BMO Financial Group Reports Net Income of $5.35 Billion, up 16%, for Fiscal 2017

Toronto (ots/PRNewswire) -

Financial Results Highlights:

Fourth Quarter 2017 Compared with Fourth Quarter 2016:

- Net income of $1,227 million, down 9%; adjusted net income[1] of
$1,309 million, down 6%
- EPS[2] of $1.81, down 10%; adjusted EPS[1],[2] of $1.94, down 8%
- Reported and adjusted net income includes elevated reinsurance
claims of $112 million, which reduced EPS[2] by $0.17 and net
income growth by approximately 8%
- ROE of 12.1%, compared with 13.8%; adjusted ROE[1] of 12.9%,
compared with 14.4%
- Provision for credit losses of $208 million, compared with $174
million
- Common Equity Tier 1 Ratio of 11.4%
- Dividend increased $0.03, up 3% from the prior quarter

Fiscal 2017 Compared with Fiscal 2016:

- Net income of $5,350 million, up 16%; adjusted net income[1] of
$5,508 million, up 10%
- EPS[2] of $7.92, up 14%; adjusted EPS[1],[2] of $8.16, up 9%
- ROE of 13.3%, compared with 12.1%; adjusted ROE[1] of 13.7%,
compared with 13.1%
- Provision for credit losses of $774 million, compared with $815
million; specific provision for credit losses of $850 million,
compared with $815 million
- Dividend increased $0.05, up 6% from the prior year

For the fourth quarter ended October 31, 2017, BMO Financial Group
(TSX:BMO) (NYSE:BMO) recorded net income of $1,227 million or $1.81
per share on a reported basis, and net income of $1,309 million or
$1.94 per share on an adjusted basis.

"BMO finished the year with strong performance, delivering record
annual adjusted earnings of $5.5 billion, up 10% from last year, and
earnings per share of $8.16. Earnings growth reflects the benefit of
our diversified business mix, including continued momentum in the
U.S. segment, which has achieved 13% compound growth over the last
two years on a U.S dollar basis, contributing 25% or $1.4 billion to
bank earnings," said Darryl White, Chief Executive Officer, BMO
Financial Group.

"We are making good progress against our financial and strategic
objectives. In 2017, we delivered positive adjusted net operating
leverage of 1.9% building on the 2.1% achieved last year and leading
to an improvement in the adjusted net efficiency ratio of 240 bps
since 2015. We did so while investing more in digital capabilities,
providing customers with innovative products and services. We
improved the CET 1 Ratio to 11.4% and, at the same time, grew our
business and returned earnings to our shareholders through higher
dividends and share buybacks.

"We start 2018 from a position of strength, with diversified and
competitively advantaged businesses, a team of highly engaged,
customer-focused employees and a solid technology and data
foundation. I am confident that we will build on these core
capabilities to accelerate growth, improve efficiency and drive
customer loyalty. We are well-positioned to capture the opportunities
in an evolving market environment and deliver sustainable
profitability going forward," concluded Mr. White.

(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.

(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) 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.

Note: All ratios and percentage changes in this document are
based on unrounded
numbers.

Net income in the fourth quarter of 2017 included elevated
reinsurance claims of $112 million resulting largely from the impact
of hurricanes Irma, Maria and Harvey, which reduced net income growth
by approximately 8%. The weaker U.S. dollar reduced net income growth
by 1%. Reported results included a $41 million after-tax
restructuring charge as we continue to accelerate the use of
technology to enhance customer experience and focus on driving
operational efficiencies.

Concurrent with the release of results, BMO announced a first
quarter 2018 dividend of $0.93 per common share, up $0.03 per share
and 3% from the preceding quarter and up $0.05 per share and 6% from
a year ago. The quarterly dividend of $0.93 per common share is
equivalent to an annual dividend of $3.72 per common share.

Return on tangible common equity (ROTCE) was 14.8% compared with
17.2 % in the prior year, and adjusted ROTCE was 15.5% compared with
17.5%.

BMO's 2017 audited consolidated financial statements and
accompanying management discussion & analysis (MD&A), is available
online at http://www.bmo.com/investorrelations and at
http://www.sedar.com.

Operating Segment Overview for the Fourth Quarter of 2017

Canadian P&C

Reported net income of $624 million increased $36 million or 6%
and adjusted net income, which excludes the amortization of
acquisition-related intangible assets, of $625 million increased $37
million or 6% from a year ago due to higher balances across most
products, higher net interest margin and higher non-interest revenue,
partially offset by higher expenses and an increased provision for
credit losses.

During the quarter, in partnership with Ryerson University's DMZ,
we provided five startups with an opportunity to further develop and
scale their technologies through the DMZ-BMO Fintech Accelerator
Program. This program shows our commitment to build capabilities and
enhance service offerings for our customers through innovation.

U.S. P&C

Reported net income of $280 million and adjusted net income of
$291 million both decreased 3% from a year ago due to the weaker U.S.
dollar. Adjusted net income excludes the amortization of
acquisition-related intangible assets.

