BMO issued Non-
Cumulative 5-Year Rate Reset Class B Preferred Shares, issued concurrently with the LRCNs. We determined that we control and therefore consolidate
this vehicle as we are exposed to its variable returns and have key decision-making powers over its activities. Refer to Note 16 for further
information.
We have a funding vehicle, created under the covered bond program, that was established to guarantee payments due to the holders of bonds
issued by us. We sell assets to this funding vehicle in exchange for an intercompany loan. Refer to Note 12 for further information on our covered
bond deposit liabilities.
We have established a funding vehicle that issues commercial paper and floating rate notes (FRNs) to third parties. We pledge collateral to
secure the commercial paper and FRNs in exchange for an intercompany loan. The outstanding amount of instruments issued by the vehicle totalled
$15,394 million as at October 31, 2025 ($9,682 million as at October 31, 2024). Refer to Note 12 for further information on our commercial paper
deposit liabilities.
For those vehicles that purchase assets from us or are designed to pass on our credit risk, we have determined that, based on either the rights of
the arrangements or through our equity interest, we have significant exposure to the variable returns of the vehicles, and we control and therefore
consolidate these vehicles. Additional information related to notes issued by, and assets sold to, these vehicles is provided in Notes 12 and 24,
respectively.
Other
We have other consolidated SEs that were created to meet the needs of the bank and its customers. Aside from the exposure resulting from our
involvement as a sponsor, we do not have other contractual or non-contractual arrangements that require us to provide financial support to these
consolidated SEs.
154 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Unconsolidated Structured Entities
The table below presents amounts related to our interests in unconsolidated SEs:
(Canadian $ in millions)
2025
2024
Customer
securitization
vehicles (1)
Capital
vehicles
Other
securitization
vehicles
Customer
securitization
vehicles (1)
Capital
vehicles
Other
securitization
vehicles
Interests recorded in our Consolidated Balance Sheet
Financial Assets
Cash and cash equivalents
$
104
$
4,519
$
–
$
107
$
5,536
$
–
Trading securities
12
–
32,048
170
–
21,485
FVTPL securities
84
–
–
40
–
–
FVOCI securities
1,465
–
–
1,484
–
–
Derivatives
3
–
–
1
–
–
Other
48
2
181
8
–
169
Total
$
1,716
$
4,521
$
32,229
$
1,810
$
5,536
$
21,654
Financial Liabilities
Deposits
$
104
$
4,519
$
–
$
107
$
5,536
$
–
Derivatives
–
–
–
3
–
–
Other
–
62
–
–
87
–
Total
$
104
$
4,581
$
–
$
110
$
5,623
$
–
Maximum exposure to loss (2)
$
21,290
$
1
$
32,229
$
20,998
$
1
$
21,654
Total assets of the entities
$
12,866
$
4,581
$
112,946
$
12,956
$
5,624
$
87,611
(1) Securities held that are issued by our Canadian and U.S. customer securitization vehicles comprise asset-backed commercial paper (ABCP) and are classified as either trading securities, FVTPL securities
or FVOCI securities.
(2) Maximum exposure to loss represents securities held, undrawn liquidity facilities, any remaining unfunded committed amounts to the BMO funded vehicle, derivative assets and other assets.
Customer Securitization Vehicles
We sponsor customer securitization vehicles (also referred to as bank-sponsored multi-seller conduits) that provide our customers with alternate
sources of funding through the securitization of their assets. These vehicles provide clients with access to financing either from BMO or in the ABCP
markets by allowing them to sell their assets either directly into the vehicle or indirectly by selling an interest in the securitized assets into the
vehicle, which then issues ABCP to either investors or BMO to fund the purchases. The sellers remain responsible for servicing the transferred assets
and are first to absorb any losses realized on those assets. We are not responsible for servicing or absorbing the first loss and none of the sellers are
affiliated with BMO. We earn fees for providing services related to the securitizations, including liquidity, distribution and financial arrangement fees
for supporting the ongoing operations of the vehicles. We have determined that we act as agent on behalf of the sellers and therefore do not control
these vehicles.
We provide liquidity facilities to the market-funded vehicles, which may require that we provide them with additional financing if certain events
occur. The total committed and undrawn amount under these liquidity facilities and the undrawn amount of the BMO funded vehicle as at
October 31, 2025 was $19,679 million ($19,296 million as at October 31, 2024). This amount is included within commitments as outlined in Note 24.
Our interests in these vehicles as at October 31, 2025 and 2024 have been included in the Unconsolidated Structured Entities table above.
Capital Vehicles
We use capital vehicles to pass on our credit risk to security holders of the vehicles. In these situations, we are not exposed to significant default or
credit risk. Our remaining exposure to variable returns is less than that of the note holders in these vehicles, who are exposed to our default and
credit risk. We are not required to consolidate these vehicles.
Other Securitization Vehicles
Other securitization vehicles involve holdings in asset-backed securitizations. Where we sponsor SEs that securitize MBS into CMO, we may have
interests through our holdings of CMO but we do not consolidate the SEs, as we do not have power to direct their relevant activities. These include
government-sponsored agency securities such as U.S. government agency issuances. In determining whether we are a sponsor of a SE, we consider
both qualitative and quantitative factors, including the purpose and nature of the entity, and our initial and continuing involvement. Subsequent to
the securitization, we sell the CMO to third parties. Our maximum exposure to loss is limited to our on-balance sheet investments in these entities,
included in the Unconsolidated Structured Entities table above.
Where the asset-backed instruments in these securitizations are transferred to third parties, but we do not substantially transfer all of the risks
and rewards of ownership to the third-party investors, we continue to recognize the transferred assets, with the related cash proceeds recorded as
secured financing in our Consolidated Balance Sheet in securitization and structured entities’ liabilities. As at October 31, 2025, these transferred
assets were carried at fair value totalling $31,264 million ($19,903 million as at October 31, 2024), with $27,568 million ($15,223 million as at
October 31, 2024) recognized in securitization and structured entities’ liabilities, also carried at fair value.
Where the asset-backed instruments in these securitizations are transferred to third parties and qualify for derecognition, we record the related
gains or losses in non-interest revenue, trading revenues. We may also retain an interest in the CMO sold, which represents our continuing
involvement. As at October 31, 2025, we held retained interests of $784 million ($1,582 million as at October 31, 2024) carried at fair value in our
Consolidated Balance Sheet in securities, trading.
During the year ended October 31, 2025, we sold $67,264 million of MBS to these sponsored securitization vehicles ($31,832 million in 2024)
and divested all interests in the securitized MBS, with any gains and losses recorded in our Consolidated Statement of Income in non-interest
revenue, trading revenues.
BMO Financial Group 208th Annual Report 2025 155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We retain residual interests in certain commercial mortgage loans that have been either purchased or originated in the United States and then
sold and derecognized through bank-sponsored SEs, which securitize these loans into MBS. During the year ended October 31, 2025, we sold and
derecognized $2,111 million of these loans ($1,730 million in 2024) and recognized a gain of $24 million ($19 million in 2024). The carrying values of
our retained interests classified as loans carried at amortized cost were $181 million as at October 31, 2025 ($169 million as at October 31, 2024). Fair
value was equal to carrying value on these dates.
BMO Managed Funds
We have established a number of funds that we also manage. We assess whether we control these funds based on the economic interest we have
in the funds, including investments in the funds and management fees earned from the funds, and any investors’ rights to remove us as investment
manager. We consolidate only those funds that we control. Our total interest in unconsolidated BMO managed funds was $1,196 million as at
October 31, 2025 ($848 million as at October 31, 2024), with $278 million included in FVTPL securities and $918 million included in trading securities
in our Consolidated Balance Sheet as at October 31, 2025 ($250 million and $598 million, respectively, as at October 31, 2024).
Other Structured Entities
We purchase and hold investments in a variety of third-party SEs, including exchange-traded funds, mutual funds, limited partnerships, investment
trusts, LIHTC entities and government-sponsored ABS vehicles, which are recorded in securities in our Consolidated Balance Sheet. We are considered
to have an interest in these entities through our holdings and because we may act as a counterparty in certain derivatives contracts. We are not the
investment manager or the sponsor of any of these entities. We are generally a passive investor and do not have power over the key decision-
making activities of these entities. Our maximum exposure to loss from our investments is limited to the carrying amounts of our investments in
these entities and any unutilized commitment we have provided.
Sponsored Structured Entities
We may be deemed to be the sponsor of a SE if we are involved in its design, legal set-up or marketing. We may also be deemed to be the sponsor
of a SE if market participants would reasonably associate the entity with us. Any interests in securitization vehicles we have sponsored are disclosed
in the Unconsolidated Structured Entities table above.
Financial Support Provided to Structured Entities
During the years ended October 31, 2025 and 2024, we did not provide any financial or non-financial support to any consolidated or unconsolidated
SEs when we were not contractually obligated to do so. Furthermore, we have no intention of providing such support in the future.
Note 7: Derivative Instruments
Derivative instruments are financial contracts that derive their value from underlying changes in interest rates, foreign exchange rates or other
financial or commodity prices or indices.
Derivative instruments can be either regulated exchange-traded contracts or negotiated over-the-counter contracts. We use these instruments for
trading purposes, as well as to manage our exposures, mainly to foreign currency and interest rate fluctuations, as part of our asset/liability
management program.
Types of Derivatives
Swaps
Swaps are contractual agreements between two parties to exchange a series of cash flows. The various swap agreements that we enter into are as
follows:
‰ Interest rate swaps – counterparties generally exchange fixed and floating rate interest payments based on a notional value in a single currency.
‰ Cross-currency swaps – counterparties exchange fixed rate interest payments and principal amounts in different currencies.
‰ Cross-currency interest rate swaps – counterparties exchange fixed and/or floating rate interest payments and principal amounts in different
currencies.
‰ Commodity swaps – counterparties generally exchange fixed and floating rate payments based on a notional value of a single commodity.
‰ Equity swaps – counterparties exchange the return on an equity security or a group of equity securities for the return based on a fixed or floating
interest rate or the return on another equity security or group of equity securities.
‰ Credit default swaps – one counterparty pays the other a fee in exchange for that other counterparty agreeing to make a payment if a credit event
occurs, such as bankruptcy or failure to pay.
‰ Total return swaps – one counterparty agrees to pay or receive from the other cash amounts based on changes in the value of a reference asset or
group of assets, including returns such as interest earned on these assets, in exchange for amounts that are based on prevailing market funding
rates.
Forwards and Futures
Forwards and futures are contractual agreements to either buy or sell a specified amount of a currency, commodity, interest rate-sensitive financial
instrument or security at a specified price and date in the future.
156 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Forwards are customized contracts transacted in the over-the-counter market. Futures are transacted in standardized amounts on regulated
exchanges and are subject to daily cash margining.
Options
Options are contractual agreements that convey to the purchaser the right but not the obligation to either buy or sell a specified amount of a
currency, commodity, interest rate financial instrument or security at a fixed future date or at any time within a fixed future period.
For options written by us, we receive a premium from the purchaser for accepting market risk.
For options purchased by us, we pay a premium for the right to exercise the option. Since we have no obligation to exercise the option, our
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.
Caps, collars and floors are specialized types of written and purchased options. They are contractual agreements in which the writer agrees to
pay the purchaser, based on a specified notional amount, the difference between the market rate and the prescribed rate of the cap, collar or floor.
The writer receives a premium for selling this instrument.
A swaption is an option granting its owner the right but not the obligation to enter into an underlying swap.
A futures option is an option contract in which the underlying instrument is a single futures contract.
The main risks associated with these derivative instruments are related to exposure to movements in interest rates, foreign exchange rates,
credit quality, value of the underlying financial instrument or commodity, as applicable, and the possible inability of counterparties to meet the terms
of the contracts.
Embedded Derivatives
From time to time, we purchase or issue financial instruments containing embedded derivatives. The embedded derivative in a financial liability is
separated from the host contract and carried at fair value if the economic characteristics of the derivative are not closely related to those of the host
contract, the terms of the embedded derivative are the same as those of a stand-alone derivative, and the combined contract is not measured at fair
value. To the extent that we cannot reliably identify and measure the embedded derivative, the entire contract is carried at fair value, with changes
in fair value reflected in non-interest revenue, in our Consolidated Statement of Income. Embedded derivatives in certain of our guaranteed
investment certificate deposits are accounted for separately from the host instrument and presented within deposits in our Consolidated Balance
Sheet.
Contingent Features
Certain over-the-counter derivative instruments contain provisions that link the amount of collateral we are required to post or pay to our credit
ratings, as determined by the major credit rating agencies. If our credit ratings were to be downgraded, certain counterparties to these derivative
instruments could demand immediate and ongoing collateralization on derivative liability positions or request immediate payment. The aggregate fair
value of all derivative instruments with collateral posting requirements that were in a liability position as at October 31, 2025 was $10,894 million
($9,656 million as at October 31, 2024), for which we have posted collateral of $9,117 million ($8,882 million as at October 31, 2024).
Risks Hedged
Interest Rate Risk
We manage interest rate risk through interest rate futures, interest rate swaps and options, which are linked to and adjust the interest rate sensitivity
of a specific asset, liability, forecasted transaction or firm commitment, or a specific pool of transactions with similar risk characteristics.
Foreign Currency Risk
We manage foreign currency risk through currency futures, foreign currency options, cross-currency swaps, foreign exchange spot transactions,
forward contracts and deposits denominated in foreign currencies.
Equity Price Risk
We manage equity price risk through total return swaps.
Trading Derivatives
Trading derivatives include derivatives entered into with customers to accommodate their risk management needs, market-making to facilitate
customer-driven demand for derivatives, derivatives transacted on a limited basis to generate trading income from our principal trading positions, and
certain derivatives entered into as part of our risk management strategy that do not qualify as hedges for accounting purposes (economic hedges).
We structure and market derivative products to enable customers to transfer, modify or reduce current or expected exposure to risks.
Principal trading activities include market-making and positioning activities. Market-making involves quoting bid and offer prices to other market
participants with the intention of generating revenues based on spread and volume. Positioning activities involve managing market risk positions
with the expectation of profiting from favourable movements in prices, rates or indices.
We may also economically hedge a portion of our U.S. dollar earnings through forward foreign exchange contracts and/or options to minimize
fluctuations in our consolidated net income due to the translation of our U.S. dollar earnings. These contracts are recorded at fair value, with changes
in fair value recorded in non-interest revenue, trading revenues, in our Consolidated Statement of Income.
Trading derivatives are recorded at fair value. Realized and unrealized gains and losses are generally recorded in non-interest revenue, trading
revenues, in our Consolidated Statement of Income. Unrealized gains and losses on derivatives used to economically hedge certain exposures may be
recorded in our Consolidated Statement of Income in the same line as the unrealized gains and losses arising from the exposures. Unrealized gains on
trading derivatives are recorded as derivative instrument assets and unrealized losses are recorded as derivative instrument liabilities in our
Consolidated Balance Sheet.
BMO Financial Group 208th Annual Report 2025 157
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Trading and Hedging Derivatives
Fair value represents a point-in-time estimate that may change in subsequent reporting periods due to market conditions or other factors. A
discussion of the fair value measurement of derivatives is included in Note 17.
Fair values of our derivative instruments are as follows:
(Canadian $ in millions)
2025
2024
Gross assets
Gross liabilities
Net
Gross assets
Gross liabilities
Net
Trading
Interest Rate Contracts
Swaps
$
2,081
$
(4,905) $
(2,824) $
3,203
$
(5,707) $
(2,504)
Forward rate agreements
96
(155)
(59)
477
(281)
196
Purchased options
2,783
–
2,783
2,574
–
2,574
Written options
–
(2,639)
(2,639)
–
(2,341)
(2,341)
Futures
4
(10)
(6)
21
(10)
11
Foreign Exchange Contracts (1)
Cross-currency swaps
2,796
(311)
2,485
1,989
(1,378)
611
Cross-currency interest rate swaps
11,078
(12,349)
(1,271)
9,777
(10,867)
(1,090)
Forward foreign exchange contracts
13,535
(10,458)
3,077
8,150
(6,096)
2,054
Purchased options
1,534
–
1,534
657
–
657
Written options
–
(1,362)
(1,362)
–
(528)
(528)
Commodity Contracts
Swaps
1,004
(1,082)
(78)
1,023
(1,097)
(74)
Purchased options
257
–
257
644
–
644
Written options
–
(304)
(304)
–
(607)
(607)
Futures
201
(222)
(21)
160
(117)
43
Equity Contracts
16,459
(20,973)
(4,514)
14,194
(25,673)
(11,479)
Credit Contracts
Purchased
–
–
–
1
(10)
(9)
Written
1
–
1
9
(1)
8
Total fair value – trading derivatives
$
51,829
$
(54,770) $
(2,941) $
42,879
$
(54,713) $
(11,834)
Hedging
Interest Rate Contracts (2)
Cash flow hedges – swaps
$
2,931
$
(464) $
2,467
$
2,148
$
(915) $
1,233
Fair value hedges – swaps
786
(1,926)
(1,140)
1,464
(1,589)
(125)
Total swaps
3,717
(2,390)
1,327
3,612
(2,504)
1,108
Foreign Exchange Contracts
Cash flow hedges
1,576
(1,553)
23
699
(1,080)
(381)
Fair value hedges
–
–
–
–
(2)
(2)
Net investment hedges
–
(16)
(16)
–
(4)
(4)
Total foreign exchange contracts
1,576
(1,569)
7
699
(1,086)
(387)
Equity Contracts
Cash flow hedges
29
–
29
63
–
63
Total equity contracts
29
–
29
63
–
63
Total fair value – hedging derivatives (3)
5,322
(3,959)
1,363
4,374
(3,590)
784
Total fair value – trading and hedging derivatives
57,151
(58,729)
(1,578)
47,253
(58,303)
(11,050)
Less: impact of master netting agreements
(43,254)
43,254
–
(31,576)
31,576
–
Total
$
13,897
$
(15,475) $
(1,578) $
15,677
$
(26,727) $
(11,050)
(1) Gold contracts are included in foreign exchange contracts.
(2) Includes the fair value of bond futures in fair value hedges rounded down to $nil million as at October 31, 2025 ($nil million as at October 31, 2024).
(3) The fair values of hedging derivatives wholly or partially offset the changes in fair values of the related on-balance sheet financial instruments.
Assets are presented net of liabilities to customers where we have a legally enforceable right to offset amounts and we intend to settle contracts on
a net basis.
Notional Amounts of Trading Derivatives
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 must
be exchanged under the contract. Notional amounts do not represent assets or liabilities and therefore are not recorded in our Consolidated Balance
Sheet.
158 BMO Financial Group 208th Annual Report 2025
Notes
Notes
(Canadian $ in millions)
2025
2024
Exchange-traded
Over-the-counter
Total
Exchange-traded
Over-the-counter
Total
Interest Rate Contracts
Swaps
$
–
$
14,178,539
$
14,178,539
$
–
$
16,390,827
$
16,390,827
Forward rate agreements
–
841,547
841,547
–
3,414,449
3,414,449
Purchased options
130,231
369,216
499,447
136,796
253,694
390,490
Written options
54,221
385,166
439,387
26,468
255,721
282,189
Futures
1,737,629
–
1,737,629
1,735,442
–
1,735,442
Total interest rate contracts
1,922,081
15,774,468
17,696,549
1,898,706
20,314,691
22,213,397
Foreign Exchange Contracts (1)
Cross-currency swaps
–
63,306
63,306
–
64,100
64,100
Cross-currency interest rate swaps
–
1,235,923
1,235,923
–
891,272
891,272
Forward foreign exchange contracts
–
939,971
939,971
–
679,250
679,250
Purchased options
6,800
98,391
105,191
3,572
76,576
80,148
Written options
5,645
107,570
113,215
3,248
88,210
91,458
Futures
10,864
–
10,864
1,751
–
1,751
Total foreign exchange contracts
23,309
2,445,161
2,468,470
8,571
1,799,408
1,807,979
Commodity Contracts
Swaps
–
22,128
22,128
–
20,328
20,328
Purchased options
25,126
6,706
31,832
43,931
5,495
49,426
Written options
26,830
4,090
30,920
45,440
4,268
49,708
Futures
38,470
–
38,470
36,071
–
36,071
Total commodity contracts
90,426
32,924
123,350
125,442
30,091
155,533
Equity Contracts
256,701
187,279
443,980
333,126
138,034
471,160
Credit Contracts
Purchased
–
31,760
31,760
–
23,350
23,350
Written
–
23,507
23,507
–
16,211
16,211
Total credit contracts
–
55,267
55,267
–
39,561
39,561
Total
$
2,292,517
$
18,495,099
$
20,787,616
$
2,365,845
$
22,321,785
$
24,687,630
(1) Gold contracts are included in foreign exchange contracts.
Table excludes loan commitment derivatives with a notional amount of $6,219 million ($2,498 million as at October 31, 2024).
Derivatives Used in Hedge Accounting
We apply the requirements of IAS 39 Financial Instruments: Recognition and Measurement for hedge accounting purposes. In accordance with our risk
management strategy, we enter into various derivative contracts to hedge our interest rate, foreign currency and equity price exposures. We also use
deposits, cross-currency swaps, foreign exchange forwards and options to hedge foreign currency exposure in our net investment in foreign
operations.
When the hedged item is accounted for at FVTPL, there is a natural offset within the income statement with the related derivative. However,
when we manage risks inherent in instruments that are accounted for at amortized cost, including loans and deposits, or FVOCI debt securities, we
use hedge accounting in order to eliminate the mismatch between the hedged item and the mark-to-market derivative.
To the extent the instruments used to manage risk qualify for hedge accounting, we designate them in accounting hedge relationships. Our
structural market risk strategies, including our approach to managing interest rate and foreign exchange risk, are discussed in the blue-tinted font in
the Structural (Non-Trading) Market Risk section of our Management’s Discussion and Analysis. In addition, our exposure to foreign exchange rate risk
is discussed in the Non-Trading Foreign Exchange Risk section of our Management’s Discussion and Analysis. Our exposure to, and approach to
managing, equity price risk are discussed in the Other Share-Based Compensation – Mid-Term Incentive Plans section of Note 20.
By using derivatives to hedge exposures to changes in interest rates, foreign exchange rates and equity prices, we are also exposed to the credit
risk of the derivative counterparty. We mitigate credit risk by entering into transactions with high-quality counterparties, requiring the counterparties
to post collateral, entering into master netting agreements or settling through centrally cleared counterparties.
To qualify as an accounting hedge, the hedging relationship must be designated and formally documented at its inception, detailing the
particular risk management objective and strategy for the hedge and the specific asset, liability or cash flow being hedged, as well as how
effectiveness is to be assessed. Changes in the fair value of the derivative must be highly effective in offsetting changes in fair value or changes in
the amount of future cash flows of the hedged item. We evaluate hedge effectiveness at the inception of the hedging relationship and on an ongoing
basis, retrospectively and prospectively, primarily using a quantitative statistical regression analysis. We consider a hedging relationship highly
effective when all of the following criteria have been met: correlation between the variables in the regression is at least 0.8; the slope of the
regression is within a range of 0.8 to 1.25; and the confidence level of the slope is at least 95%. The practice is different for our net investment
hedge, which is discussed in the Net Investment Hedges section below.
Any ineffectiveness in a hedging relationship is recognized as it arises in non-interest revenue, other revenues, in our Consolidated Statement of
Income.
BMO Financial Group 208th Annual Report 2025 159
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table outlines the notional amounts and average rates of derivatives and the carrying amounts of deposits designated as hedging
instruments by term to maturity, hedge type and risk type, where applicable.
