News Column

BMO Financial Group Reports Net Income of $1.1 Billion for the Third Quarter of 2014

August 26, 2014

TORONTO, ONTARIO--(Marketwired - Aug. 26, 2014) - BMO Financial Group (TSX:BMO)(NYSE:BMO) and Bank of Montreal -

Financial Results Highlights:

Third Quarter 2014 Compared with Third Quarter 2013:

-- Net income of $1,126 million; adjusted net income(1) of $1,162 million, up 4% -- EPS(2) of $1.67, up 1%; adjusted EPS(1,2) of $1.73, up 4% -- ROE of 14.4%, compared with 15.5%; adjusted ROE(1) of 14.9%, compared with 15.5% -- Provisions for credit losses of $130 million, compared with $76 million; adjusted provisions for credit losses(1) of $130 million, compared with $12 million -- Basel III Common Equity Tier 1 Ratio of 9.6%



Year-to-Date 2014 Compared with Year-to-Date 2013:

-- Net income of $3,263 million, up 5%; adjusted net income(1) of $3,342 million, up 7% -- EPS(2) of $4.85, up 6%; adjusted EPS (1,2) of $4.97, up 8% -- ROE of 14.3%, compared with 14.9%; adjusted ROE(1) of 14.7%, compared with 15.0% -- Provisions for credit losses of $391 million, compared with $398 million; adjusted provisions for credit losses(1) of $391 million, compared with $217 million



For the third quarter ended July 31, 2014, BMO Financial Group reported net income of $1,126 million or $1.67 per share on a reported basis and net income of $1,162 million or $1.73 per share on an adjusted basis.

"BMO delivered very good results in the third quarter confirming continued momentum across our businesses," said Bill Downe, Chief Executive Officer, BMO Financial Group. "Adjusted net income was up 4% from particularly strong results a year ago and adjusted earnings per share have increased 8% year-to-date.

"Personal and Commercial Banking in Canada had continuing strong performance with operating leverage above 2% for the fourth consecutive quarter. Net income and pre-provision, pre-tax earnings growth in U.S. Personal and Commercial Banking was encouraging, with improved revenue trends despite the low interest rate environment. Traditional wealth posted adjusted net income growth of 27% reflecting good organic growth in client assets and the acquired F&C business. There were also very good results in BMO Capital Markets driven by strong revenue growth in Investment and Corporate Banking.

"Our success in growing both sides of the balance sheet is directly attributable to a strategy that emphasizes the delivery of an industry-leading customer experience and a brand promise that recognizes that money is personal - and a bank should be too. The Bank is very well positioned, and we remain confident in our momentum," concluded Mr. Downe.

(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 in the Adjusted Net Income section, and (for all reported periods) in the Non-GAAP Measures section, where such non-GAAP measures and their closest GAAP counterparts are disclosed. (2) All Earnings per Share (EPS) measures in this document refer to diluted EPS unless specified otherwise. EPS is calculated using net income after deductions for net income attributable to non-controlling interest in subsidiaries and preferred share dividends. Note: All ratios and percentage changes in this document are based on unrounded numbers.



Concurrent with the release of results, BMO announced a fourth quarter 2014 dividend of $0.78 per common share, unchanged from the preceding quarter and up $0.04 per share or 5% from a year ago, equivalent to an annual dividend of $3.12 per common share.

Our complete Third Quarter 2014 Report to Shareholders, including our unaudited interim consolidated financial statements for the period ended July 31, 2014, is available online at www.bmo.com/investorrelations and at www.sedar.com.

Total Bank Overview

Net income was $1,126 million for the third quarter of 2014, relatively unchanged from a year ago. Adjusted net income was $1,162 million, up $40 million or 4% from a particularly strong third quarter a year ago, as the prior year's results benefited from very low credit losses and a positive impact of long-term rates on insurance.

Momentum continued with strong results in Canadian P&C and BMO Capital Markets, and improved results in U.S. P&C. Wealth Management had good results, excluding the impact of movements in long-term interest rates.

The Basel III Common Equity Tier 1 Ratio remains strong at 9.6% following the acquisition of F&C Asset Management plc (F&C).

Operating Segment Overview

Canadian P&C

Net income was $526 million, up $40 million or 8% from a year ago. Adjusted net income was $528 million, up $39 million or 8% from the prior year, driven by higher revenue. Revenue was up $96 million or 6% year over year primarily due to strong balance and fee volumes, partially offset by the impact of lower net interest margin. Year-over-year loan growth was 7% and deposit growth was 9%. Expenses increased $34 million or 4%. Operating leverage was 2.1% and above 2% for the fourth consecutive quarter.

In personal banking, good year-over-year loan and deposit growth continued at 7% and 10%, respectively. Our Spring Home Financing Campaign was successful and our recently launched Summer Everyday Banking Campaign is attracting new customers to BMO and increasing the number of products held. During the quarter we became the first Canadian bank to provide customers with the capability to transfer money between Canadian and U.S. dollar accounts via mobile banking.

In commercial banking, year-over-year loan and deposit growth was 9% and 7%, respectively. We continue to streamline our lending processes, enabling our salesforce to spend more time acquiring new customers and strengthening existing relationships. We remain second in Canadian business banking loan market share for small and medium-sized loans.

U.S. P&C (all amounts in US$)

Net income of $147 million increased $3 million or 2% from a year ago. Adjusted net income of $158 million, increased $1 million or 1%, due to improving revenue.

There were year-over-year and quarterly sequential increases in average current loans and acceptances, led by continued strong double-digit growth in the core commercial and industrial (C&I) loan portfolio. The core C&I portfolio increased by $4.1 billion or 18% from a year ago to $27.1 billion.

BMO Harris Bank received the 2014 Community Partner Award from Latinos Progresando, in recognition of our significant impact - culturally, economically, and educationally - on Chicago's Latino community. In addition, we received the Corporation of the Year award from the Hispanic Professionals of Greater Milwaukee. These awards represent our strong commitment to the Latino community we serve throughout our footprint.

Wealth Management

Net income of $190 million decreased $27 million from a year ago. Adjusted net income of $212 million decreased $12 million or 4%. Good organic growth increased adjusted net income by 19% year over year, excluding the impact of movements in long-term interest rates. Adjusted net income in traditional wealth was $164 million, up 27% or $33 million, with approximately 60% of the increase due to the contribution from the acquired F&C business and the remainder from strong growth in client assets. Adjusted net income in insurance was $48 million, down $45 million or 48% from a year ago primarily due to a $22 million after-tax charge from unfavourable movements in long-term interest rates in the current quarter relative to a $42 million after-tax benefit a year ago.

Assets under management and administration grew by $251 billion or 48% from a year ago to $776 billion, with the acquired F&C business contributing $153 billion to the increase. Excluding F&C, assets under management and administration grew by 19%, driven by market appreciation, the stronger U.S. dollar and growth in new client assets.

On May 7, 2014, we completed the acquisition of F&C. This acquisition strengthens BMO Global Asset Management's position as a globally significant money manager, enhancing its asset management platform capabilities and providing attractive opportunities to service wealth markets in the United Kingdom and the rest of Europe. F&C contributed approximately 10% to Wealth Management's revenue, adjusted expenses and adjusted net income for the quarter.

In May, Global Banking and Finance Review (GBFR) named BMO Best Wealth Management in Canada, 2014, based on our ability to provide comprehensive wealth management services; ongoing commitment to providing clients with personalized and innovative investment and financial solutions; and access to local expertise - with a global reach - that supports international wealth management needs.

BMO Capital Markets

Net income of $306 million increased $38 million or 14% from a year ago driven by good revenue performance across the businesses, particularly in Investment and Corporate Banking. Revenue increased 15% year over year with a solid contribution from our U.S business. Return on equity of 22.4% was strong, up from 18.2% in the prior year.

In the quarter, we were selected as a 2014 Greenwich Quality Leader in both Canadian Equity Sales and in Canadian Equity Research and Analyst Service for Portfolio Managers, as well as a Greenwich Share Leader in Canadian Equity Trading Share and Canadian Equity Research/Advisory Portfolio Managers Vote Share. These awards, coupled with our recognition as the Best Trade Bank in Canada for the fifth consecutive year by Trade Finance Magazine, reflects the success of our commitment to meeting our core clients' needs.

BMO Capital Markets participated in 419 new global issues in the quarter, comprised of 173 corporate debt deals, 150 government debt deals and 96 equity transactions, raising $765 billion.

Corporate Services

Corporate Services reported and adjusted net loss for the third quarter of 2014 was $55 million, compared with reported net income of $3 million and an adjusted net loss of $21 million a year ago. The decline was primarily due to lower recoveries on the purchased credit impaired loan portfolio partly offset by better revenue excluding the impact of the group taxable equivalent basis (teb) offset.

Adjusted Net Income

Adjusted net income was $1,162 million for the third quarter of 2014, up $40 million or 4% from a year ago. Adjusted earnings per share were $1.73, up 4% from $1.66 a year ago.

Management has designated certain amounts as adjusting items and has adjusted GAAP results so that we can discuss and present financial results without the effects of adjusting items to facilitate understanding of business performance and related trends. The items excluded from third quarter 2014 results in the determination of adjusted results were the amortization of acquisition-related intangible assets of $39 million ($29 million after tax; $0.05 per share) and acquisition integration costs of $9 million ($7 million after tax; $0.01 per share). Amounts excluded from adjusted results in prior years also included credit-related items in respect of the purchased performing loan portfolio, restructuring costs and run-off structured credit activities. Management assesses performance on a GAAP basis and on an adjusted basis and considers both to be useful in the assessment of underlying business performance. Presenting results on both bases provides readers with a better understanding of how management assesses results. Adjusted results and measures are non-GAAP and, together with items excluded in determining adjusted results, are disclosed in more detail in the Non-GAAP Measures section, along with comments on the uses and limitations of such measures. The impact of adjusting items for comparative periods is summarized in the Non-GAAP Measures section.

Adjusted results in these Total Bank Overview and Operating Segment Overview sections are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

Caution

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

Management's Discussion and Analysis

Management's Discussion and Analysis (MD&A) commentary is as of August 26, 2014. 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. The MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the period ended July 31, 2014, as well as the audited consolidated financial statements for the year ended October 31, 2013, and the MD&A for fiscal 2013 in BMO's 2013 Annual Report. The material that precedes this section comprises part of this MD&A.

The annual MD&A includes a comprehensive discussion of our businesses, strategies and objectives, and can be accessed on our website at www.bmo.com/investorrelations. Readers are also encouraged to visit the site to view other quarterly financial information.

Bank of Montreal's management, under the supervision of the CEO and CFO, has evaluated the effectiveness, as at July 31, 2014, of Bank of Montreal's disclosure controls and procedures (as defined in the rules of the Securities and Exchange Commission and the Canadian Securities Administrators) and has concluded that such disclosure controls and procedures are effective.

There were no changes in our internal control over financial reporting during the quarter ended July 31, 2014, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Because of inherent limitations, disclosure controls and procedures and internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.

As in prior quarters, Bank of Montreal'sAudit and Conduct Review Committee reviewed this document and Bank of Montreal's Board of Directors approved the document prior to its release.

Regulatory Filings

Our continuous disclosure materials, including our interim filings, annual MD&A and audited consolidated financial statements, Annual Information Form and Notice of Annual Meeting of Shareholders and Proxy Circular are available on our website at www.bmo.com/investorrelations, on the Canadian Securities Administrators' website at www.sedar.com and on the EDGAR section of the SEC's website at 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.

---------------------------------------------------------------------------- Summary Data - Reported Table 1 ---------------------------------------------------------------------------- (Canadian $ in millions, except as noted) Q3-2014 Q2-2014 Q3-2013 YTD-2014 YTD-2013 ---------------------------------------------------------------------------- Summary Income Statement Net interest income 2,107 2,063 2,183 6,283 6,560 Non-interest revenue 2,108 1,978 1,817 6,095 5,365 ---------------------------------------------------------------------------- Revenue 4,215 4,041 4,000 12,378 11,925 ---------------------------------------------------------------------------- Specific provision for credit losses 130 162 56 391 408 Collective provision for (recovery of) credit losses - - 20 - (10) ---------------------------------------------------------------------------- Total provision for credit losses 130 162 76 391 398 Non-interest expense 2,756 2,594 2,526 8,034 7,646 Provision for income taxes 203 209 275 690 760 ---------------------------------------------------------------------------- Net income 1,126 1,076 1,123 3,263 3,121 ---------------------------------------------------------------------------- Attributable to bank shareholders 1,110 1,062 1,107 3,220 3,069 Attributable to non- controlling interest in subsidiaries 16 14 16 43 52 ---------------------------------------------------------------------------- Net income 1,126 1,076 1,123 3,263 3,121 ---------------------------------------------------------------------------- Common Share Data ($ except as noted) Earnings per share 1.67 1.60 1.66 4.85 4.57 Earnings per share growth (%) 0.6 14.3 17.7 6.1 0.9 Dividends declared per share 0.78 0.76 0.74 2.30 2.20 Book value per share 46.69 45.94 41.96 46.69 41.96 Closing share price 81.27 75.55 63.87 81.27 63.87 Total market value of common shares ($ billions) 52.5 48.7 41.3 52.5 41.3 Dividend yield (%) 3.8 4.0 4.6 3.8 4.6 ---------------------------------------------------------------------------- Financial Measures and Ratios (%) Return on equity 14.4 14.3 15.5 14.3 14.9 Net income growth 0.4 11.6 16.7 4.5 1.2 Revenue growth 5.3 3.7 4.6 3.8 1.1 Non-interest expense growth 9.0 1.8 2.8 5.1 2.6 Efficiency ratio 65.4 64.2 63.2 64.9 64.1 Efficiency ratio, excluding PBCAE (1) 58.2 59.4 61.8 59.1 61.1 Operating leverage (3.7) 1.9 1.8 (1.3) (1.5) Net interest margin on average earning assets 1.58 1.59 1.78 1.60 1.82 Effective tax rate 15.3 16.2 19.7 17.5 19.6 Return on average assets 0.74 0.73 0.79 0.73 0.74 Provision for credit losses- to-average loans and acceptances (annualized) 0.18 0.22 0.11 0.18 0.20 ---------------------------------------------------------------------------- Value Measures (% except as noted) Average annual five-year total shareholder return 13.7 19.4 11.7 13.7 11.7 Average annual three-year total shareholder return 15.8 11.8 5.4 15.8 5.4 Twelve month total shareholder return 32.6 24.8 16.5 32.6 16.5 Net economic profit ($ millions) (2) 322 297 372 908 946 ---------------------------------------------------------------------------- Balance Sheet (as at $ millions, except as noted) Assets 586,832 582,045 548,712 586,832 548,712 Net loans and acceptances 295,441 294,704 272,557 295,441 272,557 Deposits 399,223 394,007 359,523 399,223 359,523 Common shareholders' equity 30,179 29,639 27,103 30,179 27,103 Cash and securities-to-total assets ratio (%) 33.0 32.1 31.1 33.0 31.1 ---------------------------------------------------------------------------- Capital Ratios (%) Common Equity Tier 1 Ratio 9.6 9.7 9.6 9.6 9.6 Tier 1 Capital Ratio 11.4 11.1 11.2 11.4 11.2 Total Capital Ratio 13.3 13.0 13.5 13.3 13.5 ---------------------------------------------------------------------------- Net Income by Operating Group Canadian P&C 526 480 486 1,490 1,354 U.S. P&C 159 155 149 480 479 ---------------------------------------------------------------------------- Personal and Commercial Banking 685 635 635 1,970 1,833 Wealth Management 190 194 217 559 519 BMO Capital Markets 306 305 268 888 827 Corporate Services, including Technology and Operations (T&O) (55) (58) 3 (154) (58) ---------------------------------------------------------------------------- BMO Financial Group net income 1,126 1,076 1,123 3,263 3,121 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) This ratio is calculated excluding insurance policyholder benefits, claims and acquisition expenses (PBCAE). (2) Net economic profit is a non-GAAP measure and is discussed in the Non- GAAP Measures section. ---------------------------------------------------------------------------- Summary Data - Adjusted Table 2 ---------------------------------------------------------------------------- (Canadian $ in millions, except as noted) Q3-2014 Q2-2014 Q3-2013 YTD-2014 YTD-2013 ---------------------------------------------------------------------------- Adjusted Summary Income Statement Net interest income 2,107 2,063 2,030 6,283 6,020 Non-interest revenue 2,108 1,978 1,812 6,095 5,342 ---------------------------------------------------------------------------- Revenue 4,215 4,041 3,842 12,378 11,362 Provision for credit losses 130 162 12 391 217 Non-interest expense 2,708 2,566 2,442 7,927 7,270 Provision for income taxes 215 216 266 718 740 ---------------------------------------------------------------------------- Net income 1,162 1,097 1,122 3,342 3,135 ---------------------------------------------------------------------------- Attributable to bank shareholders 1,146 1,083 1,106 3,299 3,083 Attributable to non- controlling interest in subsidiaries 16 14 16 43 52 ---------------------------------------------------------------------------- Net income 1,162 1,097 1,122 3,342 3,135 ---------------------------------------------------------------------------- Adjusted Common Share Data Earnings per share ($) 1.73 1.63 1.66 4.97 4.59 Earnings per share growth (%) 4.2 13.2 12.9 8.3 6.5 ---------------------------------------------------------------------------- Adjusted Financial Measures and Ratios (%) Return on equity 14.9 14.6 15.5 14.7 15.0 Net income growth 3.7 11.2 11.6 6.6 6.5 Revenue growth 9.7 8.9 6.0 8.9 3.4 Non-interest expense growth 10.8 7.7 5.6 9.0 3.9 Efficiency ratio 64.2 63.5 63.6 64.0 64.0 Efficiency ratio, excluding PBCAE (1) 57.2 58.8 62.2 58.4 60.9 Operating leverage (1.1) 1.2 0.4 (0.1) (0.5) Net interest margin on average earning assets 1.58 1.59 1.65 1.60 1.67 Effective tax rate 15.6 16.5 19.2 17.7 19.1 ---------------------------------------------------------------------------- Adjusted Net Income By Operating Group Canadian P&C 528 482 489 1,496 1,361 U.S. P&C 171 167 161 516 517 ---------------------------------------------------------------------------- Personal and Commercial Banking 699 649 650 2,012 1,878 Wealth Management 212 200 224 595 539 BMO Capital Markets 306 306 269 889 829 Corporate Services, including T&O (55) (58) (21) (154) (111) ---------------------------------------------------------------------------- BMO Financial Group net income 1,162 1,097 1,122 3,342 3,135 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) This ratio is calculated excluding insurance policyholder benefits, claims and acquisition expenses (PBCAE). The above results and statistics are presented on an adjusted basis. These are non-GAAP amounts or non-GAAP measures. Please see the non-GAAP Measures section.



