BMO Financial Group Reports Fourth Quarter and Fiscal 2018 Results

Toronto (ots/PRNewswire) -

Fourth Quarter 2018

Financial Results Highlights

Fourth Quarter 2018 Compared with Fourth Quarter 2017:

  • Net income of $1,695 million, up 38%, including a benefit from the remeasurement of an employee benefit liability2 in the current quarter; adjusted net income1 of $1,529 million, up 17%
  • EPS3 of $2.57, up 42%; adjusted EPS1,3 of $2.32, up 19%
  • ROE of 16.1%, up from 12.1%; adjusted ROE1 of 14.5%, up from 12.9%
  • Provision for credit losses4 (PCL) of $175 million, compared with $202 million in the prior year
  • Common Equity Tier 1 Ratio of 11.3%
  • Dividend increased by $0.04 from the prior quarter to $1.00, up 8% from the prior year

Fiscal 2018 Compared with Fiscal 2017:

  • Net income of $5,450 million, up 2% including the impact of the revaluation of our U.S. net deferred tax asset in the current year5; adjusted net income1 of $5,979 million, up 9%
  • EPS3 of $8.17, up 3%; adjusted EPS1,3 of $8.99, up 10%
  • ROE of 13.2%, compared with 13.3%; adjusted ROE1 of 14.6%, up from 13.7%
  • PCL of $662 million4, including a $38 million recovery on performing loans, compared with $822 million on an adjusted basis and $746 million on a reported basis

For the fourth quarter ended October 31, 2018, BMO Financial Group (TSX: BMO) (NYSE:BMO) recorded net income of $1,695 million or $2.57 per share on a reported basis, and net income of $1,529 million or $2.32 per share on an adjusted basis.

"BMO's fourth quarter results demonstrated continued positive momentum and ended a successful year in which the bank delivered $6 billion in adjusted earnings and growth in adjusted earnings per share of 10%, led by strong performance in our Personal and Commercial banking businesses," said Darryl White, Chief Executive Officer, BMO Financial Group.

"This year, we continued to make good progress against our strategic objectives. We grew our U.S. segment at an accelerated pace, increased momentum in our Commercial banking business, adding relationships, loans and deposits, and delivered real value to our personal customers with new and enhanced digital capabilities. We've invested in and grown our businesses, and at the same time, improved efficiency, returned capital to our shareholders through increased dividends and share buybacks, and maintained a strong CET 1 ratio of 11.3%.

"Looking ahead to 2019, we will continue to build on this strong foundation and our differentiating strengths, including an integrated North American platform and deep relationships in our wealth, capital markets and P&C businesses, to deliver sustainable and competitive long-term performance," concluded Mr. White.

Reported net income in the current quarter included a benefit of $203 million after-tax ($277 million pre-tax) from the remeasurement of an employee benefit liability, which was excluded from adjusted earnings. Reported net income in the current year also includes a $425 million charge related to the revaluation of our U.S. net deferred tax asset5 which was also excluded from adjusted earnings. Other adjusting items are included in the Non-GAAP Measures table on page 5.


(1) Results and
measures in
this document
are presented
on a GAAP
basis. They are
also presented
on an adjusted
basis that
excludes the
impact of
certain items.
Adjusted
results and
measures are
non-GAAP and
are detailed
for all
reported
periods in the
Non-GAAP
Measures
section, where
such non-GAAP
measures and
their closest
GAAP
counterparts
are disclosed.
(2) The current
quarter
included a
benefit from
the
remeasurement
of an employee
benefit
liability as a
result of an
amendment to
our other
employee future
benefits plan
for certain
employees that
was announced
in the fourth
quarter of
2018. This
amount has been
included in
Corporate
Services in
non-interest
expense.
(3) All Earnings
per Share (EPS)
measures in
this document
refer to
diluted EPS,
unless
specified
otherwise. EPS
is calculated
using net
income after
deductions for
net income
attributable to
non-controlling
interest in
subsidiaries
and preferred
share
dividends.
(4) Effective the
first quarter
of 2018, the
bank
prospectively
adopted IFRS 9,
Financial
Instruments
(IFRS 9). Under
IFRS 9, we
refer to the
provision for
credit losses
on impaired
loans and the
provision for
credit losses
on performing
loans. Prior
periods have
not been
restated. Refer
to the Changes
in Accounting
Policies
section on page
121 of BMO's
2018 Annual
MD&A for
further
details. In
prior periods,
changes to the
collective
allowance were
an adjusting
item. Refer to
the Non-GAAP
measures on
page 5.
(5) Reported net
income in the
first quarter
of 2018
included a $425
million (US$339
million) charge
related to the
revaluation of
our U.S. net
deferred tax
asset as a
result of the
enactment of
the U.S. Tax
Cuts and Jobs
Act. See the
Critical
Accounting
Estimates -
Income Taxes
and Deferred
Tax Assets
section on page
119 of BMO's
2018 Annual
MD&A.
Note: All
ratios and
percentage
changes in
this
document
are based
on
unrounded
numbers

Return on equity (ROE) was 16.1%, up from 12.1% in the prior year and adjusted ROE was 14.5%, up from 12.9%. Return on tangible common equity (ROTCE) was 19.5%, compared with 14.8% in the prior year and adjusted ROTCE was 17.3%, compared with 15.5%.

Concurrent with the release of results, BMO announced a first quarter 2019 dividend of $1.00 per common share, up $0.04 or 4% from the prior quarter and up $0.07 per share or 8% from the prior year. The quarterly dividend of $1.00 per common share is equivalent to an annual dividend of $4.00 per common share.

BMO's 2018 audited annual consolidated financial statements and accompanying management discussion & analysis (MD&A), is available online at www.bmo.com/investorrelations and at www.sedar.com.



Fourth Quarter Operating Segment Overview



Canadian P&C

Reported fourth quarter net income of $675 million and adjusted net income of $676 million both increased $51 million or 8% from the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets. Results reflect revenue growth and lower provision for credit losses, partially offset by higher expenses.

During the quarter, we continued to enhance our digital capabilities as we launched Business Xpress, a small business lending platform that speeds up the loan approval process by 95% for small business loans. The platform uses data analytics technology and best-in-class automatic adjudication strategies providing a faster and more convenient way for Canada's small businesses to obtain capital.



U.S. P&C

Reported net income of $372 million increased $102 million or 37% and adjusted net income of $383 million increased $102 million or 36% from the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets.

Reported net income of US$285 million increased US$71 million or 33% and adjusted net income of US$294 million increased US$71 million or 31% from the prior year, due to good revenue growth and lower taxes from the benefit of U.S. tax reform and a favourable U.S. tax item, partially offset by higher expenses and higher provisions for credit losses.

During the quarter, the Federal Deposit Insurance Corporation released its annual deposit market share report and we improved our market share and maintained our ranking of second place in the Chicago and Milwaukee markets, and fourth place within our core footprint, which includes Illinois, Kansas, Wisconsin, Missouri, Indiana, and Minnesota.



BMO Wealth Management

Reported net income of $219 million increased $44 million or 25% and adjusted net income of $229 million increased $40 million or 21% from the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets. Traditional wealth reported net income of $192 million was unchanged and adjusted net income of $202 million decreased $4 million or 2% from the prior year, as business growth and lower taxes were more than offset by a legal provision and higher expenses. Insurance net income of $27 million was below trend but increased $44 million from the prior year, primarily due to less elevated reinsurance claims in the current year, with this partially offset by unfavourable market movements in the current quarter relative to favourable market movements in the prior year.

BMO Global Asset Management was named the Best Environmental Social and Governance (ESG) Research Team in the Investment Week Sustainable & ESG Investment Awards 2018. This award recognizes our longstanding commitment and leadership in responsible investing, and our belief that prudent management of ESG issues can have an important impact on the creation of long-term investor value.



BMO Capital Markets

Reported net income of $298 million decreased $18 million or 6%, and adjusted net income of $309 million decreased $7 million or 2% from a year ago, as higher Investment and Corporate Banking revenue and lower taxes were more than offset by higher expenses and lower Trading Products revenue. Adjusted net income excludes acquisition integration costs and the amortization of acquisition-related intangible assets.

On September 1, 2018, we completed the acquisition of KGS-Alpha Capital Markets (KGS-Alpha), a U.S. fixed income broker-dealer specializing in U.S. mortgage and asset-backed securities in the institutional investor market.



Corporate Services

Reported net income for the quarter was $131 million, compared with a net loss of $158 million in the prior year. Corporate Services adjusted net loss for the quarter was $68 million, compared with an adjusted net loss of $102 million in the prior year. Adjusted results increased mainly due to higher revenue excluding the teb adjustment and lower expenses. The adjusted results exclude a benefit of $203 million after-tax from the remeasurement of an employee benefit liability in the current period, a restructuring charge in the prior year, and acquisition integration costs in both periods.

Adjusted results in this Operating Segment Overview section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.



Capital

BMO's Common Equity Tier 1 (CET1) Ratio was 11.3% at October 31, 2018. The CET1 Ratio decreased from 11.4% at the end of the third quarter, as retained earnings growth, net of share repurchases, was more than offset by higher risk-weighted assets, including an acquisition.



Provision for Credit Losses

The total provision for credit losses was $175 million, a decrease of $27 million from the prior year. The provision for credit losses on impaired loans of $177 million decreased $25 million from $202 million in the prior year, primarily due to lower provisions in the P&C businesses and higher net recoveries in BMO Capital Markets and Corporate Services. There was a $2 million net recovery of credit losses on performing loans in the current quarter.



Caution

The foregoing sections contain forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.



Regulatory Filings

Our continuous disclosure materials, including our interim filings, annual Management's Discussion and Analysis and audited annual consolidated financial statements, Annual Information Form and Notice of Annual Meeting of Shareholders and Proxy Circular are available on our website at www.bmo.com/investorrelations, on the Canadian Securities Administrators' website at www.sedar.com and on the EDGAR section of the SEC's website at www.sec.gov.



Bank of
Montreal uses
a unified
branding
approach that
links all of
the
organization's
member
companies.
Bank of
Montreal,
together with
its
subsidiaries,
is known as
BMO Financial
Group. As
such, in this
document, the
names BMO and
BMO Financial
Group mean
Bank of
Montreal,
together with
its
subsidiaries.



Financial Review

The Financial Review commentary is as of December 4, 2018. The material that precedes this section comprises part of this Financial Review. The Financial Review should be read in conjunction with the unaudited interim consolidated financial statements for the period ended October 31, 2018, included in this document, as well as the audited annual consolidated financial statements for the year ended October 31, 2018, and the MD&A for fiscal 2018.

The 2018 Annual MD&A includes a comprehensive discussion of our businesses, strategies and objectives, and can be accessed on our website at www.bmo.com/investorrelations. Readers are also encouraged to visit the site to view other quarterly financial information.

Bank of Montreal's management, under the supervision of the CEO and CFO, has evaluated the effectiveness, as of October 31, 2018, of Bank of Montreal's disclosure controls and procedures (as defined in the rules of the Securities and Exchange Commission and the Canadian Securities Administrators) and has concluded that such disclosure controls and procedures are effective.

There were no changes in our internal control over financial reporting during the quarter ended October 31, 2018, which materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Because of inherent limitations, disclosure controls and procedures and internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.

As in prior quarters, Bank of Montreal's Audit and Conduct Review Committee reviewed this document and Bank of Montreal's Board of Directors approved the document prior to its release.



