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    BMO Financial Group Reports Fourth Quarter and Fiscal 2018 Results

    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

     

    TORONTO, Dec. 4, 2018 /CNW/ - 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 millions, except as noted)

    Q4-2018

    Q3-2018

    Q4-2017

    Fiscal 2018

    Fiscal 2017

    Summary Income Statement

             

    Net interest income

    2,669

    2,607

    2,535

    10,313

    10,007

    Non-interest revenue

    3,253

    3,213

    3,120

    12,724

    12,253

    Revenue

    5,922

    5,820

    5,655

    23,037

    22,260

    Insurance claims, commissions and changes in policy benefit liabilities (CCPB)

    390

    269

    573

    1,352

    1,538

    Revenue, net of CCPB

    5,532

    5,551

    5,082

    21,685

    20,722

    Provision for credit losses on impaired loans (1)

    177

    177

    na

    700

    na

    Provision for (recovery of) credit losses on performing loans (1)

    (2)

    9

    na

    (38)

    na

    Total provision for credit losses (1)

    175

    186

    202

    662

    746

    Non-interest expense

    3,224

    3,386

    3,375

    13,613

    13,330

    Provision for income taxes

    438

    443

    278

    1,960

    1,296

    Net income

    1,695

    1,536

    1,227

    5,450

    5,350

    Attributable to bank shareholders

    1,695

    1,536

    1,227

    5,450

    5,348

    Attributable to non-controlling interest in subsidiaries

    -

    -

    -

    -

    2

    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 per share

    2.32

    2.36

    1.94

    8.99

    8.16

    Earnings per share growth (%)

    41.9

    13.0

    (10.3)

    3.1

    14.5

    Adjusted earnings per share growth (%)

    19.3

    16.4

    (7.6)

    10.1

    8.5

    Dividends declared per share

    0.96

    0.96

    0.90

    3.78

    3.56

    Book value per share

    64.73

    63.31

    61.92

    64.73

    61.92

    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 of common shares ($ billions)

    62.9

    66.0

    64.0

    62.9

    64.0

    Dividend yield (%)

    3.9

    3.7

    3.6

    3.8

    3.6

    Dividend payout ratio (%)

    37.2

    41.4

    49.5

    46.2

    44.8

    Adjusted dividend payout ratio (%)

    41.3

    40.6

    46.2

    41.9

    43.5

    Financial Measures and Ratios (%)

             

    Return on equity

    16.1

    14.7

    12.1

    13.2

    13.3

    Adjusted return on equity

    14.5

    15.0

    12.9

    14.6

    13.7

    Return on tangible common equity

    19.5

    17.9

    14.8

    16.2

    16.3

    Adjusted return on tangible common equity

    17.3

    18.0

    15.5

    17.5

    16.5

    Net income growth

    38.1

    10.7

    (8.8)

    1.9

    15.5

    Adjusted net income growth

    16.8

    13.9

    (6.2)

    8.6

    9.7

    Revenue growth

    4.7

    6.6

    7.2

    3.5

    5.6

    Revenue growth, net of CCPB

    8.9

    6.6

    (2.2)

    4.6

    6.0

    Non-interest expense growth

    (4.5)

    3.0

    1.4

    2.1

    2.2

    Adjusted non-interest expense growth

    6.0

    3.7

    (0.1)

    3.4

    3.6

    Efficiency ratio, net of CCPB

    58.3

    61.0

    66.4

    62.8

    64.3

    Adjusted efficiency ratio, net of CCPB

    62.4

    60.3

    64.1

    62.2

    62.9

    Operating leverage, net of CCPB

    13.4

    3.6

    (3.6)

    2.5

    3.8

    Adjusted operating leverage, net of CCPB

    2.9

    2.9

    (2.1)

    1.2

    2.0

    Net interest margin on average earning assets

    1.49

    1.49

    1.57

    1.51

    1.55

    Effective tax rate

    20.6

    22.4

    18.5

    26.5

    19.5

    Adjusted effective tax rate

    19.7

    22.4

    19.3

    20.7

    19.8

    Total PCL-to-average net loans and acceptances (annualized)

    0.18

    0.19

    0.22

    0.17

    0.20

    PCL on impaired loans-to-average net loans and acceptances (annualized)

    0.18

    0.18

    0.22

    0.18

    0.22

    Balance Sheet (as at, $ millions, except as noted)

             

    Assets

    774,048

    765,318

    709,580

    774,048

    709,580

    Gross loans and acceptances

    404,215

    395,295

    376,886

    404,215

    376,886

    Net loans and acceptances

    402,576

    393,635

    375,053

    402,576

    375,053

    Deposits

    522,051

    506,916

    479,792

    522,051

    479,792

    Common shareholders' equity

    41,387

    40,516

    40,114

    41,387

    40,114

    Cash and securities-to-total assets ratio (%)

    29.9

    28.2

    28.5

    29.9

    28.5

    Capital Ratios (%)

             

    CET1 Ratio

    11.3

    11.4

    11.4

    11.3

    11.4

    Tier 1 Capital Ratio

    12.9

    12.9

    13.0

    12.9

    13.0

    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. dollar

    1.3169

    1.2997

    1.2895

    1.3169

    1.2895

    Average Canadian/U.S. dollar

    1.3047

    1.3032

    1.2621

    1.2878

    1.3071

       