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 2014 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price, and the results of or outlook for our operations or for the Canadian, U.S. and international economies.

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

The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: general economic and market conditions in the countries in which we operate; weak, volatile or illiquid capital and/or credit markets; interest rate and currency value fluctuations; changes in monetary, fiscal or economic policy; the degree 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; 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; general political conditions; global capital markets activities; the possible effects on our business of war or terrorist activities; disease or illness that affects local, national or international economies; natural disasters and disruptions to public infrastructure, such as transportation, communications, power or water supply; technological changes; and our ability to anticipate and effectively manage risks associated with all of the foregoing factors.

We caution that the foregoing list is not exhaustive of all possible factors. Other factors could adversely affect our results. For more information, please see the discussion on pages 30 to 31 of BMO's 2013 Annual Report, which outlines in detail certain key factors that may affect Bank of Montreal's future results. When relying on forward-looking statements to make decisions with respect to Bank of Montreal, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Bank of Montreal does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by the organization or on its behalf, except as required by law. The forward-looking information contained in this document is presented for the purpose of assisting our shareholders in understanding our financial position as at and for the periods ended on the dates presented, as well as our strategic priorities and objectives, and may not be appropriate for other purposes.

Assumptions about the level of default and losses on default were material factors we considered when establishing our expectations regarding the future performance of the transactions into which our credit protection vehicle has entered. Among the key assumptions were that the level of default and losses on default will be consistent with historical experience. Material factors that were taken into account when establishing our expectations regarding the future risk of credit losses in our credit protection vehicle and risk of loss to Bank of Montreal included industry diversification in the portfolio, initial credit quality by portfolio, the first-loss protection incorporated into the structure and the hedges into which Bank of Montreal has entered.

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 the Canadian and U.S. governments and their agencies. See the Economic Review and Outlook section of this interim MD&A.

Economic Review and Outlook

After slowing early this year due to inclement weather, the Canadian economy has picked up moderately. Consumer spending has strengthened, home sales have firmed up and exports are starting to benefit from a weaker currency. Canadians are buying a record number of automobiles. However, job growth has slowed and business spending remains weak, restrained by uneven global demand. China's economy has strengthened in response to expansionary fiscal policies, but the Eurozone economy has stalled. Canadian GDP growth is expected to improve to 2.3% in 2014 from 2.0% in 2013, reducing the unemployment rate slightly. Consumer spending is projected to grow moderately, restrained by elevated household debt. Housing market activity should stabilize alongside moderate growth in residential mortgages. By contrast, business investment is expected to strengthen in response to firmer exports and elevated oil prices, supporting business loan growth. Despite an upturn in inflation, the Bank of Canada remains mindful of economic risks, and is expected to maintain a steady interest rate policy well into 2015. The Canadian dollar is projected to weaken further in response to the ongoing trade deficit and higher long-term interest rates in the U.S. than in Canada.

The U.S. economy contracted early this year, largely because of the severe winter weather, but rebounded strongly in the second quarter on improved motor vehicle sales and an upswing in business investment. While the poor start to the year means GDP growth will likely slow to 2.1% in 2014 from 2.2% in 2013, the outlook remains promising. Consumer spending is projected to strengthen in response to improved household finances, while housing market activity should pick up in response to recent declines in mortgage rates and steady gains in employment. Demand for residential mortgages and consumer loans should improve this year, while strong corporate balance sheets will support business spending and credit growth. While the Federal Reserve is expected to continue reducing its purchases of fixed-income securities, it is not expected to begin raising policy rates until the middle of 2015.

The U.S. Midwest region, which includes the six states in BMO's U.S. footprint, is expected to grow near the national average of 2.1% in 2014, with an improved performance expected in the second half of the year in response to strengthening exports, increased automotive production and less restrictive fiscal policies.

This Economic Review and Outlook section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.

Other Value Measures

BMO's average annual total shareholder returns for the one-year, three-year and five-year periods ending July 31, 2014, were 32.6%, 15.8% and 13.7%, respectively.

Foreign Exchange

The Canadian dollar equivalents of BMO's U.S.-dollar-denominated net income, revenues, expenses, recovery of (provision for) credit losses and income taxes were increased relative to the third quarter of 2013 and the prior year to date due to the strengthening of the U.S. dollar, but decreased relative to the second quarter of 2014 due to the weakening of the U.S. dollar. The average Canadian/U.S. dollar exchange rate for the quarter, expressed in terms of the Canadian dollar cost of a U.S. dollar, increased by 4% from a year ago and decreased 2% from the second quarter. The average rate for the year to date increased by 7% from a year ago. BMO may execute hedging transactions to mitigate the impact of foreign exchange rate movements on net income. Table 3 indicates the relevant average Canadian/U.S. dollar exchange rates and the impact of changes in the rates.

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

---------------------------------------------------------------------------- Effects of Changes in Exchange Rates on BMO's Reported and Table 3 Adjusted Results ---------------------------------------------------------------------------- Q3-2014 YTD-2014 ---------------------- ------------ (Canadian $ in millions, except as noted) vs Q3-2013 vs Q2-2014 vs YTD-2013 -------------------------------------------------------------- ------------ Canadian/U.S. dollar exchange rate (average) Current period 1.0807 1.0807 1.0877 Prior period 1.0385 1.1029 1.0172 Effects on reported results Increased (decreased) net interest income 27 (14) 138 Increased (decreased) non-interest revenue 21 (11) 112 ---------------------------------------------------------------------------- Increased (decreased) revenues 48 (25) 250 Decreased (increased) expenses (38) 20 (188) Increased provision for credit losses (1) - - Decreased (increased) income taxes (2) 1 (14) ---------------------------------------------------------------------------- Increased (decreased) reported net income 7 (4) 48 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Effects on adjusted results Increased (decreased) net interest income 25 (14) 125 Increased (decreased) non-interest revenue 21 (11) 112 ---------------------------------------------------------------------------- Increased (decreased) revenues 46 (25) 237 Decreased (increased) expenses (37) 20 (183) Increased recovery of credit losses - - 5 Decreased (increased) income taxes (2) 1 (12) ---------------------------------------------------------------------------- Increased (decreased) adjusted net income 7 (4) 47 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Adjusted results in this section are non-GAAP amounts or non-GAAP Measures. Please see the non-GAAP Measures section. Net Income Q3 2014 vs. Q3 2013



Net income was $1,126 million for the third quarter of 2014, up $3 million from the prior year. EPS was $1.67, up $0.01 or 1% from the prior year.

Adjusted net income was $1,162 million, up $40 million or 4% from a particularly strong third quarter a year ago, as the prior year's results benefited from very low credit losses and a positive impact of long-term rates on insurance.

Adjusted EPS was $1.73, up $0.07 or 4%. Adjusted results and items excluded in determining adjusted results are disclosed in detail in the preceding Adjusted Net Income section and in the Non-GAAP Measures section, together with comments on the uses and limitations of such measures.

On an adjusted basis, net income growth was driven by strong results in Canadian P&C and BMO Capital Markets. Canadian P&C results reflected strong balance and fee volumes, partially offset by the impact of lower net interest margin. Wealth Management continued to deliver good adjusted results, excluding the $64 million impact of movements in long-term interest rates that lowered insurance results compared to the prior year. Traditional wealth posted strong results with adjusted net income up 27% or $33 million, with approximately 60% of the increase due to the contribution from the acquired F&C business and the remainder from strong growth in client assets. BMO Capital Markets results were up driven by good revenue performance across the businesses, particularly in Investment and Corporate Banking. U.S. P&C net income was up modestly on a U.S. dollar basis due to improving revenue. Corporate Services adjusted results decreased primarily due to lower recoveries on the purchased credit impaired loan portfolio partly offset by better revenue excluding the impact of the group teb offset.

Q3 2014 vs Q2 2014

Net income increased $50 million or 5% and EPS increased $0.07 or 4%. Adjusted net income increased $65 million or 6% and adjusted EPS increased $0.10 or 6%.

Net income increased in Canadian P&C due to higher revenue as a result of higher balance and fee volumes across most products and three more days in the current quarter, partially offset by higher expenses. Adjusted net income increased in Wealth Management primarily due to the acquisition of F&C, as well as good organic growth, partially offset by lower insurance revenue due to unfavourable movements in long-term interest rates. BMO Capital Markets results were relatively unchanged from the previous quarter as higher revenue was offset by a less favourable tax rate and modestly higher expenses. U.S. P&C adjusted net income increased on a U.S. dollar basis due to improving revenue, as the benefits from three more days and commercial loan growth were partially offset by lower commercial lending fees, higher expenses and increased provisions for credit losses. Corporate Services adjusted results were comparable to the prior quarter.

Q3 YTD 2014 vs Q3 YTD 2013

Net income increased $142 million or 5% to $3,263 million. EPS was $4.85, up $0.28 or 6% from a year ago. Adjusted net income was $3,342 million, up $207 million or 7% from a year ago. Adjusted EPS was $4.97, up $0.38 or 8% from a year ago. On an adjusted basis, there was strong growth in Canadian P&C, Wealth Management and BMO Capital Markets. Adjusted net income in U.S. P&C on a U.S. dollar basis and Corporate Services was lower relative to the same period a year ago.

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

Revenue

Q3 2014 vs Q3 2013

Total revenue of $4,215 million increased $215 million or 5% from the third quarter a year ago. Adjusted revenue increased $373 million or 10% to $4,215 million. Excluding the impact of the stronger U.S. dollar, adjusted revenue increased by $327 million or 8%. Canadian P&C had good revenue growth due to strong balance and fee volumes, partially offset by the impact of lower net interest margin. Wealth Management also had good revenue growth, with traditional wealth revenue up 25% due to the impact of the F&C acquisition and higher revenue across all businesses driven by strong growth in client assets and increased transaction volumes. Insurance revenue decreased due to the impact of movements in long-term interest rates. BMO Capital Markets revenue increased 15%, with good revenue performance particularly in Investment and Corporate Banking, including a solid contribution from our U.S. business. U.S. P&C revenue increased on a U.S. dollar basis, resulting from strong commercial loan growth, partially offset by lower net interest margin and reduced gains on sales of newly originated mortgages. Corporate Services adjusted revenue was lower primarily due to the impact of a higher group teb adjustment.

Net interest income decreased $76 million or 3% from a year ago to $2,107 million. Adjusted net interest income increased $77 million or 4% to $2,107 million, due to volume growth, revenue from the purchased performing loan portfolio and the impact of the stronger U.S. dollar, partially offset by lower net interest margin. BMO's overall net interest margin decreased on a reported basis by 20 basis points from a year ago to 1.58%. Adjusted net interest margin decreased by 7 basis points to 1.58%. Average earning assets increased $41.5 billion or 9% to $528.7 billion, including an $8.3 billion increase as a result of the stronger U.S. dollar.

Non-interest revenue increased $291 million or 16% from a year ago to $2,108 million. Adjusted non-interest revenue increased $296 million or 16% to $2,108 million, with significant increases in underwriting and advisory fees, as well as significantly higher investment management and custodial fees and mutual fund revenues as a result of the acquisition of F&C, offset in part by lower insurance income.

Q3 2014 vs Q2 2014

Total revenue and adjusted revenue increased $174 million or 4% from the second quarter. Excluding the impact of the weaker U.S. dollar, adjusted revenue increased by $199 million or 5%. Canadian P&C revenue increased primarily due to higher balance and fee volumes across most products and three more days in the current quarter. Revenue in Wealth Management increased, with revenue growth in traditional wealth driven by the impact from the F&C acquisition and growth in client assets. Insurance revenue decreased due to the impact of unfavourable movements in long-term interest rates. Revenue increased in BMO Capital Markets reflecting higher Investment and Corporate Banking revenue, with Trading Products revenue relatively unchanged. U.S. P&C had higher revenue on a U.S. dollar basis, as the benefits from three more days and commercial loan growth were partially offset by lower commercial lending fees. Corporate Services adjusted revenue decreased primarily due to lower credit-related revenue on the purchased performing loan portfolio and a higher group teb adjustment.

Reported and adjusted net interest income increased $44 million or 2%, in large part due to three more days in the current quarter. BMO's overall reported and adjusted net interest margin was relatively stable compared to the second quarter. BMO's overall reported and adjusted net interest margin (excluding trading) was unchanged from the second quarter. Average earning assets decreased $1.8 billion from the prior quarter, but increased $2.5 billion excluding the impact of the weaker U.S. dollar.

Reported and adjusted non-interest revenue increased $130 million or 7%, with significant increases in underwriting and advisory fees, as well as significantly higher investment management and custodial fees and mutual fund revenues as a result of the acquisition of F&C, offset in part by lower securities gains.

Q3 YTD 2014 vs Q3 YTD 2013

Year-to-date revenue increased $453 million or 4% and adjusted revenue increased $1,016 million or 9%. Excluding the impact of the stronger U.S. dollar, adjusted revenue increased $779 million or 7%.

Net interest income decreased $277 million or 4% year to date. Adjusted net interest income increased $263 million or 4%, mainly due to volume growth, revenue from the purchased performing loan portfolio and the impact of the stronger U.S. dollar, partially offset by lower net interest margin. BMO's overall net interest margin declined by 22 basis points to 1.60%. Adjusted net interest margin declined by 7 basis points to 1.60%. Average earning assets increased by $43.5 billion or 9%, including a $13.5 billion increase as a result of the stronger U.S. dollar.

Non-interest revenue increased $730 million or 14% year to date. Adjusted non-interest revenue increased $753 million or 14% with increases in all types of non-interest revenue except card fees, insurance income and foreign exchange, other than trading.

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

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

---------------------------------------------------------------------------- Adjusted Net Interest Margin on Average Earning Assets (teb)(i) Table 4 ---------------------------------------------------------------------------- (In basis points) Q3-2014 Q2-2014 Q3-2013 YTD-2014 YTD-2013 ---------------------------------------------------------------------------- Canadian P&C 259 258 264 259 266 U.S. P&C 373 376 392 377 404 ---------------------------------------------------------------------------- Personal and Commercial Banking 289 290 295 290 301 Wealth Management 262 264 291 266 287 BMO Capital Markets 58 59 67 55 61 Corporate Services, including T&O(ii) nm nm nm nm nm ---------------------------------------------------------------------------- Total BMO adjusted net interest margin 158 159 165 160 167 Total BMO adjusted net interest margin (excluding trading) 196 196 199 198 203 ---------------------------------------------------------------------------- Total BMO reported net interest margin 158 159 178 160 182 Total BMO reported net interest margin (excluding trading) 196 196 215 198 221 ---------------------------------------------------------------------------- Total Canadian Retail (reported and adjusted)(iii) 257 257 263 258 265 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (i) Net interest margin is disclosed and computed with reference to average earning assets, rather than total assets. This basis provides a more relevant measure of margins and changes in margins. Operating group margins are stated on a taxable equivalent basis (teb) while total BMO margin is stated on a GAAP basis. (ii) Corporate Services adjusted net interest income is negative in all periods and its variability affects changes in net interest margin. (iii) Total Canadian retail margin represents the net interest margin of the combined Canadian businesses of Canadian P&C and Wealth Management. This table contains adjusted results and measures, which are Non-GAAP. Please see the Non-GAAP Measures section. nm - not meaningful



Provisions for Credit Losses

Q3 2014 vs Q3 2013

The total provision for credit losses (PCL) was $130 million, an increase of $54 million from the prior year. Adjusted PCL increased by $118 million from the prior year primarily due to significantly lower recoveries. There was no net change to the collective allowance in the quarter.

Canadian P&C provisions increased by $9 million to $134 million, due to increased provisions in the consumer portfolio. U.S. P&C provisions of $52 million increased by $12 million due to higher provisions in the commercial portfolio, partially offset by lower provisions in the consumer portfolio. Corporate Services adjusted recoveries of $47 million declined by $107 million, primarily due to lower recoveries on the purchased credit impaired loan portfolio.

Q3 2014 vs Q2 2014

The reported and adjusted PCL decreased by $32 million from the prior quarter due to higher recoveries on the purchased performing loan and purchased credit impaired loan portfolios. There was no net change to the collective allowance in the quarter.

Canadian P&C provisions were consistent with the prior quarter. U.S. P&C provisions increased by $2 million due to higher provisions in the consumer portfolio, partially offset by lower provisions in the commercial portfolio. Corporate Services adjusted recoveries increased by $28 million mainly due to higher recoveries on the purchased performing loan and purchased credit impaired loan portfolios.