Financial Highlights


(Canadian $ in Q4-2018 Q3-2018 Q4-2017 Fiscal Fiscal
millions, except as 2018 2017
noted)
Summary Income
Statement
Net interest income 2,669 2,607 2,535 10,313 10,007
Non-interest 3,253 3,213 3,120 12,724 12,253
revenue
Revenue 5,922 5,820 5,655 23,037 22,260
Insurance claims, 390 269 573 1,352 1,538
commissions and
changes in policy
benefit liabilities
(CCPB)
Revenue, net of 5,532 5,551 5,082 21,685 20,722
CCPB
Provision for 177 177 na 700 na
credit losses on
impaired loans (1)
Provision for (2) 9 na (38) na
(recovery of)
credit losses on
performing loans
(1)
Total provision for 175 186 202 662 746
credit losses (1)
Non-interest 3,224 3,386 3,375 13,613 13,330
expense
Provision for 438 443 278 1,960 1,296
income taxes
Net income 1,695 1,536 1,227 5,450 5,350
Attributable to 1,695 1,536 1,227 5,450 5,348
bank shareholders
Attributable to - - - - 2
non-controlling
interest in
subsidiaries
Net income 1,695 1,536 1,227 5,450 5,350
Adjusted net income 1,529 1,565 1,309 5,979 5,508
Common Share Data
($ except as noted)
Earnings per share 2.57 2.31 1.81 8.17 7.92
Adjusted earnings 2.32 2.36 1.94 8.99 8.16
per share
Earnings per share 41.9 13.0 (10.3) 3.1 14.5
growth (%)
Adjusted earnings 19.3 16.4 (7.6) 10.1 8.5
per share growth
(%)
Dividends declared 0.96 0.96 0.90 3.78 3.56
per share
Book value per 64.73 63.31 61.92 64.73 61.92
share
Closing share price 98.43 103.11 98.83 98.43 98.83
Number of common
shares outstanding
(in millions)
End of period 639.3 639.9 647.8 639.3 647.8
Average diluted 641.8 642.4 650.3 644.9 652.0
Total market value 62.9 66.0 64.0 62.9 64.0
of common shares ($
billions)
Dividend yield (%) 3.9 3.7 3.6 3.8 3.6
Dividend payout 37.2 41.4 49.5 46.2 44.8
ratio (%)
Adjusted dividend 41.3 40.6 46.2 41.9 43.5
payout ratio (%)
Financial Measures
and Ratios (%)
Return on equity 16.1 14.7 12.1 13.2 13.3
Adjusted return on 14.5 15.0 12.9 14.6 13.7
equity
Return on tangible 19.5 17.9 14.8 16.2 16.3
common equity
Adjusted return on 17.3 18.0 15.5 17.5 16.5
tangible common
equity
Net income growth 38.1 10.7 (8.8) 1.9 15.5
Adjusted net income 16.8 13.9 (6.2) 8.6 9.7
growth
Revenue growth 4.7 6.6 7.2 3.5 5.6
Revenue growth, net 8.9 6.6 (2.2) 4.6 6.0
of CCPB
Non-interest (4.5) 3.0 1.4 2.1 2.2
expense growth
Adjusted 6.0 3.7 (0.1) 3.4 3.6
non-interest
expense growth
Efficiency ratio, 58.3 61.0 66.4 62.8 64.3
net of CCPB
Adjusted efficiency 62.4 60.3 64.1 62.2 62.9
ratio, net of CCPB
Operating leverage, 13.4 3.6 (3.6) 2.5 3.8
net of CCPB
Adjusted operating 2.9 2.9 (2.1) 1.2 2.0
leverage, net of
CCPB
Net interest margin 1.49 1.49 1.57 1.51 1.55
on average earning
assets
Effective tax rate 20.6 22.4 18.5 26.5 19.5
Adjusted effective 19.7 22.4 19.3 20.7 19.8
tax rate
Total 0.18 0.19 0.22 0.17 0.20
PCL-to-average net
loans and
acceptances
(annualized)
PCL on impaired 0.18 0.18 0.22 0.18 0.22
loans-to-average
net loans and
acceptances
(annualized)
Balance Sheet (as
at, $ millions,
except as noted)
Assets 774,048 765,318 709,580 774,048 709,580
Gross loans and 404,215 395,295 376,886 404,215 376,886
acceptances
Net loans and 402,576 393,635 375,053 402,576 375,053
acceptances
Deposits 522,051 506,916 479,792 522,051 479,792
Common 41,387 40,516 40,114 41,387 40,114
shareholders'
equity
Cash and 29.9 28.2 28.5 29.9 28.5
securities-to-total
assets ratio (%)
Capital Ratios (%)
CET1 Ratio 11.3 11.4 11.4 11.3 11.4
Tier 1 Capital 12.9 12.9 13.0 12.9 13.0
Ratio
Total Capital Ratio 15.2 14.9 15.1 15.2 15.1
Leverage Ratio 4.2 4.2 4.4 4.2 4.4
Foreign Exchange
Rates ($)
As at Canadian/U.S. 1.3169 1.2997 1.2895 1.3169 1.2895
dollar
Average 1.3047 1.3032 1.2621 1.2878 1.3071
Canadian/U.S.
dollar


(1) Effective the
first quarter
of 2018, the
bank
prospectively
adopted IFRS
9, Financial
Instruments
(IFRS 9).
Under IFRS 9,
we refer to
the provision
for credit
losses on
impaired
loans and the
provision for
credit losses
on performing
loans. Prior
periods have
not been
restated. The
provision for
credit losses
in periods
prior to the
first quarter
of 2018 is
comprised of
both specific
and
collective
provisions.
Refer to the
Changes in
Accounting
Policies
section on
page 121 of
BMO's 2018
Annual MD&A
for further
details.
Certain
comparative
figures have
been
reclassified
to conform
with the
current
period's
presentation.
Adjusted
results are
non-GAAP
amounts or
non-GAAP
measures.
Please see
the Non-GAAP
Measures
section.
na - not
applicable



Non-GAAP Measures

Results and measures in this document are presented on a GAAP basis. Unless otherwise indicated, all amounts are in Canadian dollars, and they have been derived from our audited annual consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS). References to GAAP mean IFRS. They are also presented on an adjusted basis that excludes the impact of certain items as set out in the following table. Results and measures that exclude the impact of Canadian/U.S. dollar exchange rate movements on our U.S. segment are non-GAAP measures (please see the Foreign Exchange section on page 7 for a discussion of the effects of changes in exchange rates on our results). Management assesses performance on a reported basis and on an adjusted basis and considers both to be useful in assessing underlying ongoing business performance. Presenting results on both bases provides readers with a better understanding of how management assesses results. It also permits readers to assess the impact of certain specified items on results for the periods presented, and to better assess results excluding those items that may not be reflective of ongoing results. As such, the presentation may facilitate readers' analysis of trends, as well as comparisons with our competitors. Except as otherwise noted, management's discussion of changes in reported results in this document applies equally to changes in the corresponding adjusted results. Adjusted results and measures are non-GAAP and as such 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.



Non-GAAP Measures


(Canadian $ in Q4-2018 Q3-2018 Q4-2017 Fiscal Fiscal
millions, except as 2018 2017
noted)
Reported Results
Revenue 5,922 5,820 5,655 23,037 22,260
Insurance claims, (390) (269) (573) (1,352) (1,538)
commissions and
changes in policy
benefit liabilities
(CCPB)
Revenue, net of 5,532 5,551 5,082 21,685 20,722
CCPB
Total provision for (175) (186) (202) (662) (746)
credit losses
Non-interest (3,224) (3,386) (3,375) (13,613) (13,330)
expense
Income before 2,133 1,979 1,505 7,410 6,646
income taxes
Provision for (438) (443) (278) (1,960) (1,296)
income taxes
Net Income 1,695 1,536 1,227 5,450 5,350
EPS ($) 2.57 2.31 1.81 8.17 7.92
Adjusting Items
(Pre-tax) (1)
Acquisition (18) (8) (24) (34) (87)
integration costs
(2)
Amortization of (31) (28) (34) (116) (149)
acquisition-related
intangible assets
(3)
Restructuring costs - - (59) (260) (59)
(4)
Decrease in the - - - - 76
collective
allowance for
credit losses (5)
Benefit from the 277 - - 277 -
remeasurement of an
employee benefit
liability (6)
Adjusting items 228 (36) (117) (133) (219)
included in
reported pre-tax
income
Adjusting Items
(After tax) (1)
Acquisition (13) (7) (15) (25) (55)
integration costs
(2)
Amortization of (24) (22) (26) (90) (116)
acquisition-related
intangible assets
(3)
Restructuring costs - - (41) (192) (41)
(4)
Decrease in the - - - - 54
collective
allowance for
credit losses (5)
Benefit from the 203 - - 203 -
remeasurement of an
employee benefit
liability (6)
U.S. net deferred - - - (425) -
tax asset
revaluation (7)
Adjusting items 166 (29) (82) (529) (158)
included in
reported net income
after tax
Impact on EPS ($) 0.25 (0.05) (0.13) (0.82) (0.24)
Adjusted Results
Revenue 5,922 5,820 5,655 23,037 22,260
Insurance claims, (390) (269) (573) (1,352) (1,538)
commissions and
changes in policy
benefit liabilities
(CCPB)
Revenue, net of 5,532 5,551 5,082 21,685 20,722
CCPB
Total provision for (175) (186) (202) (662) (822)
credit losses
Non-interest (3,452) (3,350) (3,258) (13,480) (13,035)
expense
Income before 1,905 2,015 1,622 7,543 6,865
income taxes
Provision for (376) (450) (313) (1,564) (1,357)
income taxes
Net income 1,529 1,565 1,309 5,979 5,508 EPS ($) 2.32 2.36 1.94 8.99 8.16


(1) Adjusting items are
generally included
in Corporate
Services, with the
exception of the
amortization of
acquisition-related
intangible assets
and certain
acquisition
integration costs,
which are charged
to the operating
groups.
(2) Acquisition
integration costs
related to BMO
Transportation
Finance are charged
to Corporate
Services, since the
acquisition impacts
both Canadian and
U.S. P&C
businesses.
KGS-Alpha
acquisition
integration costs
are reported in BMO
Capital Markets.
Acquisition
integration costs
are recorded in
non-interest
expense.
(3) These expenses were
charged to the
non-interest
expense of the
operating groups.
Before-tax and
after-tax amounts
for each operating
group are provided
on pages 14, 15,
16, 18 and 20.
(4) In Q2-18, we
recorded a
restructuring
charge, primarily
related to
severance costs, as
a result of an
ongoing bank-wide
initiative to
simplify how we
work, drive
increased
efficiency and
invest in
technology to move
our business
forward. A
restructuring
charge in Q4-17 was
also taken as we
continued to
accelerate the use
of technology to
enhance customer
experience and
focused on driving
operational
efficiencies.
Restructuring costs
are included in
non-interest
expense in
Corporate Services.
(5) Adjustments to the
collective
allowance for
credit losses are
recorded in
Corporate Services
provision for
credit losses in
2017 and prior
years.
(6) The current quarter
included a $277
million pre-tax
benefit from the
remeasurement of an
employee benefit
liability as a
result of an
amendment to our
other employee
future benefits
plan for certain
employees that was
announced in the
fourth quarter of
2018. This amount
has been included
in Corporate
Services in
non-interest
expense.
(7) Charge related to
the revaluation of
our U.S. net
deferred tax asset
as a result of the
enactment of the
U.S. Tax Cuts and
Jobs Act. For more
information see the
Critical Accounting
Estimates - Income
Taxes and Deferred
Tax Assets section
on page 119 of
BMO's 2018 Annual
MD&A for further
details.
Certain
comparative
figures have
been
reclassified
to conform
with the
current
year's
presentation.
Adjusted
results and
measures in
this table
are non-GAAP
amounts or
non-GAAP
measures.



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 2019 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price, the regulatory environment in which we operate and the results of or outlook for our operations or for the Canadian, U.S. and international economies, and include statements of our management. Forward-looking statements are typically identified by words such as "will", "would", "should", "believe", "expect", "anticipate", "project", "intend", "estimate", "plan", "goal", "target", "may" and "could".

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; the Canadian housing market, weak, volatile or illiquid capital and/or credit markets; interest rate and currency value fluctuations; changes in monetary, fiscal, or economic policy and tax legislation and interpretation; the level of competition in the geographic and business areas in which we operate; changes in laws or in supervisory expectations or requirements, including capital, interest rate and liquidity requirements and guidance, and the effect of such changes on funding costs; judicial or regulatory proceedings; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; failure of third parties to comply with their obligations to us; our ability to execute our strategic plans and to complete and integrate acquisitions, including obtaining regulatory approvals; critical accounting estimates and the effect of changes to accounting standards, rules and interpretations on these estimates; operational and infrastructure risks, including with respect to reliance on third parties; changes to our credit ratings; political conditions, including changes relating to or affecting economic or trade matters; global capital markets activities; the possible effects on our business of war or terrorist activities; outbreaks of disease or illness that affect local, national or international economies; natural disasters and disruptions to public infrastructure, such as transportation, communications, power or water supply; technological changes; information and cyber security, including the threat of 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; 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 more information, please see the discussion in the Risks That May Affect Future Results section on page 79 of BMO's 2018 Annual MD&A, and the sections related to credit and counterparty, market, insurance, liquidity and funding, operational, model, legal and regulatory, business, strategic, environmental and social, and reputation risk, in the Enterprise-Wide Risk Management section on page 78 of BMO's 2018 Annual MD&A, 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 our shareholders 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 are set out in the Economic Developments and Outlook section on page 30 of BMO's Annual MD&A. 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, both broadly and in the financial services sector, we primarily consider historical economic data provided by governments, historical relationships between economic and financial variables, and the risks to the domestic and global economy.



Foreign Exchange

The Canadian dollar equivalents of BMO's U.S. results that are denominated in U.S. dollars increased relative to the third quarter of 2018 and the fourth quarter of 2017 due to the stronger U.S. dollar. The table below indicates the relevant average Canadian/U.S. dollar exchange rates and the impact of changes in the rates on our U.S. segment results. 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. segment.

Economically, our U.S. dollar income stream was unhedged to changes in foreign exchange rates during the current and prior year. We regularly determine whether to execute hedging transactions to mitigate the impact of foreign exchange rate movements on net income.

See the Enterprise-Wide Capital Management section on page 69 of the 2018 Annual MD&A for a discussion of the impact that changes in foreign exchange rates can have on our capital position. Changes in foreign exchange rates will also affect accumulated other comprehensive income, primarily from the translation of our investments in foreign operations.

