News Releases

TORONTO, ONTARIO--(Marketwired - Dec. 2, 2014) - BMO Financial Group (TSX:BMO)(NYSE:BMO) and Bank of Montreal -

Financial Results Highlights:

Fiscal 2014 Compared with Fiscal 2013:

• Net income of $4,333 million, up 3%; adjusted net income¹ of $4,453 million, up 5 %
• EPS² of $6.41, up 4%; adjusted EPS^1,2 of $6.59, up 6%
• ROE of 14.0%, compared with 14.9%; adjusted ROE¹ of 14.4%, compared with 15.0%
• Provisions for credit losses of $561 million, compared with $587 million; adjusted provisions for credit losses¹ of $561 million, compared with $357 million
• Basel III Common Equity Tier 1 Ratio of 10.1%

Fourth Quarter 2014 Compared with Fourth Quarter 2013:

• Net income of $1,070 million, essentially unchanged; adjusted net income¹ of $1,111 million, up 2%
• EPS² of $1.56, down 3%; adjusted EPS^1,2 of $1.63, up 1%
• ROE of 13.1%, compared with 14.8%; adjusted ROE¹ of 13.7%, compared with 15.0%
• Provisions for credit losses of $170 million, compared with $189 million; adjusted provisions for credit losses¹ of $170 million, compared with $140 million
• Dividend increased by $0.02 or 3% to $0.80

For fiscal 2014, BMO Financial Group reported net income of $4,333 million or $6.41 per share on a reported basis and net income of $4,453 million or $6.59 per share on an adjusted basis. For the fourth quarter ended October 31, 2014, net income was $1,070 million and EPS was $1.56. Adjusted net income was $1,111 million and adjusted EPS was $1.63.

"BMO's fourth quarter results conclude a year in which the bank delivered $4.5 billion in adjusted net income with adjusted earnings per share up 6% from last year," said Bill Downe, Chief Executive Officer, BMO Financial Group. "This performance reflects a well-executed customer-focused strategy and the momentum we have demonstrated over a number of consecutive quarters.

"Canadian Personal and Commercial Banking had a strong year with over $2 billion in earnings and operating leverage of 2%. Our largest business continued to deliver good balance sheet growth and improved efficiency.

"U.S. Personal and Commercial Banking finished the year with good momentum and balance sheet growth, demonstrating improved revenue and earnings trends in the second half of the year. In the fourth quarter, adjusted pre-provision pre-tax earnings were up 5% year over year and adjusted operating leverage was 1.3%.

"Wealth Management posted another good year with adjusted net income over $800 million, benefiting from significant asset growth and our leading market positions. BMO's expanded global asset management business continues to innovate its distinguished product offering.

"Capital Markets generated over $1 billion in earnings with a strong ROE of 19% and good progress on our U.S. strategy.

"Credit performance was good with higher provisions largely reflecting lower recoveries compared to last year.

"BMO's Common Equity Tier 1 ratio ended the year strong at 10.1%.

"Looking ahead, we have an advantaged business mix, geographic diversification and a workforce with a deeply engrained commitment to customers, all of which provide attractive opportunities for growth. BMO's brand promise is a clear, concise expression of what we expect of ourselves and the commitment to deliver what our customers expect of us," concluded Mr. Downe. "On behalf of our more than 46,000 employees, I want to thank our customers for their loyalty."

Concurrent with the release of results, BMO announced a first quarter 2015 dividend of $0.80 per common share, up $0.02 per share or 3% from the preceding quarter and up $0.04 per share or 5% from a year ago, equivalent to an annual dividend of $3.20 per common share.

BMO's 2014 audited annual consolidated financial statements and accompanying management's discussion & analysis (MD&A) are available online at www.bmo.com/investorrelations along with the supplementary financial information report.

Total Bank Overview

Net income was $1,070 million for the fourth quarter of 2014, down $4 million from the prior year.

Adjusted net income was $1,111 million, up $23 million or 2%, driven by good results in Canadian P&C, U.S. P&C and Wealth Management. Prior year results included a $121 million after-tax security gain in Wealth Management. BMO Capital Markets results were lower than the prior year.

The Basel III Common Equity Tier 1 Ratio remains strong at 10.1%.