Adjusted results in this Provisions for Credit Losses section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

---------------------------------------------------------------------------- Provision for Credit Losses by Operating Group Table 5 ---------------------------------------------------------------------------- (Canadian $ in millions) Q3-2014 Q2-2014 Q3-2013 YTD-2014 YTD-2013 ---------------------------------------------------------------------------- Canadian P&C 134 133 125 408 406 U.S. P&C 52 50 40 121 127 ---------------------------------------------------------------------------- Personal and Commercial Banking 186 183 165 529 533 Wealth Management (3) 2 (1) (2) 2 BMO Capital Markets (6) (4) 2 (11) (19) Corporate Services, including T&O (1) (2) (47) (19) (154) (125) (299) ---------------------------------------------------------------------------- Adjusted provision for credit losses 130 162 12 391 217 Purchased performing loans (1) - - 44 - 191 Increase (decrease) in collective allowance - - 20 - (10) ---------------------------------------------------------------------------- Provision for credit losses 130 162 76 391 398 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Effective Q1-2014, Corporate Services adjusted results include credit- related items in respect of the purchased performing loan portfolio, including $3 million of recoveries of specific provisions for credit losses in the current period (specific provisions of $21 million in Q2- 2014). (2) Corporate Services results include purchased credit impaired loan recoveries of $57 million in Q3-2014 ($35 million after tax); $45 million in Q2-2014 ($28 million after tax); and $140 million in Q3-2013 ($86 million after tax). This table contains adjusted results and measures, which are Non-GAAP. Please see the Non-GAAP Measures section. ---------------------------------------------------------------------------- Changes to Provision for Credit Losses Table 6 ---------------------------------------------------------------------------- (Canadian $ in millions, except as noted) Q3-2014 Q2-2014 Q3-2013 YTD-2014 YTD-2013 ---------------------------------------------------------------------------- New specific provisions 395 348 357 1,101 1,181 Reversals of previously established allowances (83) (47) (72) (178) (203) Recoveries of loans previously written-off (182) (139) (229) (532) (570) ---------------------------------------------------------------------------- Specific provision for credit losses 130 162 56 391 408 Increase (decrease) in collective allowance - - 20 - (10) ---------------------------------------------------------------------------- Provision for credit losses 130 162 76 391 398 ---------------------------------------------------------------------------- PCL as a % of average net loans and acceptances (annualized) 0.18 0.22 0.11 0.18 0.20 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------



Impaired Loans

Total gross impaired loans (GIL) were $1,975 million at the end of the current quarter, down from $2,325 million in the second quarter of 2014 and down from $2,650 million a year ago.

Factors contributing to the change in GIL are outlined in Table 7 below. Loans classified as impaired during the quarter totalled $457 million, down from $509 million in the second quarter of 2014 and $610 million a year ago.

---------------------------------------------------------------------------- Changes in Gross Impaired Loans (GIL) and Acceptances (1) Table 7 ---------------------------------------------------------------------------- (Canadian $ in millions, except as noted) Q3-2014 Q2-2014 Q3-2013 YTD-2014 YTD-2013 ---------------------------------------------------------------------------- GIL, beginning of period 2,325 2,482 2,848 2,544 2,976 Classified as impaired during the period 457 509 610 1,608 1,835 Transferred to not impaired during the period (142) (244) (212) (540) (564) Net repayments (269) (185) (290) (900) (811) Amounts written-off (235) (149) (219) (587) (670) Recoveries of loans and advances previously written- off - - - - - Disposals of loans (155) (63) (146) (220) (233) Foreign exchange and other movements (6) (25) 59 70 117 ---------------------------------------------------------------------------- GIL, end of period 1,975 2,325 2,650 1,975 2,650 ---------------------------------------------------------------------------- GIL as a % of gross loans and acceptances 0.67 0.79 0.97 0.67 0.97 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) GIL excludes purchased credit impaired loans.



For further discussion of risk management practices and key measures, see the Risk Management section.

Non-Interest Expense

Non-interest expense increased $230 million or 9% from the third quarter a year ago to $2,756 million. Adjusted non-interest expense increased $266 million or 11% to $2,708 million. Excluding the impact of the stronger U.S. dollar, adjusted non-interest expense increased by $229 million or 9% primarily due to higher employee-related expenses, including performance-based compensation, the impact of the F&C acquisition and increased technology and support costs related to a changing business and regulatory environment.

Non-interest expense increased $162 million or 6% relative to the second quarter. Adjusted non-interest expense increased $142 million or 5%. Excluding the impact of the weaker U.S. dollar, adjusted non-interest expense increased by $162 million or 6% primarily due to the impact of the F&C acquisition, higher employee-related expenses, increased technology and support costs related to a changing business and regulatory environment and three more days in the current quarter.

Year-over-year operating leverage on a reported basis was negative 3.7% and adjusted operating leverage was negative 1.1%. Excluding the impact of movements in long-term interest rates in the insurance business, year-over-year adjusted operating leverage was positive 1.3%. The adjusted efficiency ratio of 64.2% for the third quarter of 2014 increased 60 basis points from a year ago and 70 basis points from the prior quarter, primarily due to the impact of the F&C acquisition and movements in long-term interest rates in the insurance business. The adjusted efficiency ratio excluding PBCAE(1) was 57.2%.

Non-interest expense for the year to date increased $388 million or 5% to $8,034 million. Adjusted non-interest expense increased $657 million or 9% to $7,927 million, or 6% excluding the impact of the stronger U.S. dollar. The increase was primarily due to higher employee-related expenses, including performance-based compensation and severance, increased technology and support costs related to a changing business and regulatory environment and the impact of the F&C acquisition.

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

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

Income Taxes

The provision for income taxes of $203 million decreased $72 million from the third quarter of 2013 and decreased $6 million from the second quarter of 2014. The effective tax rate for the quarter was 15.3%, compared with 19.7% a year ago and 16.2% in the second quarter of 2014.

The adjusted provision for income taxes of $215 million decreased $51 million from a year ago and was relatively unchanged from the second quarter of 2014. The adjusted effective tax rate was 15.6% in the current quarter, compared with 19.2% a year ago and 16.5% in the second quarter of 2014. The lower adjusted tax rate in the current quarter relative to the third quarter of 2013 and the second quarter of 2014 was primarily due to higher tax-exempt income.

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

(1) This ratio is calculated excluding insurance policyholder benefits, claims and acquisition expenses (PBCAE).



Capital Management

Third Quarter 2014 Regulatory Capital Review

BMO's Common Equity Tier 1 (CET1) Ratio was 9.6% at July 31, 2014.

The CET1 Ratio decreased by approximately 10 basis points from 9.7% at the end of the second quarter mainly due to the impact of the F&C acquisition which reduced the CET1 ratio by approximately 75 basis points, largely offset by lower risk-weighted assets (RWA) and increased retained earnings. The CET1 Ratio decreased by approximately 30 basis points from 9.9% at October 31, 2013, mainly due to the impact of the F&C acquisition and higher RWA, partly offset by increased retained earnings.

RWA of $226 billion at July 31, 2014, decreased by $9 billion from the second quarter largely due to actions taken to manage certain risk positions and changes in methodology and risk assessments. RWA increased $11 billion from October 31, 2013, primarily due to increased source currency RWA, newly-implemented Credit Valuation Adjustment (CVA) rules and the impact of a strengthening of the U.S. dollar during the first three quarters of the year as noted below.

During the first and second quarters of 2014, the RWA attributable to the CVA for CET1, (CET1 RWA), Tier 1 and Total Capital was 57% of the fully-implemented charge. During the third quarter, the CET1 RWA remained at 57% of the fully-implemented charge while the RWA attributable to the CVA for Tier 1 Capital and Total Capital increased to 65% and 77%, respectively. The CVA charge will remain at these levels during the fourth quarter. The phase-in of RWA for the CVA charge will continue until it reaches 100% by 2019.

CET1 Capital at July 31, 2014, was $21.6 billion, down $1.1 billion from the second quarter mainly due to increased capital deductions for goodwill and intangible assets associated with the F&C acquisition, partially offset by increased retained earnings. Since October 31, 2013, CET1 Capital has increased $0.4 billion, with retained earnings growth and the net impact of foreign exchange movements on U.S.-dollar-denominated investments in foreign operations and related hedges more than offsetting the increase in capital deductions during the third quarter.

The bank's Tier 1 and Total Capital Ratios were 11.4% and 13.3%, respectively, at July 31, 2014, compared with 11.1% and 13.0%, respectively, at April 30, 2014, and 11.4% and 13.7%, respectively, at October 31, 2013. These ratios changed from the prior quarter and from October 31, 2013, primarily due to the same factors that caused changes in the CET1 Ratio, described above, and due to the issuance of preferred shares, which was partially offset by preferred share redemptions, as described below.

BMO's Assets-to-Capital Multiple (ACM) was 17.0 at July 31, 2014, up from 16.8 at April 30, 2014, and from 15.6 at October 31, 2013, due to higher balance sheet assets. The Office of the Superintendent of Financial Institutions (OSFI) has announced that the ACM will be discontinued in 2015 and will be replaced by the Basel III Leverage Ratio. OSFI has established a 3% minimum Basel III Leverage Ratio. Disclosure of the Basel III Leverage Ratio will commence in the first quarter of fiscal 2015.

BMO's investments in foreign operations are primarily denominated in U.S. dollars. The foreign exchange impact of U.S.-dollar-denominated RWA and U.S.-dollar-denominated capital deductions may result in variability in the bank's capital ratios. BMO may enter into hedging arrangements to reduce the impact of foreign exchange movements on its capital ratios.

Pages 61 to 65 and pages 92 to 94 of BMO's 2013 Annual Report provide disclosure on Enterprise-Wide Capital Management and Liquidity and Funding Risk, including regulatory requirements impacting capital and liquidity.

Other Capital Developments

During the quarter, we redeemed all of our Non-cumulative Class B Preferred Shares Series 21, at a redemption price of $25.00 per share plus declared and unpaid dividends up to but excluding the date fixed for redemption.

On June 6, 2014, we completed our offering of Non-cumulative 5-Year Rate Reset Class B Preferred Shares Series 29. We issued 16 million shares for aggregate proceeds of $400 million.

On July 30, 2014, we completed our offering of Non-cumulative 5-Year Rate Reset Class B Preferred Shares Series 31. We issued 12 million shares for aggregate proceeds of $300 million.

Non-viability contingent capital (NVCC) provisions require the conversion of the capital instrument into a variable number of common shares in the event that OSFI deems the Bank to be non-viable or a federal or provincial government in Canada publicly announces that the Bank has accepted or agreed to accept a capital injection. If a NVCC trigger event were to occur our NVCC capital instruments, Non-cumulative 5-Year Rate Reset Class B Preferred Shares Series 27, Series 29 and Series 31, would be converted into BMO common shares pursuant to an automatic conversion formula with a conversion price based on the greater of: (i) a floor price of $5.00, and (ii) the current market price of our common shares at the time of the trigger event (10-day weighted average). Based on a floor price of $5.00, these NVCC capital instruments would convert into 240 million BMO common shares, which would represent a dilution impact of 37.1% based on the number of BMO common shares outstanding as at July 31, 2014.

During the quarter, 1,656,509 common shares were issued through the exercise of stock options.

No shares were repurchased during the quarter under the bank's normal course issuer bid. The timing and amount of purchases under the program are subject to management discretion based on factors such as market conditions and capital levels. The bank will periodically consult with OSFI before making purchases under the bid.

On August 26, 2014, BMO announced that the Board of Directors had declared a quarterly dividend payable to common shareholders of $0.78 per common share, unchanged from the preceding quarter and up $0.04 per share or 5% from a year ago. The dividend reflects the success of our business strategies.

The dividend is payable on November 26, 2014, to shareholders of record on November 3, 2014. Common shareholders may elect to have their cash dividends reinvested in common shares of the bank in accordance with the shareholder dividend reinvestment and share purchase plan (the Plan). For the dividend declared on August 26, 2014, and until further notice, such additional common shares will be issued from treasury without a discount. A two per cent discount applied in respect of the common share dividend declared last quarter.

---------------------------------------------------------------------------- Qualifying Regulatory Capital and Risk-Weighted Assets Table 8 ---------------------------------------------------------------------------- Q3-2014 Q2-2014 ------------------------ ------------------------ All-in Transitional All-in Transitional (Canadian $ in millions) (1) (2) (1) (2) -------------------------------------------------- ------------------------ Gross Common Equity (3) 30,179 30,179 29,646 29,646 Regulatory adjustments applied to Common Equity (8,583) (1,558) (6,918) (1,298) -------------------------------------------------- ------------------------ Common Equity Tier 1 Capital (CET1) 21,596 28,621 22,728 28,348 -------------------------------------------------- ------------------------ Additional Tier 1 Eligible Capital (4) 4,542 4,542 3,835 3,835 Regulatory adjustments applied to Tier 1 (358) (4,187) (413) (3,203) -------------------------------------------------- ------------------------ Additional Tier 1 Capital (AT1) 4,184 355 3,422 632 -------------------------------------------------- ------------------------ Tier 1 Capital (T1 = CET1 + AT1) 25,780 28,976 26,150 28,980 -------------------------------------------------- ------------------------ Tier 2 Eligible Capital (5) 4,319 4,319 4,357 4,357 Regulatory adjustments applied to Tier 2 (50) (9) (50) (10) -------------------------------------------------- ------------------------ Tier 2 Capital (T2) 4,269 4,310 4,307 4,347 -------------------------------------------------- ------------------------ Total Capital (TC = T1 + T2) 30,049 33,286 30,457 33,327 -------------------------------------------------- ------------------------ Risk-weighted assets (6) CET1 Capital risk-weighted assets 225,961 231,838 234,774 240,074 Tier 1 Capital risk- weighted assets 226,289 na na na Total Capital risk- weighted assets 226,782 na na na -------------------------------------------------- ------------------------ Capital Ratios (%) CET1 Ratio 9.6 12.3 9.7 11.8 Tier 1 Capital Ratio 11.4 12.5 11.1 12.1 Total Capital Ratio 13.3 14.4 13.0 13.9 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Q4-2013 ------------------------ All-in Transitional (Canadian $ in millions) (1) (2) -------------------------------------------------- Gross Common Equity (3) 28,144 28,144 Regulatory adjustments applied to Common Equity (6,917) 9 -------------------------------------------------- Common Equity Tier 1 Capital (CET1) 21,227 28,153 -------------------------------------------------- Additional Tier 1 Eligible Capital (4) 3,781 3,781 Regulatory adjustments applied to Tier 1 (409) (3,781) -------------------------------------------------- Additional Tier 1 Capital (AT1) 3,372 - -------------------------------------------------- Tier 1 Capital (T1 = CET1 + AT1) 24,599 28,153 -------------------------------------------------- Tier 2 Eligible Capital (5) 4,951 4,951 Regulatory adjustments applied to Tier 2 (50) (13) -------------------------------------------------- Tier 2 Capital (T2) 4,901 4,938 -------------------------------------------------- Total Capital (TC = T1 + T2) 29,500 33,091 -------------------------------------------------- Risk-weighted assets (6) CET1 Capital risk-weighted assets 215,094 232,501 Tier 1 Capital risk- weighted assets na na Total Capital risk- weighted assets na na -------------------------------------------------- Capital Ratios (%) CET1 Ratio 9.9 12.1 Tier 1 Capital Ratio 11.4 12.1 Total Capital Ratio 13.7 14.2 -------------------------------------------------- -------------------------------------------------- (1) "All-in" regulatory capital assumes that all Basel III regulatory adjustments are applied effective January 1, 2013, and that the capital value of instruments which no longer qualify as regulatory capital under Basel III rules will be phased out at a rate of 10% per year from January 1, 2013, and continuing to January 1, 2022. (2) Transitional regulatory capital assumes that all Basel III regulatory capital adjustments are phased in from January 1, 2014, to January 1, 2018, and that the capital value of instruments that no longer qualify as regulatory capital under Basel III rules will be phased out at a rate of 10% per year from January 1, 2013, and continuing to January 1, 2022. (3) Gross Common Equity includes issued qualifying common shares, retained earnings, accumulated other comprehensive income and eligible common share capital issued by subsidiaries. (4) Additional Tier 1 Eligible Capital includes directly and indirectly issued qualifying Additional Tier 1 instruments and directly and indirectly issued capital instruments, to the extent eligible, which are subject to phase-out under Basel III. (5) Tier 2 Eligible Capital includes directly and indirectly issued qualifying Tier 2 instruments and directly and indirectly issued capital instruments, to the extent eligible, that are subject to phase- out under Basel III. (6) Due to the phased-in implementation of the Credit Valuation Adjustment (CVA) which commenced in Q1-2014, the scalars applied to the fully implemented CVA charge for CET1, Tier 1 Capital and Total Capital were 57%, 65% and 77% respectively, for Q3-2014, resulting in different RWA measures for each of the three tiers of regulatory capital. In Q1-2014 and Q2-2014 the CVA scalar applied to all three tiers of capital was 57%. na - not applicable ---------------------------------------------------------------------------- Outstanding Shares and Securities Convertible into Common Shares Table 9 ---------------------------------------------------------------------------- Number of shares or dollar amount As at August 20, 2014 (in millions) ---------------------------------------------------------------------------- Common shares 646 Class B Preferred Shares Series 13 $ 350 Series 14 $ 250 Series 15 $ 250 Series 16 $ 157 Series 17 $ 143 Series 23 $ 400 Series 25 $ 290 Series 27 (1) $ 500 Series 29 (2) $ 400 Series 31 (2) $ 300 Stock options - vested 7.4 - non-vested 6.7 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) The Series 27 Preferred Shares were reclassified from liabilities to equity during the quarter. (2) The Series 29 and Series 31 Preferred shares are classified as equity on our Consolidated Balance Sheet. Details on share capital are outlined in Note 10 to the unaudited interim consolidated financial statements and Note 20 to the audited consolidated financial statements on page 163 of BMO's 2013 Annual Report.



Caution

The foregoing Capital Management sections contain forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.

Eligible Dividends Designation

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.

Review of Operating Groups' Performance

How BMO Reports Operating Group Results

The following sections review the financial results of each of our operating segments and operating groups for the third quarter of 2014.

Periodically, certain business lines and units within the business lines are transferred between client and corporate support groups to more closely align BMO's organizational structure with its strategic priorities. In addition, revenue and expense allocations are updated to more accurately align with current experience. Results for prior periods are restated to conform to the current presentation.

Corporate Services results reflect certain items in respect of the purchased loan portfolio, including the recognition of a portion of the credit mark that is reflected in net interest income over the term of the purchased loans and provisions and recoveries of credit losses on the purchased portfolio. Amounts excluded from adjusted results in prior years included credit-related items in respect of the purchased performing loan portfolio, acquisition integration costs, restructuring costs and run-off structured credit activities.

Effective November 1, 2013, we adopted several new and amended accounting pronouncements issued by the International Accounting Standards Board (IASB), which are outlined in Note 1 to the unaudited interim consolidated financial statements.