    (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 millions, except as noted)

    Q4-2018

    Q3-2018

    Q4-2017

    Fiscal 2018

    Fiscal 2017

    Reported Results

             

    Revenue

    5,922

    5,820

    5,655

    23,037

    22,260

    Insurance claims, commissions and changes in policy benefit liabilities (CCPB)

    (390)

    (269)

    (573)

    (1,352)

    (1,538)

    Revenue, net of CCPB

    5,532

    5,551

    5,082

    21,685

    20,722

    Total provision for credit losses

    (175)

    (186)

    (202)

    (662)

    (746)

    Non-interest expense

    (3,224)

    (3,386)

    (3,375)

    (13,613)

    (13,330)

    Income before income taxes

    2,133

    1,979

    1,505

    7,410

    6,646

    Provision for income taxes

    (438)

    (443)

    (278)

    (1,960)

    (1,296)

    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 integration costs (2)

    (18)

    (8)

    (24)

    (34)

    (87)

    Amortization of acquisition-related intangible assets (3)

    (31)

    (28)

    (34)

    (116)

    (149)

    Restructuring costs (4)

    -

    -

    (59)

    (260)

    (59)

    Decrease in the collective allowance for credit losses (5)

    -

    -

    -

    -

    76

    Benefit from the remeasurement of an employee benefit liability (6)

    277

    -

    -

    277

    -

    Adjusting items included in reported pre-tax income

    228

    (36)

    (117)

    (133)

    (219)

    Adjusting Items (After tax) (1)

             

    Acquisition integration costs (2)

    (13)

    (7)

    (15)

    (25)

    (55)

    Amortization of acquisition-related intangible assets (3)

    (24)

    (22)

    (26)

    (90)

    (116)

    Restructuring costs (4)

    -

    -

    (41)

    (192)

    (41)

    Decrease in the collective allowance for credit losses (5)

    -

    -

    -

    -

    54

    Benefit from the remeasurement of an employee benefit liability (6)

    203

    -

    -

    203

    -

    U.S. net deferred tax asset revaluation (7)

    -

    -

    -

    (425)

    -

    Adjusting items included in reported net income after tax

    166

    (29)

    (82)

    (529)

    (158)

    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, commissions and changes in policy benefit liabilities (CCPB)

    (390)

    (269)

    (573)

    (1,352)

    (1,538)

    Revenue, net of CCPB

    5,532

    5,551

    5,082

    21,685

    20,722

    Total provision for credit losses

    (175)

    (186)

    (202)

    (662)

    (822)

    Non-interest expense

    (3,452)

    (3,350)

    (3,258)

    (13,480)

    (13,035)

    Income before income taxes

    1,905

    2,015

    1,622

    7,543

    6,865

    Provision for income taxes

    (376)

    (450)

    (313)

    (1,564)

    (1,357)

    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 Income
    Q4 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 $ in millions)

    Canadian P&C

    U.S. P&C

    Total P&C

    Wealth
    Management

    BMO Capital
    Markets

    Corporate
    Services (2)

    Total Bank

    Q4-2018

                 

    Provision for (recovery of) credit losses on impaired loans

    118

    61

    179

    2

    (3)

    (1)

    177

    Provision for (recovery of) credit losses on performing loans

    (15)

    18

    3

    1

    (4)

    (2)

    (2)

    Total provision for (recovery of) credit losses

    103

    79

    182

    3

    (7)

    (3)

    175

    Q3-2018

                 

    Provision for (recovery of) credit losses on impaired loans

    120

    54

    174

    2

    3

    (2)

    177

    Provision for (recovery of) credit losses on performing loans

    17

    (14)

    3

    2

    4

    -

    9

    Total provision for (recovery of) credit losses

    137

    40

    177

    4

    7

    (2)

    186

    Q4-2017

                 

    Total specific and collective provision for (recovery of) credit losses

    130

    64

    194

    -

    4

    4

    202

    Fiscal 2018

                 

    Provision for (recovery of) credit losses on impaired loans

    466

    258

    724

    6

    (17)

    (13)

    700

    Provision for (recovery of) credit losses on performing loans

    3

    (38)

    (35)

    -

    (1)

    (2)

    (38)

    Total provision for (recovery of) credit losses

    469

    220

    689

    6

    (18)

    (15)

    662

    Fiscal 2017

                 

    Total specific and collective provision for (recovery of) credit losses (2)

    483

    289

    772

    8

    44

    (78)

    746

    (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 2018

    Fiscal 2017

    Total PCL-to-average net loans and acceptances (annualized) (%)

       

    0.18

    0.19

    0.22

    0.17

    0.20

    PCL on impaired loans-to-average net loans and acceptances (annualized) (%)

       

    0.18

    0.18

    0.22

    0.18

    0.22

     

    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 $ in millions, except as noted)

    Q4-2018

    Q3-2018

    Q4-2017

    Fiscal 2018

    Fiscal 2017

    GIL, beginning of period

    2,076

    2,152

    2,154

    2,220

    2,383

    Classified as impaired during the period

    443

    522

    527

    2,078

    2,193

    Transferred to not impaired during the period

    (188)

