BMO Financial Group Reports Fourth Quarter and Fiscal 2020 Results

Financial Results Highlights

Fourth Quarter 2020 Compared With Fourth Quarter 2019:

• Net income⁴ of $1,584 million, up 33%; adjusted net income¹ of $1,610 million, up $3 million from the prior year
• Reported EPS² of $2.37, up 33%; adjusted EPS^1,2 of $2.41, compared with $2.43 in the prior year
• Revenue, net of CCPB³, of $5,986 million, up 4%
• Provision for credit losses (PCL) of $432 million, compared with $253 million; current quarter includes PCL on performing loans of $93 million
• ROE of 12.4%, up from 9.9%; adjusted ROE¹ of 12.6%, compared with 13.5%
• Common Equity Tier 1 Ratio of 11.9%, up from 11.4% in the prior year
• Dividend of $1.06, unchanged from the prior quarter and the prior year

Fiscal 2020 Compared With Fiscal 2019:

• Net income⁴ of $5,097 million, compared with $5,758 million; adjusted net income¹ of $5,201 million, compared with $6,249 million
• Reported EPS² of $7.55, compared with $8.66; adjusted EPS^1,2 of $7.71, compared with $9.43
• Revenue, net of CCPB³, of $23,478 million, up 3%
• Provision for credit losses of $2,953 million, compared with $872 million, including PCL on performing loans of $1,431 million
• ROE of 10.1%, compared with 12.6%; adjusted ROE¹ of 10.3%, compared with 13.7%

TORONTO, Dec. 1, 2020 /PRNewswire/ - For the fourth quarter ended October 31, 2020, BMO Financial Group (TSX: BMO) (NYSE: BMO) recorded net income of $1,584 million or $2.37 per share on a reported basis, and net income of $1,610 million or $2.41 per share on an adjusted basis.

"BMO continued to demonstrate strong operating momentum this quarter, delivering adjusted earnings of $1.6 billion and adjusted earnings per share of $2.41, with pre-provision, pre-tax earnings up 7% from last year, good operating leverage and an efficiency ratio of 58.7%," said Darryl White, Chief Executive Officer, BMO Financial Group.

"We entered the year in a strong position with good momentum across our businesses. Throughout the challenges brought on by the pandemic we have been on the front line of the economic recovery, supporting our customers, communities and employees through uncertainty and hardship. Our results for the year are a testament to the resilience and diversification of our businesses and our ability to quickly adapt to the evolving environment, while actively delivering against our strategic priorities. In 2020, adjusted earnings per share were $7.71, having appropriately provisioned for loan losses. Adjusted pre-provision, pre-tax earnings increased 7%, as we held expenses stable to last year, delivered above-target positive operating leverage of 2.7%, improved our efficiency by 160 basis points from last year and maintained strong capital and liquidity positions."

"As we look ahead to 2021, we are continuing to accelerate the execution of our strategy and our Purpose, to Boldly Grow the Good in business and life. We are recognized as a global leader in sustainability, including being the highest rated bank and placing 15^th overall among the 5,500 companies reviewed by the Wall Street Journal in its recent ranking of the Most Sustainably Managed Companies in the World, and scoring in the top 10% of banks on the Dow Jones Sustainability Indices. We're positioning our businesses for profitable growth, providing unwavering support for our customers and championing an inclusive recovery for our communities. We are focused on sustaining our momentum and competitive strengths, leveraging strong client loyalty and a winning culture to continue to build a digitally enabled, highly efficient and future ready bank," concluded Mr. White.

The bank's operational performance remains resilient, despite ongoing impacts from COVID-19. Reported net income of $1,584 million and adjusted net income of $1,610 million were impacted by higher provisions for credit losses, which increased $179 million pre-tax, or $131 million after tax from the prior year. Net revenue increased 4% from last year, with increases in BMO Capital Markets, BMO Wealth Management and Corporate Services, partially offset by decreases in the P&C businesses. The bank maintained a disciplined approach to expense management, with adjusted expenses increasing 1% year-over-year and positive adjusted net operating leverage of 2.1%. Results demonstrated the resiliency of the bank's diversified earnings platform in a challenging environment.

Return on equity (ROE) was 12.4%, up from 9.9% in the prior year, and adjusted ROE was 12.6%, compared with 13.5% in the prior year. Return on tangible common equity (ROTCE) was 14.5%, up from 11.9% in the prior year, and adjusted ROTCE was 14.5%, compared with 15.7% in the prior year.

Concurrent with the release of results, BMO announced a first quarter 2021 dividend of $1.06 per common share, unchanged from the prior quarter and the prior year. The quarterly dividend of $1.06 per common share is equivalent to an annual dividend of $4.24 per common share.

The extent to which the COVID-19 pandemic impacts BMO's business, results of operations, reputation and financial performance and condition, including its regulatory capital and liquidity ratios, and credit ratings, as well as its impact on the bank's customers, competitors and trading exposures, and the potential loss from higher credit, counterparty and mark-to-market losses, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope, severity and duration of the pandemic and actions taken by governments, and governmental and regulatory authorities, which could vary by country and region, and other third parties in response to the pandemic. The COVID-19 pandemic may also impact the bank's ability to achieve, or the timing to achieve, certain previously announced targets, goals and objectives. Please refer to the Impact of COVID-19 section, as well as the Risks That May Affect Future Results section on page 73 of BMO's 2020 Annual Report.

BMO's 2020 audited annual consolidated financial statements and accompanying Management Discussion and Analysis (MD&A) are available online at www.bmo.com/investorrelations and at www.sedar.com.

Fourth Quarter Operating Segment Overview

Canadian P&C
Reported net income was $647 million and adjusted net income was $648 million, or 9% lower than the reported and adjusted net income of $710 million in the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets. Net income decreased due to lower revenue and higher provisions for credit losses, partially offset by lower expenses.

During the quarter, Canadian P&C launched Family Bundle, the first offering of its kind for Canadian families. The Family Bundle allows family members residing in the same household to bank together under one BMO Performance or Premium plan chequing account, and one monthly fee. The bank also achieved Gold Level standing in the Progressive Aboriginal Relations program, awarded by the Canadian Council for Aboriginal Business, the only bank to have achieved this level for the sixth consecutive year, reflecting the bank's commitment to prosperity within Indigenous communities.

U.S. P&C
Reported net income was $324 million, or 17% lower than $393 million in the prior year, and adjusted net income was $333 million, or 17% lower than $404 million. Adjusted net income excludes the amortization of acquisition-related intangible assets.

Reported net income was US$245 million, or 17% lower than US$297 million in the prior year, and adjusted net income was US$253 million, or 17% lower than US$305 million, due to higher provisions for credit losses on performing loans, with lower revenue more than offset by lower expenses.

During the quarter, the Federal Deposit Insurance Corporation released its annual deposit market share report and the bank improved its market share in Chicago and maintained its ranking of second place in the Chicago and Milwaukee markets, and third place within its core footprint, which includes Illinois, Kansas, Wisconsin, Missouri, Indiana, and Minnesota.

BMO Wealth Management
Reported net income was $320 million, an increase of $54 million or 20% from the prior year, and adjusted net income was $328 million, an increase of $28 million or 9%. Adjusted net income excludes the net impact of major reinsurance claims incurred in the prior year after the announced wind-down of the reinsurance business and the amortization of acquisition-related intangible assets in both years. Traditional Wealth reported net income was $253 million, an increase of $17 million or 7%, and adjusted net income was $261 million, an increase of $16 million or 6%, with higher revenue, partially offset by higher expenses. Insurance net income was $67 million, an increase of $37 million on a reported basis and $12 million on an adjusted basis, primarily reflecting unfavourable market movements in the prior year.

This quarter BMO Harris Financial Advisors announced a partnership with LPL Financial, an industry leading broker-dealer provider, which will enhance its premium brokerage and advisory services and provide clients with a superior digital experience, making it easier for clients while simplifying and streamlining operations.