Operating Segment Overview

Canadian P&C

Net income was $524 million, up $66 million or 14% from a year ago. Adjusted net income was $526 million, up $65 million or 14% from the prior year, driven by higher revenue and lower provisions for credit losses, partially offset by higher expenses. Revenue was up $107 million or 7% year-over-year driven by higher balance and fee volumes across most products. Year-over-year loan growth was 5% and deposit growth was 9%. Expenses increased $47 million or 6% as a result of continued investment in the business and higher variable compensation consistent with annual business growth.

In personal banking, good year-over-year loan and deposit growth continued at 4% and 10%, respectively. We are focused on helping our customers with their financial needs, in the channel of their choice. Our Summer Everyday Banking campaign was a success with a 10% increase in chequing account openings from last year's strong levels, with 80% of new chequing accounts opened belonging to new to BMO customers. Mobile transactions continue to grow, nearly doubling for the year.

In commercial banking, strong loan and deposit growth continued at 8% and 7% respectively. During the quarter, we ran a successful pilot for our new BMO DepositEdge product which enables businesses to remotely deposit cheques into their accounts securely. This product was launched in November. Our Fall Small Business Campaign is underway, and is focused on offering our BMO Biz Starter for Small Business package, which meets both the business and personal banking needs of our small business customers. From the early results from this campaign we have been successful in attracting new customers to the bank. We remain second in Canadian business banking loan market share for small and medium-sized loans.

U.S. P&C (all amounts in US$)

Net income of $152 million and adjusted net income of $163 million both increased $54 million from the fourth quarter a year ago, with improved positive operating leverage of 2.1% or 1.3% on an adjusted basis. Increased net income was driven by lower provisions for credit losses and higher revenue partly offset by increased expenses.

Current loans and acceptances grew year over year and on a sequential basis by 9% and 2%, respectively. The growth in average current loans and acceptances was led by continued strong double-digit growth in the core commercial and industrial (C&I) loan portfolio. The core C&I portfolio increased by $4.8 billion or 21% from a year ago to $28.5 billion.

During the quarter, the Federal Deposit Insurance Corporation released their annual deposit market share results. In the Chicago area we maintained our strong second place ranking, with deposit market share of 12.1%. In Wisconsin we also held the second place ranking with an even higher deposit market share of 13.6%. We maintained our number four market share ranking within our primary footprint of Wisconsin, Illinois, Missouri, Kansas, Indiana, and Minnesota.

Wealth Management

Net income was $226 million. Adjusted net income was $253 million compared to $318 million a year ago. The prior year included a $121 million after-tax security gain. On a basis that excludes the security gain, adjusted net income increased $56 million or 28%. On this basis, adjusted net income in traditional wealth of $136 million increased $8 million or 6% with good organic growth as well as growth from the acquired F&C business, offset by higher than run-rate expenses including the settlement of a legal matter. Adjusted net income in insurance was $117 million, up $48 million or 68% from a year ago. The increase in insurance was primarily due to the impact of beneficial changes in actuarial reserves. There was continued growth in both the underlying creditor and life insurance business.

Assets under management and administration grew by $242 billion or 44% from a year ago to $794 billion, with the acquired F&C business contributing $150 billion to the increase. Excluding F&C, assets under management and administration grew by 17%, driven by market appreciation, the stronger U.S. dollar and growth in new client assets.

In September, World Finance Magazine named BMO Harris Private Banking "Best Private Bank - Canada, 2014." This is the fourth consecutive year receiving this honour. The World Finance Banking Awards 2014 recognized BMO Harris Private Banking for strong performance, an in-depth understanding of the needs of clients, exceptional client service and strong community activities and outreach programs that support the local and regional community.

BMO Capital Markets

Net income of $191 million decreased $26 million or 12% from a year ago as higher revenue was more than offset by higher expenses and lower loan recoveries. Revenue increased 2% year over year with solid growth from Investment and Corporate Banking, partly offset by lower revenues in Trading Products, including the introduction of a funding valuation adjustment which reduced revenue by $39 million.

