Bank of Montreal 2015 Annual Report Download - page 62

MD&A
Our CET1 capital and Tier 1 capital were $25.6 billion and $29.4 billion, respectively, at October 31, 2015, up from $22.4 billion and $26.6 billion,
respectively, at October 31, 2014. CET1 capital increased due to higher accumulated other comprehensive income, primarily driven by foreign
exchange movement due to our investment in foreign operations, retained earnings growth, the issuance of common shares through the Shareholder
Dividend Reinvestment and Share Purchase Plan (DRIP) and the exercise of stock options, partially offset by higher deductions and share repurchases.
The increase in Tier 1 capital since October 31, 2014 was attributable to the growth in CET1 capital and issuance of preferred shares, partially offset
by the Additional Tier 1 instruments redemptions, as outlined below in the Capital Management Activities section.
Total capital was $34.6 billion at October 31, 2015, up from $31.9 billion at October 31, 2014, attributable to the growth in Tier 1 capital
mentioned above, partially offset by the additional 10% phase-out of non-qualifying subordinated debt, as mentioned above.
Risk-Weighted Assets
(Canadian $ in millions)
As at October 31 2015 2014
Credit Risk
Wholesale
Corporate, including specialized lending 91,489 81,340
Corporate small and medium-sized enterprises 31,954 33,644
Sovereign 1,765 1,612
Bank 3,902 4,186
Retail
Residential mortgages, excluding home equity line of credit 8,427 7,618
Home equity line of credit 7,889 6,541
Qualifying revolving retail 4,569 4,000
Other retail, excluding small and medium-sized enterprises 11,053 9,826
Retail small and medium-sized enterprises 1,968 1,604
Equity 1,369 1,362
Trading book 8,415 7,359
Securitization 2,456 3,098
Other credit risk assets – non-counterparty managed assets 16,255 14,946
Scaling factor for credit risk assets under AIRB Approach (1) 8,874 8,251
Total Credit Risk 200,385 185,387
Market Risk 10,262 9,002
Operational Risk 28,538 27,703
CET1 Capital Risk-Weighted Assets 239,185 222,092
Additional CVA adjustment, prescribed by OSFI, for Tier 1 Capital 286 336
Tier 1 Capital Risk-Weighted Assets 239,471 222,428
Additional CVA adjustment, prescribed by OSFI, for Total Capital 245 503
Total Capital Risk-Weighted Assets 239,716 222,931
(1) The scaling factor is applied to the risk-weighted assets amounts for credit risk under the AIRB Approach.
Credit Risk RWA (CET1 basis) were $200.4 billion at October 31, 2015, up from $185.4 billion at October 31, 2014. The increase was largely due to
foreign exchange movement and business growth, partially offset by changes in methodology and higher book quality. Market Risk RWA were
$10.3 billion at October 31, 2015, up from $9.0 billion at October 31, 2014, attributable to an increase in client facilitation positions and market
variables, partially offset by methodology and policy changes. Operational Risk RWA were $28.5 billion at October 31, 2015, up from $27.7 billion at
October 31, 2014, largely due to growth in the bank’s average gross income.
Risk Capital Review
Economic capital is a measure of our internal assessment of the risks underlying BMO’s business activities. It represents management’s estimation of
the likely magnitude of economic losses that could occur should severely adverse situations arise, and allows returns to be measured on a basis that
considers the risks undertaken. Economic capital is calculated for various types of risk – credit, market (trading and non-trading), operational and
business – based on a one-year time horizon using a defined confidence level.
Risk-weighted assets (RWA) is a measure of the bank’s exposures weighted by risk and is calculated in accordance with the Regulatory Capital
rules using a combination of Advanced approach models and Standardized approaches. RWA is calculated for credit, market (trading) and operational
risk categories based on OSFI’s prescribed rules.
BMO Financial Group 198th Annual Report 2015 73