Reported net income of US$222 million and adjusted net income of
US$231 million both increased $5 million or 2% compared to a year ago
mainly due to higher deposit revenue and increased commercial loan
volumes, partially offset by loan spread compression and higher
expenses.

This quarter, we successfully completed the integration of BMO
Transportation Finance. In addition, the Federal Deposit Insurance
Corporation released its annual deposit market share report and we
maintained our second place rankings in the Chicago and Milwaukee
markets and our fourth place ranking within our core footprint, which
includes Illinois, Kansas, Wisconsin, Missouri, Indiana, and
Minnesota.

BMO Wealth Management

Reported net income of $172 million and adjusted net income of
$186 million both decreased 38% from a year ago. Adjusted net income
excludes the amortization of acquisition-related intangible assets
and acquisition integration costs. Elevated reinsurance claims of
$112 million in the current quarter largely resulting from the impact
of hurricanes and a gain on sale of an equity investment a year ago
had a negative impact of 52% on reported net income growth and 48% on
adjusted net income growth. Traditional wealth reported net income
was $189 million compared to $201 million and adjusted net income was
$203 million compared to $224 million a year ago, as improved equity
markets and business growth including higher deposit and loan revenue
were more than offset by a gain on sale of an equity investment last
year. Insurance reported a net loss of $17 million due to the
elevated reinsurance claims this quarter, partially offset by the
benefits from favourable market movements and the impact of
investment portfolio related changes. This compared to insurance net
income of $78 million last year.

BMO Wealth Management has been recognized by Wealth & Finance INTL
in their 2017 Global Finance Awards, as having the Most Outstanding
Wealth Planning Services, recognizing our best-in-class service.

BMO Capital Markets

Reported net income and adjusted net income, which excludes the
amortization of acquisition-related intangible assets, of $326
million decreased $66 million or 17% from record performance a year
ago, primarily due to lower revenue in our Investment and Corporate
Banking business, higher expenses, and a higher provision for credit
losses.

During the quarter, BMO Capital Markets partnered with Evolve
Funds to help launch the first Canadian-listed Exchange Traded Fund
(ETF), focused on gender diversity and workplace inclusion.

Corporate Services

Corporate Services net loss for the quarter was $175 million
compared with a net loss of $202 million a year ago. Corporate
Services adjusted net loss for the quarter was $119 million compared
with an adjusted net loss of $188 million a year ago. Adjusted
results exclude a $41 million after-tax restructuring charge in the
current quarter and acquisition integration costs in both periods.
Adjusted results increased due to lower expenses, in part due to the
impact of a gain on sale of an office building and higher revenue
excluding taxable equivalent basis (teb), partially offset by lower
credit recoveries. Reported results increased due to the net impact
of drivers noted above, partially offset by the restructuring charge
in the current quarter.

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 11.4% at October 31,
2017. The CET1 Ratio increased from 11.2% at the end of the third
quarter largely due to retained earnings growth and favourable
pension and post-retirement benefit impacts, partially offset by
business growth and share repurchases during the quarter.

Provision for Credit Losses

The total provision for credit losses was $208 million, an
increase of $34 million from the prior year due to higher provisions
in BMO Capital Markets, Corporate Services and Canadian P&C.

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
consolidated financial statements, Annual Information Form and Notice
of Annual Meeting of Shareholders and Proxy Circular are available on
our website at http://www.bmo.com/investorrelations, on the Canadian
Securities Administrators' website at http://www.sedar.com and on the
EDGAR section of the SEC's website at http://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 5, 2017. 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, 2017, included in this document, as well as the
audited consolidated financial statements for the year ended October
31, 2017, and the MD&A for fiscal 2017.

The 2017 Annual MD&A includes a comprehensive discussion of our
businesses, strategies and objectives, and can be accessed on our
website at http://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, 2017, 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, 2017, 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
Table 1