BMO Capital Markets
Reported net income was $379 million, an increase of $108 million or 40% from the prior year, and adjusted net income was $387 million, an increase of $105 million or 38%. Adjusted net income excludes the amortization of acquisition-related intangible assets and acquisition integration costs. Strong revenue performance was partially offset by higher provisions for credit losses and higher expenses.

In the current quarter, BMO Capital Markets acted as joint active bookrunner on Canada's largest technology IPO for Canadian digital payment processing company Nuvei Corp., raising US$805 million with a listing on the Toronto Stock Exchange. As a lead lender since 2015, BMO Capital Markets has been providing Nuvei Corp. with comprehensive and consistent coverage, leading multiple financing transactions over the years.

Corporate Services
Reported and adjusted net loss for the quarter was $86 million, compared with a reported net loss of $446 million and an adjusted net loss of $89 million in the prior year. Adjusted results in the prior year exclude the restructuring charge. Adjusted results are relatively unchanged, as higher revenue and the impact of a favourable tax rate in the current quarter were offset by higher expenses.

Adjusted results in this Fourth Quarter Operating Segment Overview section are non-GAAP amounts or non-GAAP measures. Please refer to the Non-GAAP Measures section.

Capital
BMO's Common Equity Tier 1 (CET1) Ratio was 11.9% as at October 31, 2020. The CET1 Ratio increased from 11.6% at the end of the third quarter, driven by retained earnings growth and the issuance of common shares through the Shareholder Dividend Reinvestment and Share Purchase Plan.

Risk-weighted assets were largely consistent with the prior quarter.

Provision for Credit Losses
Total provision for credit losses was $432 million, an increase of $179 million from the prior year, primarily due to the impact of COVID-19. The total provision for credit losses ratio was 38 basis points, compared with 23 basis points in the prior year. The provision for credit losses on impaired loans was $339 million, an increase of $108 million from the prior year, primarily due to higher provisions in the Canadian P&C and BMO Capital Markets businesses. The provision for credit losses on impaired loans ratio was 30 basis points, compared with 21 basis points in the prior year. There was a $93 million provision for credit losses on performing loans in the current quarter, compared with $22 million in the prior year. The $93 million provision for credit losses on performing loans in the current quarter, reflects a more severe adverse scenario, partially offset by an improving economic outlook and reduced balances. Refer to the Critical Accounting Estimates and Allowance for Credit Losses sections on pages 114 to 116 in BMO's 2020 Annual Report and Note 4 in its audited annual consolidated financial statements for further information on the allowance for credit losses as at October 31, 2020.

Caution
The foregoing sections contain forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.

Regulatory Filings
BMO's continuous disclosure materials, including interim filings, annual Management's Discussion and Analysis and audited annual consolidated financial statements, Annual Information Form and Notice of Annual Meeting of Shareholders and Proxy Circular, are available on the bank's website at www.bmo.com/investorrelations, on the Canadian Securities Administrators' website at www.sedar.com, and on the EDGAR section of the U.S. Securities and Exchange Commission's website at www.sec.gov. Information contained in or otherwise accessible through the bank's website (www.bmo.com), or any third party websites mentioned herein, does not form part of this document.

Financial Review

Management's Discussion and Analysis (MD&A) commentary is as at December 1, 2020. The material that precedes this section comprises part of this MD&A. The MD&A should be read in conjunction with the unaudited condensed consolidated financial statements for the period ended October 31, 2020, included in this document, as well as the audited consolidated financial statements for the year ended October 31, 2020, and the MD&A for fiscal 2020, contained in BMO's 2020 Annual Report.

BMO's 2020 Annual Report includes a comprehensive discussion of its businesses, strategies and objectives, and can be accessed on the bank's website at www.bmo.com/investorrelations. Readers are also encouraged to visit the site to view other quarterly financial information.

Financial Highlights

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 BMO's U.S. segment are non-GAAP measures. Please refer to the Foreign Exchange section for a discussion of the effects of changes in exchange rates on BMO's results. Pre-provision pre-tax earnings (PPPT) is a non-GAAP measure, and is calculated as the difference between revenue, net of insurance claims, commissions and changes in policy benefit liabilities (CCPB), and non-interest expense. Management assesses performance on a reported basis and on an adjusted basis, and considers both to be useful in assessing underlying ongoing business performance. Presenting results on both bases provides readers with a better understanding of how management assesses results. It also permits readers to assess the impact of certain specified items on results for the periods presented, and to better assess results excluding those items that may not be reflective of ongoing results. As such, the presentation may facilitate readers' analysis of trends. Except as otherwise noted, management's discussion of changes in reported results in this document applies equally to changes in the corresponding adjusted results. Adjusted results and measures are non-GAAP and as such do not have standardized meanings under GAAP. They are unlikely to be comparable to similar measures presented by other companies and should not be viewed in isolation from, or as a substitute for, GAAP results.

Non-GAAP Measures

Caution Regarding Forward-Looking Statements
As noted in the following Caution Regarding Forward-Looking Statements, all forward-looking statements and information, by their nature, are subject to inherent risks and uncertainties, both general and specific, which may cause actual results to differ materially from the expectations expressed in any forward-looking statement. The Enterprise-Wide Risk Management section starting on page 73 of BMO's 2020 Annual Report describes a number of risks, including credit and counterparty, market, insurance, liquidity and funding, operational, legal and regulatory, strategic, environmental and social, and reputation risk. Should the bank's risk management framework prove ineffective, there could be a material adverse impact on its financial position and results.

Bank of Montreal's public communications often include written or oral forward-looking statements. Statements of this type are included in this document, and may be included in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made pursuant to the "safe harbor" provisions of, and are intended to be forward-looking statements under, the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. Forward-looking statements in this document may include, but are not limited to, statements with respect to the bank's objectives and priorities for fiscal 2021 and beyond, its strategies or future actions, its targets, expectations for its financial condition or share price, the regulatory environment in which it operates and the results of or outlook for its operations or for the Canadian, U.S. and international economies, its response to the COVID-19 pandemic and its expected impact on the bank's business, operations, earnings, results, and financial performance and condition, as well as its impact on the bank's customers, competitors, reputation and trading exposures, and include statements of the bank's management. Forward-looking statements are typically identified by words such as "will", "would", "should", "believe", "expect", "anticipate", "project", "intend", "estimate", "plan", "goal", "target", "may" and "could."

By their nature, forward-looking statements require the bank 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 assumptions may not be correct, and that actual results may differ materially from such predictions, forecasts, conclusions or projections. The uncertainty created by the COVID-19 pandemic has heightened this risk given the increased challenge in making assumptions, predictions, forecasts, conclusions or projections. The bank cautions readers of this document not to place undue reliance on forward-looking statements, as a number of factors – many of which are beyond its 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.

Future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: the severity, duration and spread of the COVID-19 pandemic, its impact on local, national or international economies, and its heightening of certain risks that may affect the bank's future results; the possible impact on the bank's business and operations of outbreaks of disease or illness that affect local, national or international economies; general economic and market conditions in the countries in which the bank operates; information, privacy and cyber security, including the threat of data breaches, 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; changes in monetary, fiscal, or economic policy, and tax legislation and interpretation; interest rate and currency value fluctuations, as well as benchmark interest rate reforms; technological changes and technology resiliency; political conditions, including changes relating to or affecting economic or trade matters; the Canadian housing market and consumer leverage; climate change and other environmental and social risks; weak, volatile or illiquid capital or credit markets; the level of competition in the geographic and business areas in which the bank operates; 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 the bank obtains with respect to its customers and counterparties; failure of third parties to comply with their obligations to the bank; the bank's ability to execute its strategic plans and to complete proposed acquisitions or dispositions, 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 the bank's credit ratings; global capital markets activities; the possible effects on the bank's business of war or terrorist activities; natural disasters and disruptions to public infrastructure, such as transportation, communications, power or water supply; and the bank's ability to anticipate and effectively manage risks arising from all of the foregoing factors.