This Foreign Exchange section contains forward-looking statements. Please see the Caution Regarding Forward Looking Statements.


Effects of Changes in Exchange Rates on BMO's U.S. Segment Reported and Adjusted Results


Q4-2018
(Canadian $ in millions, except as noted) vs. Q4-2017 vs. Q3-2018
Canadian/U.S. dollar exchange rate (average)
Current period 1.3047 1.3047
Prior period 1.2621 1.3032
Effects on U.S. segment reported results
Increased net interest income 33 1
Increased non-interest revenue 26 1
Increased revenues 59 2
Increased provision for credit losses (3) -
Increased expenses (44) (1)
Increased income taxes (2) (1)
Increased reported net income 10 -
Impact on earnings per share ($) 0.02 0.00
Effects on U.S. segment adjusted results
Increased net interest income 33 1
Increased non-interest revenue 26 1
Increased revenues 59 2
Increased provision for credit losses (2) -
Increased expenses (42) (1)
Increased income taxes (4) (1)
Increased adjusted net income 11 -
Impact on adjusted earnings per share ($) 0.02 0.00


Adjusted
results in
this section
are non-GAAP
amounts or
non-GAAP
measures.
Please see
the Non-GAAP
Measures
section.
Certain
comparative
figures have
been
reclassified
to conform
with the
current
year's
presentation.


Net IncomeQ4 2018 vs Q4 2017
Reported net income was $1,695 million, up $468 million or 38% from the prior year. Adjusted net income was $1,529 million, up $220 million or 17% from the prior year. Adjusted net income excludes a benefit of $203 million after-tax from a remeasurement of an employee benefit liability in the current year, a restructuring charge in the prior year, and the amortization of acquisition-related intangible assets and acquisition integration costs in both periods. EPS of $2.57 was up $0.76 or 42% from
the prior year. Adjusted EPS of $2.32 was up $0.38 or 19%.

Results reflect strong growth in U.S. P&C, good performance in Canadian P&C and a lower Corporate Services loss, partially offset by lower income in BMO Capital Markets. Wealth Management results increased, largely reflecting less elevated reinsurance claims in the current year.



Q4 2018 vs Q3 2018

Reported net income was up $159 million or 10% and adjusted net income was down $36 million or 2% from the prior quarter. Adjusted net income excludes the remeasurement benefit in the current quarter and the amortization of acquisition-related intangible assets and acquisition integration costs in both periods. EPS was up $0.26 or 11% and adjusted EPS was down $0.04 or 2%.

Results reflect higher income in the P&C businesses and BMO Capital Markets, more than offset by lower income in Wealth Management and Corporate Services.

Adjusted results in this Net Income section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.


Revenue
Q4 2018 vs Q4 2017 Revenue of $5,922 million increased $267 million or 5% from the prior year, or 4% excluding the impact of the stronger U.S. dollar. On a basis that nets insurance claims, commissions and changes in policy benefit liabilities (CCPB) against insurance revenue (net revenue), revenue of $5,532 million increased $450 million or 9%, or 8% excluding the impact of the stronger U.S. dollar. Revenue increased in all operating groups compared with the prior year.

Net interest income of $2,669 million increased $134 million or 5%, or $100 million or 4% excluding the impact of the stronger U.S. dollar. Net interest income, excluding trading of $2,774 million increased $187 million or 7%, largely due to higher deposit and loan volumes in the P&C businesses. Average earning assets of $711.7 billion increased $69.1 billion or 11%, or 9% excluding the impact of the stronger U.S. dollar, due to loan growth, higher securities, higher securities borrowed or purchased under resale agreements and increased cash resources. BMO's overall net interest margin decreased 8 basis points, and 7 basis points on an excluding trading basis, primarily driven by lower spreads in BMO Capital Markets, mainly due to higher volumes of lower spread assets.

Net non-interest revenue of $2,863 million increased $316 million or 12%. Excluding trading revenue, net non-interest revenue increased $141 million or 6%, with increases in most non-interest revenue categories.

Gross insurance revenue decreased $144 million from the prior year due to increases in long-term interest rates decreasing the fair value of investments in the current year, compared with decreases in long-term interest rates increasing the fair value of investments in the prior year and weaker equity markets in the current year, partially offset by higher annuity sales. Insurance revenue can experience variability arising from fluctuations in the fair value of insurance assets. The investments which support policy benefit liabilities comprise predominantly fixed income and some equity assets. These investments are recorded at fair value with changes in fair value recorded in insurance revenue in the Consolidated Statement of Income. These fair value changes are largely offset by changes in the fair value of policy benefit liabilities, the impact of which is reflected in CCPB, as discussed on page 10. We generally focus on analyzing revenue net of CCPB given the extent to which insurance revenue can vary and that this variability is largely offset in CCPB.



Q4 2018 vs Q3 2018

Revenue increased $102 million or 2% from the prior quarter. Net revenue decreased $19 million as lower Wealth Management revenue was partially offset by growth in other businesses.

Net interest income of $2,669 million increased $62 million or 2%, compared with the prior quarter. Net interest income excluding trading of $2,774 million increased $43 million or 2%, compared with the prior quarter, mainly driven by higher deposit and loan volumes in the P&C businesses. Average earning assets increased $19.6 billion or 3%, largely driven by higher securities, loan growth and increased cash resources. BMO's overall net interest margin of 1.49% was unchanged. On an excluding trading basis, net interest margin decreased 2 basis points to 1.84% mainly due to higher volumes of lower spread assets in BMO Capital Markets.

Net non-interest revenue decreased $81 million or 3%. Excluding trading revenue, net non-interest revenue decreased $55 million or 2%, primarily due to lower net insurance revenue and underwriting and advisory fees.

Gross insurance revenue increased $58 million due to higher annuity sales in the current quarter, partially offset by increases in long-term interest rates decreasing the fair value of investments in the current quarter, compared with the prior quarter and weaker equity markets in the current quarter. The increase in insurance revenue was largely offset by higher insurance claims, commissions and changes in policy benefit liabilities as discussed on page 10.

Net interest income and non-interest revenue are detailed in the unaudited interim consolidated financial statements.



Provision for Credit Losses

Effective the first quarter of 2018, the bank prospectively adopted IFRS 9, Financial Instruments (IFRS 9). Under IFRS 9, we refer to the provision for credit losses on impaired loans and the provision for credit losses on performing loans. The provision for credit losses on impaired loans under IFRS 9, is consistent with the specific provision under IAS 39 in prior years. The provision for credit losses on performing loans replaced the collective provision under IAS 39. Refer to the Changes in Accounting Policy section on page 121 of BMO's Annual MD&A for an explanation of the provision for credit losses. Prior periods have not been restated.



Q4 2018 vs Q4 2017

The total provision for credit losses was $175 million, a decrease of $27 million from the prior year. The provision for credit losses on impaired loans of $177 million decreased $25 million from $202 million in the prior year, primarily due to lower provisions in the P&C businesses and net recoveries in BMO Capital Markets and Corporate Services, compared with provisions in the prior year. There was a decrease for credit losses on performing loans of $2 million, as net recoveries of credit losses in Canadian P&C, BMO Capital Markets, and Corporate Services were largely offset by provisions in U.S P&C.



Q4 2018 vs Q3 2018

The total provision for credit losses was down $11 million from the prior quarter. The provision for credit losses on impaired loans was flat at $177 million. There was a $2 million net recovery of credit losses on performing loans in the quarter, compared with a provision for credit losses on performing loans of $9 million in the prior quarter.



Provision for Credit Losses by Operating Group (1)

(Canadian Canadian U.S. Total WealthManagement BMO CorporateServices Total $ in P&C P&C P&C CapitalMarkets (2) Bank
millions)
Q4-2018 Provision 118 61 179 2 (3) (1) 177
for
(recovery
of) credit
losses on
impaired
loans Provision (15) 18 3 1 (4) (2) (2)
for
(recovery
of) credit
losses on
performing
loans Total 103 79 182 3 (7) (3) 175
provision
for
(recovery
of) credit
losses
Q3-2018 Provision 120 54 174 2 3 (2) 177
for
(recovery
of) credit
losses on
impaired
loans Provision 17 (14) 3 2 4 - 9
for
(recovery
of) credit
losses on
performing
loans Total 137 40 177 4 7 (2) 186
provision
for
(recovery
of) credit
losses
Q4-2017 Total 130 64 194 - 4 4 202
specific
and
collective
provision
for
(recovery
of) credit
losses
Fiscal
2018 Provision 466 258 724 6 (17) (13) 700
for
(recovery
of) credit
losses on
impaired
loans Provision 3 (38) (35) - (1) (2) (38)
for
(recovery
of) credit
losses on
performing
loans Total 469 220 689 6 (18) (15) 662
provision
for
(recovery
of) credit
losses
Fiscal
2017 Total 483 289 772 8 44 (78) 746
specific
and
collective
provision
for
(recovery
of) credit losses (2)


(1) Effective the
first quarter
of 2018, the
bank
prospectively
adopted IFRS
9, Financial
Instruments
(IFRS 9).
Under IFRS 9,
we refer to
the provision
for credit
losses on
impaired
loans and the
provision for
credit losses
on performing
loans. Prior
periods have
not been
restated. The
provision for
credit losses
in periods
prior to the
first quarter
of 2018 is
comprised of
specific
provisions
for operating
groups and
includes both
specific and
collective
provisions
for Corporate
Services.
Refer to the
Changes in
Accounting
Policies
section on
page 121 of
BMO's 2018
Annual MD&A
for further
details.
(2) Adjustments
to the
collective
allowance for
credit losses
are recorded
in Corporate
Services
provision for
credit losses
in 2017 and
prior years.
Certain
comparative
figures have
been
reclassified
to conform
with the
current
period's
presentation.



Provision for Credit Losses Performance Ratios


Q4-2018 Q3-2018 Q4-2017 Fiscal Fiscal
2018 2017
Total 0.18 0.19 0.22 0.17 0.20
PCL-to-average
net loans and
acceptances
(annualized) (%)
PCL on impaired 0.18 0.18 0.22 0.18 0.22
loans-to-average
net loans and
acceptances
(annualized) (%)



Impaired Loans

Total gross impaired loans (GIL) of $1,936 million at the end of the current quarter, down from $2,220 million in the prior year, with the largest decrease in impaired loans in service industries, and the oil and gas sector. GIL decreased $140 million from $2,076 million in the third quarter of 2018.

Factors contributing to the change in GIL are outlined in the following table. Loans classified as impaired during the quarter totalled $443 million, down from $522 million in the third quarter of 2018 and $527 million in the prior year.


Changes in Gross Impaired Loans (GIL) and Acceptances (1)


(Canadian $ Q4-2018 Q3-2018 Q4-2017 Fiscal Fiscal
in 2018 2017
millions,
except as
noted)
GIL, 2,076 2,152 2,154 2,220 2,383
beginning
of period
Classified 443 522 527 2,078 2,193
as impaired
during the
period
Transferred (188) (151) (135) (708) (607)
to not
impaired
during the
period
Net (214) (322) (184) (1,051) (1,017)
repayments
Amounts (194) (140) (146) (618) (618)
written-off
Recoveries - - - - -
of loans
and
advances
previously
written-off
Disposals (5) - (45) (11) (46)
of loans
Foreign 18 15 49 26 (68)
exchange
and other
movements
GIL, end of 1,936 2,076 2,220 1,936 2,220
period
GIL to 0.48 0.53 0.59 0.48 0.59
gross loans
and
acceptances
(%)


(1) GIL
excludes
purchased
credit
impaired
loans.

Certain
comparative
figures have
been
reclassified
to conform
with the
current
period's
presentation.


Insurance Claims, Commissions and Changes in Policy Benefit Liabilities

Insurance claims, commissions and changes in policy benefit liabilities (CCPB) were $390 million in the fourth quarter of 2018, a decrease of $183 million from $573 million in the fourth quarter of 2017 due to the impact of increases in long-term interest rates decreasing the fair value of policy benefit liabilities in the current quarter, compared with decreases in long-term interest rates increasing the fair value of policy benefit liabilities in the prior year, less elevated reinsurance claims in the current year and the impact of weaker equity markets in the current year, partially offset by higher annuity sales. CCPB increased $121 million from $269 million in the third quarter of 2018, due to the impact of higher annuity sales and elevated reinsurance claims in the current quarter, partially offset by higher increases in long-term interest rates decreasing the fair value of policy benefit liabilities in the current quarter, compared with the prior quarter and the impact of weaker equity markets in the current quarter. The changes related to the fair value of policy benefit liabilities and annuity sales were largely offset in revenue.



Non-Interest Expense

Reported non-interest expense of $3,224 million decreased $151 million or 4% from the prior year. Adjusted non-interest expense of $3,452 million increased $194 million or 6%, or 5% excluding the impact of the stronger U.S. dollar, largely reflecting higher employee-related expenses, including an acquisition, higher technology costs and a gain on sale of an office building in the prior year. Adjusted non-interest expense excludes a benefit of $277 million pre-tax in the current quarter from the remeasurement of an employee benefit liability as a result of an amendment to our other employee future benefits plan for certain employees that was announced in the fourth quarter of 2018, a restructuring charge of $59 million in the prior year and acquisition integration costs and the amortization of acquisition-related intangible assets in both periods.

