BMO Financial Group Reports Fourth Quarter and Fiscal 2018 Results (5)

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 ExchangeThe 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 2018Reported 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.

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