    (151)

    (135)

    (708)

    (607)

    Net repayments

    (214)

    (322)

    (184)

    (1,051)

    (1,017)

    Amounts written-off

    (194)

    (140)

    (146)

    (618)

    (618)

    Recoveries of loans and advances previously written-off

    -

    -

    -

    -

    -

    Disposals of loans

    (5)

    -

    (45)

    (11)

    (46)

    Foreign exchange and other movements

    18

    15

    49

    26

    (68)

    GIL, end of period

    1,936

    2,076

    2,220

    1,936

    2,220

    GIL to gross loans and acceptances (%)

    0.48

    0.53

    0.59

    0.48

    0.59

    (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 risk-weighted assets)

    Minimum capital
    requirements

    Pillar 1 Capital
    Buffers (1)

    Domestic Stability
    Buffer (2)

    OSFI capital
    requirements
    including
    capital buffers

    BMO Capital
    and Leverage
    Ratios as at
    October 31, 2018

    Common Equity Tier 1 Ratio

    4.5%

    3.5%

    1.5%

    9.5%

    11.3%

    Tier 1 Capital Ratio

    6.0%

    3.5%

    1.5%

    11.0%

    12.9%

    Total Capital Ratio

    8.0%

    3.5%

    1.5%

    13.0%

    15.2%

    Leverage Ratio

    3.0%

    na

    na

    3.0%

    4.2%

       

    (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' Performance
    How 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 millions, except as noted)

    Q4-2018

    Q3-2018

    Q4-2017

    Fiscal 2018

    Fiscal 2017

               

    Net interest income (teb)

    2,431

    2,396

    2,263

    9,384

    8,812

    Non-interest revenue

    835

    841

    787

    3,311

    3,248

    Total revenue (teb)

    3,266

    3,237

    3,050

    12,695

    12,060

    Provision for credit losses on impaired loans (1)

    179

    174

    na

    724

    na

    Provision for (recovery of) credit losses on performing loans (1)

    3

    3

    na

    (35)

    na

    Total provision for credit losses (1)

    182

    177

    194

    689

    772

    Non-interest expense

    1,740

    1,732

    1,642

    6,817

    6,566

    Income before income taxes

    1,344

    1,328

    1,214

    5,189

    4,722

    Provision for income taxes (teb)

    297

    322

    320

    1,241

    1,184

    Reported net income

    1,047

    1,006

    894

    3,948

    3,538

    Amortization of acquisition-related intangible assets (2)

    12

    12

    12

    47

    49

    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 growth (%)

    16.9

    13.9

    2.6

    11.4

    8.0

    Revenue growth (%)

    7.1

    6.7

    1.9

    5.3

    4.0

    Non-interest expense growth (%)

    5.9

    4.4

    0.7

    3.8

    2.4

    Adjusted non-interest expense growth (%)

    6.0

    4.5

    0.8

    3.9

    2.5

    Return on equity (%)

    19.0

    18.5

    17.1

    18.6

    16.7

    Adjusted return on equity (%)

    19.3

    18.8

    17.3

    18.8

    16.9

    Operating leverage (teb) (%)

    1.2

    2.3

    1.2

    1.5

    1.6

    Adjusted operating leverage (teb) (%)

    1.1

    2.2

    1.1

    1.4

    1.5

    Efficiency ratio (teb) (%)

    53.3

    53.5

    53.9

    53.7

    54.4

    Adjusted efficiency ratio (teb) (%)

    52.8

    53.1

    53.3

    53.2

    53.9

    Net interest margin on average earning assets (teb) (%)

    2.98

    2.97

    2.94

    2.97

    2.90

    Average earning assets

    324,014

    319,954

    305,841

    316,359

    304,178

    Average gross loans and acceptances

    330,502

    325,545

    309,413

    321,537

    306,381

    Average net loans and acceptances

    328,923

    323,984

    309,280

    320,019

    306,239

    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 millions, except as noted)

    Q4-2018

    Q3-2018

    Q4-2017

    Fiscal 2018

    Fiscal 2017

               

    Net interest income

    1,421

    1,402

    1,369

    5,541

    5,261

    Non-interest revenue

    547

    550

    515

    2,171

    2,182

    Total revenue

    1,968

    1,952

    1,884

    7,712

    7,443

    Provision for credit losses on impaired loans (1)

    118

    120

    na

    466

    na

    Provision for (recovery of) credit losses on performing loans (1)

    (15)

    17

    na

    3

    na

    Total provision for credit losses (1)

    103

    137

    130

    469

    483

    Non-interest expense

    954

    949

    917

    3,805

    3,622

    Income before income taxes

    911

    866

    837

    3,438

    3,338

    Provision for income taxes

    236

    224

    213

    884

    827

    Reported net income

    675

    642

    624

    2,554

    2,511

    Amortization of acquisition-related intangible assets (2)

    1

    -

    1

    2

    3

    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 expense growth (%)

    3.9

    4.1

    2.9

    5.0

    3.5

    Adjusted non-interest expense growth (%)

    3.9

    4.1

    2.9

    5.0

    3.5

    Operating leverage (%)

    0.5

    1.1

    1.4

    (1.4)