Reported non-interest expense decreased $162 million or 5% from the third quarter of 2018, reflecting the benefit in the current quarter. Adjusted non-interest expense increased $102 million or 3%, with increases in most expense categories.

Reported operating leverage on a net revenue basis was positive 13.4% year-over-year. Adjusted operating leverage on a net revenue basis was positive 2.9% year-over-year.

The reported efficiency ratio was 54.4% compared with 59.7% in the prior year and was 58.3% on a net revenue basis, compared with 66.4% in the prior year. The adjusted efficiency ratio was 58.3% compared with 57.6% in the prior year and was 62.4% on a net revenue basis, compared with 64.1% in the prior year.

Non-interest expense is detailed in the unaudited interim consolidated financial statements.

Adjusted results in this Non-Interest Expense section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.



Income Taxes

The provision for income taxes of $438 million increased $160 million from the fourth quarter of 2017 and decreased $5 million from the third quarter of 2018. The effective tax rate for the quarter was 20.6%, compared with 18.5% in the prior year and 22.4% in the third quarter of 2018.

The adjusted provision for income taxes of $376 million increased $63 million from the prior year and decreased $74 million from the third quarter of 2018. The adjusted effective tax rate was 19.7% in the current quarter, compared with 19.3% in the prior year and 22.4% in the third quarter of 2018. The higher reported and adjusted effective tax rates in the current quarter relative to the fourth quarter of 2017 were primarily due to lower tax-exempt income from securities and changes in earnings mix, partially offset by a favourable U.S. tax item and the benefit of U.S. tax reform. The lower reported and adjusted effective tax rates in the current quarter relative to the third quarter of 2018 were primarily due to a favourable U.S. tax item.

On a taxable equivalent basis (teb), the reported effective tax rate for the quarter was 23.0%, compared with 27.1% in the prior year and 24.7% in the third quarter of 2018. On a teb basis, the adjusted effective tax rate for the quarter was 22.5%, compared with 27.2% in the prior year and 24.7% in the third quarter of 2018.

Adjusted results in this Income Taxes section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures Section.



Capital Management



Fourth Quarter 2018 Regulatory Capital Review

BMO's Common Equity Tier 1 (CET1) Ratio was 11.3% at October 31, 2018.

The CET1 Ratio decreased from 11.4% at the end of the third quarter and at October 31, 2017, as retained earnings growth was more than offset by higher RWA and the impact of share buybacks.

CET1 Capital at October 31, 2018, was $32.7 billion, up from $31.7 billion at July 31, 2018, mainly due to higher retained earnings, net of share repurchases, and the impact of foreign exchange movements on accumulated other comprehensive income. CET1 Capital was up from $30.6 billion at October 31, 2017, largely driven by retained earnings growth net of share repurchases.

CET 1 Capital RWA were $289.2 billion at October 31, 2018, up from $277.5 billion at July 31, 2018 and $269.5 billion at October 31, 2017, driven by business growth, including the impact of the acquisition of KGS-Alpha, and the impact of foreign exchange movements, partially offset by changes in asset quality.

The bank's Tier 1 and Total Capital Ratios were 12.9% and 15.2%, respectively, at October 31, 2018, compared with 12.9% and 14.9%, respectively, at July 31, 2018. The Tier 1 Capital Ratio was unchanged as the factors impacting the CET1 Ratio were largely offset by the issuance of preferred shares. The Total Capital Ratio was higher mainly due to the issuance of subordinated notes. The Tier 1 and Total Capital Ratios were 13.0% and 15.1%, respectively, at October 31, 2017. The Tier 1 Ratio was lower, compared with October 31, 2017, mainly due to the factors impacting the CET1 Ratio. The Total Capital Ratio was higher, compared with October 31, 2017, mainly due to the issuances of subordinated notes net of redemptions, partially offset by the factors impacting the Tier 1 Ratio.

BMO's Leverage Ratio was 4.2% at October 31, 2018, consistent with July 31, 2018. The October 31, 2018 Leverage Ratio was down from 4.4% at October 31, 2017, mainly due to higher leverage exposures driven by business growth.

The impact of foreign exchange movements on capital ratios was largely offset. 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. BMO may manage the impact of foreign exchange movements on its capital ratios and did so during the fourth quarter. Any such activities could also impact our book value and
return on equity.



Regulatory Capital

Regulatory capital requirements for BMO are determined in accordance with OSFI's CAR Guideline, which is based on the capital standards developed by the BCBS. For more information see the Enterprise-Wide Capital Management section on pages 69 to 75 of BMO's 2018 Annual MD&A.


OSFI's capital requirements are summarized in the following table.

(% of Minimum Pillar 1 Domestic OSFI BMO Capitaland risk-weighted capitalrequirements CapitalBuffers StabilityBuffer capitalrequirementsincludingcapital LeverageRatios assets) (1) (2) buffers as atOctober 31, 2018 Common Equity 4.5% 3.5% 1.5% 9.5% 11.3%
Tier 1 Ratio Tier 1 6.0% 3.5% 1.5% 11.0% 12.9%
Capital Ratio Total Capital 8.0% 3.5% 1.5% 13.0% 15.2%
Ratio Leverage 3.0% na na 3.0% 4.2% Ratio


(1) The minimum 4.5%
CET1 Ratio
requirement is
augmented by
3.5% in Pillar 1
Capital Buffers,
which can absorb
losses during
periods of
stress. The
Pillar 1 Capital
Buffers include
a 2.5% Capital
Conservation
Buffer, a 1.0%
Common Equity
Tier 1 Surcharge
for Domestic
Systemically
Important Banks
(D-SIBs) and a
Countercyclical
Buffer as
prescribed by
OSFI (immaterial
for the fourth
quarter of
2018). If a
bank's capital
ratios fall
within the range
of this combined
buffer,
restrictions on
discretionary
distributions of
earnings (such
as dividends,
share
repurchases and
discretionary
compensation)
would ensue,
with the degree
of such
restrictions
varying
according to the
position of the
bank's ratios
within the
buffer range.
(2) OSFI requires
all D-SIBs to
maintain a
Domestic
Stability Buffer
(DSB) against
Pillar 2 risks
associated with
systemic
vulnerabilities.
The DSB can
range from 0% to
2.5% of total
RWA and is
currently set at
1.5%. Breaches
of the DSB will
not result in a
bank being
subject to
automatic
constraints on
capital
distributions.
na - not
applicable



Qualifying Regulatory Capital and Risk-Weighted Assets

(Canadian $ in millions, except as noted) Q4-2018 Q3-2018 Q4-2017
Gross Common Equity (1) 41,387 40,516 40,114
Regulatory adjustments applied to Common Equity (8,666) (8,828) (9,481) Common Equity Tier 1 Capital (CET1) 32,721 31,688 30,633
Additional Tier 1 Eligible Capital (2) 4,790 4,390 4,690
Regulatory adjustments applied to Tier 1 (291) (353) (215) Additional Tier 1 Capital (AT1) 4,499 4,037 4,475 Tier 1 Capital (T1 = CET1 + AT1) 37,220 35,725 35,108
Tier 2 Eligible Capital (3) 7,017 5,849 5,538
Regulatory adjustments applied to Tier 2 (121) (141) (50) Tier 2 Capital (T2) 6,896 5,708 5,488 Total Capital (TC = T1 + T2) 44,116 41,433 40,596
Risk-Weighted Assets (4) (5)
CET1 Capital Risk-Weighted Assets 289,237 277,506 269,466
Tier 1 Capital Risk-Weighted Assets 289,420 277,681 269,466
Total Capital Risk-Weighted Assets 289,604 277,857 269,466
Capital Ratios (%)
CET1 Ratio 11.3 11.4 11.4
Tier 1 Capital Ratio 12.9 12.9 13.0 Total Capital Ratio 15.2 14.9 15.1


(1) Gross Common
Equity
includes
issued
qualifying
common shares,
retained
earnings,
accumulated
other
comprehensive
income and
eligible
common share
capital issued
by
subsidiaries.
(2) Additional
Tier 1
Eligible
Capital
includes
directly and
indirectly
issued
qualifying
Additional
Tier 1
instruments
and directly
and indirectly
issued capital
instruments,
to the extent
eligible,
which are
subject to
phase-out
under Basel
III.
(3) Tier 2
Eligible
Capital
includes
directly and
indirectly
issued
qualifying
Tier 2
instruments
and directly
and indirectly
issued capital
instruments,
to the extent
eligible, that
are subject to
phase-out
under Basel
III.
(4) The
implementation
of the Credit
Valuation
Adjustment
(CVA) was
phased in
commencing the
first quarter
of 2014. The
applicable
scalars to the
fully
implemented
CVA charge for
CET1, Tier 1
Capital and
Total Capital
are 72%, 77%
and 81%,
respectively
in 2017; and
80%, 83% and
86%,
respectively,
in 2018.
(5) For
institutions
using advanced
approaches for
credit risk or
operational
risk, there is
a capital
floor as
prescribed in
OSFI's CAR
Guideline.
OSFI revised
its capital
floor
calculation
effective the
second quarter
of 2018 at a
floor factor
of 70%, 72.5%
in the third
quarter and
75% for the
fourth quarter
onward.



Other Capital Developments

On June 1, 2018, we renewed our normal course issuer bid (NCIB) effective for one year. Under the NCIB, we may purchase up to 20 million common shares for cancellation. The NCIB is a regular part of BMO's capital management strategy. The timing and amount of purchases under the NCIB are subject to management discretion based on factors such as market conditions and capital levels. The bank will consult with OSFI before making purchases under the NCIB. During the quarter, we
repurchased and cancelled 1 million common shares under the NCIB.

During the quarter, 399,780 common shares were issued through the exercise of stock options.

On August 25, 2018, we redeemed all of our 6,267,391 outstanding Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 16 and all of our 5,732,609 outstanding Non-Cumulative Floating Rate Class B Preferred Shares, Series 17, at a redemption price of $25.00 per share plus all declared and unpaid dividends.

On September 17, 2018, we completed our domestic public offering of $400 million of Non-Cumulative 5-Year Rate Reset Class B Preferred Shares Series 44.

On October 5, 2018, we completed our U.S. public offering of US$850 million of 4.338% Subordinated Notes due 2028, through our U.S. Medium-Term Note Program.

On November 16, 2018, BMO Capital Trust II, a subsidiary of Bank of Montreal, announced its intention to redeem all of its $450 million issued and outstanding BMO Tier 1 Notes - Series A on December 31, 2018.

On December 4, 2018, BMO announced that the Board of Directors had declared a quarterly dividend on common shares of $1.00 per share, up $0.04 per share or 4% from the prior quarter, and up $0.07 per share or 8% from a year ago. The dividend is payable on February 26, 2019, to shareholders of record on February 1, 2019. 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.



Eligible Dividends Designation

For the purposes of the Income Tax Act (Canada) and 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

The foregoing Capital Management section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.

Review of Operating Groups' PerformanceHow BMO Reports Operating Group Results The following sections review the financial results of each of our operating groups and operating segments for the fourth quarter of 2018.

Periodically, certain business lines and units within the business lines are transferred between client and corporate support groups to more closely align BMO's organizational structure with its 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 presentation.

Effective the first quarter of 2018, the allocation of certain revenue items from Corporate Services to the operating groups was updated to better align with underlying business activity. Results for prior periods and related ratios have been reclassified to conform with the current presentation.

The following additional reclassifications were made effective the first quarter of 2018. Loan losses related to certain fraud costs have been reclassified from provision for credit losses to other non-interest expense in Canadian and U.S. P&C. Certain fees have been reclassified from deposit and payment service charges to card fees within non-interest revenue in Canadian P&C. Also, cash collateral balances were reclassified from loans and deposits to other assets and other liabilities in BMO Capital Markets. Results for prior periods and related ratios have been reclassified to conform with the current period's presentation.

Restructuring costs and acquisition integration costs that impact more than one operating group are included in Corporate Services.

BMO analyzes revenue at the consolidated level based on GAAP revenue reflected in the audited annual consolidated financial statements rather than on a taxable equivalent basis (teb), which is consistent with our Canadian peer group. Like many banks, we analyze revenue on a teb basis at the operating group level. Revenue and the 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 group teb adjustments is reflected in Corporate Services revenue and provision for income taxes.

Effective with the adoption of IFRS 9, we allocate the provision for credit losses on performing loans and the related allowance to operating groups. In 2017 and prior years, the collective provision and allowance was held in Corporate Services.