In the quarter, we were recognized for several different industry awards which reflect our continued focus on meeting our core clients' needs. We were selected as a 2014 Greenwich Quality Leader in Canadian Fixed Income Research, Canadian Mergers & Acquisitions and Canadian Equity Capital Markets, as well as a Greenwich Share Leader in Canadian Fixed Income, Canadian Investment Banking Market Penetration, and Canadian Large Corporate Cash Management Market Penetration. In addition, for the fourth consecutive year, we were named the 2014 award winner for Best Bank in Canadian Dollar Foreign Exchange by FX Week.

BMO Capital Markets participated in 331 new global issues in the quarter, comprised of 129 corporate debt deals, 129 government debt deals and 73 equity transactions, raising $791 billion.

Corporate Services

Corporate Services reported and adjusted net loss for the fourth quarter of 2014 was $39 million, compared with a reported net loss of $14 million and an adjusted net loss of $22 million a year ago. The decline was due to lower recoveries primarily on the purchased credit impaired loan portfolio, partially offset by above trend revenue.

Adjusted Net Income

Adjusted net income was $1,111 million, for the fourth quarter of 2014, up $23 million or 2% from a year ago. Adjusted EPS were $1.63, up $0.01 or 1% from a year ago.

Management has designated certain amounts as adjusting items and has adjusted GAAP results so that we can discuss and present financial results without the effects of adjusting items to facilitate understanding of business performance and related trends. The items excluded from fourth quarter 2014 results in the determination of adjusted results were the amortization of acquisition-related intangible assets of $42 million ($32 million after tax) and acquisition integration costs of $11 million ($9 million after tax); or a total impact of $0.07 per share. Amounts excluded from adjusted results in prior years also included credit-related items in respect of the purchased performing loan portfolio, restructuring costs and run-off structured credit activities. Management assesses performance on a GAAP basis and on an adjusted basis and considers both to be useful in the assessment of underlying business performance. Presenting results on both bases provides readers with a better understanding of how management assesses results. Adjusted results and measures are non-GAAP and, together with items excluded in determining adjusted results, are disclosed in more detail in the Non-GAAP Measures section, along with comments on the uses and limitations of such measures. The impact of adjusting items for comparative periods is summarized in the Non-GAAP Measures section.

Adjusted results in these Total Bank Overview and Operating Segment Overview sections are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

Caution

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

The Financial Review commentary is as of December 2, 2014. Unless otherwise indicated, all amounts are in Canadian dollars and have been derived from financial statements prepared in accordance with International Financial Reporting Standards (IFRS). References to GAAP mean IFRS. The Financial Review should be read in conjunction with the unaudited interim consolidated financial statements for the period ended October 31, 2014, included in this document, as well as the audited consolidated financial statements for the year ended October 31, 2014, and Management's Discussion and Analysis (MD&A) for fiscal 2014 . The material that precedes this section comprises part of this Financial Review.

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

Regulatory Filings

Our continuous disclosure materials, including our interim filings, annual MD&A and audited 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.

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 may involve, but are not limited to, comments with respect to our objectives and priorities for 2015 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price, and the results of or outlook for our operations or for the Canadian, U.S. and international economies.

By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. 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 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; weak, volatile or illiquid capital and/or credit markets; interest rate and currency value fluctuations; changes in monetary, fiscal or economic policy; the degree 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; judicial or regulatory proceedings; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; 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; changes to our credit ratings; general political conditions; global capital markets activities; the possible effects on our business of war or terrorist activities; disease or illness that affects local, national or international economies; natural disasters and disruptions to public infrastructure, such as transportation, communications, power or water supply; technological changes; and our ability to anticipate and effectively manage risks associated with 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 Enterprise-Wide Risk Management section on pages 77 to 105 of BMO's 2014 Annual MD&A, which outlines in detail certain key factors and risks that may affect Bank of Montreal's future results. When relying on forward-looking statements to make decisions with respect to Bank of Montreal, 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. Bank of Montreal does 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.

Assumptions about the level of default and losses on default were material factors we considered when establishing our expectations regarding the future performance of the transactions into which our credit protection vehicle has entered. Among the key assumptions were that the level of default and losses on default would be consistent with historical experience. Material factors that were taken into account when establishing our expectations regarding the risk of future credit losses in our credit protection vehicle and risk of loss to Bank of Montreal included industry diversification in the portfolio, initial credit quality by portfolio, the first-loss protection incorporated into the structure and the hedges into which Bank of Montreal has entered.