(Canadian $ in millions, except as
noted) Q4-2017 Q3-2017 Q4-2016
Fiscal 2017 Fiscal 2016
Summary Income Statement
Net interest income 2,535 2,533 2,498
10,007 9,872
Non-interest revenue 3,120 2,926 2,780
12,253 11,215
Revenue 5,655 5,459 5,278
22,260 21,087
Insurance claims, commissions and
changes in policy benefit
liabilities (CCPB) 573 253 79
1,538 1,543
Revenue, net of CCPB 5,082 5,206 5,199
20,722 19,544
Specific provision for credit
losses 208 210 174
850 815
Collective provision for (recovery
of) credit losses - (76) -
(76) -
Total provision for credit losses 208 134 174
774 815
Non-interest expense 3,369 3,278 3,323
13,302 12,997
Provision for income taxes 278 407 357
1,296 1,101
Net income 1,227 1,387 1,345
5,350 4,631
Attributable to bank shareholders 1,227 1,387 1,344
5,348 4,622
Attributable to non-controlling
interest in subsidiaries - - 1
2 9
Net income 1,227 1,387 1,345
5,350 4,631
Adjusted net income 1,309 1,374 1,395
5,508 5,020
Common Share Data ($ except as
noted)
Earnings per share 1.81 2.05 2.02
7.92 6.92
Adjusted earnings per share 1.94 2.03 2.10
8.16 7.52
Earnings per share growth (%) (10.3) 9.8 10.4
14.5 5.3
Adjusted earnings per share growth
(%) (7.6) 4.4 10.5
8.5 7.4
Dividends declared per share 0.90 0.90 0.86
3.56 3.40
Book value per share 61.92 59.65 59.56
61.92 59.56
Closing share price 98.83 94.56 85.36
98.83 85.36
Total market value of common shares
($ billions) 64.0 61.3 55.1
64.0 55.1
Dividend yield (%) 3.6 3.8 4.0
3.6 4.0
Financial Measures and Ratios (%)
Return on equity 12.1 13.4 13.8
13.3 12.1
Adjusted return on equity 12.9 13.3 14.4
13.7 13.1
Return on tangible common equity 14.8 16.5 17.2
16.3 15.3
Adjusted return on tangible common
equity 15.5 16.0 17.5
16.5 16.1
Net income growth (8.8) 11.4 10.8
15.5 5.1
Adjusted net income growth (6.2) 6.1 10.3
9.7 7.2
Revenue growth 7.2 (3.1) 5.9
5.6 8.8
Revenue growth, net of CCPB (2.2) 5.3 10.2
6.0 7.8
Non-interest expense growth 1.4 6.0 7.4
2.3 6.7
Adjusted non-interest expense
growth (0.1) 6.5 7.3
3.7 6.1
Efficiency ratio, net of CCPB 66.3 63.0 63.9
64.2 66.5
Adjusted efficiency ratio 57.5 59.0 61.7
58.4 59.2
Adjusted efficiency ratio, net of
CCPB 64.0 61.9 62.6
62.8 63.9
Operating leverage, net of CCPB (3.6) (0.7) 2.8
3.7 1.1
Adjusted operating leverage, net of
CCPB (2.1) (1.2) 2.9
1.9 2.1
Net interest margin on average
earning assets 1.57 1.55 1.57
1.55 1.59
Effective tax rate 18.5 22.7 21.0
19.5 19.2
Adjusted effective tax rate 19.3 22.5 21.2
19.8 19.9
Return on average assets 0.68 0.76 0.75
0.74 0.65
PCL-to-average net loans and
acceptances (annualized) 0.22 0.14 0.19
0.21 0.23
Specific PCL-to-average net loans
and acceptances (annualized) 0.22 0.22 0.19
0.23 0.23
Balance Sheet (as at $ millions,
except as noted)
Assets 709,580 708,617 687,935
709,580 687,935
Net loans and acceptances 378,218 375,971 371,751
378,218 371,751
Deposits 483,488 473,111 473,372
483,488 473,372
Common shareholders' equity 40,114 38,694 38,464
40,114 38,464
Cash and securities-to-total assets
ratio (%) 28.5 27.8 27.1
28.5 27.1
Capital Ratios (%)
CET1 Ratio 11.4 11.2 10.1
11.4 10.1
Tier 1 Capital Ratio 13.0 12.9 11.6
13.0 11.6
Total Capital Ratio 15.1 15.2 13.6
15.1 13.6
Leverage Ratio 4.4 4.4 4.2
4.4 4.2
Foreign Exchange Rates
As at Canadian/U.S. dollar 1.2895 1.2453 1.3411
1.2895 1.3411
Average Canadian/U.S. dollar 1.2621 1.2974 1.3216
1.3071 1.3251

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

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 have been derived from 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 Table 2
below. 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 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 if they consider the items to 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
corresponding adjusted results. Adjusted results and measures are
non-GAAP and as such do not have standardized meaning 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
Table 2