    3.0

    Adjusted operating leverage (%)

    0.5

    1.1

    1.4

    (1.4)

    3.0

    Efficiency ratio (%)

    48.5

    48.6

    48.7

    49.3

    48.7

    Net interest margin on average earning assets (%)

    2.62

    2.60

    2.59

    2.60

    2.53

    Average earning assets

    215,290

    213,829

    210,110

    212,965

    207,815

    Average gross loans and acceptances

    226,953

    224,799

    219,114

    223,536

    215,848

    Average net loans and acceptances

    226,070

    223,936

    218,909

    222,673

    215,667

    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, except as noted)

    Q4-2018

    Q3-2018

    Q4-2017

    Fiscal 2018

    Fiscal 2017

               

    Net interest income (teb)

    774

    762

    708

    2,983

    2,718

    Non-interest revenue

    222

    223

    216

    886

    817

    Total revenue (teb)

    996

    985

    924

    3,869

    3,535

    Provision for credit losses on impaired loans (1)

    46

    42

    na

    201

    na

    Provision for (recovery of) credit losses on performing loans (1)

    14

    (11)

    na

    (31)

    na

    Total provision for credit losses (1)

    60

    31

    52

    170

    221

    Non-interest expense

    602

    601

    574

    2,338

    2,253

    Income before income taxes

    334

    353

    298

    1,361

    1,061

    Provision for income taxes (teb)

    49

    74

    84

    278

    274

    Reported net income

    285

    279

    214

    1,083

    787

    Amortization of acquisition-related intangible assets (2)

    9

    9

    9

    35

    36

    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 growth (%)

    31.4

    33.8

    1.6

    35.8

    (1.0)

    Revenue growth (%)

    7.8

    8.5

    2.8

    9.4

    1.6

    Non-interest expense growth (%)

    4.8

    4.1

    2.6

    3.8

    2.4

    Adjusted non-interest expense growth (%)

    5.1

    4.3

    2.8

    4.0

    2.6

    Operating leverage (%) (teb)

    3.0

    4.4

    0.2

    5.6

    (0.8)

    Adjusted operating leverage (%) (teb)

    2.7

    4.2

    -

    5.4

    (1.0)

    Efficiency ratio (%) (teb)

    60.5

    61.0

    62.2

    60.4

    63.7

    Adjusted efficiency ratio (%) (teb)

    59.4

    59.9

    60.9

    59.3

    62.4

    Net interest margin on average earning assets (%) (teb)

    3.69

    3.71

    3.70

    3.72

    3.69

    Average earning assets

    83,336

    81,428

    75,849

    80,255

    73,752

    Average gross loans and acceptances

    79,369

    77,301

    71,546

    76,067

    69,294

    Average net loans and acceptances

    78,835

    76,765

    71,603

    75,558

    69,324

    Average deposits

    73,668

    70,478

    64,952

    70,431

    65,724

               

    (Canadian $ equivalent in millions)

             
               

    Net interest income (teb)

    1,010

    994

    894

    3,843

    3,551

    Non-interest revenue

    288

    291

    272

    1,140

    1,066

    Total revenue (teb)

    1,298

    1,285

    1,166

    4,983

    4,617

    Provision for credit losses on impaired loans (1)

    61

    54

    na

    258

    na

    Provision for (recovery of) credit losses on performing loans (1)

    18

    (14)

    na

    (38)

    na

    Total provision for credit losses (1)

    79

    40

    64

    220

    289

    Non-interest expense

    786

    783

    725

    3,012

    2,944

    Income before income taxes

    433

    462

    377

    1,751

    1,384

    Provision for income taxes (teb)

    61

    98

    107

    357

    357

    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 growth (%)

    35.9

    34.4

    (3.1)

    34.0

    (2.4)

    Revenue growth (%)

    11.4

    9.0

    (1.8)

    7.9

    0.1

    Non-interest expense growth (%)

    8.4

    4.6

    (2.0)

    2.3

    1.0

    Adjusted non-interest expense growth (%)

    8.7

    4.9

    (1.8)

    2.6

    1.2

    Average earning assets

    108,724

    106,125

    95,731

    103,394

    96,363

    Average gross loans and acceptances

    103,549

    100,746

    90,299

    98,001

    90,533

    Average net loans and acceptances

    102,853

    100,048

    90,371

    97,346

    90,572

    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 millions, except as noted)

    Q4-2018

    Q3-2018

    Q4-2017

    Fiscal 2018

    Fiscal 2017

               

    Net interest income

    210

    212

    194

    826

    722

    Non-interest revenue

    1,359

    1,326

    1,490

    5,468

    5,492

    Total revenue

    1,569

    1,538

    1,684

    6,294

    6,214

    Insurance claims, commissions and changes in policy benefit liabilities (CCPB)

    390

    269

    573

    1,352

    1,538

    Revenue, net of CCPB

    1,179

    1,269

    1,111

    4,942

    4,676

    Provision for credit losses on impaired loans (1)

    2

    2

    na

    6

    na

    Provision for (recovery of) credit losses on performing loans (1)

    1

    2

    na

    -

    na

    Total provision for (recovery of) credit losses (1)