BMO analyzes revenue at the consolidated level based on GAAP revenue reflected in the consolidated financial statements rather than on a taxable equivalent basis (teb). Like many banks, we analyze revenue on a teb basis at the operating group level. This basis includes an adjustment that increases GAAP revenue and the GAAP provision for income taxes by an amount that would raise revenue on certain tax-exempt items to a level equivalent to amounts that would incur tax at the statutory rate. The offset to the group teb adjustments is reflected in Corporate Services revenue and income tax provisions. The teb adjustments for the third quarter of 2014 totalled $154 million, up from $138 million in the second quarter of 2014 and $120 million in the third quarter of 2013.

---------------------------------------------------------------------------- Personal and Commercial Banking (P&C) Table 10 ---------------------------------------------------------------------------- (Canadian $ in millions, except as noted) Q3-2014 Q2-2014 Q3-2013 YTD-2014 YTD-2013 ---------------------------------------------------------------------------- Net interest income (teb) 1,835 1,764 1,732 5,399 5,110 Non-interest revenue 589 559 555 1,698 1,620 ---------------------------------------------------------------------------- Total revenue (teb) 2,424 2,323 2,287 7,097 6,730 Provision for credit losses 186 183 165 529 533 Non-interest expense 1,319 1,282 1,265 3,915 3,727 ---------------------------------------------------------------------------- Income before income taxes 919 858 857 2,653 2,470 Income taxes (teb) 234 223 222 683 637 ---------------------------------------------------------------------------- Reported net income 685 635 635 1,970 1,833 ---------------------------------------------------------------------------- Adjusted net income 699 649 650 2,012 1,878 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net income growth (%) 7.6 11.2 8.2 7.4 4.9 Revenue growth (%) 6.0 5.8 1.7 5.4 (0.2) Non-interest expense growth (%) 4.2 4.7 2.6 5.0 0.3 Return on equity (%) 17.1 16.2 17.7 16.6 17.5 Adjusted return on equity (%) 17.5 16.5 18.1 16.9 18.0 Operating leverage (%) 1.8 1.1 (0.9) 0.4 (0.5) Adjusted operating leverage (%) 1.5 0.9 (1.3) 0.1 (0.9) Efficiency ratio (%) (teb) 54.4 55.2 55.3 55.2 55.4 Adjusted efficiency ratio (%) (teb) 53.7 54.4 54.4 54.4 54.4 Net interest margin on average earning assets (%) (teb) 2.89 2.90 2.95 2.90 3.01 Average earning assets 252,032 249,773 232,727 248,580 226,788 Average current loans and acceptances 249,501 247,367 230,716 246,322 224,620 Average deposits 189,852 187,812 176,434 187,900 172,967 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Adjusted results in this table are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.



The Personal and Commercial Banking (P&C) operating group represents the sum of our two retail and business banking operating segments, Canadian Personal and Commercial Banking (Canadian P&C) and U.S. Personal and Commercial Banking (U.S. P&C). These operating segments are reviewed separately in the sections that follow.

---------------------------------------------------------------------------- Canadian Personal and Commercial Banking (Canadian P&C) Table 11 ---------------------------------------------------------------------------- (Canadian $ in millions, except as noted) Q3-2014 Q2-2014 Q3-2013 YTD-2014 YTD-2013 ---------------------------------------------------------------------------- Net interest income (teb) 1,207 1,150 1,152 3,551 3,360 Non-interest revenue 453 410 412 1,271 1,180 ---------------------------------------------------------------------------- Total revenue (teb) 1,660 1,560 1,564 4,822 4,540 Provision for credit losses 134 133 125 408 406 Non-interest expense 825 784 791 2,422 2,335 ---------------------------------------------------------------------------- Income before income taxes 701 643 648 1,992 1,799 Provision for income taxes (teb) 175 163 162 502 445 ---------------------------------------------------------------------------- Reported net income 526 480 486 1,490 1,354 ---------------------------------------------------------------------------- Adjusted net income 528 482 489 1,496 1,361 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Personal revenue 1,081 1,029 1,029 3,167 3,001 Commercial revenue 579 531 535 1,655 1,539 Net income growth (%) 8.0 14.3 7.7 10.0 3.1 Revenue growth (%) 6.2 6.0 4.1 6.2 1.3 Non-interest expense growth (%) 4.1 2.7 5.0 3.7 3.1 Operating leverage (%) 2.1 3.3 (0.9) 2.5 (1.8) Efficiency ratio (%) (teb) 49.7 50.2 50.6 50.2 51.4 Net interest margin on average earning assets (%) (teb) 2.59 2.58 2.64 2.59 2.66 Average earning assets 185,253 182,854 173,386 183,110 168,938 Average current loans and acceptances 189,616 187,162 177,280 187,446 172,570 Average deposits 125,702 122,951 115,164 123,715 112,530 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Adjusted results in this table are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.



Q3 2014 vs Q3 2013

Canadian P&C net income of $526 million increased $40 million or 8% from a year ago. Revenue increased $96 million or 6% from the prior year due to strong balance and fee volumes, partially offset by the impact of lower net interest margin. Net interest margin decreased 5 basis points to 2.59% largely as a result of changes in mix. Operating leverage was 2.1% and above 2% for the fourth consecutive quarter.

In the personal banking segment, revenue increased $52 million year over year due to the impact of higher balances and fee volumes, partially offset by lower net interest margin. Total personal lending balances (excluding retail cards) increased 7% year over year. Personal deposit balances increased 10% mainly due to growth in term deposits.

In the commercial banking segment, revenue increased $44 million due to the effects of higher balance and fee volumes, partially offset by lower net interest margin. Commercial loan balances (excluding corporate cards) increased 9% year over year, while commercial deposit balances grew 7%.

Provisions for credit losses increased $9 million or 7% due to increased provisions in the consumer portfolio. Non-interest expense increased $34 million or 4% mainly due to continued investment in the business, net of a focus on expense management.

Average current loans and acceptances increased $12.3 billion or 7% from a year ago, and deposits increased $10.5 billion or 9%.

Q3 2014 vs Q2 2014

Net income increased by $46 million or 10% from the prior quarter due to higher revenue, partially offset by higher expenses. Revenue increased $100 million or 6% primarily due to higher balance and fee volumes across most products and three more days in the current quarter. Net interest margin increased 1 basis point.

Personal revenue increased $52 million and commercial revenue increased $48 million, mainly due to higher balance and fee volumes across most products and three more days.

Provisions for credit losses were consistent with the prior quarter. Non-interest expense increased $41 million or 5% mainly due to continued investment in the business and the impact of three more days.

Average current loans and acceptances increased $2.5 billion or 1% from the previous quarter, while deposits were $2.8 billion or 2% higher.

Q3 YTD 2014 vs Q3 YTD 2013

Net income increased $136 million or 10% year to date. Revenue increased $282 million or 6% due to higher balance and fee volumes, partially offset by the impact of lower net interest margin. Operating leverage was strong at 2.5%.

Provisions for credit losses increased $2 million as higher provisions in the commercial portfolio were partially offset by lower provisions in the consumer portfolio. Non-interest expense increased $87 million or 4% mainly due to continued investment in the business, net of the benefit of good expense management.

Average current loans and acceptances increased $14.9 billion or 9%, while deposits increased $11.2 billion or 10%.

---------------------------------------------------------------------------- U.S. Personal and Commercial Banking (U.S. P&C) Table 12 ---------------------------------------------------------------------------- (US$ in millions, except as noted) Q3-2014 Q2-2014 Q3-2013 YTD-2014 YTD-2013 ---------------------------------------------------------------------------- Net interest income (teb) 581 557 558 1,699 1,720 Non-interest revenue 126 134 138 392 433 ---------------------------------------------------------------------------- Total revenue (teb) 707 691 696 2,091 2,153 Provision for credit losses 49 45 39 112 125 Non-interest expense 458 451 456 1,373 1,368 ---------------------------------------------------------------------------- Income before income taxes 200 195 201 606 660 Provision for income taxes (teb) 53 55 57 166 188 ---------------------------------------------------------------------------- Reported net income 147 140 144 440 472 ---------------------------------------------------------------------------- Adjusted net income 158 151 157 473 510 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net income growth (%) 2.1 (5.5) 7.4 (6.7) 9.1 Adjusted net income growth (%) 1.2 (5.9) 4.1 (7.1) 6.0 Revenue growth (%) 1.4 (2.6) (5.2) (2.9) (4.1) Non-interest expense growth (%) 0.3 (0.4) (3.3) 0.3 (4.9) Adjusted non-interest expense growth (%) 1.0 0.3 (2.3) 1.1 (4.1) Operating leverage (%) 1.1 (2.2) (1.9) (3.2) 0.8 Adjusted operating leverage (%) 0.4 (2.9) (2.8) (4.0) - Efficiency ratio (%) (teb) 64.7 65.3 65.4 65.6 63.6 Adjusted efficiency ratio (%) (teb) 62.6 63.1 62.8 63.4 60.9 Net interest margin on average earning assets (%) (teb) 3.73 3.76 3.92 3.77 4.04 Average earning assets 61,795 60,677 57,146 60,183 56,866 Average current loans and acceptances 55,415 54,590 51,456 54,121 51,173 Average deposits 59,361 58,812 58,999 59,013 59,418 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (Canadian $ equivalent in millions) Net interest income (teb) 628 614 580 1,848 1,750 Non-interest revenue 136 149 143 427 440 ---------------------------------------------------------------------------- Total revenue (teb) 764 763 723 2,275 2,190 Provision for credit losses 52 50 40 121 127 Non-interest expense 494 498 474 1,493 1,392 ---------------------------------------------------------------------------- Income before income taxes 218 215 209 661 671 Provision for income taxes (teb) 59 60 60 181 192 ---------------------------------------------------------------------------- Reported net Income 159 155 149 480 479 Adjusted net income 171 167 161 516 517 Average earning assets 66,779 66,919 59,341 65,470 57,850 Average current loans and acceptances 59,885 60,205 53,436 58,876 52,050 Average deposits 64,150 64,861 61,270 64,185 60,437 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Adjusted results in this table are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.



Q3 2014 vs Q3 2013 (in US$)

Net income of $147 million increased $3 million or 2% from a year ago. Adjusted net income of $158 million increased $1 million or 1%.

Revenue of $707 million increased $11 million or 1% from the prior year due to strong commercial loan growth, partially offset by lower net interest margin and reduced gains on sales of newly originated mortgages. Net interest margin decreased by 19 basis points to 3.73%, primarily driven by a decline in loan spreads due to competitive pricing and changes in mix including loans growing faster than deposits.

Provisions for credit losses were $49 million, up $10 million due to higher provisions in the commercial portfolio, partially offset by lower provisions in the consumer portfolio. Non-interest expense increased $2 million to $458 million. Adjusted non-interest expense increased $5 million or 1% to $443 million, with disciplined expense management offsetting investments in the business and higher regulatory costs.

Average current loans and acceptances increased $4.0 billion or 8% year over year to $55.4 billion. The core commercial and industrial loan portfolio maintained strong double-digit growth, increasing $4.1 billion or 18% from a year ago to $27.1 billion. Average deposits of $59.4 billion increased $0.4 billion year over year. Growth in commercial business and personal chequing balances was partially offset by a planned reduction in higher-cost time deposit balances, in addition to a transfer of certain customer balances to Wealth Management at the beginning of the current year.

Q3 2014 vs. Q2 2014 (in US$)

Net income and adjusted net income increased $7 million or 4% from the prior quarter due to higher revenue, partially offset by higher expenses and increased provisions for credit losses.

Revenue increased $16 million or 2% from the prior quarter as the benefits from three more days in the current quarter and commercial loan growth were partially offset by lower commercial lending fees. Net interest margin decreased by 3 basis points to 3.73%, primarily driven by changes in mix including loans growing faster than deposits and lower loan spreads.

Provisions for credit losses increased by $4 million, due to higher provisions in the consumer portfolio, partially offset by lower provisions in the commercial portfolio. Non-interest expense and adjusted non-interest expense increased $7 million or 1% due to more days, increased regulatory costs and investments in the business, partially offset by good expense management.

Average current loans and acceptances increased by $0.8 billion or 2% from the prior quarter, our seventh consecutive quarter of positive growth. Average deposits grew $0.5 billion or 1%, as growth in chequing balances was partially offset by planned declines in higher-cost time deposit balances.

Q3 YTD 2014 vs Q3 YTD 2013 (in US$)

Net income of $440 million decreased $32 million or 7%. Adjusted net income of $473 million decreased $37 million or 7% primarily due to lower revenue.

Revenue decreased $62 million or 3% to $2,091 million. The benefits of strong growth in commercial loans were more than offset by the effect of lower net interest margin and reduced gains on sales of newly originated mortgages. Net interest margin decreased by 27 basis points to 3.77%, primarily driven by a decline in loan spreads due to a competitive pricing, changes in mix including loans growing faster than deposits, and lower deposit spreads in a low-rate environment.

Provisions for credit losses of $112 million decreased $13 million year over year due to lower provisions in the consumer portfolio, partially offset by higher provisions in the commercial portfolio. Non-interest expense of $1,373 million increased $5 million. Adjusted non-interest expense of $1,327 million increased $15 million or 1%. We continue to focus on productivity while making selective investments in the business and responding to regulatory change.

Average current loans and acceptances of $54.1 billion increased $2.9 billion or 6% from the prior year, while deposits of $59.0 billion decreased $0.4 billion.

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

---------------------------------------------------------------------------- Wealth Management Table 13 ---------------------------------------------------------------------------- (Canadian $ in millions, except as noted) Q3-2014 Q2-2014 Q3-2013 YTD-2014 YTD-2013 ---------------------------------------------------------------------------- Net interest income (teb) 141 135 144 416 413 Non-interest revenue 847 743 723 2,317 1,995 ---------------------------------------------------------------------------- Total revenue (teb) 988 878 867 2,733 2,408 Provision for (recovery of) credit losses (3) 2 (1) (2) 2 Non-interest expense 745 630 587 2,019 1,745 ---------------------------------------------------------------------------- Income before income taxes 246 246 281 716 661 Provision for income taxes (teb) 56 52 64 157 142 ---------------------------------------------------------------------------- Reported net income 190 194 217 559 519 ---------------------------------------------------------------------------- Adjusted net income 212 200 224 595 539 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net income growth (%) (11.8) 38.4 97.3 7.9 42.8 Adjusted net income growth (%) (4.4) 36.1 94.3 10.6 42.2 Revenue growth (%) 13.9 15.0 28.0 13.5 13.8 Non-interest expense growth (%) 27.2 7.2 7.7 15.7 5.5 Adjusted non-interest expense growth (%) 24.1 7.4 7.5 14.7 5.2 Return on equity (%) 14.8 23.8 29.1 19.0 24.0 Adjusted return on equity (%) 16.6 24.6 30.1 20.3 25.0 Operating leverage (%) (13.3) 7.8 20.3 (2.2) 8.3 Adjusted operating leverage (%) (10.2) 7.6 20.5 (1.2) 8.6 Efficiency ratio (%) (teb) 75.5 71.7 67.6 73.9 72.4 Adjusted efficiency ratio (%) (teb) 72.5 70.7 66.6 72.1 71.3 Net interest margin on average earning assets (%) (teb) 2.62 2.64 2.91 2.66 2.87 Average earning assets 21,373 20,876 19,621 20,888 19,258 Average current loans and acceptances 12,971 12,804 12,127 12,778 11,783 Average deposits 24,458 24,755 23,874 24,809 22,992 ---------------------------------------------------------------------------- U.S. Select Financial Data (US$ in millions) Total revenue (teb) 185 176 178 539 527 Non-interest expense 157 148 146 462 438 Reported net income 24 19 25 60 63 Adjusted net income 29 24 30 75 79 Average earning assets 3,081 2,970 2,689 2,995 2,643 Average current loans and acceptances 2,687 2,592 2,532 2,602 2,489 Average deposits 5,708 5,666 4,843 5,747 4,960 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Adjusted results in this table are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.



Q3 2014 vs Q3 2013

Net income of $190 million decreased $27 million from a year ago and adjusted net income of $212 million decreased $12 million or 4%. Good organic growth increased adjusted net income by 19% year over year, excluding the impact of movements in long-term interest rates. Adjusted net income in traditional wealth was $164 million, up 27% or $33 million, with approximately 60% of the increase due to the contribution from the acquired F&C business and the remainder from strong growth in client assets. Adjusted net income in insurance was $48 million, down $45 million or 48% from a year ago primarily due to a $22 million after-tax charge from unfavourable movements in long-term interest rates in the current quarter relative to a $42 million after-tax benefit a year ago. There was continued growth in both the creditor and life insurance underlying businesses. F&C contributed approximately 10% to Wealth Management's revenue, adjusted expenses and adjusted net income for the quarter.

Revenue was $988 million, up $121 million or 14%. Revenue in traditional wealth was $905 million, up $180 million or 25%, due to the impact of the F&C acquisition and higher revenue across all businesses driven by strong growth in client assets and increased transaction volumes. Insurance revenue was $83 million, down $59 million or 42% due to the factors mentioned above.

Non-interest expense was $745 million, up $158 million or 27% from a year ago. Adjusted non-interest expense was $716 million, up $139 million or 24% mainly due to the impact of the F&C acquisition and higher revenue-based costs from organic operations.

Assets under management and administration grew by $251 billion or 48% from a year ago to $776 billion, with the acquired F&C business contributing $153 billion to the increase. Excluding F&C, assets under management and administration grew by 19%, driven by market appreciation, the stronger U.S. dollar and growth in new client assets.

Q3 2014 vs Q2 2014

Net income was down $4 million and adjusted net income was up $12 million or 7% from the second quarter. Adjusted net income in traditional wealth was up $25 million or 19% primarily due to the acquisition of F&C, as well as good organic growth. Adjusted net income in insurance was down $13 million or 21% due to unfavourable movements in long-term interest rates relative to the second quarter. The underlying insurance businesses continued to perform well.

Revenue increased $110 million or 13%. Revenue in traditional wealth increased $129 million or 17%, driven by the impact from the F&C acquisition and growth in client assets. Insurance revenue decreased $19 million or 19% due to the factors mentioned above.

Non-interest expense increased $115 million or 18%. Adjusted non-interest expense increased $95 million or 15%, mainly due to the impact of the F&C acquisition and higher revenue-based costs from organic operations.

Assets under management and administration grew by $164 billion or 27%. Excluding F&C, assets under management and administration grew by $11 billion or 2% primarily due to market appreciation and growth in new client assets, partially offset by the weaker U.S. dollar relative to the second quarter.