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 the Canadian and U.S. governments and their agencies. See the Economic Developments and Outlook section on page 30 of BMO's 2014 Annual MD&A.

Foreign Exchange

The Canadian dollar equivalents of BMO's U.S.-dollar-denominated net income, revenues, expenses, recovery of (provision for) credit losses and income taxes were increased relative to the third quarter of 2014 and the fourth quarter of 2013, due to the strengthening of the U.S. dollar. The average Canadian/U.S. dollar exchange rate for the quarter, expressed in terms of the Canadian dollar cost of a U.S. dollar, increased by 7% from a year ago and increased by 3% from the third quarter. BMO may execute hedging transactions to mitigate the impact of foreign exchange rate movements on net income. Table 3 indicates the relevant average Canadian/U.S. dollar exchange rates and the impact of changes in the rates on our U.S. segment results.

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

Net Income

Q4 2014 vs Q4 2013

Net income was $1,070 million for the fourth quarter of 2014, down $4 million from the prior year. EPS were $1.56, down $0.04 or 3% from the prior year. Prior year results included a $121 million after-tax security gain.

Adjusted net income was $1,111 million, up $23 million or 2%. Adjusted EPS were $1.63, up $0.01 or 1%. Adjusted results and items excluded in determining adjusted results are disclosed in detail in the preceding Adjusted Net Income section and in the Non-GAAP Measures section, together with comments on the uses and limitations of such measures.

On an adjusted basis, net income growth was driven by good results in Canadian P&C, U.S. P&C and Wealth Management. Canadian P&C results were up 14% from a year ago, driven by higher revenue from higher balance and fee volumes across most products and lower provisions for credit losses, partially offset by higher expenses. Wealth Management continued to deliver good adjusted results, with growth of $56 million or 28%, excluding the $121 million after-tax security gain in the prior year. BMO Capital Markets results decreased as higher revenue was more than offset by higher expenses and lower loan recoveries. U.S. P&C net income was up on a U.S. dollar basis due to lower provisions for credit losses and higher revenue, partly offset by increased expenses. Corporate Services adjusted results were lower due to lower recoveries primarily on the purchased credit impaired loan portfolio and higher expenses, partially offset by above trend revenue.

Q4 2014 vs Q3 2014

Net income decreased $56 million or 5% and EPS decreased $0.11 or 7%. Adjusted net income decreased $51 million or 4% and adjusted EPS decreased $0.10 or 6%.

Net income was essentially unchanged in Canadian P&C due to higher expenses related to continued investment in the business and higher variable compensation consistent with annual business growth, partially offset by higher personal revenue. Adjusted net income increased in Wealth Management as higher insurance results were partially offset by lower results in traditional wealth as revenue growth was more than offset by higher than run-rate expenses, including costs related to the settlement of a legal matter. BMO Capital Markets results decreased from the previous quarter, which reflected strong results. U.S. P&C adjusted net income increased on a U.S. dollar basis mainly due to lower provisions for credit losses. Corporate Services adjusted results improved due to increased revenue from higher adjusted net interest income and hedge gains, partially offset by higher expenses and lower credit recoveries.

Revenue

Q4 2014 vs Q4 2013

Total revenue of $4,340 million increased $202 million or 5% from the fourth quarter a year ago. Adjusted revenue increased $330 million or 8% to $4,340 million. Excluding the impact of the stronger U.S. dollar, adjusted revenue increased by $258 million or 6%. Canadian P&C had good revenue growth due to strong balance and fee volume growth across most products. Wealth Management adjusted revenue increased, excluding the $191 million security gain in the prior year, due to the impact from the acquired F&C business, higher fee-based revenue from strong growth in client assets and higher insurance revenue. BMO Capital Markets revenue increased 2% year over year with solid growth from Investment and Corporate Banking, partly offset by lower revenues in Trading Products, in part due to the introduction of a funding valuation adjustment which reduced revenue by $39 million. U.S. P&C revenue increased on a U.S. dollar basis, due to strong commercial loan and deposit growth, partially offset by lower net interest margin. Corporate Services adjusted revenue improved primarily due to higher net interest income and credit-related revenue on the purchased performing loan portfolio.