    3

    4

    -

    6

    8

    Non-interest expense

    880

    875

    841

    3,509

    3,351

    Income before income taxes

    296

    390

    270

    1,427

    1,317

    Provision for income taxes

    77

    99

    95

    355

    350

    Reported net income

    219

    291

    175

    1,072

    967

    Amortization of acquisition-related intangible assets (2)

    10

    10

    14

    41

    65

    Adjusted net income

    229

    301

    189

    1,113

    1,032

               

    Traditional Wealth businesses reported net income

    192

    202

    192

    805

    729

    Traditional Wealth businesses adjusted net income

    202

    212

    206

    846

    794

    Insurance reported net income

    27

    89

    (17)

    267

    238

    Net income growth (%)

    25.3

    8.3

    (38.1)

    11.0

    24.5

    Adjusted net income growth (%)

    21.2

    6.5

    (37.9)

    8.0

    17.6

    Revenue growth (%)

    (6.9)

    6.7

    30.9

    1.3

    5.2

    Revenue growth, net of CCPB (%)

    6.0

    6.8

    (8.0)

    5.7

    7.1

    Non-interest expense growth (%)

    4.7

    5.0

    1.0

    4.7

    0.4

    Adjusted non-interest expense growth (%)

    5.4

    5.7

    2.5

    5.7

    1.9

    Return on equity (%)

    14.1

    18.9

    11.6

    17.8

    15.9

    Adjusted return on equity (%)

    14.7

    19.5

    12.5

    18.5

    17.0

    Operating leverage, net of CCPB (%)

    1.3

    1.8

    (9.0)

    1.0

    6.7

    Adjusted operating leverage, net of CCPB (%)

    0.6

    1.1

    (10.5)

    -

    5.2

    Efficiency ratio, net of CCPB (%)

    74.7

    68.9

    75.7

    71.0

    71.7

    Adjusted efficiency ratio (%)

    55.3

    56.0

    48.9

    54.9

    52.6

    Adjusted efficiency ratio, net of CCPB (%)

    73.6

    67.8

    74.1

    70.0

    70.0

    Assets under management

    438,274

    451,216

    429,448

    438,274

    429,448

    Assets under administration (3)

    382,839

    394,513

    359,773

    382,839

    359,773

    Average earning assets

    32,784

    31,704

    28,754

    31,167

    28,026

    Average gross loans and acceptances

    21,559

    20,736

    18,538

    20,290

    18,068

    Average net loans and acceptances

    21,531

    20,706

    18,533

    20,260

    18,063

    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 millions, except as noted)

    Q4-2018

    Q3-2018

    Q4-2017

    Fiscal 2018

    Fiscal 2017

               

    Net interest income (teb)

    147

    135

    315

    659

    1,233

    Non-interest revenue

    982

    968

    800

    3,696

    3,336

    Total revenue (teb)

    1,129

    1,103

    1,115

    4,355

    4,569

    Provision for (recovery of) credit losses on impaired loans (1)

    (3)

    3

    na

    (17)

    na

    Provision for (recovery of) credit losses on performing loans (1)

    (4)

    4

    na

    (1)

    na

    Total provision for (recovery of) credit losses (1)

    (7)

    7

    4

    (18)

    44

    Non-interest expense

    763

    698

    679

    2,851

    2,778

    Income before income taxes

    373

    398

    432

    1,522

    1,747

    Provision for income taxes (teb)

    75

    97

    116

    366

    472

    Reported net income

    298

    301

    316

    1,156

    1,275

    Acquisition integration costs (2)

    9

    2

    -

    11

    -

    Amortization of acquisition-related intangible assets (3)

    2

    -

    -

    2

    2

    Adjusted net income

    309

    303

    316

    1,169

    1,277

               

    Trading Products revenue

    629

    638

    645

    2,539

    2,694

    Investment and Corporate Banking revenue

    500

    465

    470

    1,816

    1,875

    Net income growth (%)

    (5.6)

    7.0

    (18.4)

    (9.4)

    3.2

    Adjusted net income growth (%)

    (2.3)

    7.5

    (18.4)

    (8.5)

    3.3

    Revenue growth (%)

    1.4

    4.8

    (4.8)

    (4.7)

    5.9

    Non-interest expense growth (%)

    12.3

    1.1

    2.9

    2.6

    7.9

    Adjusted non-interest expense growth (%)

    10.3

    0.8

    3.0

    2.1

    7.9

    Return on equity (%)

    12.2

    13.2

    15.7

    12.8

    15.3

    Adjusted return on equity (%)

    12.6

    13.3

    15.7

    13.0

    15.4

    Operating leverage (teb) (%)

    (10.9)

    3.7

    (7.7)

    (7.3)

    (2.0)

    Adjusted operating leverage (teb) (%)

    (8.9)

    4.0

    (7.8)

    (6.8)

    (2.0)

    Efficiency ratio (teb) (%)

    67.5

    63.3

    61.0

    65.5

    60.8

    Adjusted efficiency ratio (teb) (%)

    66.3

    63.1

    60.9

    65.1

    60.8

    Net interest margin on average earning assets (teb) (%)