(Canadian $ in
millions, except as
noted) Q4-2017 Q3-2017 Q4-2016 Fiscal 2017
Fiscal 2016
Reported Results
Revenue 5,655 5,459 5,278 22,260
21,087
Insurance claims,
commissions and
changes in policy
benefit liabilities
(CCPB) (573) (253) (79) (1,538)
(1,543)
Revenue, net of
CCPB 5,082 5,206 5,199 20,722
19,544
Provision for
credit losses (208) (134) (174) (774)
(815)
Non-interest
expense (3,369) (3,278) (3,323) (13,302)
(12,997)
Income before
income taxes 1,505 1,794 1,702 6,646
5,732
Provision for
income taxes (278) (407) (357) (1,296)
(1,101)
Net Income 1,227 1,387 1,345 5,350
4,631
EPS ($) 1.81 2.05 2.02 7.92
6.92
Adjusting Items
(Pre-tax) (1)
Amortization of
acquisition-related
intangible assets
(2) (34) (35) (37) (149)
(160)
Acquisition
integration costs
(3) (24) (20) (31) (87)
(104)
Cumulative
accounting
adjustment (4) - - - -
(85)
Restructuring cost
(5) (59) - - (59)
(188)
Decrease in the
collective
allowance for
credit losses (6) - 76 - 76
-
Adjusting items
included in
reported pre-tax
income (117) 21 (68) (219)
(537)
Adjusting Items
(After tax) (1)
Amortization of
acquisition-related
intangible assets
(2) (26) (28) (29) (116)
(124)
Acquisition
integration costs
(3) (15) (13) (21) (55)
(71)
Cumulative
accounting
adjustment (4) - - - -
(62)
Restructuring cost
(5) (41) - - (41)
(132)
Decrease in the
collective
allowance for
credit losses (6) - 54 - 54
-
Adjusting items
included in
reported net income
after tax (82) 13 (50) (158)
(389)
Impact on EPS ($) (0.13) 0.02 (0.08) (0.24)
(0.60)
Adjusted Results
Revenue 5,655 5,459 5,278 22,260
21,171
Insurance claims,
commissions and
changes in policy
benefit liabilities
(CCPB) (573) (253) (79) (1,538)
(1,543)
Revenue, net of
CCPB 5,082 5,206 5,199 20,722
19,628
Provision for
credit losses (208) (210) (174) (850)
(815)
Non-interest
expense (3,252) (3,223) (3,255) (13,007)
(12,544)
Income before
income taxes 1,622 1,773 1,770 6,865
6,269
Provision for
income taxes (313) (399) (375) (1,357)
(1,249)
Net income 1,309 1,374 1,395 5,508
5,020
EPS ($) 1.94 2.03 2.10 8.16
7.52

(1) Adjusting items are included in Corporate
Services, with the exception of the amortization
of acquisition-related intangible assets, which is
charged to the operating groups, and acquisition
integration costs related to F&C Asset Management
plc (F&C), which are charged to Wealth Management.

(2) These expenses were charged to the non-interest
expense of the operating groups. Before and
after-tax amounts for each operating group are
provided on pages 15, 16, 17, 18, and 19.

(3) Acquisition integration costs related to F&C Asset
Management plc (F&C) are charged to Wealth
Management. Acquisition integration costs related
to the acquired BMO Transportation Finance
business are charged to Corporate Services, since
the acquisition impacts both Canadian and U.S. P&C
businesses. Acquisition costs are primarily
recorded in non-interest expense.

(4) Cumulative accounting adjustment recognized in
other non-interest revenue related to foreign
currency translation, largely impacting prior
periods.

(5) Restructuring charge in Q4-2017 and Q2-2016, as we
continue to accelerate the use of technology to
enhance customer experience and focus on driving
operational efficiencies. Restructuring cost is
recorded in non-interest expense.

(6) Adjustments to the collective allowance for credit
losses are recorded in Corporate Services
provision for (recovery of) credit losses.

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 may involve, but
are not limited to, comments with respect to our objectives and
priorities for fiscal 2018 and beyond, our strategies or future
actions, our targets, expectations for our financial condition or
share price, and the results of or outlook for our operations or for
the Canadian, U.S. and international economies.

By their nature, forward-looking statements require us to make
assumptions and are subject to inherent risks and uncertainties.
There is significant risk that predictions, forecasts, conclusions or
projections will not prove to be accurate, that our assumptions may
not be correct, and that actual results may differ materially from
such predictions, forecasts, conclusions or projections. We caution
readers of this document not to place undue reliance on our
forward-looking statements, as a number of factors could cause actual
future results, conditions, actions or events to differ materially
from the targets, expectations, estimates or intentions expressed in
the forward-looking statements.

The future outcomes that relate to forward-looking statements may
be influenced by many factors, including but not limited to: general
economic and market conditions in the countries in which we operate;
weak, volatile or illiquid capital and/or credit markets; interest
rate and currency value fluctuations; changes in monetary, fiscal, or
economic policy 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; our ability to execute our strategic plans and to
complete and integrate acquisitions, including obtaining regulatory
approvals; critical accounting estimates and the effect of changes to
accounting standards, rules and interpretations on these estimates;
operational and infrastructure risks; changes to our credit ratings;
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;
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, 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, which begin
on page 86, of BMO's 2017 Annual MD&A and outline certain key factors
and risks that may affect Bank of Montreal's 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. Bank of Montreal
does not undertake to update any forward-looking statements, whether
written or oral, that may be made from time to time by the
organization or on its behalf, except as required by law. The
forward-looking information contained in this document is presented
for the purpose of assisting our shareholders in understanding our
financial position as at and for the periods ended on the dates
presented, as well as our strategic priorities and objectives, and
may not be appropriate for other purposes.

Assumptions about the 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. See the Economic Developments and
Outlook section on page 32 of BMO's 2017 Annual MD&A.

Foreign Exchange

The Canadian dollar equivalents of BMO's U.S. results that are
denominated in U.S. dollars were decreased relative to the third
quarter of 2017 and the fourth quarter of 2016 by the weaker U.S.
dollar. Table 3 indicates the relevant average Canadian/U.S. dollar
exchange rates and the impact of changes in the rates on our U.S.
segment results. 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 year and the
fourth quarter of 2016. We regularly determine whether to execute
hedging transactions to mitigate the impact of foreign exchange rate
movements on net income.

