BMO Financial Group Reports Second Quarter 2018 Results

Toronto (ots/PRNewswire) -

Financial Results Highlights

Second Quarter 2018 Compared with Second Quarter 2017:

- Net income of $1,246 million, unchanged reflecting the
restructuring charge in the current quarter; adjusted net income[1]
of $1,463 million, up 13%
- EPS[2] of $1.86, up 1%; adjusted EPS[1],[2] of $2.20, up 15%
- ROE of 12.6%, unchanged; adjusted ROE[1] of 14.9%, up from 13.1%
- Provisions for credit losses (PCL) of $160 million, including a $12
million recovery of credit losses on performing loans[3], compared
with $251 million in the prior year
- Common Equity Tier 1 Ratio of 11.3%
- Dividend increased by $0.03 from the prior quarter to $0.96, up 7%
from the prior year

Year-to-Date 2018 Compared with Year-to-Date 2017:

- Net income of $2,219 million, down 19%, reflecting the revaluation
of our U.S. net deferred tax asset[4] and the restructuring charge
in the current year and a net gain[5] in the prior year; adjusted
net income[1] of $2,885 million, up 2%
- EPS[2],[4] of $3.29, down 19%; adjusted EPS[1],[2] of $4.31, up 3%
- ROE of 11.0%, compared with 13.8%; adjusted ROE[1] of 14.4%, up
from 14.2%
- Provisions for credit losses of $301 million, including a $45
million recovery of credit losses on performing loans[3], compared
with $418 million

For the second quarter ended April 30, 2018, BMO Financial Group
(TSX: BMO) (NYSE: BMO) recorded net income of $1,246 million or $1.86
per share on a reported basis, and net income of $1,463 million or
$2.20 per share on an adjusted basis.

"BMO's results this quarter demonstrate strong performance and
momentum in our U.S. and Canadian P&C banking and wealth businesses,
which drove adjusted earnings per share of $2.20, up 15% from a year
ago, and very strong adjusted operating leverage of 3.5%," said
Darryl White, Chief Executive Officer, BMO Financial Group.

"Across the company we're positioning BMO for accelerated growth.
Our commercial business is a core strength and is delivering results.
Our U.S. segment, which contributed 27% to year-to-date adjusted
earnings, is a key differentiator and we'll continue to grow it
faster than the rest of the bank. We're transforming how we work and
how we compete - unlocking efficiency and creating value for our
customers.

"I am confident that with our team of dedicated employees, and
through ongoing investment in our technology and innovation agenda,
we will continue to enhance loyalty, increase efficiency and deliver
sustainable shareholder value," concluded Mr. White.

In the current quarter, we recorded a restructuring charge of $192
million after-tax ($260 million pre-tax), primarily related to
severance, 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.

(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.
(3) Effective in 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 26 of our Second
Quarter 2018 Report to
Shareholders for further details.
(4) Reported net income in the first quarter of
2018 included a $425
million (US$339 million) 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, which had a
year-to-date negative impact of
approximately 16% on reported net income
growth, and $0.66 to
earnings per share. See the Critical
Accounting Estimates - Income
Taxes and Deferred Tax Assets section on page
114 of BMO's 2017
Annual Report. For further information see
the Other Regulatory
Developments section on page 27 of our Second
Quarter 2018 Report
to Shareholders.
(5) Net income in the prior year included a net
gain of $133 million,
attributed to a $168 million gain on the sale
of Moneris US and a
$35 million loss on the sale of a portion of
the U.S. indirect
auto loan portfolio. The net gain had a
year-to-date negative
impact of approximately 5% on reported and
adjusted net income
growth, and $0.20 to earnings per share.
Note: All ratios and percentage changes in this document are
based on unrounded
numbers.

Return on equity (ROE) was 12.6%, unchanged from the prior year
and adjusted ROE was 14.9% up from 13.1%. Return on tangible common
equity (ROTCE) was 15.6% compared with 15.7% in the prior year and
adjusted ROTCE was 18.0% compared with 15.9%.

Concurrent with the release of results, BMO announced a third
quarter 2018 dividend of $0.96 per common share, up $0.03 from the
preceding quarter and up $0.06 per share or 7% from a year ago. The
quarterly dividend of $0.96 per common share is equivalent to an
annual dividend of $3.84 per common share.

Our complete Second Quarter 2018 Report to Shareholders, including
our unaudited interim consolidated financial statements for the
period ended April 30, 2018, is available online at
http://www.bmo.com/investorrelations and at http://www.sedar.com.

