BMO Financial Group Reports Fourth Quarter and Fiscal 2018 Results (9)

(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 DevelopmentsOn 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 DesignationFor 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.

CautionThe 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 ResultsThe 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)

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