See the Capital Management section of the 2017 Annual MD&A for
discussion on 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
Table 3

Q4-2017
(Canadian $ in millions, except as noted) vs
Q4-2016 vs Q3-2017
Canadian/U.S. dollar exchange rate (average)
Current period
1.2621 1.2621
Prior period
1.3216 1.2974
Effects on U.S. segment reported results
Decreased net interest income
(45) (27)
Decreased non-interest revenue
(38) (22)
Decreased revenues
(83) (49)
Decreased provision for credit losses
4 2
Decreased expenses
59 35
Decreased income taxes
5 3
Decreased reported net income before impact of hedges
(15) (9)
Hedging losses in current period, after tax
- -
Decreased reported net income
(15) (9)
Effects on U.S. segment adjusted results
Decreased net interest income
(45) (27)
Decreased non-interest revenue
(38) (22)
Decreased revenues
(83) (49)
Decreased provision for credit losses
3 2
Decreased expenses
57 34
Decreased income taxes
6 3
Decreased adjusted net income before impact of hedges
(17) (10)
Hedging losses in current period, after tax
- -
Decreased adjusted net income
(17) (10)
Adjusted results in this section are non-GAAP amounts or non-GAAP
measures.
Please see the Non-GAAP Measures section.

Net Income

Q4 2017 vs Q4 2016

Net income was $1,227 million for the fourth quarter of 2017, down
$118 million or 9% from the prior year. Adjusted net income was
$1,309 million for the fourth quarter of 2017, down $86 million or 6%
from the prior year. Adjusted net income excludes a restructuring
charge in the current period, and the amortization of
acquisition-related intangible assets and acquisition integration
costs in both periods. EPS of $1.81 was down $0.21 or 10%, and
adjusted EPS of $1.94 was down $0.16 or 8% from the prior year. Net
income this quarter included claims of $112 million in our
reinsurance business largely resulting from the impact of hurricanes
Irma, Maria and Harvey which reduced earnings per share by $0.17 and
net income growth by approximately 8%. The weaker U.S. dollar reduced
net income growth by 1%.

Canadian P&C reported net income of $624 million increased $36
million or 6% and adjusted net income of $625 million increased $37
million or 6% from a year ago due to higher balances across most
products and higher net interest margin, partially offset by higher
expenses and an increased provision for credit losses. On a Canadian
dollar basis, U.S. P&C reported and adjusted net income both
decreased 3% from a year ago due to the weaker U.S. dollar. On a U.S.
dollar basis, U.S. P&C reported and adjusted net income both
increased $5 million or 2% mainly due to higher deposit revenue and
increased commercial loan volumes, partially offset by loan spread
compression and higher expenses. Wealth Management reported net
income of $172 million and adjusted net income of $186 million both
decreased 38% from a year ago. Elevated reinsurance claims in the
current quarter and a gain on sale of an equity investment a year ago
had a negative impact of 52% on reported net income growth and 48% on
adjusted net income growth. Traditional wealth reported net income
was $189 million compared to $201 million and adjusted net income was
$203 million compared to $224 million a year ago, as improved equity
markets and business growth including higher deposit and loan revenue
were more than offset by a gain on sale of an equity investment last
year. Insurance reported a net loss of $17 million due to the
elevated reinsurance claims this quarter, partially offset by the
benefits from favourable market movements and the impact of
investment portfolio related changes. This compared to insurance net
income of $78 million last year. BMO Capital Markets reported and
adjusted net income of $326 million both decreased $66 million or 17%
from record performance a year ago, primarily due to lower revenue in
our Investment and Corporate Banking business, higher expenses, and a
higher provision for credit losses. Corporate Services adjusted
results increased due to lower expenses, in part due to a gain on the
sale of an office building, and higher revenue excluding teb,
partially offset by lower credit recoveries. Reported results
increased due to the net impact of the drivers noted above, partially
offset by the restructuring charge in the current quarter.

Q4 2017 vs Q3 2017

Net income decreased $160 million or 12% and adjusted net income
decreased $65 million or 5% from the prior quarter. Adjusted net
income excludes a restructuring charge in the current quarter, a
decrease in the collective allowance in the prior quarter and the
amortization of acquisition-related intangible assets and acquisition
integration costs in both periods. EPS decreased $0.24 or 11% and
adjusted EPS decreased $0.09 or 4%. Net income this quarter included
higher reinsurance claims of $112 million which reduced earnings per
share by $0.17 and net income growth by approximately 8%.

