Form 6-K BANK OF MONTREAL /CAN/ For: May 27

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May 27, 2015 4:22 PM EDT

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FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934


For the month of: May, 2015		Commission File Number: 001-13354

BANK OF MONTREAL

(Name of Registrant)

100 King Street West

1 First Canadian Place

Toronto, Ontario

Canada, M5X 1A1

(Executive Offices)

129 rue Saint-Jacques

Montreal, Quebec

Canada, H2Y 1L6

(Head Office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ¨ Form 40-F x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes ¨ No x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- .

INCORPORATION BY REFERENCE

The information contained in this Form 6-K and any exhibits hereto shall be deemed filed with the Securities and Exchange Commission (“SEC”) solely for purposes of incorporation by reference into and as part of the following registration statements of the registrant on file with and declared effective by the SEC:

Registration Statement – Form F-3 – File No. 333-196387

Registration Statement – Form F-3 – File No. 33-96354

Registration Statement – Form F-3 – File No. 333-189814

Registration Statement – Form S-8 – File No. 333-191591

Registration Statement – Form S-8 – File No. 333-182644

Registration Statement – Form S-8 – File No. 333-180968

Registration Statement – Form S-8 – File No. 333-177579

Registration Statement – Form S-8 – File No. 333-177568

Registration Statement – Form S-8 – File No. 333-176479

10.

Registration Statement – Form S-8 – File No. 333-175413

11.

Registration Statement – Form S-8 – File No. 333-175412

12.

Registration Statement – Form S-8 – File No. 333-113096

13.

Registration Statement – Form S-8 – File No. 333-14260

14.

Registration Statement – Form S-8 – File No. 33-92112

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	BANK OF MONTREAL

	By:	/s/ Thomas E. Flynn
	Name:	Thomas E. Flynn
	Title:	Chief Financial Officer

Date: May 27, 2015	By:	/s/ Vandra Goedvolk
	Name:	Vandra Goedvolk
	Title:	Assistant Corporate Secretary

EXHIBIT INDEX


Exhibit		Description of Exhibit

99.1		Second Quarter 2015 Management’s Discussion and Analysis of Results of Operations and Financial Condition

99.2		Second Quarter 2015 Consolidated Financial Statements

LOGO

Second Quarter 2015 Report to Shareholders

BMO Financial Group Reports Net Income of $1 Billion for the Second Quarter of 2015

Financial Results Highlights:

Second Quarter 2015 Compared with Second Quarter 2014:

•

Net income of $1 billion, down 7%; adjusted net income¹ of $1,146 million, up 5%

•

EPS² of $1.49, down 7%; adjusted EPS^1,2 of $1.71, up 5%

•

ROE of 11.4%, compared with 14.3%; adjusted ROE¹ of 13.2%, compared with 14.6%

•

Provisions for credit losses of $161 million, compared with $162 million

•

Basel III Common Equity Tier 1 Ratio of 10.2%

•

Dividend increased by $0.02 or 2% from the preceding quarter to $0.82

Year-to-Date 2015 Compared with Year-to-Date 2014:

•

Net income of $1,999 million, down 6%; adjusted net income¹ of $2,187 million, unchanged

•

EPS² of $2.95, down 7%; adjusted EPS^1,2 of $3.24, unchanged

•

ROE of 11.6%, compared with 14.3%; adjusted ROE¹ of 12.8%, compared with 14.6%

•

Provisions for credit losses of $324 million, compared with $261 million

Toronto, May 27, 2015 – For the second quarter ended April 30, 2015, BMO Financial Group reported net income of $999 million or $1.49 per share on a reported basis and net income of $1,146 million or $1.71 per share on an adjusted basis. Reported net income includes a $106 million charge primarily due to restructuring to drive operational efficiencies.

“BMO delivered good results in the second quarter, with adjusted net income of $1.1 billion, up 5% from last year and 10% from the first quarter. Our operating groups performed well, demonstrating the benefits of our advantaged business mix, which is diversified by geography and customer type,” said Bill Downe, Chief Executive Officer, BMO Financial Group.

“Our combined Personal and Commercial Banking business delivered adjusted earnings of $706 million, up 8% from last year. Wealth Management demonstrated continued strong momentum, with Traditional Wealth posting adjusted net income growth of 23%. Capital Markets net income rebounded strongly from last quarter.

“Looking ahead, with our consistent strategy and a deeply engrained commitment to customers, we are confident in the opportunities for growth across the bank,” 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 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 third quarter 2015 dividend of $0.82 per common share, up $0.02 per share or 2% from the preceding quarter and up $0.04 per share or 5% from a year ago, equivalent to an annual dividend of $3.28 per common share.

Our complete Second Quarter 2015 Report to Shareholders, including our unaudited interim consolidated financial statements for the period ended April 30, 2015, is available online at www.bmo.com/investorrelations and at www.sedar.com.

Total Bank Overview

Net income was $999 million for the second quarter of 2015, down $77 million or 7% from the prior year due to a $106 million charge taken in the quarter primarily due to restructuring to drive operational efficiencies. Adjusted net income was $1,146 million, up $49 million or 5%.

Adjusted net income was up from the prior year in both P&C businesses and Wealth Management. BMO Capital Markets results were significantly higher than the prior quarter driven by higher revenue from our Trading Products business.

The Basel III Common Equity Tier 1 Ratio remains strong at 10.2%.

Operating Segment Overview

Canadian P&C

Net income of $486 million and adjusted net income of $487 million both increased $6 million or 1% from the prior year. Revenue was up $67 million or 4% from the prior year due to higher balances across most products and increased non-interest revenue in our personal business. Expenses increased $48 million or 6% reflecting investments to support business growth, and higher costs associated with a changing business and regulatory environment. Year-over-year loan growth was 3% and deposit growth was 7%.

In our personal banking business, loan and deposit growth was 2% and 6%, respectively. In the quarter, we launched our new Savings Builder Account, becoming the first Canadian bank to reward customers with bonus interest for saving monthly. We were recognized for the third consecutive year by the global financial services research firm Celent with a 2015 Model Bank Award for excellence in the digital banking category.

In our commercial banking business, loan and deposit growth was 6% and 8%, respectively. We remain focused on increasing capacity for our sales force and developing new products and services that meet our customers’ needs. This quarter we launched the BMO Spend Dynamics^TM tool, which provides corporate card clients with convenient access to their transaction data so they can see and analyze their program spend. We remain second in Canadian business banking loan market share for small and medium-sized loans.

U.S. P&C

Net income of $206 million increased $49 million or 31% from the prior year. Adjusted net income of $219 million increased $49 million or 29%. All amounts in the remainder of this section are on a U.S. dollar basis.

Net income of $166 million increased $24 million or 16% from a year ago. Adjusted net income of $176 million increased $22 million or 14%, driven by lower provisions for credit losses. Revenue of $707 million modestly decreased $7 million or 1% from the prior year as higher loan and deposit volume growth and mortgage banking revenue was more than offset by lower net interest margin and other fee revenue. Adjusted non-interest expense of $452 million was relatively unchanged due to disciplined expense management.

Year-over-year loan growth was $3.5 billion or 6%, led by continued strong growth in core commercial and industrial (C&I) loans of $4.5 billion or 17%.

BMO Harris Bank has been leveraging technology to provide an even better customer experience, unveiling Mobile Cash during the quarter, a new technology that allows consumers to withdraw money from an automated banking machine (ABM) using their smartphones. With the launch, BMO Harris Bank now has the largest network of card-less enabled ABMs in the United States. BMO Harris Bank also debuted its first Smart Branch, which enables customers to complete transactions with video-teller ABMs.

Wealth Management

Net income was $238 million, up $46 million or 24%. Adjusted net income of $265 million increased $67 million or 34% from a year ago. Adjusted net income in traditional wealth was $169 million, up $32 million or 23%, with good organic growth as well as growth from the acquired F&C business. Adjusted net income in insurance was $96 million, up $35 million from a year ago primarily due to the impact of favourable movements in long-term interest rates in the current quarter relative to a year ago and benefits from changes in our investment portfolio to improve asset-liability management.

Assets under management and administration grew by $221 billion or 36% from a year ago to $833 billion, with the acquired F&C business contributing $137 billion to the increase. Excluding F&C, assets under management and administration grew by 14%, driven by the stronger U.S. dollar, market appreciation and growth in new client assets.

This past quarter, BMO Wealth Management was named Best Wealth Management in Canada 2015 by Global Banking and Finance Review for the second consecutive year noting Wealth Management’s many strengths, including, comprehensive and personalized wealth management solutions, global reach and local expertise, strength in financial planning and our ongoing commitment to providing an exceptional client experience. Global Banking and Finance Review also recognized our full-service investing and private banking businesses for excellence: BMO Private Banking was named Best Private Bank in Canada 2015 for the fifth consecutive year; BMO Nesbitt Burns was named Best Full-Service Investment Advisory in Canada 2015 for the second consecutive year and was also named Best Integrated Investment Advisor Digital Platform in Canada 2015.

BMO Financial Group Second Quarter Report 2015 • 1

BMO Capital Markets

Net income of $296 million decreased $9 million or 3% from a year ago as higher revenue was offset by the impact of a less favourable tax rate. Year-over-year revenue growth was $61 million or 6% due to improved revenues from Trading Products. Excluding the impact of the stronger U.S. dollar, non-interest expense increased $6 million or 1%.

BMO Capital Markets was recognized for several industry awards during the quarter. Global Finance magazine named us the World’s Best Metals & Mining Investment Bank for the sixth consecutive year and we were named a 2015 Greenwich Share Leader in Canadian Top Tier Foreign Exchange Market Share and a Greenwich Quality Leader for Canadian Foreign Exchange Service. On March 24, 2015, BMO Capital Markets initiated the first RMB trade in honour of Canada’s official launch of the RMB Hub for the Americas.

BMO Capital Markets participated in 390 new global issues in the quarter, comprised of 149 corporate debt deals, 174 government debt deals and 67 equity transactions, raising $974 billion.

Corporate Services

Corporate Services reported net loss for the second quarter of 2015 was $227 million, compared with a reported net loss of $58 million a year ago. The current quarter included a $106 million charge primarily due to restructuring to drive operational efficiencies. The charge also includes the settlement of a legacy legal matter from an acquired entity. Corporate Services adjusted net loss for the second quarter of 2015 was $121 million, compared with an adjusted net loss of $58 million a year ago due primarily to lower revenue from the purchased loan portfolio.

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.

Capital

BMO’s Common Equity Tier 1 (CET1) Ratio was 10.2% at April 30, 2015. The CET1 Ratio increased by approximately 10 basis points from 10.1% at the end of the first quarter due to lower risk-weighted assets, partially offset by a decrease in CET1 Capital. Book value per share increased 12% from the prior year to $51.65 per share.

Provision for Credit Losses

The total provision for credit losses of $161 million was consistent with the prior year and prior quarter.

Caution

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

Regulatory Filings

Our continuous disclosure materials, including our interim filings, annual Management’s Discussion and Analysis and audited consolidated financial statements, Annual Information Form and Notice of Annual Meeting of Shareholders and Proxy Circular are available on our website at 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.

2 • BMO Financial Group Second Quarter Report 2015

Management’s Discussion and Analysis

Management’s Discussion and Analysis (MD&A) commentary is as of May 27, 2015. The MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the period ended April 30, 2015, as well as the audited consolidated financial statements for the year ended October 31, 2014, and the MD&A for fiscal 2014 in BMO’s 2014 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.


Table of Contents

4	Summary Data			22	Balance Sheet
5	Non-GAAP Measures			23	Transactions with Related Parties
6	Caution Regarding Forward-Looking Statements			23	Off-Balance Sheet Arrangements
6	Economic Review and Outlook			23	Accounting Policies and Critical Accounting Estimates
7	Other Value Measures			23	Future Changes in Accounting Policies
7	Foreign Exchange			23	Select Financial Instruments
7	Net Income			23	Other Regulatory Developments
8	Revenue			25	Risk Management
9	Provisions for Credit Losses				25	Market Risk
10	Impaired Loans				27	Liquidity and Funding Risk
10	Insurance Claims, Commissions and Changes in Policy Benefit Liabilities				30	Credit Rating
10	Non-Interest Expense				30	Insurance Risk
10	Income Taxes				30	Information and Cyber Security Risk
11	Capital Management				31	Select Geographic Exposures
12	Eligible Dividends Designation			33	Interim Consolidated Financial Statements
13	Review of Operating Groups’ Performance				33	Consolidated Statement of Income
	13	Personal and Commercial Banking (P&C)			34	Consolidated Statement of Comprehensive Income
		14	Canadian Personal and Commercial Banking (Canadian P&C)		35	Consolidated Balance Sheet
		15	U.S. Personal and Commercial Banking (U.S. P&C)		36	Consolidated Statement of Changes in Equity
	17	Wealth Management			37	Consolidated Statement of Cash Flows
	19	BMO Capital Markets			38	Notes to Consolidated Financial Statements
	20	Corporate Services, Including Technology and Operations		56	Other Investor and Media Information
21	Summary Quarterly Earnings Trends

Bank of Montreal’s management, under the supervision of the CEO and CFO, has evaluated the effectiveness, as of April 30, 2015, 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 April 30, 2015, which materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

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

BMO Financial Group Second Quarter Report 2015 • 3

Summary Data

Table 1


(Canadian $ in millions, except as noted)	Q2-2015			Q1-2015			Q2-2014		YTD-2015			YTD-2014

Summary Income Statement
Net interest income		2,112			2,219			2,063		4,331			4,176
Non-interest revenue (1)		2,414			2,836			2,306		5,250			4,672
Revenue (1)		4,526			5,055			4,369		9,581			8,848
Insurance claims, commissions and changes in policy benefit liabilities (CCPB) (1)		24			747			328		771			685
Revenue, net of CCPB		4,502			4,308			4,041		8,810			8,163
Specific provision for credit losses		161			163			162		324			261
Collective provision for (recovery of) credit losses		-			-			-		-			-
Total provision for credit losses		161			163			162		324			261
Non-interest expense		3,112			3,006			2,594		6,118			5,278
Provision for income taxes		230			139			209		369			487
Net income		999			1,000			1,076		1,999			2,137
Attributable to bank shareholders		993			986			1,062		1,979			2,110
Attributable to non-controlling interest in subsidiaries		6			14			14		20			27
Net income		999			1,000			1,076		1,999			2,137
Adjusted net income		1,146			1,041			1,097		2,187			2,180
Common Share Data ($ except as noted)
Earnings per share		1.49			1.46			1.60		2.95			3.18
Adjusted earnings per share		1.71			1.53			1.63		3.24			3.24
Earnings per share growth (%)		(6.9	)		(7.6	)		14.3		(7.2	)		9.3
Adjusted earnings per share growth (%)		4.9			(5.0	)		13.2		-			10.2
Dividends declared per share		0.80			0.80			0.76		1.60			1.52
Book value per share		51.65			52.98			45.94		51.65			45.94
Closing share price		78.82			72.93			75.55		78.82			75.55
Total market value of common shares ($ billions)		50.8			47.2			48.7		50.8			48.7
Dividend yield (%)		4.1			4.4			4.0		4.1			4.0
Financial Measures and Ratios (%)
Return on equity		11.4			11.8			14.3		11.6			14.3
Adjusted return on equity		13.2			12.3			14.6		12.8			14.6
Net income growth		(7.1	)		(5.8	)		11.6		(6.5	)		6.9
Adjusted net income growth		4.6			(3.9	)		11.2		0.4			8.2
Revenue growth (1)		3.6			12.9			3.1		8.3			5.0
Adjusted revenue growth, net of CCPB		11.4			4.5			8.9		7.9			8.5
Non-interest expense growth		19.9			12.0			1.8		15.9			3.1
Adjusted non-interest expense growth		13.4			11.3			7.7		12.4			8.1
Efficiency ratio (1)		68.7			59.5			59.4		63.8			59.7
Adjusted efficiency ratio (1)		64.3			58.4			58.8		61.2			59.0
Adjusted efficiency ratio, net of CCPB		64.7			68.5			63.5		66.6			63.9
Operating leverage (1)		(16.3	)		0.9			1.3		(7.6	)		1.9
Adjusted operating leverage, net of CCPB		(2.0	)		(6.8	)		1.2		(4.5	)		0.4
Net interest margin on average earning assets		1.51			1.55			1.59		1.53			1.61
Effective tax rate		18.8			12.2			16.2		15.6			18.5
Adjusted effective tax rate		19.8			12.6			16.5		16.6			18.7
Return on average assets		0.62			0.60			0.73		0.61			0.72
Provision for credit losses-to-average loans and acceptances (annualized)		0.20			0.21			0.22		0.21			0.18
Balance Sheet (as at $ millions, except as noted)
Assets		633,275			672,410			582,045		633,275			582,045
Net loans and acceptances		315,856			317,630			294,704		315,856			294,704
Deposits		424,231			429,778			394,007		424,231			394,007
Common shareholders’ equity		33,276			34,192			29,639		33,276			29,639
Cash and securities-to-total assets ratio (%)		30.0			30.1			32.1		30.0			32.1
Capital Ratios (%)
Common Equity Tier 1 Ratio		10.2			10.1			9.7		10.2			9.7
Tier 1 Capital Ratio		11.4			11.4			11.1		11.4			11.1
Total Capital Ratio		13.5			13.4			13.0		13.5			13.0
Foreign Exchange Rates
As at Cdn./U.S. dollar		1.2064			1.2711			1.0960		1.2064			1.0960
Average Cdn./U.S. dollar		1.2412			1.1923			1.1029		1.2163			1.0913

(1)

Commencing in Q1-2015, insurance claims, commissions and changes in policy benefit liabilities (CCPB) are reported separately. They were previously reported as a reduction in insurance revenue in non-interest revenue. Prior period amounts and ratios have been reclassified.

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

4 • BMO Financial Group Second Quarter Report 2015

Non-GAAP Measures

Results and measures in this MD&A are presented on a GAAP basis. Unless otherwise indicated, all amounts are in Canadian dollars and have been derived from financial statements prepared in accordance with International Financial Reporting Standards (IFRS). References to GAAP mean IFRS. They are also presented on an adjusted basis that excludes the impact of certain items as set out in Table 2 below. 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.

Non-GAAP Measures

Table 2


(Canadian $ in millions, except as noted)	Q2-2015		Q1-2015			Q2-2014			YTD-2015			YTD-2014

Reported Results
Revenue (1)		4,526		5,055			4,369			9,581			8,848
Insurance claims, commissions and changes in policy benefit liabilities (CCPB) (1)		(24)		(747	)		(328	)		(771	)		(685	)
Revenue, net of CCPB		4,502		4,308			4,041			8,810			8,163
Provision for credit losses		(161)		(163	)		(162	)		(324	)		(261	)
Non-interest expense		(3,112)		(3,006	)		(2,594	)		(6,118	)		(5,278	)
Income before income taxes		1,229		1,139			1,285			2,368			2,624
Provision for income taxes		(230)		(139	)		(209	)		(369	)		(487	)
Net Income		999		1,000			1,076			1,999			2,137
EPS ($)		1.49		1.46			1.60			2.95			3.18
Adjusting Items (Pre-tax)
Amortization of acquisition-related intangible assets (2)		(40)		(40	)		(28	)		(80	)		(59	)
Acquisition integration costs (3)		(11)		(13	)		-			(24	)		-
Restructuring costs (4)		(149)		-			-			(149	)		-
Adjusting items included in reported pre-tax income		(200)		(53	)		(28	)		(253	)		(59	)
Adjusting Items (After tax)
Amortization of acquisition-related intangible assets (2)		(31)		(31	)		(21	)		(62	)		(43	)
Acquisition integration costs (3)		(10)		(10	)		-			(20	)		-
Restructuring costs (4)		(106)		-			-			(106	)		-
Adjusting items included in reported net income after tax		(147)		(41	)		(21	)		(188	)		(43	)
Impact on EPS ($)		(0.22)		(0.07	)		(0.03	)		(0.29	)		(0.06	)
Adjusted Results
Revenue (1)		4,526		5,055			4,369			9,581			8,848
Insurance claims, commissions and changes in policy benefit liabilities (CCPB) (1)		(24)		(747	)		(328	)		(771	)		(685	)
Revenue, net of CCPB		4,502		4,308			4,041			8,810			8,163
Provision for credit losses		(161)		(163	)		(162	)		(324	)		(261	)
Non-interest expense		(2,912)		(2,953	)		(2,566	)		(5,865	)		(5,219	)
Income before income taxes		1,429		1,192			1,313			2,621			2,683
Provision for income taxes		(283)		(151	)		(216	)		(434	)		(503	)
Net income		1,146		1,041			1,097			2,187			2,180
EPS ($)		1.71		1.53			1.63			3.24			3.24

Adjusted results and measures in this table are non-GAAP amounts or non-GAAP measures.