The bank cautions that the foregoing list is not exhaustive of all possible factors. Other factors and risks could adversely affect the bank's results. For more information, please refer to the discussion in the Risks That May Affect Future Results section, and the sections related to credit and counterparty, market, insurance, liquidity and funding, operational, legal and regulatory, strategic, environmental and social, and reputation risk, in the Enterprise-Wide Risk Management section that starts on page 73 of BMO's 2020 Annual Report, all of which outline certain key factors and risks that may affect the bank'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. The bank 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 shareholders in understanding the bank's financial position as at and for the periods ended on the dates presented, as well as its 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 18 of BMO's 2020 Annual Report as well as in the Allowance for Credit Losses section on page 114 of BMO's 2020 Annual Report. Assumptions about the performance of the Canadian and U.S. economies, as well as overall market conditions and their combined effect on the bank's business, are material factors the bank considers when determining its strategic priorities, objectives and expectations for its business. In determining expectations for economic growth, the bank primarily considers historical economic data, past relationships between economic and financial variables, changes in government policies, and the risks to the domestic and global economy.

Foreign Exchange
The Canadian dollar equivalents of BMO's U.S. results that are denominated in U.S. dollars decreased relative to the fourth quarter of 2019 and the third quarter of 2020, due to changes in the U.S. dollar exchange rate. The table below indicates the relevant average Canadian/U.S. dollar exchange rates and the impact of changes in those rates on BMO's 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.

Changes in exchange rates will affect future results measured in Canadian dollars, and the impact on those results is a function of the periods in which revenue, expenses, provisions for (recoveries of) credit losses and income taxes arise.

Economically, BMO's U.S. dollar income stream was unhedged to changes in foreign exchange rates during the current and prior year. The bank regularly determines whether to enter into hedging transactions in order to mitigate the impact of foreign exchange rate movements on net income.

Refer to the Enterprise-Wide Capital Management section on page 63 of BMO's 2020 Annual Report for a discussion of the impact that changes in foreign exchange rates can have on the bank's capital position. Changes in foreign exchange rates will also affect accumulated other comprehensive income, primarily as a result of the translation of the bank's investment in foreign operations, and the carrying value of assets and liabilities on the balance sheet.

This Foreign Exchange section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.

Effects of Changes in Exchange Rates on BMO's U.S. Segment Reported and Adjusted Results

Impact of COVID-19
The COVID-19 pandemic continues to have a major impact on society and the economy. Although economic activity in Canada and the United States is recovering following the steepest recession in modern history, both economies continue to run well below capacity and are not expected to regain full employment until at least 2022. A rising number of new virus cases has also yielded renewed restrictions on economic activity in some jurisdictions, which could further constrain the recovery in the months ahead. For additional information, refer to the Economic Developments and Outlook section and the Impact of COVID-19 section on pages 18 and 24, respectively, of BMO's 2020 Annual Report.

BMO is closely monitoring developments around the spread of the virus and the safety of the bank's employees and clients remains a top priority. The bank continues to work closely with relevant public health authorities to monitor the situation and will continue to follow their guidance to make informed decisions. BMO branches and offices have incorporated precautionary measures, including enhanced cleaning protocols. BMO maintained strong operational resilience throughout the COVID-19 pandemic, including access to call centers, ATMs and retail branches and enabled remote working capabilities for its non-branch workforce. The bank launched additional innovative technology and tools across the enterprise to foster effective virtual collaboration for employees and customers. All BMO branches in Canada and the United States are open, and customers continue to have full access to call centres and ATMs. Over 90% of the bank's non-branch workforce continues to work remotely. The bank continues to take steps to assess and mitigate internal control risks created by the shift in the work environment.

The pandemic continues to have an impact on the global economy, and it continues to have an impact on the bank's financial results. Impacts on the bank's financial results include higher provisions for credit losses, lower loan growth, strong deposit growth, a negative impact on revenue from lower interest rates, a positive impact on trading revenue due to client activity and low expense growth. In the current quarter, adjusted net income was relatively unchanged from the prior year. Revenue, net of adjusted CCPB, increased 4% and adjusted expenses increased 1%. The provision for credit losses was $432 million in the fourth quarter, an increase of $179 million from the prior year and a decrease of $622 million from the third quarter. For further information, refer to the Allowance for Credit Losses section on page 114 of BMO's 2020 Annual Report.

Central banks around the world continue to provide accommodative policies and make available financing programs to support the smooth functioning of the financial markets. BMO maintained a strong liquidity position in the fourth quarter of 2020. For additional information, refer to the Liquidity and Funding Risk section on page 97 of BMO's 2020 Annual Report.

On August 31, 2020, the Office of the Superintendent of Financial Institutions (OSFI) announced it is gradually phasing out the special capital treatment for loan payment deferrals. Loans granted payment deferrals before August 31, 2020, will continue to be treated as performing loans under the Capital Adequacy Requirements Guideline for the duration of the deferral, up to a maximum of six calendar months from the effective date of the deferral. Loans granted payment deferrals after August 31, 2020, but on or before September 30, 2020, will be treated as performing loans under the CAR Guideline for the duration of the deferral, up to a maximum of three calendar months from the approval date of the deferral. Loans granted payment deferrals after September 30, 2020, are not eligible for the special capital treatment. Other modifications to capital requirements that OSFI announced in the second quarter of 2020 remained in effect in the fourth quarter, key elements of which include the 1% Domestic Stability Buffer, reduction in the stressed value-at-risk multipliers under market risk, and transitional arrangements for credit loss provisioning that are available under the Basel Framework. On November 5, 2020, OSFI announced an extension, from April 30, 2021 to December 31, 2021, of the temporary exclusion from the leverage ratio of exposures related to central bank reserves and sovereign-issued securities that qualify as High Quality Liquid Assets under the Liquidity Adequacy Requirements Guideline. BMO's capital position remained strong in the fourth quarter. For additional information, refer to the Enterprise-Wide Capital Management section on page 63 of BMO's 2020 Annual Report.

BMO continues to support its customers in this challenging environment, working closely with governments and agencies on programs to reduce the financial hardship caused by COVID-19, including payment deferrals and lending facilities designed to help individuals and businesses to withstand stress and recover financially.

The following table shows the uptake of payment deferral programs by geography and product type. Numbers represent active deferrals outstanding at the end of the period. Since March 2020, the bank granted payment deferrals to over 256,000 retail accounts in Canada and the United States. Requests for payment deferrals have declined significantly since peaking in the second quarter. Deferrals continued to decline in the fourth quarter, with the large majority of clients resuming payments after exiting the deferral program. The maturities are being closely monitored and actively managed. As of October 31, 2020, the bank had approximately $3.8 billion of balances under payment deferral programs in Canada, and US$0.69 billion in the United States.

Payment Deferrals

BMO is participating in government-offered programs in both Canada and the United States, supporting individuals and businesses facing economic hardship due to the pandemic. In Canada, the bank facilitated $2.9 billion in funding for over 72,000 business banking accounts under the Canada Emergency Business Account (CEBA) program during the year. Under the program, the bank issues loans that are funded by the government. The bank assessed whether substantially all the risks and rewards of the loans under this program were transferred to the government and determined they qualify for derecognition; therefore, the bank does not record these loans on the Consolidated Balance Sheet. As part of the Government of Canada's Business Credit Availability Program (BCAP), BMO is also participating in the Business Development Bank of Canada (BDC), and Export Development Canada (EDC) relief programs to help Canadian businesses of all sizes impacted by COVID-19 obtain needed financing. In the United States, BMO had US$4.7 billion in total loans outstanding to approximately 22,000 businesses under the Small Business Administration's Paycheck Protection Program. BMO has taken a personal and relationship-based approach that considers the unique needs of each customer and leverages its long history and experience through many economic cycles. For additional information, refer to the Impact of COVID-19 section and the Risks That May Affect Future Results section on pages 24 and 73, respectively, of BMO's 2020 Annual Report.