(Canadian $ in millions, except as noted)
Remaining term to maturity
2025
2024
Within
1 year
1 to 3
years
3 to 5
years
5 to 10
years
Over 10
years
Total
Total
Cash Flow Hedges
Interest rate risk – Interest rate swaps
Notional amount
$ 85,536
$ 84,666
$ 54,048
$ 31,409
$ 5,440
$ 261,099
$ 266,872
Average fixed interest rate
3.49%
3.06%
3.53%
3.22%
3.87%
3.33%
3.75%
Foreign exchange risk – Cross-currency swaps
and foreign exchange forwards (1)
CAD-USD pair
Notional amount
10,865
16,681
11,303
334
50
39,233
40,933
Average fixed interest rate
3.46%
3.49%
2.99%
3.68%
2.83%
3.34%
3.14%
Average exchange rate: CAD-USD
1.3341
1.3258
1.3560
1.3157
1.2327
1.3366
1.3252
CAD-EUR pair
Notional amount
6,732
8,066
3,310
1,807
–
19,915
17,399
Average fixed interest rate
3.74%
3.08%
3.21%
3.77%
–
3.39%
3.47%
Average exchange rate: CAD-EUR
1.4190
1.4588
1.4711
1.5935
–
1.4596
1.4293
Other currency pairs (2)
Notional amount
5,219
2,511
2,379
134
–
10,243
9,927
Average fixed interest rate
2.63%
4.23%
4.12%
5.13%
–
3.40%
3.26%
Average exchange rate:
CAD-Non USD/EUR
1.7080
1.5621
1.3796
0.5717
–
1.5812
1.5391
Equity price risk – Total return swap
Notional amount
552
–
–
–
–
552
480
Fair Value Hedges
Interest rate risk – Interest rate swaps
Notional amount
65,785
59,859
58,913
31,494
4,458
220,509
188,278
Average fixed interest rate
3.52%
3.62%
3.49%
3.60%
3.82%
3.56%
3.99%
Interest rate risk – Bond futures
(exchange-traded derivatives)
Notional amount
432
–
–
–
–
432
1,479
Average price in dollars
154
–
–
–
–
154
108
Foreign exchange risk – Cross-currency swaps
USD-EUR pair
Notional amount
–
–
–
–
–
–
21
Average fixed interest rate
–
–
–
–
–
–
3.25%
Average exchange rate: USD-EUR
–
–
–
–
–
–
0.9706
Net Investment Hedges
Foreign exchange risk – Cross-currency swaps
and foreign exchange forwards
CAD-CNH pair
Notional amount
669
–
–
–
–
669
677
Foreign exchange risk – Deposit liabilities
USD denominated deposit – carrying amount
22,395
–
–
–
–
22,395
16,053
GBP denominated deposit – carrying amount
355
–
–
–
–
355
300
(1) Under certain hedge strategies using cross-currency swaps, a CAD leg is inserted to create two swaps designated as separate hedges (for example, a EUR-USD cross-currency swap split into EUR-CAD
and CAD-USD cross-currency swaps). The relevant notional amount is grossed up in this table, as the cross-currency swaps are disclosed by CAD-foreign currency pair.
(2) Includes CAD-AUD, CAD-CHF, CAD-CNH, CAD-GBP, CAD-HKD, CAD-JPY or CAD-NOK cross-currency swaps, where applicable.
Cash Flow Hedges
Cash flow hedges modify exposure to variability in cash flows for variable interest rate bearing instruments, foreign currency denominated assets and
liabilities and certain cash-settled share-based payment grants subject to equity price risk. We use interest rate swaps with or without embedded
options, cross-currency swaps, forwards and total return swaps to hedge this variability. We hedge the full amount of foreign exchange risk, but
interest rate risk is hedged only to the extent of benchmark interest rates. The benchmark interest rate is a component of interest rate risk that is
observable in the relevant financial markets; for example, Secured Overnight Financing Rate or Canadian Overnight Repo Rate Average (CORRA).
We determine the amount of the exposure to which hedge accounting is applied by assessing the potential impact of changes in interest rates,
foreign exchange rates and equity prices on the future cash flows of floating rate loans and deposits, foreign currency denominated assets and
liabilities and certain cash-settled share-based payments. This assessment is performed using analytical techniques such as simulation, sensitivity
analysis, stress testing and gap analysis.
We record interest that we pay or receive on derivatives that hedge interest rate risk or foreign exchange risk in net interest income in our
Consolidated Statement of Income over the life of the hedge. Interest paid on derivatives that hedge equity price risk on certain share-based
payments is recorded in employee compensation expense.
The accounting mismatch that would otherwise occur is eliminated by recording changes in the fair value of the derivative that offset changes in
the fair value of the hedged item for the designated hedged risk in other comprehensive income. Hedge ineffectiveness, the portion of the change in
fair value of the derivative that does not offset changes in the fair value of the hedged item, is recorded directly in non-interest revenue, other
revenues, in our Consolidated Statement of Income as it arises.
For cash flow hedges that are discontinued before the end of the original hedge term, the cumulative unrealized gain or loss recorded in other
comprehensive income is amortized to our Consolidated Statement of Income in net interest income for interest rate swaps and employee
compensation expense for total return swaps as the hedged item is recorded in earnings. If the hedged item is sold or settled, the entire unrealized
gain or loss is recognized immediately in net interest income in our Consolidated Statement of Income. In general, we do not terminate our foreign
exchange hedges before maturity.
160 BMO Financial Group 208th Annual Report 2025
Notes
Notes
For cash flow hedges, we use a hypothetical derivative to measure the hedged risk of floating rate loans, deposits, foreign currency denominated
assets and liabilities or share-based payment grants. This hypothetical derivative matches the critical terms of the hedged items identically and
perfectly offsets the hedged cash flow.
In our cash flow hedge relationships, the main sources of ineffectiveness are differences in interest rate indices, tenor and reset or settlement
frequencies between hedging instruments and hedged items, and using hedging instruments without a floor in relationships for hedged items with a
floor.
Net Investment Hedges
Net investment hedges mitigate our exposure to foreign exchange rate fluctuations related to our net investment in foreign operations.
Deposits denominated in foreign currencies, cross-currency swaps and foreign exchange forwards are designated as hedging instruments for a
portion of our net investment in foreign operations. We designate the spot rate component of our hedging instruments in net investment hedges. The
foreign currency translation of our net investment in foreign operations and the effective portion of the corresponding hedging instrument are
recorded in net gains on translation of net foreign operations in other comprehensive income, instead of through the income statement in the case of
the hedging instrument if hedge accounting had not been elected.
The effectiveness of our net investment hedge is determined using either the dollar offset method with spot foreign currency rates or a
quantitative statistical regression analysis. As the notional amount of the hedging instruments and the hedged net investment in foreign operations
are the same, there are no significant sources of ineffectiveness in these hedging relationships.
The following table contains information related to the hedging instruments, hedged items and hedge ineffectiveness for cash flow and net
investment hedges for the years ended October 31, 2025 and 2024.
(Canadian $ in millions)
2025
Carrying amount of
hedging instruments (1)
Hedge ineffectiveness
Asset
Liability
Gains (losses) on
hedging derivatives
used to calculate hedge
ineffectiveness (2)
Gains (losses) on
hypothetical derivatives
used to calculate hedge
ineffectiveness (2)
Ineffectiveness
recorded in
non-interest revenue,
other revenues
Cash Flow Hedges
Interest rate risk – Interest rate swaps
$
2,931
$
(464)
$
1,319
$
(1,382)
$
3
Foreign exchange risk – Cross-currency swaps
and foreign exchange forwards
1,576
(1,553)
(214)
214
–
Equity price risk – Total return swaps
29
–
258
(258)
–
4,536
(2,017)
1,363
(1,426)
3
Net Investment Hedges
Foreign exchange risk – Cross-currency swaps
and foreign exchange forwards
–
(16)
(5)
3
(2)
Foreign exchange risk – Deposit liabilities
–
(22,750)
(102)
102
–
Total
$
4,536
$
(24,783)
$
1,256
$
(1,321)
$
1
2024
Carrying amount of
hedging instruments (1)
Hedge ineffectiveness
Asset
Liability
Gains (losses) on
hedging derivatives
used to calculate hedge
ineffectiveness (2)
Gains (losses) on
hypothetical derivatives
used to calculate hedge
ineffectiveness (2)
Ineffectiveness
recorded in
non-interest revenue,
other revenues
Cash Flow Hedges
Interest rate risk – Interest rate swaps
$
2,148
$
(915)
$
3,552
$
(3,615)
$
(12)
Foreign exchange risk – Cross-currency swaps
and foreign exchange forwards
699
(1,080)
(251)
251
–
Equity price risk – Total return swaps
63
–
165
(165)
–
2,910
(1,995)
3,466
(3,529)
(12)
Net Investment Hedges
Foreign exchange risk – Cross-currency swaps
and foreign exchange forwards
–
(4)
(23)
19
(4)
Foreign exchange risk – Deposit liabilities
–
(16,353)
(119)
119
–
Total
$
2,910
$
(18,352)
$
3,324
$
(3,391)
$
(16)
(1) Represents unrealized gains (losses) recorded as part of derivative instruments in assets and liabilities, respectively, in our Consolidated Balance Sheet.
(2) Represents life to date amounts.
BMO Financial Group 208th Annual Report 2025 161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables provide a reconciliation of the impacts of our cash flow hedges and net investment hedges in our Consolidated Statement of
Comprehensive Income, on a pre-tax basis for the years ended October 31, 2025 and 2024.
(Canadian $ in millions)
2025
Balance in cash flow hedge AOCI /
net foreign operations AOCI
Balance October 31, 2024
Gains /
(losses)
recognized
in OCI
Amount reclassified to
net income as
the hedged item affects
net income
Balance
October 31, 2025 (1) (2)
Active hedges
Discontinued hedges
Cash Flow Hedges
Interest rate risk
$
(2,480)
$
1,316
$
1,600
$
436
$
2,453
$
(2,017)
Foreign exchange risk
357
(214)
(1)
142
142
–
Equity price risk
77
258
(151)
184
184
–
(2,046)
1,360
1,448
762
2,779
(2,017)
Net Investment Hedges
Foreign exchange risk
(2,324)
(105)
–
(2,429)
(2,429)
–
Total
$
(4,370)
$
1,255
$
1,448
$
(1,667)
$
350
$
(2,017)
2024
Balance in cash flow hedge AOCI /
net foreign operations AOCI
Balance October 31, 2023
Gains /
(losses)
recognized
in OCI
Amount reclassified to
net income as
the hedged item affects
net income
Balance
October 31, 2024 (1) (2)
Active hedges
Discontinued hedges
Cash Flow Hedges
Interest rate risk
$
(8,015) $
3,564
$
1,971
$
(2,480)
$
1,695
$
(4,175)
Foreign exchange risk
610
(251)
(2)
357
357
–
Equity price risk
(72)
165
(16)
77
77
–
(7,477)
3,478
1,953
(2,046)
2,129
(4,175)
Net Investment Hedges
Foreign exchange risk
(2,186)
(138)
–
(2,324)
(2,324)
–
Total
$
(9,663) $
3,340
$
1,953
$
(4,370)
$
(195)
$
(4,175)
(1) Tax balance related to cash flow hedges accumulated other comprehensive income was $(235) million as at October 31, 2025 ($527 million as at October 31, 2024).
(2) Tax balance related to net investment hedges accumulated other comprehensive income was $622 million as at October 31, 2025 ($593 million as at October 31, 2024).
Fair Value Hedges
Fair value hedges modify exposure to changes in a fixed rate instrument’s fair value caused by changes in interest rates. These hedges economically
convert fixed rate assets and liabilities to floating rate. We use cross-currency swaps, interest rate swaps and bond futures to hedge foreign exchange
risk and interest rate risk, including benchmark interest rates inherent in fixed rate securities, a portfolio of mortgages, deposits and subordinated
debt and other liabilities.
The carrying value of fixed rate assets or liabilities that are part of a hedging relationship is adjusted for the change in value of the risk being
hedged. To the extent that the change in the fair value of the derivative does not offset changes in the fair value of the hedged item for the risk
being hedged, the net amount (hedge ineffectiveness) is recorded directly in non-interest revenue, other revenues, in our Consolidated Statement of
Income.
For fair value hedges that are discontinued, we cease adjusting the hedged item. The cumulative fair value adjustment of the hedged item is
then amortized to net interest income over the hedged item’s remaining term to maturity. If the hedged item is sold or settled, the cumulative fair
value adjustment is included in the gain or loss on sale or settlement.
In our fair value hedge relationships, the main sources of ineffectiveness are our own credit risk on the fair value of the swap and differences in
terms such as fixed interest rate or reset/settlement frequency between the swap and the hedged item.
The amounts related to derivatives designated as fair value hedging instruments, hedged items and hedge ineffectiveness for the years ended
October 31, 2025 and 2024 are as follows:
(Canadian $ in millions)
2025
Carrying amount of
hedging derivatives (1)
Hedge ineffectiveness
Accumulated amount of fair value
hedge gains (losses) on hedged items
Asset
Liability
Gains (losses) on
hedging derivatives
used to calculate
hedge ineffectiveness
Gains (losses) on
hedged item used
to calculate hedge
ineffectiveness
Ineffectiveness
recorded in
non-interest
revenue,
other revenues
Carrying
amount of the
hedged item (2)
Active
hedges
Discontinued
hedges
Fair Value Hedge (3)
Interest rate swaps
$
786
$
(1,926)
$
–
$
–
$
–
$
–
$
–
$
–
Cross-currency swaps
–
–
–
–
–
–
–
–
Securities and loans
–
–
(1,204)
1,170
(34)
133,830
1,747
(1,902)
Deposits, subordinated debt
and other liabilities
–
–
291
(286)
5
(77,224)
(361)
429
Total
$
786
$
(1,926)
$
(913)
$
884
$
(29)
$
56,606
$
1,386
$
(1,473)
(1) Represents the unrealized gains (losses) within derivative instruments in assets and liabilities, respectively, in our Consolidated Balance Sheet.
(2) Represents the carrying value in our Consolidated Balance Sheet and includes amortized cost, before ACL, plus fair value hedge adjustments, except for FVOCI securities that are carried at fair value.
(3) Includes the fair value of bond futures rounded down to $nil million as at October 31, 2025.
162 BMO Financial Group 208th Annual Report 2025
Notes
Notes
2024
Carrying amount of
hedging derivatives (1)
Hedge ineffectiveness
Accumulated amount of fair value
hedge gains (losses) on hedged items
Asset
Liability
Gains (losses) on
hedging derivatives
used to calculate
hedge ineffectiveness
Gains (losses) on
hedged item used
to calculate hedge
ineffectiveness
Ineffectiveness
recorded in
non-interest
revenue,
other revenues
Carrying
amount of the
hedged item (2)
Active
hedges
Discontinued
hedges
Fair Value Hedge (3)
Interest rate swaps
$
1,464
$
(1,589)
$
–
$
–
$
–
$
–
$
–
$
–
Cross-currency swaps
–
(2)
–
–
–
–
–
–
Securities and loans
–
–
(3,266)
3,117
(149)
118,397
741
(1,293)
Deposits, subordinated debt
and other liabilities
–
–
1,234
(1,217)
17
(65,156)
(214)
930
Total
$
1,464
$
(1,591)
$
(2,032)
$
1,900
$
(132)
$
53,241
$
527
$
(363)
(1) Represents the unrealized gains (losses) within derivative instruments in assets and liabilities, respectively, in our Consolidated Balance Sheet.
(2) Represents the carrying value in our Consolidated Balance Sheet and includes amortized cost, before ACL, plus fair value hedge adjustments, except for FVOCI securities that are carried at fair value.
(3) Includes the fair value of bond futures rounded down to $nil million as at October 31, 2024.
Derivative-Related Market Risk
Derivative instruments are subject to market risk arising from the potential for a negative impact on the balance sheet and/or statement of income
due to adverse changes in the value of derivative instruments as a result of changes in certain market variables. These variables include interest
rates, foreign exchange rates, credit spreads, equity and commodity prices and their implied volatilities. We strive to limit our exposure to market risk
by employing comprehensive governance and management processes for all market risk-taking activities.
Derivative-Related Credit Risk
Derivative instruments are subject to credit risk arising from the possibility that counterparties may default on their obligations. The credit risk
associated with a derivative normally represents an amount that is a small fraction of the notional amount of the derivative instrument. Derivative
contracts generally expose us to potential credit loss if changes in market rates affect the counterparty’s position unfavourably and the counterparty
defaults on payment. Credit risk is represented by the positive fair value of the derivative instrument. We strive to limit our exposure to credit risk by
dealing with counterparties that we believe are creditworthy, and we manage our credit risk for derivatives using the same credit risk process that
we apply to loans and other credit assets.
We also pursue opportunities to reduce our exposure to credit losses on derivative instruments by securing collateral and entering into master
netting agreements with counterparties. The credit risk associated with favourable contracts is mitigated by legally enforceable master netting
agreements to the extent that unfavourable contracts with the same counterparty must be settled concurrently with favourable contracts.
Exchange-traded derivatives have limited potential for credit risk exposure, as they are settled net daily with each exchange.
Terms used in the credit risk tables below are as follows:
Replacement cost captures the loss that would occur if a counterparty were to default in the present or at a future time, assuming that the closeout
and replacement of transactions occur instantaneously, and assuming no recovery on the value of those transactions in bankruptcy.
Credit risk equivalent represents the total replacement cost plus an amount representing the potential future credit risk exposure adjusted by a
multiplier of 1.4, as outlined in OSFI’s Capital Adequacy Requirements (CAR) Guideline.
Risk-weighted assets represent the credit risk equivalent, weighted on the basis of the creditworthiness of the counterparty and considering
collateral, netting and other credit risk mitigants, as prescribed by OSFI.
BMO Financial Group 208th Annual Report 2025 163
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian $ in millions)
2025
2024
Replacement
cost (1)
Credit risk
equivalent (1)
Risk-weighted
assets
Replacement
cost (1)
Credit risk
equivalent (1)
Risk-weighted
assets
Interest Rate Contracts
Over-the-counter
Swaps
$
1,839
$
7,493
$
1,501
$
2,404
$
7,797
$
1,125
Forward rate agreements
391
3,448
858
650
2,696
600
Purchased options
511
1,066
452
42
338
188
Written options
8
245
66
2
211
78
2,749
12,252
2,877
3,098
11,042
1,991
Exchange-traded
Futures
9
49
1
122
279
6
Purchased options
2
7
–
8
19
–
Written options
2
5
–
–
1
–
13
61
1
130
299
6
Total interest rate contracts
2,762
12,313
2,878
3,228
11,341
1,997
Foreign Exchange Contracts (2)
Over-the-counter
Swaps
1,927
8,407
779
1,559
7,218
825
Forward foreign exchange contracts
1,838
9,399
1,672
2,709
9,643
1,764
Purchased options
119
476
139
142
447
142
Written options
1
155
38
1
119
27
3,885
18,437
2,628
4,411
17,427
2,758
Exchange-traded
Futures
–
1
–
–
1
–
Purchased options
–
2
–
–
3
–
–
3
–
–
4
–
Total foreign exchange contracts
3,885
18,440
2,628
4,411
17,431
2,758
Commodity Contracts
Over-the-counter
Swaps
1,165
4,822
1,228
993
4,256
1,035
Purchased options
205
688
308
155
484
182
Written options
4
366
140
10
246
86
1,374
5,876
1,676
1,158
4,986
1,303
Exchange-traded
Futures
246
1,028
21
176
594
12
Purchased options
28
178
4
179
319
6
Written options
15
157
3
–
73
1
289
1,363
28
355
986
19
Total commodity contracts
1,663
7,239
1,704
1,513
5,972
1,322
Equity Contracts
Over-the-counter
306
10,247
2,132
199
8,625
1,645
Exchange-traded
2,036
3,909
78
675
2,899
58
Total equity contracts
2,342
14,156
2,210
874
11,524
1,703
Credit Contracts
24
177
22
103
309
39
Total
$
10,676
$
52,325
$
9,442
$
10,129
$
46,577
$
7,819
(1) Replacement cost and credit risk equivalent are presented after the impact of master netting agreements and calculated using the Standardized Approach for Counterparty Credit Risk (SA-CCR) in
accordance with the CAR Guideline issued by OSFI. This table therefore excludes loan commitment derivatives.
(2) Gold contracts are included in foreign exchange contracts.
164 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Term to Maturity
Our derivative contracts have varying maturity dates. The remaining contractual terms to maturity for the notional amounts of our derivative contracts
are as follows:
(Canadian $ in millions)
Term to maturity
2025
2024
Within
1 year
1 to 3
years
3 to 5
years
5 to 10
years
Over 10
years
Total notional
amounts
Total notional
amounts
Interest Rate Contracts
Swaps
$ 4,452,781
$ 4,418,207
$ 2,451,659
$ 2,271,601
$ 1,065,819
$ 14,660,067
$
16,845,977
Forward rate agreements, futures
and options
2,435,842
937,140
123,894
17,334
4,232
3,518,442
5,824,049
Total interest rate contracts
6,888,623
5,355,347
2,575,553
2,288,935
1,070,051
18,178,509
22,670,026
Foreign Exchange Contracts (1)
Swaps
349,612
447,928
271,998
224,379
77,590
1,371,507
1,002,323
Forward foreign exchange contracts
903,972
27,903
4,423
1,336
3,006
940,640
679,927
Futures
10,616
248
–
–
–
10,864
1,751
Options
194,461
21,524
2,089
332
–
218,406
171,606
Total foreign exchange contracts
1,458,661
497,603
278,510
226,047
80,596
2,541,417
1,855,607
Commodity Contracts
Swaps
15,030
6,088
601
409
–
22,128
20,328
Futures
24,278
12,212
1,492
488
–
38,470
36,071
Options
44,932
16,512
308
1,000
–
62,752
99,134
Total commodity contracts
84,240
34,812
2,401
1,897
–
123,350
155,533
Equity Contracts
354,512
65,709
17,852
5,796
663
444,532
471,640
Credit Contracts
2,240
15,860
26,136
9,698
1,333
55,267
39,561
Total notional amount
$ 8,788,276
$ 5,969,331
$ 2,900,452
$ 2,532,373
$ 1,152,643
$ 21,343,075
$
25,192,367
(1) Gold contracts are included in foreign exchange contracts.
Under the SA-CCR, this table excludes loan commitment derivatives.
Note 8: Premises and Equipment
We record all owned premises and equipment at cost less accumulated depreciation and less any accumulated impairment, except land, which is
recorded at cost. Buildings, computer equipment and operating system software, other equipment and leasehold improvements are depreciated on a
straight-line basis over their estimated useful lives. When the major components of a building have different useful lives, they are accounted for
separately and depreciated over each component’s estimated useful life.
The maximum estimated useful lives we use to depreciate our assets are as follows:
Buildings
10 to 40 years
Computer equipment and operating system software
5 to 7 years
Other equipment
10 years
Leasehold improvements
Lease term to a maximum of 10 years
Depreciation methods, useful lives and the residual values of premises and equipment are reviewed annually for any change in circumstances, and
adjusted if appropriate. At each reporting period, we review whether there are any indications that premises and equipment need to be tested for
impairment. If there is an indication that an asset may be impaired, we test for impairment by comparing the asset’s carrying value to its recoverable
amount. The recoverable amount is calculated as the higher of value in use and fair value less costs to sell. Value in use is the present value of the
future cash flows expected to be derived from the asset. An impairment charge is recorded when the recoverable amount is less than the carrying
value. We recorded write-downs on our premises and equipment of $16 million during the year ended October 31, 2025 ($nil in 2024). Gains and
losses on disposal are included in non-interest expense, premises and equipment, in our Consolidated Statement of Income.
Leases
When we enter into a new arrangement as a lessee, a right-of-use asset is recognized equal to the lease liability, which is calculated based on the
future lease payments discounted at our incremental borrowing rate over the lease term. In calculating our lease liability and corresponding
right-of-use asset, we assess whether a contract is a lease by determining if we have the right to control the asset based on our ability to make
decisions or direct how and for what purpose the asset is used.
A right-of-use asset is depreciated on a straight-line basis, based on the shorter of the useful life of the underlying asset or the lease term, and is
adjusted for impairment losses, if any. Impairment is assessed when there is a change in use. No impairment was recorded on our right-of-use assets
during the year ended October 31, 2025 ($1 million in 2024).
BMO Financial Group 208th Annual Report 2025 165
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The lease liability accretes interest over the lease term, using the effective interest method, with the associated interest expense recognized in
interest expense, other liabilities, in our Consolidated Statement of Income. We make estimates in determining the incremental borrowing rate that is
used to discount lease liabilities, based on our expected costs of secured borrowing for the lease term. The lease term is based on the
non-cancellable period and includes any options to extend or terminate which we are reasonably certain to exercise. The lease liability is remeasured
when decisions are made to exercise options under the lease arrangement or when the likelihood of exercising an option within the lease changes.
Refer to Note 13 for further information.
Amounts related to low-value leases are expensed when incurred in non-interest expense, premises and equipment, in our Consolidated
Statement of Income.