Personal and Commercial Banking (P&C)


(Canadian $ in Q4-2018 Q3-2018 Q4-2017 Fiscal Fiscal
millions, except as 2018 2017
noted)
Net interest income 2,431 2,396 2,263 9,384 8,812
(teb)
Non-interest 835 841 787 3,311 3,248
revenue
Total revenue (teb) 3,266 3,237 3,050 12,695 12,060
Provision for 179 174 na 724 na
credit losses on
impaired loans (1)
Provision for 3 3 na (35) na
(recovery of)
credit losses on
performing loans
(1)
Total provision for 182 177 194 689 772
credit losses (1)
Non-interest 1,740 1,732 1,642 6,817 6,566
expense
Income before 1,344 1,328 1,214 5,189 4,722
income taxes
Provision for 297 322 320 1,241 1,184
income taxes (teb)
Reported net income 1,047 1,006 894 3,948 3,538
Amortization of 12 12 12 47 49
acquisition-related
intangible assets
(2)
Adjusted net income 1,059 1,018 906 3,995 3,587
Net income growth 17.1 14.1 2.8 11.6 8.3
(%)
Adjusted net income 16.9 13.9 2.6 11.4 8.0
growth (%)
Revenue growth (%) 7.1 6.7 1.9 5.3 4.0
Non-interest 5.9 4.4 0.7 3.8 2.4
expense growth (%)
Adjusted 6.0 4.5 0.8 3.9 2.5
non-interest
expense growth (%)
Return on equity 19.0 18.5 17.1 18.6 16.7
(%)
Adjusted return on 19.3 18.8 17.3 18.8 16.9
equity (%)
Operating leverage 1.2 2.3 1.2 1.5 1.6
(teb) (%)
Adjusted operating 1.1 2.2 1.1 1.4 1.5
leverage (teb) (%)
Efficiency ratio 53.3 53.5 53.9 53.7 54.4
(teb) (%)
Adjusted efficiency 52.8 53.1 53.3 53.2 53.9
ratio (teb) (%)
Net interest margin 2.98 2.97 2.94 2.97 2.90
on average earning
assets (teb) (%)
Average earning 324,014 319,954 305,841 316,359 304,178
assets
Average gross loans 330,502 325,545 309,413 321,537 306,381
and acceptances
Average net loans 328,923 323,984 309,280 320,019 306,239
and acceptances
Average deposits 258,602 251,671 236,309 250,221 238,419


(1) Effective the
first quarter
of 2018, the
bank
prospectively
adopted IFRS
9, Financial
Instruments
(IFRS 9).
Under IFRS 9,
we refer to
the provision
for credit
losses on
impaired
loans and the
provision for
credit losses
on performing
loans. Prior
periods have
not been
restated. The
provision for
credit losses
in periods
prior to the
first quarter
of 2018 is
comprised of
specific
provisions.
Refer to the
Changes in
Accounting
Policies
section on
page 121 of
BMO's Annual
MD&A for
further
details.
(2) Before tax
amounts of
$16 million
in Q4-2018,
$15 million
in Q3-2018,
$16 million
in Q4-2017,
$61 million
for fiscal
2018 and $66
million for
fiscal 2017
are included
in
non-interest
expense.
Adjusted
results in
this table
are
non-GAAP
amounts or
non-GAAP
measures.
Please see
the
Non-GAAP
Measures
section.
na - not
applicable

The Personal and Commercial Banking (P&C) operating group represents the sum of our two retail and commercial operating segments, Canadian Personal and Commercial Banking (Canadian P&C) and U.S. Personal and Commercial Banking (U.S. P&C). The P&C banking business net income of $1,047 million and adjusted net income of $1,059 million were both up 17% from the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets. These operating segments are reviewed separately in the sections that follow.

Adjusted results in this P&C section are non-GAAP amounts or non-GAAP measures. Please see the non-GAAP Measures section.


Canadian Personal and Commercial Banking (Canadian P&C)


(Canadian $ in Q4-2018 Q3-2018 Q4-2017 Fiscal Fiscal
millions, except as 2018 2017
noted)
Net interest income 1,421 1,402 1,369 5,541 5,261
Non-interest 547 550 515 2,171 2,182
revenue
Total revenue 1,968 1,952 1,884 7,712 7,443
Provision for 118 120 na 466 na
credit losses on
impaired loans (1)
Provision for (15) 17 na 3 na
(recovery of)
credit losses on
performing loans
(1)
Total provision for 103 137 130 469 483
credit losses (1)
Non-interest 954 949 917 3,805 3,622
expense
Income before 911 866 837 3,438 3,338
income taxes
Provision for 236 224 213 884 827
income taxes
Reported net income 675 642 624 2,554 2,511
Amortization of 1 - 1 2 3
acquisition-related
intangible assets
(2)
Adjusted net income 676 642 625 2,556 2,514
Personal revenue 1,266 1,257 1,227 5,013 4,718
Commercial revenue 702 695 657 2,699 2,725
Net income growth 8.3 4.6 5.3 1.7 13.2
(%)
Revenue growth (%) 4.4 5.2 4.3 3.6 6.5
Non-interest 3.9 4.1 2.9 5.0 3.5
expense growth (%)
Adjusted 3.9 4.1 2.9 5.0 3.5
non-interest
expense growth (%)
Operating leverage 0.5 1.1 1.4 (1.4) 3.0
(%)
Adjusted operating 0.5 1.1 1.4 (1.4) 3.0
leverage (%)
Efficiency ratio 48.5 48.6 48.7 49.3 48.7
(%)
Net interest margin 2.62 2.60 2.59 2.60 2.53
on average earning
assets (%)
Average earning 215,290 213,829 210,110 212,965 207,815
assets
Average gross loans 226,953 224,799 219,114 223,536 215,848
and acceptances
Average net loans 226,070 223,936 218,909 222,673 215,667
and acceptances
Average deposits 162,480 159,818 154,335 159,483 152,492


(1) Effective
first quarter
of 2018, the
bank
prospectively
adopted IFRS
9, Financial
Instruments
(IFRS 9).
Under IFRS 9,
we refer to
the provision
for credit
losses on
impaired
loans and the
provision for
credit losses
on performing
loans. Prior
periods have
not been
restated. The
provision for
credit losses
in periods
prior to the
first quarter
of 2018 is
comprised of
specific
provisions.
Refer to the
Changes in
Accounting
Policies
section on
page 121 of
BMO's 2018
Annual MD&A
for further
details.
(2) Before tax
amounts of $1
million in
Q4-2018, $nil
in Q3-2018
and Q4-2017,
$2 million
for fiscal
2018 and $3
million for
fiscal 2017
are included
in
non-interest
expense.
Adjusted
results in
this table
are
non-GAAP
amounts or
non-GAAP
measures.
Please see
the
Non-GAAP
Measures
section.
na - not
applicable



Q4 2018 vs Q4 2017

Canadian P&C reported net income of $675 million and adjusted net income of $676 million both increased $51 million or 8% from the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets. Results reflect revenue growth and lower provisions for credit losses, partially offset by higher expenses.

Revenue of $1,968 million increased $84 million or 4% from the prior year due to higher balances across most products, increased non-interest revenue and higher margins. Net interest margin of 2.62% was up 3 basis points, primarily due to the benefit of favourable product mix.

Personal revenue increased $39 million or 3% due to increased non-interest revenue, higher balances across most products and higher margins. Commercial revenue increased $45 million or 7% mainly due to higher balances across most products and increased non-interest revenue.

Total provision for credit losses of $103 million decreased $27 million from the prior year. The provision for credit losses on impaired loans decreased $12 million to $118 million, due to lower commercial provisions. There was a $15 million recovery of credit losses on performing loans in the current quarter.

Non-interest expense of $954 million increased $37 million or 4%, reflecting continued investment in the business, primarily related to higher technology investments and investment in sales force.

Average gross loans and acceptances of $227.0 billion increased $7.8 billion or 4% from the prior year. Total personal lending balances (excluding retail cards) were relatively unchanged, reflecting certain participation choices, including reduced participation in non-proprietary mortgage channels, offset by 3% growth in proprietary mortgages and amortizing home equity line of credit (HELOC) loans. Commercial loan balances (excluding corporate cards) increased 12%. Average deposits of $162.5 billion increased $8.1 billion or 5%. Personal deposit balances increased 3%, including growth of 5% in chequing account balances, while commercial deposit balances increased 9%.



Q4 2018 vs Q3 2018

Reported net income increased $33 million or 5% and adjusted net income increased $34 million or 5% from the prior quarter.

Revenue increased $16 million or 1% due to higher balances across most products and higher margins, partially offset by lower non-interest revenue. Net interest margin of 2.62% was up 2 basis points in part due to the benefit of a favourable product mix.

Personal revenue increased $9 million or 1% due to higher balances across most products. Commercial revenue increased $7 million or 1%, mainly due to higher balances across most products.

Total provision for credit losses decreased $34 million. The provision for credit losses on impaired loans decreased $2 million due to lower commercial provisions, partially offset by higher consumer provisions. There was a $15 million recovery of credit losses on performing loans in the current quarter, compared with a $17 million provision for credit losses on performing loans in the prior quarter.

Non-interest expense increased $5 million or 1%, reflecting continued investment in the business.

Average gross loans and acceptances increased $2.2 billion or 1%, while average deposits increased $2.7 billion or 2%.

Adjusted results in this Canadian P&C section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.



U.S. Personal and Commercial Banking (U.S. P&C)


(US$ in millions, Q4-2018 Q3-2018 Q4-2017 Fiscal Fiscal
except as noted) 2018 2017
Net interest income 774 762 708 2,983 2,718
(teb)
Non-interest 222 223 216 886 817
revenue
Total revenue (teb) 996 985 924 3,869 3,535
Provision for 46 42 na 201 na
credit losses on
impaired loans (1)
Provision for 14 (11) na (31) na
(recovery of)
credit losses on
performing loans
(1)
Total provision for 60 31 52 170 221
credit losses (1)
Non-interest 602 601 574 2,338 2,253
expense
Income before 334 353 298 1,361 1,061
income taxes
Provision for 49 74 84 278 274
income taxes (teb)
Reported net income 285 279 214 1,083 787
Amortization of 9 9 9 35 36
acquisition-related
intangible assets
(2)
Adjusted net income 294 288 223 1,118 823
Net income growth 32.8 35.3 1.9 37.5 (0.8)
(%)
Adjusted net income 31.4 33.8 1.6 35.8 (1.0)
growth (%)
Revenue growth (%) 7.8 8.5 2.8 9.4 1.6
Non-interest 4.8 4.1 2.6 3.8 2.4
expense growth (%)
Adjusted 5.1 4.3 2.8 4.0 2.6
non-interest
expense growth (%)
Operating leverage 3.0 4.4 0.2 5.6 (0.8)
(%) (teb)
Adjusted operating 2.7 4.2 - 5.4 (1.0)
leverage (%) (teb)
Efficiency ratio 60.5 61.0 62.2 60.4 63.7
(%) (teb)
Adjusted efficiency 59.4 59.9 60.9 59.3 62.4
ratio (%) (teb)
Net interest margin 3.69 3.71 3.70 3.72 3.69
on average earning
assets (%) (teb)
Average earning 83,336 81,428 75,849 80,255 73,752
assets
Average gross loans 79,369 77,301 71,546 76,067 69,294
and acceptances
Average net loans 78,835 76,765 71,603 75,558 69,324
and acceptances
Average deposits 73,668 70,478 64,952 70,431 65,724
(Canadian $
equivalent in
millions)
Net interest income 1,010 994 894 3,843 3,551
(teb)
Non-interest 288 291 272 1,140 1,066
revenue
Total revenue (teb) 1,298 1,285 1,166 4,983 4,617
Provision for 61 54 na 258 na
credit losses on
impaired loans (1)
Provision for 18 (14) na (38) na
(recovery of)
credit losses on
performing loans
(1)
Total provision for 79 40 64 220 289
credit losses (1)
Non-interest 786 783 725 3,012 2,944
expense
Income before 433 462 377 1,751 1,384
income taxes
Provision for 61 98 107 357 357
income taxes (teb)
Reported net income 372 364 270 1,394 1,027
Adjusted net income 383 376 281 1,439 1,073
Net income growth 37.3 36.0 (2.7) 35.7 (2.2)
(%)
Adjusted net income 35.9 34.4 (3.1) 34.0 (2.4)
growth (%)
Revenue growth (%) 11.4 9.0 (1.8) 7.9 0.1
Non-interest 8.4 4.6 (2.0) 2.3 1.0
expense growth (%)
Adjusted 8.7 4.9 (1.8) 2.6 1.2
non-interest
expense growth (%)
Average earning 108,724 106,125 95,731 103,394 96,363
assets
Average gross loans 103,549 100,746 90,299 98,001 90,533
and acceptances
Average net loans 102,853 100,048 90,371 97,346 90,572
and acceptances
Average deposits 96,122 91,853 81,974 90,738 85,927


(1) Effective the
first quarter
of 2018, the
bank
prospectively
adopted IFRS
9, Financial
Instruments
(IFRS 9).
Under IFRS 9,
we refer to
the provision
for credit
losses on
impaired
loans and the
provision for
credit losses
on performing
loans. Prior
periods have
not been
restated. The
provision for
credit losses
in periods
prior to the
first quarter
of 2018 is
comprised of
specific
provisions.
Refer to the
Changes in
Accounting
Policies
section on
page 121 of
BMO's 2018
Annual MD&A
for further
details.
(2) Before tax
amounts of
US$11 million
in Q4-2018
and Q3-2018,
US$13 million
in Q4-2017,
US$45 million
in fiscal
2018 and
US$49 million
in fiscal
2017 are
included in
non-interest
expense.
Adjusted
results in
this table
are
non-GAAP
amounts or
non-GAAP
measures.
Please see
the
Non-GAAP
Measures
section.
na - not
applicable



Q4 2018 vs Q4 2017

Reported net income of $372 million increased $102 million or 37% and adjusted net income of $383 million increased $102 million or 36% from the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets. All amounts in the remainder of this section are on a U.S. dollar basis.