Caution
The extent to which the COVID-19 pandemic impacts BMO's business, results of operations, reputation and financial performance and condition, including its regulatory capital and liquidity ratios, and credit ratings, as well as its impact on the bank's customers, competitors and trading exposures, and the potential for loss from higher credit, counterparty and mark-to-market losses will depend on future developments, which are highly uncertain and cannot be predicted, including the scope, severity and duration of the pandemic and actions taken by governments, and governmental and regulatory authorities, which could vary by country and region, and other third parties in response to the pandemic. The COVID-19 pandemic may also impact the bank's ability to achieve, or the timing to achieve, certain previously announced targets, goals and objectives. For additional information, refer to the Enterprise-Wide Risk Management section on page 73 of BMO's 2020 Annual Report.

This Impact of COVID-19 section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.

Adjusted results in this Impact of COVID-19 section are non-GAAP amounts or non-GAAP measures. Please refer to the Non-GAAP Measures section.

Net Income

Q4 2020 vs. Q4 2019
Reported net income was $1,584 million, an increase of $390 million or 33% from the prior year, and adjusted net income was $1,610 million, an increase of $3 million. Adjusted net income excludes the amortization of acquisition-related intangible assets and acquisition integration costs in both periods. The prior year adjusted net income also excludes a $357 million restructuring charge, primarily related to severance, as well as a $25 million reinsurance adjustment for the net impact of major reinsurance claims incurred after the announced wind-down of the reinsurance business. Reported EPS was $2.37, an increase of $0.59 or 33% from the prior year, and adjusted EPS was $2.41, a decrease of $0.02 or 1%.

Adjusted results primarily reflect the impact of higher provisions for credit losses, which increased $179 million pre-tax or $131 million after tax, which largely offset the benefit from higher revenue, net of modestly higher expenses. Adjusted net income increased in BMO Capital Markets and BMO Wealth Management, partially offset by a decrease in the P&C businesses. Corporate Services adjusted net loss was relatively unchanged from the prior year.

Q4 2020 vs. Q3 2020
Reported net income was $1,584 million, an increase of $352 million or 28% from the prior quarter, and adjusted net income was $1,610 million, an increase of $351 million or 28%. Reported and adjusted EPS both increased $0.56 from the prior quarter.

Adjusted results were primarily driven by lower provisions for credit losses, partially offset by higher expenses and lower revenue. Net income increased in the P&C businesses, partially offset by a decrease in BMO Capital Markets and BMO Wealth Management. Corporate Services recorded a lower adjusted net loss than in the prior quarter.

Adjusted results in this Net Income section are non-GAAP amounts or non-GAAP measures. Please refer to the Non-GAAP Measures section.

Revenue ⁽¹⁾

Q4 2020 vs. Q4 2019
Revenue was $5,986 million, a decrease of $101 million or 2% from the prior year. On a basis that nets insurance claims, commissions and changes in policy benefit liabilities (CCPB) against insurance revenue (net revenue), revenue increased $234 million, or 4% from $5,752 million in the prior year. Revenue net of adjusted CCBP, which excludes the reinsurance adjustment in the prior year, increased $209 million or 4%.

Revenue increased in BMO Capital Markets, due to higher trading revenue from strong client activity and higher investment and corporate banking revenue, in BMO Wealth Management, primarily due to higher online brokerage revenue, the benefit from higher global markets and higher insurance revenue, and in Corporate Services. Revenue in the P&C businesses decreased due to lower non-interest revenue, with net interest income relatively unchanged, as higher balances were offset by lower margins.

Net interest income was $3,530 million, an increase of $166 million or 5%. On an excluding trading basis, net interest income was $3,018 million, an increase of $39 million or 1% from the prior year, largely due to higher net interest income in Corporate Services with net interest income in the businesses relatively unchanged.

Average earning assets were $873.9 billion, an increase of $95.5 billion or 12%, due to higher securities, higher cash resources, and loan growth, as well as higher securities borrowed or purchased under resale agreements. BMO's overall net interest margin decreased 10 basis points from the prior year, primarily driven by a higher volume of assets in Corporate Services as a result of high liquidity levels, which have a lower spread than the bank, and lower margins in Canadian P&C and BMO Wealth Management due to lower interest rates, partially offset by higher trading net interest income. On an excluding trading basis, net interest margin decreased 18 basis points, due to the drivers noted above.

Non-interest revenue, net of CCPB, was $2,456 million, an increase of $68 million or 3%. Non-interest revenue, net of adjusted CCBP, increased $43 million or 2%. The increase was primarily driven by higher trading, underwriting and advisory, and lending revenue and higher insurance revenue, net of adjusted CCPB, partially offset by lower other non-interest revenue, lower securities gains other than trading and lower securities commissions and fees. On an excluding trading basis, net of adjusted CCPB, non-interest revenue was $2,433 million, relatively unchanged from the prior year.

Gross insurance revenue decreased $292 million from the prior year, primarily due to a decrease in the fair value of investments in the current quarter from increases in interest rates, compared with relatively unchanged interest rates in the prior year, partially offset by higher annuity sales in the current quarter. These changes related to the fair value of investments were largely offset by changes in policy benefit liabilities, the impact of which is reflected in CCPB, as discussed on page 12. The bank generally focuses on analyzing revenue, net of CCPB, given the extent to which insurance revenue can vary and that this variability is largely offset in CCPB.

Q4 2020 vs. Q3 2020
Revenue was $5,986 million, a decrease of $1,203 million or 17% from the prior quarter. Revenue, net of CCPB, decreased $14 million from the prior quarter, and increased $48 million or 1% excluding the impact of the weaker U.S. dollar.

Revenue increased in Corporate Services, due to higher treasury-related revenue, as well as in Canadian P&C and BMO Wealth Management. Revenue decreased in BMO Capital Markets, primarily due to lower interest rate trading revenue, and in U.S. P&C.

Net interest income decreased $5 million from the prior quarter, or increased $33 million or 1% excluding the impact of the weaker U.S. dollar. On an excluding trading basis, net interest income increased $78 million or 3%, or 4% excluding the impact of the weaker U.S. dollar, largely due to higher net interest income in Corporate Services and in Canadian P&C, partially offset by lower net interest income in U.S. P&C and BMO Capital Markets.

Average earning assets decreased $10.6 billion or 1%, and were relatively unchanged excluding the impact of the weaker U.S. dollar, primarily due to lower loan balances and lower cash resources, partially offset by higher securities. BMO's overall net interest margin increased 2 basis points from the prior quarter, primarily due to higher margins in Corporate Services and Canadian P&C, partially offset by lower trading net interest income. On an excluding trading basis, net interest margin increased 7 basis points from the prior quarter, due to the drivers noted above.

Non-interest revenue, net of CCPB, was $2,456 million, decreased $9 million from the prior quarter, primarily driven by lower trading and underwriting and advisory fee revenue, partially offset by increased lending and foreign exchange revenue. On an excluding trading basis, net of CCPB, non-interest revenue increased $36 million or 2%.

Gross insurance revenue decreased $1,178 million from the prior quarter, primarily due to a decrease in the fair value of investments in the current quarter from increases in interest rates, compared with an increase in the fair value of investments in the prior quarter from decreases in interest rates. The decrease in insurance revenue was largely offset by changes in CCPB, as discussed on page 12.

Net interest income and non-interest revenue are detailed in the unaudited condensed consolidated financial statements.

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

Provision for Credit Losses

Q4 2020 vs. Q4 2019
Total provision for credit losses was $432 million, an increase of $179 million from the prior year, primarily due to the impact of COVID-19. The total provision for credit losses ratio was 38 basis points, compared with 23 basis points in the prior year. The provision for credit losses on impaired loans was $339 million, an increase of $108 million from $231 million in the prior year, primarily due to higher provisions in the Canadian P&C and BMO Capital Markets businesses. The provision for credit losses on impaired loans ratio was 30 basis points, compared with 21 basis points in the prior year. There was a $93 million provision for credit losses on performing loans in the current quarter, compared with $22 million in the prior year. The $22 million provision for credit losses on performing loans in the prior year was largely due to portfolio growth, negative migration and scenario weight change, partially offset by changes in economic outlook, while the $93 million provision for credit losses on performing loans in the current quarter reflects a more severe adverse scenario, partially offset by an improving economic outlook and reduced balances.