(1)	Commencing in Q1-2015, insurance claims, commissions and changes in policy benefit liabilities (CCPB) are reported separately. They were previously reported as a reduction in insurance revenue in non-interest revenue. Prior period amounts and ratios have been reclassified.

(2)	These expenses were charged to the non-interest expense of the operating groups. Before and after-tax amounts for each operating group are provided on pages 13, 14, 15, 17 and 19.

(3)	Acquisition integration costs related to F&C are charged to Wealth Management and are recorded in non-interest expense.

(4)	Primarily due to restructuring to drive operational efficiencies. Also includes the settlement of a legacy legal matter from an acquired entity.

BMO Financial Group Second Quarter Report 2015 • 5

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 2015 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, tax 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 and risks could adversely affect our results. For more information, please see the Enterprise-Wide Risk Management section on pages 77 to 105 of BMO’s 2014 Annual MD&A, which outlines in detail certain key factors and risks 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 and risks, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Bank of Montreal does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by the organization or on its behalf, except as required by law. The forward-looking information contained in this document is presented for the purpose of assisting our shareholders in understanding our financial position as at and for the periods ended on the dates presented, as well as our strategic priorities and objectives, and may not be appropriate for other purposes.

Assumptions about the performance of the Canadian and U.S. economies, as well as overall market conditions and their combined effect on our business, are material factors we consider when determining our strategic priorities, objectives and expectations for our business. In determining our expectations for economic growth, both broadly and in the financial services sector, we primarily consider historical economic data provided by the Canadian and U.S. governments and their agencies. See the Economic Review and Outlook section of our Second Quarter 2015 Report to Shareholders.

Economic Review and Outlook

After picking up last year, the Canadian economy weakened in early 2015 due to a sharp reduction in energy investment. However, a weaker currency, stronger U.S. demand and recovering oil prices should encourage an upturn in growth in the remainder of the year. Exports should continue to lead activity, despite a lacklustre global expansion. While China’s economy will likely slow further this year, the Eurozone economy is improving despite Greece’s ongoing debt problems. Canadian consumer spending remains moderately strong, with motor vehicle sales at record highs, and will be supported by low interest rates and cheaper gasoline this year. Home sales have weakened in the oil-producing provinces, but remain strong in Vancouver and Toronto. Housing market activity is expected to stabilize in most regions, consistent with moderate growth in residential mortgages. Business spending is weak because of the downturn in the energy industry, contributing to slower business loan growth. GDP growth is expected to moderate from 2.5% in 2014 to approximately 1.7% in 2015, before improving to 2.2% in 2016 on firmer oil prices. While the oil-producing provinces of Alberta, Newfoundland and Labrador, and Saskatchewan will likely weaken this year, the other provinces are expected to strengthen in response to firmer exports. After reducing policy rates earlier this year, the Bank of Canada is expected to hold interest rates steady as the economy recovers. The Canadian dollar should weaken modestly in response to higher U.S. interest rates, but it is expected to strengthen next year as oil prices recover. Job growth has slowed, but should improve later this year, returning the unemployment rate to a downward course.

The U.S. economy also had a challenging start to the year owing to severe weather in some heavily-populated regions, shipping disruptions along the West Coast, and the rising value of the U.S. dollar. Oil companies also slashed drilling activity. Nonetheless, the economic fundamentals remain supportive, and activity is expected to rebound strongly this year. Improved household finances, and low interest rates and gasoline prices, will encourage spending and consumer loan growth. Record low mortgage rates and easier credit conditions will support home sales and a pickup in demand for residential mortgages. Despite rising home prices, housing affordability remains healthy. Although a weaker energy sector will slow investment, business loan growth should remain solid due to low borrowing costs. For the first time in five years, fiscal policy is expected to support growth, with many states increasing spending and reducing taxes, and with the federal budget balance now on a more sustainable course. The largest headwind for the economy is the strong U.S. dollar, which has risen about 12% on a trade-weighted basis in the past year. GDP growth is expected to improve from 2.4% in 2014 to approximately 2.5% in 2015 and 2.6% in 2016. With the unemployment rate headed below 5%, the Federal Reserve will likely begin raising policy rates in the fall, for the first time in nine years.

The U.S. Midwest region, which includes the six contiguous states in BMO’s U.S. footprint, is expected to grow 2.1% in 2015 and 2.4% in 2016 in response to increased automotive production, recovering housing markets and generally expansionary fiscal policies.

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

6 • BMO Financial Group Second Quarter Report 2015

Other Value Measures

BMO’s average annual total shareholder returns for the one-year, three-year and five-year periods ending April 30, 2015, were 8.5%, 15.2% and 9.3%, respectively.

Foreign Exchange

The Canadian dollar equivalents of BMO’s U.S. segment net income, revenues, expenses, recovery of (provision for) credit losses and income taxes that are denominated in U.S. dollars were increased relative to the first quarter of 2015 and the second quarter of 2014, due to the strengthening 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 the first quarter of 2015 and increased by 13% from a year ago. Table 3 indicates the relevant average Canadian/U.S. dollar exchange rates and the impact of changes in the rates on our U.S. segment results. The average rate for the year to date increased by 11% from a year ago.

Economically, our U.S. dollar income stream was largely unhedged to changes in foreign exchange rates during the quarter. We have hedged a portion of forecasted next 12-month BMO Capital Markets U.S. dollar net income. These hedges are subject to mark-to-market accounting which resulted in a $5 million after tax gain in the second quarter, which was recorded in our BMO Capital Markets business.

We regularly determine whether to execute hedging transactions to mitigate the impact of foreign exchange rate movements on net income.

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 Adjusted Results			Table 3


	Q2-2015					YTD-2015

(Canadian $ in millions, except as noted)		vs Q2-2014		vs Q1-2015			vs YTD-2014

Canadian/U.S. dollar exchange rate (average)
Current period		1.2412		1.2412			1.2163
Prior period		1.1029		1.1923			1.0913

Effects on U.S. segment reported results
Increased net interest income		82		29			156
Increased non-interest revenue		72		26			125
Increased revenues		154		55			281
Increased recovery of (provision for) credit losses		2		1			(3	)
Increased expenses		(123	)	(44	)		(225	)
Increased income taxes		(7	)	(3	)		(9	)
Increased reported net income before impact of hedges		26		9			44
Hedging gains (losses) in current period, after tax		5		5			(10	)
Increased reported net income		31		14			34
Effects on U.S. segment adjusted results
Increased net interest income		82		29			156
Increased non-interest revenue		72		26			125
Increased revenues		154		55			281
Increased provision for credit losses		(2	)	(1	)		(5	)
Increased expenses		(115	)	(41	)		(214	)
Increased income taxes		(7	)	(2	)		(11	)
Increased adjusted net income before impact of hedges		30		11			51
Hedging gains (losses) in current period, after tax		5		5			(10	)
Increased adjusted net income		35		16			41

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

Net Income

Q2 2015 vs Q2 2014

Adjusted results and items excluded in determining adjusted results are disclosed in detail in the preceding Non-GAAP Measures section, together with comments on the uses and limitations of such measures.

Canadian P&C results increased due to higher balances across most products and increased non-interest revenue in our personal business, partially offset by higher expenses and provisions for credit losses. Wealth Management had strong results in traditional wealth with growth of 23%, including good organic growth as well as growth from the acquired F&C business. Insurance net income increased due to the impact of favourable movements in long-term interest rates relative to the prior year and benefits from changes in our investment portfolio to improve asset-liability management. BMO Capital Markets results were good, but down slightly as higher revenue was offset by the impact of a less favourable tax rate. U.S. P&C adjusted net income was up on a U.S. dollar basis due to lower provisions for credit losses. Corporate Services results were lower primarily due to lower revenue from the purchased loan portfolio.

BMO Financial Group Second Quarter Report 2015 • 7

Q2 2015 vs Q1 2015

Net income decreased $1 million and adjusted net income increased $105 million or 10%. EPS increased $0.03 or 2% and adjusted EPS increased $0.18 or 12%.

Net income declined in Canadian P&C primarily due to three fewer days in the current quarter. Adjusted net income increased 9% in traditional wealth and there was strong net income in insurance. BMO Capital Markets results improved 34% driven by significantly higher revenues from Trading Products. U.S. P&C adjusted net income increased primarily driven by lower provisions for credit losses, partly offset by the impact of three fewer days in the current quarter. Corporate Services results were lower primarily due to lower revenue, partially offset by lower expenses.

Q2 YTD 2015 vs Q2 YTD 2014

Net income decreased $138 million or 6% to $1,999 million. EPS was $2.95, down $0.23 or 7% from a year ago. Adjusted net income was $2,187 million, up $7 million from a year ago. Adjusted EPS was $3.24, unchanged from a year ago. On an adjusted basis, there was growth in Wealth Management and the P&C businesses and a decline in BMO Capital Markets. Adjusted net income in 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 (1)

Q2 2015 vs Q2 2014

Total revenue of $4,526 million increased $157 million or 4% from the second quarter a year ago. On a basis that nets insurance claims, commissions and policy benefit liabilities (CCPB) against insurance revenue (net revenue), revenue increased $461 million or 11%, including a 3% impact of the stronger U.S. dollar. Canadian P&C revenue increased due to higher balances across most products and increased non-interest revenue in our personal business. Wealth Management had strong growth on a net revenue basis, with traditional wealth revenue up 29% due to the benefit from the acquired F&C business and higher fee-based revenue from strong growth in client assets. Reported insurance revenue declined $240 million from a year ago, primarily due to the change in fair value of insurance investments resulting from the increase in interest rates in the quarter. The decrease in insurance revenue was more than offset by a $304 million decrease in CCPB. Net insurance revenue increased due to the impact of favourable movements in long-term interest rates relative to a year ago and benefits from changes in our investment portfolio to improve asset-liability management. BMO Capital Markets revenue increased as there was improved client activity in Trading Products, while Investment and Corporate Banking revenue was consistent. U.S. P&C revenue decreased modestly on a U.S. dollar basis as higher loan and deposit volume growth and mortgage banking revenue was more than offset by lower net interest margin and other fee revenue. Corporate Services revenue was lower primarily due to lower revenue on the purchased loan portfolio, partially offset by a lower group teb adjustment.

Net interest income of $2,112 million increased $49 million or 2% from a year ago, due to the impact of the stronger U.S. dollar and volume growth, partially offset by lower net interest margin and lower revenue from the purchased performing loan portfolio. BMO’s overall net interest margin decreased by 8 basis points to 1.51%. Average earning assets increased $41.4 billion or 8% to $572.0 billion, including a $27.4 billion increase as a result of the stronger U.S. dollar.

Non-interest revenue increased $412 million or 21% on a net revenue basis to $2,390 million primarily due to higher mutual fund revenues and investment management and custodial fees, partially due to the acquisition of F&C, as well as higher trading business and insurance revenue.

Q2 2015 vs. Q1 2015

Total revenue decreased $529 million or 10% from the first quarter. On a net revenue basis, revenue increased $194 million or 4%, including a 1% impact of the stronger U.S. dollar. Canadian P&C revenue declined due to the impact of three fewer days partially offset by higher net interest margin. Traditional wealth revenue increased despite fewer days, reflecting higher fee-based revenue from growth in client assets. Insurance revenue increased, on a net basis, primarily due to the factors mentioned above. BMO Capital Markets had revenue growth of 10% driven by higher revenues from Trading Products and the impact of a negative credit and funding valuation adjustment in the prior quarter. Investment and Corporate Banking revenue was unchanged from the prior quarter. U.S. P&C revenue decreased on a U.S. dollar basis as the benefits from higher mortgage banking revenue were more than offset by the impact of fewer days. Corporate Services revenue was lower primarily due to lower treasury-related revenue and lower revenue on the purchased loan portfolio, offset by a lower group teb adjustment.

Net interest income decreased $107 million or 5%, due to the impact of three fewer days in the current quarter, lower net interest margin and lower revenue from the purchased performing loan portfolio, partially offset by the impact of the stronger U.S. dollar. BMO’s overall net interest margin decreased 4 basis points from the first quarter. BMO’s overall net interest margin (excluding trading) decreased 6 basis points from the first quarter primarily due to lower corporate net interest income, excluding the impact of the group teb adjustment. Average earning assets increased $4.7 billion or 1% from the first quarter, including a $9.7 billion increase as a result of the stronger U.S. dollar.

Non-interest revenue increased $301 million or 14% from the first quarter on a net revenue basis primarily due to higher trading business and insurance revenue.

8 • BMO Financial Group Second Quarter Report 2015

Q2 YTD 2015 vs Q2 YTD 2014

Year-to-date total revenue increased $733 million or 8% to $9,581 million. On a net revenue basis, revenue increased $647 million or 8%, including a 4% impact of the stronger U.S. dollar.

Net interest income increased $155 million or 4% to $4,331 million, due to volume growth and the impact of the stronger U.S. dollar, partially offset by lower net interest margin and lower revenue from the purchased performing loan portfolio. BMO’s overall net interest margin declined by 8 basis points to 1.53%. Average earning assets increased by $46.5 billion or 9% to $569.6 billion, of which $25.0 billion was due to the stronger U.S. dollar.

Non-interest revenue increased $492 million or 12% year to date to $4,479 million, on a net revenue basis, primarily due to higher mutual fund revenues and investment management and custodial fees, partially due to the acquisition of F&C.

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

(1)

Commencing in Q1-2015, insurance claims, commissions and changes in policy benefit liabilities are reported separately. They were previously reported as a reduction in insurance revenue in non-interest revenue. Prior period amounts and ratios have been reclassified. Insurance can experience volatility arising from fluctuations in the fair value of insurance assets. The investments which support actuarial liabilities are predominantly fixed income assets recorded at fair value with changes in the fair values recorded in insurance revenue in the Consolidated Statement of Income. These fair value changes are more than offset by changes in the fair value of policy benefit liabilities, the impact of which is reflected in insurance claims, commissions and changes in policy benefit liabilities.

Net Interest Margin on Average Earning Assets (teb)*

Table 4


(In basis points)	Q2-2015		Q1-2015		Q2-2014		YTD-2015		YTD-2014
Canadian P&C		261		258		259		259		261
U.S. P&C		346		345		366		346		370
Personal and Commercial Banking		286		284		288		285		290
Wealth Management		260		278		264		269		268
BMO Capital Markets		48		65		59		57		54
Corporate Services, including T&O**		nm		nm		nm		nm		nm
Total BMO net interest margin		151		155		159		153		161
Total BMO net interest margin (excluding trading)		185		191		196		188		199
Total Canadian Retail***		256		255		251		255		253

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.

**	Corporate Services adjusted net interest income is negative in all periods and its variability affects changes in net interest margin (nm - not meaningful).

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

Provisions for Credit Losses

Q2 2015 vs Q2 2014

The total provision for credit losses (PCL) was $161 million, consistent with the prior year. There was no net change to the collective allowance in the quarter.

Canadian P&C provisions increased by $12 million to $143 million due to higher provisions in both the commercial and consumer portfolios. U.S. P&C provisions of $18 million decreased by $34 million mainly due to lower commercial provisions. BMO Capital Markets provisions of $5 million increased by $9 million reflecting higher provisions compared with net recoveries in the prior year. Corporate Services recoveries of $6 million decreased by $13 million, due to lower reimbursements on FDIC covered loans.

Q2 2015 vs. Q1 2015

Total PCL was consistent with the prior quarter. Canadian P&C provisions increased by $11 million mainly due to higher provisions in the consumer portfolio. U.S. P&C provisions decreased by $22 million due to lower commercial and consumer provisions. BMO Capital Markets provisions were $4 million lower than the prior quarter. Corporate Services recoveries decreased by $14 million due to lower reimbursements on FDIC covered loans.

Provision for Credit Losses by Operating Group

Table 5


(Canadian $ in millions)	Q2-2015			Q1-2015			Q2-2014			YTD-2015			YTD-2014
Canadian P&C		143			132			131			275			270
U.S. P&C		18			40			52			58			73
Personal and Commercial Banking		161			172			183			333			343
Wealth Management		1			2			2			3			1
BMO Capital Markets		5			9			(4	)		14			(5	)
Corporate Services, including T&O (1)		(6	)		(20	)		(19	)		(26	)		(78	)
Provision for credit losses		161			163			162			324			261

(1)	Corporate Services results include purchased credit impaired loan recoveries of $26 million in Q2-2015 ($16 million after tax); $29 million in Q1-2015 ($18 million after tax); and $45 million in Q2-2014 ($28 million after tax).


Changes to Provision for Credit Losses			Table 6


(Canadian $ in millions, except as noted)	Q2-2015			Q1-2015			Q2-2014			YTD-2015			YTD-2014
New specific provisions		318			307			348			625			706
Reversals of previously established allowances		(62	)		(42	)		(47	)		(104	)		(95	)
Recoveries of loans previously written-off		(95	)		(102	)		(139	)		(197	)		(350	)
Provision for credit losses		161			163			162			324			261
PCL as a % of average net loans and acceptances (annualized)		0.20			0.21			0.22			0.21			0.18

BMO Financial Group Second Quarter Report 2015 • 9

Impaired Loans

Total gross impaired loans (GIL) were $2,047 million at the end of the current quarter, down from $2,195 million in the first quarter of 2015 and $2,325 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 $454 million, up from $424 million in the first quarter of 2015 and down from $509 million a year ago.


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


(Canadian $ in millions, except as noted)	Q2-2015			Q1-2015			Q2-2014			YTD-2015			YTD-2014

GIL, beginning of period		2,195			2,048			2,482			2,048			2,544
Classified as impaired during the period		454			424			509			878			1,151
Transferred to not impaired during the period		(153	)		(115	)		(244	)		(268	)		(398	)
Net repayments		(177	)		(143	)		(185	)		(320	)		(631	)
Amounts written-off		(178	)		(173	)		(149	)		(351	)		(352	)
Recoveries of loans and advances previously written-off		-			-			-			-			-
Disposals of loans		(22	)		(13	)		(63	)		(35	)		(65	)
Foreign exchange and other movements		(72	)		167			(25	)		95			76
GIL, end of period		2,047			2,195			2,325			2,047			2,325
GIL as a % of gross loans and acceptances		0.65			0.69			0.79			0.65			0.79

(1)	GIL excludes purchased credit impaired loans.

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

Insurance Claims, Commissions and Changes in Policy Benefit Liabilities

Insurance claims, commissions and changes in policy benefit liabilities were $24 million, down $304 million from the second quarter a year ago and down $723 million from the prior quarter, mainly due to the decline in the fair value of investments backing our policy benefit liabilities due to higher long-term interest rates. The decline from both periods was largely offset in revenue.

Non-Interest Expense

Non-interest expense increased $518 million or 20% from the second quarter a year ago to $3,112 million including a $149 million charge taken in the quarter primarily due to restructuring to drive operational efficiencies. Adjusted non-interest expense increased $346 million or 13% to $2,912 million. Excluding the impact of the stronger U.S. dollar, adjusted non-interest expense increased by $231 million or 9%, due to the impact of the F&C acquisition which increased expenses by 4%, and higher employee-related expenses and increased technology and support costs related to a changing business and regulatory environment.

Reported non-interest expense increased by $106 million or 3% relative to the first quarter, and adjusted non-interest expense decreased by $41 million or 1%. Excluding the impact of the stronger U.S. dollar, adjusted non-interest expense decreased by $82 million or 3%, due to $87 million of stock-based compensation for employees eligible to retire that is expensed in the first quarter of each year and the impact of three fewer days in the current quarter, partially offset by investments to support business growth.

