BANK OF MONTREAL /CAN/ Annual Report - How They Did This Year

This year brought some notable changes and financial shifts for BMO. Here's a look at how they performed:

Financial Health & Operations:

• Tax Impact: New global minimum tax rules came into play this fiscal year, which meant BMO's effective tax rate went up by about 0.55% (55 basis points) for the year ending October 31, 2025. This means a slightly larger portion of their earnings went towards taxes.
• Interest Income from Securities: The money BMO earned from interest on certain securities decreased this year. It was $7,136 million for the year ended October 31, 2025, down from $7,826 million in 2024.
• Required Reserves: BMO had to set aside more money as reserves with central banks and regulators. This amount increased to $108 million as of October 31, 2025, up from $80 million in 2024. This means more capital is tied up to meet regulatory requirements.
• Pledged Assets: The amount of assets BMO had pledged to support Federal Home Loan Bank activities decreased to $16,734 million from $21,235 million last year. This could free up some capital.
• Mortgage-Backed Securities: BMO's holdings of National Housing Act Mortgage-Backed Securities (NHA MBS), which are a type of mortgage-backed loan, increased to $6,690 million from $5,492 million in 2024.

Major Changes & Strategic Moves:

• UK Pension Plan Buyout: BMO made a significant move in the fourth quarter of 2024 by completing a buyout of its UK pension plan. This means they transferred all their pension obligations and related assets to a third-party insurer. BMO no longer has any involvement or risk associated with this plan, which is a positive step in reducing future liabilities. Importantly, this transfer had no impact on their pre-tax profit.
• Underwriting Commitments: The bank's "other commitments," which include underwriting commitments (promises to help companies raise money that haven't been fully accepted yet), saw a notable decrease. These commitments were $1,664 million as of October 31, 2025, significantly down from $4,511 million in 2024. This could suggest a more cautious approach to new business or fewer large deals in the pipeline.

Stock Performance Note:

• When calculating diluted earnings per share, a large number of stock options (over 3.2 million in 2024, decreasing to about 477,000 in 2025) were not included because the bank's average share price was below the price at which these options could be exercised.

Key Takeaways:

• BMO faced an increased effective tax rate and higher required reserves, while interest income from securities decreased.
• The bank reduced its pledged assets and increased its holdings of mortgage-backed securities.
• A significant strategic move was the buyout of its UK pension plan, reducing future liabilities without impacting pre-tax profit.
• Underwriting commitments saw a notable decrease, potentially indicating a shift in new business activity.
• A substantial number of stock options were not included in diluted EPS calculations as the average share price was below their exercise price.