The total cost and associated accumulated depreciation for premises and equipment that we own or lease are set out below:
(Canadian $ in millions)
Land and
buildings
Computer
equipment
Other
equipment
Leasehold
improvements
Right-of-use
assets
Total
Cost
Balance at October 31, 2023
$
2,370
$
2,923
$
1,060
$
2,413
$
4,357
$
13,123
Additions/lease modifications
81
270
117
352
171
991
Disposals
(48)
(22)
(11)
(26)
–
(107)
Fully depreciated assets
(32)
(694)
(257)
(71)
(96)
(1,150)
Foreign exchange and other
5
3
2
7
12
29
Balance at October 31, 2024
2,376
2,480
911
2,675
4,444
12,886
Additions/lease modifications
86
358
67
209
287
1,007
Disposals
(18)
(17)
(3)
(11)
(2)
(51)
Fully depreciated assets
(7)
(534)
(61)
(10)
(97)
(709)
Foreign exchange and other
8
5
3
8
24
48
Balance at October 31, 2025
$
2,445
$
2,292
$
917
$
2,871
$
4,656
$
13,181
Accumulated Depreciation and Impairment
Balance at October 31, 2023
$
1,238
$
2,228
$
704
$
1,356
$
1,356
$
6,882
Disposals
(29)
(12)
(8)
(21)
–
(70)
Depreciation
64
261
76
167
402
970
Fully depreciated assets
(32)
(694)
(257)
(71)
(96)
(1,150)
Foreign exchange and other (1)
1
(4)
(6)
5
9
5
Balance at October 31, 2024
1,242
1,779
509
1,436
1,671
6,637
Disposals
(16)
(15)
(1)
(7)
–
(39)
Depreciation
74
270
82
190
399
1,015
Fully depreciated assets
(7)
(534)
(61)
(10)
(97)
(709)
Foreign exchange and other (1)
20
–
(5)
2
8
25
Balance at October 31, 2025
$
1,313
$
1,500
$
524
$
1,611
$
1,981
$
6,929
Net Carrying Value
Balance at October 31, 2025
$
1,132
$
792
$
393
$
1,260
$
2,675
$
6,252
Balance at October 31, 2024
1,134
701
402
1,239
2,773
6,249
(1) Includes impairment charges.
Note 9: Acquisitions and Divestitures
Acquisitions
The cost of an acquisition is measured at the fair value of the consideration transferred, including contingent consideration. Acquisition-related costs
are recognized as an expense in the period in which they are incurred. The identifiable assets acquired, including intangible assets, and liabilities
assumed, are measured at their fair values at the date of acquisition. Goodwill is measured as the excess of the aggregate of the consideration
transferred, including the fair value of any contingent consideration, over the net fair value of identifiable assets acquired and liabilities assumed. The
results of operations of acquired businesses are included in our consolidated financial statements beginning on the date of acquisition.
Burgundy Asset Management Ltd.
On November 1, 2025, we completed the acquisition of Burgundy Asset Management Ltd. (Burgundy), a leading independent wealth manager in
Canada, providing discretionary investment management for private clients, foundations, endowments, pensions and family offices. The purchase
price was $654 million, and included higher working capital between announcement and close, paid in cash of $61 million and shares of a wholly-
owned subsidiary of BMO that are exchangeable into BMO common shares, valued at $593 million on close. The purchase price includes the fair value
of a holdback to be paid subject to Burgundy maintaining certain assets under management 18 months post-closing and the fair value of a potential
earn-out, payable in the future based on the achievement of certain growth targets.
166 BMO Financial Group 208th Annual Report 2025
Notes
Notes
The acquisition will be reflected in our results in the first quarter of fiscal 2026 as a business combination in the Wealth Management operating
segment. Due to the proximity of the closing date to the release date of these annual consolidated financial statements, we have not finalized the
initial accounting for the acquisition as the valuation of assets acquired and liabilities assumed, including intangible assets and goodwill, has not been
completed.
Divestitures
Non-financial assets (and disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use. These assets meet the criteria for classification as held for sale if they are available for immediate sale
in their present condition and their sale is considered highly probable. Non-financial assets classified as held for sale are measured at the lower of
their carrying amount and fair value less costs to sell. Any write-down to fair value less costs to sell is recognized in non-interest expense in our
Consolidated Statement of Income. Any subsequent increase in the fair value less costs to sell, to the extent this does not exceed the cumulative
write-down recorded to date, is also recognized in non-interest expense. Gains on disposals are recognized in non-interest revenue.
Sale of Certain U.S. Branches
On October 16, 2025, we entered into a definitive agreement to sell 138 BMO branches in select U.S. markets that are part of our U.S. Banking
operating segment to First-Citizens Bank & Trust Company (First Citizens Bank). Under the terms of this agreement, First Citizens Bank will assume
approximately US$5.7 billion (CAD$8 billion) in deposits and purchase approximately US$1.1 billion (CAD$1.5 billion) in loans for a net deposit
premium of approximately 5 percent paid on closing. This transaction is expected to close in mid-calendar 2026, subject to regulatory approvals and
customary closing conditions. As this transaction met the accounting requirements for assets held for sale in the fourth quarter of 2025, we
recognized a write-down of goodwill of US$73 million (CAD$102 million) before and after-tax in non-interest expense, other, in our Consolidated
Statement of Income, reported in Corporate Services. These amounts are subject to closing adjustments, including fair values and foreign exchange
rates prevailing at the date of closing.
Note 10: Goodwill and Intangible Assets
Goodwill
When we complete an acquisition, we allocate the purchase price to the assets acquired, including identifiable intangible assets, and the liabilities
assumed. Any portion of the consideration transferred in excess of the fair value of those net assets is considered to be goodwill. Goodwill is not
amortized and is instead tested for impairment annually.
In performing the impairment test, we utilize fair value less costs to sell for each CGU based on discounted cash flow projections. Cash flows
were projected for the first 10 years based on actual operating results, expected future business performance and past experience. Beyond 10 years,
cash flows were assumed to grow at perpetual annual rates of up to 1.5% (2.0% in 2024). The discount rates we applied in determining the
recoverable amounts in 2025 ranged from 9.3% to 11.6% (9.8% to 10.8% in 2024) and were based on our estimate of the cost of capital for each
CGU. The cost of capital for each CGU was estimated using the Capital Asset Pricing Model, based on the historical betas of publicly traded peer
companies that are comparable to the CGU. We use significant judgment in determining inputs to the discounted cash flow model, which is most
sensitive to changes in future cash flows, discount rates and terminal growth rates applied to cash flows beyond the forecast period. The fair value
measurement for the cash flow model is categorized as Level 3 as the inputs are not observable in the market.
The key assumptions described above may change as market and economic conditions change. However, we estimate that reasonably possible
changes in these assumptions are not expected to cause the recoverable amounts of our CGUs to decline below their carrying amounts.
A continuity of our goodwill by group of CGUs for the years ended October 31, 2025 and 2024 is as follows:
(Canadian $ in millions)
Canadian P&C
U.S. Banking
Wealth and Asset
Management
Insurance
Total Wealth
Management
Capital Markets
Total
Balance at October 31, 2023
$
330
$
15,610
$
258
$
2
$
260
$
528
$
16,728
Foreign exchange and other
–
45
–
–
–
1
46
Balance at October 31, 2024
330
15,655
258
2
260
529
16,774
Write-downs
–
(102) (1)
–
–
–
–
(102)
Foreign exchange and other
–
122
–
–
–
3
125
Balance at October 31, 2025
$
330
$
15,675
$
258
$
2
$
260
$
532
$
16,797
(1) Relates to the sale of certain U.S. branches. Refer to Note 9.
Certain comparative figures have been reclassified to conform with the current year’s presentation.
BMO Financial Group 208th Annual Report 2025 167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets
Intangible assets related to our acquisitions are initially recorded at fair value at the acquisition date and subsequently at cost less accumulated
amortization. Software is recorded at cost less accumulated amortization. Amortization expense is recorded in amortization of intangible assets in our
Consolidated Statement of Income.
The total cost and associated accumulated amortization of our intangible assets are set out below:
(Canadian $ in millions)
Customer
relationships
Core deposits
Software –
amortizing
Software under
development
Other
Total
Cost
Balance at October 31, 2023
$
850
$
3,553
$
7,071
$
324
$
572
$
12,370
Additions
–
–
22
782
48
852
Transfers
–
–
688
(688)
–
–
Fully amortized intangibles
–
–
(1,696)
–
(33)
(1,729)
Foreign exchange and other
2
10
11
(1)
1
23
Balance at October 31, 2024
852
3,563
6,096 (1)
417
588
11,516
Additions
–
–
71
938
39
1,048
Transfers
–
–
821
(821)
–
–
Fully amortized intangibles
(16)
–
(673)
–
(91)
(780)
Foreign exchange and other
–
28
12
(2)
3
41
Balance at October 31, 2025
$
836
$
3,591
$
6,327 (1) $
532
$
539
$
11,825
Accumulated Amortization
Balance at October 31, 2023
$
487
$
1,295
$
5,073
$
–
$
299
$
7,154
Amortization
62
342
676
–
32
1,112
Write-downs
4
–
22
–
–
26
Fully amortized intangibles
–
–
(1,696)
–
(33)
(1,729)
Foreign exchange and other
3
10
15
–
–
28
Balance at October 31, 2024
556
1,647
4,090 (1)
–
298
6,591
Amortization
70
305
739
–
38
1,152
Write-downs
14
–
13
–
49
76
Fully amortized intangibles
(16)
–
(673)
–
(91)
(780)
Foreign exchange and other
(1)
13
15
–
1
28
Balance at October 31, 2025
$
623
$
1,965
$
4,184 (1) $
–
$
295
$
7,067
Net Carrying Value
Balance at October 31, 2025
$
213
$
1,626
$
2,143
$
532
$
244
$
4,758
Balance at October 31, 2024
296
1,916
2,006
417
290
4,925
(1) Includes internally generated software of $5,752 million in cost and $3,760 million in accumulated amortization as at October 31, 2025 ($5,466 million in cost and $3,653 million in accumulated
amortization as at October 31, 2024).
Intangible assets are amortized to income over the period during which we believe the assets will benefit us, on either a straight-line or an
accelerated basis, over a period not to exceed 15 years. We have $179 million as at October 31, 2025 ($228 million as at October 31, 2024) of
intangible assets with indefinite lives that relate primarily to card processing contracts.
The useful lives of intangible assets are reviewed annually for any changes in circumstances. We test definite-life intangible assets for
impairment when events or changes in circumstances indicate that their carrying value may not be recoverable. Indefinite-life intangible assets are
tested annually for impairment. If any intangible assets are determined to be impaired, we write them down to their recoverable amount, which is
the higher of value in use and fair value less costs to sell.
168 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Note 11: Other Assets
The components of other within other assets are as follows:
(Canadian $ in millions)
2025
2024
Accounts receivable, prepaid expenses and other items
$
4,563
$
3,832
Accrued interest receivable
4,478
4,463
Bank owned life insurance policies
6,514
6,350
Leased vehicles, net of accumulated amortization
25
67
Cash collateral
11,149
9,419
Investments in associates and joint ventures
1,786
1,727
Insurance-related assets (1)
6,583
5,748
Other employee future benefits assets (Note 21)
87
44
Pension asset (Note 21)
1,316
1,252
Precious metals (2)
6,383
9,485
Total
$
42,884
$
42,387
(1) Includes $1,355 million of investment properties ($1,363 million as at October 31, 2024) carried at fair value. These investment properties support our insurance contract liabilities. The fair value is
determined by external independent property valuers and categorized as Level 3 (refer to Note 17 for further information on fair value levels) using models with unobservable market inputs.
(2) Precious metals are recorded at fair value based on quoted prices in active markets. Changes in fair value are recorded in our Consolidated Statement of Income in non-interest revenue, trading
revenues.
Investments in Associates and Joint Ventures
Investments in associates and joint ventures are accounted for using the equity method of accounting. Investments in associates are those in which
we exert significant influence over operating and financing decisions, generally companies in which we own between 20% and 50% of the voting
shares. Investments in joint ventures are those in which we have joint control. Our share of the net income or loss, including any impairment losses,
is recorded in our Consolidated Statement of Income in non-interest revenue, share of profit in associates and joint ventures. Any other
comprehensive income amounts are reflected in the relevant sections of our Consolidated Statement of Comprehensive Income.
Note 12: Deposits
Payable on demand
(Canadian $ in millions)
Interest bearing
Non-interest
bearing
Payable
after notice (1)
Payable on
a fixed date (2) (3)
2025
2024
Amortized cost deposits by:
Banks (4)
$
5,058
$
1,963
$
1,396
$
19,204
$
27,621
$
32,546
Business and government (5)
80,445
42,847
219,450
242,755
585,497
575,019
Individuals (5)
3,790
37,425
153,380
112,327
306,922
320,767
Total amortized cost deposits
89,293
82,235
374,226
374,286
920,040
928,332
Deposits at FVTPL
–
–
–
56,162
56,162
54,108
Total (6)
$
89,293
$
82,235
$
374,226
$
430,448
$
976,202
$
982,440
Booked in:
Canada
$
76,415
$
71,323
$
167,666
$
305,454
$
620,858
$
618,141
United States
12,769
10,912
204,183
77,608
305,472
314,066
Other countries
109
–
2,377
47,386
49,872
50,233
Total
$
89,293
$
82,235
$
374,226
$
430,448
$
976,202
$
982,440
(1) Includes $43,766 million of non-interest bearing deposits as at October 31, 2025 ($44,617 million as at October 31, 2024).
(2) Includes $62,843 million of senior unsecured debt as at October 31, 2025 subject to the Bank Recapitalization (Bail-In) regime ($65,986 million as at October 31, 2024). The Bail-In regime provides
certain statutory powers to the Canada Deposit Insurance Corporation, including the ability to convert specified eligible shares and liabilities into common shares if the bank becomes non-viable.
(3) We have unencumbered liquid assets of $393,535 million as at October 31, 2025 to support these and other deposit liabilities ($396,338 million as at October 31, 2024).
(4) Includes regulated and central banks.
(5) The carrying value of deposits that are part of fair value hedging relationships are adjusted for related gains (losses) on hedge contracts.
(6) Included in deposits as at October 31, 2025 and 2024 are $508,058 million and $521,160 million, respectively, of deposits denominated in U.S. dollars, and $59,697 million and $54,397 million,
respectively, of deposits denominated in other foreign currencies.
Deposits are measured at amortized cost, except structured notes, money market deposits and metals deposits, which are measured at FVTPL.
Deposits payable on demand are comprised primarily of our customers’ chequing accounts, on some of which we pay interest. Our customers do not
need to notify us prior to withdrawing money from their chequing accounts. Deposits payable after notice are comprised primarily of our customers’
savings accounts, on which we pay interest. Deposits payable on a fixed date comprise:
‰ Various investment instruments purchased by our customers to earn interest over a fixed period, such as retail and small business term deposits,
wholesale funding and guaranteed investment certificates. Deposits totalling $27,819 million as at October 31, 2025 ($29,136 million as at
October 31, 2024) can be redeemed early, either fully or partially, by customers without penalty.
‰ Commercial paper, which totalled $43,617 million as at October 31, 2025 ($51,500 million as at October 31, 2024).
‰ Covered bonds, which totalled $24,053 million as at October 31, 2025 ($26,957 million as at October 31, 2024).
BMO Financial Group 208th Annual Report 2025 169
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents deposits payable on a fixed date and greater than one hundred thousand dollars:
(Canadian $ in millions)
Canada
United States
Other
Total
As at October 31, 2025
$
259,670
$
69,206
$
47,386
$
376,262
As at October 31, 2024
285,555
77,313
48,086
410,954
The following table presents the maturity schedule for deposits payable on a fixed date and greater than one hundred thousand dollars that are
booked in Canada:
(Canadian $ in millions)
Less than 3 months
3 to 6 months
6 to 12 months
Over 12 months
Total
As at October 31, 2025
$
51,591
$
32,105
$
56,129
$
119,845
$
259,670
As at October 31, 2024
63,442
33,704
62,674
125,735
285,555
Deposits Designated at FVTPL
Our deposits designated at FVTPL include structured note liabilities, money market and metals deposits. This designation aligns the accounting result
with the way the portfolio is managed. We also include the value of embedded options related to certain structured deposits which are carried at
amortized cost. The change in fair value of these deposits is recorded in non-interest revenue, trading revenues, in our Consolidated Statement of
Income, with the changes in fair value due to own credit risk recognized in other comprehensive income. The impact of changes in our own credit risk
is measured based on movements in our own credit spread year over year.
(Canadian $ in millions)
Fair value
Notional amount
due at contractual
maturity
Difference
between fair value
and amount due at
contractual maturity
Change in fair value –
(losses) recorded
in the Consolidated
Statement of Income (1)
Change in fair value –
(losses) due to own
credit risk recorded in
OCI (before tax)
Cumulative change in fair
value – gains (losses) due to
own credit risk recognized
in AOCI (before tax)
As at October 31, 2025
$
56,162
$
57,743
$
(1,581)
$
(1,313)
$
(365)
$
(341)
As at October 31, 2024
54,108
56,300
(2,192)
(4,815)
(841)
24
(1) Change in fair value may be offset by the related change in fair value on hedge contracts.
Note 13: Other Liabilities
Securities Sold But Not Yet Purchased
Securities sold but not yet purchased represent our obligations to deliver securities that we did not own at the time of sale. These obligations are
recorded at their fair value. Adjustments to fair value as at the balance sheet date and gains and losses on the settlement of these obligations are
recorded in non-interest revenue, trading revenues, in our Consolidated Statement of Income.
Securities Lending and Borrowing
Securities lending and borrowing transactions are generally collateralized by securities or cash. Cash advanced or received as collateral is recorded in
securities borrowed or purchased under resale agreements, or in other liabilities, securities lent or sold under repurchase agreements, respectively, in
our Consolidated Balance Sheet. Interest earned on cash collateral is recorded in interest, dividend and fee income, in our Consolidated Statement of
Income, and interest expense on cash collateral is recorded in interest expense, securities sold but not yet purchased and securities lent or sold under
repurchase agreements, in our Consolidated Statement of Income. The transfer of the securities to counterparties is only reflected in our Consolidated
Balance Sheet if the risks and rewards of ownership have also been transferred. Securities borrowed are not recognized in our Consolidated Balance
Sheet unless they are then sold to third parties, in which case the obligation to return the securities is recorded at fair value in securities sold but not
yet purchased, with any gains or losses recorded in non-interest revenue, trading revenues, in our Consolidated Statement of Income.
Securitization and Structured Entities’ Liabilities
Securitization and structured entities’ liabilities include notes issued by our consolidated bank securitization vehicles and liabilities associated with the
securitization of our Canadian mortgage loans as part of the Canada Mortgage Bond program, the NHA MBS program and our own programs.
Additional information on our securitization programs and associated liabilities is provided in Notes 5 and 6. These liabilities are initially measured at
fair value plus any directly attributable costs and are subsequently measured at amortized cost. The interest expense related to these liabilities is
recorded in interest expense, other liabilities, in our Consolidated Statement of Income.
170 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Other
The components of other within other liabilities are as follows:
(Canadian $ in millions)
2025
2024
Accounts payable, accrued expenses and other items
$
12,638
$
11,311
Accrued interest payable
5,092
6,468
ACL on off-balance sheet items
689
580
Cash collateral
8,206
6,414
Credit card loyalty rewards
1,486
1,465
Current tax liabilities
329
470
Deferred tax liabilities (Note 22)
1
1
Lease liabilities
3,315
3,326
Liabilities of subsidiaries
4,740
5,633
Other employee future benefits liability (Note 21)
863
863
Pension liability (Note 21)
190
189
Total
$
37,549
$
36,720
Credit Card Loyalty Rewards
We earn interchange fees on our proprietary cards and fees on our AIR MILES business. We defer the fees related to our obligation to fulfill
redemption of rewards/miles and record them in other liabilities, other, in our Consolidated Balance Sheet. We recognize these fees in non-interest
revenue in our Consolidated Statement of Income when the rewards/miles are redeemed.
Lease Liabilities
When we enter into leases we record lease liabilities representing the present value of future lease payments over the lease term. Interest expense
recorded on lease liabilities for the year ended October 31, 2025 was $110 million ($110 million in 2024). Total cash outflow for lease liabilities for
the year ended October 31, 2025 was $426 million ($455 million in 2024). Variable lease payments (e.g. maintenance, utilities and property taxes)
not included in the measurement of lease liabilities for the year ended October 31, 2025 were $276 million ($258 million in 2024).
The maturity profile of our undiscounted lease liabilities is $468 million for 2026, $465 million for 2027, $436 million for 2028, $414 million
for 2029, $390 million for 2030 and $1,756 million for 2031 and thereafter.
Note 14: Insurance
Insurance Results
Insurance results are presented in non-interest revenue, insurance service results and non-interest revenue, insurance investment results, in our
Consolidated Statement of Income. Insurance service results include insurance revenue, insurance service expenses and reinsurance results. Insurance
investment results include net returns on insurance-related assets and the impact of the change in discount rates and financial assumptions on
insurance contract liabilities. As of November 1, 2023, we no longer reported insurance claims, commissions and changes in policy benefit liabilities
as a result of the adoption of IFRS 17.
Insurance service results in our Consolidated Statement of Income are as follows:
(Canadian $ in millions)
2025
2024
Insurance revenue
$
1,922
$
1,767
Insurance service expenses
(1,464)
(1,330)
Net expenses from reinsurance contracts
(37)
(97)
Insurance service results
$
421
$
340
Insurance investment results in our Consolidated Statement of Income are as follows:
(Canadian $ in millions)
2025
2024
Investment return
$
1,122
$
2,320
Insurance finance (expense) from insurance and reinsurance contracts held
(955)
(2,098)
Movement in investment contract liabilities
(43)
(117)
Insurance investment results
$
124
$
105
BMO Financial Group 208th Annual Report 2025 171
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Insurance Contract Liabilities
We are engaged in insurance businesses related to life insurance and annuities, which include pension risk, accident and sickness, creditor insurance
and reinsurance. Insurance contract liabilities represent groups of contracts with similar risks, written in the same fiscal year and with similar
expected profitability. We measure these groups of contracts based on our estimates of the present value of future cash flows that are expected to
arise as we fulfill the contracts, plus an explicit risk adjustment for insurance-specific risk. The risk adjustment brings the confidence level on the
sufficiency of reserves to 70%—75%. To the extent that discounted future cash inflows exceed discounted, risk-adjusted future cash outflows, a CSM
is recorded, representing unearned profits that will be recognized over the duration of the insurance contracts. If a group of insurance contracts is
expected to experience losses, these losses are recorded in income immediately in non-interest revenue, insurance service results. Releases in
expected fulfilment cash outflows, risk adjustment and CSM are recognized in our Consolidated Statement of Income in insurance service results over
the term of the related insurance contracts. We use this approach for all insurance contracts, except for creditor insurance and direct participating
contracts. We apply a modified approach to our direct participating contracts and segregated funds, whereby their initial measurement is consistent
with other insurance contracts, but the variability in financial variables is recorded through CSM versus income, representing the variability of our own
share of the fees. For our creditor business, which has a coverage period of one year or less, we defer premiums received and recognize them in
income over the coverage period, and recognize a liability for claims only once a loss is incurred.
Insurance contract liabilities by remaining coverage and incurred claims comprise the following:
(Canadian $ in millions)
2025
2024
Liabilities for
remaining coverage
Liabilities for
incurred claims
Total
Liabilities for
remaining coverage
Liabilities for
incurred claims
Total
Insurance contract liabilities, beginning of year
$
17,047
$
201
$
17,248
$
13,114
$
235
$
13,349
Insurance service results
(2,406)
2,048
(358)
(1,448)
1,101
(347)
Net finance expenses from insurance contracts
1,048
–
1,048
2,206
–
2,206
Total cash flows
3,763
(2,039)
1,724
3,176
(1,136)
2,040
Other changes in the net carrying amount of the
insurance contract (1)
(785)
(11)
(796)
(1)
1
–
Insurance contract liabilities, end of year (2)
$
18,667
$
199
$
18,866
$
17,047
$
201
$
17,248
(1) Includes $798 million relating to the sale of a non-strategic portfolio of insurance contracts for the year ended October 31, 2025.
(2) The liabilities for incurred claims relating to insurance contracts in our creditor and reinsurance business were $102 million as at October 31, 2025 ($115 million as at October 31, 2024).
CSM from contracts issued for the year ended October 31, 2025 was $178 million ($107 million in 2024). Total CSM for insurance contracts issued and
reinsurance contracts held was $1,528 million and $312 million, respectively, as at October 31, 2025 ($1,550 million and $479 million, respectively,
as at October 31, 2024). Onerous contract losses for the years ended October 31, 2025 and 2024 were not material.
We use the following rates to discount fulfilment cash flows of our insurance contracts, which are based on a risk-free yield adjusted for an illiquidity
premium that reflects the liquidity characteristics of the liabilities:
Portfolio duration:
2025
2024
1 year
3.24%
4.16%
3 years
3.54%
4.17%
5 years
3.89%
4.35%
10 years
4.67%
4.82%
20 years
5.25%
5.15%
30 years
4.99%
4.98%
Ultimate
5.00%
5.00%
We recognize the impact of changes in the discount rate and financial assumptions on insurance contract liabilities in our Consolidated Statement of
Income in non-interest revenue, insurance investment results.