Adjusted operating leverage was negative 0.4% year over year and positive 5.6% quarter over quarter on a basis that nets insurance claims, commissions and changes in policy benefit liabilities with insurance revenue and excludes both the impact of the stronger U.S. dollar and the F&C acquisition.

The adjusted efficiency ratio was 64.3% in the second quarter of 2015 compared to 58.8% in the second quarter of 2014. 320 basis points of the increase is due to the decline in insurance revenue.

Non-interest expense for the year to date increased $840 million or 16% to $6,118 million. Adjusted non-interest expense increased $646 million or 12% to $5,865 million. Excluding the impact of the stronger U.S. dollar, adjusted non-interest expense increased $432 million or 8%, due to the impact of the F&C acquisition which increased expenses by 4%, and higher employee-related expenses and increased technology and support costs related to a changing business and regulatory environment.

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 $230 million increased $21 million from the second quarter of 2014 and $91 million from the first quarter of 2015. The effective tax rate for the quarter was 18.8%, compared with 16.2% a year ago and 12.2% in the first quarter of 2015.

The adjusted provision for income taxes of $283 million increased $67 million from a year ago and $132 million from the first quarter of 2015. The adjusted effective tax rate was 19.8% in the current quarter, compared with 16.5% a year ago and 12.6% in the first quarter of 2015. The higher adjusted tax rate in the current quarter relative to the second quarter of 2014 and the first quarter of 2015 was primarily due to lower tax-exempt income. On a teb basis, the adjusted effective tax rate for the quarter was 25.0%, compared with 24.4% a year ago and 24.7% in the first quarter of 2015.

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

10 • BMO Financial Group Second Quarter Report 2015

Capital Management

Second Quarter 2015 Regulatory Capital Review

BMO’s Basel III Common Equity Tier 1 (CET1) Ratio was 10.2 % at April 30, 2015.

The CET1 Ratio increased by approximately 10 basis points from 10.1% at the end of the first quarter due to lower risk-weighted assets (RWA), partially offset by a decrease in CET1 Capital. The CET1 Ratio increased by approximately 10 basis points from October 31, 2014, mainly due to higher CET1 Capital. The impact of foreign exchange movements on the CET1 Ratio was largely hedged, as outlined below.

CET1 Capital at April 30, 2015, was $23.6 billion, down $0.3 billion from January 31, 2015, mainly due to the impact of the weaker U.S. dollar on accumulated other comprehensive income (AOCI) and share repurchases during the quarter, partially offset by higher retained earnings. CET1 Capital was up $1.2 billion from October 31, 2014, mainly due to higher AOCI from a stronger U.S. dollar and higher retained earnings, partially offset by share repurchases.

RWA was $231 billion at April 30, 2015, down from $238 billion at January 31, 2015, largely due to foreign exchange movement and methodology changes, partially offset by business growth. RWA was up $9 billion from October 31, 2014, largely due to foreign exchange movement and business growth, partially offset by methodology changes.

The bank’s Tier 1 and Total Capital Ratios were 11.4 % and 13.5 %, respectively, at April 30, 2015, compared with 11.4% and 13.4%, respectively, at January 31, 2015. These ratios are consistent with January 31, 2015, primarily due to the same factors that impacted the CET1 Ratio, described above, partially offset by the redemption of preferred shares. The Tier 1 and Total Capital Ratios were 12.0% and 14.3%, respectively, at October 31, 2014. These ratios are lower than October 31, 2014, mainly due to the redemption of capital trust securities and preferred shares.

BMO’s Basel III Leverage Ratio was 3.8% at April 30, 2015, unchanged from January 31, 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. Any such activities could also impact our book value and return on equity.

Pages 64 to 69 and pages 95 to 100 of BMO’s 2014 Annual Report provide disclosure on Enterprise-Wide Capital Management and Liquidity and Funding Risk, including regulatory requirements impacting capital and liquidity.

Regulatory Developments

In August 2014, Finance Canada issued its consultative paper on a Canadian bank resolution framework that would apply to Canadian domestic systemically important banks (D-SIBs). The paper proposes to permit the conversion of all or a portion of eligible long-term senior debt into common shares of a bank in resolution at the discretion of regulators, and introduces a Higher Loss Absorbency (HLA) requirement of 17% to 23% of RWA to be met through the combination of regulatory capital and eligible long-term debt. In its budget on April 21, 2015, the government provided further details on the Canadian bail-in regime, stating that it would apply to unsecured, tradable, transferable senior debt with an original term to maturity of greater than or equal to 400 days and that all securities subject to bail-in would be convertible into common shares. The government did not provide further detail on the planned timing for implementation of the regime, or on the period of time for banks to transition to meet the new HLA ratio target.

In an effort to increase the comparability of capital requirements and to ensure minimum levels of capital across the banking system, the Basel Committee on Banking Supervision (BCBS) is considering various alternatives and possible capital rule changes. The December 2014 consultative paper proposing changes to the standardized approach for credit risk, as well as the fundamental review of the trading book are examples of such BCBS initiatives. Also during December, the BCBS issued a consultative paper proposing to replace the current Basel I transitional capital floor with capital floors based on the Basel II and Basel III standardized approaches. If such changes were implemented, they could have the effect of increasing the capital that we are required to hold.

As a bank holding company with total consolidated assets of US$50 billion or more, our U.S. subsidiary BMO Financial Corp. (BFC) was subject to the 2015 Comprehensive Capital Analysis and Review (CCAR) rules and processes, under which BFC participated in the annual stress testing and capital planning exercise conducted by the Board of Governors of the Federal Reserve System (FRB). In late March 2015, BFC received FRB’s decision to not object, on either a quantitative or a qualitative basis, to the capital plan submitted in January 2015.

Other Capital Developments

During the quarter, we purchased 3 million common shares under the bank’s normal course issuer bid (NCIB), for a total of 6 million shares year to date. The timing and amount of purchases under the program are subject to management discretion based on factors such as market conditions and capital adequacy. The bank will regularly consult with the Office of the Superintendent of Financial Institutions of Canada (OSFI) before making purchases under the bid.

During the quarter, 232,598 common shares were issued through the exercise of stock options.

On April 22, 2015, we redeemed all of our outstanding $500 million Subordinated Debentures, Series C Medium-Term Notes Second Tranche, at a redemption price of 100 per cent of the principal amount plus unpaid accrued interest to the redemption date.

On April 23, 2015, we announced our intention to redeem all of our Non-cumulative Perpetual Class B Preferred Shares Series 13 on May 25, 2015, at a redemption price of $25.25 per share plus all declared and unpaid dividends up to but excluding the date fixed for redemption.

On May 27, 2015, BMO announced that the Board of Directors had declared a quarterly dividend payable to common shareholders of $0.82 per common share, an increase of $0.02 per share or 2% from the preceding quarter and up $0.04 per share or 5% from a year ago.

BMO Financial Group Second Quarter Report 2015 • 11

The dividend is payable on August 26, 2015, to shareholders of record on August 3, 2015. 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.


Qualifying Regulatory Capital and Risk-Weighted Assets (All-in (1))			Table 8


(Canadian $ in millions)	Q2-2015			Q1-2015			Q4-2014
Gross Common Equity (2)		33,276			34,277			31,273
Regulatory adjustments applied to Common Equity		(9,636	)		(10,335	)		(8,852	)
Common Equity Tier 1 Capital (CET1)		23,640			23,942			22,421
Additional Tier 1 Eligible Capital (3)		3,197			3,546			4,539
Regulatory adjustments applied to Tier 1		(358	)		(358	)		(358	)
Additional Tier 1 Capital (AT1)		2,839			3,188			4,181
Tier 1 Capital (T1 = CET1 + AT1)		26,479			27,130			26,602
Tier 2 Eligible Capital (4)		4,892			4,842			5,375
Regulatory adjustments applied to Tier 2		(50	)		(50	)		(50	)
Tier 2 Capital (T2)		4,842			4,792			5,325
Total Capital (TC = T1 + T2)		31,321			31,922			31,927

Risk-weighted assets (5)
CET1 Capital risk-weighted assets		231,243			237,529			222,092
Tier 1 Capital risk-weighted assets		231,584			237,940			222,428
Total Capital risk-weighted assets		231,876			238,292			222,931

Capital Ratios (%)
CET1 Ratio		10.2			10.1			10.1
Tier 1 Capital Ratio		11.4			11.4			12.0
Total Capital Ratio		13.5			13.4			14.3

(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)	Gross Common Equity includes issued qualifying common shares, retained earnings, accumulated other comprehensive income and eligible common share capital issued by subsidiaries.

(3)	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.

(4)	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.

(5)

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 are 64%, 71% and 77% respectively, for Q2-2015 and Q1-2015 (57%, 65% and 77% respectively for Q4-2014) resulting in different RWA measures for each of the three tiers of regulatory capital.


Outstanding Shares and Securities Convertible into Common Shares Table 9


As at May 20, 2015	Number of shares or dollar amount (in millions)
Common shares		644

Class B Preferred shares
Series 13 (1)		$350
Series 14		$250
Series 15		$250
Series 16		$157
Series 17		$143
Series 25		$290
Series 27		$500
Series 29		$400
Series 31		$300

Medium-Term Notes
Series H (2)		$1,000

Stock options
– vested		7.6
– non-vested		5.3

(1)	The Series 13 Preferred Shares were redeemed on May 25, 2015.

(2)	Details on the Series H Medium-Term Notes, Tranche 1 are outlined in Note 17 to the audited consolidated financial statements on page 158 of BMO’s 2014 Annual Report.

Details on share capital are outlined in Note 11 to the unaudited interim consolidated financial statements and Note 20 to the audited annual consolidated financial statements on page 161 of BMO’s 2014 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.

12 • BMO Financial Group Second Quarter Report 2015

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 second quarter of 2015.

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. Restructuring costs are also included in Corporate Services.

Commencing in the first quarter of 2015, insurance claims, commissions and changes in policy benefit liabilities (CCPB) are reported separately. They were previously reported as a reduction in insurance revenue in non-interest revenue. Prior period amounts and ratios have been reclassified.

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 second quarter of 2015 totalled $100 million, down from $190 million in the first quarter of 2015 and $138 million in the second quarter of 2014.


Personal and Commercial Banking (P&C)		Table 10


(Canadian $ in millions, except as noted)	Q2-2015			Q1-2015			Q2-2014		YTD-2015			YTD-2014
Net interest income (teb)		1,878			1,898			1,764		3,776			3,565
Non-interest revenue		605			589			560		1,194			1,110
Total revenue (teb)		2,483			2,487			2,324		4,970			4,675
Provision for credit losses		161			172			183		333			343
Non-interest expense		1,391			1,395			1,280		2,786			2,593
Income before income taxes		931			920			861		1,851			1,739
Provision for income taxes (teb)		239			226			224		465			450
Reported net income		692			694			637		1,386			1,289
Amortization of acquisition-related intangible assets (1)		14			14			14		28			28
Adjusted net income		706			708			651		1,414			1,317
Net income growth (%)		8.6			6.5			11.0		7.5			7.2
Adjusted net income growth (%)		8.4			6.3			10.6		7.4			6.8
Revenue growth (%)		6.8			5.8			5.7		6.3			5.1
Non-interest expense growth (%)		8.6			6.2			4.6		7.4			5.5
Adjusted non-interest expense growth (%)		8.8			6.5			4.9		7.6			5.7
Return on equity (%)		15.6			15.7			16.2		15.6			16.3
Adjusted return on equity (%)		15.9			16.0			16.6		16.0			16.7
Operating leverage (%) (teb)		(1.8	)		(0.4	)		1.1		(1.1	)		(0.4	)
Adjusted operating leverage (%) (teb)		(2.0	)		(0.7	)		0.8		(1.3	)		(0.6	)
Efficiency ratio (%) (teb)		56.0			56.1			55.1		56.1			55.5
Adjusted efficiency ratio (%) (teb)		55.3			55.4			54.3		55.3			54.6
Net interest margin on average earning assets (%) (teb)		2.86			2.84			2.88		2.85			2.90
Average earning assets		268,950			265,408			250,881		267,150			247,895
Average current loans and acceptances		265,165			261,126			247,387		263,112			244,742
Average deposits		207,511			204,818			188,266		206,142			187,311

(1)	Before tax amounts of: $18 million in Q2-2015, Q1-2015 and Q2-2014; $36 million for YTD-2015; and $38 million for YTD-2014 are included in non-interest expense.

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.

BMO Financial Group Second Quarter Report 2015 • 13


Canadian Personal and Commercial Banking (Canadian P&C)			Table 11


(Canadian $ in millions, except as noted)	Q2-2015		Q1-2015		Q2-2014	YTD-2015		YTD-2014
Net interest income	1,194		1,217		1,152	2,411		2,348
Non-interest revenue	411		411		386	822		768
Total revenue	1,605		1,628		1,538	3,233		3,116
Provision for credit losses	143		132		131	275		270
Non-interest expense	813		835		765	1,648		1,555
Income before income taxes	649		661		642	1,310		1,291
Provision for income taxes	163		159		162	322		326
Reported net income	486		502		480	988		965
Amortization of acquisition-related intangible assets (1)	1		1		1	2		2
Adjusted net income	487		503		481	990		967
Personal revenue	1,071		1,078		1,021	2,149		2,069
Commercial revenue	534		550		517	1,084		1,047
Net income growth (%)	1.3		3.6		13.8	2.5		11.1
Revenue growth (%)	4.4		3.1		5.8	3.8		6.2
Non-interest expense growth (%)	6.2		5.6		2.7	5.9		3.2
Operating leverage (%)	(1.8	)	(2.5	)	3.1	(2.1	)	3.0
Efficiency ratio (%)	50.6		51.3		49.8	51.0		49.9
Net interest margin on average earning assets (%)	2.61		2.58		2.59	2.59		2.61
Average earning assets	187,778		187,185		182,323	187,477		181,474
Average current loans and acceptances	192,510		191,744		186,631	192,120		185,796
Average deposits	131,213		131,441		122,942	131,329		122,698

(1)	Before tax amounts of: $1 million in Q2-2015, Q1-2015 and Q2-2014; and $2 million for YTD-2015 and YTD-2014 are included in non-interest expense.

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

Q2 2015 vs Q2 2014

Canadian P&C net income of $486 million increased $6 million or 1% from a year ago. Revenue increased $67 million or 4% from the prior year due to higher balances across most products and increased non-interest revenue in our personal business. Net interest margin was 2.61%, up 2 basis points driven mainly by improved loan spreads.

In our personal banking business, revenue increased $50 million due to the impact of higher balances and volumes and higher loan spreads.

In our commercial banking business, revenue increased $17 million mainly due to the impact of higher balances across most products.

Provisions for credit losses increased $12 million or 9% due to higher provisions in both the commercial and consumer portfolios. Non-interest expense increased $48 million or 6% reflecting investments to support business growth, as well as higher costs associated with a changing business and regulatory environment.

Average current loans and acceptances increased $5.9 billion or 3% from a year ago. Total personal loan balances (excluding retail cards) increased 2% and commercial loan balances (excluding corporate cards) grew 6%. Deposits increased $8.3 billion or 7% from the prior year. Personal deposit balances increased 6% mainly due to growth in term deposits and chequing accounts, while commercial deposit balances grew 8%.

Q2 2015 vs Q1 2015

Net income declined by $16 million from the prior quarter primarily due to three fewer days in the quarter. Revenue declined by $23 million or 1% as the impact of fewer days was partially offset by higher net interest margin. Net interest margin improved by 3 basis points mainly as a result of improved loan spreads.

Personal revenue declined $7 million mainly due to fewer days, partially offset by higher loan spreads. Commercial revenue decreased $16 million mainly due to fewer days.

Provisions for credit losses increased $11 million from the prior quarter mainly due to higher provisions in the consumer portfolio. Non-interest expense decreased $22 million or 3% reflecting the impact of fewer days and stock-based compensation for employees eligible to retire that is expensed in the first quarter of each year.

Average current loans and acceptances increased $0.8 billion compared to the prior quarter while deposits decreased $0.2 billion as a result of seasonal declines in our commercial business.

Q2 YTD 2015 vs Q2 YTD 2014

Net income increased $23 million or 2% year to date. Revenue increased $117 million or 4% due to higher balances and volumes across most products.

Provisions for credit losses increased $5 million as higher provisions in the consumer portfolio were partially offset by lower provisions in the commercial portfolio. Non-interest expense increased $93 million or 6% mainly due to investments to support business growth and higher costs associated with a changing business and regulatory environment.

Average current loans and acceptances increased $6.3 billion or 3%, while deposits increased $8.6 billion or 7%.

14 • BMO Financial Group Second Quarter Report 2015


U.S. Personal and Commercial Banking (U.S. P&C)			Table 12


(US$ in millions, except as noted)	Q2-2015		Q1-2015		Q2-2014		YTD-2015		YTD-2014
Net interest income (teb)	551		571		556		1,122		1,115
Non-interest revenue	156		149		158		305		313
Total revenue (teb)	707		720		714		1,427		1,428
Provision for credit losses	14		33		48		47		68
Non-interest expense	466		470		467		936		950
Income before income taxes	227		217		199		444		410
Provision for income taxes (teb)	61		56		57		117		114
Reported net income	166		161		142		327		296
Amortization of acquisition-related intangible assets (1)	10		11		12		21		24
Adjusted net income	176		172		154		348		320
Net income growth (%)	16.5		4.5		(4.8	)	10.3		(10.8)
Adjusted net income growth (%)	14.4		3.3		(5.5	)	8.7		(11.2)
Revenue growth (%)	(0.8	)	0.8		(2.6	)	-		(5.0)
Non-interest expense growth (%)	(0.2	)	(2.8	)	(0.5	)	(1.5	)	0.5
Adjusted non-interest expense growth (%)	0.4		(2.1	)	0.2		(0.9	)	1.4
Operating leverage (%) (teb)	(0.6	)	3.6		(2.1	)	1.5		(5.5)
Adjusted operating leverage (%) (teb)	(1.2	)	2.9		(2.8	)	0.9		(6.4)
Efficiency ratio (%) (teb)	65.9		65.2		65.5		65.5		66.6
Adjusted efficiency ratio (%) (teb)	63.9		63.2		63.2		63.6		64.2
Net interest margin on average earning assets (%) (teb)	3.46		3.45		3.66		3.46		3.70
Average earning assets	65,403		65,606		62,164		65,506		60,845
Average current loans and acceptances	58,540		58,185		55,089		58,360		53,999
Average deposits	61,474		61,548		59,232		61,512		59,212
(Canadian $ equivalent in millions)
Net interest income (teb)	684		681		612		1,365		1,217
Non-interest revenue	194		178		174		372		342
Total revenue (teb)	878		859		786		1,737		1,559
Provision for credit losses	18		40		52		58		73
Non-interest expense	578		560		515		1,138		1,038
Income before income taxes	282		259		219		541		448
Provision for income taxes (teb)	76		67		62		143		124
Reported net Income	206		192		157		398		324
Adjusted net income	219		205		170		424		350
Average earning assets	81,172		78,223		68,558		79,673		66,421
Average current loans and acceptances	72,655		69,382		60,756		70,992		58,946
Average deposits	76,298		73,377		65,324		74,813		64,613

(1)	Before tax amounts of: $14 million in Q2-2015 and Q1-2015; $16 million in Q2-2014; $28 million for YTD-2015; and $34 million for YTD-2014 are included in non-interest expense.

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

Q2 2015 vs Q2 2014

Net income of $206 million increased $49 million or 31%. Adjusted net income of $219 million increased $49 million or 29%. All amounts in the remainder of this section are on a U.S. dollar basis.

Net income of $166 million increased $24 million or 16% from a year ago. Adjusted net income of $176 million increased $22 million or 14%, driven by lower provisions for credit losses.

Revenue of $707 million modestly decreased $7 million or 1% from the prior year as higher loan and deposit volume growth and mortgage banking revenue was more than offset by lower net interest margin and other fee revenue. Net interest margin decreased by 20 basis points to 3.46%, 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 $14 million, down $34 million mainly due to lower commercial provisions. Non-interest expense of $466 million and adjusted non-interest expense of $452 million were relatively unchanged due to disciplined expense management.