Operating Segment Overview

Canadian P&C

Reported net income of $590 million increased $60 million or 11%
and adjusted net income of $591 million increased $61 million or 11%
from the prior year. Adjusted net income excludes the amortization of
acquisition-related intangible assets. Results reflect good revenue
growth, partially offset by higher expenses.

During the quarter, we launched a new suite of Small Business
credit cards with market-leading features and benefits, competitive
annual fees and an expedited application process. In addition, we
piloted a new Small Business lending platform that provides an
improved lending experience with faster turnaround times. These new
products and platform are expected to enhance growth in this
important market segment, and respond to the unique needs and
challenges of small business owners.

U.S. P&C

Reported net income of $348 million increased $108 million or 46%
and adjusted net income of $359 million increased $107 million or 43%
from a year ago. Adjusted net income excludes the amortization of
acquisition-related intangible assets.

Reported net income of US$272 million increased US$93 million or
52% from a year ago and adjusted net income of US$280 million
increased US$92 million or 50%, mainly due to strong revenue growth,
the tax reform benefit and a lower provision for credit losses,
partially offset by higher expenses. The benefit from the lower U.S.
tax rate due to tax reform to the current quarter's net income was
approximately US$24 million to reported net income and US$25 million
to adjusted net income.

During the quarter, BMO Harris Bank was named to the 18th annual
list of America's Top Corporations for Women's Business Enterprises
by the Women's Business Enterprise National Council. BMO Harris Bank
was honoured for implementing world-class policies and programs to
enable growth and innovation, while creating a level playing field
for women-owned businesses.

BMO Wealth Management

Reported net income of $296 million increased $42 million or 17%
from a year ago, and adjusted net income of $307 million increased
$32 million or 12%. Adjusted net income excludes the amortization of
acquisition-related intangible assets. Traditional wealth reported
net income of $227 million increased $46 million or 26% from a year
ago and adjusted net income of $238 million increased $36 million or
18% due to growth from our diversified businesses and improved equity
markets relative to last year. Insurance net income was $69 million,
relatively unchanged from a year ago.

BMO Private Bank was named Best Private Bank for Entrepreneurs in
North America by Global Finance magazine, recognizing our
understanding of North American client needs and our ability to
deliver the highest level of client service.

BMO Capital Markets

Reported and adjusted net income of $286 million both decreased 8%
from a year ago. Results reflect particularly strong Investment and
Corporate Banking revenue performance in the prior year, partially
offset by a lower provision for credit losses and lower taxes in the
current quarter.

On May 1, 2018, we entered into an agreement to acquire KGS-Alpha
Capital Markets, a U.S. fixed income broker-dealer specializing in
U.S. mortgage and asset-backed securities in the institutional
investor market. The acquisition is expected to close in the fourth
quarter of fiscal 2018.

Corporate Services

Corporate Services net loss for the quarter was $274 million
compared with a net loss of $87 million a year ago. Corporate
Services adjusted net loss for the quarter was $80 million compared
with an adjusted net loss of $74 million a year ago. Adjusted results
exclude a restructuring charge of $192 million after-tax in the
current quarter and acquisition integration costs in both periods.
Adjusted results were relatively consistent with the prior year as
lower revenue excluding the taxable equivalent basis (teb) adjustment
was largely offset by lower expenses. Reported results decreased due
to the restructuring charge in the current quarter and the drivers
noted above.

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 April 30,
2018. The CET1 Ratio increased from 11.1% in the first quarter driven
by the elimination of the Basel I floor and higher retained earnings,
partially offset by higher risk-weighted assets primarily from
business growth and share repurchases during the quarter.

Provision for Credit Losses

Effective in 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. Refer to Note 3 to
the unaudited interim consolidated financial statements of our Second
Quarter 2018 Report to Shareholders for an explanation of the
provision for credit losses.

The total provision for credit losses was $160 million, a decrease
of $91 million from the prior year. The provision for credit losses
on impaired loans of $172 million decreased $79 million reflecting
net recoveries in BMO Capital Markets compared with net provisions in
the prior year and lower provisions in U.S. P&C, partially offset by
higher provisions in Canadian P&C. There was a reduction in the
allowance for credit losses on performing loans in the quarter,
resulting in a recovery of credit losses of $12 million, primarily in
U.S. P&C. A modestly improved macroeconomic outlook in the current
quarter resulted in the lower future expected credit losses.

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.

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 the
table 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, and providing readers with a
better understanding of management's perspective on our performance.
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.