Canadian P&C reported and adjusted net income both increased by 2%
due to higher net interest margin, partially offset by a higher
provision for credit losses and higher expenses. On a Canadian dollar
basis, U.S. P&C reported and adjusted net income both increased $2
million or 1% from the prior quarter. On a U.S. dollar basis, U.S.
P&C reported and adjusted net income both increased $8 million or 3%
due to higher revenue, a lower provision for credit losses and lower
expenses, partially offset by a more favourable tax rate in the prior
quarter. Wealth Management reported net income, which included
elevated reinsurance claims of $112 million, decreased $92 million or
35% and adjusted net income decreased $93 million or 33%. Traditional
wealth reported net income of $189 million and adjusted net income of
$203 million were relatively unchanged. Insurance reported a net loss
of $17 million primarily due to the elevated reinsurance claims of
$112 million in the current quarter, net of benefits from favourable
market movements and the impact of investment portfolio related
changes, compared to net income of $76 million in the prior quarter.
BMO Capital Markets reported and adjusted net income both increased
11%, primarily due to higher revenue and lower expenses, partially
offset by a more favourable tax rate in the prior quarter and a
higher provision for credit losses. Corporate Services adjusted
results decreased largely due to higher expenses, net of a gain on
the sale of an office building in the current quarter, partially
offset by the impact of a less favourable tax rate in the prior
quarter. Reported results decreased due to the decrease in the
collective allowance in the prior quarter and the restructuring
charge in the current quarter, in addition to the net impact of the
drivers noted above.

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

Revenue

Q4 2017 vs Q4 2016

Revenue of $5,655 million increased $377 million or 7% from the
fourth quarter a year ago. On a basis that nets insurance claims,
commissions and changes in policy benefit liabilities (CCPB) against
insurance revenue (net revenue), revenue of $5,082 million decreased
$117 million or 2%, or 1% excluding the impact of the weaker U.S.
dollar. Net revenue included elevated reinsurance claims of $112
million.

Canadian P&C revenue increased 5%, mainly due to higher balances
across most products, higher net interest margin and higher
non-interest revenue. U.S. P&C revenue decreased 2% on a Canadian
dollar basis due to the impact of the weaker U.S. dollar. U.S. P&C
revenue increased 3% on a U.S. dollar basis driven by higher deposit
revenue and increased commercial loan volumes, net of loan spread
compression and lower non-interest revenue. Traditional wealth
revenue was relatively unchanged, as improved equity markets and
business growth including higher deposit and loan revenue were offset
by a gain on sale of an equity investment in the prior year. Net
insurance revenue was $42 million, compared to $136 million a year
ago due to the elevated reinsurance claims, partially offset by the
benefits from favourable market movements and the impact of
investment portfolio related changes. BMO Capital Markets revenue
decreased 4%, as Investment and Corporate Banking revenue decreased
from a particularly strong quarter last year, primarily due to lower
mergers and acquisitions advisory activity and lower net securities
gains, partially offset by higher corporate banking-related revenue.
Trading Products revenue was largely unchanged from the prior year.
Corporate Services revenue decreased due to a higher group teb
adjustment, partially offset by higher revenue excluding teb in the
current quarter.

Net interest income increased $37 million or 2% to $2,535 million,
or 3% excluding the impact of the weaker U.S. dollar, primarily due
to higher deposit spreads in the Personal and Commercial banking
businesses, partially offset by lower net interest income from
certain trading businesses. Average earning assets increased $11.2
billion or 2% to $642.5 billion, or 4% excluding the impact of the
weaker U.S. dollar, due to higher securities and loan growth. BMO's
overall net interest margin of 1.57% was flat compared to the prior
year. Net interest margin (excluding trading) improved 4 basis points
from the prior year to 1.91% primarily driven by higher deposit
spreads in the Personal and Commercial banking businesses.

Net non-interest revenue of $2,547 million decreased $154 million
or 6%, or 4% excluding the impact of the weaker U.S. dollar, mainly
due to the elevated reinsurance claims in the current period, a gain
on sale of an equity investment in the prior year and lower
underwriting and advisory fees.

Gross insurance revenue increased $396 million from a year ago,
largely due to decreases in long-term interest rates increasing the
fair value of insurance investments in the current year compared to
increases in long-term interest rates decreasing the fair value of
insurance investments in the prior year and 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 are predominantly fixed
income assets 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 insurance claims, commissions and changes in policy
benefit liabilities (CCPB), as discussed on page 11. Given the extent
to which insurance revenue can vary and that this variability is
largely offset in CCPB, we generally focus on analyzing revenue net
of CCPB.

Q4 2017 vs Q3 2017

Revenue increased $196 million or 4% from the prior quarter. Net
revenue decreased $124 million or 2%, or 1% excluding the impact of
the weaker U.S. dollar. Net revenue included elevated reinsurance
claims in the current quarter.

Canadian P&C revenue increased 2% primarily due to higher net
interest margin. U.S. P&C revenue decreased 1% on a Canadian dollar
basis. U.S. P&C revenue increased 2% on a U.S. dollar basis due to
increased loan volumes and higher deposit revenue. Traditional wealth
revenue increased $13 million or 1%. Net insurance revenue was $42
million compared to $133 million in the prior quarter primarily due
to the elevated reinsurance claims of $112 million in the current
quarter, net of the benefits from favourable market movements and
investment portfolio related changes. BMO Capital Markets revenue
increased 6%. Trading Products revenue increased, in part due to
increased client activity in our equities business. Investment and
Corporate Banking revenue increased as a result of higher investment
banking activity, primarily reflecting increased debt underwriting
and mergers and acquisitions advisory activities. Corporate Services
revenue decreased largely due to a higher group teb adjustment in the
current quarter.