    0.21

    0.19

    0.49

    0.24

    0.47

    Average earning assets

    284,248

    276,780

    257,153

    271,839

    263,128

    Average assets

    317,655

    312,369

    295,097

    307,087

    302,518

    Average gross loans and acceptances

    47,972

    46,653

    46,831

    46,724

    48,217

    Average net loans and acceptances

    47,909

    46,590

    46,808

    46,658

    48,191

    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 $ in millions, except as noted)

    Q4-2018

    Q3-2018

    Q4-2017

    Fiscal 2018

    Fiscal 2017

               

    Net interest income before group teb offset

    (52)

    (74)

    (61)

    (243)

    (193)

    Group teb offset

    (67)

    (62)

    (176)

    (313)

    (567)

    Net interest income (teb)

    (119)

    (136)

    (237)

    (556)

    (760)

    Non-interest revenue

    77

    78

    43

    249

    177

    Total revenue (teb)

    (42)

    (58)

    (194)

    (307)

    (583)

    Provision for (recovery of) credit losses on impaired loans (1)

    (1)

    (2)

    na

    (13)

    na

    Provision for (recovery of) credit losses on performing loans (1)

    (2)

    -

    na

    (2)

    na

    Total provision (recovery of) credit losses (1)

    (3)

    (2)

    4

    (15)

    (78)

    Non-interest expense

    (159)

    81

    213

    436

    635

    Income (loss) before income taxes

    120

    (137)

    (411)

    (728)

    (1,140)

    Provision for (recovery of) income taxes (teb)

    (11)

    (75)

    (253)

    (2)

    (710)

    Reported net income (loss)

    131

    (62)

    (158)

    (726)

    (430)

    Acquisition integration costs (2)

    4

    5

    15

    14

    55

    Restructuring costs (3)

    -

    -

    41

    192

    41

    Decrease in the collective allowance for credit losses (4)

    -

    -

    -

    -

    (54)

    U.S. net deferred tax asset revaluation (5)

    -

    -

    -

    425

    -

    Benefit from the remeasurement of an employee benefit liability (6)

    (203)

    -

    -

    (203)

    -

    Adjusted net loss

    (68)

    (57)

    (102)

    (298)

    (388)

       

    (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) (Canadian $ in millions, except as noted)

     

    For the three months ended

     

    For the twelve months ended

       

    October 31,

     

    July 31,

     

    October 31,

     

    October 31,

     

    October 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 banks

     

    206

     

    161

     

    106

     

    641

     

    324

       

    5,438

     

    5,093

     

    4,154

     

    19,451

     

    15,689

    Interest Expense

                       

    Deposits

     

    1,881

     

    1,626

     

    1,101

     

    6,080

     

    3,894

    Subordinated debt

     

    61

     

    55

     

    43

     

    226

     

    155

    Other liabilities

     

    827

     

    805

     

    475

     

    2,832

     

    1,633

       

    2,769

     

    2,486

     

    1,619

     

    9,138

     

    5,682

    Net Interest Income

     

    2,669

     

    2,607

     

    2,535

     

    10,313

     

    10,007

    Non-Interest Revenue

                       

    Securities commissions and fees

     

    257

     

    259

     

    234

     

    1,029

     

    969

    Deposit and payment service charges

     

    292

     

    294

     

    282

     

    1,144

     

    1,123

    Trading revenues

     

    477

     

    503

     

    302

     

    1,830

     

    1,352

    Lending fees

     

    266

     

    248

     

    230

     

    997

     

    917

    Card fees

     

    143

     

    144

     

    132

     

    564

     

    479

    Investment management and custodial fees

     

    438

     

    446

     

    416

     

    1,742

     

    1,622

    Mutual fund revenues

     

    359

     

    372

     

    354

     

    1,473

     

    1,411

    Underwriting and advisory fees

     

    242

     

    262

     

    251

     

    936

     

    1,036

    Securities gains, other than trading

     

    83

     

    51

     

    41

     

    239

     

    171

    Foreign exchange gains, other than trading

     

    42

     

    41

     

    60

     

    182

     

    191

    Insurance revenue

     

    485

     

    427

     

    629

     

    1,879

     

    2,070

    Investments in associates and joint ventures

     

    38

     

    44

     

    47

     

    167

     

    386

    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 Credit Losses

     

    175

     

    186

     

    202

     

    662

     

    746

    Insurance Claims, Commissions and Changes in Policy Benefit Liabilities

     

    390

     

    269

     

    573

     

    1,352

     

    1,538

    Non-Interest Expense

                       

    Employee compensation

     

    1,612

     

    1,873

     

    1,842

     

    7,459

     

    7,467

    Premises and equipment

     

    745

     

    672

     

    628

     

    2,753

     

    2,491

    Amortization of intangible assets

     

    125

     

    126

     

    127

     

    503

     

    485

    Travel and business development

     

    186

     

    157

     

    183

     

    673

     

    693

    Communications

     

    70

     

    70

     

    69

     

    282

     

    286

    Professional fees

     

    158

     

    142

     

    172

     

    564

     

    563

    Other

     

    328

     

    346

     

    354

     

    1,379

     

    1,345

       

    3,224

     

    3,386

     

    3,375

     

    13,613

     

    13,330

    Income Before Provision for Income Taxes

     

    2,133

     

    1,979

     

    1,505

     