Investment Contract Liabilities
Investment contracts include products that do not involve the transfer of significant insurance risk, either at inception or during the life of the
investment contract. These products are limited to certain structured settlements and term annuities that provide income for a specified period of
time. We designate the obligations related to certain investment contracts in our insurance businesses at FVTPL, which eliminates a measurement
inconsistency that would otherwise arise from measuring the investment contract liabilities and offsetting changes in the fair value of the
investments supporting them on a different basis. The change in fair value of these investment contract liabilities is recorded in non-interest revenue,
insurance investment results, in our Consolidated Statement of Income, with the exception of changes in our own credit risk recognized in other
comprehensive income. The impact of changes in our own credit risk is measured based on movements in our own credit spread year over year.
Changes in the fair value of investments backing these investment contract liabilities are recorded in non-interest revenue, insurance investment
results, in our Consolidated Statement of Income. We also carry certain investment contract liabilities at amortized cost. These totalled $300 million
at October 31, 2025 ($147 million at October 31, 2024).
172 BMO Financial Group 208th Annual Report 2025
Notes
Notes
The following table presents the fair value and changes in fair value in our investment contract liabilities measured at FVTPL:
(Canadian $ in millions)
Fair value
Notional amount due at
contractual maturity
Difference
between fair value
and amount due at
contractual maturity
Change in fair value –
gains (losses) recorded
in the Consolidated
Statement of Income
Change in fair value –
gains (losses) due to
own credit risk recorded
in OCI (before tax)
Cumulative change in fair
value – gains (losses) due
to own credit risk recognized
in AOCI (before tax)
As at October 31, 2025
$
745
$
1,278
$
(533)
$
(35)
$
28
$
2
As at October 31, 2024
796
1,336
(540)
(86)
(34)
(26)
In addition to the insurance contract and investment contract liabilities noted above, we have recorded $525 million as at October 31, 2025
($579 million as at October 31, 2024) in insurance-related liabilities in our Consolidated Balance Sheet, primarily comprising reinsurance contract
liabilities.
Insurance Risk Management
Insurance market risk includes interest rate and equity market risk arising from the activities of our BMO Insurance business. During the year, we
entered into hedging arrangements to offset the impact of changes in interest rates on our earnings. The impact of insurance market risk on earnings
is recorded in non-interest revenue, insurance investment results, in our Consolidated Statement of Income.
The table below reflects the estimated immediate impact on, or sensitivity of, income before taxes to certain changes in interest rates, and includes
the estimated impact of the above hedging arrangements and our exposure to equity price risk arising from our investment in equity securities.
(Canadian $ in millions)
2025
2024
Interest Rate Sensitivity (1) (2)
50 basis point increase
$
2
$
6
50 basis point decrease
(6)
(9)
Equity Market Sensitivity (3)
10% increase
$
6
$
28
10% decrease
(7)
(26)
(1) Estimated impact on, or sensitivity of, income before taxes to a 50 basis point increase or decrease in interest rates.
(2) Interest rate sensitivities assume a parallel shift in assumed interest rates across the entire yield curve as at the end of the period with no change in the ultimate risk-free rate.
(3) Estimated impact on, or sensitivity of, income before taxes to a 10% increase or decrease in our exposure to equity price risk arising from our investment in equity securities at the reporting date,
assuming all other variables remain constant.
The table below presents the sensitivity of earnings to increases or decreases in policy-related assumptions.
(Canadian $ in millions)
2025
2024
Contractual service margin
Profit or loss
Contractual service margin
Profit or loss
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Policy-related Assumptions
Mortality rates (1% increase) (1)
$
(8)
$
15
$
1 $
2
$
(17)
$
10
$
1
$
1
Lapse rates (10% increase) (2)
(45)
38
(82)
(74)
(151)
(52)
(10)
(4)
Expenses (5% increase) (3)
(14)
(14)
(1)
(1)
(15)
(15)
–
–
(1) Mortality relates to the occurrence of death and is a key assumption for our life insurance business.
(2) Policies are terminated through lapses and surrenders, where lapses represent the termination of policies due to non-payment of premiums and surrenders represent the voluntary termination of
policies by policyholders.
(3) Directly attributable operating expense assumptions reflect the projected cost of maintaining and servicing in-force policies, including associated directly attributable overhead expenses.
BMO Financial Group 208th Annual Report 2025 173
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15: Subordinated Debt
Subordinated debt represents our direct unsecured obligations to our debt holders in the form of notes and debentures, and forms part of our
regulatory capital. Subordinated debt is recorded at amortized cost using the effective interest rate method. Where appropriate, we enter into fair
value hedges to hedge the risks caused by changes in interest rates (refer to Note 7). The rights of the holders of our notes and debentures are
subordinate to the claims of depositors and certain other creditors. We require approval from OSFI before we can redeem, cancel, exchange or modify
any part of our subordinated debt.
The face values, terms to maturity and carrying values of our subordinated debt are as follows:
(Canadian $ in millions, except as noted)
Face value
Maturity date Interest rate (%) Reset premium (%)
Redeemable at our option (1)
2025
Total
2024
Total
Debentures Series 20
$ 150 December 2025 to 2040
8.250
na
Not redeemable
$
147 $
147
3.803% Subordinated Notes due 2032 (2)
US$1,250
December 2032
3.803
1.43 (3)
December 2027
1,656
1,602
Series J Medium-Term Notes, Second Tranche (2)
$1,250
June 2030
2.077
na (4)
June 2025 (5)
–
1,237
Series K Medium-Term Notes, First Tranche (2)
$1,000
July 2031
1.928
na (4)
July 2026
959
992
3.088% Subordinated Notes due 2037 (2)
US$1,250
January 2037
3.088
1.40 (6)
January 2032
1,551
1,466
Series L Medium-Term Notes, First Tranche (2)
$ 750
October 2032
6.534
2.70 (7)
October 2027
749
732
Series M Medium-Term Notes, First Tranche (2)
$1,150
September 2033
6.034
2.02 (7)
September 2028
1,190
1,202
Series M Medium-Term Notes, Second Tranche (2)
$1,000
July 2034
4.976
1.63 (7)
July 2029
999
999
Series N Medium-Term Notes, First Tranche (2)
$1,250
March 2035
4.077
1.54 (7)
March 2030 (8)
1,249
–
Total (9)
$ 8,500 $ 8,377
(1) Redeemable at par with accrued and unpaid interest to and excluding the redemption date.
(2) These notes include a NVCC provision, which is necessary for notes issued after a certain date to qualify as regulatory capital under Basel III. As such, they are convertible into a variable number of our
common shares if OSFI announces that the bank is, or is about to become, non-viable or if a federal or provincial government in Canada publicly announces that the bank has accepted or agreed to
accept a capital injection, or equivalent support, to avoid non-viability. In such an event, each note is convertible into common shares pursuant to an automatic conversion formula with a multiplier
and a conversion price based on the greater of: (i) a floor price of $5.00 and (ii) the current market price of our common shares based on the volume weighted-average trading price of our common
shares on the TSX. The number of common shares issued is determined by dividing the par value of the note (including accrued and unpaid interest on such note) by the conversion price and then
applying the multiplier.
(3) Interest rate is for the period to but excluding the earliest par value redemption date, and thereafter will reset at a rate equal to the 5-year mid-swap rate plus the reset premium noted.
(4) Interest rate will reset at a rate determined in accordance with the terms and conditions of the applicable subordinated notes.
(5) All $1,250 million 2.077% Series J Medium-Term Notes (NVCC), Second Tranche were redeemed on June 17, 2025 for 100% of the principal amount, plus accrued interest to, but excluding, the
redemption date.
(6) Interest rate is for the period to but excluding the earliest par value redemption date, and thereafter will reset at a rate equal to the 5-year U.S. treasury bill rate plus the reset premium noted.
(7) Interest rate is for the period to but excluding the earliest par value redemption date, and thereafter will reset at a rate equal to the daily compounding CORRA plus the reset premium noted.
(8) On March 5, 2025, we issued $1,250 million of unsecured subordinated debt through our Canadian Medium-Term Note program. These notes will reset to a floating rate on March 5, 2030.
(9) Certain amounts of subordinated debt were issued at a premium or discount and include fair value hedge adjustments, which together decreased their carrying value as at October 31, 2025
by $304 million (decreased by $400 million in 2024). Refer to Note 7 for further details on hedge adjustments. The carrying value is also adjusted for our subordinated debt holdings, held for market-
making purposes.
na – not applicable
The aggregate remaining maturities of our subordinated debt, based on the maturity dates under the terms of issue, can be found in the blue-tinted
font in the Contractual Maturities of Assets and Liabilities and Off-Balance Sheet Commitments section of our Management’s Discussion and Analysis.
174 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Note 16: Equity
Preferred and Common Shares Outstanding and Other Equity Instruments
(Canadian $ in millions, except as noted)
2025
2024
Number of
shares
Amount
Dividends declared
per share
Number of
shares
Amount
Dividends declared
per share
Preferred Shares – Classified as Equity
Class B – Series 31 (1)
–
$
–
$
–
12,000,000
$
300
$
0.96
Class B – Series 33 (2)
–
–
0.57
8,000,000
200
0.76
Class B – Series 44
16,000,000
400
1.70
16,000,000
400
1.70
Class B – Series 50
500,000
500
73.73
500,000
500
73.73
Class B – Series 52
650,000
650
70.57
650,000
650
70.57
Preferred Shares – Classified as Equity
$
1,550
$
2,050
Other Equity Instruments
4.800% Additional Tier 1 Capital Notes (AT1 Notes)
$
658
$
658
4.300% LRCNs, Series 1 (3)
1,250
1,250
5.625% LRCNs, Series 2
750
750
7.325% LRCNs, Series 3
1,000
1,000
7.700% LRCNs, Series 4
1,356
1,356
7.300% LRCNs, Series 5
1,023
1,023
6.875% LRCNs, Series 6 (4)
1,369
–
Other Equity Instruments
$
7,406
$
6,037
Preferred Shares and Other Equity Instruments
$
8,956
$
8,087
Common Shares
Balance at beginning of year
729,529,876
$
23,921
720,909,161
$
22,941
Issued under the Shareholder Dividend
Reinvestment and Share Purchase Plan
–
–
7,790,724
905
Issued under the Stock Option Plan (Note 20)
1,520,631
161
811,652
74
Treasury shares sold
55,172
7
18,339
1
Purchased for cancellation
(22,200,000)
(730)
–
–
Balance at End of Year (5)
708,905,679
$
23,359
$
6.44
729,529,876
$
23,921
$
6.12
(1) Series 31 was redeemed and final dividends were paid on November 25, 2024.
(2) Series 33 was redeemed and final dividends were paid on August 25, 2025.
(3) 4.300% LRCNs, Series 1 was redeemed on November 12, 2025.
(4) On July 29, 2025, we issued LRCNs, Series 6 for US$1,000 million.
(5) Common shares are net of nil treasury shares as at October 31, 2025 (55,172 treasury shares as at October 31, 2024).
Preferred Share Rights and Privileges
(Canadian $, except as noted)
Redemption amount
Non-cumulative dividend (1)
Reset premium
Date redeemable / convertible
Convertible to
Class B – Series 44
25.00
$ 0.426000 (2)
2.68%
November 25, 2028 (3) (4)
Class B – Series 45 (5) (6)
Class B – Series 50
1,000.00
$36.865000 (2)
4.25%
November 26, 2027 (3)
Not convertible (6)
Class B – Series 52
1,000.00
$35.285000 (2)
4.25%
May 26, 2028 (3)
Not convertible (6)
(1) Non-cumulative dividends are payable quarterly as and when declared by the Board of Directors, except for Class B – Series 50 and 52 preferred shares, which are payable semi-annually.
(2) The dividend rate will reset on the date redeemable and every five years thereafter at a rate equal to the 5-year Government of Canada bond yield plus the reset premium noted. If converted to a
floating rate series, the rate will be set as and when declared at the 3-month Government of Canada treasury bill yield plus the reset premium.
(3) Redeemable on the date noted and every five years thereafter.
(4) Convertible on the date noted and every five years thereafter if not redeemed. If converted, the shares will become floating rate preferred shares.
(5) If converted, the holders have the option to convert back to the original preferred shares on subsequent redemption dates.
(6) The shares issued include a NVCC provision, which is necessary for the shares to qualify as regulatory capital under Basel III. Refer to the Non-Viability Contingent Capital paragraph below for details.
On August 25, 2025, we redeemed all of our outstanding 8 million Non-Cumulative 5-year Rate Reset Class B Preferred Shares, Series 33 (NVCC)
for an aggregate total of $200 million. On November 25, 2024, we redeemed all of our outstanding 12 million Non-Cumulative 5-year Rate Reset
Class B Preferred Shares, Series 31 (NVCC) for an aggregate total of $300 million.
Other Equity Instruments
On November 12, 2025, we redeemed the $1,250 million 4.300% LRCNs, Series 1 (NVCC) and the corresponding $1,250 million Preferred Shares
Series 48. On July 29, 2025, we issued US$1,000 million 6.875% LRCNs, Series 6 (NVCC). As at October 31, 2025, together with the $1,250 million
4.300% LRCNs, Series 1 (NVCC), $750 million 5.625% LRCNs, Series 2 (NVCC), $1,000 million 7.325% LRCNs, Series 3 (NVCC), US$1,000 million 7.700%
LRCNs, Series 4 (NVCC) and US$750 million 7.300% LRCNs, Series 5 (NVCC), these LRCNs are classified as equity and form part of our Additional Tier 1
Capital. Upon the occurrence of a recourse event, the noteholders will have recourse to assets held in a consolidated trust managed by a third-party
trustee. As at October 31, 2025, the trust assets comprise $1,250 million of BMO issued Non-Cumulative 5-Year Rate Reset Class B Preferred Shares,
Series 48 (NVCC) (Preferred Shares Series 48), $750 million of BMO issued Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 49
(NVCC) (Preferred Shares Series 49), $1,000 million of BMO issued Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 51 (NVCC)
(Preferred Shares Series 51), US$1,000 million of BMO issued Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 53 (NVCC) (Preferred
Shares Series 53), US$750 million of BMO issued Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 54 (NVCC) and US$1,000 million
of BMO issued Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 55 (NVCC) (Preferred Shares Series 55) issued concurrently with
LRCNs, Series 1, Series 2, Series 3, Series 4, Series 5 and Series 6, respectively. As the Preferred Shares Series 48, Series 49, Series 51, Series 53,
Series 54 and Series 55 eliminate on consolidation, they do not currently form part of our Additional Tier 1 Capital.
The US$500 million 4.800% AT1 Notes (NVCC) are also classified as equity and form part of our Additional Tier 1 Capital.
BMO Financial Group 208th Annual Report 2025 175
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The AT1 Notes and LRCNs are compound financial instruments that have both equity and liability features. On the date of issuance, we assigned
an insignificant value to the liability components of both types of instruments and, as a result, the full amount of proceeds has been classified as
equity and forms part of our additional Tier 1 NVCC. Distributions on the AT1 Notes and LRCNs are recognized as a reduction in equity when payable.
The AT1 Notes and LRCNs are subordinate to the claims of the depositors and certain other creditors in right of payment. The following table shows
the details of our AT1 Notes and LRCNs as at October 31, 2025 and 2024.
(Canadian $ in millions, except as noted)
2025
2024
Face value
Interest rate (%)
Redeemable at our option
Convertible to
Total
Total
4.800% AT1 Notes
US$500
6.709 (1)
February 2026 (2)
Variable number of common shares (3) $
658
$
658
4.300% LRCNs, Series 1
$1,250
4.300 (4)
November 2025 (2)
Variable number of common shares (3) (4)
1,250
1,250
5.625% LRCNs, Series 2
$750
5.625 (4)
May 2027 (2)
Variable number of common shares (3) (4)
750
750
7.325% LRCNs, Series 3
$1,000
7.325 (4)
November 2027 (2)
Variable number of common shares (3) (4)
1,000
1,000
7.700% LRCNs, Series 4
US$1,000
7.700 (4)
May 2029 (2)
Variable number of common shares (3) (4)
1,356
1,356
7.300% LRCNs, Series 5
US$750
7.300 (4)
November 2034 (2)
Variable number of common shares (3) (4)
1,023
1,023
6.875% LRCNs, Series 6
US$1,000
6.875 (4)
November 2030 (2)
Variable number of common shares (3) (4)
1,369
–
Total
$
7,406
$
6,037
(1) Non-cumulative interest is payable semi-annually in arrears, at the bank’s discretion. The notes had an initial interest rate of 4.800% and reset on August 25, 2024 to 6.709%.
(2) The notes are redeemable at a redemption price equal to 100% of the principal amount plus any accrued and unpaid interest, in whole or in part, at our option on any interest payment date on or
after the first interest reset date or following certain regulatory or tax events. The bank may, at any time, purchase the notes at any price in the open market.
(3) The notes issued include a NVCC provision, which is necessary for the notes to qualify as regulatory capital under Basel III. Refer to the Non-Viability Contingent Capital paragraph below for details.
(4) Non-deferrable interest is payable semi-annually on the LRCNs, Series 1, Series 2 and Series 3 and quarterly on the LRCNs, Series 4, Series 5 and Series 6, at the bank’s discretion. Non-payment of
interest will result in a recourse event, with the noteholders’ sole remedy being their proportionate share of trust assets, which comprise our NVCC Preferred Shares Series 48 for LRCNs, Series 1,
Preferred Shares Series 49 for LRCNs, Series 2, Preferred Shares Series 51 for LRCNs, Series 3, Preferred Shares Series 53 for LRCNs, Series 4, Preferred Shares Series 54 for LRCNs, Series 5 and
Preferred Shares Series 55 for LRCNs, Series 6. In such an event, the delivery of the trust assets will represent the full and complete extinguishment of our obligations under the LRCNs. In
circumstances under which NVCC, including the Preferred Shares Series 48, Series 49, Series 51, Series 53, Series 54 and Series 55 for LRCNs, Series 1, Series 2, Series 3, Series 4, Series 5 and Series 6,
respectively, would be converted into common shares of the bank (as described below), the LRCNs would be redeemed, with the noteholders’ sole remedy being their proportionate share of trust
assets, which comprise common shares of the bank received by the trust on conversion.
Authorized Share Capital
We classify financial instruments that we issue as financial liabilities, equity instruments or compound instruments. Financial instruments that will be
settled by a variable number of our common shares upon conversion by the holders are classified as liabilities in our Consolidated Balance Sheet.
Dividends and interest payments on financial liabilities are classified as interest expense in our Consolidated Statement of Income. Financial
instruments are classified as equity instruments when there is no contractual obligation to transfer cash or other financial assets. Issued instruments
that are not mandatorily redeemable, or that are not convertible into a variable number of our common shares at the holder’s option, are classified as
equity and presented in share capital. Dividend payments on equity instruments are recognized as a reduction in equity.
Common Shares
We are authorized by our shareholders to issue an unlimited number of our common shares, without par value, for unlimited consideration. Our
common shares are not redeemable or convertible. Dividends are declared by our Board of Directors at their discretion. Historically, the Board of
Directors has declared dividends on a quarterly basis and the amount can vary from quarter to quarter.
Preferred Shares
We are authorized by our shareholders to issue an unlimited number of Class A Preferred Shares and Class B Preferred Shares, without par value, in
series, for unlimited consideration. Class B Preferred Shares may be issued in a foreign currency.
Treasury Shares
When we purchase our common shares as part of our trading business, we record the cost of those shares as a reduction in shareholders’ equity. If
those shares are resold at a price higher than their cost, the premium is recorded as an increase in contributed surplus. If those shares are resold at a
price below their cost, the discount is recorded as a reduction first to contributed surplus and then to retained earnings for any amount in excess of
the total contributed surplus related to treasury shares.
Non-Viability Contingent Capital
Our preferred shares, AT1 Notes and LRCNs, by virtue of the recourse to the preferred shares held in the consolidated trusts, include a NVCC provision,
which is necessary for them to qualify as regulatory capital under Basel III. As such, they are convertible into a variable number of our common shares
if OSFI announces that the bank is, or is about to become, non-viable or if a federal or provincial government in Canada publicly announces that the
bank has accepted, or agreed to accept, a capital injection, or equivalent support, to avoid non-viability. In such an event, each preferred share or
other equity instrument is convertible into common shares pursuant to an automatic conversion formula and a conversion price based on the greater
of: (i) a floor price of $5.00 and (ii) the current market price of our common shares based on the volume weighted-average trading price of our
common shares on the TSX. The number of common shares issued is determined by dividing the value of the preferred share or other equity
instrument issuance, including declared and unpaid dividends on such preferred share or other equity instrument issuance, by the conversion price
and then applying the multiplier.
176 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Normal Course Issuer Bid
On January 17, 2025, we announced a normal course issuer bid (NCIB) to purchase up to 20 million of our common shares for cancellation
commencing January 22, 2025 and ending no later than January 21, 2026. On September 2, 2025, we announced the termination of this NCIB
effective September 4, 2025.
On September 2, 2025, we announced a new NCIB to purchase up to 30 million of our common shares for cancellation commencing
September 5, 2025 and ending no later than September 4, 2026. The timing and amount of purchases under the NCIB are determined by
management, based on factors such as market conditions and capital levels.
During the year ended October 31, 2025, we purchased for cancellation 16.4 million common shares under the January 2025 NCIB and 5.8 million
shares under the September 2025 NCIB, for a total of 22.2 million common shares, at an average price of $152.97 per share, for a total amount of
$3,461 million, including tax.
Share Redemption and Dividend Restrictions
OSFI must approve any plan to redeem any of our preferred share issues or other equity instruments for cash.
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
contravention of the capital adequacy, liquidity or any other regulatory directive issued under the Bank Act (Canada). In addition, common share
dividends cannot be paid unless all dividends declared and payable on our preferred shares have been paid or sufficient funds have been set aside to
do so and, in certain circumstances, Class B Preferred Share dividends cannot be paid unless dividends on our Preferred Shares Series 48, Series 49,
Series 51, Series 53, Series 54 and Series 55 have been paid.
In addition, if the bank does not pay the interest in full on the AT1 Notes, the bank will not declare dividends on its common shares or preferred
shares, or redeem, purchase or otherwise retire such shares, until the month commencing after the bank resumes full interest payments on the AT1
Notes.
Currently, these limitations do not restrict the payment of dividends on common or preferred shares.
Shareholder Dividend Reinvestment and Share Purchase Plan
Beginning the third quarter of 2024 and until further notice, common shares under the Shareholder Dividend Reinvestment and Share Purchase Plan
(DRIP) are purchased on the open market without a discount.
In the first and second quarters of 2024, common shares under the DRIP were issued by the bank from treasury with a 2% discount, calculated in
accordance with the terms of the DRIP. We issued 7,790,724 common shares under the DRIP in the first and second quarters of 2024.
Potential Share Issuances
As at October 31, 2025, we had reserved 39,864,838 common shares (39,864,838 as at October 31, 2024) for potential issuance in respect of the
DRIP. We have also reserved 5,699,134 common shares (6,554,492 as at October 31, 2024) for the potential exercise of stock options, as further
described in Note 20.
Note 17: Fair Value Measurements and Trading-Related Revenue
We record assets and liabilities held for trading, assets and liabilities designated at fair value, derivatives, certain equity and debt securities and
securities sold but not yet purchased at fair value, and other non-trading assets and liabilities at amortized cost less allowances or write-downs for
impairment. The fair values presented in this note are based upon the amounts estimated for individual assets and liabilities and do not include an
estimate of the fair value of any of the legal entities or underlying operations that comprise our business. For certain portfolios of financial
instruments where we manage exposures to similar and offsetting risks, fair value is determined on the basis of our net exposure to that risk.
Fair value represents an estimate of the amount that we would receive, or that would be payable in the case of a liability, in an orderly
transaction between willing parties at the measurement date. The fair value amounts disclosed represent point-in-time estimates that may change in
subsequent reporting periods due to changes in market conditions or other factors. Some financial instruments are not typically exchangeable or
exchanged and therefore it is difficult to determine their fair value. Where there is no quoted market price, we determine fair value using
management’s best estimates based on a range of valuation techniques and assumptions; since these involve uncertainties, the fair values may not
be realized in an actual sale or immediate settlement of the asset or liability.
Governance Over the Determination of Fair Value
Senior executive oversight of our valuation processes is provided through various valuation and risk committees. In order to ensure that all financial
instruments carried at fair value are accurately and appropriately measured for risk management and financial reporting purposes, we have
established governance structures and controls, such as model validation and approval, independent price verification (IPV) and profit or loss
attribution analysis (PAA), consistent with industry practice. These controls are applied independently of the relevant operating segments.
BMO Financial Group 208th Annual Report 2025 177
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We establish valuation methodologies for each type of financial instrument that is required to be measured at fair value. The application of
valuation models for products or portfolios is subject to independent approval to ensure only validated models are used. The impact of known
limitations of models and data inputs is also monitored on an ongoing basis. IPV is a process that regularly and independently verifies the accuracy
and appropriateness of market prices or model inputs used in the valuation of financial instruments. This process assesses fair values using a variety
of different approaches to verify and validate the valuations. PAA is a daily process carried out by management to identify and explain changes in fair
value positions across all operating lines of business within Capital Markets. This process works in concert with other processes to ensure that the fair
values being reported are reasonable and appropriate.