Average current loans and acceptances increased $3.5 billion or 6% from the prior year to $58.5 billion. Commercial loan balances grew $4.4 billion or 14% to $35.3 billion, mainly due to core C&I loan growth of $4.5 billion or 17% from a year ago to $30.9 billion. In addition, our indirect auto and commercial real estate loans grew 2% and 11%, respectively.

Average deposits of $61.5 billion increased $2.2 billion or 4% from the prior year. Continued deposit growth in our commercial deposits and personal chequing volume was partially offset by declines in higher-cost time deposit balances.

Q2 2015 vs Q1 2015

Net income increased $14 million or 8%, and adjusted net income increased $14 million or 7%. All amounts in the remainder of this section are on a U.S. dollar basis.

Net income increased $5 million or 4%, and adjusted net income increased $4 million or 3% from the prior quarter, primarily driven by lower provisions for credit losses, partly offset by the impact of three fewer days in the current quarter.

Revenue decreased $13 million or 2% from the prior quarter as the benefits from higher mortgage banking revenue were more than offset by fewer days. Net interest margin was relatively stable due to the benefit of a decline in low spread assets, partially offset by a continued decline in loan spreads as a result of competitive pressures.

Provisions for credit losses decreased by $19 million due to lower commercial and consumer provisions. Non-interest expense and adjusted non-interest expense each decreased $4 million mainly due to lower employee-related costs, including the impact of fewer days

BMO Financial Group Second Quarter Report 2015 • 15

and stock-based compensation for employees eligible to retire that is expensed in the first quarter of each year, partly offset by investments to support business growth.

Average current loans and acceptances increased by $0.4 billion or 1% from the prior quarter, due mainly to core C&I loan volume growth. Average deposits remained stable, as growth in personal chequing volumes was offset by declines in commercial deposits.

Q2 YTD 2015 vs Q2 YTD 2014

Net income increased $74 million or 23%, and adjusted net income increased $74 million or 21%. All amounts in the remainder of this section are on a U.S. dollar basis.

Net income increased $31 million or 10% and adjusted net income increased $28 million or 9%, primarily driven by lower provisions for credit losses and lower expenses, as revenue remained stable.

Revenue of $1,427 million was consistent with the prior year due to strong commercial loan growth and higher mortgage banking revenue, offset by a decline in net interest margin and lower other fee revenue. Net interest margin decreased by 24 basis points to 3.46%, largely driven by competitive loan pricing, changes in mix including loans growing faster than deposits and a low-rate environment.

Provisions for credit losses of $47 million decreased $21 million due to lower commercial provisions. Non-interest expense of $936 million decreased $14 million or 2%. Adjusted non-interest expense of $908 million decreased $8 million or 1%, due to disciplined expense management.

Average current loans and acceptances of $58.4 billion increased $4.4 billion or 8% from the prior year, while deposits of $61.5 billion increased $2.3 billion or 4%.

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

16 • BMO Financial Group Second Quarter Report 2015


Wealth Management		Table 13


(Canadian $ in millions, except as noted)	Q2-2015		Q1-2015		Q2-2014	YTD-2015		YTD-2014
Net interest income	150		160		135	310		275
Non-interest revenue (1)	1,038		1,622		1,072	2,660		2,155
Total revenue (1)	1,188		1,782		1,207	2,970		2,430
Insurance claims, commissions and changes in policy benefit liabilities (CCPB) (1)	24		747		328	771		685
Revenue, net of CCPB	1,164		1,035		879	2,199		1,745
Provision for credit losses	1		2		2	3		1
Non-interest expense	836		828		631	1,664		1,276
Income before income taxes	327		205		246	532		468
Provision for income taxes	89		46		54	135		102
Reported net income	238		159		192	397		366
Acquisition integration costs (2)	10		10		-	20		-
Amortization of acquisition-related intangible assets (3)	17		17		6	34		14
Adjusted net income	265		186		198	451		380
Net income growth (%)	24.0		(8.7	)	38.3	8.5		21.7
Adjusted net income growth (%)	33.9		2.3		35.9	18.8		21.0
Revenue growth (%) (1)	(1.5	)	45.6		9.0	22.2		19.1
Revenue growth, net of CCPB	32.5		19.3		15.1	26.0		13.2
Non-interest expense growth (%)	32.6		28.3		7.2	30.4		10.0
Adjusted non-interest expense growth (%)	29.1		24.9		7.4	27.0		10.0
Return on equity (%)	17.0		11.5		23.7	14.3		22.1
Adjusted return on equity (%)	19.0		13.4		24.4	16.2		23.0
Operating leverage (%) (1)	(34.1	)	17.3		1.8	(8.2	)	9.1
Adjusted operating leverage, net of CCPB (%)	3.4		(5.6	)	7.7	(1.0	)	3.2
Efficiency ratio (%) (1)	70.4		46.5		52.3	56.0		52.5
Adjusted efficiency ratio, net of CCPB (%)	69.0		76.7		70.8	72.6		72.0
Net interest margin on average earning assets (%)	2.60		2.78		2.64	2.69		2.68
Average earning assets	23,596		22,780		20,876	23,181		20,651
Average current loans and acceptances	14,151		13,805		12,804	13,976		12,680
Average deposits	27,308		26,595		24,755	26,946		24,987
U.S. Select Financial Data (US$ in millions)
Total revenue	185		185		176	370		354
Non-interest expense	163		169		148	332		305
Reported net income	15		12		19	27		36
Adjusted net income	20		17		24	37		46
Average earning assets	3,196		3,186		2,970	3,191		2,952
Average current loans and acceptances	2,901		2,829		2,592	2,864		2,559
Average deposits	6,110		6,296		5,666	6,205		5,766

(1)	Commencing in Q1-2015, insurance claims, commissions and changes in policy benefit liabilities (CCPB) are reported separately. They were previously reported as a reduction in insurance revenue in non-interest revenue. Prior period amounts and ratios have been reclassified.

(2)	Acquisition integration costs related to F&C of $11 million in Q2-2015; $13 million in Q1-2015; and $24 million for YTD-2015 are included in non-interest expense.

(3)	Before tax amounts of: $22 million in each Q2-2015 and Q1-2015; $9 million in Q2-2014; $44 million for YTD-2015; and $19 million for YTD-2014 are included in non-interest expense.

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

Q2 2015 vs Q2 2014

Net income of $238 million increased $46 million or 24% from a year ago. Adjusted net income of $265 million increased $67 million or 34% from a year ago. Adjusted net income in traditional wealth of $169 million increased $32 million or 23% with good organic growth as well as growth from the acquired F&C business. Adjusted net income in insurance was $96 million, up $35 million from a year ago primarily due the impact of favourable movements in long-term interest rates relative to a year ago and benefits from changes in our investment portfolio to improve asset-liability management.

Revenue was $1,188 million compared to $1,207 million a year ago. Wealth Management revenue growth was 33% on a basis that nets insurance claims, commissions and changes in policy benefit liabilities (CCPB) with insurance revenue. Revenue in traditional wealth of $998 million, increased $221 million or 29% due to the benefit from the acquired F&C business and higher fee-based revenue from strong growth in client assets. Insurance revenue, net of CCPB was $166 million, up $64 million or 63% due to the factors mentioned above. The stronger U.S. dollar increased revenue by $25 million.

Non-interest expense was $836 million, up $205 million or 33% from a year ago. Adjusted non-interest expense was $803 million, up $181 million or 29% mainly due to the impact of the F&C acquisition, higher revenue-based costs, the impact of the stronger U.S. dollar and higher costs associated with a changing business and regulatory environment. The stronger U.S. dollar increased adjusted expenses by $22 million.

BMO Financial Group Second Quarter Report 2015 • 17

Q2 2015 vs Q1 2015

Net income of $238 million increased $79 million from the prior quarter. Adjusted net income of $265 million increased $79 million or 43% from the prior quarter. Adjusted net income in traditional wealth increased $14 million or 9% due to good organic growth. Adjusted net income in insurance increased $65 million due to favourable movements in long-term interest rates relative to the prior quarter.

Wealth Management revenue increased 12% on a basis that nets CCPB with insurance revenue. Revenue in traditional wealth increased $32 million or 3% despite three fewer days in the current quarter, reflecting higher fee-based revenue from growth in client assets. Insurance revenue, net of CCPB, increased $97 million or 141% primarily due to the interest rate impact discussed above. The stronger U.S. dollar increased revenue by $9 million.

Non-interest expense increased $8 million from the prior quarter. Adjusted non-interest expense increased $10 million. Excluding the impact of the stronger U.S. dollar, adjusted non-interest expense increased $2 million, as higher revenue-based and other costs in the current quarter were mostly offset by the impact of stock-based compensation for employees eligible to retire that is expensed in the first quarter of each year and fewer days.

Assets under management and administration decreased by $19 billion due to unfavourable foreign exchange movements offset in part by market appreciation.

Q2 YTD 2015 vs Q2 YTD 2014

Net income was $397 million, up $31 million or 8% from a year ago. Adjusted net income was $451 million, up $71 million or 19%. Adjusted net income in traditional wealth was $324 million, up $65 million or 25% due to good organic growth as well as growth from the acquired F&C business. Adjusted net income in insurance was $127 million up $6 million or 5%.

Revenue was $2,199 million, up $454 million or 26% on a basis that nets CCPB with insurance revenue. Revenue in traditional wealth was $1,964 million, up $419 million or 27% due to the benefit from the acquired F&C business and higher fee-based revenue from strong growth in client assets. Insurance revenue, net of CCPB, was $235 million, up $35 million or 17% due to the factors mentioned above. The stronger U.S. dollar increased revenue by $46 million.

Non-interest expense was $1,664 million, an increase of $388 million or 30%. Adjusted non-interest expense of $1,596 million, increased $339 million or 27% mainly due to the impact of the F&C acquisition, higher revenue-based costs, higher costs associated with a changing business and regulatory environment and the impact of the stronger U.S. dollar. The stronger U.S. dollar increased adjusted expenses by $40 million.

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

18 • BMO Financial Group Second Quarter Report 2015


BMO Capital Markets			Table 14


(Canadian $ in millions, except as noted)	Q2-2015			Q1-2015			Q2-2014			YTD-2015			YTD-2014

Net interest income (teb)		274			388			327			662			587
Non-interest revenue		738			533			624			1,271			1,337
Total revenue (teb)		1,012			921			951			1,933			1,924
Provision for (recovery of) credit losses		5			9			(4	)		14			(5	)
Non-interest expense		617			623			581			1,240			1,189
Income before income taxes		390			289			374			679			740
Provision for income taxes (teb)		94			68			69			162			159
Reported net income		296			221			305			517			581
Amortization of acquisition-related intangible assets (1)		-			-			1			-			1
Adjusted net income		296			221			306			517			582
Trading Products revenue		660			569			599			1,229			1,190
Investment and Corporate Banking revenue		352			352			352			704			734
Net income growth (%)		(2.7	)		(20.1	)		17.4			(11.0	)		4.3
Revenue growth (%)		6.3			(5.2	)		13.8			0.5			11.2
Non-interest expense growth (%)		6.1			2.5			13.5			4.3			14.9
Return on equity (%)		17.9			13.7			20.7			15.8			19.7
Operating leverage (%) (teb)		0.2			(7.7	)		0.3			(3.8	)		(3.7	)
Efficiency ratio (%) (teb)		60.9			67.6			61.0			64.1			61.8
Net interest margin on average earning assets (%) (teb)		0.48			0.65			0.59			0.57			0.54
Average earning assets		235,156			237,186			226,120			236,188			220,935
Average assets		289,891			287,666			264,036			288,760			259,014
Average current loans and acceptances		36,068			34,526			30,367			35,284			29,074
Average deposits		136,372			138,979			137,172			137,697			133,828
U.S. Select Financial Data (US$ in millions)
Total revenue (teb)		297			265			287			562			629
Non-interest expense		221			220			221			441			447
Reported net income		51			29			59			80			145
Average earning assets		74,226			76,161			81,511			75,209			78,019
Average assets		83,504			85,228			90,929			84,380			87,837
Average current loans and acceptances		10,455			10,184			9,540			10,317			9,262
Average deposits		54,394			58,603			60,348			56,533			57,645

(1)	Before tax amounts of: $nil in each of Q2-2015 and Q1-2015; $1 million in Q2-2014; $nil for YTD-2015; and $2 million for YTD-2014 are included in non-interest expense.

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

Q2 2015 vs Q2 2014

Net income of $296 million decreased $9 million or 3% from a year ago as higher revenue was offset by the impact of a less favourable tax rate. Return on equity of 17.9% was down from 20.7% in the prior year, largely due to higher allocated capital.

Revenue increased $61 million or 6% from the prior year. There was improved client activity in Trading Products, while Investment and Corporate Banking revenue was consistent with the prior year. The stronger U.S. dollar increased revenue by $43 million or 4%.

Provisions for credit losses increased $9 million reflecting higher provisions compared with net recoveries in the prior year. Non-interest expense increased $36 million or 6% from the prior year. Excluding the impact of the stronger U.S. dollar, non-interest expense increased $6 million or 1%.

Q2 2015 vs Q1 2015

Net income increased $75 million or 34% from the prior quarter driven by significantly higher revenues from Trading Products and lower employee-related expenses.

Revenue increased $91 million or 10% driven by higher revenues from Trading Products and the impact of a negative credit and funding valuation adjustment in the prior quarter. Investment and Corporate Banking revenue was unchanged from the prior quarter. The stronger U.S. dollar increased revenue by $43 million or 5%.

Provisions for credit losses were $4 million lower than the prior quarter. Non-interest expense decreased $6 million or 1%. Excluding the impact of the stronger U.S. dollar, non-interest expense decreased $17 million or 3% primarily due to stock-based compensation for employees eligible to retire which is expensed in the first quarter of each year.

Q2 YTD 2015 vs Q2 YTD 2014

Net income of $517 million decreased $64 million or 11% from the prior year due to lower source currency revenue and higher provisions for credit losses.

Revenue increased $9 million. Revenues from Trading Products increased, partially offset by a negative credit and funding valuation adjustment in the first quarter. Revenue decreased in our Investment and Corporate Banking business due to lower net securities gains and lower investment banking client activity, which more than offset higher corporate banking revenue. The stronger U.S. dollar increased revenue by $62 million or 3%.

Provisions for credit losses were $19 million higher due to higher provisions compared with net recoveries in the prior year. Non-interest expense increased $51 million or 4% due to the impact of the stronger U.S. dollar.

BMO Financial Group Second Quarter Report 2015 • 19


Corporate Services, Including Technology and Operations			Table 15


(Canadian $ in millions, except as noted)	Q2-2015			Q1-2015			Q2-2014			YTD-2015			YTD-2014
Net interest income before group teb offset		(90	)		(37	)		(25	)		(127	)		(28	)
Group teb offset		(100	)		(190	)		(138	)		(290	)		(223	)
Net interest income (teb)		(190	)		(227	)		(163	)		(417	)		(251	)
Non-interest revenue		33			92			50			125			70
Total revenue (teb)		(157	)		(135	)		(113	)		(292	)		(181	)
Recovery of credit losses		(6	)		(20	)		(19	)		(26	)		(78	)
Non-interest expense		268			160			102			428			220
Loss before income taxes		(419	)		(275	)		(196	)		(694	)		(323	)
Recovery of income taxes (teb)		(192	)		(201	)		(138	)		(393	)		(224	)
Reported net loss		(227	)		(74	)		(58	)		(301	)		(99	)
Restructuring costs (1)		106			-			-			106			-
Adjusted net loss		(121	)		(74	)		(58	)		(195	)		(99	)

Corporate Services Provision for (Recovery of) Credit Losses
Impaired real estate loans		18			5			(3	)		23			11
Interest on impaired loans		5			4			8			9			18
Purchased credit impaired loans		(26	)		(29	)		(45	)		(55	)		(162	)
Purchased performing loans		(3	)		-			21			(3	)		55
Recovery of credit losses, reported basis		(6	)		(20	)		(19	)		(26	)		(78	)
Average loans and acceptances		261			300			487			281			525
Period-end loans and acceptances		206			256			399			206			399

U.S. Select Financial Data (US$ in millions)
Total revenue (teb)		(75	)		(43	)		(18	)		(118	)		(41	)
Recovery of credit losses		(33	)		(1	)		(23	)		(34	)		(71	)
Non-interest expense		43			46			50			89			62
Recovery of income taxes (teb)		(44	)		(46	)		(27	)		(90	)		(30	)
Reported net loss		(41	)		(42	)		(18	)		(83	)		(2	)
Adjusted total revenue (teb)		(75	)		(43	)		(18	)		(118	)		(41	)
Adjusted recovery of credit losses		(4	)		(18	)		(18	)		(22	)		(75	)
Adjusted non-interest expense		2			46			50			48			62
Adjusted net loss		(33	)		(31	)		(21	)		(64	)		-

(1)	Primarily due to restructuring to drive operational efficiencies. Also includes the settlement of a legacy legal matter from an acquired entity. Before tax amount of $149 million included in non-interest expense.

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 providing these Corporate Unit 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.

Financial Performance Review

Q2 2015 vs Q2 2014

Corporate Services reported net loss for the second quarter of 2015 was $227 million, compared with a reported net loss of $58 million a year ago. The current quarter included a $106 million charge primarily due to restructuring to drive operational efficiencies. The charge also includes the settlement of a legacy legal matter from an acquired entity. Corporate Services adjusted net loss for the second quarter of 2015 was $121 million, compared with an adjusted net loss of $58 million a year ago. Excluding the impact of the group teb adjustment on revenue and taxes, results were lower due to lower revenue on the purchased performing portfolio, lower recoveries on purchased credit impaired loans and higher regulatory and employee expenses.

Q2 2015 vs Q1 2015

Corporate Services adjusted net loss for the second quarter of 2015 was $121 million, compared with an adjusted net loss of $74 million in the first quarter of 2015. Results were lower primarily due to lower treasury-related revenue and lower revenue on the purchased performing portfolio, partially offset by lower expenses, excluding the impact of the group teb adjustment.