Q3 YTD 2014 vs Q3 YTD 2013

Net income was $559 million, up $40 million or 8% from a year ago. Adjusted net income was $595 million, up $56 million or 11%. Adjusted net income in traditional wealth was $426 million, up $79 million or 23%, primarily driven by growth in client assets and the contribution from the acquired F&C business. Adjusted net income in insurance was $169 million, down $23 million or 12% from a year ago, mainly due to unfavourable movements in long-term interest rates relative to the prior year. There was continued growth in both the creditor and life insurance underlying businesses.

Revenue was $2,733 million, up $325 million or 13% from a year ago. Revenue in traditional wealth was $2,449 million, up $346 million or 16% due to higher revenue from organic operations driven by strong growth in client assets and increased transaction volumes, as well as the impact of the F&C acquisition. Insurance revenue was $284 million, down $21 million or 7% due to the factors mentioned above. The stronger U.S. dollar increased revenue by $38 million or 2%.

Non-interest expense was $2,019 million, an increase of $274 million or 16%. Adjusted non-interest expense increased $253 million or 15% to $1,971 million, mainly due to higher revenue-based costs from organic operations, the impact of the F&C acquisition and higher support costs. The stronger U.S. dollar increased adjusted expenses by $31 million or 2%.

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

---------------------------------------------------------------------------- BMO Capital Markets Table 14 ---------------------------------------------------------------------------- (Canadian $ in millions, except as noted) Q3-2014 Q2-2014 Q3-2013 YTD-2014 YTD-2013 ---------------------------------------------------------------------------- Net interest income (teb) 328 328 345 917 923 Non-interest revenue 658 625 515 1,996 1,672 ---------------------------------------------------------------------------- Total revenue (teb) 986 953 860 2,913 2,595 Provision for (recovery of) credit losses (6) (4) 2 (11) (19) Non-interest expense 589 581 523 1,779 1,558 ---------------------------------------------------------------------------- Income before income taxes 403 376 335 1,145 1,056 Provision for income taxes (teb) 97 71 67 257 229 ---------------------------------------------------------------------------- Reported net income 306 305 268 888 827 ---------------------------------------------------------------------------- Adjusted net income 306 306 269 889 829 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Trading Products revenue 596 599 563 1,785 1,643 Investment and Corporate Banking revenue 390 354 297 1,128 952 Net income growth (%) 13.9 17.0 11.6 7.3 22.0 Revenue growth (%) 14.5 13.6 7.4 12.2 10.2 Non-interest expense growth (%) 12.8 13.6 6.8 14.2 6.9 Return on equity (%) 22.4 20.8 18.2 20.6 19.0 Operating leverage (%) 1.7 - 0.6 (2.0) 3.3 Efficiency ratio (%) (teb) 59.8 61.0 60.7 61.1 60.0 Net interest margin on average earning assets (%) (teb) 0.58 0.59 0.67 0.55 0.61 Average earning assets 223,886 227,228 203,649 222,591 202,312 Average assets 258,916 265,154 246,401 259,696 250,083 Average current loans and acceptances 31,154 30,387 24,479 29,800 24,630 Average deposits 133,538 137,626 120,635 133,997 120,656 ---------------------------------------------------------------------------- U.S. Select Financial Data (US$ in millions) Total revenue (teb) 284 295 242 927 791 Non-interest expense 231 224 209 684 624 Reported net income 45 63 25 196 156 Average earning assets 84,439 82,517 80,480 80,832 78,580 Average assets 93,263 92,472 95,561 90,652 96,290 Average current loans and acceptances 10,033 9,558 8,107 9,544 8,680 Average deposits 58,911 60,761 58,925 58,316 61,329 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

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



Q3 2014 vs Q3 2013

Net income of $306 million increased $38 million or 14% from a year ago, driven by good revenue performance across the businesses, particularly in Investment and Corporate Banking, including a solid contribution from our U.S. business. Return on equity of 22.4% was strong, up from 18.2% in the prior year.

Revenue increased $126 million or 15% year over year. Investment and Corporate Banking revenue was up, due to higher fees from mergers & acquisitions and debt and equity underwriting, as well as higher corporate banking revenue. In Trading Products, revenue increased due to higher equity and foreign exchange trading, which benefited from increased client volumes and favourable market conditions. The stronger U.S. dollar increased revenue by $12 million or 1%.

There were recoveries of credit losses in the current quarter compared to a small provision in the prior year. Non-interest expense increased $66 million or 13% due to higher employee-related expenses and increased support costs, both driven by a changing business and regulatory environment. The stronger U.S. dollar increased expense by $10 million or 2%.

Q3 2014 vs Q2 2014

Net income was relatively unchanged from the previous quarter as higher revenue was offset by a less favourable tax rate and modestly higher expenses.

Revenue increased $33 million or 3% as Investment and Corporate Banking revenue was up due to higher investment banking fees, particularly in mergers and acquisitions and equity underwriting, partially offset by lower net securities gains primarily in our U.S. business. Revenue in Trading Products was relatively unchanged.

Recoveries of credit losses were higher by $2 million compared to the prior quarter. Non-interest expense increased $8 million or 1% from the previous quarter due to higher employee-related expenses and support costs.

YTD Q3 2014 vs YTD Q3 2013

Net income of $888 million increased $61 million or 7% from the prior year, including net income growth of 25% in our U.S. business on a U.S. dollar basis.

Revenue increased $318 million or 12% reflecting good revenue performance across the businesses, including our U.S. business which had revenue growth of 17% on a U.S. dollar basis. Investment and Corporate Banking businesses performed well with strong equity and debt underwriting fees and corporate banking revenue, and higher net securities gains. Trading Products businesses generated both higher trading revenue, in equity and foreign exchange trading, and increased securities commissions and fees. The stronger U.S. dollar increased revenue by $67 million or 3%.

Recoveries of credit losses were lower by $8 million due to a combination of lower recoveries and new provisions. Non-interest expense increased $221 million or 14% due to higher employee-related expenses, including severance, and increased support costs, both driven by a changing business and regulatory environment. The stronger U.S. dollar increased expenses by $48 million or 3%.

---------------------------------------------------------------------------- Corporate Services, Including Technology and Operations Table 15 ---------------------------------------------------------------------------- (Canadian $ in millions, except as noted) Q3-2014 Q2-2014 Q3-2013 YTD-2014 YTD-2013 ---------------------------------------------------------------------------- Net interest income before group teb offset (43) (26) 82 (72) 369 Group teb offset (154) (138) (120) (377) (255) ---------------------------------------------------------------------------- Net interest income (teb) (197) (164) (38) (449) 114 Non-interest revenue 14 51 24 84 78 ---------------------------------------------------------------------------- Total revenue (teb) (183) (113) (14) (365) 192 Recovery of credit losses (47) (19) (90) (125) (118) Non-interest expense 103 101 151 321 616 ---------------------------------------------------------------------------- Loss before income taxes (239) (195) (75) (561) (306) Recovery of income taxes (teb) (184) (137) (78) (407) (248) ---------------------------------------------------------------------------- Reported net income (loss) (55) (58) 3 (154) (58) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Adjusted Results Adjusted net interest income before group teb offset (43) (26) (71) (72) (171) Group teb offset (154) (138) (120) (377) (255) ---------------------------------------------------------------------------- Adjusted net interest income (teb) (197) (164) (191) (449) (426) Adjusted non-interest revenue 14 51 19 84 55 ---------------------------------------------------------------------------- Adjusted total revenue (teb) (183) (113) (172) (365) (371) Adjusted recovery of credit losses (47) (19) (154) (125) (299) Adjusted non-interest expense 103 101 99 321 334 Adjusted net loss (55) (58) (21) (154) (111) ---------------------------------------------------------------------------- Corporate Services Recovery of Credit Losses Impaired real estate loans 8 (3) (26) 19 (29) Interest on impaired loans 5 8 12 23 36 Purchased credit impaired loans (57) (45) (140) (219) (306) Purchased performing loans (3) 21 - 52 - ---------------------------------------------------------------------------- Recovery of credit losses, adjusted basis (47) (19) (154) (125) (299) Increase (decrease) in collective allowance - - 20 - (10) Purchased performing loans - - 44 - 191 ---------------------------------------------------------------------------- Recovery of credit losses, reported basis (47) (19) (90) (125) (118) ---------------------------------------------------------------------------- Average loans and acceptances 402 487 961 484 1,073 Period-end loans and acceptances 359 399 695 359 695 ---------------------------------------------------------------------------- U.S. Select Financial Data (US$ in millions) Total revenue (teb) (63) (18) 84 (104) 287 Recovery of credit losses (26) (23) (106) (97) (161) Non-interest expense 44 49 82 106 310 Provision for (recovery of) income taxes (teb) (29) (25) 41 (59) 45 ---------------------------------------------------------------------------- Reported net income (loss) (52) (19) 67 (54) 93 Adjusted total revenue (teb) (63) (18) (65) (104) (247) Adjusted recovery of credit losses (44) (18) (148) (119) (296) Adjusted non-interest expense 44 49 34 106 111 Adjusted net income (loss) (39) (22) 31 (39) (30) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Adjusted results in this table are non-GAAP amounts or non-GAAP measures. Please see 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 and governance support in a variety of areas, including strategic planning, risk management, finance, legal and compliance, marketing, communications and human resources. T&O manages, maintains and provides governance over information technology, operations services, real estate and sourcing for BMO Financial Group.

The costs of Corporate Units and T&O services are largely transferred to the three client operating groups (P&C, Wealth Management and BMO Capital Markets), and only relatively minor amounts are retained in Corporate Services results. As such, Corporate Services adjusted operating results largely reflect the impact of certain asset-liability management activities, the elimination of taxable equivalent adjustments, the results from certain impaired real estate secured assets and purchased loan accounting impacts. Corporate Services reported results in 2013 and prior reflected a number of items and activities that are excluded from BMO's adjusted results to help assess BMO's performance. These adjusting items are not reflective of core operating results. They are itemized in the Non-GAAP Measures section.

Financial Performance Review Q3 2014 vs Q3 2013



Corporate Services reported and adjusted net loss for the third quarter of 2014 was $55 million, compared with reported net income of $3 million and an adjusted net loss of $21 million a year ago. Adjusted results were lower primarily due to lower recoveries on the purchased credit impaired loan portfolio partly offset by better revenue excluding the impact of the group teb offset.

Q3 2014 vs Q2 2014

Corporate Services reported and adjusted net loss for the third quarter of 2014 was $55 million, comparable with a reported and adjusted net loss of $58 million in the second quarter of 2014.

YTD Q3 2014 vs YTD Q3 2013

Corporate Services reported and adjusted net loss for the year to date was $154 million, compared with a reported net loss of $58 million and an adjusted net loss of $111 million a year ago. Adjusted results were lower primarily due to lower recoveries on the purchased credit impaired loan portfolio.

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

Non-GAAP Measures

Results and measures in this MD&A are presented on a GAAP basis. They are also presented on an adjusted basis that excludes the impact of certain items as set out in Table 16 below. Management assesses performance on a reported basis and on an adjusted basis and considers both to be useful in assessing underlying ongoing business performance. Presenting results on both bases provides readers with a better understanding of how management assesses results. It also permits readers to assess the impact of certain specified items on results for the periods presented and to better assess results excluding those items if they consider the items to not be reflective of ongoing results. As such, the presentation may facilitate readers' analysis of trends, as well as comparisons with our competitors. Adjusted results and measures are non-GAAP and as such do not have standardized meaning under GAAP. They are unlikely to be comparable to similar measures presented by other companies and should not be viewed in isolation from or as a substitute for GAAP results.

Net economic profit represents net income available to common shareholders, before deduction for the after-tax impact of the amortization of acquisition-related intangible assets, less a charge for capital, and is considered a reasonable measure of added economic value.

---------------------------------------------------------------------------- Non-GAAP Measures Table 16 ---------------------------------------------------------------------------- (Canadian $ in millions, except as noted) Q3-2014 Q2-2014 Q3-2013 YTD-2014 YTD-2013 ---------------------------------------------------------------------------- Reported Results Revenue 4,215 4,041 4,000 12,378 11,925 Provision for credit losses (130) (162) (76) (391) (398) Non-interest expense (2,756) (2,594) (2,526) (8,034) (7,646) ---------------------------------------------------------------------------- Income before income taxes 1,329 1,285 1,398 3,953 3,881 Provision for income taxes (203) (209) (275) (690) (760) ---------------------------------------------------------------------------- Net Income 1,126 1,076 1,123 3,263 3,121 EPS ($) 1.67 1.60 1.66 4.85 4.57 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Adjusting Items (Pre-tax) (1) Credit-related items on the purchased performing loan portfolio (see below (i)) - - 110 - 357 Acquisition integration costs (2) (9) - (49) (9) (191) Amortization of acquisition- related intangible assets (3) (39) (28) (32) (98) (94) Decrease (increase) in the collective allowance for credit losses - - (20) - 2 Run-off structured credit activities (4) - - 1 - 14 Restructuring costs (5) - - - - (82) ---------------------------------------------------------------------------- Adjusting items included in reported pre-tax income (48) (28) 10 (107) 6 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Adjusting Items (After tax) (1) Credit-related items on the purchased performing loan portfolio (see below (i)) - - 68 - 220 Acquisition integration costs (2) (7) - (30) (7) (118) Amortization of acquisition- related intangible assets (3) (29) (21) (23) (72) (67) Decrease (increase) in the collective allowance for credit losses - - (15) - (4) Run-off structured credit activities (4) - - 1 - 14 Restructuring costs (5) - - - - (59) ---------------------------------------------------------------------------- Adjusting items included in reported net income after tax (36) (21) 1 (79) (14) Impact on EPS ($) (0.06) (0.03) - (0.12) (0.02) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Adjusted Results Revenue 4,215 4,041 3,842 12,378 11,362 Provision for credit losses (130) (162) (12) (391) (217) Non-interest expense (2,708) (2,566) (2,442) (7,927) (7,270) ---------------------------------------------------------------------------- Income before income taxes 1,377 1,313 1,388 4,060 3,875 Provision for income taxes (215) (216) (266) (718) (740) ---------------------------------------------------------------------------- Adjusted net income 1,162 1,097 1,122 3,342 3,135 EPS ($) 1.73 1.63 1.66 4.97 4.59 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (i)Credit-related items on the purchased performing loan portfolio are comprised of the following amounts: Revenue - - 154 - 540 Provision for credit losses - - (44) - (183) ---------------------------------------------------------------------------- Increase in pre-tax income - - 110 - 357 Provision for income taxes - - (42) - (137) ---------------------------------------------------------------------------- Increase in reported net income after tax - - 68 - 220 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Adjusting items in 2013 are included in Corporate Services with the exception of the amortization of acquisition-related intangible assets, which is charged to the operating groups. Acquisition integration costs in 2014 related to F&C are charged to Wealth Management. (2) Acquisition integration costs are included in non-interest expense. (3) These expenses have been designated as adjusting items because the purchase decision may not consider the amortization of acquisition- related intangible assets to be a relevant expense. They were charged to the non-interest expense of the operating groups as follows: - in the third quarter of 2014: Canadian P&C $3 million before tax ($2 million after tax); U.S. P&C $16 million ($12 million after tax); and Wealth Management $20 million ($15 million after tax). - in the second quarter of 2014: Canadian P&C $2 million before and after tax; U.S. P&C $16 million ($12 million after tax); Wealth Management $9 million ($6 million after tax); and BMO Capital Markets$1 million before and after tax. - in the third quarter of 2013: Canadian P&C $3 million before and after tax; U.S. P&C $18 million ($12 million after tax); Wealth Management $10 million ($7 million after tax); and BMO Capital Markets$1 million before and after tax. - for year-to-date 2014: Canadian P&C $8 million before tax ($6 million after tax); U.S. P&C $50 million ($36 million after tax); Wealth Management $39 million ($29 million after tax); and BMO Capital Markets$1 million before and after tax. - for year-to-date 2013: Canadian P&C $9 million before tax ($7 million after tax); U.S. P&C $56 million ($38 million after tax); Wealth Management $27 million ($20 million after tax); and BMO Capital Markets$2 million before and after tax. (4) Primarily comprised of valuation changes associated with these activities that are mainly included in trading revenue in non-interest revenue. (5) Restructuring charge to align our cost structure with the current and future business environment as part of a broader effort to improve productivity. ---------------------------------------------------------------------------- Summary Quarterly Earnings Trends Table 17 ---------------------------------------------------------------------------- (Canadian $ in millions, except as Q3- Q2- Q1- Q4- Q3- Q2- Q1- Q4- noted) 2014 2014 2014 2013 2013 2013 2013 2012 ---------------------------------------------------------------------------- Total revenue 4,215 4,041 4,122 4,138 4,000 3,893 4,032 4,129 Provision for credit losses - specific (see below) 130 162 99 189 56 174 178 216 Provision for (recovery of) credit losses - collective - - - - 20 (30) - (24) Non-interest expense 2,756 2,594 2,684 2,580 2,526 2,550 2,570 2,679 Reported net income (see below) 1,126 1,076 1,061 1,074 1,123 962 1,036 1,073 Adjusted net income (see below) 1,162 1,097 1,083 1,088 1,122 984 1,029 1,116 ---------------------------------------------------------------------------- Basic earnings per share ($) 1.68 1.61 1.58 1.60 1.67 1.41 1.51 1.57 Diluted earnings per share ($) 1.67 1.60 1.58 1.60 1.66 1.40 1.51 1.57 Adjusted diluted earnings per share ($) 1.73 1.63 1.61 1.62 1.66 1.44 1.50 1.64 Net interest margin on average earning assets (%) 1.58 1.59 1.62 1.69 1.78 1.82 1.87 1.86 Adjusted net interest margin on average earning assets (%) 1.58 1.59 1.62 1.60 1.65 1.67 1.70 1.70 Effective income tax rate (%) 15.3 16.2 20.8 21.6 19.7 19.8 19.3 14.7 Adjusted effective income tax rate (%) 15.6 16.5 20.9 21.5 19.2 19.0 19.0 17.1 Canadian/U.S. dollar exchange rate (average) 1.08 1.10 1.08 1.04 1.04 1.02 1.00 0.99 Provision for credit losses - specific Canadian P&C 134 133 141 166 125 153 128 146 U.S. P&C 52 50 19 96 40 55 32 75 ---------------------------------------------------------------------------- Personal and Commercial Banking 186 183 160 262 165 208 160 221 Wealth Management (3) 2 (1) 1 (1) 1 2 11 BMO Capital Markets (6) (4) (1) (17) 2 (6) (15) (4) Corporate Services, including T&O (47) (19) (59) (57) (110) (29) 31 (12) ---------------------------------------------------------------------------- BMO Financial Group provision for credit losses - specific 130 162 99 189 56 174 178 216 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Reported net income: Canadian P&C 526 480 484 458 486 421 447 436 U.S. P&C 159 155 166 102 149 151 179 135 ---------------------------------------------------------------------------- Personal and Commercial Banking 685 635 650 560 635 572 626 571 Wealth Management 190 194 175 311 217 140 162 164 BMO Capital Markets 306 305 277 217 268 261 298 307 Corporate Services, including T&O (55) (58) (41) (14) 3 (11) (50) 31 ---------------------------------------------------------------------------- BMO Financial Group net income 1,126 1,076 1,061 1,074 1,123 962 1,036 1,073 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Adjusted net income: Canadian P&C 528 482 486 461 489 422 450 438 U.S. P&C 171 167 178 114 161 164 192 151 ---------------------------------------------------------------------------- Personal and Commercial Banking 699 649 664 575 650 586 642 589 Wealth Management 212 200 183 318 224 147 168 169 BMO Capital Markets 306 306 277 217 269 262 298 308 Corporate Services, including T&O (55) (58) (41) (22) (21) (11) (79) 50 ---------------------------------------------------------------------------- BMO Financial Group adjusted net income 1,162 1,097 1,083 1,088 1,122 984 1,029 1,116 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Adjusted results in this table are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.