Securities
For traded securities, quoted market value is considered to be fair value. Quoted market value is based on bid or ask prices, depending on which is
the most appropriate to measure fair value. Securities for which no active market exists are valued using all reasonably available market information.
Our fair value methodologies are described below.
Government Securities
The fair value of debt securities issued or guaranteed by governments in active markets is determined by reference to recent transaction prices,
broker quotes or third-party vendor prices. The fair value of securities that are not traded in an active market is modelled using implied yields derived
from the prices of similar actively traded government securities and observable spreads.
Mortgage-Backed Securities and Collateralized Mortgage Obligations
The fair value of MBS and CMO is determined using prices obtained from independent third-party vendors, broker quotes and relevant market indices,
as applicable. If such prices are not available, fair value is determined using cash flow models that make maximum use of observable market inputs
or benchmark prices for similar instruments. Valuation assumptions for MBS and CMO include discount rates, default rates, expected prepayments,
credit spreads and recoveries.
Corporate Debt Securities
The fair value of corporate debt securities is determined using prices observed in the most recent transactions. When observable quoted prices are
not available, fair value is determined based on discounted cash flow models using discounting curves and spreads obtained from independent
dealers, brokers and third-party vendors.
Trading Loans
The fair value of trading loans is determined by reference to current market prices for the same or similar instruments.
Corporate Equity Securities
The fair value of corporate equity securities is determined using quoted prices in active markets, where available. Where quoted prices in active
markets are not readily available, fair value is determined using either quoted market prices for similar securities or valuation techniques, which
include discounted cash flow analysis and earnings multiples.
Privately Issued Securities
Privately issued debt and equity securities are valued using prices observed in recent market transactions, where available. Otherwise, fair value is
derived from valuation models using a market or income approach. These models consider various factors, including projected cash flows, earnings,
revenue and other third-party evidence, as available. The fair value of our privately issued securities includes net asset values published by third-party
fund managers, as applicable.
Prices obtained from dealers, brokers and third-party vendors are corroborated as part of our independent review process, which may include
using valuation techniques or obtaining consensus or composite prices from other pricing services. We validate the estimates of fair value by
obtaining multiple third-party quotes for external market prices and input values. We review the approach taken by third-party vendors to ensure that
they employ a valuation model that maximizes the use of observable inputs, such as benchmark yields, bid-ask spreads, underlying collateral,
weighted-average terms to maturity and prepayment rate assumptions. Fair value estimates from internal valuation techniques are verified, where
possible, by reference to prices obtained from third-party vendors.
Loans
In determining the fair value of our fixed rate performing loans, other than credit card loans, we discount the remaining contractual cash flows,
adjusted for estimated prepayments, at market interest rates currently offered for loans with similar terms and credit risk profiles. For credit card
performing loans, fair value is considered to be equal to carrying value due to their short-term nature.
For floating rate performing loans, changes in interest rates have minimal impact on fair value since interest rates are repriced or reset
frequently. On that basis, fair value is assumed to be equal to carrying value.
The fair value of loans is not adjusted to reflect any credit protection purchased to mitigate credit risk.
Derivative Instruments
A number of valuation techniques are employed to estimate fair value, including discounted cash flow analysis, the Black-Scholes model, Monte Carlo
simulation and other accepted market models. These independently validated models incorporate current market data for interest rates, foreign
exchange rates, equity and commodity prices and indices, credit spreads, recovery rates, corresponding market volatility levels, spot prices,
correlation levels and other market-based pricing factors. Option implied volatilities, an input into many valuation models, are either obtained directly
from market sources or calculated from market prices. Multi-contributor pricing sources are used wherever possible.
178 BMO Financial Group 208th Annual Report 2025
Notes
Notes
In determining the fair value of complex and customized derivatives, we consider all reasonably available information, including dealer and
broker quotes, multi-contributor pricing sources and any relevant observable market inputs. Our models calculate fair value based on inputs specific to
the type of contract, which may include share prices, correlation for multiple assets, interest rates, foreign exchange rates, yield curves and
volatilities.
We calculate a credit valuation adjustment (CVA) to recognize the credit risk related to the possibility that the counterparty may not ultimately be
able to fulfill its derivative obligations. The CVA is derived from market-observed credit spreads or proxy credit spreads and our assessment of the net
counterparty credit risk exposure, taking into account credit mitigants such as collateral, master netting agreements and novation to central
counterparties. We also calculate a funding valuation adjustment (FVA) to recognize the implicit funding costs associated with over-the-counter
derivative positions. The FVA is determined by reference to our own funding spreads.
Deposits
In determining the fair value of our deposits, we incorporate the following assumptions:
‰ For fixed rate, fixed maturity deposits, we discount the remaining contractual cash flows related to these deposits, adjusted for expected
redemptions, at market interest rates currently offered for deposits with similar terms and risk profiles. The fair value of our senior note liabilities
and covered bonds is determined by reference to current market prices for similar instruments or using valuation techniques, such as discounted
cash flow models, that use market interest rate yield curves and funding spreads.
‰ For fixed rate deposits with no defined maturities, we consider fair value to equal carrying value, since carrying value is equivalent to the amount
payable on the reporting date.
‰ For floating rate deposits, changes in interest rates have minimal impact on fair value, since deposits reprice to market frequently. On that basis,
fair value is considered to equal carrying value.
Certain structured note liabilities that have coupons or repayment terms linked to the performance of interest rates, foreign currencies, commodities,
equity securities or other deposits have been designated at FVTPL. The fair value of these structured notes and other deposits is estimated using
internally validated valuation models incorporating observable market prices for identical or comparable securities, as well as other inputs, such as
interest rate yield curves, option volatilities and foreign exchange rates, where appropriate. Where observable market prices or inputs are not
available, management judgment is required to determine fair value by assessing other relevant sources of information, such as historical data and
proxy information from similar transactions.
Securities Sold But Not Yet Purchased
The fair value of these obligations is based on the fair value of the underlying securities, which can be equity or debt securities. As these obligations
are fully collateralized, the method used to determine fair value would be the same as that used for the relevant underlying equity or debt securities.
Securitization and Structured Entities’ Liabilities
The determination of the fair value of our securitization and structured entities’ liabilities is based on quoted market prices or quoted market prices
for similar financial instruments, where available. Where quoted prices are not available, fair value is determined using valuation techniques, such as
discounted cash flow models, that maximize the use of observable inputs.
Subordinated Debt
The fair value of our subordinated debt is determined by referring to current market prices for the same or similar instruments.
Financial Instruments with a Carrying Value Approximating Fair Value
Carrying value is considered to be a reasonable estimate of fair value for our cash and cash equivalents.
The carrying value of certain financial assets and liabilities, such as interest bearing deposits with banks, securities borrowed or purchased under
resale agreements, customers’ liability under acceptances and certain other assets, as well as acceptances, securities lent or sold under repurchase
agreements and certain other liabilities, is a reasonable estimate of fair value due to their short-term nature or because they are frequently repriced
to current market rates. These items are therefore excluded from the table below.
Fair Value Hierarchy
We categorize assets and liabilities carried at fair value in a fair value hierarchy according to the inputs we use in valuation techniques in order to
measure fair value.
BMO Financial Group 208th Annual Report 2025 179
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments Not Carried at Fair Value on the Balance Sheet
Set out in the following table are the fair values of financial instruments not carried at fair value in our Consolidated Balance Sheet.
(Canadian $ in millions)
2025
2024
Carrying value
Fair value (6)
Carrying value
Fair value (6)
Securities (1)
Amortized cost
$
96,610
$ 90,448
$
115,188
$
106,461
Loans (1) (2)
Residential mortgages
195,708
194,755
190,666
188,848
Consumer instalment and other personal
91,867
91,937
91,889
91,513
Credit cards
11,997
11,997
13,030
13,030
Business and government
364,265
364,866
369,776
370,101
663,837
663,555
665,361
663,492
Deposits (3)
920,040
920,927
928,332
928,689
Securitization and structured entities’ liabilities (4)
20,211
20,100
21,850
21,653
Other liabilities (5)
3,103
2,953
2,929
2,669
Subordinated debt
8,500
8,756
8,377
8,543
(1) Carrying value is net of ACL.
(2) Excludes $79 million of residential mortgages classified as FVTPL, $13,231 million of business and government loans classified as FVTPL and $14 million of business and government loans classified as
FVOCI ($163 million, $12,431 million and $61 million, respectively, as at October 31, 2024).
(3) Excludes $49,093 million of structured note liabilities, $1,129 million of money market deposits, $1,967 million of embedded options related to structured deposits carried at amortized cost
and $3,973 million of metals deposits measured at fair value ($45,222 million, $6,032 million, $1,047 million and $1,807 million, respectively, as at October 31, 2024).
(4) Excludes $31,351 million of securitization and structured entities’ liabilities classified as FVTPL ($18,314 million as at October 31, 2024).
(5) Other liabilities include certain investment contract liabilities in our insurance business measured at amortized cost, as well as certain other liabilities of subsidiaries.
(6) If financial instruments not carried at fair value were categorized based on the fair value hierarchy, all of these financial instruments would be categorized as Level 2, except for amortized cost
securities, which would have $90,448 million categorized as Level 2 ($106,389 million as at October 31, 2024) and $nil million categorized as Level 3 ($72 million as at October 31, 2024).
Valuation Techniques and Significant Inputs
We determine the fair value of assets and liabilities using quoted prices in active markets (Level 1) when these are available. When quoted prices in
active markets are not available, we determine the fair value of assets and liabilities using models such as discounted cash flows, with observable
market data for inputs, such as yields or broker quotes and other third-party vendor quotes (Level 2). Fair value may also be determined using
models where significant observable market data is not available due to inactive markets or minimal market activity (Level 3). We maximize the use
of observable market inputs to the extent possible.
Our Level 2 trading securities are primarily valued using discounted cash flow models with observable spreads or broker quotes. The fair value of
Level 2 FVOCI securities is determined using discounted cash flow models with observable spreads or third-party vendor quotes. Level 2 structured
note liabilities are valued using models with observable market information. Level 2 derivative assets and liabilities are valued using industry-
standard models and observable market information.
180 BMO Financial Group 208th Annual Report 2025
Notes
Notes
The extent of our use of actively quoted market prices (Level 1), internal models using observable market information as inputs (Level 2) and models
using one or more significant unobservable market information as inputs (Level 3) in the valuation of securities, loans classified as FVTPL and FVOCI,
other assets, fair value liabilities, derivative assets and derivative liabilities is presented in the following table:
(Canadian $ in millions)
2025
2024
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Trading Securities
Issued or guaranteed by:
Canadian federal government
$
757 $
11,554 $
– $
12,311 $
1,272 $
8,764 $
– $
10,036
Canadian provincial and municipal governments
–
9,035
–
9,035
–
7,585
–
7,585
U.S. federal government
3,308
27,594
–
30,902
2,688
21,560
–
24,248
U.S. states, municipalities and agencies
–
1,144
–
1,144
–
565
–
565
Other governments
199
3,927
–
4,126
92
3,757
–
3,849
NHA MBS, and U.S. agency MBS and CMO
–
56,450
–
56,450
–
40,995
–
40,995
Corporate debt
–
11,614
–
11,614
–
10,172
–
10,172
Trading loans
–
4,568
–
4,568
–
5,493
–
5,493
Corporate equity
61,495
658
–
62,153
65,559
420
4
65,983
65,759
126,544
–
192,303
69,611
99,311
4
168,926
FVTPL Securities
Issued or guaranteed by:
Canadian federal government
56
1,563
–
1,619
166
237
–
403
Canadian provincial and municipal governments
–
1,578
–
1,578
–
1,578
–
1,578
U.S. federal government
–
1,495
–
1,495
–
1,527
–
1,527
Other governments
–
–
–
–
–
25
–
25
NHA MBS, and U.S. agency MBS and CMO
–
18
–
18
–
21
–
21
Corporate debt
–
8,908
–
8,908
–
8,745
35
8,780
Corporate equity
1,090
822
5,824
7,736
921
910
4,899
6,730
1,146
14,384
5,824
21,354
1,087
13,043
4,934
19,064
FVOCI Securities
Issued or guaranteed by:
Canadian federal government
1,158
44,177
–
45,335
3,212
30,965
–
34,177
Canadian provincial and municipal governments
–
5,644
–
5,644
–
5,996
–
5,996
U.S. federal government
16
20,793
–
20,809
25
16,940
–
16,965
U.S. states, municipalities and agencies
–
5,634
–
5,634
–
5,068
–
5,068
Other governments
37
4,028
–
4,065
–
5,656
–
5,656
NHA MBS, and U.S. agency MBS and CMO
–
27,015
–
27,015
–
21,293
–
21,293
Corporate debt
–
4,515
–
4,515
–
4,370
–
4,370
Corporate equity
–
–
192
192
–
–
177
177
1,211
111,806
192
113,209
3,237
90,288
177
93,702
Loans
Residential mortgages
–
79
–
79
–
163
–
163
Business and government loans
–
12,921
324
13,245
–
12,190
302
12,492
–
13,000
324
13,324
–
12,353
302
12,655
Other Assets (1)
8,521
–
1,483
10,004
11,236
–
1,717
12,953
Fair Value Liabilities (2)
Deposits (3)
–
56,162
–
56,162
–
54,108
–
54,108
Securities sold but not yet purchased
14,998
39,878
–
54,876
10,631
24,399
–
35,030
Other liabilities (4)
2,142
32,096
–
34,238
1,754
19,110
–
20,864
17,140
128,136
–
145,276
12,385
97,617
–
110,002
Derivative Assets
Interest rate contracts
15
8,666
–
8,681
36
9,851
–
9,887
Foreign exchange contracts
43
30,474
2
30,519
4
21,258
10
21,272
Commodity contracts
225
1,224
13
1,462
169
1,656
2
1,827
Equity contracts
275
16,203
10
16,488
539
13,718
–
14,257
Credit default swaps
–
1
–
1
–
10
–
10
558
56,568
25
57,151
748
46,493
12
47,253
Derivative Liabilities
Interest rate contracts
18
10,081
–
10,099
32
10,811
–
10,843
Foreign exchange contracts
–
26,049
–
26,049
–
19,955
–
19,955
Commodity contracts
196
1,412
–
1,608
96
1,721
4
1,821
Equity contracts
175
20,793
5
20,973
75
25,596
2
25,673
Credit default swaps
–
–
–
–
–
10
1
11
$
389 $
58,335 $
5 $
58,729 $
203 $
58,093 $
7 $
58,303
(1) Other assets include precious metals, segregated fund assets and investment properties in our insurance business, carbon credits, certain receivables and other items measured at fair value.
(2) Interest expense for liabilities carried at fair value is $3,476 million for the year ended October 31, 2025 ($2,774 million for the year ended October 31, 2024). Interest expense for liabilities carried at
amortized cost is $38,574 million for the year ended October 31, 2025 ($43,743 million for the year ended October 31, 2024).
(3) Deposits include structured note liabilities, money market and metals deposits designated at FVTPL and certain embedded options related to structured deposits carried at amortized cost.
(4) Other liabilities include certain investment contract liabilities and segregated fund liabilities in our insurance business, as well as certain securitization and structured entities’ liabilities measured at
FVTPL.
Certain comparative figures have been reclassified to conform with the current year’s presentation.
BMO Financial Group 208th Annual Report 2025 181
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quantitative Information about Level 3 Fair Value Measurements
The table below presents the fair values of our significant Level 3 financial instruments, the valuation techniques used to determine their fair values
and the value ranges of significant unobservable inputs used in the valuations.
(Canadian $ in millions, except as noted)
2025
Reporting line in fair
value hierarchy table
Fair value
of assets
Valuation techniques
Significant
unobservable inputs
Range of input values (1)
Changes in fair value from using
reasonably possible alternatives (2)
Low
High
Private equity
Corporate equity
$
6,016
Net asset value
Net asset value
na
na
na
EV/EBITDA
Multiple
5
28
(38)/38
Investment properties
Other assets
1,396
Income approach
Capitalization rate
5%
7%
(108)/128
2024
Private equity
Corporate equity
$
4,899
Net asset value
Net asset value
na
na
na
EV/EBITDA
Multiple
5
21
(18)/18
Investment properties
Other assets
1,363
Income approach
Capitalization rate
2%
8%
(118)/151
(1) The low and high input values represent the lowest and highest actual level of inputs used to value a group of financial instruments in a particular product category. These value ranges do not reflect
the level of input uncertainty but are affected by the specific underlying instruments within each product category. The value ranges will therefore vary from period to period based on the
characteristics of the underlying instruments held at each balance sheet date.
(2) Net asset values are provided by fund managers and therefore have no other reasonably possible alternative assumptions. Sensitivity of private equity investments is determined by adjusting the
price multiples. Sensitivity of investment properties is determined by adjusting the capitalization rate.
na – not applicable
Significant Unobservable Inputs in Level 3 Instrument Valuations
Net Asset Value
Net asset value represents the estimated value of a security based on valuations received from the investment or fund manager. As no observable
price is available for most private equity securities, the valuation is based on the economic benefit we expect to derive from our investment.
EV/EBITDA Multiple
The fair value of private equity and merchant banking investments is derived by calculating an enterprise value (EV) using the EV/EBITDA multiple and
then proceeding through a waterfall of the company’s capital structure to determine the value of the assets or securities we hold. The EV/EBITDA
multiple is determined using judgment in considering factors such as multiples for comparable listed companies, recent transactions and company-
specific factors, as well as liquidity discounts that account for the lack of active trading in these assets and securities.
Capitalization Rate
The fair value of investment properties is determined by external independent property valuation experts using industry standard property valuation
methodologies on expected future cash flows. The capitalization rate is derived using judgment, considering factors such as market activities across
comparable property types and geographic regions, and is a reflection of the expected rate of return to be realized on the investment.
Significant Transfers
Our policy is to record transfers of assets and liabilities between fair value hierarchy levels at their fair values as at the end of each reporting period,
consistent with the date of the determination of fair value. Transfers between Level 1 and Level 2 are determined by the recency of issuance and the
availability of quoted market prices in an active market. There were no significant transfers between Level 1 and Level 2 during the years ended
October 31, 2025 and 2024.
Changes in Level 3 Fair Value Measurements
The tables below present a reconciliation of all changes in Level 3 financial instruments for the years ended October 31, 2025 and 2024, including
realized and unrealized gains (losses) included in earnings and other comprehensive income, as well as transfers into and out of Level 3. Transfers
from Level 2 to Level 3 were due to an increase in unobservable market inputs used in pricing the securities. Transfers from Level 3 to Level 2 were
due to an increase in observable market inputs used in pricing the securities.
182 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Change in fair value
Movements
Transfers
For the year ended October 31, 2025
(Canadian $ in millions)
Fair value as at
October 31,
2024
Included in
earnings
Included
in other
comprehensive
income (1)
Purchases/
Issuances
Sales
Maturities/
Settlement
Transfers
into
Level 3
Transfers
out of
Level 3
Fair value as at
October 31,
2025
Change in
unrealized gains
(losses)
recorded in income
for instruments
still held (2)
Trading Securities
NHA MBS and U.S. agency MBS
and CMO
$
– $
– $
– $
5 $
(5) $
– $
– $
– $
– $
–
Corporate equity
4
–
–
2
–
–
–
(6)
–
–
Total trading securities
4
–
–
7
(5)
–
–
(6)
–
–
FVTPL Securities
Corporate debt
35
1
–
2
–
–
–
(38)
–
1
Corporate equity
4,899
(96)
17
1,180
(252)
–
82
(6)
5,824
36
Total FVTPL securities
4,934
(95)
17
1,182
(252)
–
82
(44)
5,824
37
FVOCI Securities
Corporate equity
177
–
(14)
29
–
–
–
–
192
na
Total FVOCI securities
177
–
(14)
29
–
–
–
–
192
na
Business and Government Loans
302
(21)
4
62
–
(52)
29
–
324
(21)
Other Assets
1,717
(67)
–
277
(7)
(437)
–
–
1,483
(63)
Derivative Assets
Foreign exchange contracts
10
(14)
–
48
–
(42)
–
–
2
(13)
Commodity contracts
2
11
–
–
–
–
–
–
13
12
Equity contracts
–
2
–
–
–
–
17
(9)
10
2
Credit default swaps
–
–
–
–
–
(1)
1
–
–
–
Total derivative assets
12
(1)
–
48
–
(43)
18
(9)
25
1
Other Liabilities
–
–
–
–
–
–
–
–
–
–
Derivative Liabilities
Commodity contracts
4
(4)
–
–
–
–
–
–
–
(4)
Equity contracts
2
3
–
–
–
–
3
(3)
5
3
Credit default swaps
1
–
–
–
–
(1)
–
–
–
–
Total derivative liabilities
7
(1)
–
–
–
(1)
3
(3)
5
(1)
Change in fair value
Movements
Transfers
For the year ended October 31, 2024
(Canadian $ in millions)
Fair value as at
October 31,
2023
Included in
earnings
Included
in other
comprehensive
income (1)
Purchases/
Issuances
Sales
Maturities/
Settlement
Transfers
into
Level 3
Transfers
out of
Level 3
Fair value as at
October 31,
2024
Change in
unrealized gains
(losses)
recorded in income
for instruments
still held (2)
Trading Securities
NHA MBS and U.S. agency MBS
and CMO
$
– $
– $
– $
41 $
(41) $
– $
– $
– $
– $
–
Corporate equity
37
–
–
4
–
–
–
(37)
4
–
Total trading securities
37
–
–
45
(41)
–
–
(37)
4
–
FVTPL Securities
Corporate debt
27
(10)
–
18
–
–
–
–
35
(10)
Corporate equity
4,208
(162)
11
1,068
(240)
(1)
16
(1)
4,899
57
Total FVTPL securities
4,235
(172)
11
1,086
(240)
(1)
16
(1)
4,934
47
FVOCI Securities
Corporate equity
160
–
13
4
–
–
–
–
177
na
Total FVOCI securities
160
–
13
4
–
–
–
–
177
na
Business and Government Loans
186
–
–
89
–
(171)
198
–
302
–
Other Assets
1,723
30
–
86
(21)
(101)
–
–
1,717
47
Derivative Assets
Foreign exchange contracts
–
–
–
10
–
–
–
–
10
–
Commodity contracts
5
(3)
–
–
–
–
–
–
2
(3)
Equity contracts
–
–
–
–
–
–
13
(13)
–
–
Credit default swaps
–
–
–
–
–
–
–
–
–
–
Total derivative assets
5
(3)
–
10
–
–
13
(13)
12
(3)
Other Liabilities
5
–
–
8
–
(13)
–
–
–
–
Derivative Liabilities
Commodity contracts
1
3
–
–
–
–
–
–
4
3
Equity contracts
8
1
–
–
–
–
2
(9)
2
1
Credit default swaps
2
(2)
–
–
–
–
1
–
1
(1)
Total derivative liabilities
11
2
–
–
–
–
3
(9)
7
3
(1) Foreign exchange translation on assets and liabilities held by foreign operations is included in our Consolidated Statement of Comprehensive Income as part of net gains on translation of net foreign
operations.
(2) Changes in unrealized gains (losses) on trading and FVTPL securities still held on October 31, 2025 and 2024 are included in earnings for the year.
Unrealized gains (losses) recognized on Level 3 financial instruments may be offset by (losses) gains on economic hedge contracts.
na – not applicable
BMO Financial Group 208th Annual Report 2025 183
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Trading-Related Revenue
Trading assets and liabilities, including derivatives, securities and financial instruments designated at FVTPL, are measured at fair value, with gains
and losses recognized in non-interest revenue, trading revenues, in our Consolidated Statement of Income. Trading-related revenue includes net
interest income and non-interest revenue and excludes underwriting fees and commissions on securities transactions, which are shown separately in
our Consolidated Statement of Income.
Net interest income arises from interest and dividends related to trading assets and liabilities, and is reported net of interest expense associated with
funding these assets and liabilities in the following table:
(Canadian $ in millions)
2025
2024
Interest rates
$
1,026
$
1,003
Foreign exchange
633
579
Equities
1,131
759
Commodities
365
150
Other
212
55
Total trading-related revenue
$
3,367
$
2,546
Reported as:
Net interest income
783
169
Non-interest revenue – trading revenues
2,584
2,377
Total trading-related revenue
$
3,367
$
2,546
Note 18: Offsetting of Financial Assets and Financial Liabilities
Financial assets and financial liabilities are offset and the net amount is reported in our Consolidated Balance Sheet when there is a legally
enforceable right to offset the recognized amounts and an intention to settle on a net basis or realize the asset and settle the liability simultaneously.