Q4 2020 vs. Q3 2020
Total provision for credit losses was $432 million, a decrease of $622 million from the prior quarter. The total provision for credit losses ratio was 38 basis points, compared with 89 basis points in the prior quarter. The provision for credit losses on impaired loans decreased $107 million, primarily due to lower provisions in the P&C businesses, partially offset by higher provisions in BMO Capital Markets. The provision for credit losses on impaired loans ratio was 30 basis points, compared with 38 basis points in the prior quarter. There was a $93 million provision for credit losses on performing loans in the current quarter, compared with $608 million in the prior quarter. The prior quarter provision for credit losses was largely due to the impact of the extraordinary and highly uncertain environment on credit conditions, the economy and scenario weights, while the current quarter provision for credit losses was primarily due to a more severe adverse scenario, partially offset by an improving economic outlook and reduced balances.

Provision for Credit Losses by Operating Group

Provision for Credit Losses Performance Ratios

Impaired Loans

Total gross impaired loans (GIL) were $3,638 million at the end of the current quarter, compared with $2,629 million in the prior year, with the majority of the increase in impaired loans attributed to retail trade and service industries. GIL decreased $775 million from $4,413 million in the prior quarter.

Factors contributing to the change in GIL are outlined in the table below. Loans classified as impaired during the quarter totalled $662 million, compared with $799 million in the prior year, and $1,760 million in the prior quarter.

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

Insurance Claims, Commissions and Changes in Policy Benefit Liabilities
Reported and adjusted insurance claims, commissions and changes in policy benefit liabilities (CCPB) were $nil in the current quarter, a decrease of $335 million on a reported basis and $310 million on an adjusted basis from the prior year. Adjusted CCPB in the prior year excludes the $25 million reinsurance adjustment. In the current quarter, the $nil CCPB reflects payments related to claims and policy benefits that fully offset changes in policyholder liabilities. Results decreased, primarily due to a decrease in the fair value of policy benefit liabilities in the current year resulting from increases in interest rates, compared with relatively unchanged interest rates in the prior year, partially offset by higher annuity sales.

CCPB decreased $1,189 million from the prior quarter, primarily due to a decrease in the fair value of policy benefit liabilities in the current quarter from an increase in interest rates, compared with an increase in the fair value of policy benefit liabilities resulting from decreases in interest rates in the prior quarter. The changes related to the fair value of policy benefit liabilities were largely offset in revenue.

Adjusted results in this Insurance Claims, Commissions and Changes in Policy Benefit Liabilities section are non-GAAP amounts or non-GAAP measures. Please refer to the Non-GAAP Measures section.

Non-Interest Expense ⁽¹⁾
Reported non-interest expense was $3,548 million, a decrease of $439 million or 11% from the prior year, and adjusted non-interest expense was $3,515 million, an increase of $52 million or 1%, or 2% excluding the impact of the weaker U.S. dollar. Adjusted non-interest expense excludes the amortization of acquisition-related intangible assets and acquisition integration costs in both periods and the restructuring charge in the prior year. The increase was largely due to higher premises and equipment costs and amortization of intangibles, partially offset by a continued focus on expense management, with lower expense across a number of categories, including lower travel and business development costs.

Reported non-interest expense was $3,548 million, an increase of $104 million or 3% from the prior quarter, and adjusted non-interest expense was $3,515 million, an increase of $108 million or 3%, or 4% excluding the impact of the weaker U.S. dollar. The increase was driven by higher computer and equipment costs, travel and business development costs and professional fees, partially offset by lower employee-related costs.

Reported operating leverage on a net revenue basis was positive 15.1%, compared with negative 20.4% in the prior year. Adjusted operating leverage on a net revenue basis was positive 2.1%, compared with positive 3.8% in the prior year.

The reported efficiency ratio was 59.3%, compared with 65.5% in the prior year, and was 59.3% on a net revenue basis, compared with 69.3% in the prior year. The adjusted efficiency ratio was 58.7%, compared with 56.9% in the prior year, and 58.7% on a net revenue basis, compared with 60.0% in the prior year.

Non-interest expense is detailed in the unaudited condensed consolidated financial statements.

Adjusted results in this Non-Interest Expense section are non-GAAP amounts or non-GAAP measures. Please refer to the Non-GAAP Measures section.

Income Taxes
The provision for income taxes was $422 million, an increase of $104 million from the fourth quarter of 2019, and an increase of $152 million from the third quarter of 2020. The effective tax rate for the current quarter was 21.1%, relatively unchanged from 21.0% in the fourth quarter of 2019, and higher than 18.0% in the third quarter of 2020.

The adjusted provision for income taxes was $429 million, a decrease of $25 million from the fourth quarter of 2019, and an increase of $149 million from the third quarter of 2020. The adjusted effective tax rate was 21.1% in the current quarter, compared with 22.0% in the fourth quarter of 2019, and higher than 18.2% in the third quarter of 2020. The higher reported and adjusted effective tax rates in the current quarter relative to the third quarter of 2020 were primarily due to earnings mix, including the impact of lower pre-tax income in the prior quarter.

Adjusted results in this Income Taxes section are non-GAAP amounts or non-GAAP measures. Please refer to the Non-GAAP Measures section.

Capital Management
BMO manages its capital within the capital management framework described in the Enterprise-Wide Capital Management section of BMO's 2020 Annual Report.

Fourth Quarter 2020 Regulatory Capital Review
BMO's Common Equity Tier 1 (CET1) Ratio was 11.9% as at October 31, 2020, up from 11.6% at the end of the third quarter, primarily due to retained earnings growth and the issuance of common shares through the Shareholder Dividend Reinvestment and Share Purchase Plan (DRIP), with risk-weighted assets relatively unchanged.

CET1 Capital was $40.1 billion as at October 31, 2020, up from $39.0 billion as at July 31, 2020, driven by retained earnings growth and the issuance of common shares through DRIP. CET1 capital increased from $36.1 billion as at October 31, 2019, due to retained earnings growth, the adjustment for transitional arrangements for expected credit loss provisioning, and the elimination of the provisioning shortfall deduction, the issuance of common shares through the DRIP, and other net positive impacts.

RWA were $336.6 billion as at October 31, 2020, down from $337.4 billion as at July 31, 2020, primarily due to lower loans and the impact of foreign exchange movements, largely offset by model and methodology changes and other impacts. RWA were up from $317.0 billion as at October 31, 2019, due primarily to changes in asset quality and increased asset size.

The Tier 1 Capital Ratio was 13.6% as at October 31, 2020, compared with 13.1% as at July 31, 2020, and 13.0% as at October 31, 2019, primarily driven by factors impacting CET1 capital and RWA and the issuance of the $1,250 million Limited Recourse Capital Notes, Series 1 (LRCN), partially offset by the announced preferred shares redemptions. The Total Capital Ratio was 16.2% as at October 31, 2020, compared with 15.8% as at July 31, 2020 and 15.2% as at October 31, 2019. The Total Capital Ratio was higher than prior periods, primarily due to the factors impacting the Tier 1 Capital Ratio, and higher than October 31, 2019, also due to the issuance of subordinated notes.

The impact of foreign exchange movements on capital ratios was largely offset. BMO's investments in foreign operations are primarily denominated in U.S. dollars, and the foreign exchange impact of U.S.-dollar-denominated RWA and capital deductions may result in variability in the bank's capital ratios. BMO may manage the impact of foreign exchange movements on its capital ratios and did so during the fourth quarter. Any such activities could also impact the bank's book value and return on equity.