Q2 YTD 2015 vs Q2 YTD 2014

Corporate Services adjusted net loss for the year to date was $195 million, compared with an adjusted net loss of $99 million a year ago. Results were lower primarily due to lower revenues, higher regulatory expenses and lower recoveries on the purchased credit impaired loan portfolio, excluding the impact of the group teb adjustment

20 • BMO Financial Group Second Quarter Report 2015


Summary Quarterly Earnings Trends			Table 16


(Canadian $ in millions, except as noted)	Q2-2015			Q1-2015			Q4-2014			Q3-2014			Q2-2014			Q1-2014			Q4-2013			Q3-2013
Total revenue (1)		4,526			5,055			4,640			4,735			4,369			4,479			4,319			4,088
Insurance claims, commissions and changes in policy benefit liabilities (CCPB) (1)		24			747			300			520			328			357			181			88
Revenue, net of CCPB		4,502			4,308			4,340			4,215			4,041			4,122			4,138			4,000
Provision for credit losses – specific (see below)		161			163			170			130			162			99			189			56
Provision for credit losses – collective		-			-			-			-			-			-			-			20
Non-interest expense		3,112			3,006			2,887			2,756			2,594			2,684			2,580			2,526
Income before income taxes		1,229			1,139			1,283			1,329			1,285			1,339			1,369			1,398
Provision for income taxes		230			139			213			203			209			278			295			275
Reported net income (see below)		999			1,000			1,070			1,126			1,076			1,061			1,074			1,123
Adjusted net income (see below)		1,146			1,041			1,111			1,162			1,097			1,083			1,088			1,122
Basic earnings per share ($)		1.49			1.47			1.57			1.68			1.61			1.58			1.60			1.67
Diluted earnings per share ($)		1.49			1.46			1.56			1.67			1.60			1.58			1.60			1.66
Adjusted diluted earnings per share ($)		1.71			1.53			1.63			1.73			1.63			1.61			1.62			1.66
Net interest margin on average earning assets (%)		1.51			1.55			1.60			1.58			1.59			1.62			1.69			1.78
Adjusted net interest margin on average earning assets (%)		1.51			1.55			1.60			1.58			1.59			1.62			1.60			1.65
Effective income tax rate (%)		18.8			12.2			16.6			15.3			16.2			20.8			21.6			19.7
Adjusted effective income tax rate (%)		19.8			12.6			16.8			15.6			16.5			20.9			21.5			19.2
Canadian/U.S. dollar exchange rate (average)		1.24			1.19			1.11			1.08			1.10			1.08			1.04			1.04

Provision for credit losses – specific
Canadian P&C		143			132			129			129			131			139			164			122
U.S. P&C		18			40			47			57			52			21			98			43
Personal and Commercial Banking		161			172			176			186			183			160			262			165
Wealth Management		1			2			(1	)		(3	)		2			(1	)		1			(1	)
BMO Capital Markets		5			9			(7	)		(6	)		(4	)		(1	)		(17	)		2
Corporate Services, including T&O		(6	)		(20	)		2			(47	)		(19	)		(59	)		(57	)		(110	)
BMO Financial Group provision for credit losses – specific		161			163			170			130			162			99			189			56

Operating group reported net income:
Canadian P&C		486			502			526			525			480			485			458			486
U.S. P&C		206			192			169			161			157			167			104			152
Personal and Commercial Banking		692			694			695			686			637			652			562			638
Wealth Management		238			159			225			189			192			174			310			216
BMO Capital Markets		296			221			191			305			305			276			216			267
Corporate Services, including T&O		(227	)		(74	)		(41	)		(54	)		(58	)		(41	)		(14	)		2
BMO Financial Group net income		999			1,000			1,070			1,126			1,076			1,061			1,074			1,123

Operating group adjusted net income:
Canadian P&C		487			503			527			526			481			486			460			488
U.S. P&C		219			205			182			174			170			180			117			165
Personal and Commercial Banking		706			708			709			700			651			666			577			653
Wealth Management		265			186			252			211			198			182			317			223
BMO Capital Markets		296			221			191			305			306			276			217			268
Corporate Services, including T&O		(121	)		(74	)		(41	)		(54	)		(58	)		(41	)		(23	)		(22	)
BMO Financial Group adjusted net income		1,146			1,041			1,111			1,162			1,097			1,083			1,088			1,122

(1)	Commencing in Q1-2015, insurance claims, commissions and changes in policy benefit liabilities are reported separately. They were previously reported as a reduction in insurance revenue in non-interest revenue. Prior period amounts and ratios have been reclassified.

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

BMO’s quarterly earnings trends were reviewed in detail on pages 58 and 59 of BMO’s 2014 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 16 outlines summary results for the third quarter of fiscal 2013 through the second quarter of fiscal 2015. The table reflects changes in IFRS that are outlined in Note 1 to the unaudited interim consolidated financial statements and Note 1 to the audited annual consolidated financial statements on page 128 of BMO’s 2014 Annual Report.

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.

Canadian P&C

Canadian P&C net income continues to grow, driven by revenue growth that has exceeded 4% in five of the last six quarters. Over that period, revenue growth has been driven by higher balances and volumes, with relatively stable net interest margins. Deposit growth has been strong, while loan growth has slowed in recent quarters. Expenses have grown as a result of investments to support business growth, as well as higher costs associated with a changing business and regulatory environment. Provisions for credit losses have remained relatively low and consistent over the past eight quarters.

U.S. P&C

Results have been improving since the second quarter of 2014 due to improved revenue growth, primarily driven by strong commercial loan growth and net interest margin has generally declined primarily due to lower loan spreads as a result of competitive pricing and

BMO Financial Group Second Quarter Report 2015 • 21

changes in mix. Provisions for credit losses have remained relatively consistent over that time with a decline in the second quarter of 2015 due to higher recoveries.

Wealth Management

Wealth Management operating results grew significantly in 2014. Traditional wealth operating results have benefited from the acquired F&C business in the second half of 2014 and the first half of 2015, as well as good organic growth in client assets. Excluding a large security gain in the fourth quarter of 2013, traditional wealth recorded double-digit revenue growth for the past eight quarters. The fourth quarter of 2014 includes costs related to the settlement of a legal matter.

Quarterly results in the insurance businesses have been subject to variability, resulting primarily from changes in long-term interest rates and methodology and actuarial assumptions changes.

BMO Capital Markets

BMO Capital Markets delivered good performance in the first three quarters of 2014, leveraging our consistent and diversified strategy, and benefiting from favourable market conditions. In the fourth quarter of 2014 and the first quarter of 2015, we experienced slower activity and were unfavourably affected by credit and funding valuation adjustments. The current quarter reflects improvement to revenue performance, particularly in our Trading Products business.

Provisions for Credit Losses

BMO’s PCL measured as a percentage of loans and acceptances has been declining since 2012 with some quarter-to-quarter variability.

Corporate Services

Adjusted quarterly net income can vary from quarter to quarter but has generally decreased since the second quarter of 2013 due to reduced benefits from purchased loan portfolios.

Foreign Exchange

Fluctuations in exchange rates in 2013 were subdued. The U.S. dollar strengthened significantly in 2014, with the exception of a slight weakening in the third quarter of 2014 and continued to strengthen in the first quarter of 2015 followed by weakening in the second quarter. A stronger U.S. dollar increases the translated value of U.S.-dollar-denominated revenues, expenses, provisions for (recoveries of) credit losses, income taxes and net income.

Provision for Income Taxes

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, the level of tax exempt income 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 $633.3 billion at April 30, 2015, increased $44.6 billion from October 31, 2014, including a $17.4 billion increase as a result of a stronger U.S. dollar excluding the impact on derivative financial assets. Derivative financial assets increased $7.2 billion and derivative financial liabilities increased $10.6 billion, primarily due to the increase in the fair value of interest rate and foreign exchange contracts resulting from the decline in interest rates and the strengthening U.S. dollar, respectively, in the first half of the year.

The following discussion excludes changes due to the stronger U.S. dollar. Cash and cash equivalents and interest bearing deposits with banks increased $9.3 billion primarily due to increased balances held with central banks. Securities borrowed or purchased under resale agreements increased $8.6 billion driven by increased client activity. Net loans and acceptances increased $5.9 billion primarily due to loans to businesses and governments in the operating groups. Securities decreased by $4.2 billion primarily due to lower trading securities.

Liabilities increased $43.6 billion from October 31, 2014, including a $17.1 billion increase as a result of the stronger U.S. dollar excluding the impact on derivative financial liabilities, and an increase in derivative financial liabilities of $10.6 billion as discussed above.

The following discussion excludes changes due to the stronger U.S. dollar. Deposits increased $16.7 billion driven by a $9.3 billion increase in deposits by banks and a $5.4 billion increase in business and government deposits reflecting higher levels of wholesale and customer deposits and a $1.9 billion increase in deposits by individuals.

Total equity increased $1.0 billion from October 31, 2014. Total shareholders’ equity increased $1.6 billion, partly offset by a decrease in non-controlling interest in subsidiaries of $0.6 billion. Total shareholders’ equity increased primarily due to the increase in accumulated other comprehensive income. Accumulated other comprehensive income on translation of net foreign operations increased $1.3 billion net of hedging impacts primarily due to the strengthening U.S. dollar, and accumulated other comprehensive income on cash flow hedges increased $0.3 billion primarily due to the decline in interest rates. Retained earnings increased by $528 million.

Contractual obligations by year of maturity are outlined in Note 17 to the unaudited interim consolidated financial statements.

22 • BMO Financial Group Second Quarter Report 2015

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, 2014, as described in Note 29 to the audited consolidated financial statements on page 177 of BMO’s 2014 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 70 and 71 of BMO’s 2014 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. There have been no changes of substance during the quarter ended April 30, 2015.

Accounting Policies and Critical Accounting Estimates

Significant accounting policies are described in our 2014 Annual MD&A and in the notes to our audited consolidated financial statements for the year ended October 31, 2014, 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 on Pages 71 to 73 and 129 to 130 in BMO’s 2014 Annual Report.

Effective November 1, 2014, 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.

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 January 31, 2015, and in Note 1 to the audited annual consolidated financial statements on pages 131 and 132 of BMO’s 2014 Annual Report.

We expect to adopt IFRS 9 Financial Instruments (IFRS 9) effective November 1, 2017. IFRS 9 addresses classification and measurement, impairment and hedge accounting. We are currently assessing the impact of this new standard on our future financial results.

Select Financial Instruments

Pages 69 and 70 of BMO’s 2014 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 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 2014 Annual Report.

Other Regulatory Developments

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.

Volcker Rule. The Volcker Rule, which prohibits banking entities active in the U.S. and their affiliates from certain proprietary trading and specified relationships with hedge funds and private equity funds, was finalized in December 2013. In December 2014, the U.S. regulators extended until July 21, 2016, the time that banking entities have to conform their investments in and relationships with private investment funds in place before December 31, 2013. They also indicated that during the course of 2015 they would issue a further such conformance extension to July 21, 2017. The extensions would permit additional time to either divest or conform investments in or relationships with these legacy funds. These extensions do not change the timing for implementation of an enterprise Volcker compliance framework. In respect of our investments in and relationships with certain non-U.S. investment funds in place after December 31, 2013, we are continuing discussions with regulators and others in the industry to clarify how the Volcker Rule applies to those funds.

FBO Rule. 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. On December 29, 2014, we submitted to the Federal Reserve Board an outline of our implementation plan for meeting these requirements by the effective date (July 1, 2016). BMO is preparing for the impact of the FBO Rule on its operations.

For a more comprehensive discussion of regulatory developments, see the Enterprise-Wide Capital management section starting on page 64, the Liquidity and Funding Risk section starting on page 95, and the Legal and Regulatory Risk section starting on page 102 of BMO’s 2014 Annual Report.

BMO Financial Group Second Quarter Report 2015 • 23

Federal Budget Proposal. The 2015 Federal budget proposed tax rules for synthetic equity arrangements that, in certain circumstances, would deny any deduction for dividends that are paid or become payable after October 31, 2015. If enacted, these changes would have the potential to increase our effective tax rate for 2016 and subsequent taxation years.

Caution

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

24 • BMO Financial Group Second Quarter Report 2015

Risk Management

Our risk management practices and key measures have not changed significantly from those outlined on pages 77 to 105 of BMO’s 2014 Annual Report.

Market Risk

Linkages between Balance Sheet Items and Market Risk Disclosures

Table 17 below presents items reported in our Consolidated Balance Sheet that are subject to market risk, comprised of balances that are subject to traded risk and non-traded risk measurement techniques.


Linkages Between Balance Sheet Items and Market Risk Disclosures		Table 17


	As at April 30, 2015								As at October 31, 2014

			Subject to market risk								Subject to market risk

(Canadian $ in millions)	Consolidated Balance Sheet		Traded risk (1)		Non-traded risk (2)		Not subject to market risk		Consolidated Balance Sheet		Traded risk (1)		Non-traded risk (2)		Not subject to market risk		Main risk factors for non-traded risk balances
Assets Subject to Market Risk
Cash and cash equivalents		40,403		-		40,403		-		28,386		-		28,386		-	Interest rate
Interest bearing deposits with banks		7,256		330		6,926		-		6,110		930		5,180		-	Interest rate
Securities
Trading		82,031		74,531		7,500		-		85,022		78,997		6,025		-	Interest rate, credit spread
Available-for-sale		49,340		-		49,340		-		46,966		-		46,966		-	Interest rate, credit spread
Held-to-maturity		10,015		-		10,015		-		10,344		-		10,344		-	Interest rate
Other		1,060		-		1,060		-		987		-		987		-	Equity
Securities borrowed or purchased under resale agreements		64,576		-		64,576		-		53,555		-		53,555		-	Interest rate
Loans and acceptances (net of allowance for credit losses)		315,856		-		315,856		-		303,038		-		303,038		-	Interest rate, foreign exchange
Derivative instruments		39,831		37,493		2,338		-		32,655		31,627		1,028		-	Interest rate, foreign exchange
Other assets		22,907		-		8,129		14,778		21,596		-		7,787		13,809	Interest rate
Total Assets		633,275		112,354		506,143		14,778		588,659		111,554		463,296		13,809
Liabilities Subject to Market Risk
Deposits		424,231		8,246		415,985		-		393,088		7,639		385,449		-	Interest rate, foreign exchange
Derivative instruments		44,237		41,810		2,427		-		33,657		32,312		1,345		-	Interest rate, foreign exchange
Acceptances		11,453		-		11,453		-		10,878		-		10,878			Interest rate
Securities sold but not yet purchased		25,908		25,908		-		-		27,348		27,348		-		-
Securities lent or sold under repurchase agreements		42,039		-		42,039		-		39,695		-		39,695		-	Interest rate
Other liabilities		44,569		-		44,170		399		43,676		-		43,263		413	Interest rate
Subordinated debt		4,435		-		4,435		-		4,913		-		4,913		-	Interest rate
Total Liabilities		596,872		75,964		520,509		399		553,255		67,299		485,543		413

(1)	Primarily comprised of BMO’s balance sheet items that are subject to the trading and underwriting risk management framework and fair valued through profit or loss.

(2)	Primarily comprised of BMO’s balance sheet items that are subject to the structural balance sheet and insurance risk management framework, or are available-for-sale securities.

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

Total Trading Value at Risk (VaR) decreased over the period mainly due to a reduction in equity exposures. There was a partially offsetting decrease in overall diversification. The available-for-sale (AFS) VaR effectively was unchanged over the period. Total Trading Stressed VaR decreased over the period broadly reflecting changes in Trading VaR over the quarter.

There were no significant changes in our structural market risk management framework during the quarter.

Structural economic value exposure to rising interest rates primarily reflects a lower market value for fixed-rate loans. Structural economic value sensitivity to falling interest rates changed from an exposure to a benefit owing to lower floating rate asset sensitivity and higher interest rates at the end of the second quarter relative to the first quarter. Structural earnings exposure to falling interest rates primarily reflects the risk of fixed- and floating-rate loans repricing at lower rates and the more limited ability to reduce deposit pricing as rates fall. Structural earnings benefit to rising interest rates primarily reflects the benefit of widening deposit spreads as interest rates rise. The earnings benefit to rising interest rates declined owing to lower floating rate asset sensitivity.

BMO’s market risk management practices and key measures are outlined on pages 91 to 95 of BMO’s 2014 Annual Report.

BMO Financial Group Second Quarter Report 2015 • 25


Total Trading Value at Risk (VaR) Summary (1) (2)		Table 18


	For the quarter ended April 30, 2015									As at January 31, 2015			As at October 31, 2014
(Pre-tax Canadian $ equivalent in millions)		Quarter-end		Average		High		Low			Quarter-end			Quarter-end
Commodity VaR		(0.4	)	(0.5	)	(0.6	)	(0.4	)		(0.5	)		(0.5)
Equity VaR		(5.5	)	(7.5	)	(12.4	)	(5.0	)		(12.0	)		(3.2)
Foreign exchange VaR		(0.9	)	(1.1	)	(3.0	)	(0.4	)		(1.0	)		(0.5)
Interest rate VaR		(5.7	)	(7.4	)	(9.3	)	(4.4	)		(5.6	)		(5.8)
Credit VaR		(6.8	)	(6.7	)	(7.4	)	(6.3	)		(6.8	)		(5.5)
Diversification		9.4		10.6		nm		nm			11.3			7.4

Total Trading VaR		(9.9	)	(12.6	)	(16.7	)	(9.0	)		(14.6	)		(8.1)

Total AFS VaR		(10.8	)	(10.6	)	(11.8	)	(9.6	)		(10.6	)		(7.9)

(1)	Total Trading VaR and AFS VaR are subject to the BMO Capital Markets trading management framework.

(2)	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 (1) (2)		Table 19


	For the quarter ended April 30, 2015									As at January 31, 2015			As at October 31, 2014
(Pre-tax Canadian $ equivalent in millions)		Quarter-end		Average		High		Low			Quarter-end			Quarter-end

Commodity SVaR		(0.7	)	(1.0	)	(1.2	)	(0.7	)		(1.0	)		(3.2)
Equity SVaR		(11.7	)	(11.8	)	(15.5	)	(8.0	)		(14.5	)		(14.0)
Foreign exchange SVaR		(1.1	)	(2.1	)	(4.6	)	(1.0	)		(1.6	)		(0.7)
Interest rate SVaR		(11.2	)	(12.6	)	(15.7	)	(10.9	)		(7.9	)		(11.2)
Credit SVaR		(18.9	)	(17.8	)	(20.5	)	(15.5	)		(20.3	)		(13.6)
Diversification		21.1		22.4		nm		nm			20.2			20.6

Total Trading SVaR		(22.5	)	(22.9	)	(27.6	)	(19.4	)		(25.1	)		(22.1)

(1)	Stressed VaR is produced weekly.

(2)	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 (1) (2) (3) (4) (5)		Table 20


	Economic value sensitivity (Pre-tax)									Earnings sensitivity over the next 12 months (After tax)
(Canadian $ equivalent in millions)	April 30, 2015			January 31, 2015			October 31, 2014			April 30, 2015			January 31, 2015			October 31, 2014

100 basis point increase		(853.8	)		(545.9	)		(715.1	)		103.4			116.8			64.7
100 basis point decrease		346.1			(61.5	)		405.2			(25.9	)		(39.1	)		(62.6)

200 basis point increase		(2,142.8	)		(1,614.3	)		(1,579.4	)		110.3			152.6			85.8
200 basis point decrease		96.8			(258.3	)		320.5			(48.8	)		(51.1	)		(68.1)

(1)	We enhanced our approach to quantify the potential impact of changing interest rates on structural earnings and value sensitivities in the first quarter. Positions as at October 31, 2014, have not been restated for the new approach.

(2)

Earnings and value sensitivities to falling interest rates assumes Canadian and U.S. central banks do not decrease overnight interest rates below nil. The scenarios with decreasing interest rates therefore limit the decrease in Canadian and U.S. short-term interest rates to 75 basis points and 25 basis points respectively for shorter-terms. Longer-term interest rates do not decrease below the assumed level of short-term interest rates.

(3)	Certain non-trading AFS holdings are managed under the bank’s trading risk framework. The risk exposure for these holdings is included in the VaR table (Table 19) as Total AFS VaR.

(4)	Losses are in brackets and benefits are presented as positive numbers.

(5)

For BMO’s insurance businesses, a 100 basis point increase in interest rates at April 30, 2015, results in an increase in earnings after tax of $68 million and an increase in before tax economic value of $504 million ($76 million and $572 million, respectively, at January 31, 2015; $71 million and $385 million, respectively, at October 31, 2014). A 100 basis point decrease in interest rates at April 30, 2015, results in a decrease in earnings after tax of $65 million and a decrease in before tax economic value of $562 million ($72 million and $623 million, respectively, at January 31, 2015; $63 million and $414 million, respectively, at October 31, 2014). These impacts are not reflected in the table above.

26 • BMO Financial Group Second Quarter Report 2015

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.

BMO’s liquid assets are primarily held in our trading businesses, as well as in supplemental liquidity pools that are maintained for contingent liquidity risk management 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 21.

In the ordinary course of business, BMO may encumber a portion of cash and security holdings as collateral to support trading activities and participation in clearing and payment systems in Canada and abroad. 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 $189.4 billion at April 30, 2015, compared with $191.2 billion at January 31, 2015. The decrease in unencumbered liquid assets was primarily due to the impact of a lower U.S. dollar. 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 lending assistance program, the 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 22 provides a summary of total encumbered and unencumbered assets.