Non-GAAP Measures

(Canadian $ in millions, except as noted) Q2-2018 Q1-2018
Q2-2017 YTD-2018 YTD-2017
Reported Results
Revenue 5,617 5,678
5,741 11,295 11,146
Insurance claims, commissions and changes
in policy benefit liabilities (CCPB) (332) (361)
(708) (693) (712)
Revenue, net of CCPB 5,285 5,317
5,033 10,602 10,434
Total provision for credit losses (160) (141)
(251) (301) (418)
Non-interest expense (3,562) (3,441)
(3,284) (7,003) (6,669)
Income before income taxes 1,563 1,735
1,498 3,298 3,347
Provision for income taxes (317) (762)
(250) (1,079) (611)
Net Income 1,246 973
1,248 2,219 2,736
EPS ($) 1.86 1.43
1.84 3.29 4.06
Adjusting Items (Pre-tax) (1)
Amortization of acquisition-related
intangible assets (2) (29) (28)
(43) (57) (80)
Acquisition integration costs (3) (4) (4)
(21) (8) (43)
Restructuring costs (4) (260) -
- (260) -
Adjusting items included in reported
pre-tax income (293) (32)
(64) (325) (123)
Adjusting Items (After tax) (1)
Amortization of acquisition-related
intangible assets (2) (23) (21)
(34) (44) (62)
Acquisition integration costs (3) (2) (3)
(13) (5) (27)
Restructuring costs (4) (192) -
- (192) -
U.S. net deferred tax asset revaluation
(5) - (425)
- (425) -
Adjusting items included in reported net
income after tax (217) (449)
(47) (666) (89)
Impact on EPS ($) (0.34) (0.69)
(0.08) (1.02) (0.14)
Adjusted Results
Revenue 5,617 5,678
5,741 11,295 11,146
Insurance claims, commissions and changes
in policy benefit liabilities (CCPB) (332) (361)
(708) (693) (712)
Revenue, net of CCPB 5,285 5,317
5,033 10,602 10,434
Total provision for credit losses (160) (141)
(251) (301) (418)
Non-interest expense (3,269) (3,409)
(3,220) (6,678) (6,546)
Income before income taxes 1,856 1,767
1,562 3,623 3,470
Provision for income taxes (393) (345)
(267) (738) (645)
Net income 1,463 1,422
1,295 2,885 2,825
EPS ($) 2.20 2.12
1.92 4.31 4.20
(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.
(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, 18, 20 and 22 of our Second Quarter 2018
Report to
Shareholders.
(3) 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
recorded in
non-interest expense.
(4) In Q2-18, we recorded a restructuring charge, primarily
related to severance,
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. Restructuring cost is included in non-interest
expense in Corporate
Services.
(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 Cut and Jobs Act. For more
information see the
Other Regulatory Developments section on page 27 of our
Second Quarter 2018
Report to Shareholders.
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 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. Forward-looking
statements are typically identified by words such as "will",
"should", "believe", "expect", "anticipate", "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;
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,
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 2017
Annual MD&A, 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,
the discussion in the Critical Accounting Estimates - Income Taxes
and Deferred Tax Assets section on page 114 of BMO's 2017 Annual
MD&A, and the Risk Management section in this document, all of which
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.

Material economic assumptions underlying the forward-looking
statements contained in this document are set out in the 2017 Annual
MD&A under the heading "Economic Developments and Outlook", as
updated by the Economic Review and Outlook section set forth in this
document. 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 Review and
Outlook section of our Second Quarter 2018 Report to Shareholders.

INVESTOR AND MEDIA PRESENTATION

Investor Presentation Materials

Interested parties are invited to visit our website at
http://www.bmo.com/investorrelations to review our 2017 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 Wednesday, May 30, 2018, at 2:00 p.m. (EDT). 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, August 27, 2018, 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
http://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

February 2018: $99.07

March 2018: $96.67

April 2018: $98.06

For dividend information, change in shareholder address or to
advise of
duplicate mailings, please contact

Computershare Trust Company of Canada

100 University Avenue, 9th 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) 867-6786
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
http://www.bmo.com/investorrelations.

Our 2017 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
http://www.bmo.com/investorrelations and at http://www.sedar.com.
Printed copies of the bank's complete 2017 audited financial
statements are available free of charge upon request at 416-867-6785
or corp.secretary@bmo.com.

® Registered trademark of Bank of Montreal

Media Relations Contacts: Paul Gammal, Toronto,
paul.gammal@bmo.com, +1-416-867-3996; François Morin, Montreal,
francois1.morin@bmo.com, +1-514-877-1873; Investor Relations
Contacts: Jill Homenuk, Head, Investor Relations,
jill.homenuk@bmo.com, +1-416-867-4770; Christine Viau, Director,
Investor Relations, christine.viau@bmo.com , +1-416-867-6956

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