Summary Quarterly Earnings Trends

BMO's quarterly earnings trends were reviewed in detail on pages 102 and 103 of BMO's 2013 Annual Report. Readers are encouraged to refer to that review for a more complete discussion of trends and factors affecting past quarterly results including the modest impact of seasonal variations in results. Table 17 outlines summary results for the fourth quarter of fiscal 2012 through the third quarter of fiscal 2014. The table reflects changes in IFRS that are outlined in Note 1 to the unaudited interim consolidated financial statements.

Periodically, certain business lines and units within the business lines are transferred between client operating groups to more closely align BMO's organizational structure and its strategic priorities. Comparative figures have been restated to conform to the current presentation.

Over the past two years, we have remained focused on executing our strategic priorities. Economic conditions have generally been stable to improving.

Canadian P&C has had good results in recent quarters. Improved net income growth in the last five quarters was driven by good revenue, with operating leverage higher than 2% the last four quarters. Revenue growth was due to continued strong loan and deposit balance growth with stable net interest margin over the last four quarters. Expenses have grown moderately as a result of continued investment in the business.

Recent quarterly results in traditional wealth have been strong and have grown on a relatively consistent basis, driven by growth in client assets, better markets and a focus on productivity. Included in the current quarter is the contribution from the F&C acquisition. The fourth quarter of 2013 included a large security gain. Quarterly results in insurance have been subject to variability, resulting primarily from changes in long-term interest rates and investment portfolio changes.

Building on the momentum of 2012 and improved results in 2013, BMO Capital Markets has continued to show strength in the first three quarters of 2014, benefiting from favourable market conditions as well as a consistent and diversified strategy, with good revenue performance across both Investment and Corporate Banking and Trading Products.

U.S. P&C had strong results in the first quarter of 2013 and results were relatively stable in the second and third quarters due to core commercial and industrial loan growth and lower expenses compared to the prior year, offsetting lower margins and balances in certain portfolios. Results in the fourth quarter of 2013 were negatively impacted by above trend provisions for credit losses. Results improved in the first quarter of 2014, primarily driven by reductions in provisions for credit losses and improving revenue offset in part by increased expenses. Results in the second and third quarters of 2014 were stable. Net interest margin has declined relative to 2012, primarily due to lower loan spreads due to competitive pricing, changes in mix including loans growing faster than deposits and a decline in deposit spreads given the low-rate environment.

Corporate Services quarterly net income can vary, in large part due to the adjusting items in 2013, which were largely recorded in Corporate Services, and recoveries of credit losses on the purchased credit impaired loan portfolio in all periods. Reduced recoveries in the first quarter of 2013 together with lower revenue and increased expenses lowered Corporate Services adjusted results that quarter. These recoveries increased in the last three quarters of 2013, reducing the net loss. Adjusted quarterly net income decreased in 2014, reflecting variability in the recoveries and in Corporate Services revenue.

BMO's PCL measured as a percentage of loans and acceptances has been trending lower in recent quarters relative to 2012, with the exception of an increase in the fourth quarter of 2013 and in the second quarter of 2014.

Fluctuations in exchange rates in 2012 and 2013 were subdued. The U.S. dollar strengthened significantly in the first half of 2014, followed by a slight weakening in the third quarter. A stronger U.S. dollar increases the translated value of U.S.-dollar-denominated revenue, expenses, provisions for credit losses, income taxes and net income.

The effective income tax rate can vary, as it depends on the timing of resolution of certain tax matters, recoveries of prior periods' income taxes and the relative proportion of earnings attributable to the different jurisdictions in which we operate.

Adjusted results in this Summary Quarterly Earnings Trends section are non-GAAP amounts or non-GAAP measures. Please see the Non-GAAP Measures section.

Caution

This Summary Quarterly Earnings Trends section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.

Balance Sheet

Total assets of $586.8 billion at July 31, 2014, increased $49.8 billion from October 31, 2013, including a $10.4 billion increase as a result of the stronger U.S. dollar. The increase primarily reflects growth in net loans and acceptances of $16.1 billion, securities of $13.7 billion, cash equivalents and interest bearing deposits with banks of $11.4 billion and securities borrowed or purchased under resale agreements of $9.7 billion. Other assets increased by a combined $2.3 billion, partly offset by a decrease in derivative financial assets of $3.4 billion.

The $16.1 billion increase in net loans and acceptances included a $3.9 billion increase as a result of the stronger U.S. dollar. The remaining net loans and acceptances increase was primarily driven by loans to businesses and governments in the P&C businesses and BMO Capital Markets.

The $13.7 billion increase in securities was primarily due to an increase in trading securities, reflecting higher client-driven activities.

The $11.5 billion increase in cash, cash equivalents and interest bearing deposits with banks was primarily due to increased balances held with central banks.

The $9.7 billion increase in securities borrowed or purchased under resale agreements is commensurate with the increase in securities lent or sold under repurchase agreements. Both increases were driven by client activities.

The $3.4 billion decrease in derivative financial assets and the $3.8 billion decrease in derivative financial liabilities were primarily due to declines in the fair value of interest rate contracts.

Liabilities and equity increased $49.8 billion from October 31, 2013, including a $10.4 billion increase as a result of the stronger U.S. dollar. The change primarily reflects increases in deposits of $30.9 billion, securities lent or sold under repurchase agreements of $11.7 billion, securities sold but not yet purchased of $5.9 billion, shareholders' equity of $3.1 billion, and all remaining liabilities and equity of $2.0 billion, partly offset by decreases in derivative financial liabilities of $3.8 billion.

The $30.9 billion increase in deposits included an $8.7 billion increase due to the stronger U.S. dollar. Excluding the impact of the stronger U.S. dollar, business and government deposits increased $15.3 billion primarily due to increased wholesale funding issuances. Deposits by individuals increased $5.3 billion, primarily driven by increases in Canadian P&C and Wealth Management, and deposits by banks increased $1.6 billion.

Contractual obligations by year of maturity are outlined in Note 16 to the unaudited interim consolidated financial statements.

Transactions with Related Parties

In the ordinary course of business, we provide banking services to our key management personnel, joint ventures and associates on the same terms that we offer to our customers for those services.

The Bank's policies and procedures for related party transactions did not materially change from October 31, 2013, as described in Note 27 to the audited consolidated financial statements on page 177 of BMO's 2013 Annual Report.

Off-Balance Sheet Arrangements

BMO enters into a number of off-balance sheet arrangements in the normal course of operations. The most significant of these are Credit Instruments, Structured Entities and Guarantees, which are described on pages 65, 66 and 70 of BMO's 2013 Annual Report as well as in Note 6 to the unaudited interim consolidated financial statements. We consolidate all of our Structured Entities, except for certain Canadian customer securitization and structured finance vehicles. See the Select Financial Instruments section for comments on any significant changes to these arrangements during the quarter ended July 31, 2014.

Accounting Policies and Critical Accounting Estimates

Significant accounting policies are described in the notes to our audited consolidated financial statements for the year ended October 31, 2013, together with a discussion of certain accounting estimates that are considered particularly important as they require management to make significant judgments, some of which relate to matters that are inherently uncertain. Readers are encouraged to review that discussion.

Effective November 1, 2013, we adopted several new and amended accounting pronouncements issued by the IASB, which are outlined in Note 1 to the unaudited interim consolidated financial statements.

Future Changes in Accounting Policies

BMO monitors the potential changes proposed by IASB, and analyzes the effect that changes in the standards may have on BMO's financial reporting and accounting policies. New standards and amendments to existing standards, which are effective for the Bank in the future, can be found in Note 1 to the unaudited interim consolidated financial statements for the quarter ended July 31, 2014, and in Note 1 to the audited consolidated financial statements on pages 132 and 133 of BMO's 2013 Annual Report.

Regulatory Developments

There have been a number of regulatory developments in Canada, the United States and elsewhere including consumer protection, capital markets activities, anti-money laundering, and the oversight and strengthening of risk management. These regulatory reforms can impact our operations when they pose financial costs, for example from increasing capital and liquidity requirements and cost of compliance in terms of infrastructure, and our failure to comply with laws and regulations could result in sanctions and financial penalties that could adversely affect our strategic flexibility, reputation and earnings.

We continue to monitor and prepare for regulatory developments, including those referenced elsewhere in this MD&A and the recent regulatory developments set out below. For a more comprehensive discussion of U.S. regulatory developments, see the U.S. Regulatory Developments section on page 69 of BMO's 2013 Annual Report.

The Federal Reserve Board finalized a rule (the FBO Rule) that implements the Dodd-Frank Act's enhanced prudential standards and early remediation requirements for the U.S. operations of non-U.S. banks, such as BMO. The FBO Rule establishes new requirements relating to risk-based capital, leverage limits, liquidity standards, risk-management frameworks, concentration and credit exposure limits, resolution planning and credit exposure reporting.

The Office of the Comptroller of Currency issued for comment proposed guidelines for the design and implementation of a risk governance framework for large national banks, and board of director oversight of the framework's design and implementation. As proposed, the guidelines would apply to our principal U.S. subsidiary bank, BMO Harris Bank N.A. (BHB), and establish specific roles and responsibilities focused on risk management for BHB's front line units, risk management, internal audit, board and CEO.

The Volcker Rule, which prohibits banking entities and their affiliates from certain proprietary trading and specified relationships with hedge funds and private equity funds, was finalized in December 2013. The U.S. federal banking agencies, the Securities and Exchange Commission and the Commodity Futures Trading Commission have confirmed that banking entities, including BMO and certain subsidiaries, have until July 2015 to conform all of their activities and investments, or longer if the period is extended. Banking entities are expected to engage in good-faith planning efforts and work toward compliance during this period.

The Consumer Financial Protection Bureau, which enforces certain U.S. federal consumer finance laws, has stated that it will closely scrutinize indirect auto lenders to focus on compliance, including with fair lending laws.

Canada'sDepartment of Finance issued for comment a Consultation Paper outlining the proposed bail-in regime applicable to Canada's domestic systemically important banks (D-SIBs), such as the Bank. The proposed bail-in regime would grant to the Government of Canada the power to permanently convert "eligible liabilities" of the D-SIB into common equity and to permanently cancel existing common shares if certain preconditions are met. As proposed, eligible liabilities would consist only of senior unsecured debt that is issued after the implementation date of the bail-in regime, tradable and transferable, and with an original term of over 400 days. The Consultation Paper also requests comments with respect to instituting a bank holding company structure in Canada to better support the regime for bank resolutions.

Caution

This Regulatory Developments section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.

Select Financial Instruments

Pages 65 and 66 of BMO's 2013 Annual Report provide enhanced disclosure relating to select financial instruments that, commencing in 2008 and based on subsequent assessments, markets regard as carrying higher risk. Readers are encouraged to review that disclosure to assist in understanding the nature and extent of BMO's exposures.

The Financial Stability Board (FSB) issued a report encouraging enhanced disclosure related to financial instruments that market participants had come to regard as carrying higher risk. An index of where the disclosures recommended by the Enhanced Disclosure Task Force (EDTF) of the FSB are located is provided on our website at www.bmo.com/investorrelations.

We follow a practice of reporting on significant changes in the select financial instruments since year end, if any, in our interim MD&A. There have been no changes of substance from the disclosure in our 2013 Annual Report, other than the maturity of the $1.05 billion of Series 2013 Apex Notes that occurred on December 30, 2013.

Risk Management

Our risk management practices and key measures have not changed significantly from those outlined on pages 77 to 99 of BMO's 2013 Annual Report.

Market Risk

Linkages between Balance Sheet Items and Market Risk Disclosures

Below are parts of our consolidated balance sheet that are subject to market risk, showing balances that are mainly subject to traded risk and non-traded risk measurement techniques.

---------------------------------------------------------------------------- Linkages Between Balance Sheet Items and Market Risk Disclosures Table 18 ---------------------------------------------------------------------------- As at July 31, 2014 -------------------------------------- Subject to Market Risk ------------------ Not subject Main risk Consolidated Non- to factors for (Canadian $ in Balance Traded traded Market non-traded millions) Sheet risk (1) risk (2) Risk risk balances ---------------------------------------------------------------------------- Assets Cash and cash equivalents 38,250 - 38,250 - Interest rate Interest bearing deposits with banks 5,800 392 5,408 - Interest rate Securities Interest rate, Trading 90,459 84,374 6,085 - credit spread Interest rate, Available-for-sale 47,673 - 47,673 - credit spread Held-to-maturity 10,420 - 10,420 - Interest rate Other 989 - 989 - Equity Securities borrowed or purchased under resale agreements 49,452 - 49,452 - Interest rate Loans and acceptances (net of allowance Interest rate, for credit losses) 295,441 - 295,441 - foreign exchange Derivative Interest rate, instruments 26,825 25,969 856 - foreign exchange Other assets 21,523 - 8,182 13,341 Interest rate ---------------------------------------------------------------------------- Total Assets 586,832 110,735 462,756 13,341 ---------------------------------------------------------------------------- Liabilities Interest rate, Deposits 399,223 7,423 391,800 - foreign exchange Derivative Interest rate, instruments 28,151 27,144 1,007 - foreign exchange Acceptances 9,651 - 9,651 - Interest rate Securities sold but not yet purchased 28,366 28,366 - - Interest rate Securities lent or sold under repurchase agreements 40,606 - 40,606 - Interest rate Other liabilities 42,587 - 42,147 440 Interest rate Subordinated debt 3,948 - 3,948 - Interest rate ---------------------------------------------------------------------------- Total Liabilities 552,532 62,933 489,159 440 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

As at October 31, 2013 -------------------------------------- Subject to Market Risk ------------------ Not subject Main risk Consolidated Non- to factors for (Canadian $ in Balance Traded traded Market non-traded millions) Sheet risk (1) risk (2) Risk risk balances ---------------------------------------------------------------------------- Assets Cash and cash equivalents 26,089 - 26,089 - Interest rate Interest bearing deposits with banks 6,518 1,511 5,007 - Interest rate Securities Interest rate, Trading 75,159 69,393 5,766 - credit spread Interest rate, Available-for-sale 53,710 - 53,710 - credit spread Held-to-maturity 6,032 - 6,032 - Interest rate Other 899 - 899 - Equity Securities borrowed or purchased under resale agreements 39,799 - 39,799 - Interest rate Loans and acceptances (net of allowance Interest rate, for credit losses) 279,294 - 279,294 - foreign exchange Derivative Interest rate, instruments 30,259 29,484 775 - foreign exchange Other assets 19,285 - 7,692 11,593 Interest rate ---------------------------------------------------------------------------- Total Assets 537,044 100,388 425,063 11,593 ---------------------------------------------------------------------------- Liabilities Interest rate, Deposits 368,369 5,928 362,441 - foreign exchange Derivative Interest rate, instruments 31,974 31,184 790 - foreign exchange Acceptances 8,472 - 8,472 - Interest rate Securities sold but not yet purchased 22,446 22,446 - - Interest rate Securities lent or sold under repurchase agreements 28,884 - 28,884 - Interest rate Other liabilities 41,724 - 41,179 545 Interest rate Subordinated debt 3,996 - 3,996 - Interest rate ---------------------------------------------------------------------------- Total Liabilities 505,865 59,558 445,762 545 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Primarily comprised of BMO's balance sheet items that are subject to the trading and underwriting risk management framework and are fair valued through profit and loss. (2) Primarily comprised of BMO's balance sheet items that are subject to the structural balance sheet and insurance risk management framework and our available-for-sale securities. Certain comparative figures have been reclassified to conform to the current period's presentation.



Trading, Underwriting and Non-Trading (Structural) Market Risk

Total Trading Value at Risk (VaR) remained relatively stable over the period. The available-for-sale (AFS) VaR declined as a result of position reductions in a number of portfolios and from the impact of parameter recalibrations. Total Trading Stressed VaR decreased mainly due to calibration updates and portfolio composition changes which occurred during the quarter.

There were no significant changes in our structural market risk management practices during the quarter. Structural economic value exposure to rising interest rates primarily reflects a lower market value for fixed-rate loans. Structural earnings exposure to falling interest rates primarily reflects the risk of prime-based loans repricing at lower rates. Economic value and earnings interest rate sensitivities remained largely unchanged over the quarter.

BMO's market risk management practices and key measures are outlined on pages 87 to 91 of BMO's 2013 Annual Report.