BMO's Leverage Ratio was 4.8% as at October 31, 2020, compared with 4.7% as at July 31, 2020, as higher Tier 1 Capital was partially offset by higher leverage exposures. The October 31, 2020 Leverage Ratio increased from 4.3% as at October 31, 2019, primarily driven by higher Tier 1 Capital. Leverage exposures were largely consistent with the prior year, as increased leverage exposures were offset by the temporary exclusion of central bank reserves and sovereign-issued securities that qualify as High Quality Liquid Assets under the Office of the Superintendent of Financial Institutions' (OSFI) Liquidity Adequacy Requirements Guideline.

Regulatory Capital
Regulatory capital requirements for BMO are determined in accordance with guidelines issued by OSFI, which is based on the Basel III framework developed by the Basel Committee on Banking Supervision (BCBS). For more information, refer to the Enterprise-Wide Capital Management section on page 63 of BMO's 2020 Annual Report.

OSFI's capital requirements are summarized in the following table.

Regulatory Capital Position

Capital Developments
During the quarter, 3,530,719 common shares were issued through the Shareholder Dividend Reinvestment and Share Purchase Plan and the exercise of stock options.

On September 16, 2020, BMO issued $1,250 million 4.3% LRCN (Non-Viability Contingent Capital (NVCC)), which are classified as equity and form part of the Additional Tier 1 capital. Upon the occurrence of a recourse event, the noteholders will have recourse to assets held in a consolidated trust managed by a third party trustee. The trust assets are comprised of $1,250 million of BMO issued Non-Cumulative 5-year Rate Reset Class B Preferred Shares, Series 48 (NVCC) (Preferred Shares Series 48) issued concurrently with the LRCN. As the Preferred Shares Series 48 eliminate on consolidation, they do not currently form part of the bank's Additional Tier 1 capital.

On November 2, 2020, BMO announced its intention to redeem all of its $1,000 million 3.34% Series H Medium-Term Notes Second Tranche (NVCC) on December 8, 2020.

On November 25, 2020, BMO redeemed all of its 6 million issued and outstanding Non-Cumulative Perpetual Class B Preferred Shares, Series 35 (NVCC) for an aggregate total of $156 million and all of its 600,000 issued and outstanding Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 36 (NVCC) for an aggregate total of $600 million.

Dividends
On December 1, 2020, BMO announced that the Board of Directors had declared a quarterly dividend on common shares of $1.06 per share, consistent with the prior quarter and the prior year. The dividend is payable on February 26, 2021, to shareholders of record on February 1, 2021. Effective March 13, 2020, OSFI prohibited federally regulated financial institutions from increasing their common share dividend. OSFI will advise at the appropriate time on the unwinding of this guidance. 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. Until further notice, such additional common shares will be purchased on the open market.

For the purposes of the Income Tax Act (Canada) and any similar provincial and territorial legislation, BMO designates all dividends paid or deemed to be paid on both its common and preferred shares as "eligible dividends", unless indicated otherwise.

Caution
This Capital Management section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.

Review of Operating Groups' Performance

How BMO Reports Operating Group Results
The following sections review the financial results of each of the operating groups for the fourth quarter of 2020. See also the Impact of COVID-19 and Enterprise-Wide Risk Management sections in BMO's 2020 Annual Report.

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, allocations of revenue, provisions for credit losses and expenses are updated to better align with current experience.

The bank adopted IFRS 16, Leases (IFRS 16), effective the first quarter of 2020, and recognized the cumulative effect of adoption in opening retained earnings with no changes to prior periods. Under IFRS 16, the bank as lessee is required to recognize a right-of-use asset and a corresponding lease liability for most leases. Depreciation on the right-of-use assets has been recorded in non-interest expense and interest on the lease liability in interest expense. Refer to the Changes in Accounting Policies in 2020 section on page 118 of BMO's 2020 Annual Report for further details.

BMO analyzes revenue at the consolidated level based on GAAP revenue as reported in the consolidated financial statements rather than on a taxable equivalent basis (teb), which is consistent with the bank's Canadian peer group. Like many banks, BMO analyzes 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.

Personal and Commercial Banking (P&C)

The Personal and Commercial Banking (P&C) operating group represents the sum of the bank's two retail and commercial operating segments, Canadian Personal and Commercial Banking (Canadian P&C) and U.S. Personal and Commercial Banking (U.S. P&C). The P&C banking business reported net income was $971 million, compared with $1,103 million in the prior year. Adjusted net income was $981 million, compared with $1,114 million in the prior year, and excludes the amortization of acquisition-related intangible assets. Reported and adjusted net income were impacted by higher provisions for credit losses, which increased $155 million pre-tax, or $115 million after tax from the prior year. These operating segments are reviewed separately in the sections that follow.

Adjusted results in this P&C section are non-GAAP amounts or non-GAAP measures. Please refer to the Non-GAAP Measures section. 

Canadian Personal and Commercial Banking (Canadian P&C)

Q4 2020 vs. Q4 2019
Canadian P&C reported net income was $647 million and adjusted net income was $648 million, or 9% lower than the reported and adjusted net income of $710 million in the prior year. Adjusted net income excludes the amortization of acquisition-related intangible assets. Net income decreased due to lower revenue and higher provisions for credit losses, partially offset by lower expenses.

Revenue was $2,031 million, or 2% lower than $2,078 million in the prior year, primarily due to lower non-interest revenue, including lower credit card fee revenue and deposit fee revenue, with net interest income relatively unchanged, as higher balances across most products were offset by lower margins. Revenue was negatively impacted by the COVID-19 pandemic with pressure on margins from the record-low interest rate environment, and lower credit card fee revenue and deposit fee revenue. Net interest margin of 2.60% decreased 9 basis points, driven by lower deposit margins, partially offset by the benefit of deposits growing faster than loans.

Personal revenue decreased $43 million or 3%, due to lower non-interest revenue and lower net interest income, with lower margins more than offsetting higher balances across most products. Commercial revenue decreased $4 million, due to lower non-interest revenue, partially offset by higher net interest income with higher balances across most products more than offsetting lower margins.

Total provision for credit losses was $191 million, and increased $46 million from the prior year. The provision for credit losses on impaired loans was $180 million, an increase of $46 million, due to higher commercial provisions, partially offset by lower consumer provisions. There was a $11 million provision for credit losses on performing loans in the current quarter, unchanged from the prior year.

Non-interest expense was $968 million, a decrease of $8 million or 1% from the prior year, primarily due to lower employee-related costs, largely offset by higher technology and pension costs.

Average gross loans and acceptances increased $7.6 billion or 3% from the prior year to $251.0 billion. Personal lending balances (excluding retail cards) increased 3%. Commercial loan balances (excluding corporate cards) increased 4%. Average deposits increased $34.0 billion or 18% to $217.9 billion. Personal deposit balances increased 11% and commercial deposit balances increased 31%, reflecting the higher liquidity retained by customers, due to the impact of COVID-19.

Gross loans and acceptances as at October 31, 2020, increased $6.7 billion or 3% from the prior year to $253.0 billion, with growth in personal loans (excluding retail cards) of 4% and growth in commercial loans (excluding corporate cards) of 2%. Deposits as at October 31, 2020, increased $32.1 billion or 17% to $220.6 billion, with growth in personal deposit balances of 10% and in commercial deposit balances of 28%.

Q4 2020 vs. Q3 2020
Reported net income was $647 million, an increase of $327 million from the prior quarter, and adjusted net income was $648 million, an increase of $328 million, primarily driven by lower provisions for credit losses, with higher revenue, partially offset by higher expenses.

Revenue was $2,031 million, an increase of $69 million or 4% from the prior quarter, due to higher non-interest revenue across most categories, higher balances across most products and higher margins. Net interest margin of 2.60% increased 6 basis points from the prior quarter, due to the benefit of deposits growing faster than loans and higher loan margins, partially offset by lower deposit margins.

Personal revenue increased $37 million or 3%, due to higher net interest income, with higher balances across most products and higher loan margins, partially offset by lower deposit margins, and higher non-interest revenue. Commercial revenue increased $32 million or 5%, primarily due to higher non-interest revenue and higher net interest income with higher balances, partially offset by lower margins.