The following table presents the amounts that have been offset in our Consolidated Balance Sheet, including securities purchased under resale
agreements, securities sold under repurchase agreements and derivative instruments, generally under a market settlement mechanism (e.g. an
exchange or clearing house) where simultaneous net settlement can be achieved to eliminate credit and liquidity risk between counterparties. Also
presented are amounts not offset in our Consolidated Balance Sheet related to transactions where a master netting agreement or similar
arrangement is in place with a right to offset the amounts only in the event of default, insolvency or bankruptcy, or where the offset criteria have
otherwise not been met.
(Canadian $ in millions)
2025
Amounts not offset in the balance sheet
Gross
amounts
Amounts offset in
the balance sheet
Net amounts
presented in the
balance sheet
Impact of
master netting
agreements
Securities
received/pledged
as collateral (1) (2)
Cash
collateral
Net
amount (3)
Financial Assets
Securities borrowed or purchased under resale
agreements
$ 158,361 $
28,940 $
129,421 $
6,899 $
121,546 $
49 $
927
Derivative instruments
57,489
338
57,151
43,254
2,655
5,665
5,577
$ 215,850 $
29,278 $
186,572 $
50,153 $
124,201 $
5,714 $
6,504
Financial Liabilities
Derivative instruments
$
59,067 $
338 $
58,729 $
43,254 $
2,657 $
7,613 $
5,205
Securities lent or sold under repurchase agreements
163,907
28,940
134,967
6,899
127,526
126
416
$ 222,974 $
29,278 $
193,696 $
50,153 $
130,183 $
7,739 $
5,621
2024
Financial Assets
Securities borrowed or purchased under resale
agreements
$
135,282 $
24,375 $
110,907 $
5,738 $
103,814 $
72 $
1,283
Derivative instruments
47,662
409
47,253
31,576
2,294
3,802
9,581
$
182,944 $
24,784 $
158,160 $
37,314 $
106,108 $
3,874 $
10,864
Financial Liabilities
Derivative instruments
$
58,712 $
409 $
58,303 $
31,576 $
10,866 $
7,378 $
8,483
Securities lent or sold under repurchase agreements
135,166
24,375
110,791
5,738
104,266
258
529
$
193,878 $
24,784 $
169,094 $
37,314 $
115,132 $
7,636 $
9,012
(1) Financial assets received/pledged as collateral are disclosed at fair value and limited to the net balance sheet exposure (i.e. any over-collateralization is excluded from the table).
(2) Certain amounts of collateral are restricted from being sold or repledged except in the event of default or the occurrence of other predetermined events.
(3) Not intended to represent our actual exposure to credit risk.
184 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Note 19: Capital Management
Our objective is to maintain a strong and optimized capital position in a cost-effective structure that is appropriate given our target regulatory capital
ratios and our internal assessment of required economic capital; underpins our operating segments’ business strategies and considers the market
environment; supports depositor, investor and regulator confidence, dividends and building long-term shareholder value; and is consistent with our
target credit ratings.
Our approach includes establishing limits, targets and performance measures that are applied in managing balance sheet positions, risk levels
and capital requirements, as well as issuing and redeeming capital instruments to achieve a cost-effective capital structure.
Regulatory capital requirements for the bank are determined in accordance with guidelines issued by OSFI, which are based on the Basel III
Framework developed by the Basel Committee on Banking Supervision.
CET1 Capital is the most permanent form of capital. It comprises common shareholders’ equity and contractual service margin, and may include a
portion of ECL provisions, less deductions for goodwill, intangible assets and certain other items.
Tier 1 Capital primarily comprises CET1 Capital, preferred shares and other equity instruments, less regulatory deductions.
Tier 2 Capital primarily comprises subordinated debentures and may include a portion of ECL provisions, less regulatory deductions. Total Capital
includes Tier 1 and Tier 2 Capital.
Total Loss Absorbing Capacity (TLAC) comprises Total Capital and Other TLAC instruments that allow conversion in whole, or in part, into common
shares under the Canada Deposit Insurance Corporation Act and meet the eligibility criteria under the TLAC guideline. Other TLAC comprises senior
secured debt, subject to the Canadian Bail-in Regime, with an original term to maturity of greater than 400 days and a remaining term to maturity of
greater than 365 days. Details of the components of our capital position are presented in Notes 10, 11, 15 and 16.
The primary regulatory capital measures are the CET1 Ratio, Tier 1 Capital Ratio, Total Capital Ratio, TLAC Ratio, Leverage Ratio and TLAC Leverage
Ratio.
‰ Regulatory capital ratios are calculated by dividing CET1 Capital, Tier 1 Capital, Total Capital and TLAC by their respective risk-weighted assets.
‰ The Leverage Ratio is defined as Tier 1 Capital divided by leverage exposures, which consist of on-balance sheet items and specified off-balance
sheet items, net of specified adjustments. The TLAC Leverage Ratio is defined as TLAC divided by leverage exposures.
On February 12, 2025, OSFI announced the deferral of increases to the capital floor adjustment factor, which is currently at 67.5%, until further notice.
Banks will be notified at least two years prior to any increases in the capital floor adjustment factor being resumed. Revisions related to market risk
and credit valuation adjustment risk became effective November 1, 2023.
During the year ended October 31, 2025, we met OSFI’s required target regulatory capital ratios, which include a 2.5% Capital Conservation
Buffer, a 1.0% CET1 Surcharge for D-SIBs, a Countercyclical Buffer (immaterial for fiscal 2025) and a 3.5% Domestic Stability Buffer (DSB) applicable to
D-SIBs. Effective November 1, 2023, the DSB was increased from 3.0% to 3.5% of total RWA. On June 26, 2025, OSFI announced that the DSB would
remain at 3.5%. Our capital position as at October 31, 2025 is further discussed in the Enterprise-Wide Capital Management section of our
Management’s Discussion and Analysis.
Regulatory Capital and Total Loss Absorbing Capacity Measures, Risk-Weighted Assets and Leverage Exposures (1)
(Canadian $ in millions, except as noted)
2025
2024
CET1 Capital
$
58,286
$
57,054
Tier 1 Capital
65,890
64,735
Total Capital
75,562
73,911
TLAC
129,957
123,288
Risk-Weighted Assets
437,945
420,838
Leverage Exposures
1,521,813
1,484,962
CET1 Ratio
13.3%
13.6%
Tier 1 Capital Ratio
15.0%
15.4%
Total Capital Ratio
17.3%
17.6%
TLAC Ratio
29.7%
29.3%
Leverage Ratio
4.3%
4.4%
TLAC Leverage Ratio
8.5%
8.3%
(1) Calculated in accordance with OSFI’s CAR Guideline, Leverage Requirements Guideline and TLAC Guideline, as applicable.
BMO Financial Group 208th Annual Report 2025 185
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20: Employee Compensation – Share-Based Compensation
Stock Option Plan
We maintain a Stock Option Plan for designated officers and employees. Options are granted at an exercise price equal to the closing price of our
common shares on the day before the grant date. Stock options granted vest in equal tranches of 50% on the third and fourth anniversaries of their
grant date. Each tranche is treated as a separate award with a different vesting period. In general, options expire 10 years from their grant date.
We determine the fair value of stock options on their grant date and record this amount as compensation expense over the period that the stock
options vest, with a corresponding increase to contributed surplus. When these stock options are exercised, we issue shares and record the amount of
proceeds, together with the amount recorded in contributed surplus, in share capital. The estimated grant date fair value of stock options granted to
employees who are eligible to retire is expensed at the date of grant.
The following table summarizes information about our Stock Option Plan:
(Canadian $, except as noted)
2025
2024
Number of
stock options
Weighted-average
exercise price
Number of
stock options
Weighted-average
exercise price
Outstanding at beginning of year
6,554,492
$
110.14
6,312,576
$
105.26
Granted
716,633
141.00
1,113,853
118.50
Exercised
(1,520,631)
95.74
(811,652)
82.74
Forfeited/expired/cancelled
(51,360)
122.96
(60,285)
122.22
Outstanding at end of year
5,699,134
117.75
6,554,492
110.14
Exercisable at end of year
2,245,942
103.82
2,856,460
95.27
Available for grant
8,900,641
9,565,914
Employee compensation expense related to this plan for the years ended October 31, 2025 and 2024 was $16 million and $18 million, respectively.
Options outstanding and exercisable at October 31, 2025 by range of exercise price were as follows:
(Canadian $, except as noted)
2025
Options outstanding
Options exercisable
Range of exercise prices
Number of
stock options
Weighted-
average remaining
contractual life (years)
Weighted-average
exercise price
Number of
stock options
Weighted-average
exercise price
$70.01 to $90.00
380,829
3.0
$
89.25
380,829
$
89.25
$90.01 to $100.00
698,899
4.1
97.08
698,899
97.08
$100.01 to $120.00
1,842,015
6.2
111.19
779,359
101.23
$120.01 to $140.00
2,060,758
6.7
127.80
386,855
135.58
$140.01 and over
716,633
9.1
141.00
–
–
The following table summarizes additional information about our Stock Option Plan:
(Canadian $ in millions, except as noted)
2025
2024
Unrecognized compensation cost for non-vested stock option awards
$
10
$
12
Cash proceeds from stock options exercised
146
67
Weighted-average share price for stock options exercised (in dollars)
152.59
120.40
The fair value of options granted was estimated using a binomial option pricing model. The weighted-average fair value of options granted during the
years ended October 31, 2025 and 2024 was $18.46 and $15.33, respectively. To determine the fair value of the stock option tranches on the grant
date, the following ranges of values were used as inputs for each option pricing assumption:
2025
2024
Expected dividend yield
3.6%
4.5%
Expected share price volatility
16.7%
17.4% – 17.6%
Risk-free rate of return
2.8%
3.3% – 3.4%
Expected period until exercise (in years)
6.5 – 7.0
6.5 – 7.0
Changes to the input assumptions can result in different fair value estimates.
Expected dividend yield is based on market expectations of future dividends on our common shares. Expected share price volatility is determined
based on the market consensus implied volatility for traded options on our common shares. The risk-free rate is based on the yields of a Canadian
swap curve with maturities similar to the expected period remaining until exercise of the options. The weighted-average exercise price on the grant
date for the years ended October 31, 2025 and 2024 was $141.00 and $118.50, respectively.
186 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Other Share-Based Compensation
Share Purchase Plans
We offer various employee share purchase plans. The largest of these plans provides employees with the option of directing a portion of their gross
salary toward the purchase of our common shares. We match 50% of employee contributions up to 6% of their individual gross salary to a maximum
of $75,000. Our contributions during the first two years vest after two years of participation in the plan, with subsequent contributions vesting
immediately. The shares held in the employee share purchase plan are purchased on the open market and are considered outstanding for purposes of
computing earnings per share. The dividends earned on our common shares held by the plan are used to purchase additional common shares on the
open market.
We account for our contributions as employee compensation expense when they are contributed to the plan.
Employee compensation expense related to these plans for the years ended October 31, 2025 and 2024 was $48 million and $49 million,
respectively. There were 17.4 million and 18.1 million common shares held in these plans for the years ended October 31, 2025 and 2024,
respectively.
Compensation Trusts
Our compensation trusts include share ownership and deferred compensation arrangements. These compensation trusts are consolidated if we control
the trust, meaning that we have power over the trust, exposure to variable returns as a result of our involvement and the ability to exercise power to
affect the amount of our returns.
We sponsor various share ownership arrangements, certain of which are administered through trusts into which our matching contributions are paid
and not required to be consolidated. Total assets held related to these share ownership arrangements amounted to $3,026 million as at October 31, 2025
($2,299 million as at October 31, 2024).
We sponsor various deferred compensation arrangements, administered through trusts into which our contributions are paid to fund deferred
compensation to certain U.S. senior employees. Some of these trusts are required to be consolidated. Total consolidated trust assets are $297 million
as at October 31, 2025 ($313 million as at October 31, 2024). Total assets held related to unconsolidated trusts amounted to $259 million as at
October 31, 2025 ($221 million as at October 31, 2024).
Mid-Term Incentive Plans
We offer mid-term incentive plans for executives and certain senior employees. Payment amounts are adjusted to reflect reinvested dividends and
changes in the market value of our common shares and the bank’s performance relative to certain goals, when applicable. Depending on the plan,
the recipient receives either a single cash payment at the end of the three-year period of the plan, or cash payments over the three years of the plan.
As the awards are cash-settled, they are recorded as liabilities. Amounts payable under such awards are recorded as compensation expense over the
vesting period. Amounts related to units granted to employees who are eligible to retire are expensed at the time of grant. Subsequent changes in
the fair value of the liability are recorded in compensation expense in the period in which they arise.
Mid-term incentive plan units granted during the years ended October 31, 2025 and 2024 totalled 5.8 million and 6.7 million, respectively.
The weighted-average fair value of the units granted during the years ended October 31, 2025 and 2024 was $132.73 and $111.66, respectively,
and we recorded employee compensation expense of $1,525 million and $1,037 million, respectively. We hedge the impact of the change in market
value of our common shares by entering into total return swaps. We also enter into foreign currency forwards to manage the impact of foreign
exchange translation from grants in our U.S. businesses. Gains on total return swaps and foreign currency forwards recognized for the years ended
October 31, 2025 and 2024 were $672 million and $178 million, respectively, resulting in net employee compensation expense of $853 million
and $859 million, respectively.
A total of 17.4 million and 18.4 million mid-term incentive plan units were outstanding as at October 31, 2025 and 2024, respectively, and the
intrinsic value of those awards which had vested was $2,352 million and $1,663 million, respectively.
Deferred Incentive Plans
We offer deferred incentive plans for members of our Board of Directors, executives and key employees in Capital Markets and Wealth Management.
Under these plans, fees, annual incentive payments and/or commissions can be deferred and recorded as share units of our common shares. These
share units are typically either fully vested on the grant date or vest at the end of three years. The value of these share units is adjusted to reflect
reinvested dividends and changes in the market value of our common shares.
Deferred incentive plan payments are paid in cash upon the participant’s departure from the bank.
Employee compensation expense for these plans is recorded in the year the fees, incentive payments and/or commissions are earned. Changes
in the amount of the incentive plan payments as a result of dividends and share price movements are recorded as increases or decreases in
employee compensation expense in the period of the change.
Deferred incentive plan units granted during the years ended October 31, 2025 and 2024 totalled 0.3 million and 0.3 million, respectively, and
the weighted-average fair value of the units granted during the years ended October 31, 2025 and 2024 was $140.64 and $121.18, respectively.
Liabilities related to these plans totalled $874 million and $655 million as at October 31, 2025 and 2024, respectively, and are recorded in other
liabilities in our Consolidated Balance Sheet.
Employee compensation expense related to these plans for the years ended October 31, 2025 and 2024 was $262 million and $139 million,
respectively. We have entered into derivative instruments to hedge our exposure related to these plans. Changes in the fair value of these derivatives
are recorded in employee compensation expense in the period in which they arise. Gains on these derivatives recognized for the years ended
October 31, 2025 and 2024 were $232 million and $107 million, respectively. These gains resulted in net employee compensation expense for the
years ended October 31, 2025 and 2024 of $30 million and $32 million, respectively.
A total of 5.0 million and 5.1 million deferred incentive plan units were outstanding as at October 31, 2025 and 2024, respectively.
BMO Financial Group 208th Annual Report 2025 187
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 21: Employee Compensation – Pension and Other Employee Future Benefits
Pension and Other Employee Future Benefit Plans
We sponsor a number of arrangements globally that provide pension and other employee future benefits to our retired and current employees. The
largest of these arrangements, by defined benefit obligation, are the primary defined benefit pension plans for employees in Canada and the United
States and the primary other employee future benefit plan for employees in Canada.
Pension arrangements include defined benefit pension plans, as well as supplementary arrangements that provide pension benefits in excess of
statutory limits. Generally, under these plans we provide retirement benefits based on an employee’s years of service and average annual earnings
over a period of time prior to retirement. Our pension and other employee future benefit expenses, recorded in non-interest expense, employee
compensation, in our Consolidated Statement of Income, mainly comprise the current service cost plus or minus the interest on net defined benefit
assets or liabilities. In addition, we provide defined contribution pension plans to our employees. The costs of these plans, recorded in non-interest
expense, employee compensation, in our Consolidated Statement of Income, are equal to our contributions to the plans.
Effective December 31, 2020, the primary defined benefit pension plan for employees in Canada was closed to new employees hired after that
date. Employees hired or transferred to BMO Canada on or after January 1, 2021 are eligible to participate in a defined contribution pension plan once
they have completed the waiting period of six months of continuous service.
We also provide other employee future benefits, including health and dental care benefits and life insurance, for eligible current and retired
employees.
Short-term employee benefits, such as salaries, paid absences, bonuses and other benefits, are accounted for on an accrual basis over the period
in which the employees provide the related services.
Investment Policy
The defined benefit pension plans are administered under an established governance structure, with oversight exercised by the Board of Directors.
The plans are managed under a framework that considers both assets and liabilities in the development of an investment policy and
management of risk. We have implemented a liability-driven investment strategy for the primary Canadian and U.S. plans to enhance risk-adjusted
returns while reducing the plans’ surplus volatility. This strategy has reduced the impact of the plans on our regulatory capital.
The plans invest in asset classes that include equities, fixed income and private investments, under established investment guidelines. Plan
assets are diversified across asset classes and by geographic exposure. They are managed by asset management firms that are responsible for the
selection of investment securities. Derivative instruments are permitted under policy guidelines and are generally used to hedge foreign currency
exposures, manage interest rate exposures or replicate the return of an asset.
Risk Management
The defined benefit pension plans are exposed to various risks, including market risk (interest rate, equity and foreign currency risks), credit risk,
operational risk, surplus risk and longevity risk. We follow a number of approaches to monitor and actively manage these risks, including:
‰ monitoring surplus-at-risk, which measures a plan’s risk exposures in an asset-liability framework;
‰ stress testing and scenario analyses to evaluate the volatility of the plans’ financial positions and any potential impact on the bank;
‰ hedging of foreign currency and interest rate risk exposures within policy limits;
‰ controls related to asset mix allocations, geographic allocations, portfolio duration, credit quality of debt securities, sector guidelines, issuer/
counterparty limits and others; and
‰ ongoing monitoring of exposures, performance and risk levels.
Pension and Other Employee Future Benefit Liabilities
Our actuaries perform valuations of our defined benefit obligations for pension and other employee future benefits as at October 31 of each year
using the projected unit credit method based on management’s assumptions about discount rates, rates of compensation increase, retirement age,
mortality and health care cost trend rates.
The discount rates for the primary Canadian and U.S. pension and other employee future benefit plans were selected based on the yields of
high-quality AA rated corporate bonds with terms matching the plans’ cash flows.
The fair value of plan assets is deducted from the defined benefit obligation to determine the net defined benefit asset or liability. For defined
benefit pension plans that are in a net defined benefit asset position, the recognized asset is limited to the present value of economic benefits
available in the form of future refunds from the plan or reductions in future contributions to the plan (the asset ceiling). Changes in the asset ceiling
are recognized in other comprehensive income. Components of the change in our net defined benefit assets or liabilities and our pension and other
employee future benefit expenses are as follows:
Current service cost represents benefits earned in the current year. The cost is determined with reference to the current workforce and the amount
of benefits to which employees will be entitled upon retirement, based on the provisions of our benefit plans.
Interest on net defined benefit asset or liability represents the increase in the net defined benefit asset or liability that results from the passage of
time and is determined by applying the discount rate to the net defined benefit asset or liability.
188 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Actuarial gains and losses may arise in two ways. First, each year our actuaries recalculate the defined benefit obligations and compare them to
those estimated as at the previous year end. Any differences that result from changes in demographic and economic assumptions or from plan
member experience being different from management’s expectations at the previous year end are considered actuarial gains or losses. Second,
actuarial gains and losses arise when there are differences between the discount rate and actual returns on plan assets. For the majority of our plans,
actuarial gains and losses are recognized immediately in other comprehensive income as they occur and are not subsequently reclassified to income
in future periods. For certain other long-term benefit plans, these actuarial gains and losses are recognized immediately in income.
Plan amendments are changes in our defined benefit obligations that result from changes to provisions of the plans. The effects of plan
amendments are recognized immediately in income when a plan is amended.
Settlements occur when defined benefit obligations for plan participants are settled, usually through lump sum cash payments, and as a result we no
longer have any obligation to provide such participants with benefit payments in the future.
Funding of Pension and Other Employee Future Benefit Plans
We fund our defined benefit pension plans in Canada and the United States in accordance with statutory requirements, and the assets in these plans are
used to pay benefits to retirees and other employees. Some groups of employees are also eligible to make voluntary contributions in order to receive
enhanced benefits. Our supplementary pension plan in Canada is funded, while the supplementary pension plan in the United States is unfunded.
Our other employee future benefit plans in Canada and the United States are either funded or unfunded. Benefit payments related to these plans
are paid either through the respective plan or directly by us.
We measure the fair value of plan assets for our plans in Canada and the United States as at October 31. In addition to actuarial valuations for
accounting purposes, we are required to prepare valuations for determining our minimum funding requirements for our pension arrangements in
accordance with the relevant statutory framework (our funding valuation). The most recent funding valuation for our primary Canadian pension plan
was filed as of October 31, 2023, and the next valuation is required no later than October 31, 2026. The most recent funding valuation for our primary
U.S. pension plan was performed as at January 1, 2025.
We amended certain pension plans in the fourth quarter of 2025 to provide additional options for when certain retirees can receive their pension
benefits. When there are surplus assets, we must assess the economic benefit to the bank. These amendments provide us with additional economic
benefits so we are able to reverse some of a previous asset write-down. As a result, we increased pension assets by $47 million through other
comprehensive income.
We amended one of our U.S. pension plans in the first quarter of 2025, resulting in a $19 million benefit that was recognized as a reduction in
employee compensation expense.
We amended certain other employee future benefit plans in the first quarter of 2024. These amendments combined the administration of a few
plans. In addition, we converted one defined contribution plan into a defined benefit plan and therefore brought a net asset onto our Consolidated
Balance Sheet equal to the surplus assets in that plan. This resulted in a benefit of $84 million from plan amendments that was recognized as a
reduction in employee compensation expense. When there are surplus assets, we must assess the economic benefit to the bank. Given there are no
immediate economic benefits without further plan amendments, the surplus assets of $62 million in the combined plans were reduced to $nil
through other comprehensive income.
A summary of plan information for the past two years is as follows:
(Canadian $ in millions)
Pension plans
Other employee future benefit plans
2025
2024
2025
2024
Defined benefit obligation
$
8,582
$
8,365
$
950
$
954
Fair value of plan assets
9,708
9,431
248
245
Net surplus (deficit)
1,126
1,066
(702)
(709)
Effect of asset ceiling
–
(3)
(74)
(110)
Net surplus (deficit), net of the effect of the asset ceiling
$
1,126
$
1,063
$
(776)
$
(819)
Net surplus (deficit) comprises:
Funded or partially funded plans
1,271
1,223
87
44
Unfunded plans
(145)
(160)
(863)
(863)
Net surplus (deficit), net of the effect of the asset ceiling
$
1,126
$
1,063
$
(776)
$
(819)
BMO Financial Group 208th Annual Report 2025 189
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension and Other Employee Future Benefit Expenses
Pension and other employee future benefit expenses are determined as follows:
(Canadian $ in millions)
Pension plans
Other employee future benefit plans
2025
2024
2025
2024
Annual benefits expense
Current service cost
$
177
$
153
$
6
$
5
Net interest (income) expense (1)
(51)
(61)
38
40
Impact of plan amendments
(19)
–
–
(84)
Administrative expenses
8
11
–
–
Remeasurement of other long-term benefits
–
–
24
5
Benefits expense
$
115
$
103
$
68
$
(34)
Government pension plans expense (2)
388
375
–
–
Defined contribution expense
306
290
–
–
Total annual pension and other employee future benefit expenses (recovery)
recognized in our Consolidated Statement of Income
$
809
$
768
$
68
$
(34)
(1) Net interest (income) expense is increased by $nil million for pension plans and $6 million for other employee future benefit plans for 2025 ($nil million and $3 million, respectively, for 2024) as a
result of assets written down through other comprehensive income due to the asset ceiling.
(2) Includes Canada Pension Plan, Quebec Pension Plan and U.S. Federal Insurance Contributions Act.
Weighted-Average Assumptions
Pension plans
Other employee future benefit plans
2025
2024
2025
2024
Defined Benefit Expenses
Discount rate at beginning of year (1) (2)
4.9%
5.8%
4.8%
5.7%
Rate of compensation increase
2.1%
2.1%
na
na
Assumed overall health care cost trend rate
na
na
4.8% (3)
4.8% (3)
Defined Benefit Obligation
Discount rate at end of year
4.8%
4.9%
4.7%
4.8%
Rate of compensation increase
2.1%
2.1%
na
na
Assumed overall health care cost trend rate
na
na
4.7% (3)
4.8% (3)
(1) The pension benefit current service cost was calculated using a separate discount rate of 4.9% and 5.6% for 2025 and 2024, respectively.