Net interest income of $2,178 million increased $61 million or 3% from a year ago. Adjusted net interest income increased $178 million or 9% to $2,178 million, principally due to volume growth, the impact of the stronger U.S. dollar and revenue from the purchased performing loan portfolio. BMO's overall net interest margin decreased on a reported basis by 9 basis points from a year ago to 1.60%. Adjusted net interest margin was unchanged at 1.60%. Average earning assets increased $43.8 billion or 9% to $540.0 billion, including a $13.6 billion increase as a result of the stronger U.S. dollar.

Non-interest revenue increased $141 million or 7% from a year ago to $2,162 million. Adjusted non-interest revenue increased $152 million or 8% to $2,162 million, with significant increases in mutual fund revenues and investment management and custodial fees as a result of the acquisition of F&C, and increases in all other types of non-interest revenue, with the exception of securities gains and other.

Q4 2014 vs Q3 2014

Total revenue and adjusted revenue increased $125 million or 3% from the third quarter. Excluding the impact of the stronger U.S. dollar, adjusted revenue increased by $92 million or 2%. Canadian P&C revenue increased due to higher personal revenue. Revenue in Wealth Management increased primarily due to higher insurance revenue as well as higher fee-based revenue from growth in client assets in traditional wealth. BMO Capital Markets revenue decreased from the strong revenue performance in both the Investment and Corporate Banking and Trading Products businesses in the third quarter. U.S. P&C had modestly lower revenue on a U.S. dollar basis, as the benefits from higher commercial loan and deposit growth, commercial lending fees, and mortgage banking revenue were more than offset by a reduction in net interest margin. Corporate Services adjusted revenue improved primarily due to higher adjusted net interest income, a lower group teb offset and hedge gains.

Reported and adjusted net interest income increased $71 million or 3%, due to higher net interest margin, volume growth and the impact of the stronger U.S. dollar. BMO's overall reported and adjusted net interest margin increased 2 basis points compared to the third quarter. BMO's overall reported and adjusted net interest margin (excluding trading) increased 3 basis points from the third quarter. Average earning assets increased $11.2 billion from the prior quarter, including a $6.0 billion increase as a result of the stronger U.S. dollar.

Reported and adjusted non-interest revenue increased $54 million or 3%, mainly due to significant increases in insurance income, partially offset by lower underwriting and advisory fees and trading revenues.

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

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

Provisions for Credit Losses

Q4 2014 vs Q4 2013

The total provision for credit losses (PCL) was $170 million, a decrease of $19 million from the prior year. Adjusted PCL increased by $30 million from the prior year, due to lower recoveries primarily on the purchased credit impaired loan portfolio. There was no net change to the collective allowance in the quarter.

Canadian P&C provisions decreased by $33 million to $133 million due to lower provisions in the commercial portfolio. U.S. P&C provisions of $43 million decreased by $53 million due to lower new provisions in the consumer and commercial portfolios. BMO Capital Markets PCL recoveries of $7 million were lower by $10 million. Corporate Services adjusted provisions of $2 million increased by $108 million, due to lower recoveries primarily on the purchased credit impaired loan portfolio and higher provisions on the purchased performing loan portfolio.

Q4 2014 vs Q3 2014

The reported and adjusted PCL increased by $40 million from the prior quarter mainly due to lower recoveries on the purchased credit impaired loan portfolio and higher provisions on the purchased performing loan portfolio. There was no net change to the collective allowance in the quarter.

Canadian P&C provisions were consistent with the prior quarter. U.S. P&C provisions decreased by $9 million, largely due to lower new provisions. BMO Capital Markets PCL recoveries were $1 million higher than the prior quarter. Corporate Services adjusted recoveries decreased by $49 million mainly due to lower recoveries on the purchased credit impaired loan portfolio and higher provisions on the purchased performing loan portfolio.

Adjusted results in this Provisions for Credit Losses section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

Impaired Loans

Total gross impaired loans (GIL) were $2,048 million at the end of the current quarter, up from $1,975 million in the third quarter of 2014 and down from $2,544 million a year ago.