Net interest income of $2,535 million was relatively unchanged
from the prior quarter, or increased 1% excluding the impact of the
weaker U.S. dollar, mainly due to higher deposit spreads. Average
earning assets decreased $4.1 billion or 1% to $642.5 billion.
Excluding the impact of the weaker U.S. dollar, average earning
assets increased $2.6 billion from the prior quarter. BMO's overall
net interest margin increased by 2 basis points, and increased 1
basis point on an excluding trading basis, primarily due to higher
deposit spreads.

Net non-interest revenue decreased $126 million or 5%, or 4%
excluding the impact of the weaker U.S. dollar, primarily due to the
elevated reinsurance claims and lower trading revenue in the current
quarter, partially offset by increases in foreign exchange, other
than trading and underwriting & advisory fees.

Gross insurance revenue increased $228 million from the prior
quarter, largely due to decreases in long-term interest rates
increasing the fair value of insurance investments in the current
quarter compared to increases in long-term interest rates in the
prior quarter decreasing the fair value of investments, partially
offset by lower annuity sales. The increase in insurance revenue was
more than offset by higher insurance claims, commissions and changes
in policy benefit liabilities as discussed on page 11.

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

Net Interest Margin on Average
Earning Assets (teb) (1)
Table 4

(In basis points) Q4-2017 Q3-2017 Q4-2016
Fiscal 2017 Fiscal 2016
Canadian P&C 259 254 253
253 254
U.S. P&C 377 380 358
375 363
Personal and Commercial Banking 296 293 288
292 289
Wealth Management 261 243 241
250 237
BMO Capital Markets 50 35 53
48 58
Corporate Services (2) nm nm nm
nm nm
Total BMO net interest margin 157 155 157
155 159
Total BMO net interest margin
(excluding trading) 191 190 187
187 186
Total Canadian Retail (3) 257 251 251
251 251

(1) Net interest margin is disclosed and computed with
reference to average earning assets, rather than total
assets. This basis provides a more relevant measure of
margins and changes in margins. Operating group margins
are stated on a taxable equivalent basis (teb) while total
BMO margin is stated on a GAAP basis.

(2) Corporate Services adjusted net interest income is
negative in all periods and its variability affects
changes in net interest margin.

(3) Total Canadian retail margin represents the net interest
margin of the combined Canadian businesses of Canadian P&C
and Wealth Management.

nm - not meaningful.

Provision for Credit Losses

Q4 2017 vs Q4 2016

The total provision for credit losses was $208 million, an increase
of $34 million from the prior year due to higher provisions in BMO
Capital Markets, Corporate Services and Canadian P&C. There was no
net change to the collective allowance in the quarter.

Canadian P&C provisions increased $11 million to $134 million due
to higher commercial provisions. U.S. P&C provisions of $66 million
were unchanged as higher consumer provisions were offset by the
impact of the weaker U.S. dollar. BMO Capital Markets provisions were
$4 million compared with net recoveries of $8 million in the prior
year. Corporate Services provisions increased $12 million primarily
due to lower credit recoveries compared to the prior year.

Q4 2017 vs Q3 2017

The total provision for credit losses increased $74 million,
reflecting a decrease in the collective allowance in the prior
quarter. The specific provision for credit losses was $208 million,
relatively flat compared to the prior quarter.

Canadian P&C provisions increased $9 million due to higher
commercial provisions. U.S. P&C provisions decreased $13 million due
to lower consumer and commercial provisions. BMO Capital Markets
provisions were $4 million compared with net recoveries of $2 million
in the prior quarter. Corporate Services specific provisions were
flat quarter over quarter.

Provision for Credit Losses by
Operating Group
Table 5

(Canadian $ in millions) Q4-2017 Q3-2017 Q4-2016
Fiscal 2017 Fiscal 2016
Canadian P&C 134 125 123
505 542
U.S. P&C 66 79 66
295 257
Personal and Commercial Banking 200 204 189
800 799
Wealth Management - 5 1
8 9
BMO Capital Markets 4 (2) (8)
44 81
Corporate Services 4 3 (8)
(2) (74)
Specific provision for credit losses 208 210 174
850 815
Decrease in the collective allowance
for credit losses - (76) -
(76) -
Provision for credit losses 208 134 174
774 815

Changes to Provision for Credit
Losses
Table 6

(Canadian $ in millions, except as
noted) Q4-2017 Q3-2017 Q4-2016
Fiscal 2017 Fiscal 2016
New specific provisions 326 318 339
1,356 1,386
Reversals of previously established
allowances (47) (47) (85)
(241) (228)
Recoveries of loans previously
written-off (71) (61) (80)
(265) (343)
Specific provision for credit losses 208 210 174
850 815
Decrease in the collective allowance
for credit losses - (76) -
(76) -
Provision for credit losses 208 134 174
774 815
PCL-to-average net loans and
acceptances (annualized) (%) 0.22 0.14 0.19
0.21 0.23
Specific PCL-to-average net loans
and acceptances (annualized) (%) 0.22 0.22 0.19
0.23 0.23

Impaired Loans

Total gross impaired loans (GIL) were $2,174 million at the end of
the current quarter, down from $2,332 million a year ago, primarily
due to lower oil and gas impaired loans. GIL increased from $2,109
million in the third quarter of 2017 primarily due to the impact of a
stronger U.S. dollar.