Reported net income of $285 million increased $71 million or 33% and adjusted net income of $294 million increased $71 million or 31% from the prior year, due to good revenue growth and lower taxes from the benefit of U.S. tax reform and a favourable U.S. tax item, partially offset by higher expenses and higher provisions for credit losses. The benefit of U.S. tax reform was approximately $28 million in reported net income and $29 million in adjusted net income in the current
quarter.

Revenue of $996 million increased $72 million or 8% from the prior year, mainly due to higher deposit revenue and increased loan volumes, net of loan spread compression. Net interest margin decreased 1 basis point to 3.69%, mainly due to loan spread compression and a change in business mix, including a residential loan portfolio purchase, partially offset by improved deposit revenue, driven primarily by higher interest rates and interest recoveries.

Total provision for credit losses of $60 million increased $8 million from the prior year. The provision for credit losses on impaired loans decreased $6 million to $46 million due to lower commercial provisions, partially offset by higher consumer provisions. There was a $14 million provision for credit losses on performing loans in the quarter.

Non-interest expense of $602 million increased $28 million or 5% and adjusted non-interest expense of $591 million increased $30 million or 5%, due to continued investment in the business, including technology investments.

Average gross loans and acceptances increased $7.8 billion or 11% from the prior year to $79.4 billion, driven by commercial loan growth of 10% and increased personal loan volumes, due largely to the purchase of a mortgage portfolio in the first quarter of 2018.

Average deposits of $73.7 billion increased $8.7 billion or 13% from the prior year with 16% growth in commercial and 12% growth in personal volumes, reflective of our continued commitment to grow our treasury management business.



Q4 2018 vs Q3 2018

Reported net income increased $8 million or 2% and adjusted net income increased $7 million or 2% from the prior quarter. All amounts in the remainder of this section are on a U.S. dollar basis.

Reported net income and adjusted net income both increased $6 million or 2% largely due to a favourable U.S. tax item and higher revenue, partially offset by higher provision for credit losses.

Revenue increased $11 million or 1%. Net interest margin decreased 2 basis points reflecting higher loan growth at lower spreads, partially offset by higher interest recoveries and improved deposit revenue.

Total provision for credit losses increased $29 million from the prior quarter. The provision for credit losses on impaired loans increased $4 million due to higher commercial and consumer provisions. There was a $14 million provision for credit losses on performing loans in the current quarter, compared with a $11 million net recovery of credit losses on performing loans in the prior quarter.

Non-interest expense and adjusted non-interest expense both increased $1 million.

Average gross loans and acceptances increased $2.1 billion or 3% due to growth in commercial and personal loan volumes. Average deposits increased $3.2 billion or 5% due to 9% growth in commercial and 2% growth in personal volumes.

Adjusted results in this U.S. P&C section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.



BMO Wealth Management


(Canadian $ in Q4-2018 Q3-2018 Q4-2017 Fiscal Fiscal
millions, except as 2018 2017
noted)
Net interest income 210 212 194 826 722
Non-interest 1,359 1,326 1,490 5,468 5,492
revenue
Total revenue 1,569 1,538 1,684 6,294 6,214
Insurance claims, 390 269 573 1,352 1,538
commissions and
changes in policy
benefit liabilities
(CCPB)
Revenue, net of 1,179 1,269 1,111 4,942 4,676
CCPB
Provision for 2 2 na 6 na
credit losses on
impaired loans (1)
Provision for 1 2 na - na
(recovery of)
credit losses on
performing loans
(1)
Total provision for 3 4 - 6 8
(recovery of)
credit losses (1)
Non-interest 880 875 841 3,509 3,351
expense
Income before 296 390 270 1,427 1,317
income taxes
Provision for 77 99 95 355 350
income taxes
Reported net income 219 291 175 1,072 967
Amortization of 10 10 14 41 65
acquisition-related
intangible assets
(2)
Adjusted net income 229 301 189 1,113 1,032
Traditional Wealth 192 202 192 805 729
businesses reported
net income
Traditional Wealth 202 212 206 846 794
businesses adjusted
net income
Insurance reported 27 89 (17) 267 238
net income
Net income growth 25.3 8.3 (38.1) 11.0 24.5
(%)
Adjusted net income 21.2 6.5 (37.9) 8.0 17.6
growth (%)
Revenue growth (%) (6.9) 6.7 30.9 1.3 5.2
Revenue growth, net 6.0 6.8 (8.0) 5.7 7.1
of CCPB (%)
Non-interest 4.7 5.0 1.0 4.7 0.4
expense growth (%)
Adjusted 5.4 5.7 2.5 5.7 1.9
non-interest
expense growth (%)
Return on equity 14.1 18.9 11.6 17.8 15.9
(%)
Adjusted return on 14.7 19.5 12.5 18.5 17.0
equity (%)
Operating leverage, 1.3 1.8 (9.0) 1.0 6.7
net of CCPB (%)
Adjusted operating 0.6 1.1 (10.5) - 5.2
leverage, net of
CCPB (%)
Efficiency ratio, 74.7 68.9 75.7 71.0 71.7
net of CCPB (%)
Adjusted efficiency 55.3 56.0 48.9 54.9 52.6
ratio (%)
Adjusted efficiency 73.6 67.8 74.1 70.0 70.0
ratio, net of CCPB
(%)
Assets under 438,274 451,216 429,448 438,274 429,448
management
Assets under 382,839 394,513 359,773 382,839 359,773
administration (3)
Average earning 32,784 31,704 28,754 31,167 28,026
assets
Average gross loans 21,559 20,736 18,538 20,290 18,068
and acceptances
Average net loans 21,531 20,706 18,533 20,260 18,063
and acceptances
Average deposits 33,968 34,327 33,281 34,251 33,289


(1) Effective the
first quarter
of 2018, the
bank
prospectively
adopted IFRS 9,
Financial
Instruments
(IFRS 9). Under
IFRS 9, we
refer to the
provision for
credit losses
on impaired
loans and the
provision for
credit losses
on performing
loans. Prior
periods have
not been
restated. The
provision for
credit losses
in periods
prior to the
first quarter
of 2018 is
comprised of
specific
provisions.
Refer to the
Changes in
Accounting
Policies
section on page
121 of BMO's
2018 Annual
MD&A for
further
details.
(2) Before tax
amounts of $13
million in
Q4-2018 and
Q3-2018, $18
million in
Q4-2017, $52
million for
fiscal 2018 and
$80 million for
fiscal 2017 are
included in
non-interest
expense.
(3) Certain assets
under
management that
are also
administered by
us and included
in assets under
administration.
Adjusted
results in
this table
are
non-GAAP
amounts or
non-GAAP
measures.
Please see
the
Non-GAAP
Measures
section.
na - not
applicable



Q4 2018 vs Q4 2017

Reported net income of $219 million increased $44 million or 25% and adjusted net income of $229 million increased $40 million or 21% from the prior year. As outlined below, net income in the current quarter was impacted by elevated reinsurance claims and a legal provision. Adjusted net income excludes the amortization of acquisition-related intangible assets. Traditional wealth reported net income of $192 million was unchanged and adjusted net income of $202 million decreased $4 million or 2% from the prior year, as business growth and lower taxes were more than offset by a legal provision and higher expenses. Insurance net income of $27 million was below trend but increased $44 million, primarily due to less elevated reinsurance claims in the current year, with this partially offset by unfavourable market movements in the current quarter relative to favourable market movements in the prior year.

Revenue of $1,569 million decreased $115 million or 7% from the prior year. Revenue, net of CCPB, was $1,179 million, an increase of $68 million or 6%. Revenue in traditional wealth was $1,100 million, an increase of $32 million or 3%, due to business growth from higher deposit and loan revenue, net new client assets and higher equity markets on average, partially offset by a legal provision in the current year and the impact of a divestiture of a non-core business in the prior year. Insurance revenue, net of CCPB, of $79 million increased $36 million from the prior year due to the drivers noted above.

Non-interest expense of $880 million increased $39 million or 5% and adjusted non-interest expense of $867 million increased $44 million or 5%, largely due to higher revenue-based costs and technology investments partially offset by the impact of the divestiture noted above.

Assets under management increased $8.8 billion or 2% from the prior year to $438.3 billion, primarily driven by growth in client assets. Assets under administration increased $23.1 billion or 6% from the prior year to $382.8 billion, primarily driven by growth in client assets. Year-over-year loans and deposits grew by 16% and 2%, respectively, as we continue to diversify our product mix.



Q4 2018 vs Q3 2018

Reported net income of $219 million and adjusted net income of $229 million both decreased $72 million. Traditional wealth reported net income was $192 million compared with $202 million in the prior quarter and adjusted net income was $202 million, compared with $212 million in the prior quarter, primarily due to lower fee based revenue partially offset by the benefit of a favourable U.S. tax item. Insurance net income of $27 million decreased $62 million or 69% from the prior quarter, primarily due to elevated reinsurance claims and unfavourable market movements in the current quarter relative to favourable market movements in the prior quarter.

Revenue, net of CCPB, decreased $90 million or 7%. Revenue in traditional wealth decreased $24 million or 2%, primarily due to lower fee-based revenue. Net insurance revenue decreased $66 million or 46%, due to the drivers noted above.

Reported and adjusted non-interest expense both increased $5 million or 1%.

Assets under management decreased $12.9 billion or 3%, and assets under administration decreased $11.7 billion or 3%, mainly due to weaker equity markets. Quarter-over-quarter loans grew by 4%, while deposits were down 1%.

Adjusted results in this BMO Wealth Management section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.



BMO Capital Markets


(Canadian $ in Q4-2018 Q3-2018 Q4-2017 Fiscal Fiscal
millions, except as 2018 2017
noted)
Net interest income 147 135 315 659 1,233
(teb)
Non-interest 982 968 800 3,696 3,336
revenue
Total revenue (teb) 1,129 1,103 1,115 4,355 4,569
Provision for (3) 3 na (17) na
(recovery of)
credit losses on
impaired loans (1)
Provision for (4) 4 na (1) na
(recovery of)
credit losses on
performing loans
(1)
Total provision for (7) 7 4 (18) 44
(recovery of)
credit losses (1)
Non-interest 763 698 679 2,851 2,778
expense
Income before 373 398 432 1,522 1,747
income taxes
Provision for 75 97 116 366 472
income taxes (teb)
Reported net income 298 301 316 1,156 1,275
Acquisition 9 2 - 11 -
integration costs
(2)
Amortization of 2 - - 2 2
acquisition-related
intangible assets
(3)
Adjusted net income 309 303 316 1,169 1,277
Trading Products 629 638 645 2,539 2,694
revenue
Investment and 500 465 470 1,816 1,875
Corporate Banking
revenue
Net income growth (5.6) 7.0 (18.4) (9.4) 3.2
(%)
Adjusted net income (2.3) 7.5 (18.4) (8.5) 3.3
growth (%)
Revenue growth (%) 1.4 4.8 (4.8) (4.7) 5.9
Non-interest 12.3 1.1 2.9 2.6 7.9
expense growth (%)
Adjusted 10.3 0.8 3.0 2.1 7.9
non-interest
expense growth (%)
Return on equity 12.2 13.2 15.7 12.8 15.3
(%)
Adjusted return on 12.6 13.3 15.7 13.0 15.4
equity (%)
Operating leverage (10.9) 3.7 (7.7) (7.3) (2.0)
(teb) (%)
Adjusted operating (8.9) 4.0 (7.8) (6.8) (2.0)
leverage (teb) (%)
Efficiency ratio 67.5 63.3 61.0 65.5 60.8
(teb) (%)
Adjusted efficiency 66.3 63.1 60.9 65.1 60.8
ratio (teb) (%)
Net interest margin 0.21 0.19 0.49 0.24 0.47
on average earning
assets (teb) (%)
Average earning 284,248 276,780 257,153 271,839 263,128
assets
Average assets 317,655 312,369 295,097 307,087 302,518
Average gross loans 47,972 46,653 46,831 46,724 48,217
and acceptances
Average net loans 47,909 46,590 46,808 46,658 48,191
and acceptances
Average deposits 143,849 139,051 138,217 138,440 144,357


(1) Effective the
first quarter
of 2018, the
bank
prospectively
adopted IFRS
9, Financial
Instruments
(IFRS 9).
Under IFRS 9,
we refer to
the provision
for credit
losses on
impaired
loans and the
provision for
credit losses
on performing
loans. Prior
periods have
not been
restated. The
provision for
credit losses
in periods
prior to the
first quarter
of 2018 is
comprised of
the specific
provisions.
Refer to the
Changes in
Accounting
Policies
section on
page 121 of
BMO's 2018
Annual MD&A
for further
details.
(2) KGS-Alpha
acquisition
integration
costs before
tax amounts
of $12
million in
Q4-2018, $2
million in
Q3-2018 and
$14 million
for
fiscal-2018
are included
in
non-interest
expense.
(3) Before tax
amounts of $2
million in
Q4-2018, $nil
in Q3-2018
and Q4-2017,
$3 million
for fiscal
2018 and
fiscal 2017
are included
in
non-interest
expense.
Adjusted
results in
this table
are
non-GAAP
amounts or
non-GAAP
measures.
Please see
the
Non-GAAP
Measures
section.
na - not
applicable



Q4 2018 vs Q4 2017

Reported net income of $298 million decreased $18 million or 6%, and adjusted net income of $309 million decreased $7 million or 2% from a year ago, as higher Investment and Corporate Banking revenue and lower taxes were more than offset by higher expenses and lower Trading Products revenue. Adjusted net income excludes acquisition integration costs and the amortization of acquisition-related intangible assets.