Factors contributing to the change in GIL are outlined in Table 7 below. Loans classified as impaired during the quarter totalled $534 million, up from $457 million in the third quarter of 2014 and down from $614 million a year ago.

Non-Interest Expense

Non-interest expense increased $307 million or 12% from the fourth quarter a year ago to $2,887 million. Adjusted non-interest expense increased $349 million or 14% to $2,834 million. Excluding the impact of the stronger U.S. dollar, adjusted non-interest expense increased by $286 million or 12%, primarily due to increased technology and support costs related to a changing business and regulatory environment, the impact of the F&C acquisition, higher employee-related expenses and costs related to the settlement of a legal matter.

Non-interest expense increased $131 million or 5% relative to the third quarter. Adjusted non-interest expense increased $126 million or 5%. Excluding the impact of the stronger U.S. dollar, adjusted non-interest expense increased by $98 million or 4% primarily due to increased technology and support costs related to a changing business and regulatory environment, costs related to the settlement of a legal matter and higher marketing costs.

Year-over-year operating leverage on a reported basis was negative 7.0% and adjusted operating leverage was negative 5.9%. Excluding the impact of the $191 million pre-tax security gain in the fourth quarter of 2013 and the impact of the stronger U.S. dollar, year-over-year adjusted operating leverage was positive 0.2%. The adjusted efficiency ratio of 65.3% for the fourth quarter of 2014 increased 340 basis points from a year ago primarily due to the impact of the security gain in Wealth Management in the prior year, and 110 basis points from the prior quarter due to lower revenue in BMO Capital Markets and the settlement of a legal matter in Wealth Management in the current year. The adjusted efficiency ratio excluding PBCAE¹ was 61.1%.

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 $213 million decreased $82 million from the fourth quarter of 2013 and increased $10 million from the third quarter of 2014. The effective tax rate for the quarter was 16.6%, compared with 21.6% a year ago and 15.3% in the third quarter of 2014.

The adjusted provision for income taxes of $225 million decreased $72 million from a year ago and increased $10 million from the third quarter of 2014. The adjusted effective tax rate was 16.8% in the current quarter, compared with 21.5% a year ago and 15.6% in the third quarter of 2014. The lower adjusted tax rate in the current quarter relative to the fourth quarter of 2013 was primarily due to a lower proportion of income from higher tax-rate jurisdictions. The higher adjusted tax rate in the current quarter relative to the third quarter of 2014 was primarily due to lower tax-exempt income.

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 2014 Regulatory Capital Review

BMO's Common Equity Tier 1 (CET1) Ratio was 10.1% at October 31, 2014.

The CET1 Ratio increased by approximately 50 basis points from 9.6% at the end of the third quarter, 35 basis points of which was attributable to growth in CET1 capital and the remaining 15 basis points to a decrease in risk-weighted assets (RWA) from the previous quarter.

CET1 capital at October 31, 2014, was $22.4 billion, up $0.8 billion from the third quarter mainly due to retained earnings growth and accumulated other comprehensive income (AOCI) due to foreign exchange rate changes.

RWA of $222 billion at October 31, 2014, decreased by approximately $4 billion from the third quarter due primarily to changes in methodology, book quality including risk mitigation and lower market risk, partially offset by business growth and the impact of foreign exchange rate changes, which is largely hedged.

The bank's Tier 1 and Total Capital Ratios were 12.0% and 14.3%, respectively, at October 31, 2014, compared with 11.4% and 13.3%, respectively, at July 31, 2014. These ratios increased from the prior quarter primarily due to the same factors that caused changes in the CET1 Ratio, described above. In addition, the increase in the Total Capital Ratio was partly attributable to the issuance of subordinated notes during the quarter, as described below.

BMO's Assets-to-Capital Multiple (ACM) was 16.1 at October 31, 2014, down from 17.0 at July 31, 2014, primarily due to an increase in Total Capital during the quarter. The Office of the Superintendent of Financial Institutions (OSFI) has announced that the ACM will be discontinued in 2015 and will be replaced by the Basel III Leverage Ratio. OSFI has established a 3% minimum Basel III Leverage Ratio. Disclosure of the Basel III Leverage Ratio will commence in the first quarter of fiscal 2015. If the Basel III Leverage Ratio was in force at the end of Q4 2014, BMO would have a Leverage Ratio comfortably in excess of the 3% minimum requirement.