(2) The other employee future benefit plans current service cost was calculated using a separate discount rate of 5.0% and 5.7% for 2025 and 2024, respectively.
(3) Trending to 4.0% in 2041 and remaining at that level thereafter.
na – not applicable
Assumptions regarding future mortality are based on published statistics and mortality tables calibrated to plan experience, when applicable. The
current life expectancies underlying the amounts of the defined benefit obligations for our primary plans are as follows:
(Years)
Canada
United States
2025
2024
2025
2024
Life expectancy for those currently age 65
Males
23.6
24.0
22.0
22.0
Females
24.7
24.3
23.4
23.3
Life expectancy at age 65 for those currently age 45
Males
24.5
24.9
23.2
23.2
Females
25.6
25.2
24.6
24.5
190 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Changes in the estimated financial positions of our defined benefit pension plans and other employee future benefit plans are as follows:
(Canadian $ in millions, except as noted)
Pension plans
Other employee future benefit plans
2025
2024
2025
2024
Defined benefit obligation
Defined benefit obligation at beginning of year
$
8,365
$
7,513
$
954
$
880
Transfer of defined benefit obligation
3
–
(3)
–
Settlements (1)
–
(147)
–
–
Current service cost
177
153
6
5
Interest cost
399
418
45
49
Impact of plan amendments
(19)
–
–
15
Benefits paid
(500)
(481)
(62)
(59)
Employee contributions
21
20
6
6
Actuarial (gains) losses due to:
Changes in demographic assumptions
6
–
(22)
(12)
Changes in financial assumptions
45
851
(2)
81
Plan member experience
71
31
27
(11)
Foreign exchange and other
14
7
1
–
Defined benefit obligation at end of year
8,582
8,365
950
954
Wholly or partially funded defined benefit obligation
8,437
8,205
87
91
Unfunded defined benefit obligation
145
160
863
863
Total defined benefit obligation
8,582
8,365
950
954
Fair value of plan assets
Fair value of plan assets at beginning of year
9,431
8,559
245
138
Settlements (1)
–
(147)
–
–
Impact of plan amendments
–
–
–
100
Interest income
450
479
13
12
Return on plan assets (excluding interest income)
246
979
1
1
Employer contributions
55
25
43
45
Employee contributions
21
20
6
6
Benefits paid
(500)
(481)
(62)
(59)
Administrative expenses
(8)
(12)
–
–
Foreign exchange and other
13
9
2
2
Fair value of plan assets at end of year
9,708
9,431
248
245
Effect of asset ceiling
–
(3)
(74)
(110)
Net surplus (deficit), net of the effect of the asset ceiling
$
1,126
$
1,063
$
(776)
$
(819)
Recorded in:
Other assets
1,316
1,252
87
44
Other liabilities
(190)
(189)
(863)
(863)
Net surplus (deficit), net of the effect of the asset ceiling
$
1,126
$
1,063
$
(776)
$
(819)
Actuarial gains (losses) recognized in other comprehensive income
Net actuarial gains (losses) on plan assets
246
979
1
1
Effect of asset ceiling
3
(3)
43
(107)
Actuarial gains (losses) on defined benefit obligation due to:
Changes in demographic assumptions
(6)
–
22
15
Changes in financial assumptions
(45)
(851)
3
(74)
Plan member experience
(71)
(31)
(5)
6
Foreign exchange and other
(1)
(3)
–
–
Actuarial gains (losses) recognized in other comprehensive income for the year
$
126
$
91
$
64
$
(159)
(1) We completed a buyout of our UK pension plan in the fourth quarter of 2024, whereby we transferred our defined benefit obligations and an equal amount of plan assets to a third-party insurer, who
has assumed responsibility for administering payments to plan members. We do not have any further involvement in the plan. There was no pre-tax impact from this transfer. Deferred tax assets and
liabilities related to the pension plan were reduced to $nil.
Plan Asset Allocations and Fair Value
Our pension and other employee future benefit plan assets are measured at fair value on a recurring basis. The asset allocation ranges, weighted-
average actual asset allocations and fair values of plan assets held by our primary plans as at October 31, 2025 and 2024 are as follows:
(Canadian $ in millions)
2025
2024
Target
range
% of total
Quoted
Unquoted
Total
Target range
% of total
Quoted
Unquoted
Total
Equities
15 – 40%
21%
$
1,139
$
869
$
2,008
15 – 40%
22%
$
1,060
$
852
$
1,912
Fixed income investments
40 – 55%
49%
106
4,551
4,657
40 – 55%
49%
96
4,467
4,563
Private investments
10 – 35%
30%
–
2,791
2,791
10 – 35%
29%
–
2,681
2,681
100%
$
1,245
$
8,211
$
9,456
100%
$
1,156
$
8,000
$
9,156
No plan assets are directly invested in securities of the bank or those of its related parties as at October 31, 2025 and 2024. Our primary Canadian
plan also did not directly hold, through pooled funds, any of our common shares and fixed income securities as at October 31, 2025 and 2024. The
plans do not hold any property we occupy or other assets we use.
BMO Financial Group 208th Annual Report 2025 191
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sensitivity of Assumptions
Key weighted-average assumptions for 2025 used in measuring the defined benefit obligations for our primary plans are outlined in the following
table. The sensitivity analysis provided should be used with caution, as it is hypothetical and the impact of changes in each key assumption may not
be linear. The sensitivity to changes in each key variable has been calculated independently of the impact of changes in other key variables. Actual
experience may result in simultaneous changes in a number of key assumptions, which would amplify or reduce certain sensitivities.
(Canadian $ in millions, except as noted)
Defined benefit obligation
Pension plans
Other employee future benefit plans
Discount rate (%)
4.8
4.7
Impact of: 1% increase ($)
(867)
(70)
1% decrease ($)
1,073
83
Rate of compensation increase (%)
2.1
na
Impact of: 0.25% increase ($)
36
na
0.25% decrease ($)
(35)
na
Mortality
Impact of: 1 year shorter life expectancy ($)
(165)
(19)
1 year longer life expectancy ($)
161
19
Assumed overall health care cost trend rate (%)
na
4.7 (1)
Impact of: 1% increase ($)
na
30
1% decrease ($)
na
(28)
(1) Trending to 4.0% in 2041 and remaining at that level thereafter.
na – not applicable
Maturity Profile
The duration of the defined benefit obligation for our primary plans is as follows:
(Years)
2025
2024
Canadian pension plans
13.1
13.0
U.S. pension plans
7.3
7.5
Canadian other employee future benefit plans
11.4
11.7
Cash Flows
Cash payments we made during the year in connection with our employee future benefit plans are as follows:
(Canadian $ in millions)
Pension plans
Other employee future benefit plans
2025
2024
2025
2024
Net contributions (refund)
$
4
$
(25)
$
–
$
–
Contributions to defined contribution plans
306
290
–
–
Benefits paid directly to pensioners
51
50
47
45
$
361
$
315
$
47
$
45
Our best estimate of the contributions and benefits paid directly to pensioners we expect to make for the year ending October 31, 2026 is approximately $41 million for our defined benefit pension plans
and $23 million for our other employee future benefit plans. Benefit payments from our defined benefit and other employee future benefit plans to retirees for the year ending October 31, 2026 are
estimated to be $605 million.
Note 22: Income Taxes
We report our provision for income taxes in our Consolidated Statement of Income based upon transactions recorded in our consolidated financial
statements, regardless of when they are recognized for income tax purposes, with the exception of repatriation of retained earnings from our
subsidiaries, as noted below.
In addition, we record an income tax expense or benefit in other comprehensive income or directly in equity when the taxes relate to amounts
recorded in other comprehensive income or equity. For example, income tax expense (recovery) on hedging gains (losses) related to our net
investment in foreign operations is recorded in our Consolidated Statement of Comprehensive Income as part of net gains (losses) on translation of
net foreign operations.
Current tax is the amount of income tax recoverable (payable) in respect of the taxable loss (profit) for a period. Deferred tax is recognized on
temporary differences between the carrying amounts of assets and liabilities for accounting and tax purposes. Deferred tax assets and liabilities are
measured at the expected tax rates when temporary differences reverse. Changes in deferred tax assets and liabilities related to a change in tax rates
are recorded in income in the period the tax rate is substantively enacted, except to the extent that the tax arises from a transaction or event that is
recognized either in other comprehensive income or directly in equity. Current and deferred taxes are offset only when they are levied by the same
tax authority on the same entity or group of entities, and when there is a legal right to offset.
192 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Provision for Income Taxes
(Canadian $ in millions)
2025
2024
Consolidated Statement of Income
Current
Provision for income taxes for the current period
$
2,813
$
2,055
Deferred
Origination and reversal of temporary differences
5
150
Effect of changes in tax rates
7
3
2,825
2,208
Other Comprehensive Income and Equity
Income tax expense (recovery) related to:
Unrealized gains on FVOCI debt securities
113
79
Reclassification to earnings of (gains) on FVOCI debt securities
(23)
(31)
Gains on derivatives designated as cash flow hedges
365
966
Reclassification to earnings of losses on derivatives designated as cash flow hedges
397
536
Unrealized (losses) on hedges of net foreign operations
(29)
(38)
Unrealized gains (losses) on FVOCI equity securities
(4)
3
Gains (losses) on remeasurement of pension and other employee future benefit plans
53
1
(Losses) on remeasurement of own credit risk on financial liabilities designated at fair value
(92)
(242)
Income tax (recovery) recorded directly in equity
(136)
(95)
644
1,179
Total provision for income taxes
$
3,469
$
3,387
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Reconciliation to Statutory Tax Rate
Set out below is a reconciliation of our statutory tax rates and income taxes that would be payable at these rates to the effective tax rates and
provision for income taxes that we have recorded in our Consolidated Statement of Income:
(Canadian $ in millions, except as noted)
2025
2024
Combined Canadian federal and provincial income taxes at the statutory tax rate
$
3,211
27.8%
$
2,651
27.8%
Increase (decrease) resulting from:
Tax-exempt income from securities
(36)
(0.3)
(45)
(0.5)
Foreign operations subject to different tax rates (1)
(264)
(2.3)
(365)
(3.8)
Change in tax rate for deferred taxes
7
0.1
3
–
Income attributable to investments in associates and joint ventures
(51)
(0.4)
(36)
(0.3)
Other
(42)
(0.4)
–
–
Provision for income taxes in our Consolidated Statement of Income
and effective tax rate
$
2,825
24.5%
$
2,208
23.2%
(1) Global minimum tax rules became effective this fiscal year, and as a result, our effective tax rate increased by approximately 55 basis points for the year ended October 31, 2025.
BMO Financial Group 208th Annual Report 2025 193
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Components of Deferred Tax Balances
(Canadian $ in millions)
Deferred Tax Asset (Liability)
Net asset,
November 1, 2024
Benefit (expense)
to income statement
Benefit (expense)
to equity
Translation
and other
Net asset,
October 31, 2025
Allowance for credit losses
$
1,343
$
(56)
$
–
$
5
$
1,292
Employee future benefits
282
23
(6)
–
299
Deferred compensation benefits
749
308
–
2
1,059
Other comprehensive income
224
–
(261)
–
(37)
Premises and equipment
(480)
(19)
–
1
(498)
Pension benefits
(338)
13
(47)
2
(370)
Goodwill and intangible assets
(805)
36
–
(6)
(775)
Securities
867
(294)
–
5
578
Other
1,181
(23)
2
23
1,183
Net deferred tax assets (liabilities)
$
3,023
$
(12)
$
(312)
$
32
$
2,731
Comprising
Deferred tax assets
$
3,024
$
2,732
Deferred tax liabilities
(1)
(1)
Net deferred tax assets (liabilities)
$
3,023
$
2,731
(Canadian $ in millions)
Deferred Tax Asset (Liability)
Net asset,
November 1, 2023
Benefit (expense)
to income statement
Benefit (expense)
to equity
Translation
and other
Net asset, October 31,
2024
Allowance for credit losses
$
893
$
449
$
–
$
1
$
1,343
Employee future benefits
264
3
15
–
282
Deferred compensation benefits
783
(35)
–
1
749
Other comprehensive income
522
–
(298)
–
224
Premises and equipment
(343)
(136)
–
(1)
(480)
Pension benefits
(395)
73
(16)
–
(338)
Goodwill and intangible assets
(913)
107
–
1
(805)
Securities
987
(119)
–
(1)
867
Other
1,606
(495) (1)
4
66
1,181
Net deferred tax assets (liabilities)
$
3,404
$
(153)
$
(295)
$
67
$
3,023
Comprising
Deferred tax assets
$
3,420
$
3,024
Deferred tax liabilities
(16)
(1)
Net deferred tax assets (liabilities)
$
3,404
$
3,023
(1) Includes the tax impact of the legal provision reversal recorded in relation to the lawsuit described in Note 24.
Included in deferred tax assets is $50 million ($20 million as at October 31, 2024) related to Canadian tax loss carryforwards and $4 million
($3 million as at October 31, 2024) related to both U.S. tax loss carryforwards and tax credits that will expire in various amounts in U.S. taxation years
from 2025 through 2043. On the evidence available, including management projections of income, we believe it is probable that there will be
sufficient taxable income generated by our business operations to support these deferred tax assets. The amount of temporary differences, unused
tax losses and unused tax credits for which no deferred tax asset is recognized in our Consolidated Balance Sheet as at October 31, 2025 is
$917 million ($947 million as at October 31, 2024), of which $52 million ($53 million in 2024) is scheduled to expire within five years. Deferred tax
assets have not been recognized in respect of these items because it is not probable that these benefits will be realized.
Income that we earn through our foreign subsidiaries and foreign branches is generally taxed in the country in which they operate. Canada also
taxes the income we earn through our foreign branches and a credit is allowed for certain foreign taxes paid on such income. Repatriation of earnings
from certain foreign subsidiaries would require us to pay tax on certain of these earnings. As repatriation of such earnings is not planned in the
foreseeable future, we have not recorded a related deferred tax liability. The taxable temporary differences associated with the repatriation of
earnings from investments in certain foreign subsidiaries, branches, associates and interests in joint ventures for which deferred tax liabilities have
not been recognized totalled $31 billion as at October 31, 2025 ($27 billion as at October 31, 2024).
Tax Assessments
Canadian tax authorities have reassessed us for additional income tax and interest in an amount of approximately $1,465 million in respect of
certain 2011–2018 Canadian corporate dividends. These reassessments denied certain dividend deductions on the basis that the dividends were
received as part of a “dividend rental arrangement”. In general, the tax rules raised by the Canadian tax authorities were prospectively addressed in
the 2015 and 2018 Canadian federal budgets. We filed Notices of Appeal with the Tax Court of Canada and the matter is in litigation. We remain of
the view that our tax filing positions were appropriate and intend to challenge all reassessments. However, if such challenges are unsuccessful, the
additional expense would negatively impact our net income.
194 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Note 23: Earnings Per Share
Basic earnings per share is calculated by dividing net income attributable to bank shareholders, after deducting dividends payable on preferred shares
and distributions payable on other equity instruments, by the daily average number of fully paid common shares outstanding throughout the year.
Diluted earnings per share is calculated in the same manner, with further adjustments made to reflect the dilutive impact of instruments that are
convertible into our common shares.
The following table presents our basic and diluted earnings per share:
Basic Earnings Per Common Share
(Canadian $ in millions, except as noted)
2025
2024
Net income attributable to bank shareholders
$
8,709
$
7,318
Dividends on preferred shares and distributions on other equity instruments
(436)
(386)
Net income available to common shareholders
$
8,273
$
6,932
Weighted-average number of common shares outstanding (in thousands)
721,926
727,738
Basic earnings per common share (Canadian $)
$
11.46
$
9.52
Diluted Earnings Per Common Share
(Canadian $ in millions, except as noted)
2025
2024
Net income available to common shareholders
$
8,273
$
6,932
Weighted-average number of common shares outstanding (in thousands)
721,926
727,738
Dilutive impact of stock options (1)
Stock options potentially exercisable
5,897
3,556
Common shares potentially repurchased
(4,556)
(2,759)
Weighted-average number of diluted common shares outstanding (in thousands)
723,267
728,535
Diluted earnings per common share (Canadian $)
$
11.44
$
9.51
(1) The dilutive effect of stock options was calculated using the treasury stock method. In computing diluted earnings per common share, we excluded average stock options outstanding of 477,101 with a
weighted-average exercise price of $150.96 for the year ended October 31, 2025 (3,220,995 with a weighted-average exercise price of $130.33 for the year ended October 31, 2024), as the average
share price in each of the two years did not exceed the exercise price.
Note 24: Commitments, Guarantees, Pledged Assets, Provisions and Contingent Liabilities
In the ordinary course of business, we enter into a variety of contracts under which we may be required to make payments to reimburse a
counterparty for a loss if a third party does not perform according to the terms of a contract or does not make payments when due under the terms
of a debt instrument, and contracts under which we provide indirect guarantees of the indebtedness of another party, all of which are considered
guarantees.
Guarantees that qualify as derivatives are accounted for in accordance with the policy for derivative instruments (refer to Note 7). For guarantees
that do not qualify as derivatives, a liability is initially recorded at fair value, which is generally the fee received. Subsequently, guarantees are
recorded at the higher of initial fair value, less amortization to recognize any fee income earned over the period, and our best estimate of the amount
required to settle the obligation. Any change in the liability is recorded in our Consolidated Statement of Income.
We enter into a variety of commitments, including off-balance sheet credit instruments, such as backstop liquidity facilities, letters of credit,
credit default swaps and commitments to extend credit, as a method of meeting the financial needs of our customers. These commitments include
contracts under which we may be required to make payments to a counterparty, based on changes in the value of an asset, liability or equity security
that the counterparty holds, due to changes in an underlying interest rate, foreign exchange rate or other variable. The contractual amount of our
commitments represents our maximum undiscounted potential exposure, before possible recoveries under recourse and collateral provisions.
Collateral requirements for these instruments are generally consistent with our collateral requirements for loans.
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 commitments.
We strive to limit our exposure to credit risk by dealing only with counterparties that we believe are creditworthy, and we manage our credit risk
for these instruments using the same credit risk process that we apply to loans and other credit assets.
BMO Financial Group 208th Annual Report 2025 195
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The maximum amounts payable related to our various commitments are as follows:
(Canadian $ in millions)
2025
2024
Financial Guarantees
Standby letters of credit
$
29,409
$
30,523
Credit default swaps (1)
23,507
16,211
Other Credit Instruments
Backstop liquidity facilities
18,358
18,224
Documentary and commercial letters of credit
2,504
1,893
Commitments to extend credit (2)
238,884
230,689
Other commitments (3)
9,632
10,093
Total
$
322,294
$
307,633
(1) The fair value of the related derivatives included in our Consolidated Balance Sheet was $1 million as at October 31, 2025 ($8 million as at October 31, 2024).
(2) Commitments to extend credit exclude personal lines of credit and credit cards that are unconditionally cancellable at our discretion.
(3) Other commitments include $1,664 million as at October 31, 2025 ($4,511 million as at October 31, 2024) of underwriting commitments that are extended but not yet accepted by the borrower.
Financial Guarantees
Standby letters of credit represent our obligation to make payments to third parties on behalf of customers if they are unable to make the required
payments or meet other contractual requirements. The majority have a term of one year or less. Collateral requirements for standby letters of credit
and guarantees are consistent with our collateral requirements for loans. Standby letters of credit and guarantees include our guarantee of a
subsidiary’s debt provided directly to a third party.
Written credit default swaps require us to compensate a counterparty following the occurrence of a credit event in relation to a specified
reference obligation, such as a bond or a loan. The terms of these contracts range from less than one year to over 10 years. Refer to Note 7 for
additional details.
Other Credit Instruments
Backstop liquidity facilities are provided to ABCP programs administered by us as an alternative source of financing when ABCP markets cannot be
accessed. The terms of the backstop liquidity facilities do not require us to advance money to these programs in the event of insolvency of the
borrower. The average term of these liquidity facilities is approximately one to five years. Refer to Note 6 for additional details.
Documentary and commercial letters of credit represent our agreement to honour drafts presented by a third party upon completion of specific
activities.
Commitments to extend credit represent our commitment to customers to grant them credit in the form of loans or other financing for specific
amounts and maturities, subject to their meeting certain conditions.
Other commitments include commitments to fund external private equity funds and investments in equity and debt securities at market value at
the time the commitments are drawn. In addition, we act as underwriter for certain new issuances under which we, alone or together with a
syndicate of financial institutions, purchase the new issue for resale to investors.
Indemnification Agreements
In the normal course of operations, we enter into various agreements that provide general indemnifications. These indemnifications typically occur in
connection with sales of assets, securities offerings, service contracts, director contracts, membership agreements, clearing arrangements, derivative
contracts and leasing transactions. Based on historical experience, we expect the risk of loss to be remote.
Exchange and Clearing House Guarantees
We are a member of several securities and futures exchanges and central counterparties. Membership in certain of these organizations may require
us to pay a pro rata share of the losses incurred by the organization in the event of default by another member or to pay the losses incurred by the
organization in the event of a default by a customer of the bank. It is difficult to estimate our maximum exposure under these membership
agreements, since this would require an assessment of future claims that may be made against us that have not yet occurred. Based on historical
experience, we expect the risk of material loss to be remote.
Pledged Assets and Collateral
In the ordinary course of business, we enter into trading, lending and borrowing activities that require us to pledge assets or provide collateral.
Pledging and collateral transactions are typically conducted under terms and conditions that are usual and customary to these activities. If there is no
default, the securities or their equivalents must be returned by the pledgee upon satisfaction of the obligation.
196 BMO Financial Group 208th Annual Report 2025
Notes
Notes
The following tables summarize our pledged assets and collateral, and the activities to which they relate:
(Canadian $ in millions)
2025
2024
Bank Assets
Cash and due from banks
$
108
$
80
Securities (1)
174,514
139,553
Loans
59,886
71,419
Other assets
11,149
10,314
245,657
221,366
Third-party Assets (2)
Collateral received and available for sale or re-pledging
232,840
195,071
Less: Collateral not sold or re-pledged
(48,081)
(45,087)
184,759
149,984
Total pledged assets and collateral
$
430,416
$
371,350
(Canadian $ in millions)
2025
2024
Uses of pledged assets and collateral
Clearing systems, payment systems and depositories
$
18,136
$
26,203
Foreign governments and central banks
38
46
Obligations related to securities sold short
54,876
35,030
Obligations related to securities sold under repurchase agreements
119,956
97,878
Securities borrowing and lending (3)
122,729
99,405
Derivatives transactions
21,870
19,224
Securitization
21,873
23,739
Covered bonds
23,125
27,235
Other (4)
47,813
42,590
Total pledged assets and collateral
$
430,416
$
371,350
(1) Includes NHA MBS of $6,690 million, which are included in loans in our Consolidated Balance Sheet ($5,492 million as at October 31, 2024).
(2) Includes on-balance sheet securities borrowed or purchased under resale agreements and off-balance sheet collateral received.
(3) Includes off-balance sheet securities borrowing and lending.
(4) Includes $16,734 million of assets that have been pledged to support Federal Home Loan Bank activity ($21,235 million as at October 31, 2024).
Lease Commitments
We have entered into a number of non-cancellable leases for premises and equipment. Our computer and software leases are typically fixed for one
term. Leases that we have signed but have not yet taken possession of totalled $128 million as at October 31, 2025 ($80 million as at October 31,
2024).
Provisions and Contingent Liabilities
Provisions are recognized when we have a legal or constructive obligation as a result of past events, such as contractual commitments, legal or other
obligations for which we can reliably estimate the related amount, and it is probable we will be required to settle the obligation. We recognize as a
provision our best estimate of the amount required to settle the obligations as of the balance sheet date, taking into account the risks and uncertainties
surrounding the obligations. Provisions are recorded in other liabilities in our Consolidated Balance Sheet. Contingent liabilities are potential obligations
arising from past events, the existence of which will only be confirmed by the occurrence or non-occurrence of one or more future events not wholly
within our control, and are not included in the table below.