Revenue of $1,129 million increased $14 million or 1%. Excluding the impact of the stronger U.S. dollar, revenue was relatively unchanged. Investment and Corporate Banking revenue increased, mainly due to higher corporate banking-related revenue, while underwriting and advisory revenue decreased slightly from a strong quarter a year ago. Trading Products revenue decreased primarily due to softer interest rate trading and lower new equity issuances, partially offset by the impact of the
acquisition of KGS-Alpha in the quarter.

Total net recovery of credit losses was $7 million, compared with total net provisions of $4 million in the prior year. The net recovery of credit losses on impaired loans was $3 million, compared with a $4 million provision in the prior year. There was a $4 million net recovery of credit losses on performing loans in the current quarter.

Non-interest expense of $763 million increased $84 million or 12% and adjusted non-interest expense of $749 million increased $70 million or 10%, or 9% excluding the impact of the stronger U.S. dollar, largely due to continued investment in the business, including the impact of the acquisition.



Q4 2018 vs Q3 2018

Reported net income of $298 million decreased $3 million or 1%, and adjusted net income of $309 million increased $6 million or 2% from the prior quarter, primarily due to higher revenue, the benefit of a favourable U.S. tax item and recovery of credit losses, partially offset by higher expenses.

Revenue increased $26 million or 2% from the prior quarter. Investment and Corporate Banking revenue increased primarily driven by higher corporate banking-related revenue, while underwriting and advisory revenue decreased slightly from a strong prior quarter. Trading Products revenue decreased due to softer interest rate trading and lower new equity issuances, partially offset by the impact of the acquisition.

Total net recovery of credit losses was $7 million, compared with total net provisions of $7 million in the prior quarter. The net recovery of credit losses on impaired loans was $3 million, compared with a provision of $3 million in the prior quarter. There was a $4 million net recovery of credit losses on performing loans, compared with a $4 million provision in the prior quarter.

Non-interest expense of $763 million increased $65 million or 9% and adjusted non-interest expense of $749 million increased $53 million or 8%, largely due to continued investment in the business, including the impact of the acquisition.

Adjusted results in this BMO Capital Markets section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.



Corporate Services


(Canadian $ Q4-2018 Q3-2018 Q4-2017 Fiscal Fiscal
in millions, 2018 2017
except as
noted)
Net interest (52) (74) (61) (243) (193)
income before
group teb
offset
Group teb (67) (62) (176) (313) (567)
offset
Net interest (119) (136) (237) (556) (760)
income (teb)
Non-interest 77 78 43 249 177
revenue
Total revenue (42) (58) (194) (307) (583)
(teb)
Provision for (1) (2) na (13) na
(recovery of)
credit losses
on impaired
loans (1)
Provision for (2) - na (2) na
(recovery of)
credit losses
on performing
loans (1)
Total (3) (2) 4 (15) (78)
provision
(recovery of)
credit losses
(1)
Non-interest (159) 81 213 436 635
expense
Income (loss) 120 (137) (411) (728) (1,140)
before income
taxes
Provision for (11) (75) (253) (2) (710)
(recovery of)
income taxes
(teb)
Reported net 131 (62) (158) (726) (430)
income (loss)
Acquisition 4 5 15 14 55
integration
costs (2)
Restructuring - - 41 192 41
costs (3)
Decrease in - - - - (54)
the
collective
allowance for
credit losses
(4)
U.S. net - - - 425 -
deferred tax
asset
revaluation
(5)
Benefit from (203) - - (203) -
the
remeasurement
of an
employee
benefit
liability (6)
Adjusted net (68) (57) (102) (298) (388)
loss


(1) Effective the
first quarter
of 2018, the
bank
prospectively
adopted IFRS
9, Financial
Instruments
(IFRS 9).
Under IFRS 9,
we refer to
the provision
for credit
losses on
impaired loans
and the
provision for
credit losses
on performing
loans. Prior
periods have
not been
restated.
Changes in the
provision for
credit losses
on performing
loans under
this
methodology
will not be
considered an
adjusting
item. The
provision for
credit losses
in periods
prior to the
first quarter
of 2018 is
comprised of
both specific
and collective
provisions.
Refer to the
Changes in
Accounting
Policies
section on
page 121 of
BMO's 2018
Annual MD&A
for further
details.
(2) Acquisition
integration
costs related
to the
acquired BMO
Transportation
Finance
business are
included in
non-interest
expense.
(3) In Q2-18, we
recorded a
restructuring
charge,
primarily
related to
severance
costs, as a
result of an
ongoing
bank-wide
initiative to
simplify how
we work, drive
increased
efficiency and
invest in
technology to
move our
business
forward. A
restructuring
charge in
Q4-17 was also
taken as we
continued to
accelerate the
use of
technology to
enhance
customer
experience and
focused on
driving
operational
efficiencies.
Restructuring
costs are
included in
non-interest
expense.
(4) In 2017, the
adjustment to
the collective
allowance for
credit losses
before-tax
amount of $76
million was
excluded from
Corporate
Services
adjusted
provision for
(recovery of)
credit losses.
(5) Charge due to
the
revaluation of
our U.S. net
deferred tax
asset as a
result of the
enactment of
the U.S. Tax
Cuts and Jobs
Act. See the
Critical
Accounting
Estimates -
Income Taxes
and Deferred
Tax Assets
section on
page 119 of
BMO's 2018
Annual MD&A.
(6) The current
quarter
included a
benefit of
$203 million
after-tax
($277 million
pre-tax) from
the
remeasurement
of an employee
benefit
liability as a
result of an
amendment to
our other
employee
future
benefits plan
for certain
employees that
was announced
in the fourth
quarter of
2018. This
amount was
included in
non-interest
expense.
Adjusted
results in
this table
are
non-GAAP
amounts or
non-GAAP
measures.
Please see
the
Non-GAAP
Measures
section.
na - not
applicable

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, human resources, communications, marketing, real estate, procurement, data and analytics, and innovation. T&O manages, maintains and provides governance of information technology, cyber security and
operations services.

The costs of these Corporate Units and T&O services are largely transferred to the three operating groups (Personal and Commercial Banking, Wealth Management and BMO Capital Markets), with any remaining amounts retained in Corporate Services results. As such, Corporate Services results largely reflect the impact of residual treasury-related activities, the elimination of taxable equivalent adjustments, residual unallocated expenses, certain acquisition integration costs and restructuring costs, as well as the one-time non-cash charge related to the revaluation of our U.S. net deferred tax asset in the first quarter of 2018 and a benefit from the remeasurement of an employee benefit liability in the fourth quarter of 2018.



Q4 2018 vs Q4 2017

Corporate Services reported net income for the quarter was $131 million, compared with a net loss of $158 million in the prior year. The adjusted net loss for the quarter was $68 million, compared with an adjusted net loss of $102 million in the prior year. Adjusted results exclude a benefit of $203 million after-tax from the remeasurement of an employee benefit liability in the current year and a restructuring charge in the prior year, as well as acquisition integration costs in both periods. Adjusted results increased mainly due to higher revenue excluding the teb adjustment and lower expenses. The current quarter includes above-trend securities gains. Reported results increased due to the remeasurement benefit, a restructuring charge in the prior year, and the drivers noted above.



Q4 2018 vs Q3 2018

Corporate Services reported net income for the quarter was $131 million, compared with a net loss of $62 million in the prior quarter. The adjusted net loss was $68 million, compared with an adjusted net loss of $57 million in the prior quarter. Adjusted results exclude the remeasurement benefit in the current period, as well as acquisition integration costs in both periods. The adjusted results decreased due to higher expenses, partially offset by higher revenue excluding the teb adjustment. Reported results increased due to the remeasurement benefit in the current quarter partially offset by the drivers noted above.

Adjusted results in this Corporate Services section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.



Risk Management

Our risk management policies and processes to measure, monitor and control credit and counterparty, market, insurance, liquidity and funding, operational, model, legal and regulatory, business, strategic, environmental and social and reputation risk are outlined in the Enterprise-Wide Risk Management section on pages 78 to 116 of BMO's 2018 Annual MD&A.



Condensed Consolidated Financial Statements



Consolidated Statement of Income


(Unaudited) For the For
(Canadian $ in three the
millions, months twelve
except as ended months
noted) ended
October July October October October
31, 31, 31, 31, 31,
2018 2018 2017 2018 2017
Interest,
Dividend and
Fee Income Loans $ 4,486 $ 4,246 $ 3,583 $ 16,275 $ 13,564
Securities 746 686 465 2,535 1,801
Deposits with 206 161 106 641 324
banks
5,438 5,093 4,154 19,451 15,689
Interest
Expense
Deposits 1,881 1,626 1,101 6,080 3,894
Subordinated 61 55 43 226 155
debt
Other 827 805 475 2,832 1,633
liabilities
2,769 2,486 1,619 9,138 5,682 Net Interest 2,669 2,607 2,535 10,313 10,007
Income
Non-Interest
Revenue
Securities 257 259 234 1,029 969
commissions and
fees
Deposit and 292 294 282 1,144 1,123
payment service
charges
Trading 477 503 302 1,830 1,352
revenues
Lending fees 266 248 230 997 917
Card fees 143 144 132 564 479
Investment 438 446 416 1,742 1,622
management and
custodial fees
Mutual fund 359 372 354 1,473 1,411
revenues
Underwriting 242 262 251 936 1,036
and advisory
fees
Securities 83 51 41 239 171
gains, other
than trading
Foreign 42 41 60 182 191
exchange gains,
other than
trading
Insurance 485 427 629 1,879 2,070
revenue
Investments in 38 44 47 167 386
associates and
joint ventures
Other 131 122 142 542 526
3,253 3,213 3,120 12,724 12,253 Total Revenue 5,922 5,820 5,655 23,037 22,260 Provision for 175 186 202 662 746
Credit Losses Insurance 390 269 573 1,352 1,538
Claims,
Commissions and
Changes in
Policy Benefit
Liabilities
Non-Interest
Expense
Employee 1,612 1,873 1,842 7,459 7,467
compensation
Premises and 745 672 628 2,753 2,491
equipment
Amortization of 125 126 127 503 485
intangible
assets
Travel and 186 157 183 673 693
business
development
Communications 70 70 69 282 286
Professional 158 142 172 564 563
fees
Other 328 346 354 1,379 1,345
3,224 3,386 3,375 13,613 13,330 Income Before 2,133 1,979 1,505 7,410 6,646
Provision for
Income Taxes
Provision for 438 443 278 1,960 1,296
income taxes Net Income $ 1,695 $ 1,536 $ 1,227 $ 5,450 $ 5,350
Attributable
to:
Bank 1,695 1,536 1,227 5,450 5,348
shareholders

- - - - 2
Non-controlling
interest in
subsidiaries Net Income $ 1,695 $ 1,536 $ 1,227 $ 5,450 $ 5,350
Earnings Per
Share (Canadian
$) Basic $ 2.58 $ 2.32 $ 1.82 $ 8.19 $ 7.95
Diluted 2.57 2.31 1.81 8.17 7.92
Dividends per 0.96 0.96 0.90 3.78 3.56
common share

Certain comparative figures have been reclassified to conform with the period's presentation.