Liquid Assets		Table 21

As at April 30, 2015

As at January 31, 2015

(Canadian $ in millions)

Carrying value/on

balance sheet
assets (1)

Other cash &
securities
received

Total gross
assets (2)

Encumbered
assets

Net
unencumbered
assets (3)

Net

unencumbered

assets (3)

Cash and cash equivalents

40,403

1,678

38,725

42,321

Deposits with other banks

7,256

6,597

Securities and securities borrowed or purchased under resale agreements

Sovereigns / Central banks / Multilateral development banks

98,670

16,774

115,444

71,571

43,873

44,264

Mortgage-backed securities and collateralized mortgage obligations

18,779

1,066

19,845

3,888

15,957

17,205

Corporate debt

18,161

5,826

23,987

1,531

22,456

24,117

Corporate equity

71,412

15,526

86,938

43,165

43,773

40,745

Total securities and securities borrowed or purchased under resale agreements

207,022

39,192

246,214

120,155

126,059

126,331

NHA mortgage-backed securities (reported as loans at amortized cost) (4)

21,335

4,011

17,324

15,912

Total liquid assets

276,016

39,192

315,208

125,844

189,364

191,161

Other eligible assets at central banks (not included above) (5)

107,569

781

106,788

106,367

Undrawn credit lines granted by central banks

Total liquid assets and other sources

383,585

39,192

422,777

126,625

296,152

297,528

(1)	The carrying values outlined in this table are consistent with the carrying values in BMO’s balance sheet as at April 30, 2015.

(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 that include mortgages owned by BMO as the underlying collateral are classified as loans. Unencumbered NHA mortgage-backed 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 pledging 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 Federal Home Loan Bank (FHLB) advances.

BMO Financial Group Second Quarter Report 2015 • 27


Asset Encumbrance (Canadian $ in millions)		Table 22


	Total gross assets (1)		Encumbered (2)				Net unencumbered
As at April 30, 2015	Total gross assets (1)		Pledged as collateral		Other encumbered		Other unencumbered (3)		Available as collateral (4)

Cash and deposits with other banks		47,659		-		1,678		478		45,503
Securities (5)		267,549		94,477		29,689		8,430		134,953
Loans and acceptances		294,521		40,900		1,615		145,218		106,788
Other assets
Derivative instruments		39,831		-		-		39,831		-
Premises and equipment		2,274		-		-		2,274		-
Goodwill		5,646		-		-		5,646		-
Intangible assets		2,136		-		-		2,136		-
Current tax assets		596		-		-		596		-
Deferred tax assets		3,174		-		-		3,174		-
Other assets		9,081		-		-		9,081		-

Total other assets		62,738		-		-		62,738		-

Total assets		672,467		135,377		32,982		216,864		287,244


	Total gross assets (1)		Encumbered (2)				Net unencumbered
As at January 31, 2015	Total gross assets (1)		Pledged as collateral		Other encumbered		Other unencumbered (3)		Available as collateral (4)

Cash and deposits with other banks		50,759		-		1,841		463		48,455
Securities (5)		279,314		103,207		33,864		8,660		133,583
Loans and acceptances		297,805		41,966		1,552		147,920		106,367
Other assets
Derivative instruments		62,989		-		-		62,989		-
Premises and equipment		2,334		-		-		2,334		-
Goodwill		5,900		-		-		5,900		-
Intangible assets		2,214		-		-		2,214		-
Current tax assets		579		-		-		579		-
Deferred tax assets		3,437		-		-		3,437		-
Other assets		9,110		-		-		9,110		-

Total other assets		86,563		-		-		86,563		-

Total assets		714,441		145,173		37,257		243,606		288,405

(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 that management believes are not readily available to support BMO’s liquidity requirements. These include cash and securities of $8.9 billion as at April 30, 2015, which include securities held in BMO’s insurance subsidiary and 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 for pledging 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).

BMO’s Liquidity Coverage Ratio (LCR) is summarized in Table 23. The average month-end LCR for the quarter ended April 30, 2015 of 136% is calculated as the ratio of the stock of High-Quality Liquid Assets (HQLA) to total net stressed cash outflows over the next 30 calendar days. While banks are required to maintain an LCR greater than 100% in normal conditions, banks are expected to be able to utilize their HQLA in a period of stress which may result in an LCR below 100% during that period. BMO’s HQLA is primarily composed of cash, highly-rated government issued or backed debt, highly-rated covered bonds and non-financial corporate debt and non-financial equities that are part of a major stock index. Net cash flows include outflows from deposits, secured and unsecured wholesale funding, commitments and potential collateral requirements offset by permitted inflows from loans, securities lending activities and other non-HQLA debt maturing over a 30 day horizon. OSFI prescribed weights are applied to cash flows and HQLA to arrive at the weighted values and LCR. The LCR is only one measure of a bank’s liquidity position and does not fully capture all of the bank’s liquid assets or funding alternatives that may be pursued in a period of stress. BMO’s total liquid assets are shown in Table 21.

Additional information on Liquidity and Funding Risk Governance can be found on page 95 of BMO’s 2014 Annual Report.

28 • BMO Financial Group Second Quarter Report 2015


Liquidity Coverage Ratio (Canadian $ in billions)		Table 23


For the quarter ended April 30, 2015	Total unweighted value (average) (1) (2)		Total weighted value (average) (2) (3)

High-Quality Liquid Assets
Total high-quality liquid assets (HQLA)		*		124.9

Cash Outflows
Retail deposits and deposits from small business customers, of which:		173.2		7.8
Stable deposits		118.9		2.4
Less stable deposits		54.3		5.4
Unsecured wholesale funding, of which:		122.8		63.8
Operational deposits (all counterparties) and deposits in networks of cooperative banks		52.7		13.1
Non-operational deposits (all counterparties)		68.6		49.2
Unsecured debt		1.5		1.5
Secured wholesale funding		*		15.7
Additional requirements, of which:		114.3		30.0
Outflows related to derivatives exposures and other collateral requirements		14.0		4.9
Outflows related to loss of funding on debt products		11.7		11.7
Credit and liquidity facilities		88.6		13.4
Other contractual funding obligations		0.7		-
Other contingent funding obligations		276.1		5.1

Total cash outflows		*		122.4

Cash Inflows
Secured lending (e.g. reverse repos)		54.6		17.5
Inflows from fully performing exposures		10.3		8.4
Other cash inflows		4.7		4.7

Total cash inflows		69.6		30.6

			Total Adjusted Value (4)

Total HQLA				124.9
Total net cash outflows				91.8

Liquidity Coverage Ratio (%)				136

*	Not disclosed based on the LCR disclosure standard.

(1)	Unweighted values are calculated at market value (for HQLA) or as outstanding balances maturing or callable within 30 days (for inflows and outflows).

(2)	Average calculated based on month-end values during the quarter.

(3)	Weighted values are calculated after the application of OSFI Liquidity Adequacy Requirements (LAR) Guideline prescribed weights for HQLA and cash inflows and outflows.

(4)	Adjusted values are calculated based on total weighted values after applicable caps as defined by LAR.

Funding Strategy

Our funding philosophy requires that secured and unsecured wholesale funding used to support loans and less liquid assets is longer term (typically maturing in two to ten years) to better match the term to maturity of these assets. Wholesale secured and unsecured funding for liquid trading assets is generally shorter term (maturing in one year or less), is aligned with the liquidity of the assets being funded, and is subject to limits on aggregate maturities that are permitted across different time periods. Supplemental liquidity pools are funded with a mix of wholesale term funding.

BMO maintains a large and stable base of customer deposits that, in combination 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 totalled $250.7 billion at April 30, 2015, down from $254.2 billion at January 31, 2015, primarily due to the impact of a lower U.S. dollar. BMO also receives deposits to facilitate certain trading activities, receives non-marketable deposits from corporate and institutional customers and issues structured notes primarily to retail investors. These deposits totalled $30.6 billion as at April 30, 2015.

Total wholesale funding outstanding, largely consisting of negotiable marketable securities, was $172.4 billion at April 30, 2015, with $39.5 billion sourced as secured funding and $132.9 billion sourced as unsecured funding. Wholesale funding outstanding decreased from $175.7 billion at January 31, 2015, primarily due to the impact of the lower U.S. dollar offset by deposit growth. The mix and maturities of BMO’s wholesale term funding are outlined in Table 24. Additional information on deposit maturities can be found in Note 17 of the unaudited interim consolidated financial statements. BMO maintains a sizeable portfolio of unencumbered liquid assets, totalling $189.4 billion as at April 30, 2015, that can be monetized to meet potential funding requirements, as described on page 27.

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.

BMO Financial Group Second Quarter Report 2015 • 29

Wholesale Funding Maturities (Canadian $ in millions) (1)

Table 24

As at April 30, 2015

Less than

1 month

1 to 3

months

3 to 6

months

6 to 12

months

Subtotal less

than 1 year

1 to 2

years

Over

2 years

Total

Deposits from banks (2)

16,380

4,762

959

22,113

Certificates of deposit and commercial paper

13,140

19,648

12,091

10,474

55,353

1,466

56,819

Bearer deposit notes

225

1,167

1,005

2,418

Asset-backed commercial paper (ABCP)

992

1,450

1,666

4,108

Senior unsecured medium-term notes

880

5,836

4,133

10,849

11,562

21,286

43,697

Senior unsecured structured notes (3)

132

534

700

112

1,111

1,923

Covered bonds and securitizations

Mortgage securitizations

343

259

789

1,391

2,435

12,947

16,773

Covered bonds

2,413

1,810

4,223

2,413

3,989

10,625

Credit card securitizations

957

437

1,394

2,620

1,101

5,115

Subordinated debt (4)

344

563

5,050

5,957

Other (5)

2,865

Total

30,762

31,016

22,905

18,210

102,893

21,171

48,349

172,413

Of which:

Secured

992

4,206

2,882

3,036

11,116

7,468

20,902

39,486

Unsecured

29,770

26,810

20,023

15,174

91,777

13,703

27,447

132,927

Total (6)

30,762

31,016

22,905

18,210

102,893

21,171

48,349

172,413

(1)

Wholesale funding excludes repo transactions and bankers’ acceptances, which are disclosed in the contractual maturity table in Note 17 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 activities, unsecured funding refers to funding through the issuance of marketable, negotiable securities.

(3)	Primarily issued to institutional investors.

(4)	Includes certain subordinated debt instruments reported as deposits or other liabilities for accounting purposes. Subordinated debt is reported in this table in accordance with recommended EDTF disclosures.

(5)	Refers to Federal Home Loan Banks advances.

(6)	Total wholesale funding consists of Canadian-dollar-denominated funding of $51.9 billion and U.S.-dollar and other foreign-denominated funding of $120.5 billion as at April 30, 2015.

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 additional consequences, including those set out in Note 10 on page 148 of BMO’s 2014 Annual Report.

The credit ratings assigned to BMO’s senior debt by rating agencies are indicative of high-grade, high-quality issues. The ratings as at April 30, 2015, were as follows: DBRS (AA); Fitch (AA-); Moody’s (Aa3); and Standard & Poor’s (A+). Fitch has a stable outlook on BMO’s long-term credit ratings, while Moody’s and Standard & Poor’s have a negative outlook on the ratings of BMO and other Canadian banks in response to the federal government’s proposed bail-in regime for senior unsecured debt. On May 20, 2015, DBRS changed the trend on six Canadian Banks, including BMO, to negative from stable due to their evolving view on government support.

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 April 30, 2015, the bank would be required to provide additional collateral to counterparties totalling $197 million, $847 million and $1,035 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 page 102 of BMO’s 2014 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 Cyber Security Risk section on page 78 and in the Operational Risk section on page 101 of BMO’s 2014 Annual Report.

30 • BMO Financial Group Second Quarter Report 2015

Select Geographic Exposures

Select geographic exposures were disclosed and discussed on pages 88 and 89 of BMO’s 2014 Annual Report. Our exposure to European countries, as at April 30, 2015, 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 January 31, 2015, and October 31, 2014.

European Exposure by Country and Counterparty (1) (Canadian $ in millions)

Table 25


As at April 30, 2015
	Funded lending (2)		Securities (3)(4)								Repo-style transactions and derivatives (5)(6)								Total Net Exposure
Country	Total		Bank		Corporate		Sovereign		Total		Bank		Corporate		Sovereign		Total		Total Net Exposure

GIIPS
Greece		-		-		-		-		-		-		-		-		-		-
Ireland (7)		8		-		-		-		-		5		27		-		32		40
Italy		64		-		-		-		-		3		-		-		3		67
Portugal		1		-		-		-		-		-		-		-		-		1
Spain		54		-		-		-		-		3		-		-		3		57

Total – GIIPS		127		-		-		-		-		11		27		-		38		165

Eurozone (excluding GIIPS)
Germany		84		17		19		1,204		1,240		410		1		14		425		1,749
Netherlands		223		723		11		122		856		10		15		-		25		1,104
Finland		1		19		-		412		431		1		-		-		1		433
Other (8)		165		52		-		67		119		66		18		5		89		373

Total – Eurozone (excluding GIIPS)		473		811		30		1,805		2,646		487		34		19		540		3,659

Rest of Europe
Denmark		14		575		-		143		718		2		-		-		2		734
Norway		17		984		-		-		984		7		-		-		7		1,008
Sweden		36		386		-		-		386		1		-		-		1		423
United Kingdom		487		87		72		215		374		696		24		67		787		1,648
Other (8)		97		-		-		-		-		42		-		-		42		139

Total – Rest of Europe		651		2,032		72		358		2,462		748		24		67		839		3,952

Total – All of Europe (9)		1,251		2,843		102		2,163		5,108		1,246		85		86		1,417		7,776

As at January 31, 2015
	Funded lending (2)		Securities (3)								Repo-style transactions and derivatives (5)(6)								Total Net Exposure
Country		Total		Bank		Corporate		Sovereign		Total		Bank		Corporate		Sovereign		Total	Total Net Exposure

Total – GIIPS		128		-		-		-		-		12		23		-		35		163

Total – Eurozone (excluding GIIPS)		592		873		117		2,277		3,267		269		103		22		394		4,253

Total – Rest of Europe		958		2,226		58		376		2,660		627		36		66		729		4,347

Total – All of Europe (9)		1,678		3,099		175		2,653		5,927		908		162		88		1,158		8,763

As at October 31, 2014
	Funded lending (2)		Securities (3)								Repo-style transactions and derivatives (5)(6)								Total Net Exposure
Country		Total		Bank		Corporate		Sovereign		Total		Bank		Corporate		Sovereign		Total	Total Net Exposure

Total – GIIPS		129		-		-		-		-		55		7		-		62		191

Total – Eurozone (excluding GIIPS)		551		711		53		1,872		2,636		379		49		7		435		3,622

Total – Rest of Europe		1,162		2,254		44		537		2,835		714		14		2		730		4,727

Total – All of Europe (9)		1,842		2,965		97		2,409		5,471		1,148		70		9		1,227		8,540

Refer to footnotes in Table 26.

BMO Financial Group Second Quarter Report 2015 • 31

European Lending Exposure by Country and Counterparty (1) (Canadian $ in millions)

Table 26


	Lending (2)
	Funded lending as at April 30, 2015						As at April 30, 2015				As at January 31, 2015				As at October 31, 2014
Country	Bank		Corporate		Sovereign		Commitments		Funded		Commitments		Funded		Commitments	Funded

GIIPS
Greece		-		-		-		-		-		-		-	-		-
Ireland (7)		-		8		-		23		8		21		8	103		8
Italy		64		-		-		64		64		64		64	69		69
Portugal		1		-		-		1		1		1		1	-		-
Spain		54		-		-		65		54		67		55	62		52

Total – GIIPS		119		8		-		153		127		153		128	234		129

Eurozone (excluding GIIPS)
Germany		68		16		-		97		84		96		87	99		85
Netherlands		29		194		-		367		223		426		221	559		239
Finland		1		-		-		1		1		1		1	-		-
Other (8)		74		91		-		380		165		524		283	517		227

Total – Eurozone (excluding GIIPS)		172		301		-		845		473		1,047		592	1,175		551

Rest of Europe
Denmark		14		-		-		14		14		12		12	12		12
Norway		17		-		-		17		17		15		15	15		15
Sweden		23		13		-		156		36		163		34	198		93
United Kingdom		179		308		-		761		487		809		535	701		497
Other (8)		23		74		-		165		97		664		362	846		545

Total – Rest of Europe		256		395		-		1,113		651		1,663		958	1,772		1,162

Total – All of Europe (9)		547		704		-		2,111		1,251		2,863		1,678	3,181		1,842

(1)	BMO has the following indirect exposures to Europe as at April 30, 2015:

– Collateral of €1,014 million to support trading activity in securities (€6 million from GIIPS) and €355 million of cash collateral being held.

– Guarantees of $1,070 million ($9 million to GIIPS).

(2)	Funded lending includes loans (primarily trade finance).

(3)	Securities include cash products, insurance investments and traded credit.

(4)

BMO’s total net notional CDS exposure (embedded as part of the securities exposure table) to Europe was $549 million, with no net single-name* CDS exposure to GIIPS countries as at April 30, 2015 (*includes a net position of $313 million (bought protection) on a CDS Index, of which 23% is comprised of GIIPS domiciled entities).

(5)	Repo-style transactions are primarily with bank counterparties for which BMO holds collateral ($12 billion for Europe as at April 30, 2015).

(6)	Derivatives amounts are marked-to-market, incorporating transaction netting where master netting agreements with counterparties have been entered into, and collateral offsets for counterparties where a Credit Support Annex is in effect.

(7)	Does not include Irish subsidiary reserves we are required to maintain with the Irish Central Bank of $88 million as at April 30, 2015.

(8)	Includes countries with less than $300 million net exposure, with $29 million exposure to the Russian Federation as at April 30, 2015.

(9)	Of our total net direct exposure to Europe, approximately 94% was to counterparties in countries with a rating of Aaa/AAA from at least one of Moody’s and S&P.

Caution

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

32 • BMO Financial Group Second Quarter Report 2015

INVESTOR AND MEDIA PRESENTATION

Investor Presentation Materials

Interested parties are invited to visit our website at www.bmo.com/investorrelations to review our 2014 annual MD&A and audited annual consolidated financial statements, our Second Quarter 2015 Earnings Release and Report to Shareholders, 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 Wednesday, May 27, 2015, 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, August 24, 2015, 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, [email protected], 416-867-3996

Ronald Monet, Montreal, [email protected], 514-877-1873

Investor Relations Contacts

Lisa Hofstatter, Managing Director, Investor Relations, [email protected], 416-867-7019

Willa Hoffmann, Director, Investor Relations, [email protected], 416-867-6956

Corporate Secretary

Barbara Muir, Corporate Secretary, [email protected], 416-867-6423

Shareholder Dividend Reinvestment and Share Purchase

Plan (the Plan)

Average market price as defined under the Plan

February 2015: $77.68

March 2015: $75.77

April 2015: $80.47

For dividend information, change in shareholder address

or to advise of duplicate mailings, please contact

Computershare Trust Company of Canada

100 University Avenue, 9th Floor

Toronto, Ontario M5J 2Y1

Telephone: 1-800-340-5021 (Canada and the United States)

Telephone: (514) 982-7800 (international)

Fax: 1-888-453-0330 (Canada and the United States)

Fax: (416) 263-9394 (international)

E-mail: [email protected]

For other shareholder information, including the notice for our normal course issuer bid, please contact

Bank of Montreal

Shareholder Services

Corporate Secretary’s Department

One First Canadian Place, 21st Floor

Toronto, Ontario M5X 1A1

Telephone: (416) 867-6785

Fax: (416) 867-6793

E-mail: [email protected]

For further information on this report, please contact

Bank of Montreal

Investor Relations Department

P.O. Box 1, One First Canadian Place, 18th Floor

Toronto, Ontario M5X 1A1

To review financial results online, please visit our website at www.bmo.com. To review regulatory filings and disclosures online, please visit our website at www.bmo.com/investorrelations.

Our 2014 annual MD&A, audited annual consolidated financial statements and annual report on Form 40-F (filed with the U.S. Securities and Exchange Commission) are available online at www.bmo.com/investorrelations and at www.sedar.com. Printed copies of the bank’s complete 2014 audited financial statements are available free of charge upon request at 416-867-6785 or [email protected].