Legal Proceedings
The bank and its subsidiaries are party to legal proceedings, including regulatory investigations, in the ordinary course of business. We review the
status of these proceedings regularly and establish provisions when in our judgment it becomes probable that we will incur a loss and the amount
can be reliably estimated. The bank’s provisions represent our best estimates based upon currently available information for proceedings for which
estimates can be made. However, the bank’s provisions may differ significantly from the actual losses incurred as a result of, for example, the
inherent uncertainty of the various potential outcomes of such proceedings; the varying stages of the proceedings; the existence of multiple
defendants whose share of liability may not yet have been determined; unresolved issues in such proceedings, some of which involve novel legal
theories and interpretations; the fact that the underlying matters will change from time to time; and that such proceedings may involve very large or
indeterminate damages. While it is inherently difficult to predict the ultimate outcome of these proceedings, based on our current knowledge, we do
not expect the outcome of any of these proceedings, individually or in the aggregate, to have a material adverse effect on the consolidated financial
position or the results of operations of the bank. However, because of the factors listed above, as well as other uncertainties inherent in litigation and
regulatory matters, there is a possibility that the ultimate resolution of legal proceedings or regulatory investigations may be material to the bank’s
consolidated financial position or its results of operations for any particular reporting period.
BMO Financial Group 208th Annual Report 2025 197
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BMO Bank National Association (BBNA), formerly BMO Harris Bank N.A., as successor to M&I Marshall and Ilsley Bank (M&I), was named as the
defendant in a lawsuit filed in the U.S. Bankruptcy Court for the District of Minnesota (Bankruptcy Court) in connection with a Ponzi scheme carried out
by Thomas J. Petters and certain affiliated individuals and entities (collectively, Petters). The lawsuit, brought by a Trustee in bankruptcy proceedings
for certain Petters entities, alleged that between 1999 and 2008, M&I (and a predecessor bank) helped facilitate the Ponzi scheme operated by
Petters. On November 8, 2022, a jury awarded damages of approximately US$564 million against BBNA. On June 27, 2023, BBNA filed its notice of
appeal with the United States Court of Appeals for the Eighth Circuit to contest the jury verdict and award. On August 22, 2023, the trial court awarded
the plaintiff approximately US$483 million in pre-judgment interest and ordered BBNA to pay post-judgment interest on the jury award at 4.74% and
pre-judgment interest at 5.26%. On September 12, 2024, the Court of Appeals reversed the trial court judgment, finding that BBNA had a valid legal
defence that extinguished the Trustee’s claim. The appellate court directed the trial court to enter judgment for BBNA. As a result of this outcome, in
accordance with applicable accounting standards, BMO reversed its provision of $1,190 million ($875 million after-tax), comprising $594 million in
non-interest expense, other and $596 million in interest expense, other liabilities. On February 12, 2025, the plaintiff filed a petition for review by the
Supreme Court of the United States. The Supreme Court denied the petition on May 27, 2025, which ends the litigation against BBNA in this matter.
Restructuring and Severance Charges
Provisions for restructuring and severance charges relate to costs incurred for accelerating operational efficiencies across the enterprise. This
represents our best estimate of the amount that will ultimately be paid out.
Changes in the provision balance during the year were as follows:
(Canadian $ in millions)
2025
2024
Restructuring and
severance
Legal
Total
Restructuring and
severance
Legal
Total
Balance at beginning of year
$
164
$
95
$
259
$
335
$
1,243
$
1,578
Additional provisions/increase in provisions
125
34
159
101
67
168
Provisions utilized
(129)
(79)
(208)
(210)
(19)
(229)
Amounts reversed
(36)
(5)
(41)
(59)
(1,196)
(1,255)
Foreign exchange and other
–
2
2
(3)
–
(3)
Balance at end of year
$
124
$
47
$
171
$
164
$
95
$
259
Note 25: Operating and Geographic Segmentation
Operating Segments
We conduct our business through four operating segments, each of which has a distinct mandate. Our operating segments reflect our organizational
and management structure and therefore these segments, and the results attributed to them, may not be comparable with those of other financial
services companies. We evaluate the performance of our operating segments using reported and adjusted measures, such as net income, revenue
growth, return on equity and non-interest expense-to-revenue (efficiency) ratio, as well as operating leverage.
On October 28, 2025, we announced the realignment of business units associated with the previously announced changes in the bank’s
organizational structure, effective the fourth quarter of 2025 and applied on a retrospective basis. The realignment combined our U.S. Personal and
Business Banking, Commercial Banking and Private Wealth businesses to form a unified U.S. Banking operating segment. Effective the fourth quarter
of 2025, financial results related to our U.S. Wealth business previously reported in Wealth Management are now reported in U.S. Banking. Results for
prior periods have been reclassified to conform with the current year’s presentation.
Canadian Personal and Commercial Banking
Canadian P&C serves clients across Canada with a comprehensive range of financial products, services and advice through integrated branch, contact
centre and digital channels.
U.S. Banking
U.S. Banking serves clients across the United States with a comprehensive range of financial products, services and advice through an integrated
network of branches, contact centres, digital banking platforms and automated teller machines. These are offered through Personal and Business
Banking, Commercial Banking and Private Wealth lines of businesses.
Wealth Management
Wealth Management serves a full range of clients across Canada, from mainstream to ultra-high net worth and institutional, with a broad offering of
wealth, asset management and insurance products and services.
Capital Markets
Capital Markets offers a comprehensive range of products and services to corporate, institutional and government clients globally. Through our
Investment and Corporate Banking and Global Markets lines of business, there are approximately 2,700 professionals operating in 38 locations around
the world.
198 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Corporate Services
Corporate Services consists of Corporate Units and Technology and Operations (T&O). Corporate Units provide enterprise-wide expertise, governance
and support in a variety of areas, including strategic planning, risk management, finance, legal and regulatory compliance, sustainability, human
resources, communications, marketing, real estate and procurement. T&O develops, monitors, manages and maintains governance of information
technology including data and analytics, and also provides cybersecurity and operations services.
The costs of these Corporate Units and T&O services are largely allocated to the four operating segments (Canadian P&C, U.S. Banking, Wealth
Management and Capital Markets), with any remaining amounts retained in Corporate Services results. As such, Corporate Services results largely
reflect the impact of residual unallocated expenses, residual treasury-related activities and the elimination of taxable equivalent basis (teb)
adjustments. We review our revenue and expense allocation methodologies annually and update these as appropriate.
Basis of Presentation
The results of these operating segments are based on our internal financial reporting systems. The accounting policies used in these segments are
generally consistent with those followed in the preparation of our consolidated financial statements, as disclosed in Note 1 and throughout the
consolidated financial statements. Income taxes presented below may not be reflective of taxes paid in each jurisdiction in which we operate. Income
taxes are generally applied to each segment based on a statutory tax rate and may be adjusted for items and activities specific to each segment. A
notable accounting measurement difference is the teb adjustment, as described below.
Periodically, certain business lines and units within the business lines are transferred between client and corporate support groups in order to
more closely align our organizational structure with our strategic priorities. In addition, revenue and expense allocations are updated to more
accurately align with current experience. Results for prior periods are restated to conform with the current year’s presentation.
Taxable Equivalent Basis
We analyze revenue on a teb basis at the operating segment level. Net interest income, revenue and provision for income taxes are increased on
tax-exempt securities to an equivalent before-tax basis to facilitate comparisons of income between taxable and tax-exempt sources. The offset to
the operating segments’ teb adjustments is reflected in Corporate Services net interest income, total revenue and provision for income taxes.
Beginning January 1, 2024, we did not take the deduction for certain Canadian dividends received in Capital Markets due to proposed legislation, and
as a result, we no longer report this revenue on a teb basis. This proposed legislation was enacted in the third quarter of fiscal 2024. The teb
adjustment for the year ended October 31, 2025 was $39 million ($58 million in 2024).
Inter-Segment Allocations
Various estimates and allocation methodologies are used in the preparation of the operating segments’ financial information. Overhead expenses are
allocated to operating segments using allocation formulas applied on a consistent basis. Operating segment net interest income reflects internal
funding charges and credits on the segments’ assets, liabilities and capital at market rates, taking into account relevant terms and currency
considerations. The offset of the net impact of these charges and credits is reflected in Corporate Services. These inter-segment allocations are also
applied to the geographic segmentation.
BMO Financial Group 208th Annual Report 2025 199
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our results and average assets, grouped by operating segment, are as follows:
(Canadian $ in millions)
Canadian
P&C
U.S. Banking (1)
Wealth
Management
Capital
Markets (1)
Corporate
Services (1) (2)
2025
Total
Net interest income
$
9,667
$
9,017
$
1,020
$
2,482
$
(699)
$
21,487
Non-interest revenue
2,595
2,466
4,282
4,965
479
14,787
Total Revenue
12,262
11,483
5,302
7,447
(220)
36,274
Provision for credit losses on impaired loans
1,952
1,010
8
133
44
3,147
Provision for (recovery of) credit losses on performing loans
412
33
2
68
(45)
470
Total provision (recovery of) for credit losses
2,364
1,043
10
201
(1)
3,617
Depreciation and amortization
644
990
215
331
–
2,180
Non-interest expense
4,716
5,865
3,245
4,285
816
18,927
Income (loss) before taxes and non-controlling interest in subsidiaries
4,538
3,585
1,832
2,630
(1,035)
11,550
Provision for (recovery of) income taxes
1,243
775
451
653
(297)
2,825
Reported net income (loss)
$
3,295
$
2,810
$
1,381
$
1,977
$
(738)
$
8,725
Non-controlling interest in subsidiaries
$
–
$
14
$
–
$
–
$
2
$
16
Net income (loss) attributable to bank shareholders
$
3,295
$
2,796
$
1,381
$
1,977
$
(740)
$
8,709
Average assets (3)
$
344,176
$
257,177
$
53,224
$
551,491
$
274,493
$ 1,480,561
Canadian
P&C
U.S. Banking (1)
Wealth
Management
Capital
Markets (1)
Corporate
Services (1) (2)
2024
Total
Net interest income
$
8,852
$
8,602
$
873
$
1,731
$
(590)
$
19,468
Non-interest revenue
2,587
2,209
3,726
4,785
20
13,327
Total Revenue
11,439
10,811
4,599
6,516
(570)
32,795
Provision for credit losses on impaired loans
1,326
1,285
15
367
73
3,066
Provision for (recovery of) credit losses on performing loans
333
392
2
2
(34)
695
Total provision for credit losses
1,659
1,677
17
369
39
3,761
Depreciation and amortization
590
1,006
215
299
–
2,110
Non-interest expense
4,415
5,684
2,961
3,979
350
17,389
Income (loss) before taxes and non-controlling interest in subsidiaries
4,775
2,444
1,406
1,869
(959)
9,535
Provision for (recovery of) income taxes
1,318
434
339
377
(260)
2,208
Reported net income (loss)
$
3,457
$
2,010
$
1,067
$
1,492
$
(699)
$
7,327
Non-controlling interest in subsidiaries
$
–
$
2
$
–
$
–
$
7
$
9
Net income (loss) attributable to bank shareholders
$
3,457
$
2,008
$
1,067
$
1,492
$
(706)
$
7,318
Average assets (3)
$
327,883
$
251,881
$
49,134
$
468,963
$
271,554
$ 1,369,415
(1) Operating segments report on a teb basis – see Basis of Presentation section.
(2) Corporate Services includes T&O.
(3) Included within average assets are average earning assets, which comprise deposits with other banks, deposits at central banks, securities borrowed or purchased under resale agreements, loans and
securities. Total average earning assets for 2025 are $1,305,072 million, including $342,361 million for Canadian P&C, $235,855 million for U.S. Banking and $726,856 million for all other operating
segments, including Corporate Services (2024 – Total: $1,235,830 million, Canadian P&C: $319,518 million, U.S. Banking: $230,500 million and all other operating segments: $685,812 million).
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Geographic Information
We operate primarily in Canada and the United States, but we also have operations in the United Kingdom, Europe, the Caribbean and Asia, which are
grouped within other countries in the table below. We allocate our results by geographic region based on the location of the unit responsible for
managing the related assets, liabilities, revenues and expenses.
Our results and average assets, grouped by geographic region, are as follows:
(Canadian $ in millions)
2025
Canada
United States
Other countries
Total
Total Revenue
$
18,885
$
15,194
$
2,195
$
36,274
Income before taxes
5,741
4,339
1,470
11,550
Reported net income
4,191
3,408
1,126
8,725
Average Assets
732,391
675,161
73,009
1,480,561
2024
Total Revenue
$
16,107
$
14,465
$
2,223
$
32,795
Income before taxes
4,434
3,547
1,554
9,535
Reported net income
3,199
2,865
1,263
7,327
Average Assets
692,750
613,098
63,567
1,369,415
200 BMO Financial Group 208th Annual Report 2025
Notes
Notes
Note 26: Significant Subsidiaries
As at October 31, 2025, the bank, either directly or indirectly through its subsidiaries, controls the following significant operating subsidiaries.
Significant subsidiaries (1) (2)
Head or principal office
Book value of shares owned by the
bank (Canadian $ in millions)
AIR MILES Loyalty Inc.
Toronto, Canada
$
19
Bank of Montreal (China) Co. Ltd.
Beijing, China
497
Bank of Montreal Europe Public Limited Company
Dublin, Ireland
1,391
Bank of Montreal Holding Inc. and subsidiaries, including:
Toronto, Canada
35,455
Bank of Montreal Mortgage Corporation
Calgary, Canada
BMO Mortgage Corp.
Vancouver, Canada
BMO Investments Inc.
Toronto, Canada
BMO InvestorLine Inc.
Toronto, Canada
BMO Nesbitt Burns Inc.
Toronto, Canada
BMO Private Investment Counsel Inc.
Toronto, Canada
BMO Private Equity (Canada) Inc.
Toronto, Canada
BMO Capital Markets Limited
London, England
434
BMO Capital Partners Inc.
Toronto, Canada
1,067
BMO Financial Corp. and subsidiaries, including:
Chicago, United States
60,146
BMO Bank National Association
Chicago, United States
BMO Capital Markets Corp.
New York, United States
BMO Japan Securities Ltd.
Tokyo, Japan
6
BMO Life Insurance Company and subsidiary
Toronto, Canada
1,430
BMO Life Assurance Company
Toronto, Canada
BMO Trust Company
Toronto, Canada
630
(1) Each subsidiary is incorporated or organized under the laws of the state or country in which the principal office is situated, except for BMO Financial Corp. and BMO Capital Markets Corp., which are
incorporated under the laws of the state of Delaware, United States.
(2) Unless otherwise noted, the bank, either directly or indirectly through its subsidiaries, owns 100% of the outstanding voting shares of each subsidiary.
Significant Restrictions
Our ability to transfer funds between our subsidiaries may be restricted by statutory, contractual, capital and regulatory requirements. Restrictions
include:
‰ Assets pledged as security for various liabilities we incur. Refer to Note 24 for details.
‰ Assets of our consolidated SEs that are held for the benefit of the note holders. Refer to Note 6 for details.
‰ Assets held by our insurance subsidiaries. Refer to Note 14 for details.
‰ Regulatory and statutory requirements that reflect capital and liquidity requirements.
‰ Funds required to be held with certain central banks, regulatory bodies and counterparties. Refer to our Consolidated Statement of Cash Flows for
details.
Note 27: Related Party Transactions
Related parties include subsidiaries, joint ventures, associates, employee future benefit plans and key management personnel and their close family
members. Close family members include spouses, common-law partners and dependent minors. Transactions with our subsidiaries are eliminated on
consolidation and are not disclosed as related party transactions.
Key Management Personnel and Their Close Family Members
Key management personnel is defined as those persons having authority and responsibility for planning, directing and/or controlling the activities of
an entity, being the members of our Board of Directors (directors) and certain senior executives.
The following table presents the compensation of our key management personnel:
(Canadian $ in millions)
2025
2024
Base salary and incentives
$
29
$
20
Post-employment benefits
2
2
Share-based payments (1)
54
37
Total key management personnel compensation
$
85
$
59
(1) Amounts included in share-based payments are the fair values of awards granted in the year.
We offer senior executives market interest rates on credit card balances, a fee-based subsidy on annual credit card fees, and a select suite of
customer loan and mortgage products at rates normally accorded to preferred customers. As at October 31, 2025, loans and undrawn credit
commitments to key management personnel and their close family members totalled $23 million ($19 million as at October 31, 2024). We had no
ACL on impaired loans related to these amounts as at October 31, 2025 and 2024.
BMO Financial Group 208th Annual Report 2025 201
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Directors receive a specified amount of their annual retainer in deferred stock units. Until a director’s shareholdings (including deferred stock
units) are eleven times greater than the cash portion of their annual retainer, they are required to take 100% of their annual retainer and other fees
in the form of either our common shares or deferred stock units. Once the shareholding requirements have been met, directors may elect to receive
the remainder of such retainer fees and other remuneration in cash, common shares or deferred stock units.
Directors of our wholly-owned subsidiary, BMO Financial Corp., are required to take a specified minimum amount of their annual retainer and
other fees in the form of deferred stock units.
Joint Ventures and Associates
We provide banking services to our joint ventures and associates on the same terms offered to our customers for these services.
The following table presents the carrying amount of our interests in joint ventures and associates accounted for under the equity method, as well as
our share of the income of those entities:
(Canadian $ in millions)
Joint ventures
Associates
2025
2024
2025
2024
Carrying amount
$
878
$
907
$
908
$
820
Share of net income
36
93
139
114
We do not have any joint ventures or associates that are individually material to our consolidated financial statements.
The following table presents transactions with our joint ventures and associates:
(Canadian $ in millions)
2025
2024
Loans (1)
$
1,976
$
1,864
Deposits
269
241
Fees paid for services received
63
66
Guarantees and commitments
242
210
(1) We had no ACL on impaired loans related to these amounts as at October 31, 2025 and 2024.
202 BMO Financial Group 208th Annual Report 2025
Notes
BMO Financial Group 208th Annual Report 2025 203
Where to Find More Information
Corporate Governance
Our website provides information on our
corporate governance practices, including
our code of conduct, director independence
standards and board mandate and
committee charters.
www.bmo.com/corporategovernance
Management Proxy Circular
Our management proxy circular contains
information on our directors, board committee
reports and a detailed discussion of our
corporate governance practices. It will be
published prior to our Annual Meeting in
April and will be available on our website.
www.bmo.com/corporategovernance
Stock Exchange
Governance Requirements
A summary of the significant ways in which
our corporate governance practices differ
from the corporate governance practices
required for U.S. domestic companies under
New York Stock Exchange Listing Standards
is posted on our website.
www.bmo.com/corporategovernance
Sustainability Reporting
BMO’s sustainability reporting describes how we
govern, manage and measure the environmental,
social and governance risks and opportunities
related to our business, including those related
to climate change. Our reporting is informed by
various sustainability and climate reporting
frameworks and standards.
The 2025 Sustainability and Climate Reporting,
including Public Accountability Statements will be
available on our website in Spring 2026.
www.bmo.com/corporateresponsibility
Have Your Say
If you have a question you would like to ask
at our Annual Meeting, you can submit your
question during the webcast. You can also
submit a question by writing to the Corporate
Secretary at Corporate Secretary’s Office, 9th Floor,
1 First Canadian Place, Toronto, ON M5X 1A1, or
by emailing corp.secretary@bmo.com.
Shareholders
Contact our Transfer Agent and Registrar for:
• Dividend information
• Change in share registration or address
• Lost certificates
• Estate transfers
• Duplicate mailings
• Direct registration
Computershare Trust Company of Canada
320 Bay Street, 14th Floor, Toronto, ON M5H 4A6
Email: service@computershare.com
www.computershare.com/ca/en
Canada and the United States
Call: 1-800-340-5021 Fax: 1-888-453-0330
International
Call: 514-982-7800 Fax: 416-263-9394
Computershare Trust Company, N.A.
Co-Transfer Agent (U.S.)
Computershare Investor Services PLC is the
Transfer Agent and Registrar for common shares
in Bristol, United Kingdom
Online filing information:
BMO filings in Canada
Canadian Securities Administrators
www.sedarplus.ca
BMO filings in the United States
Securities and Exchange Commission
www.sec.gov/edgar.shtml
For all other shareholder inquiries:
Shareholder Services
BMO Financial Group
Corporate Secretary’s Office
9th Floor, 1 First Canadian Place
Toronto, ON M5X 1A1
Email: corp.secretary@bmo.com
Call: 416-867-6785
Institutional Investors
and Research Analysts
To obtain additional financial information:
Investor Relations Department
BMO Financial Group
37th Floor, 1 First Canadian Place
Toronto, ON M5X 1A1
Email: investor.relations@bmo.com
Employees
For information on BMO’s Employee Share
Ownership Plan:
Call: 1-877-266-6789
Printed Copies
To obtain printed copies of the annual report:
Marketing, Communications
and Social Impact Department
Email: annualreports@bmo.com
Call: 416-867-7640
On peut obtenir sur demande
un exemplaire en français.
www.bmo.com
Customers
For assistance with your investment portfolio
or other financial needs:
BMO Canada
English and French: 1-877-225-5266
Cantonese and Mandarin: 1-800-665-8800
Outside Canada and the continental United States:
514-881-3845
TTY service for hearing impaired customers:
1-866-889-0889
www.bmo.com
BMO InvestorLine: 1-888-776-6886
www.bmoinvestorline.com
BMO Nesbitt Burns: 416-359-4000
www.bmonesbittburns.com
BMO U.S.
United States: 1-888-340-2265
Outside the United States: 1-847-238-2265
www.bmo.com/en-us/
The following are trademarks owned by other parties:
World Finance is a trademark of World News Media Ltd.; Euromoney is a trademark of Euromoney Ltd.; IBM Quantum is
a trademark of International Business Machines Corporation; Evident is a trademark of Evident Insights Ltd.; World’s Most
Ethical Companies is a trademark of Ethisphere LLC.
204 BMO Financial Group 208th Annual Report 2025
Strategic design: Ove Brand Design www.ovedesign.com
Shareholder Information
Important Dates
Fiscal Year End
October 31
Annual Meeting
April 15, 2026 | 9:30 a.m. ET
Further details will be made available on our website.
www.bmo.com/investorrelations
Reporting Dates
Q1: February 25, 2026 Q2: May 27, 2026 Q3: August 25, 2026 Q4: December 3, 2026
2026 Dividend Payment Dates1
Common and preferred
shares record dates
January 30
April 29
July 30
October 30
Common shares
payment dates
February 26
May 26
August 26
November 26
Preferred shares
payment dates2
February 25
May 25
August 25
November 25
1 Subject to approval by the Board of Directors.
2 The preferred shares series 50 and preferred shares series 52 payment dates are semi-annual
on May 26 and November 26, 2026.
The Bank Act prohibits a bank from declaring or paying a dividend if it is or would thereby
be in contravention of regulations or an order from the Office of the Superintendent of Financial
Institutions dealing with adequacy of capital or liquidity. Currently, this limitation does not
restrict the payment of dividends on Bank of Montreal’s common or preferred shares.
Employee Ownership3
77.2% of our Canadian employees
participate in the BMO Employee Share
Ownership Plan – a clear indication
of their commitment to BMO.
3 As at October 31, 2025.
Credit Ratings
Credit rating information appears
on page 93 of this annual report and
on our website.
www.bmo.com/creditratings
Direct Deposit
You can choose to have your dividends
deposited directly to an account in any
financial institution in Canada or the
United States that provides electronic
funds transfer services.
Personal Information Security
We advise our shareholders to be diligent
in protecting their personal information.
Details are available on our website.
www.bmo.com/security
Managing Your Shares
The common shares of Bank of Montreal are listed on the Toronto Stock Exchange (TSX) and
New York Stock Exchange (NYSE). The preferred shares of Bank of Montreal are listed on the TSX.
Our Transfer Agent and Registrar
Computershare Trust Company of Canada serves as Transfer Agent and Registrar for common
and preferred shares, with transfer facilities in Montreal, Toronto, Calgary and Vancouver.
Computershare Investor Services PLC and Computershare Trust Company, N.A. serve as Transfer
Agents and Registrars for common shares in Bristol, United Kingdom and Canton, Massachusetts,
respectively. See page 203 for contact information.
Reinvesting Your Dividends and Purchasing Additional Common Shares
Through the Shareholder Dividend Reinvestment and Share Purchase Plan, you can reinvest
cash dividends from your BMO common shares to purchase additional BMO common shares
without paying a commission or service charge. You can also purchase additional common
shares in amounts up to $40,000 per fiscal year. Contact Computershare Trust Company of Canada
or Shareholder Services for details.
Auditors KPMG LLP
Your vote
matters.
Watch for your proxy
circular prior to the
Annual Meeting in
April and remember
to vote.
BMO Place is the bank’s newest
workspace, located in the heart of
downtown Toronto. The 350,000 square
foot repurposed department store is
home to over 3,200 BMO employees and
equipped with new technology and flexible
workspaces. It houses BMO Academy,
the bank’s state-of-the-art learning facility.
Designed with the future in mind,
the facility hosts a diverse array of
learning programs and events that
foster innovation, collaboration and
professional advancement.
Escalator mural titled “Ring True” by Panya Clark Espinal.