10/31/2017 10/31/2016 CAD CAD As Reported Annual Income Statement Report Date Currency Audit Status Consolidated Scale 10/31/2018 CAD Not Qualified Yes Millions Not Qualified Yes Millions Not Qualified Yes Millions Interest, dividend & fee income Loans 16,275 2,535 13,564 1.945 12,575 1,704 Securities Deposits with banks Interest, dividend & fee income 324 223 641 19,451 15,833 14,502 Interest expense Deposits Subordinated debt Other liabilities Total interest expense Net interest income (6,080) (226) (2,832) (9,138) 10.313 (3,915) (155) (1,756) (5,826) 10,007 (3,002) (179) (1,449) (4,630) 9,872 1,029 969 924 1,144 1,187 1,141 Non-Interest Revenue Securities commissions & fees Deposit & payment service charges Trading revenues (losses) Lending fees Card fees Investment management & custodial fees 1,830 1,352 1,192 997 917 859 461 564 415 1,622 1,742 1,556 526 489 Other non-interest revenue Total non-interest revenue 542 12,724 12,253 11,215 Total revenue 23,037 22,260 21,087 Provision for credit losses (662) (774) (815) Insurance claims, commissions & changes in policy benefit liabilities (1,352) (1,538) (1,543) Non-interest expense Employee compensation Premises & equipment Amortization of intangible assets Travel & business development Communications Business & capital taxes Professional fees Other non-interest expense Total non-interest expense (7,459) (2,753) (503) (673) (282) (7,467) (2,491) (485) (693) (286) (38) (563) (1,279) (13,302) (7,382) (2,393) (444) (646) (294) (42) (523) (1,273) (12,997) (564) (1,379) (13,613) Income before provision for income taxes Provision for income taxes Net income 7,410 (1,960) 5,450 6,646 (1,296) 5,350 5,732 (1,101) 4,631 5,450 5,348 4,622 NI Attributable to: Bank shareholders Non-controlling interest in subsidiaries Net income 5,450 5,350 4,631 7.95 Earnings per share Basic Diluted Dividends per common share 8.19 8.17 3.78 7.92 3.56 6.94 6.92 3.4 Part 2: The ratios used to evaluate a bank include some standard ratios and some industry specific ratios. The following is a list of applicable ratios: Profitability ratios i. ROA = Net income / Average total assets (note that the ROA of a bank does not add back interest expense) ii. ROCE = Net income available to common / average common equity iii. Gross Yield on Earning Assets = Interest revenue / Average earning assets; (where: Earning assets = Loans + investments) iv. Rate Paid on Funds = Interest expense / Average earning assets V. Net Interest Margin = Net interest income / Average earning assets Non-interest revenue percent = Non-interest revenue / Total revenue vii. Non-interest expense percent = Non-interest expense / Total revenue viii. Loan Loss Provision Percentage = Loan Loss Provision for the year / Interest Revenue (where: loan loss provision = provision for credit losses. This is like bad debts expense for a non-bank) Credit risk ratios: ix. Net Charge-off Ratio = Net charge-offs / Average loans receivable during the year (where: Net charge-offs = loans written-off during the year - recoveries during the year of loans charged off in a previous year) Non-performing loans percentage = Non-performing loans / total loans receivable, both measured at year end. (where: non-performing loans = impaired loans) Loan Loss Reserve to Non-performing loans ratio = Loan loss reserve/ Non- performing loans, both measured at year end. (where: Loan loss reserve = Allow. for credit losses) Loan Loss Reserve to total loans ratio = Loan Loss Reserve/ Loans Receivable, both measured at year end. Liquidity risk ratios: xiii. Long-term Financing Ratio = Long-term debt + S/H equity / Total assets (numerator and denominator are based on averages of beginning and ending balances) Assume that LT Debt = Subordinated Debt for BMO xii. xiv. Capital Ratio = S/H equity / Total assets (numerator and denominator are based on averages of beginning and ending balances) 4. Calculate ratios (i) to (viii) and (xiii) to (xiv) above for BMO in 2018 and 2017 using the numbers in the financial statements and MD&A that are on Canvas. Note that average earning assets is reported in the table in the middle of page 37 of BMO's MD&A in the row labeled "Total BMO reported". It can also be found in Table 3 on page 128 of the MD&A. Most of the other numbers can be found in the income statement and balance sheet. 5. Use the ratios you have calculated to comment on BMO's 2018 profitability, operating performance and leverage compared to 2017. 