® Registered trademark of Bank of Montreal

56 • BMO Financial Group Second Quarter Report 2015

Interim Consolidated Financial Statements

Consolidated Statement of Income


(Unaudited) (Canadian $ in millions, except as noted)	For the three months ended										For the six months ended
	April 30, 2015		January 31, 2015		October 31, 2014		July 31, 2014		April 30, 2014		April 30, 2015		April 30, 2014
Interest, Dividend and Fee Income
Loans	$	2,685	$	2,809	$	2,799	$	2,708	$	2,670	$	5,494	$	5,402
Securities		461		516		470		492		446		977		900
Deposits with banks		77		76		67		67		69		153		136
		3,223		3,401		3,336		3,267		3,185		6,624		6,438
Interest Expense
Deposits		664		712		720		727		701		1,376		1,418
Subordinated debt		44		44		40		37		37		88		73
Other liabilities		403		426		398		396		384		829		771
		1,111		1,182		1,158		1,160		1,122		2,293		2,262
Net Interest Income		2,112		2,219		2,178		2,107		2,063		4,331		4,176
Non-Interest Revenue
Securities commissions and fees		237		237		232		238		236		474		464
Deposit and payment service charges		262		259		262		260		239		521		480
Trading revenues		319		193		198		231		246		512		520
Lending fees		181		170		171		169		171		351		340
Card fees		114		106		118		116		116		220		228
Investment management and custodial fees		379		367		351		343		279		746		552
Mutual fund revenues		355		322		305		301		238		677		467
Underwriting and advisory fees		182		171		166		238		149		353		340
Securities gains, other than trading		70		39		41		12		47		109		109
Foreign exchange, other than trading		33		62		47		40		38		95		92
Insurance revenue		210		822		489		614		441		1,032		905
Other		72		88		82		66		106		160		175
		2,414		2,836		2,462		2,628		2,306		5,250		4,672
Total Revenue		4,526		5,055		4,640		4,735		4,369		9,581		8,848
Provision for Credit Losses		161		163		170		130		162		324		261
Insurance Claims, Commissions and Changes in Policy Benefit Liabilities		24		747		300		520		328		771		685
Non-Interest Expense
Employee compensation		1,843		1,791		1,575		1,595		1,491		3,634		3,072
Premises and equipment		533		500		532		469		452		1,033		907
Amortization of intangible assets		100		96		98		104		90		196		180
Travel and business development		138		142		165		136		122		280		241
Communications		83		75		70		73		78		158		146
Business and capital taxes		10		12		11		8		10		22		20
Professional fees		149		152		188		159		140		301		275
Other		256		238		248		212		211		494		437
		3,112		3,006		2,887		2,756		2,594		6,118		5,278
Income Before Provision for Income Taxes		1,229		1,139		1,283		1,329		1,285		2,368		2,624
Provision for income taxes		230		139		213		203		209		369		487
Net Income	$	999	$	1,000	$	1,070	$	1,126	$	1,076	$	1,999	$	2,137
Attributable to:
Bank shareholders		993		986		1,057		1,110		1,062		1,979		2,110
Non-controlling interest in subsidiaries		6		14		13		16		14		20		27
Net Income	$	999	$	1,000	$	1,070	$	1,126	$	1,076	$	1,999	$	2,137
Earnings Per Share (Canadian $)
Basic	$	1.49	$	1.47	$	1.57	$	1.68	$	1.61	$	2.96	$	3.19
Diluted		1.49		1.46		1.56		1.67		1.60		2.95		3.18
The accompanying notes are an integral part of these interim consolidated financial statements.
Certain comparative figures have been reclassified to conform with the current period’s presentation.

BMO Financial Group Second Quarter Report 2015 • 33

Interim Consolidated Financial Statements

Consolidated Statement of Comprehensive Income


(Unaudited) (Canadian $ in millions)	For the three months ended										For the six months ended
	April 30, 2015		January 31, 2015		October 31, 2014		July 31, 2014		April 30, 2014		April 30, 2015		April 30, 2014
Net income	$	999	$	1,000	$	1,070	$	1,126	$	1,076	$	1,999	$	2,137
Other Comprehensive Income (Loss)
Items that may be subsequently reclassified to net income:
Net change in unrealized gains (losses) on available-for-sale securities
Unrealized gains (losses) on available-for-sale securities arising during the period (1)		(6)		(2)		(37)		76		27		(8)		(11)
Reclassification to earnings of (gains) in the period (2)		(22)		(14)		(22)		(17)		(16)		(36)		(38)
		(28)		(16)		(59)		59		11		(44)		(49)
Net change in unrealized gains (losses) on cash flow hedges
Gains (losses) on cash flow hedges arising during the period (3)		(282)		595		83		53		(31)		313		111
Reclassification to earnings of (gains) on cash flow hedges (4)		(9)		(25)		(25)		(25)		(23)		(34)		(48)
		(291)		570		58		28		(54)		279		63
Net gain (loss) on translation of net foreign operations
Unrealized gains (losses) on translation of net foreign operations		(1,128)		2,484		578		(98)		(278)		1,356		898
Unrealized gains (losses) on hedges of net foreign operations (5)		103		(178)		(120)		-		(25)		(75)		(295)
		(1,025)		2,306		458		(98)		(303)		1,281		603
Items that will not be reclassified to net income
Remeasurement of pension and other employee future benefit plans (6)		212		(226)		(73)		(98)		21		(14)		46
Remeasurement of own credit risk on financial liabilities designated at fair value (Note 1) (7)		(17)		18		-		-		-		1		-
		195		(208)		(73)		(98)		21		(13)		46
Other Comprehensive Income (Loss)		(1,149)		2,652		384		(109)		(325)		1,503		663
Total Comprehensive Income (Loss)	$	(150)	$	3,652	$	1,454	$	1,017	$	751	$	3,502	$	2,800
Attributable to:
Bank shareholders		(156)		3,638		1,441		1,001		737		3,482		2,773
Non-controlling interest in subsidiaries		6		14		13		16		14		20		27
Total Comprehensive Income (Loss)	$	(150)	$	3,652	$	1,454	$	1,017	$	751	$	3,502	$	2,800
(1) Net of income tax (provision) recovery of $13, $(13), $8, $(30), $(12) for the three months ended, and $nil, $nil for the six months ended, respectively.
(2) Net of income tax provision of $3, $11, $10, $6, $9 for the three months ended, and $14, $21 for the six months ended, respectively.
(3) Net of income tax (provision) recovery of $105, $(207), $(37), $(14), $15 for the three months ended, and $(102), $(28) for the six months ended, respectively.
(4) Net of income tax provision of $0, $6, $8, $6, $5 for the three months ended, and $6, $14 for the six months ended, respectively.
(5) Net of income tax (provision) recovery of $(40), $64, $42, $(2), $9 for the three months ended, and $24, $104 for the six months ended, respectively.
(6) Net of income tax (provision) recovery of $(84), $92, $49, $32, $(11) for the three months ended, and $8, $(21) for the six months ended, respectively.
(7) Net of income tax (provision) recovery of $6, $(6), for the three months ended, and $0, $nil for the six months ended, respectively.
The accompanying notes are an integral part of these interim consolidated financial statements.
Certain comparative figures have been reclassified to conform with the current period’s presentation.

34 • BMO Financial Group Second Quarter Report 2015

Interim Consolidated Financial Statements

Consolidated Balance Sheet


(Unaudited) (Canadian $ in millions)	As at
	April 30, 2015			January 31, 2015			October 31, 2014			July 31, 2014			April 30, 2014
Assets
Cash and Cash Equivalents	$	40,403		$	44,162		$	28,386		$	38,250		$	35,082
Interest Bearing Deposits with Banks		7,256			6,597			6,110			5,800			7,069
Securities
Trading		82,031			88,991			85,022			90,459			82,426
Available-for-sale		49,340			50,711			46,966			47,673			51,883
Held-to-maturity		10,015			10,586			10,344			10,420			9,318
Other		1,060			1,084			987			989			983
		142,446			151,372			143,319			149,541			144,610
Securities Borrowed or Purchased Under Resale Agreements		64,576			66,086			53,555			49,452			51,981
Loans
Residential mortgages		101,839			102,073			101,013			99,484			97,632
Consumer instalment and other personal		64,273			65,301			64,143			64,286			64,571
Credit cards		7,896			7,924			7,972			7,976			7,953
Businesses and governments		132,153			133,193			120,766			115,812			116,492
		306,161			308,491			293,894			287,558			286,648
Customers’ liability under acceptances		11,453			10,986			10,878			9,651			9,906
Allowance for credit losses		(1,758	)		(1,847	)		(1,734	)		(1,768	)		(1,850	)
		315,856			317,630			303,038			295,441			294,704
Other Assets
Derivative instruments		39,831			62,989			32,655			26,825			28,859
Premises and equipment		2,274			2,334			2,276			2,174			2,172
Goodwill		5,646			5,900			5,353			5,253			3,994
Intangible assets		2,136			2,214			2,052			2,020			1,554
Current tax assets		596			579			665			770			800
Deferred tax assets		3,174			3,437			3,019			2,962			2,927
Other		9,081			9,110			8,231			8,344			8,293
		62,738			86,563			54,251			48,348			48,599
Total Assets	$	633,275		$	672,410		$	588,659		$	586,832		$	582,045
Liabilities and Equity
Deposits
Banks	$	28,864		$	24,310		$	18,243		$	22,865		$	22,607
Businesses and governments		254,738			262,272			239,139			243,808			238,915
Individuals		140,629			143,196			135,706			132,550			132,485
		424,231			429,778			393,088			399,223			394,007
Other Liabilities
Derivative instruments		44,237			63,701			33,657			28,151			30,279
Acceptances		11,453			10,986			10,878			9,651			9,906
Securities sold but not yet purchased		25,908			30,013			27,348			28,366			24,350
Securities lent or sold under repurchase agreements		42,039			49,551			39,695			40,606			46,125
Current tax liabilities		211			262			235			255			146
Deferred tax liabilities		188			161			178			185			71
Other		44,170			45,279			43,263			42,147			39,871
		168,206			199,953			155,254			149,361			150,748
Subordinated Debt		4,435			4,964			4,913			3,948			3,965
Equity
Share capital		14,970			15,413			15,397			15,194			14,686
Contributed surplus		303			303			304			310			313
Retained earnings		17,765			17,489			17,237			16,724			16,155
Accumulated other comprehensive income		2,878			4,027			1,375			991			1,100
Total shareholders’ equity		35,916			37,232			34,313			33,219			32,254
Non-controlling interest in subsidiaries		487			483			1,091			1,081			1,071
Total Equity		36,403			37,715			35,404			34,300			33,325
Total Liabilities and Equity	$	633,275		$	672,410		$	588,659		$	586,832		$	582,045
The accompanying notes are an integral part of these interim consolidated financial statements. Certain comparative figures have been reclassified to conform with the current period’s presentation.

BMO Financial Group Second Quarter Report 2015 • 35

Interim Consolidated Financial Statements

Consolidated Statement of Changes in Equity


(Unaudited) (Canadian $ in millions)	For the three months ended						For the six months ended
	April 30, 2015			April 30, 2014			April 30, 2015			April 30, 2014
Preferred Shares
Balance at beginning of period	$	3,040		$	2,265		$	3,040		$	2,265
Issued during the period		-			500			-			500
Redeemed during the period		(400	)		(150	)		(400	)		(150	)
Balance at End of Period		2,640			2,615			2,640			2,615
Common Shares
Balance at beginning of period		12,373			12,033			12,357			12,003
Issued under the Shareholder Dividend Reinvestment and Share Purchase Plan		-			-			57			-
Issued under the Stock Option Plan		15			38			31			68
Repurchased for cancellation		(58	)		-			(115	)		-
Balance at End of Period		12,330			12,071			12,330			12,071
Contributed Surplus
Balance at beginning of period		303			316			304			315
Stock option expense/exercised		(1	)		(3	)		1			(2	)
Other		1				-		(2	)		-
Balance at End of Period		303			313			303			313
Retained Earnings
Balance at beginning of period		17,489			15,617			17,237			15,087
Net income attributable to bank shareholders		993			1,062			1,979			2,110
Dividends – Preferred shares		(31	)		(27	)		(64	)		(55	)
– Common shares		(515	)		(490	)		(1,033	)		(980	)
Common shares repurchased for cancellation		(171	)		-			(354	)		-
Share issue expense		-			(7	)		-			(7	)
Balance at End of Period		17,765			16,155			17,765			16,155
Accumulated Other Comprehensive Income on Available-for-Sale Securities
Balance at beginning of period		140			145			156			205
Unrealized gains (losses) on available-for-sale securities arising during the period (1)		(6	)		27			(8	)		(11	)
Reclassification to earnings of (gains) in the period (2)		(22	)		(16	)		(36	)		(38	)
Balance at End of Period		112			156			112			156
Accumulated Other Comprehensive Income on Cash Flow Hedges
Balance at beginning of period		711			109			141			(8	)
Gains (losses) on cash flow hedges arising during the period (3)		(282	)		(31	)		313			111
Reclassification to earnings of (gains) in the period (4)		(9	)		(23	)		(34	)		(48	)
Balance at End of Period		420			55			420			55
Accumulated Other Comprehensive Income on Translation of Net Foreign Operations
Balance at beginning of period		3,674			1,311			1,368			405
Unrealized gains (losses) on translation of net foreign operations		(1,128	)		(278	)		1,356			898
Unrealized gains (losses) on hedges of net foreign operations (5)		103			(25	)		(75	)		(295	)
Balance at End of Period		2,649			1,008			2,649			1,008
Accumulated Other Comprehensive (Loss) on Pension and Other Post-Employment Plans
Balance at beginning of period		(516	)		(140	)		(290	)		(165	)
Remeasurement of pension and other post-employment plans (6)		212			21			(14	)		46
Balance at End of Period		(304	)		(119	)		(304	)		(119	)
Accumulated Other Comprehensive Income on Own Credit Risk on Financial Liabilities Designated at Fair Value
Balance at beginning of period		18			-			-			-
Remeasurement of own credit risk on financial liabilities designated at fair value (7)		(17	)		-			1			-
Balance at End of Period		1			-			1			-
Total Accumulated Other Comprehensive Income		2,878			1,100			2,878			1,100
Total Shareholders’ Equity	$	35,916		$	32,254		$	35,916		$	32,254
Non-controlling Interest in Subsidiaries
Balance at beginning of period		483			1,059			1,091			1,072
Net income attributable to non-controlling interest		6			14			20			27
Dividends to non-controlling interest		-			-			(27	)		(26	)
Capital trust redemption (Note 11)		-			-			(600	)		-
Other		(2	)		(2	)		3			(2	)
Balance at End of Period		487			1,071			487			1,071
Total Equity	$	36,403		$	33,325		$	36,403		$	33,325
(1) Net of income tax (provision) recovery of $13, $(12), $nil, $nil for the three and six months ended, respectively. (2) Net of income tax provision of $3, $9, $14, $21 for the three and six months ended, respectively. (3) Net of income tax (provision) recovery of $105, $15, $(102), $(28) for the three and six months ended, respectively. (4) Net of income tax provision of $0, $5, $6, $14 for the three and six months ended, respectively. (5) Net of income tax (provision) recovery of $(40), $9, $24, $104 for the three and six months ended, respectively. (6) Net of income tax (provision) recovery of $(84), $(11), $8, $(21) for the three and six months ended, respectively. (7) Net of income tax (provision) recovery of $6, $0, for the three and six months ended, respectively. The accompanying notes are an integral part of these interim consolidated financial statements. Certain comparative figures have been reclassified to conform with the current period’s presentation.

36 • BMO Financial Group Second Quarter Report 2015

Interim Consolidated Financial Statements

Consolidated Statement of Cash Flows


(Unaudited) (Canadian $ in millions)	For the three months ended				For the six months ended
	April 30, 2015		April 30, 2014		April 30, 2015		April 30, 2014
Cash Flows from Operating Activities
Net Income	$	999	$	1,076	$	1,999	$	2,137
Adjustments to determine net cash flows provided by (used in) operating activities
Impairment write-down of securities, other than trading		4		1		5		1
Net (gain) on securities, other than trading		(74)		(48)		(114)		(110)
Net (increase) decrease in trading securities		5,817		3,221		4,277		(6,524)
Provision for credit losses (Note 3)		161		162		324		261
Change in derivative instruments – (increase) decrease in derivative asset		26,250		8,814		(7,875)		1,073
– increase (decrease) in derivative liability		(22,356)		(6,694)		11,086		(1,473)
Amortization of premises and equipment		96		92		188		181
Amortization of intangible assets		100		90		196		180
Net decrease in deferred income tax asset		133		21		8		226
Net increase (decrease) in deferred income tax liability		30		(44)		7		(36)
Net (increase) decrease in current income tax asset		(69)		238		103		369
Net (decrease) in current income tax liability		(48)		(240)		(26)		(296)
Change in accrued interest – (increase) decrease in interest receivable		30		(56)		76		(3)
– increase (decrease) in interest payable		30		76		(65)		38
Changes in other items and accruals, net		(2,902)		(244)		2,042		512
Net increase (decrease) in deposits		6,713		(1,236)		14,175		15,718
Net (increase) in loans		(3,544)		(5,862)		(5,830)		(10,073)
Net increase (decrease) in securities sold but not yet purchased		(3,601)		(2,194)		(1,729)		1,640
Net increase (decrease) in securities lent or sold under repurchase agreements		(5,934)		1,756		25		16,132
Net (increase) decrease in securities borrowed or purchased under resale agreements		(771)		1,073		(8,004)		(10,682)
Net Cash Provided by Operating Activities		1,064		2		10,868		9,271
Cash Flows from Financing Activities
Net (decrease) in liabilities of subsidiaries		(9)		(4)		(18)		(31)
Proceeds of Covered Bonds		-		-		2,748		-
Repayment of subordinated debt (Note 10)		(500)		-		(500)		-
Proceeds from issuance of preferred shares (Note 11)		-		500		-		500
Redemption of preferred shares (Note 11)		(400)		(150)		(400)		(150)
Redemption of securities of a subsidiary (Note 11)		-		-		(600)		-
Share issue expense		-		(7)		-		(7)
Proceeds from issuance of common shares		14		38		32		68
Common shares repurchased for cancellation (Note 11)		(229)		-		(469)		-
Cash dividends paid		(550)		(518)		(1,039)		(1,023)
Cash dividends paid to non-controlling interest		-		-		(27)		(26)
Net Cash (Used in) Financing Activities		(1,674)		(141)		(273)		(669)
Cash Flows from Investing Activities
Net (increase) in interest bearing deposits with banks		(949)		(599)		(744)		(316)
Purchases of securities, other than trading		(4,108)		(10,018)		(8,387)		(17,782)
Maturities of securities, other than trading		937		5,195		2,056		8,760
Proceeds from sales of securities, other than trading		3,102		7,069		6,438		8,552
Premises and equipment – net disposals (purchases)		(93)		14		(103)		(51)
Purchased and developed software – net (purchases)		(74)		(100)		(153)		(182)
Net Cash Provided by (Used in) Investing Activities		(1,185)		1,561		(893)		(1,019)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		(1,964)		(452)		2,315		1,410
Net increase in Cash and Cash Equivalents		(3,759)		970		12,017		8,993
Cash and Cash Equivalents at Beginning of Period		44,162		34,112		28,386		26,089
Cash and Cash Equivalents at End of Period	$	40,403	$	35,082	$	40,403	$	35,082
Represented by:
Cash and non-interest bearing deposits with Bank of Canada and other banks	$	38,952	$	32,963	$	38,952	$	32,963
Cheques and other items in transit, net		1,451		2,119		1,451		2,119
	$	40,403	$	35,082	$	40,403	$	35,082
Supplemental Disclosure of Cash Flow Information
Net cash provided by operating activities includes:
Amount of interest paid in the period	$	1,091	$	1,048	$	2,344	$	2,215
Amount of income taxes paid in the period	$	134	$	152	$	340	$	171
Amount of interest and dividend income received in the period	$	3,259	$	3,115	$	6,646	$	6,380
The accompanying notes are an integral part of these interim consolidated financial statements.
Certain comparative figures have been reclassified to conform with the current period’s presentation.

BMO Financial Group Second Quarter Report 2015 • 37

Notes to Consolidated Financial Statements

April 30, 2015 (Unaudited)

Note 1: Basis of Presentation

Bank of Montreal (the “bank”) is a public company incorporated in Canada having its registered office in Montreal, Canada. The bank is a highly diversified financial services provider and provides a broad range of retail banking, wealth management and investment banking products and services.