Total provision for credit losses was $191 million, a decrease of $379 million from the prior quarter. The provision for credit losses on impaired loans decreased $77 million, due to lower commercial and consumer provisions. There was a $11 million provision for credit losses on performing loans in the current quarter, compared with a $313 million provision in the prior quarter.

Non-interest expense was $968 million, an increase of $8 million or 1% from the prior quarter.

Average gross loans and acceptances were relatively unchanged from the prior quarter, while average deposits increased $4.8 billion or 2%.

Gross loans and acceptances as at October 31, 2020, increased $2.4 billion or 1% from the prior quarter, primarily driven by growth in personal loans (excluding retail cards) of 2%, partially offset by decline in commercial loans (excluding corporate cards) of 1%. Deposits as at October 31, 2020, increased $3.2 billion or 1%, with growth of 4% in commercial deposit balances and relatively unchanged in personal deposit balances.

Adjusted results in this Canadian P&C section are non-GAAP amounts or non-GAAP measures. Please refer to the Non-GAAP Measures section.

U.S. Personal and Commercial Banking (U.S. P&C)

Q4 2020 vs. Q4 2019
U.S. P&C reported net income was $324 million, or 17% lower than $393 million in the prior year, and adjusted net income was $333 million, or 17% lower than $404 million. Adjusted net income excludes the amortization of acquisition-related intangible assets. All amounts in the remainder of this section are on a U.S. dollar basis.

Reported net income was $245 million, or 17% lower than $297 million in the prior year, and adjusted net income was $253 million, or 17% lower than $305 million, due to higher provisions for credit losses on performing loans, with lower revenue more than offset by lower expenses.

Revenue was $1,007 million, or 2% lower than $1,028 million in the prior year, due to lower non-interest revenue across most categories with net interest income relatively unchanged, with higher deposit balances and loan margins largely offset by lower deposit product margins. Revenue was negatively impacted by the COVID-19 pandemic, as a record-low interest rate environment resulted in pressure on deposit margins. Net interest margin of 3.34% decreased 1 basis point, primarily due to lower deposit product margins driven by the impact of a lower rate environment, partially offset by deposits growing faster than loans and higher loan margins.

Personal revenue decreased $16 million or 5%, largely due to lower deposit revenue. Commercial revenue decreased $5 million or 1%, primarily due to lower non-interest revenue, partially offset by higher net interest income, with higher loan margins and deposit balances largely offset by lower deposit product margins.

Total provision for credit losses was $135 million, an increase of $81 million from the prior year. The provision for credit losses on impaired loans was $40 million, a decrease of $11 million, due to lower consumer and commercial provisions. There was a $95 million provision for credit losses on performing loans in the current quarter, compared with a $3 million provision in the prior year.

Non-interest expense was $564 million, a decrease of $33 million or 6% from the prior year, and adjusted non-interest expense was $554 million, a decrease of $32 million or 5%, primarily due to lower employee-related costs and a continued focus on expense management.

Average gross loans and acceptances increased $0.4 billion or less than 1% from the prior year to $90.4 billion, driven by the growth in government lending loan programs due to the impact of COVID-19. Commercial loan balances increased 1% and personal lending balances decreased 2%. Average deposits increased $22.9 billion or 28% to $106.0 billion, with 54% growth in commercial deposit balances and 7% growth in personal deposit balances, reflecting the higher liquidity retained by customers due to the impact of COVID-19.

Gross loans and acceptances as at October 31, 2020, decreased $2.1 billion or 2% from the prior year to $88.7 billion, with a decrease in commercial loans of 2% and lower personal loan balances of 5%. Deposits as at October 31, 2020, increased $18.4 billion or 21% to $104.6 billion, with growth in commercial deposit balances of 42% and in personal deposit balances of 4%.

Q4 2020 vs. Q3 2020
Reported net income was $324 million, an increase of $61 million or 23% from the prior quarter, and adjusted net income was $333 million, an increase of $60 million or 22%. All amounts in the remainder of this section are on a U.S. dollar basis.

Reported net income was $245 million, an increase of $53 million or 28%, and adjusted net income was $253 million, an increase of $54 million or 27%, due to lower provisions for credit losses, partially offset by lower revenue and higher expenses.

Revenue was $1,007 million, or 2% lower than $1,030 million in the prior quarter, due to lower net interest income with higher loan margins more than offset by lower deposit product margins and loan balances, and lower non-interest revenue. Net interest margin of 3.34% increased 3 basis points, primarily due to higher loan margins and lower loan balances, partially offset by lower deposit product margins.

Personal revenue decreased $10 million or 3%, primarily due to lower net interest income driven by lower loan and deposit balances. Commercial revenue decreased $13 million or 2%, primarily due to lower net interest income with lower deposit margins and lower loan balances, partially offset by higher loan margins, and lower non-interest revenue.

Total provision for credit losses was $135 million, a decrease of $112 million from the prior quarter. The provision for credit losses on impaired loans was $40 million, a decrease of $41 million from the prior quarter, primarily due to lower commercial provisions. There was a $95 million provision for credit losses on performing loans in the current quarter, compared with a $166 million provision the prior quarter.

Non-interest expense was $564 million, an increase of $11 million or 2% from the prior quarter and adjusted non-interest expense was $554 million, an increase of $10 million or 2%, as higher premises and technology costs were partially offset by lower employee-related costs.

Average gross loans and acceptances decreased $2.9 billion or 3% from the prior quarter. Commercial loans decreased 3% and personal loans decreased 4%. Average deposits were relatively unchanged.

Gross loans and acceptances as at October 31, 2020, decreased $2.1 billion or 2% from the prior quarter. Deposits as at October 31, 2020, decreased $1.0 billion or 1%.

Adjusted results in this U.S. P&C section are non-GAAP amounts or non-GAAP measures. Please refer to the Non-GAAP Measures section.

BMO Wealth Management

Q4 2020 vs. Q4 2019
BMO Wealth Management reported net income was $320 million, an increase of $54 million or 20% from the prior year, and adjusted net income was $328 million, an increase of $28 million or 9%. Adjusted net income excludes the net impact of major reinsurance claims incurred in the prior year after the announced wind-down of the reinsurance business and the amortization of acquisition-related intangible assets in both years. Traditional Wealth reported net income was $253 million, an increase of $17 million or 7%, and adjusted net income was $261 million, an increase of $16 million or 6%, with higher revenue partially offset by higher expenses. Insurance net income was $67 million, an increase of $37 million on a reported basis and $12 million on an adjusted basis, primarily due to the impact of unfavourable market movements in the prior year and a favourable impact from the annual actuarial assumption changes relative to the prior year.

Revenue was $1,309 million, or 16% lower than $1,567 million in the prior year. Revenue, net of reported and adjusted CCPB, was $1,309 million, an increase of $77 million or 6% on a reported basis and $52 million or 4% on an adjusted basis. Revenue in Traditional Wealth was $1,182 million, an increase of $27 million or 2%, primarily due to higher online brokerage revenues and the benefit from higher global markets, partially offset by lower net interest income, as the benefit from strong loan and deposit growth was more than offset by lower margins. Insurance revenue, net of CCPB, was $127 million, an increase of $50 million on a reported basis, and $25 million on an adjusted basis from the prior year, due to the drivers noted above.

Non-interest expense was $882 million, an increase of $22 million or 2%, and adjusted non-interest expense was $872 million, an increase of $23 million or 3%, primarily due to higher revenue-based costs and below-trend expenses in prior year.

Assets under management increased $11.4 billion or 2%, and assets under administration increased $18.4 billion or 5%, primarily driven by stronger global markets, growth in client assets and favourable foreign exchange. Average gross loans and average deposits increased 11% and 23%, respectively.