    7,410

     

    6,646

    Provision for income taxes

     

    438

     

    443

     

    278

     

    1,960

     

    1,296

    Net Income

    $

    1,695

    $

    1,536

    $

    1,227

    $

    5,450

    $

    5,350

    Attributable to:

                       

         Bank shareholders       

     

    1,695

     

    1,536

     

    1,227

     

    5,450

     

    5,348

         Non-controlling interest in subsidiaries

     

    -

     

    -

     

    -

     

    -

     

    2

    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 common share

     

    0.96

     

    0.96

     

    0.90

     

    3.78

     

    3.56

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

     

    Consolidated Statement of Comprehensive Income

    (Unaudited) (Canadian $ in millions)

     

    For the three months ended

     

    For the twelve months ended

       

    October 31,

     

    July 31,

     

    October 31,

     

    October 31,

     

    October 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 (losses) on fair value through OCI debt securities arising during the period (2)

     

    (49)

     

    16

     

    na

     

    (251)

     

    na

    Unrealized gains on available-for-sale securities arising during the period (3)

     

    na

     

    na

     

    27

     

    na

     

    95

    Reclassification to earnings of (gains) in the period (4)

     

    (22)

     

    (7)

     

    (17)

     

    (65)

     

    (87)

       

    (71)

     

    9

     

    10

     

    (316)

     

    8

    Net change in unrealized gains (losses) on cash flow hedges

                       

    (Losses) on derivatives designated as cash flow hedges arising during the period (5)

     

    (309)

     

    (218)

     

    (27)

     

    (1,228)

     

    (839)

    Reclassification to earnings of losses on derivatives designated as cash flow hedges (6)

     

    120

     

    101

     

    36

     

    336

     

    61

       

    (189)

     

    (117)

     

    9

     

    (892)

     

    (778)

    Net gains (losses) on translation of net foreign operations

                       

    Unrealized gains (losses) on translation of net foreign operations

     

    303

     

    145

     

    952

     

    417

     

    (885)

    Unrealized gains (losses) on hedges of net foreign operations (7)

     

    (62)

     

    (43)

     

    (138)

     

    (155)

     

    23

       

    241

     

    102

     

    814

     

    262

     

    (862)

    Items that will not be reclassified to net income

                       

    Gains (losses) on remeasurement of pension and other employee future benefit plans (8)

     

    (42)

     

    204

     

    103

     

    261

     

    420

    Gains on remeasurement of own credit risk on financial

                       

    liabilities designed at fair value (9)

     

    (18)

     

    26

     

    (32)

     

    (24)

     

    (148)

       

    (60)

     

    230

     

    71

     

    237

     

    272

    Other Comprehensive Income (Loss), net of taxes

     

    (79)

     

    224

     

    904

     

    (709)

     

    (1,360)

    Total Comprehensive Income

    $

    1,616

    $

    1,760

    $

    2,131

    $

    4,741

    $

    3,990

    Attributable to:

                       

    Bank shareholders

     

    1,616

     

    1,760

     

    2,131

     

    4,741

     

    3,988

    Non-controlling interest in subsidiaries

     

    -

     

    -

     

    -

     

    -

     

    2

    Total Comprehensive Income

    $

    1,616

    $

    1,760

    $

    2,131

    $

    4,741

    $

    3,990

       

    (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

    Customersʼ 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) (Canadian $ in millions)

     

    For the three months ended

     

    For the twelve months ended

       

    October 31,

     

    October 31,

     

    October 31,

     

    October 31,

       

    2018

     

    2017

     

    2018

     

    2017

    Preferred Shares

                   

    Balance at beginning of period

    $

    4,240

    $

    4,240

    $

    4,240

    $

    3,840

    Issued during the period

     

    400

     

    -

     

    400

     

    900

    Redeemed during the period

     

    (300)

     

    -

     

    (300)

     

    (500)

    Balance at End of Period

     

    4,340

     

    4,240

     

    4,340

     

    4,240

    Common Shares

                   

    Balance at beginning of period

     

    12,924

     

    13,044

     

    13,032

     

    12,539

    Issued under the Shareholder Dividend Reinvestment and Share Purchase Plan

     

    -

     

    -

     

    -

     

    448

    Issued under the Stock Option Plan

     

    26

     

    9

     

    99

     

    146

    Repurchased for cancellation

     

    (21)

     

    (21)

     

    (202)

     

    (101)

    Balance at End of Period

     

    12,929

     

    13,032

     

    12,929

     

    13,032

    Contributed Surplus

                   

    Balance at beginning of period

     

    302

     

    305

     

    307

     

    294

    Stock option expense, net of options exercised

     

    (2)

     

    2

     

    (12)

     

    6

    Other

     

    -

     

    -

     

    5

     

    7

    Balance at End of Period

     

    300

     

    307

     

    300

     

    307

    Retained Earnings

                   

    Balance at beginning of period

     

    24,909

     

    23,183

     

    23,709

     

    21,205

    Impact from adopting IFRS 9

     

    -

     

    na

     

    99

     

    na

    Net income attributable to bank shareholders

     

    1,695

     

    1,227

     

    5,450

     

    5,348

    Dividends  

    – Preferred shares                         

     

    (43)