BMO's investments in foreign operations are primarily denominated in U.S. dollars. The foreign exchange impact of U.S.-dollar-denominated RWA and U.S.-dollar-denominated capital deductions may result in variability in the bank's capital ratios. BMO may enter into hedging arrangements to reduce the impact of foreign exchange movements on its capital ratios.

Pages 64 to 69 and pages 95 to 100 of BMO's 2014 Annual MD&A provide disclosure on Enterprise-Wide Capital Management and Liquidity and Funding Risk, including regulatory requirements impacting capital and liquidity.

Other Capital Developments

On September 19, 2014, we completed our offering of Series H Medium-Term Notes, Tranche 1, our inaugural issuance of non-viability contingent capital (NVCC) subordinated notes. We issued the notes for aggregate proceeds of $1.0 billion.

During the quarter, BMO issued 2.7 million common shares through the Shareholder Dividend Reinvestment and Share Purchase Plan (DRIP)and the exercise of stock options.

On December 2, 2014, BMO announced that the Board of Directors had declared a quarterly dividend on common shares of $0.80 per share, up $0.02 per share or 3% from the prior quarter and up $0.04 per share or 5% from a year ago. The dividend is payable on February 26, 2015 to shareholders of record on February 2, 2015.

On December 2, 2014, BMO announced its intention, subject to the approval of OSFI and the Toronto Stock Exchange (TSX), to initiate a new normal course issuer bid (NCIB) for up to 15 million of its common shares, commencing on or about February 1, 2015, after the expiry of the current NCIB. Once approvals are obtained, the share repurchase program will permit BMO to purchase its common shares on the TSX for the purpose of cancellation. Maintaining a NCIB is part of BMO's capital management strategy. The timing and amount of any purchases under the program are subject to regulatory approvals and to management discretion based on factors such as market conditions and capital adequacy.

On November 28, 2014, BMO announced its intention to redeem the $600 million of outstanding BMO Capital Trust Securities - Series D (BMO BOaTS - Series D) on December 31, 2014.

Caution

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

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.

Review of Operating Groups' Performance

How BMO Reports Operating Group Results

The following sections review the financial results of each of our operating segments and operating groups for the fourth quarter of 2014.

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 to the current presentation.

Corporate Services results reflect certain items in respect of the purchased loan portfolio, including the recognition of a portion of the credit mark that is reflected in net interest income over the term of the purchased loans and provisions and recoveries of credit losses on the purchased portfolio. Amounts excluded from adjusted results in prior years included credit-related items in respect of the purchased performing loan portfolio, acquisition integration costs, restructuring costs and run-off structured credit activities.

Effective November 1, 2013, we adopted several new and amended accounting pronouncements issued by the International Accounting Standards Board (IASB), which are outlined in Note 1 on page 128 of the audited annual consolidated financial statements in BMO's 2014 Annual Report.

BMO analyzes revenue at the consolidated level based on GAAP revenue reflected in the consolidated financial statements rather than on a taxable equivalent basis (teb). Like many banks, we analyze revenue on a teb basis at the operating group level. This basis includes an adjustment that increases GAAP revenue and the GAAP provision for income taxes by an amount that would raise revenue on certain tax-exempt items to a level equivalent to amounts that would incur tax at the statutory rate. The offset to the group teb adjustments is reflected in Corporate Services revenue and income tax provisions. The teb adjustments for the fourth quarter of 2014 totalled $99 million, down from $154 million in the third quarter of 2014 and $89 million in the fourth quarter of 2013.

The Personal and Commercial Banking (P&C) operating group represents the sum of our two retail and business banking operating segments, Canadian Personal and Commercial Banking (Canadian P&C) and U.S. Personal and Commercial Banking (U.S. P&C). These operating segments are reviewed separately in the sections that follow.