---------------------------------------------------------------------------- Total Trading Value at Risk (VaR) Summary ($ in millions)(i) (ii) Table 19 ---------------------------------------------------------------------------- As at As at For the quarter ended July 31, April October 2014 30, 2014 31, 2013 ---------------------------------- --------- --------- (Pre-tax Canadian Quarter- Quarter- Quarter- equivalent) end Average High Low end end -------------------------------------------------------- --------- --------- Commodity VaR (0.6) (0.6) (0.9) (0.3) (0.8) (0.4) Equity VaR (6.0) (6.8) (9.0) (5.6) (6.1) (6.1) Foreign exchange VaR (0.2) (0.9) (2.3) (0.1) (0.9) (0.5) Interest rate VaR (6.6) (7.8) (13.3) (4.2) (4.3) (4.6) Credit VaR (4.8) (5.3) (5.9) (4.5) (5.3) (5.0) Diversification 9.2 10.7 nm nm 8.6 7.5 ---------------------------------------- --------- --------- Total Trading VaR (9.0) (10.7) (14.5) (8.1) (8.8) (9.1) -------------------------------------------------------- ------------------- Total AFS VaR (9.5) (11.1) (12.7) (9.0) (12.7) (10.1) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (i) Total Trading VaR and AFS VaR above are subject to BMO Capital Markets trading management framework. (ii) One-day measure using a 99% confidence interval. Losses are in brackets and benefits are presented as positive numbers. nm - not meaningful ---------------------------------------------------------------------------- Total Trading Stressed Value at Risk (SVaR) Summary ($ in millions)(i) (ii) Table 20 ---------------------------------------------------------------------------- As at As at For the quarter ended July 31, April October 2014 30, 2014 31, 2013 ---------------------------------- --------- --------- (Pre-tax Canadian Quarter- Quarter- Quarter- equivalent) end Average High Low end end -------------------------------------------------------- --------- --------- Commodity SVaR (3.3) (4.1) (7.9) (1.8) (7.2) (4.7) Equity SVaR (13.4) (12.5) (17.5) (10.2) (12.6) (9.8) Foreign exchange SVaR (0.2) (3.2) (11.3) (0.2) (1.8) (0.8) Interest rate SVaR (14.2) (20.3) (29.0) (12.4) (23.2) (9.5) Credit SVaR (13.0) (13.8) (14.9) (13.0) (13.5) (11.0) Diversification 25.6 31.6 nm nm 31.8 19.9 ---------------------------------------- --------- --------- Total Trading SVaR (18.5) (22.3) (31.8) (17.7) (26.5) (15.9) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (i) Stressed VaR is produced weekly. (ii) One-day measure using a 99% confidence interval. Losses are in brackets and benefits are presented as positive numbers. nm - not meaningful ---------------------------------------------------------------------------- Structural Balance Sheet Earnings and Value Sensitivity to Changes in Interest Rates ($ in millions)(i) (ii) Table 21 ---------------------------------------------------------------------------- Earnings sensitivity over Economic value sensitivity the next 12 months (Pre-tax) (After tax) ------------------------------ --------------------------- (Canadian July April October July April October equivalent) 31, 2014 30, 2014 31, 2013 31, 2014 30, 2014 31, 2013 ------------------------------------------------ --------------------------- 100 basis point increase (629.8) (649.3) (503.1) 59.3 60.8 95.4 100 basis point decrease 340.7 354.1 340.1 (50.7) (60.1) (90.8) 200 basis point increase (1,404.6) (1,421.0) (1,078.8) 77.9 85.0 158.1 200 basis point decrease 222.2 233.5 442.7 (54.9) (71.3) (113.7) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (i) Losses are in brackets and benefits are presented as positive numbers. (ii) For BMO's Insurance businesses, a 100 basis point increase in interest rates at July 31, 2014, results in an increase in earnings after tax of $68 million and an increase in before tax economic value of $414 million ($67 million and $384 million, respectively, at April 30, 2014; $81 million and $335 million, respectively, at October 31, 2013). A 100 basis point decrease in interest rates at July 31, 2014, results in a decrease in earnings after tax of $59 million and a decrease in before tax economic value of $489 million ($57 million and $454 million, respectively, at April 30, 2014; $66 million and $399 million, respectively, at October 31, 2013). These impacts are not reflected in the table above.



Liquidity and Funding Risk

Liquidity and funding risk is managed under a robust risk management framework. There were no material changes in the framework during the quarter.

Liquid and Unencumbered Assets

BMO's liquid assets are primarily held in our trading businesses and in supplemental liquidity pools that are maintained for contingency purposes. Liquid assets include unencumbered, high-quality assets that are marketable, can be pledged as security for borrowings and can be converted to cash in a time frame that meets our liquidity and funding requirements.

BMO's liquid assets are summarized in Table 22 below. In the ordinary course of the bank's day-to-day business activities, BMO may encumber a portion of cash and security holdings as collateral to support its trading activities and participation in clearing and payment systems. In addition, BMO may receive highly liquid assets as collateral and may re-pledge these assets in exchange for cash or as collateral for trading activities. Net unencumbered liquid assets, defined as on-balance sheet assets such as BMO-owned cash and securities and securities borrowed or purchased under resale agreements plus other off-balance sheet eligible collateral received less collateral encumbered, totalled $171.7 billion at July 31, 2014, compared with $170.5 billion at April 30, 2014. The modest increase in unencumbered liquid assets was primarily due to higher cash balances. Net unencumbered liquid assets are primarily held at the parent bank level, in our U.S. legal entity BMO Harris Bank, and in BMO's broker/dealer operations in Canada and internationally. In addition to liquid assets, BMO retains access to the Bank of Canada's emergency lending assistance program, Federal Reserve Bank discount window in the United States and European Central Bank standby liquidity facilities. BMO does not consider central bank facilities as a source of available liquidity when assessing its liquidity position.

In addition to cash and securities holdings, BMO may also pledge other assets, including mortgages and loans, to raise long-term secured wholesale funding. Table 23 provides a summary of total encumbered and unencumbered assets.

---------------------------------------------------------------------------- Liquid Assets Table 22 ---------------------------------------------------------------------------- As at July 31, 2014 ----------------------------------------------------------- (Canadian $ in Carrying millions) Value/On Total Balance Other Cash & Gross Net Sheet Securities Assets Encumbered Unencumbered Assets (1) Received (2) Assets Assets (3) --------------------------------------------------------------------------- Cash and cash equivalents 38,250 - 38,250 1,429 36,821 Deposits in other banks 5,800 - 5,800 - 5,800 Securities and securities borrowed or purchased under resale agreements Sovereigns / Central banks / Multilateral Development Banks 98,735 12,590 111,325 77,037 34,288 Mortgage-backed securities and collateralized mortgage obligations 17,377 1,013 18,390 2,569 15,821 Corporate debt 19,740 7,057 26,797 2,023 24,774 Corporate equity 63,141 16,409 79,550 39,882 39,668 --------------------------------------------------------------------------- Total securities and securities borrowed or purchased under resale agreements 198,993 37,069 236,062 121,511 114,551 NHA mortgage- backed securities (reported as loans at amortized cost) (4) 15,239 - 15,239 691 14,548 --------------------------------------------------------------------------- Total liquid assets 258,282 37,069 295,351 123,631 171,720 --------------------------------------------------------------------------- Other assets eligible at central banks (not included above) (5) 105,558 - 105,558 748 104,810 Undrawn credit lines granted by central banks - - - - - --------------------------------------------------------------------------- Total liquid assets and other sources 363,840 37,069 400,909 124,379 276,530 --------------------------------------------------------------------------- --------------------------------------------------------------------------- As at April 30, 2014 ------------ (Canadian $ in Net millions) Unencumbered Assets (3) ---------------------------- Cash and cash equivalents 33,648 Deposits in other banks 7,069 Securities and securities borrowed or purchased under resale agreements Sovereigns / Central banks / Multilateral Development Banks 38,204 Mortgage-backed securities and collateralized mortgage obligations 14,698 Corporate debt 25,134 Corporate equity 36,600 ---------------------------- Total securities and securities borrowed or purchased under resale agreements 114,636 NHA mortgage- backed securities (reported as loans at amortized cost) (4) 15,104 ---------------------------- Total liquid assets 170,457 ---------------------------- Other assets eligible at central banks (not included above) (5) 101,498 Undrawn credit lines granted by central banks - ---------------------------- Total liquid assets and other sources 271,955 ---------------------------- ---------------------------- (1) The carrying values outlined in this table are consistent with the carrying values in the Bank's balance sheet as at July 31, 2014. (2) Gross assets include on-balance sheet and off-balance sheet assets. (3) Net unencumbered liquid assets are defined as on-balance sheet assets, such as BMO-owned cash and securities and securities borrowed or purchased under resale agreements, plus other off-balance sheet eligible collateral received, less encumbered assets. (4) Under IFRS, NHA mortgage-backed securities (MBS) that include BMO's originated mortgages as the underlying collateral are classified as loans. Unencumbered NHA MBS securities have liquidity value and are included as liquid assets under BMO's liquidity and funding management framework. This amount is shown as a separate line item, NHA mortgage- backed securities. (5) Represents loans currently lodged at central banks that could potentially be used to access central bank funding. Loans available for collateral do not include other sources of additional liquidity that may be realized from the loan portfolio including incremental securitization, covered bond issuances and Federal Home Loan Bank (FHLB) advances. ---------------------------------------------------------------------------- Asset Encumbrance (Canadian $ in millions) Table 23 ---------------------------------------------------------------------------- Encumbered (2) Net Unencumbered --------------------- ------------------------ Available Total Other as As at July 31, Gross Pledged as Other unencumbered collateral 2014 Assets (1) collateral encumbered (3) (4) ---------------------------------------------------------------------------- Cash and bank deposits 44,050 - 1,429 439 42,182 Securities (5) 251,301 93,723 28,479 7,674 121,425 Loans and acceptances 280,202 37,645 1,945 135,802 104,810 Other assets Derivative instruments 26,825 - - 26,825 - Premises and equipment 2,174 - - 2,174 - Goodwill 5,253 - - 5,253 - Intangible assets 2,020 - - 2,020 - Current tax assets 770 - - 770 - Deferred tax assets 2,962 - - 2,962 - Other assets 8,344 - - 8,344 - ---------------------------------------------------------------------------- Total other assets 48,348 - - 48,348 - ---------------------------------------------------------------------------- Total assets 623,901 131,368 31,853 192,263 268,417 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Encumbered (2) Net Unencumbered --------------------- ------------------------ Total Available Gross Other as As at April 30, Assets Pledged as Other unencumbered collateral 2014 (1) collateral encumbered (3) (4) ---------------------------------------------------------------------------- Cash and bank deposits 42,151 - 1,434 423 40,294 Securities (5) 246,456 92,488 24,228 7,455 122,285 Loans and acceptances 279,139 37,138 1,954 138,549 101,498 Other assets Derivative instruments 28,859 - - 28,859 - Premises and equipment 2,172 - - 2,172 - Goodwill 3,994 - - 3,994 - Intangible assets 1,554 - - 1,554 - Current tax assets 800 - - 800 - Deferred tax assets 2,927 - - 2,927 - Other assets 8,293 - - 8,293 - ---------------------------------------------------------------------------- Total other assets 48,599 - - 48,599 - ---------------------------------------------------------------------------- Total assets 616,345 129,626 27,616 195,026 264,077 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Gross assets include on-balance sheet and off-balance sheet assets. (2) Pledged as collateral refers to the portion of on-balance sheet assets and other cash and securities received that is pledged through repurchase agreements, securities lent, derivative contracts, minimum required deposits at central banks and requirements associated with participation in clearing houses and payment systems. Other encumbered includes assets which are restricted from use for legal or other reasons such as restricted cash and short sales. (3) Other unencumbered assets include select liquid asset holdings management believes are not readily available to support BMO's liquidity requirements. These include cash and securities of $8.1 billion as at July 31, 2014, which include securities held in BMO's insurance subsidiary, credit protection vehicle, significant equity investments, and certain investments held in our merchant banking business. Other unencumbered assets also include mortgages and loans that may be securitized to access secured funding. (4) Loans included as available as collateral represent loans currently lodged at central banks that could potentially be used to access central bank funding. Loans available as collateral do not include other sources of additional liquidity that may be realized from the loan portfolio, including incremental securitization, covered bond issuances and FHLB advances. (5) Includes securities, securities borrowed or purchased under resale agreements and NHA mortgage-backed securities (reported as loans at amortized cost).



Funding Strategy

Our funding philosophy requires that secured and unsecured wholesale funding used to support less liquid loans and other assets be longer term (typically maturing in two to ten years) to better match the term to maturity for these assets. Wholesale secured and unsecured funding for liquid trading assets is generally shorter term (maturing in one year or less), and is aligned with the liquidity of the assets being funded. Trading assets are subject to haircuts in order to reflect the potential for lower market values and liquidity during times of market stress. Supplemental liquidity pools are funded with a mix of wholesale term funding.

BMO maintains a large and stable base of customer deposits that, along with our strong capital base, is a source of strength. It supports the maintenance of a sound liquidity position and reduces our reliance on wholesale funding. Customer deposits include core deposits and larger retail and commercial fixed-rate customer deposits. Customer deposits totalled $230.6 billion at July 31, 2014, up slightly from $230.4 billion at April 30, 2014. BMO also receives non-marketable deposits from corporate and non-financial institutional customers. These deposits totalled $33.9 billion as at July 31, 2014.

Total wholesale funding outstanding, largely consisting of negotiable marketable securities, was $163.5 billion at July 31, 2014, with $37.0 billion sourced as secured funding and $126.5 billion sourced as unsecured funding. The mix and maturities of BMO's wholesale term funding are outlined in Table 24 below. BMO maintains a sizeable portfolio of unencumbered liquid assets totaling $171.7 billion as of July 31, 2014, that can be monetized to meet potential funding requirements, as described in the Liquid and Unencumbered Assets section above.

Diversification of our wholesale funding sources is an important part of our overall liquidity management strategy. BMO's wholesale funding activities are well diversified by jurisdiction, currency, investor segment, instrument and maturity profile. BMO maintains ready access to long-term wholesale funding through various borrowing programs, including a European Note Issuance Program, Canadian and U.S. Medium Term Note Programs, Canadian and U.S. mortgage securitizations, Canadian credit card securitizations, covered bonds and Canadian and U.S. senior (unsecured) deposits.

---------------------------------------------------------------------------- Wholesale Funding Maturities (Canadian $ in millions) (1) Table 24 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Subtotal Less less than 1 1 to 3 3 to 6 6 to 12 than As at July 31, 2014 month months months months 1 year ---------------------------------------------------------------------------- Deposits from banks (2) 12,382 4,630 598 66 17,676 Certificates of deposit and commercial paper 19,937 21,363 8,003 6,113 55,416 Bearer deposit notes 1,657 1,297 181 236 3,371 Asset-backed commercial paper (ABCP) 1,224 1,108 430 55 2,817 Senior unsecured medium-term notes - - 500 4,658 5,158 Senior unsecured structured notes (3) 38 30 371 29 468 Covered bonds/Securitizations Mortgage securitizations - 318 334 1,852 2,504 Covered bonds - - 2,181 2,181 4,362 Credit card securitizations - - - 42 42 Subordinated debt (4) - - - 311 311 Other (5) - - - - - ---------------------------------------------------------------------------- Total 35,238 28,746 12,598 15,543 92,125 ---------------------------------------------------------------------------- Of which: Secured 1,224 1,426 2,945 4,130 9,725 Unsecured 34,014 27,320 9,653 11,413 82,400 ---------------------------------------------------------------------------- Total (6) 35,238 28,746 12,598 15,543 92,125 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------- 1 to 2 Over 2 As at July 31, 2014 years years Total ---------------------------------------------------------- Deposits from banks (2) - - 17,676 Certificates of deposit and commercial paper 938 - 56,354 Bearer deposit notes - - 3,371 Asset-backed commercial paper (ABCP) - - 2,817 Senior unsecured medium-term notes 13,683 23,160 42,001 Senior unsecured structured notes (3) 46 1,135 1,649 Covered bonds/Securitizations Mortgage securitizations 2,031 12,473 17,008 Covered bonds 1,636 3,641 9,639 Credit card securitizations 2,726 2,194 4,962 Subordinated debt (4) - 5,087 5,398 Other (5) - 2,590 2,590 ---------------------------------------------------------- Total 21,060 50,280 163,465 ---------------------------------------------------------- Of which: Secured 6,393 20,898 37,016 Unsecured 14,667 29,382 126,449 ---------------------------------------------------------- Total (6) 21,060 50,280 163,465 ---------------------------------------------------------- ---------------------------------------------------------- (1) Wholesale funding excludes repo transactions and bankers acceptances, which are disclosed in the contractual maturity table in Note 16 of the unaudited interim consolidated financial statements. Wholesale funding also excludes ABCP issued by certain ABCP conduits that are not consolidated for financial reporting purposes. (2) Except for deposits from banks, which primarily consist of bank deposits sourced to support trading products activities, unsecured funding refers to funding through issuance of marketable, negotiable securities. (3) Primarily issued to non-institutional investors. (4) Includes certain subordinated debt instruments reported as deposits and other liabilities for accounting purposes. Subordinated debt is reported in this table in accordance with EDTF recommended disclosures. (5) Refers to Federal Home Loan Banks advances. (6) Total wholesale funding consists of Canadian-dollar-denominated funding of $53.9 billion and U.S.-dollar and other foreign-denominated funding of $109.6 billion as at July 31, 2014.



In May 2014, OSFI finalized its Liquidity Adequacy Requirements (LAR) Guideline. The guideline outlines the approach and methodology for a number of liquidity metrics and tools that OSFI will use to monitor and assess the liquidity adequacy of banks, including the Liquidity Coverage Ratio (LCR), Net Cumulative Cash Flow and others. Under the guideline, Canadian banks will be required to maintain a LCR above 100%, effective January 1, 2015.

In January 2014, the Basel Committee on Banking Supervision (BCBS) issued its final paper on Liquidity Coverage Ratio Disclosure Standards. In July 2014, OSFI published a LCR common disclosure template and confirmed that Canadian banks are required to comply with the new disclosure standards beginning in the Q2, 2015 reporting period.