Consolidated Statement of Comprehensive Income


(Unaudited) For the For
(Canadian $ in three the
millions) months twelve
ended months
ended October July October October October
31, 31, 31, 31, 31,
2018 2018 2017 2018 2017 Net Income $ 1,695 $ 1,536 $ 1,227 $ 5,450 $ 5,350
Other
Comprehensive
Income (Loss), net
of taxes
Items that may
subsequently be
reclassified to
net income
Net change in
unrealized gains
(losses) on fair
value through OCI
securities (1)
Unrealized gains (49) 16 na (251) na
(losses) on fair
value through OCI
debt securities
arising during the
period (2)
Unrealized gains na na 27 na 95
on
available-for-sale
securities arising
during the period
(3)
Reclassification (22) (7) (17) (65) (87)
to earnings of
(gains) in the
period (4)
(71) 9 10 (316) 8
Net change in
unrealized gains
(losses) on cash
flow hedges
(Losses) on (309) (218) (27) (1,228) (839)
derivatives
designated as cash
flow hedges
arising during the
period (5)
Reclassification 120 101 36 336 61
to earnings of
losses on
derivatives
designated as cash
flow hedges (6)
(189) (117) 9 (892) (778)
Net gains (losses)
on translation of
net foreign
operations
Unrealized gains 303 145 952 417 (885)
(losses) on
translation of net
foreign operations
Unrealized gains (62) (43) (138) (155) 23
(losses) on hedges
of net foreign
operations (7)
241 102 814 262 (862)
Items that will
not be
reclassified to
net income
Gains (losses) on (42) 204 103 261 420
remeasurement of
pension and other
employee future
benefit plans (8)
Gains on
remeasurement of
own credit risk on
financial
liabilities (18) 26 (32) (24) (148)
designed at fair
value (9)
(60) 230 71 237 272 Other (79) 224 904 (709) (1,360)
Comprehensive
Income (Loss), net
of taxes Total $ 1,616 $ 1,760 $ 2,131 $ 4,741 $ 3,990
Comprehensive
Income
Attributable to:
Bank shareholders 1,616 1,760 2,131 4,741 3,988
Non-controlling - - - - 2
interest in
subsidiaries Total $ 1,616 $ 1,760 $ 2,131 $ 4,741 $ 3,990
Comprehensive
Income


(1) Periods reported
before November 1,
2017 represent
available-for-sale
securities.
(2) Net of income tax
(provision)
recovery of $22
million, $(7)
million, na for
the three months
ended, and $69
million, na for
the twelve months
ended,
respectively.
(3) Net of income tax
(provision) of na,
na, $(1) million
for the three
months ended, and
na, $(21) million
for the twelve
months ended,
respectively.
(4) Net of income tax
provision of $8
million, $3
million, $8
million for the
three months
ended, and $23
million, $36
million for the
twelve months
ended,
respectively.
(5) Net of income tax
recovery of $114
million, $78
million, $15
million for the
three months
ended, and $432
million, $322
million for the
twelve months
ended,
respectively.
(6) Net of income tax
(recovery) of
$(43) million,
$(37) million,
$(13) million for
the three months
ended, and $(121)
million, $(21)
million for the
twelve months
ended,
respectively.
(7) Net of income tax
(provision)
recovery of $22
million, $16
million, $50
million for the
three months
ended, and $56
million, $(8)
million for the
twelve months
ended,
respectively.
(8) Net of income tax
(provision)
recovery of $23
million, $(74)
million, $(29)
million for the
three months
ended, and $(111)
million, $(157)
million for the
twelve months
ended,
respectively.
(9) Net of income tax
(provision)
recovery of $7
million, $(12)
million, $12
million for the
three months
ended, and $6
million, $53
million for the
twelve months
ended,
respectively.
na - not
applicable
due to
IFRS 9
adoption.



Consolidated Balance Sheet

(Unaudited) (Canadian $ in millions) As at October 31, July 31, October 31, 2018 2018 2017
Assets Cash and Cash Equivalents $ 42,142 $ 41,072 $ 32,599 Interest Bearing Deposits with Banks 8,305 7,637 6,490 Securities 180,935 167,318 163,198 Securities Borrowed or Purchased Under Resale Agreements 85,051 101,679 75,047
Loans Residential mortgages 119,620 118,736 115,258 Consumer instalment and other personal 63,225 62,485 61,944 Credit cards 8,329 8,236 8,071 Business and government 194,456 187,964 175,067 385,630 377,421 360,340 Allowance for credit losses (1,639) (1,660) (1,833) 383,991 375,761 358,507
Other Assets Derivative instruments 26,204 24,810 28,951 Customers? liability under acceptances 18,585 17,874 16,546 Premises and equipment 1,986 1,924 2,033 Goodwill 6,373 6,275 6,244 Intangible assets 2,272 2,207 2,159 Current tax assets 1,515 1,647 1,371 Deferred tax assets 2,037 2,065 2,865 Other 14,652 15,049 13,570 73,624 71,851 73,739 Total Assets $ 774,048 $ 765,318 $ 709,580
Liabilities and Equity Deposits $ 522,051 $ 506,916 $ 479,792
Other Liabilities Derivative instruments 24,411 24,480 27,804 Acceptances 18,585 17,874 16,546 Securities sold but not yet purchased 28,804 24,409 25,163 Securities lent or sold under repurchase agreements 66,684 83,471 55,119 Securitization and structured entities' liabilities 25,051 23,545 23,054 Current tax liabilities 50 48 125 Deferred tax liabilities 74 66 233 Other 35,829 34,135 32,361 199,488 208,028 180,405 Subordinated Debt 6,782 5,618 5,029
Equity Preferred shares 4,340 4,240 4,240 Common shares 12,929 12,924 13,032 Contributed surplus 300 302 307 Retained earnings 25,856 24,909 23,709 Accumulated other comprehensive income 2,302 2,381 3,066 Total Equity 45,727 44,756 44,354 Total Liabilities and Equity $ 774,048 $ 765,318 $ 709,580



Consolidated Statement of Changes in Equity


(Unaudited) For the For the
(Canadian $ in three twelve
millions) months months
ended ended October October October October 31, 31, 31, 31, 2018 2017 2018 2017
Preferred Shares Balance at $ 4,240 $ 4,240 $ 4,240 $ 3,840
beginning of period Issued during the 400 - 400 900
period Redeemed during the (300) - (300) (500)
period Balance at End of 4,340 4,240 4,340 4,240
Period
Common Shares Balance at 12,924 13,044 13,032 12,539
beginning of period Issued under the - - - 448
Shareholder
Dividend
Reinvestment and
Share Purchase Plan Issued under the 26 9 99 146
Stock Option Plan Repurchased for (21) (21) (202) (101)
cancellation Balance at End of 12,929 13,032 12,929 13,032
Period
Contributed Surplus Balance at 302 305 307 294
beginning of period Stock option (2) 2 (12) 6
expense, net of
options exercised Other - - 5 7 Balance at End of 300 307 300 307
Period
Retained Earnings Balance at 24,909 23,183 23,709 21,205
beginning of period Impact from - na 99 na
adopting IFRS 9 Net income 1,695 1,227 5,450 5,348
attributable to
bank shareholders Dividends - (43) (48) (184) (184)
Preferred
shares
- Common (614) (583) (2,424) (2,312)
shares Share issue expense (5) - (5) (9) Common shares (86) (70) (789) (339)
repurchased for
cancellation Balance at End of 25,856 23,709 25,856 23,709
Period
Accumulated Other
Comprehensive
Income (Loss) on
Fair Value through
OCI Securities, net
of taxes (1) Balance at (244) 46 56 48
beginning of period Impact from - na (55) na
adopting IFRS 9 Unrealized (losses) (49) na (251) na
on fair value
through OCI debt
securities arising
during the period Unrealized gains on na 27 na 95
available-for-sale
securities arising
during the period Reclassification to (22) (17) (65) (87)
earnings of (gains)
in the period Balance at End of (315) 56 (315) 56
Period
Accumulated Other
Comprehensive
(Loss) on Cash Flow
Hedges, net of
taxes Balance at (885) (191) (182) 596
beginning of period (Losses) on (309) (27) (1,228) (839)
derivatives
designated as cash
flow hedges arising
during the period Reclassification to 120 36 336 61
earnings of losses
on derivatives
designated as cash
flow hedges in the
period Balance at End of (1,074) (182) (1,074) (182)
Period
Accumulated Other
Comprehensive
Income on
Translation
of Net Foreign
Operations, net of
taxes Balance at 3,486 2,651 3,465 4,327
beginning of period Unrealized gains 303 952 417 (885)
(losses) on
translation of net
foreign operations Unrealized gains (62) (138) (155) 23
(losses) on hedges
of net foreign
operations Balance at End of 3,727 3,465 3,727 3,465
Period
Accumulated Other
Comprehensive
Income (Loss) on
Pension and Other
Employee
Future Benefit
Plans, net of taxes Balance at 211 (195) (92) (512)
beginning of period Gains (losses) on (42) 103 261 420
remeasurement of
pension and other
employee future
benefit plans Balance at End of 169 (92) 169 (92)
Period
Accumulated Other
Comprehensive
(Loss) on Own
Credit Risk on
Financial
Liabilities
Designated at Fair
Value, net of taxes Balance at (187) (149) (181) (33)
beginning of period (Losses) on (18) (32) (24) (148)
remeasurement of
own credit risk on
financial
liabilities
designated at fair
value Balance at End of (205) (181) (205) (181)
Period Total Accumulated 2,302 3,066 2,302 3,066
Other Comprehensive
Income Total Shareholders? $ 45,727 $ 44,354 $ 45,727 $ 44,354
Equity
Non-controlling
Interest in
Subsidiaries Balance at - - - 24
beginning of period Net income - - - 2
attributable to
non-controlling
interest Redemption/purchase - - - (25)
of non-controlling
interest Other - - - (1) Balance at End of - - - -
Period Total Equity $ 45,727 $ 44,354 $ 45,727 $ 44,354


(1) Periods reported
before November 1,
2017 represent
available-for-sale
securities.
na - not
applicable
due to
IFRS 9
adoption.



INVESTOR AND MEDIA PRESENTATION



Investor Presentation Materials

Interested parties are invited to visit our website at www.bmo.com/investorrelations to review our 2018 Annual MD&A and audited annual consolidated financial statements, quarterly presentation materials and supplementary financial information package.



Quarterly Conference Call and Webcast Presentations

Interested parties are also invited to listen to our quarterly conference call on Tuesday, December 4, 2018, at 8:00 a.m. (ET). At that time, senior BMO executives will comment on results for the quarter and respond to questions from the investor community. The call may be accessed by telephone at 416-641-2144 (from within Toronto) or 1-888-789-9572 (toll-free outside Toronto) Passcode: 5126346. A replay of the conference call can be accessed until Monday, February 25, 2019, by calling 905-694-9451 (from within Toronto) or 1-800-408-3053 (toll-free outside Toronto) and entering Passcode: 5740558.

A live webcast of the call can be accessed on our website at www.bmo.com/investorrelations. A replay can also be accessed on the site.


Shareholder Dividend For other shareholder
Reinvestment and Share information, including the
Purchase Plan (the Plan) notice for our normal course
Average market price as issuer bid, please contact
defined under the Bank of MontrealShareholder
PlanAugust 2018: ServicesCorporate Secretary's
$106.33September 2018: DepartmentOne First Canadian
$107.98October 2018: Place, 21st FloorToronto,
$98.90 For dividend Ontario M5X 1A1Telephone:
information, change in (416) 867-6785Fax: (416)
shareholder address or to 867-6793E-mail:
advise of duplicate corp.secretary@bmo.com For
mailings, please contact further information on this
Computershare Trust document, please contactBank
Company of Canada100 of MontrealInvestor Relations
University Avenue, 8th DepartmentP.O. Box 1, One
FloorToronto, Ontario M5J First Canadian Place, 10th
2Y1Telephone: FloorToronto, Ontario M5X 1A1
1-800-340-5021 (Canada To review financial results
and the United and regulatory filings and
States)Telephone: (514) disclosures online, please
982-7800 visit our website at (international)Fax: www.bmo.com/investorrelations
1-888-453-0330 (Canada .
and the United
States)Fax: (416)
263-9394
(international)E-mail:
service@computershare.com

Our 2018 Annual MD&A, audited annual consolidated financial statements and annual report on Form 40-F (filed with the U.S. Securities and Exchange Commission) are available online at www.bmo.com/investorrelations and at www.sedar.com. Printed copies of the bank's complete 2018 audited financial statements are available free of charge upon
request at 416-867-6785 or corp.secretary@bmo.com.


Annual
Meeting 2019
The next
Annual
Meeting of
Shareholders
will be held
on Tuesday,
April 2,
2019 in
Toronto,
Ontario.


® Registered trademark of Bank of Montreal

Media Relations Contacts: Paul Gammal, Toronto, paul.gammal@bmo.com, 416-867-6543; Investor Relations Contacts: Jill Homenuk, Head, Investor, Media & Government Relations, jill.homenuk@bmo.com, 416-867-4770; Christine Viau, Director, Investor Relations, christine.viau@bmo.com, 416-867-6956

ORIGINAL APA-OTS TEXT - THE INFORMATION CONTAINED IN THIS PRESS RELEASE IS SUBJECT TO THE EXCLUSIVE RESPONSIBILITY OF THE ISSUER | PRN