Q4 2014 vs Q4 2013

Canadian P&C net income of $524 million increased $66 million or 14% from a year ago. Revenue increased $107 million or 7% from the prior year due to strong balance and fee volume growth across most products. Net interest margin was 2.60%, consistent with the prior year. Operating leverage was 0.7% and our efficiency ratio was 50.1%, a 40 basis point improvement from the prior year.

In the personal banking segment, revenue increased $73 million year over year due to the impact of higher balances and fee volumes. Total personal lending balances (excluding retail cards) increased 4% year over year. Personal deposit balances increased 10% mainly due to growth in term deposits.

In the commercial banking segment, revenue increased $34 million due to the impact of higher balance and fee volumes. Commercial loan balances (excluding corporate cards) increased 8% year over year, while commercial deposit balances grew 7%.

Provisions for credit losses decreased $33 million or 20% due to lower provisions in the commercial portfolio. Non-interest expense increased $47 million or 6% mainly due to continued investment in the business and higher variable compensation consistent with annual business growth.

Average current loans and acceptances increased $8.4 billion or 5% from a year ago, and deposits increased $10.5 billion or 9%.

Q4 2014 vs Q3 2014

Net income decreased modestly by $2 million from the prior quarter due to higher expenses, partially offset by higher revenue. Revenue increased by $13 million or 1% due to higher personal revenue. Net interest margin increased 1 basis point.

Personal revenue increased $23 million mainly due to higher balance volumes and loan spread improvement. Commercial revenue decreased $10 million, as the prior quarter included a security gain.

Provisions for credit losses were consistent with the prior quarter. Non-interest expense increased $13 million or 2% mainly due to continued investment in the business and higher variable compensation consistent with annual business growth.

Average current loans and acceptances increased $1.3 billion or 1% from the previous quarter, while deposits were $2.8 billion or 2% higher.

Q4 2014 vs Q4 2013 (in U.S. $)

Net income of $152 million and adjusted net income of $163 million both increased $54 million from the fourth quarter a year ago.

Revenue of $705 million increased $17 million or 2.5% from the prior year due to strong commercial loan and deposit growth, partially offset by lower net interest margin. Net interest margin decreased by 18 basis points to 3.64%, primarily driven by a decline in loan spreads due to competitive pricing and changes in mix including loans growing faster than deposits.

Provisions for credit losses were $38 million, down $54 million due to lower new provisions in the consumer and commercial portfolios. Non-interest expense increased $2 million to $460 million. Adjusted non-interest expense increased $5 million or 1% to $445 million, primarily driven by higher employee-related costs. Operating leverage was 2.1% and adjusted operating leverage was 1.3%.

Average current loans and acceptances increased $4.5 billion or 9% year over year to $56.4 billion. The core C&I loan portfolio maintained strong double-digit growth, increasing $4.8 billion or 21% from a year ago to $28.5 billion. In addition, our indirect auto and commercial real estate portfolios reflected year over year growth of 8% and 18%, respectively. As expected, there were decreases in certain loan portfolios, including our mortgage and home equity loan portfolios. Average deposits of $60.6 billion increased $1.8 billion year over year. Growth in our commercial business and personal chequing balances of $3.9 billion or 13% was partially offset by a planned reduction in higher-cost time deposit balances, in addition to a transfer of certain customer balances to Wealth Management at the beginning of the current year.

Q4 2014 vs. Q3 2014 (in U.S. $)

Net income and adjusted net income increased $5 million or 3% from the prior quarter.

Revenue was relatively unchanged from the prior quarter as the benefits from higher commercial loan and deposit growth, commercial lending fees, and mortgage banking revenue were more than offset by a reduction in net interest margin. Net interest margin decreased by 9 basis points to 3.64% primarily driven by continued competitive pressure on loan spreads and portfolio mix.

Provisions for credit losses decreased by $11 million or 21%, largely due to lower new provisions. Non-interest expense and adjusted non-interest expense increased $2 million or 1%.

Average current loans and acceptances increased by $1 billion or 2% from the prior quarter, marking the 8th consecutive quarter of positive growth. The increase in the core C&I loan portfolio of $1.4 billion or 5% was partly offset by declines in our retail portfolio. Average deposits grew $1.2 billion or 2%, as growth in commercial and personal chequing balances of $1.6 billion or 6% was partially offset by planned declines in higher-cost time deposit balances.