Q4 2020 vs. Q3 2020
Reported net income was $320 million, or 6% lower than $341 million in the prior quarter, and adjusted net income was $328 million, or 6% lower than $349 million. Traditional Wealth reported net income was $253 million, or 7% lower than $271 million in the prior quarter, and adjusted net income was $261 million, or 7% lower than $279 million, primarily due to higher expenses. Insurance net income was $67 million, compared with $70 million in the prior quarter.

Revenue, net of CCPB, was $1,309 million, an increase of $14 million or 1%. Revenue in Traditional Wealth was $1,182 million, an increase of $6 million and net insurance revenue was $127 million, an increase of $8 million, primarily due to the benefits from changes in investments to improve asset liability management, net of the impact of favourable market movements in the prior quarter relative to the current quarter.

Non-interest expense was $882 million, an increase of $45 million or 5% from the prior quarter, and adjusted non-interest expense was $872 million, an increase of $46 million or 5%, primarily driven by higher revenue-based costs given business performance and investment in the business in the current quarter.

Assets under management decreased $15.5 billion or 3% from the prior quarter, primarily driven by weaker equity markets and unfavourable foreign exchange, and assets under administration increased $0.8 billion or relatively unchanged. Average gross loans and average deposits increased 1% and 3%, respectively.

Adjusted results in this BMO Wealth Management section are non-GAAP amounts or non-GAAP measures. Please refer to the Non-GAAP Measures section.

BMO Capital Markets

Q4 2020 vs. Q4 2019
BMO Capital Markets reported net income was $379 million, an increase of $108 million or 40% from the prior year, and adjusted net income was $387 million, an increase of $105 million or 38%. Adjusted net income excludes the amortization of acquisition-related intangible assets and acquisition integration costs. Strong revenue performance was partially offset by higher provisions for credit losses and higher expenses.

Revenue was $1,378 million, an increase of $199 million or 17% from the prior year. Global Markets revenue increased, driven by strong client activity across interest rates, equities and commodities trading. Investment and Corporate Banking revenue increased, primarily driven by higher corporate banking-related revenue, as well as underwriting and advisory revenue.

Total provision for credit losses was $64 million, an increase of $24 million from the prior year. The provision for credit losses on impaired loans was $105 million, an increase of $73 million. There was a $41 million recovery of credit losses on performing loans in the current quarter, compared with a $8 million provision in the prior year.

Non-interest expense was $801 million, an increase of $9 million or 1% from the prior year, and adjusted non-interest expense was $792 million, an increase of $14 million or 2%. The increase was primarily driven by higher employee-related costs, partially offset by lower travel and business development costs, and a continued focus on expense management.

Average gross loans and acceptances increased $0.9 billion or 1% from the prior year to $63.9 billion. Gross loans and acceptances as at October 31, 2020, increased $2.2 billion or 4% from the prior year to $62.8 billion, or 3% excluding the impact of the weaker U.S. dollar, reflecting higher lending activity.

Q4 2020 vs. Q3 2020
Reported net income was $379 million, or 11% lower than $426 million in the prior quarter, and adjusted net income was $387 million, or 11% lower than $435 million.

Revenue was $1,378 million, or 10% lower than $1,528 million in the prior quarter, or 9% excluding the impact of the weaker U.S. dollar. Global Markets revenue decreased, driven by lower interest rates and commodities trading, due to particularly strong client activity in the prior quarter, partially offset by higher equities trading. Investment and Corporate Banking revenue decreased, primarily due to lower advisory revenue, partially offset by higher corporate banking-related revenue.

Total provision for credit losses was $64 million, a decrease of $73 million from the prior quarter. The provision for credit losses on impaired loans increased $26 million. There was a $41 million recovery of credit losses on performing loans, compared with a $58 million provision in the prior quarter.

Non-interest expense was $801 million, a decrease of $24 million or 3%, and adjusted non-interest expense was $792 million, a decrease of $20 million or 3% from the prior quarter, or 1% excluding the impact of the weaker U.S. dollar. The decrease was primarily driven by lower employee-related costs.

Average gross loans and acceptances decreased $7.4 billion or 10% from the prior quarter, or 9% excluding the impact of the weaker U.S. dollar. Gross loans and acceptances as at October 31, 2020, decreased $4.4 billion or 7% from the prior quarter, or 6% excluding the impact of the weaker U.S. dollar, reflecting a decrease in loan utilizations.

Adjusted results in this BMO Capital Markets section are non-GAAP amounts or non-GAAP measures. Please refer to the Non-GAAP Measures section.

Corporate Services

Corporate Services consists of Corporate Units and Technology and Operations (T&O). Corporate Units provide enterprise-wide expertise, governance and support in a variety of areas, including strategic planning, risk management, finance, legal and regulatory compliance, human resources, communications, marketing, real estate, procurement, data and analytics. T&O develops, monitors, manages and maintains governance of information technology, and also provides cyber security and operations services.

The costs of these Corporate Units and T&O services are largely transferred to the three operating groups (Personal and Commercial Banking, BMO Wealth Management and BMO Capital Markets), with any remaining amounts retained in Corporate Services results. As such, Corporate Services results largely reflect the impact of residual treasury-related activities, the elimination of taxable equivalent adjustments, and residual unallocated expenses.

Q4 2020 vs. Q4 2019
Corporate Services reported and adjusted net loss for the quarter was $86 million, compared with a reported net loss of $446 million and an adjusted net loss of $89 million in the prior year. Adjusted results in the prior year exclude the restructuring charge. Adjusted results are relatively unchanged, as higher revenue and the impact of a favourable tax rate in the current quarter were offset by higher expenses.

Q4 2020 vs. Q3 2020
Reported and adjusted net loss for the quarter was $86 million, compared with a reported and adjusted net loss of $118 million in the prior quarter. Results increased, primarily due to higher treasury-related revenue, which was below trend in the prior quarter, and the impact of a favourable tax rate in the current quarter, partially offset by higher expenses.

Adjusted results in this Corporate Services section are non-GAAP amounts or non-GAAP measures. Please refer to the Non-GAAP Measures section.

Risk Management
BMO's risk management policies and processes to identify, measure, manage, monitor, mitigate and report its credit and counterparty, market, insurance, liquidity and funding, operational, including technology and cyber-related risks, legal and regulatory, strategic, environmental and social, and reputation risks are outlined in the Enterprise-Wide Risk Management section on pages 73 to 113 of BMO's 2020 Annual Report.

Condensed Consolidated Financial Statements

Consolidated Statement of Income

Condensed Consolidated Financial Statements

Consolidated Statement of Comprehensive Income

Condensed Consolidated Financial Statements

Consolidated Balance Sheet

Condensed Consolidated Financial Statements

Consolidated Statement of Changes in Equity

 INVESTOR AND MEDIA PRESENTATION

Investor Presentation Materials
Interested parties are invited to visit BMO's website at www.bmo.com/investorrelations to review the 2020 Annual MD&A and audited annual consolidated financial statements, quarterly presentation materials and supplementary financial and regulatory information package.

Quarterly Conference Call and Webcast Presentations
Interested parties are also invited to listen to the bank's quarterly conference call on Tuesday, December 1, 2020, at 8.15 a.m. (ET). The call may be accessed by telephone at 416-406-0743 (from within Toronto) or 1-800-898-3989 (toll-free outside Toronto), entering Passcode: 5559347#. A replay of the conference call can be accessed until Thursday, December 31, 2020, by calling 905-694-9451 (from within Toronto) or 1-800-408-3053 (toll-free outside Toronto) and entering Passcode: 4162531#.

A live webcast of the call can be accessed on BMO's website at www.bmo.com/investorrelations. A replay can also be accessed on the website.

BMO's 2020 Annual MD&A, audited consolidated financial statements, annual information form and annual report on Form 40-F (filed with the U.S. Securities and Exchange Commission) are available online at www.bmo.com/investorrelations and at www.sedar.com. Printed copies of the bank's complete 2020 audited consolidated financial statements are available free of charge upon request at 416-867-6785 or [email protected].

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SOURCE BMO Financial Group