     

    (48)

     

    (184)

     

    (184)

     

    – Common shares

     

    (614)

     

    (583)

     

    (2,424)

     

    (2,312)

    Share issue expense

     

    (5)

     

    -

     

    (5)

     

    (9)

    Common shares repurchased for cancellation

     

    (86)

     

    (70)

     

    (789)

     

    (339)

    Balance at End of Period

     

    25,856

     

    23,709

     

    25,856

     

    23,709

    Accumulated Other Comprehensive Income (Loss) on Fair Value through OCI Securities, net of taxes (1)

                 

    Balance at beginning of period

     

    (244)

     

    46

     

    56

     

    48

    Impact from adopting IFRS 9

     

    -

     

    na

     

    (55)

     

    na

    Unrealized (losses) on fair value through OCI debt securities arising during the period

     

    (49)

     

    na

     

    (251)

     

    na

    Unrealized gains on available-for-sale securities arising during the period

     

    na

     

    27

     

    na

     

    95

    Reclassification to earnings of (gains) in the period

     

    (22)

     

    (17)

     

    (65)

     

    (87)

    Balance at End of Period

     

    (315)

     

    56

     

    (315)

     

    56

    Accumulated Other Comprehensive (Loss) on Cash Flow Hedges, net of taxes

                   

    Balance at beginning of period

     

    (885)

     

    (191)

     

    (182)

     

    596

    (Losses) on derivatives designated as cash flow hedges arising during the period

     

    (309)

     

    (27)

     

    (1,228)

     

    (839)

    Reclassification to earnings of losses on derivatives designated as cash flow hedges in the period

     

    120

     

    36

     

    336

     

    61

    Balance at End of Period

     

    (1,074)

     

    (182)

     

    (1,074)

     

    (182)

    Accumulated Other Comprehensive Income on Translation

                   

    of Net Foreign Operations, net of taxes

                   

    Balance at beginning of period

     

    3,486

     

    2,651

     

    3,465

     

    4,327

    Unrealized gains (losses) on translation of net foreign operations

     

    303

     

    952

     

    417

     

    (885)

    Unrealized gains (losses) on hedges of net foreign operations

     

    (62)

     

    (138)

     

    (155)

     

    23

    Balance at End of Period

     

    3,727

     

    3,465

     

    3,727

     

    3,465

    Accumulated Other Comprehensive Income (Loss) on Pension and Other Employee

                   

    Future Benefit Plans, net of taxes

                   

    Balance at beginning of period

     

    211

     

    (195)

     

    (92)

     

    (512)

    Gains (losses) on remeasurement of pension and other employee future benefit plans

     

    (42)

     

    103

     

    261

     

    420

    Balance at End of Period

     

    169

     

    (92)

     

    169

     

    (92)

    Accumulated Other Comprehensive (Loss) on Own Credit Risk on

                   

    Financial Liabilities Designated at Fair Value, net of taxes

                   

    Balance at beginning of period

     

    (187)

     

    (149)

     

    (181)

     

    (33)

    (Losses) on remeasurement of own credit risk on financial liabilities designated at fair value

    (18)

     

    (32)

     

    (24)

     

    (148)

    Balance at End of Period

     

    (205)

     

    (181)

     

    (205)

     

    (181)

    Total Accumulated Other Comprehensive Income

     

    2,302

     

    3,066

     

    2,302

     

    3,066

    Total Shareholdersʼ Equity

    $

    45,727

    $

    44,354

    $

    45,727

    $

    44,354

    Non-controlling Interest in Subsidiaries

                   

    Balance at beginning of period

     

    -

     

    -

     

    -

     

    24

    Net income attributable to non-controlling interest

     

    -

     

    -

     

    -

     

    2

    Redemption/purchase of non-controlling interest

     

    -

     

    -

     

    -

     

    (25)

    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 Reinvestment and Share Purchase

    Plan (the Plan)

    Average market price as defined under the Plan

    August 2018: $106.33

    September 2018: $107.98

    October 2018: $98.90

     

    For dividend information, change in shareholder address

    or to advise of duplicate mailings, please contact

    Computershare Trust Company of Canada

    100 University Avenue, 8th Floor

    Toronto, Ontario M5J 2Y1

    Telephone: 1-800-340-5021 (Canada and the United States)

    Telephone: (514) 982-7800 (international)

    Fax: 1-888-453-0330 (Canada and the United States)

    Fax: (416) 263-9394 (international)

    E-mail: service@computershare.com

     

    For other shareholder information, including the notice for our normal course issuer bid, please contact

    Bank of Montreal

    Shareholder Services

    Corporate Secretary's Department

    One First Canadian Place, 21st Floor

    Toronto, Ontario M5X 1A1

    Telephone: (416) 867-6785

    Fax: (416) 867-6793

    E-mail: corp.secretary@bmo.com

     

    For further information on this document, please contact

    Bank of Montreal

    Investor Relations Department

    P.O. Box 1, One First Canadian Place, 10th Floor

    Toronto, Ontario M5X 1A1

     

    To review financial results and regulatory filings and disclosures online, please visit our website at www.bmo.com/investorrelations.

     

       

     

    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

    SOURCE BMO Financial Group

    For further information: 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