In January 2014, the BCBS released a revised consultative document on the Net Stable Funding Ratio (NSFR). The industry provided feedback on the proposal to the BCBS in the second quarter of 2014. The NSFR is expected to be implemented on January 1, 2018.

Credit Rating

The credit ratings assigned to BMO's short-term and senior long-term debt securities by external rating agencies are important in the raising of both capital and funding to support our business operations. Maintaining strong credit ratings allows us to access the capital markets at competitive pricing levels. Should our credit ratings experience a material downgrade, our cost of funds would likely increase significantly and our access to funding and capital through capital markets could be reduced. A material downgrade of our ratings could have other consequences, including those set out in Note 10 to the audited consolidated financial statements on page 150 of BMO's 2013 Annual Report.

The credit ratings assigned to BMO's senior debt by the rating agencies are indicative of high-grade, high-quality issues. The ratings as at July 31, 2014, were as follows: DBRS (AA); Fitch (AA-); Moody's (Aa3); and Standard & Poor's (A+).

During the quarter, Moody's affirmed the long-term ratings and changed the outlook to "negative" from "stable" on the supported senior debt and uninsured deposit ratings of BMO and six other large Canadian banks in light of previously announced plans by the Canadian government to implement a bail-in regime for domestic systemically important banks.

Subsequent to quarter-end, S&P affirmed the long-term and short-term issuer credit ratings of BMO and revised its outlook on BMO and five other Canadian banks to negative from stable reflecting the possible impact of a bail-in policy proposal from the Canadian federal government released on August 1, 2014.

We are required to deliver collateral to certain counterparties in the event of a downgrade to our current credit rating. The incremental collateral required is based on mark-to-market exposure, collateral valuations and collateral threshold arrangements, as applicable. As at July 31, 2014, the bank would be required to provide additional collateral to counterparties totalling $154 million, $470 million and $727 million under a one-notch, two-notch and three-notch downgrade, respectively.

Insurance Risk

There were no significant changes in the risk management practices or risk levels of our insurance business during the quarter. BMO's insurance risk management practices are outlined on pages 95 and 96 of BMO's 2013 Annual Report.

Information and Cyber Security Risk

There were no significant changes in our information and cyber security risk management practices during the quarter from those described in the Information and Cyber Security Risk section on page 79 and in the Operational Risk section on page 94 of BMO's 2013 Annual Report.

Select Geographic Exposures

Select geographic exposures were disclosed and discussed on pages 67, 68, 119 and 120 of BMO's 2013 Annual Report. Our exposure to European countries, as at July 31, 2014, is set out in the tables that follow. Our net portfolio exposures are summarized in Table 25 and 26 for funded lending, securities (inclusive of credit default swaps (CDS) activity), repo-style transactions and derivatives. There has been limited change to our exposures compared with April 30, 2014, and October 31, 2013.

---------------------------------------------------------------------------- European Exposure by Country and Counterparty (11) (Canadian $ in millions) Table 25 ---------------------------------------------------------------------------- As at July 31, 2014 Funded Lending (1) Securities (2)(10) -------------------------------------------------- Sovereign Country Total Bank Corporate (9) Total ---------------------------------------------------------------------------- GIIPS Greece - - - - - Ireland (5) 9 - - - - Italy 64 - - - - Portugal - - - - - Spain 65 - - - - ---------------------------------------------------------------------------- Total - GIIPS (6) 138 - - - - ---------------------------------------------------------------------------- Eurozone (excluding GIIPS) France 15 - - 298 298 Germany 55 19 21 1,320 1,360 Netherlands 296 661 7 109 777 Other (7) 178 - 1 391 392 ---------------------------------------------------------------------------- Total - Eurozone (excluding GIIPS) (8) 544 680 29 2,118 2,827 ---------------------------------------------------------------------------- Rest of Europe Denmark 8 558 - 128 686 Norway 11 1,236 - - 1,236 Russian Federation 357 - - - - Sweden 93 317 - 27 344 Switzerland 210 1 - - 1 United Kingdom 346 68 53 186 307 Other (7) - - - - - ---------------------------------------------------------------------------- Total - Rest of Europe (8) 1,025 2,180 53 341 2,574 ---------------------------------------------------------------------------- Total - All of Europe 1,707 2,860 82 2,459 5,401 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- As at July 31, 2014 Repo-Style Transactions and Derivatives (3)(4) Total -------------------------------------------------- Sovereign Net Country Bank Corporate (9) Total Exposure ---------------------------------------------------------------------------- GIIPS Greece - - - - - Ireland (5) 38 - - 38 47 Italy 3 2 - 5 69 Portugal - - - - - Spain 7 - - 7 72 ---------------------------------------------------------------------------- Total - GIIPS (6) 48 2 - 50 188 ---------------------------------------------------------------------------- Eurozone (excluding GIIPS) France 186 - 3 189 502 Germany 42 - 4 46 1,461 Netherlands 86 - - 86 1,159 Other (7) 40 43 8 91 661 ---------------------------------------------------------------------------- Total - Eurozone (excluding GIIPS) (8) 354 43 15 412 3,783 ---------------------------------------------------------------------------- Rest of Europe Denmark - - - - 694 Norway 1 - - 1 1,248 Russian Federation - - - - 357 Sweden 7 - - 7 444 Switzerland 37 1 - 38 249 United Kingdom 312 4 - 316 969 Other (7) - - - - - ---------------------------------------------------------------------------- Total - Rest of Europe (8) 357 5 - 362 3,961 ---------------------------------------------------------------------------- Total - All of Europe 759 50 15 824 7,932 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- As at April 30, 2014 Funded Lending (1) Securities (2) -------------------------------------------------- Sovereign Country Total Bank Corporate (9) Total ---------------------------------------------------------------------------- Total - GIIPS (6) 124 - 1 - 1 ---------------------------------------------------------------------------- Total - Eurozone (excluding GIIPS) (8) 558 711 41 2,254 3,006 ---------------------------------------------------------------------------- Total - Rest of Europe (8) 1,059 2,103 54 350 2,507 ---------------------------------------------------------------------------- Total - All of Europe 1,741 2,814 96 2,604 5,514 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- As at April 30, 2014 Repo-Style Transactions and Derivatives (3)(4) Total -------------------------------------------------- Sovereign Net Country Bank Corporate (9) Total Exposure ---------------------------------------------------------------------------- Total - GIIPS (6) 47 4 - 51 176 ---------------------------------------------------------------------------- Total - Eurozone (excluding GIIPS) (8) 338 11 8 357 3,921 ---------------------------------------------------------------------------- Total - Rest of Europe (8) 519 15 - 534 4,100 ---------------------------------------------------------------------------- Total - All of Europe 904 30 8 942 8,197 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- As at October 31, 2013 Funded Lending (1) Securities (2) -------------------------------------------------- Sovereign Country Total Bank Corporate (9) Total ---------------------------------------------------------------------------- Total - GIIPS (6) 79 - - - - ---------------------------------------------------------------------------- Total - Eurozone (excluding GIIPS) (8) 462 626 42 2,111 2,779 ---------------------------------------------------------------------------- Total - Rest of Europe (8) 956 2,058 40 674 2,772 ---------------------------------------------------------------------------- Total - All of Europe 1,497 2,684 82 2,785 5,551 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- As at October 31, 2013 Repo-Style Transactions and Derivatives (3)(4) Total -------------------------------------------------- Sovereign Net Country Bank Corporate (9) Total Exposure ---------------------------------------------------------------------------- Total - GIIPS (6) 5 2 - 7 86 ---------------------------------------------------------------------------- Total - Eurozone (excluding GIIPS) (8) 113 6 1 120 3,361 ---------------------------------------------------------------------------- Total - Rest of Europe (8) 153 19 - 172 3,900 ---------------------------------------------------------------------------- Total - All of Europe 271 27 1 299 7,347 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Refer to footnotes in Table 26. ---------------------------------------------------------------------------- European Lending Exposure by Country and Counterparty (11) (Canadian $ in millions) Table 26 ---------------------------------------------------------------------------- Lending (1) ----------------------------------------------------------- Funded Lending as at July 31, 2014 As at July 31, 2014 ------------------------------------- -------------------- Sovereign Country Bank Corporate (9) Commitments Funded ------------------------------------------------------ -------------------- GIIPS Greece - - - - - Ireland (5) 3 6 - 103 9 Italy 64 - - 64 64 Portugal - - - - - Spain 65 - - 75 65 ------------------------------------------------------ -------------------- Total - GIIPS 132 6 - 242 138 ------------------------------------------------------ -------------------- Eurozone (excluding GIIPS) France 15 - - 68 15 Germany 47 8 - 67 55 Netherlands 31 265 - 517 296 Other (7) 148 30 - 412 178 ------------------------------------------------------ -------------------- Total - Eurozone (excluding GIIPS) 241 303 - 1,064 544 ------------------------------------------------------ -------------------- Rest of Europe Denmark 8 - - 8 8 Norway 11 - - 11 11 Russian Federation 330 27 - 357 357 Sweden 23 70 - 196 93 Switzerland 4 206 - 469 210 United Kingdom 200 146 - 545 346 Other (7) - - - 44 - ------------------------------------------------------ -------------------- Total - Rest of Europe 576 449 - 1,630 1,025 ------------------------------------------------------ -------------------- Total - All of Europe 949 758 - 2,936 1,707 ------------------------------------------------------ -------------------- ------------------------------------------------------ -------------------- Lending (1) ------------------------------------------------- As at April 30, 2014 As at October 31, 2013 ------------------------ ------------------------ Country Commitments Funded Commitments Funded ----------------------------------------- ------------------------ GIIPS Greece - - - - Ireland (5) 100 6 - - Italy 39 39 2 2 Portugal - - - - Spain 89 79 77 77 ----------------------------------------- ------------------------ Total - GIIPS 228 124 79 79 ----------------------------------------- ------------------------ Eurozone (excluding GIIPS) France 60 14 22 22 Germany 37 37 21 21 Netherlands 559 295 338 163 Other (7) 429 212 421 256 ----------------------------------------- ------------------------ Total - Eurozone (excluding GIIPS) 1,085 558 802 462 ----------------------------------------- ------------------------ Rest of Europe Denmark 7 7 15 15 Norway 14 14 16 16 Russian Federation 579 579 476 476 Sweden 176 71 121 64 Switzerland 370 140 546 163 United Kingdom 397 248 485 222 Other (7) - - - - ----------------------------------------- ------------------------ Total - Rest of Europe 1,543 1,059 1,659 956 ----------------------------------------- ------------------------ Total - All of Europe 2,856 1,741 2,540 1,497 ----------------------------------------- ------------------------ ----------------------------------------- ------------------------ (1) Lending includes loans and trade finance. Amounts are net of write- offs and gross of specific allowances, both of which are not considered material. (2) Securities include cash products, insurance investments and traded credit. (3) Repo-style transactions are primarily with bank counterparties against which BMO holds collateral ($174 million for GIIPS, $8.8 billion for other Eurozone countries and $4.3 billion for the rest of Europe as at July 31, 2014). (4) Derivatives amounts are marked-to-market, incorporating transaction netting and, for counterparties where a Credit Support Annex is in effect, collateral offsets. Derivative replacement risk net of collateral for all of Europe is approximately $3.6 billion as at July 31, 2014. (5) Does not include Irish subsidiary reserves we are required to maintain with the Irish Central Bank of $75 million as at July 31, 2014. (6) BMO's direct exposures to GIIPS are primarily to banks for trade finance and trading products. Net exposures remain modest at $188 million, with $104 million unfunded commitments as at July 31, 2014. (7) Other Eurozone includes exposures to Austria, Belgium, Finland, Luxembourg, Malta, Slovakia and Slovenia. Other Rest of Europe includes exposures to Croatia, Czech Republic, Hungary, Iceland and Poland. (8) BMO's net direct exposure to the other Eurozone countries (the other countries that share the common euro currency) as at July 31, 2014, totalled approximately $3.8 billion, of which 53% was to counterparties in countries with a rating of Aaa/AAA by both Moody's and S&P, with approximately 84% rated Aaa/AAA by one of the two rating agencies. Our net direct exposure to the rest of Europe totalled approximately $4.0 billion, of which 67% was to counterparties in countries with a Moody's/S&P rating of Aaa/AAA. A significant majority of our sovereign exposure consists of tradable cash products, while exposure related to banks was comprised of trading instruments, short-term debt, derivative positions and letters of credit and guarantees. (9) Sovereign includes sovereign-backed bank cash products. (10) BMO's total net notional CDS exposure (embedded as part of the securities exposure table) to Europe was $499 million, with no net single-name(i) CDS exposure to GIIPS countries as at July 31, 2014. ((i)BMO has a net position of $190 million (bought protection) on a CDS Index which is 20% comprised of GIIPS domiciled entities). (11) Other exposures (including indirect exposures) not included in the tables as at July 31, 2014: - BMO also has exposure to entities in a number of European countries through our credit protection vehicle and U.S. customer securitization vehicle. These exposures are not included in the tables due to the credit protection incorporated in their structures. - BMO has direct exposure to those credit structures, which in turn have exposures to loans or securities originated by entities in Europe. As noted on page 66 in BMO's 2013 Annual Report, in the Credit Protection Vehicle section, this structure has first-loss protection and hedges are in place. - The notional exposure held in the credit protection vehicle to issuers in Greece, Italy and Spain represented 4.2%, of its total notional exposure. The credit protection vehicle had notional exposure to five of the other countries that share the euro currency. This exposure represented 11.8% of total notional exposure, of which 86% was rated investment grade by S&P and 79% by Moody's. The notional exposure to the rest of Europe was 15.1% of total notional exposure, with 83% rated investment grade by S&P and Moody's. The vehicle benefits from significant risk loss protection and as a result residual credit risk is very low. - BMO has exposure to GIIPS and other European countries through our U.S. customer securitization vehicle, which has commitments that involve reliance on collateral of which 0.03% represents loans or securities originated by entities in Europe. At quarter end, exposure to United Kingdom was the largest component at 0.01% and there was no exposure to Greece, Italy, Ireland, Portugal or Spain. - BMO has exposure to European supranational institutions totalling $0.2 billion, predominantly in the form of tradable cash products. - BMO's indirect exposure to Europe in the form of collateral to support trading activity was EUR381 million in securities (of which EUR33 million was to GIIPS). The two largest European exposures were Germany (EUR129 million) and France (EUR121 million). In addition EUR135 million of cash collateral was also held at July 31, 2014. - Indirect exposure by way of guarantees from entities in European countries totalled $874.8 million, of which $5.4 million was exposure to GIIPS, $536.1 million to the other Eurozone countries and $333.3 million to the rest of Europe.



Caution

This Risk Management section contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.

INVESTOR AND MEDIA PRESENTATION

Investor Presentation Materials

Interested parties are invited to visit our website at www.bmo.com/investorrelations to review our 2013 Annual Report, this quarterly news release, presentation materials and supplementary financial information package online.

Quarterly Conference Call and Webcast Presentations

Interested parties are also invited to listen to our quarterly conference call on Tuesday, August 26, 2014, 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 416-695-9753 (from within Toronto) or 1-888-789-0089 (toll-free outside Toronto). A replay of the conference call can be accessed until Monday, December 1, 2014, by calling 905-694-9451 (from within Toronto) or 1-800-408-3053 (toll-free outside Toronto) and entering passcode 6766952.

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

Media Relations Contacts Ralph Marranca, Toronto, ralph.marranca@bmo.com, 416-867-3996 Ronald Monet, Montreal, ronald.monet@bmo.com, 514-877-1873 Investor Relations Contacts Sharon Haward-Laird, Head, Investor Relations, sharon.hawardlaird@bmo.com, 416-867-6656 Andrew Chin, Director, Investor Relations, andrew.chin@bmo.com, 416-867-7019 Chief Financial Officer Tom Flynn, Chief Financial Officer, tom.flynn@bmo.com, 416-867-4689 Corporate Secretary Barbara Muir, Corporate Secretary, corp.secretary@bmo.com, 416-867-6423 ---------------------------------------------------------------------------- Shareholder Dividend Reinvestment and For other shareholder information, Share Purchase including the notice for our normal Plan (the Plan) course issuer bid, please contact Average market price as defined under Bank of Montreal the Plan Shareholder Services May $76.45 Corporate Secretary's Department June $77.79One First Canadian Place, 21st Floor July $82.16Toronto, Ontario M5X 1A1 Telephone: (416) 867-6785 For dividend information, change in Fax: (416) 867-6793 shareholder address E-mail: corp.secretary@bmo.com or to advise of duplicate mailings, please contact For further information on this Computershare Trust Company of Canada report, please contact 100 University Avenue, 9th Floor Bank of MontrealToronto, Ontario M5J 2Y1 Investor Relations Department Telephone: 1-800-340-5021 (Canada and P.O. Box 1, One First Canadian Place, the United States) 18th Floor Telephone: (514) 982-7800 Toronto, Ontario M5X 1A1 (international) Fax: 1-888-453-0330 (Canada and the To review financial results online, United States) please visit our website at Fax: (416) 263-9394 (international) www.bmo.com. To review regulatory E-mail: service@computershare.com filings and disclosures online, please visit our website at www.bmo.com/investorrelations. ----------------------------------------------------------------------------



(R) Registered trademark of Bank of Montreal

--------------------------------------------------------------------------- Annual Meeting 2015 The next Annual Meeting of Shareholders will be held on Tuesday, March 31, 2015, in Toronto, Ontario. --------------------------------------------------------------------------- FOR FURTHER INFORMATION PLEASE CONTACT: Media Relations Contacts Ralph Marranca, Torontoralph.marranca@bmo.com 416-867-3996 Ronald Monet, Montrealronald.monet@bmo.com 514-877-1873 Investor Relations Contacts Sharon Haward-Laird Head, Investor Relations sharon.hawardlaird@bmo.com 416-867-6656 Andrew Chin Director, Investor Relations andrew.chin@bmo.com 416-867-7019 Chief Financial Officer Tom Flynntom.flynn@bmo.com 416-867-4689 Corporate Secretary Barbara Muircorp.secretary@bmo.com 416-867-6423 Source: BMO Bank of Montreal


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