Factors contributing to the change in GIL are outlined in Table 7
below. Loans classified as impaired during the quarter totalled $527
million, up from $405 million in the third quarter of 2017 and down
from $555 million a year ago.

Changes in Gross Impaired Loans (GIL) and
Acceptances (1)
Table 7

(Canadian $ in
millions, except as
noted) Q4-2017 Q3-2017 Q4-2016
Fiscal 2017 Fiscal 2016
GIL, beginning of
period 2,109 2,399 2,307
2,332 1,959
Classified as impaired
during the period 527 405 555
2,193 2,512
Transferred to not
impaired during the
period (135) (159) (133)
(607) (577)
Net repayments (184) (242) (161)
(1,007) (869)
Amounts written-off (147) (150) (250)
(623) (706)
Recoveries of loans
and advances
previously written-off - - -
- -
Disposals of loans (45) 1 (28)
(46) (34)
Foreign exchange and
other movements 49 (145) 42
(68) 47
GIL, end of period 2,174 2,109 2,332
2,174 2,332
GIL-to-gross loans and
acceptances (%) 0.57 0.56 0.62
0.57 0.62

(1) GIL excludes purchased credit impaired loans.

Insurance Claims, Commissions and Changes in Policy Benefit
Liabilities

Insurance claims, commissions and changes in policy benefit
liabilities (CCPB) were $573 million in the fourth quarter of 2017,
up $494 million from $79 million in the fourth quarter of 2016 due to
decreases in long-term interest rates increasing the fair value of
policy benefit liabilities compared to increases in long-term
interest rates in the fourth quarter of 2016 decreasing the fair
value of policy benefit liabilities, elevated reinsurance claims and
the impact of higher annuity sales. CCPB were up $320 million from
$253 million in the third quarter of 2017 due to decreases in
long-term interest rates increasing the fair value of policy benefit
liabilities compared to increases in long-term interest rates in the
third quarter of 2017 decreasing the fair value of policy benefit
liabilities, and the elevated reinsurance claims, partially offset by
the impact of lower annuity sales. The increases 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 $3,369 million increased $46
million or 1% from the fourth quarter a year ago. Adjusted
non-interest expense of $3,252 million decreased $3 million. Adjusted
non-interest expense increased 2% excluding the impact of the weaker
U.S. dollar. Adjusted non-interest expense excludes a restructuring
charge in the current quarter and acquisition integration costs and
the amortization of acquisition-related intangible assets in both
periods. Higher technology costs and professional fees were largely
offset by a gain on the sale of an office building in the quarter and
lower employee-related expenses.

Reported non-interest expense increased $91 million or 3% and
adjusted non-interest expense increased approximately 1% from the
third quarter of 2017. Adjusted non-interest expense increased 2%
excluding the impact of the weaker U.S. dollar. Higher technology
costs, professional fees and other costs were largely offset by lower
employee-related expenses.

Reported operating leverage, on a net revenue basis, was negative
3.6% year over year. Adjusted operating leverage, on a net revenue
basis, was negative 2.1% year over year. The elevated reinsurance
claims in the quarter reduced adjusted and reported operating
leverage by approximately 2.0%. Annual reported and adjusted
operating leverage, on a net revenue basis, were 3.7% and 1.9%,
respectively.

The reported efficiency ratio was 59.6% compared to 63.0% in the
prior year, and was 66.3% on a net revenue basis compared to 63.9% in
the prior year. The adjusted efficiency ratio was 57.5% compared to
61.7% in the prior year, and was 64.0% on a net revenue basis
compared to 62.6% in the prior year. The elevated reinsurance claims
noted above increased the adjusted net efficiency ratio by
approximately 1.4%.

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 $278 million decreased $79
million from the fourth quarter of 2016 and decreased $129 million
from the third quarter of 2017. The effective tax rate for the
quarter was 18.5%, compared with 21.0% a year ago and 22.7% in the
third quarter of 2017. The adjusted provision for income taxes of
$313 million decreased $62 million from a year ago and decreased $86
million from the third quarter of 2017. The adjusted effective tax
rate was 19.3% in the current quarter, compared with 21.2% a year ago
and 22.5% in the third quarter of 2017. The lower reported and
adjusted tax rates in the current quarter relative to the fourth
quarter of 2016 were primarily due to higher tax-exempt income from
securities. The lower reported and adjusted tax rates in the current
quarter re