10/31/2017 10/31/2016 CAD CAD As Reported Annual Income Statement Report Date Currency Audit Status Consolidated Scale 10/31/2018 CAD Not Qualified Yes Millions Not Qualified Yes Millions Not Qualified Yes Millions Interest, dividend & fee income Loans 16,275 2,535 13,564 1.945 12,575 1,704 Securities Deposits with banks Interest, dividend & fee income 324 223 641 19,451 15,833 14,502 Interest expense Deposits Subordinated debt Other liabilities Total interest expense Net interest income (6,080) (226) (2,832) (9,138) 10.313 (3,915) (155) (1,756) (5,826) 10,007 (3,002) (179) (1,449) (4,630) 9,872 1,029 969 924 1,144 1,187 1,141 Non-Interest Revenue Securities commissions & fees Deposit & payment service charges Trading revenues (losses) Lending fees Card fees Investment management & custodial fees 1,830 1,352 1,192 997 917 859 461 564 415 1,622 1,742 1,556 526 489 Other non-interest revenue Total non-interest revenue 542 12,724 12,253 11,215 Total revenue 23,037 22,260 21,087 Provision for credit losses (662) (774) (815) Insurance claims, commissions & changes in policy benefit liabilities (1,352) (1,538) (1,543) Non-interest expense Employee compensation Premises & equipment Amortization of intangible assets Travel & business development Communications Business & capital taxes Professional fees Other non-interest expense Total non-interest expense (7,459) (2,753) (503) (673) (282) (7,467) (2,491) (485) (693) (286) (38) (563) (1,279) (13,302) (7,382) (2,393) (444) (646) (294) (42) (523) (1,273) (12,997) (564) (1,379) (13,613) Income before provision for income taxes Provision for income taxes Net income 7,410 (1,960) 5,450 6,646 (1,296) 5,350 5,732 (1,101) 4,631 5,450 5,348 4,622 NI Attributable to: Bank shareholders Non-controlling interest in subsidiaries Net income 5,450 5,350 4,631 7.95 Earnings per share Basic Diluted Dividends per common share 8.19 8.17 3.78 7.92 3.56 6.94 6.92 3.4 Part 2: The ratios used to evaluate a bank include some standard ratios and some industry specific ratios. The following is a list of applicable ratios: Profitability ratios i. ROA = Net income / Average total assets (note that the ROA of a bank does not add back interest expense) ii. ROCE = Net income available to common / average common equity iii. Gross Yield on Earning Assets = Interest revenue / Average earning assets; (where: Earning assets = Loans + investments) iv. Rate Paid on Funds = Interest expense / Average earning assets V. Net Interest Margin = Net interest income / Average earning assets Non-interest revenue percent = Non-interest revenue / Total revenue vii. Non-interest expense percent = Non-interest expense / Total revenue viii. Loan Loss Provision Percentage = Loan Loss Provision for the year / Interest Revenue (where: loan loss provision = provision for credit losses. This is like bad debts expense for a non-bank) Credit risk ratios: ix. Net Charge-off Ratio = Net charge-offs / Average loans receivable during the year (where: Net charge-offs = loans written-off during the year - recoveries during the year of loans charged off in a previous year) Non-performing loans percentage = Non-performing loans / total loans receivable, both measured at year end. (where: non-performing loans = impaired loans) Loan Loss Reserve to Non-performing loans ratio = Loan loss reserve/ Non- performing loans, both measured at year end. (where: Loan loss reserve = Allow. for credit losses) Loan Loss Reserve to total loans ratio = Loan Loss Reserve/ Loans Receivable, both measured at year end. Liquidity risk ratios: xiii. Long-term Financing Ratio = Long-term debt + S/H equity / Total assets (numerator and denominator are based on averages of beginning and ending balances) Assume that LT Debt = Subordinated Debt for BMO xii. xiv. Capital Ratio = S/H equity / Total assets (numerator and denominator are based on averages of beginning and ending balances) 4. Calculate ratios (i) to (viii) and (xiii) to (xiv) above for BMO in 2018 and 2017 using the numbers in the financial statements and MD&A that are on Canvas. Note that average earning assets is reported in the table in the middle of page 37 of BMO's MD&A in the row labeled "Total BMO reported". It can also be found in Table 3 on page 128 of the MD&A. Most of the other numbers can be found in the income statement and balance sheet. 5. Use the ratios you have calculated to comment on BMO's 2018 profitability, operating performance and leverage compared to 2017