These condensed interim consolidated financial statements were prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. We also comply with interpretations of International Financial Reporting Standards (“IFRS”) by our regulator, the Office of the Superintendent of Financial Institutions of Canada (“OSFI”). These condensed interim consolidated financial statements should be read in conjunction with the notes to our annual consolidated financial statements for the year ended October 31, 2014 as set out on pages 128 to 189 of our 2014 Annual Report.

These interim consolidated financial statements were authorized for issue by the Board of Directors on May 27, 2015.

Changes in Accounting Policy

Effective November 1, 2014 we adopted the following new and amended accounting pronouncements issued by the International Accounting Standards Board (“IASB”): the own credit provisions of IFRS 9 financial instruments, amendments to IAS 36 Impairment of Assets and IAS 32 Financial Instruments: Presentation and IFRS Interpretation Committee Interpretation 21 Levies. Refer to page 36 of our First Quarter 2015 Report to Shareholders for a description of these new and amended accounting pronouncements. The adoption of these new and amended accounting pronouncements did not have a significant impact on our interim consolidated financial statements.

Note 2: Securities

Unrealized Gains and Losses

The following table summarizes the unrealized gains and losses on available-for-sale securities:


(Canadian $ in millions)							April 30, 2015								October 31, 2014

	Amortized cost		Gross unrealized gains (2)		Gross unrealized losses (2)		Fair value		Amortized cost		Gross unrealized gains (2)		Gross unrealized losses (2)		Fair value
Issued or guaranteed by:
Canadian federal government		10,326		109		8		10,427		10,420		82		1	10,501
Canadian provincial and municipal governments		4,415		90		24		4,481		4,063		44		3	4,104
U.S. federal government		1,846		20		1		1,865		1,094		2		3	1,093
U.S. states, municipalities and agencies		6,349		62		7		6,404		5,761		57		3	5,815
Other governments		5,643		26		2		5,667		6,116		17		1	6,132
Mortgage-backed securities and collateralized mortgage obligations – Canada (1)		2,809		45		3		2,851		3,031		24		1	3,054
Mortgage-backed securities and collateralized mortgage obligations – U.S.		7,678		39		7		7,710		6,872		35		12	6,895
Corporate debt		8,088		117		5		8,200		7,577		95		6	7,666
Corporate equity		1,677		118		60		1,735		1,582		129		5	1,706
Total		48,831		626		117		49,340		46,516		485		35	46,966
(1) These amounts are supported by insured mortgages. (2) Unrealized gains and losses may be offset by related unrealized losses (gains) on liabilities or hedge contracts.

Note 3: Loans, Customer Liability under Acceptances and Allowance for Credit Losses

Allowance for Credit Losses (“ACL”)

The allowance for credit losses recorded in our Consolidated Balance Sheet is maintained at a level that we consider adequate to absorb credit-related losses on our loans, customers’ liability under acceptances and other credit instruments. The portion related to other credit instruments is recorded in other liabilities in our Consolidated Balance Sheet. As at April 30, 2015, there was a $220 million ($248 million as at April 30, 2014) allowance for credit losses related to other credit instruments included in other liabilities.

38 • BMO Financial Group Second Quarter Report 2015

A continuity of our allowance for credit losses is as follows:


(Canadian $ in millions)	Residential mortgages						Credit card, consumer instalment and other personal loans						Business and government loans						Customers’ liability under acceptances				Total
For the three months ended	April 30, 2015			April 30, 2014			April 30, 2015			April 30, 2014			April 30, 2015			April 30, 2014			April 30, 2015		April 30, 2014		April 30, 2015			April 30, 2014
Impairment Allowances (Specific ACL), beginning of period		114			105			73			75			268			335			-		-		455			515
Amounts written off		(15	)		(21	)		(172	)		(158	)		(87	)		(55	)		-		-		(274	)		(234	)
Recoveries of amounts written off in previous periods		8			8			40			38			47			93			-		-		95			139
Charge to income statement (Specific PCL)		13			16			137			131			11			15			-		-		161			162
Foreign exchange and other movements		(9	)		(6	)		6			(7	)		(50	)		8			-		-		(53	)		(5	)
Specific ACL, end of period		111			102			84			79			189			396			-		-		384			577
Collective ACL, beginning of period		86			99			697			630			827			780			28		24		1,638			1,533
Charge to income statement (Collective PCL)		(3	)		(11	)		(18	)		12			13			(4	)		8		3		-			-
Foreign exchange and other movements		(3	)		(1	)		(11	)		(2	)		(30	)		(9	)		-		-		(44	)		(12	)
Collective ACL, end of period		80			87			668			640			810			767			36		27		1,594			1,521
Total ACL		191			189			752			719			999			1,163			36		27		1,978			2,098
Comprised of: Loans		168			169			752			719			802			935			36		27		1,758			1,850
Other credit instruments		23			20			-			-			197			228			-		-		220			248
(Canadian $ in millions)	Residential mortgages						Credit card, consumer instalment and other personal loans						Business and government loans						Customers’ liability under acceptances				Total
For the six months ended	April 30, 2015			April 30, 2014			April 30, 2015			April 30, 2014			April 30, 2015			April 30, 2014			April 30, 2015		April 30, 2014		April 30, 2015			April 30, 2014
Impairment Allowances (Specific ACL), beginning of period		113			99			74			71			237			315			-		-		424			485
Amounts written off		(32	)		(41	)		(342	)		(309	)		(161	)		(165	)		-		-		(535	)		(515	)
Recoveries of amounts written off in previous periods		11			21			79			80			107			249			-		-		197			350
Charge to income statement (Specific PCL)		24			31			272			246			28			(16	)		-		-		324			261
Foreign exchange and other movements		(5	)		(8	)		1			(9	)		(22	)		13			-		-		(26	)		(4	)
Specific ACL, end of period		111			102			84			79			189			396			-		-		384			577
Collective ACL, beginning of period		83			88			678			622			754			756			27		19		1,542			1,485
Charge to income statement (Collective PCL)		(8	)		(3	)		(22	)		16			21			(21	)		9		8		-			-
Foreign exchange and other movements		5			2			12			2			35			32			-		-		52			36
Collective ACL, end of period		80			87			668			640			810			767			36		27		1,594			1,521
Total ACL		191			189			752			719			999			1,163			36		27		1,978			2,098
Comprised of: Loans		168			169			752			719			802			935			36		27		1,758			1,850
Other credit instruments		23			20			-			-			197			228			-		-		220			248

Interest income on impaired loans of $17 million and $42 million was recognized for the three and six months ended April 30, 2015, respectively ($28 million and $64 million for the three and six months ended April 30, 2014, respectively).

Renegotiated Loans

The carrying value of our renegotiated loans was $756 million as at April 30, 2015 ($728 million as at October 31, 2014). Renegotiated loans of $313 million were classified as performing as at April 30, 2015 ($291 million as at October 31, 2014). Renegotiated loans of $5 million and $11 million were written off in the three and six months ended April 30, 2015, respectively ($25 million in the year ended October 31, 2014).

FDIC Covered Loans

Certain acquired loans are subject to a loss share agreement with the Federal Deposit Insurance Corporation (“FDIC”). Under this agreement, the FDIC reimburses us for 80% of the net losses we incur on the covered loans.

For the three and six months ended April 30, 2015, we recorded net provisions for credit losses of $21 million and $32 million, respectively (net provisions for credit losses of $2 million and $1 million, respectively, for the three and six months ended April 30, 2014). These amounts are net of the amounts expected to be reimbursed by the FDIC on the covered loans.

Purchased Performing Loans

For performing loans with fixed terms, the future credit mark is fully amortized to net interest income over the expected life of the loan using the effective interest method. The impact to net interest income for the three and six months ended April 30, 2015 was $7 million and $15 million, respectively ($9 million and $17 million for the three and six months ended April 30, 2014, respectively). The incurred credit losses are re-measured at each reporting period, with any increases recorded in the collective allowance and the provision for credit losses. Decreases in incurred credit losses will be recorded as a decrease in the collective allowance and in the provision for credit losses until the accumulated collective allowance is exhausted. Any additional decrease will be recorded in net interest income.

For performing loans with revolving terms, the incurred and future credit marks are amortized into net interest income on a straight line basis over the contractual terms of the loans. The impact to net interest income of such amortization for performing loans with revolving terms for the three and six months ended April 30, 2015 was $4 million and $8 million, respectively ($11 million and $25 million, respectively, for the three and six months ended April 30, 2014).

As performing loans are repaid, the related unamortized credit mark remaining is recorded as net interest income during the period in which the cash is received. The impact on net interest income of such repayments for the three and six months ended April 30, 2015 was $5 million and $28 million, respectively ($44 million and $89 million, respectively, for the three and six months ended April 30, 2014).

BMO Financial Group Second Quarter Report 2015 • 39

The impact of the re-measurement of incurred credit losses for performing loans for the three and six months ended April 30, 2015 was $2 million recovery and $15 million expense, respectively, in provision for credit losses and $nil and $nil in net interest income, respectively ($4 million and $4 million in provision for credit losses and $nil and $6 million in net interest income, respectively, for the three and six months ended April 30, 2014).

Actual specific provisions for credit losses related to these performing loans will be recorded as they arise in a manner that is consistent with our policy for loans we originate. The total recovery of specific provision for credit losses for purchased performing loans for the three and six months ended April 30, 2015 was $3 million and $3 million, respectively ($21 million and $55 million specific provision for credit losses, respectively, for the three and six months ended April 30, 2014).

As at April 30, 2015 the amount of purchased performing loans on the balance sheet was $10,710 million ($11,703 million as at October 31, 2014). As at April 30, 2015, the credit mark remaining on performing term loans, revolving loans and other performing loans was $248 million, $81 million and $nil, respectively ($279 million, $94 million and $2 million, respectively, as at October 31, 2014). Of the total credit mark for performing loans of $329 million, $178 million represents the credit mark that will be amortized over the remaining life of the portfolio. The remaining $151 million represents the incurred credit mark and will be re-measured each reporting period.

Purchased Credit Impaired Loans (“PCI Loans”)

Subsequent to the acquisition date, we regularly re-evaluate what we expect to collect on the PCI loans. Increases in expected cash flows will result in a recovery in the specific provision for credit losses and either a reduction in any previously recorded allowance for credit losses or, if no allowance exists, an increase in the current carrying value of the PCI loans. Decreases in expected cash flows will result in a charge to the specific provision for credit losses and an increase in the allowance for credit losses. The impact of these evaluations for the three and six month periods ended April 30, 2015 was $26 million and $55 million recovery of specific provision for credit losses ($45 million and $162 million of recovery for the three and six months ended April 30, 2014).

As at April 30, 2015, the amount of PCI loans remaining on the balance sheet was $420 million ($488 million as at October 31, 2014). We have no remaining credit mark related to the PCI loans ($nil at October 31, 2014).

Note 4: Risk Management

We have an enterprise-wide approach to the identification, measurement, monitoring and management of risks faced across the organization. The key risks related to our financial instruments are classified as credit and counterparty, market, and liquidity and funding risk.

Credit and Counterparty Risk

Credit and counterparty risk is the potential for loss due to the failure of a borrower, endorser, guarantor or counterparty to repay a loan or honour another predetermined financial obligation. Credit risk arises predominantly with respect to loans, over-the-counter derivatives and other credit instruments. This is the most significant measurable risk that we face.

Market Risk

Market risk is the potential for adverse changes in the value of our assets and liabilities resulting from changes in market variables such as interest rates, foreign exchange rates, equity and commodity prices and their implied volatilities, and credit spreads, as well as the risk of credit migration and default. We incur market risk in our trading and underwriting activities and in the management of structural market risk in our banking and insurance activities.

Liquidity and Funding Risk

Liquidity and funding risk is the potential for loss if we are unable to meet financial commitments in a timely manner at reasonable prices as our commitments come due. It is our policy to ensure that sufficient liquid assets and funding capacity are available to meet financial commitments, including liabilities to depositors and suppliers, and lending, investment and pledging commitments, even in times of stress. Managing liquidity and funding risk is essential to maintaining both depositor confidence and stability in earnings.

Note 5: Asset Securitization

Periodically, we securitize loans to obtain alternate sources of funding. Securitization involves selling loans to trusts, which buy the loans and then issue either interest bearing or discounted investor certificates.

40 • BMO Financial Group Second Quarter Report 2015

The following table shows the carrying amounts related to securitization activities with third parties that are recorded in our Consolidated Balance Sheet, together with the associated liabilities, for each category of asset on the balance sheet:

(Canadian $ in millions)

April 30,

2015 (1)

October 31,

2014

Carrying

amount of

assets

Associated

liabilities

Carrying

amount of

assets

Associated

liabilities

Residential mortgages

8,890

9,569

Other related assets (2)

8,389

8,382

Total

17,279

16,931

17,951

17,546

(1)

The fair value of the securitized assets is $17,441 million and the fair value of the associated liabilities is $17,451 million, for a net position of $(10) million. Securitized assets are those which we have transferred to third parties, including other related assets.

(2)

The other related assets represent payments received on account of loans pledged under securitization that have not been applied against the associated liabilities. The payments received are held on behalf of the investors in the securitization vehicles until principal payments are required to be made on the associated liabilities. In order to compare all assets supporting the associated liabilities, this amount is added to the carrying value of the securitized assets in the above table.

During the three and six months ended April 30, 2015, we sold $1,398 million and $2,799 million, respectively, of loans to third-party securitization programs ($856 million and $2,016 million for the three and six months ended April 30, 2014).

Note 6: Structured Entities

The bank consolidates those structured entities over which it exercises control. Our exposure to loss on our consolidated structured entities was $1,704 million related to our bank securitization vehicles, $6,132 million related to our U.S. customer securitization vehicle, $256 million related to our credit protection vehicle and $27,556 million related to our capital and funding vehicles as at April 30, 2015 ($2,012 million, $5,385 million, $266 million and $26,052 million, respectively, as at October 31, 2014).

The table below presents amounts related to our interests in unconsolidated structured entities.


(Canadian $ in millions)					April 30, 2015						October 31, 2014

	Capital and funding vehicles		Canadian customer securitization vehicles (1) (2)		Structured finance vehicles		Capital and funding vehicles		Canadian customer securitization vehicles (1) (2)		Structured finance vehicles
Interests recorded on the balance sheet
Cash and cash equivalents		9		62		-		11		39		-
Trading securities		2		16		5,157		2		10		10,414
Available-for-sale securities		-		805		-		-		652		-
Derivatives		-		7		154		-		-		42
		11		890		5,311		13		701		10,456
Deposits		1,264		62		2,903		1,265		39		5,853
Derivatives		-		-		721		-		-		1,115
Other		20		-		1,671		21		-		3,447
		1,284		62		5,295		1,286		39		10,415
Exposure to loss
Securities held		2		821		5,157		2		662		10,414
Drawn facilities		12		-		-		12		-		-
Undrawn facilities		43		5,195		na		43		5,214		na
Derivative assets		-		7		154		-		-		42
		57		6,023		5,311		57		5,876		10,456

Total assets of the entities		1,284		4,139		5,311		1,286		3,783		10,456

(1)

These facilities are backstop liquidity facilities provided to our Canadian customer securitization vehicles. The majority of these facilities did not relate to credit support as at April 30, 2015 and October 31, 2014.

(2)

Securities held that are issued by our Canadian customer securitization vehicles are comprised of asset-backed commercial paper and are classified as trading securities and available-for-sale securities. Assets held by all these vehicles relate to assets in Canada.

Our exposure to BMO managed funds was $302 million at April 30, 2015 ($513 million at October 31, 2014).

Our exposure to non-BMO managed funds was $6,713 million at April 30, 2015 ($12,007 million at October 31, 2014).

na - not applicable

Note 7: Acquisitions

F&C Asset Management plc (“F&C”)

On May 7, 2014, we completed the acquisition of all the issued and outstanding share capital of F&C Asset Management plc, an investment manager based in the United Kingdom, for cash consideration of £712 million. During the second quarter 2015 we finalized the purchase price allocation. No adjustments were recorded as a result of the finalization. For additional information refer to Note 12 of our consolidated financial statements for the year ended October 31, 2014 on pages 153 and 154 of our 2014 Annual Report.

BMO Financial Group Second Quarter Report 2015 • 41

Note 8: Goodwill

There were no write-downs of goodwill due to impairment during the three and six months ended April 30, 2015 and the year ended October 31, 2014.

A continuity of our goodwill by group of CGUs for the quarter ended April 30, 2015 and the year ended October 31, 2014 is as follows:


(Canadian $ in millions)	Personal and Commercial Banking								Wealth Management								BMO Capital Markets			Total

	Canadian P&C			U.S. P&C			Total		Traditional Wealth Management			Insurance			Total
Balance - October 31, 2013		69			2,702			2,771		847			2			849		199			3,819
Acquisitions during the year		-			-			-		1,268			-			1,268		-			1,268
Other (1)		(1	)		220			219		35			-			35		12			266
Balance - October 31, 2014		68			2,922			2,990		2,150			2			2,152		211			5,353
Other (1)		-			206			206		76			-			76		11			293
Balance - April 30, 2015		68	(2)		3,128	(3)		3,196		2,226	(4)		2	(5)		2,228		222	(6)		5,646


(1)		Other changes in goodwill included the effects of translating goodwill denominated in foreign currencies into Canadian dollars and purchase accounting adjustments related to prior-year purchases.
(2)		Relates primarily to bcpbank Canada, Diners Club Canada, and Aver Media LP.
(3)		Relates primarily to New Lenox State Bank, First National Bank of Joliet, Household Bank branches, Mercantile Bancorp, Inc., Villa Park Trust Savings Bank, First National Bank & Trust, Ozaukee Bank, Merchants and Manufacturers Bancorporation, Inc., Diners Club U.S., AMCORE and M&I.
(4)		Relates primarily to BMO Nesbitt Burns Inc., Guardian Group of Funds Ltd., Pyrford International plc, Integra GRS, Lloyd George Management, M&I, Harris myCFO, Inc., Stoker Ostler Wealth Advisors, Inc., CTC consulting LLC, AWMB, and F&C Asset Management.
(5)		Relates to AIG.
(6)		Relates to Gerard Klauer Mattison Co., Inc., BMO Nesbitt Burns Inc, Griffin, Kubik, Stephens & Thompson, Inc., Paloma Securities LLC and M&I.

Note 9: Deposits

Payable on demand

Payable

Payable on

(Canadian $ in millions)

Interest bearing

Non-interest bearing

after notice

a fixed date (3)

Total

April 30,
2015

October 31,
2014

April 30,
2015

October 31,
2014

April 30,
2015

October 31,
2014

April 30,
2015

October 31,
2014

April 30,
2015

October 31,
2014

Deposits by:

Banks

1,102

997

1,023

993

2,615

2,412

24,124

13,841

28,864

18,243

Businesses and governments

16,346

14,958

34,968

28,001

53,380

57,165

150,044

139,015

254,738

239,139

Individuals

2,788

2,524

13,820

12,900

79,333

75,529

44,688

44,753

140,629

135,706

Total (1) (2)

20,236

18,479

49,811

41,894

135,328

135,106

218,856

197,609

424,231

393,088

Booked in:

Canada

18,563

16,753

31,989

28,832

74,038

77,232

118,797

111,193

243,387

234,010

United States

1,089

1,191

17,743

12,972

60,562

57,314

74,393

66,664

153,787

138,141

Other countries

584

535

728

560

25,666

19,752

27,057

20,937

Total

20,236

18,479

49,811

41,894

135,328

135,106

218,856

197,609

424,231

393,088


(1)		Includes structured notes designated at fair value through profit or loss.
(2)		As at April 30, 2015 and October 31, 2014, total deposits payable on a fixed date included $29,921 million and $18,183 million, respectively, of federal funds purchased and commercial paper issued and other deposit liabilities. Included in deposits as at April 30, 2015 and October 31, 2014 are $220,048 million and $191,155 million, respectively, of deposits denominated in U.S. dollars, and $10,815 million and $8,204 million, respectively, of deposits denominated in other foreign currencies.
(3)		Includes $197,112 million of deposits, each greater than one hundred thousand dollars, of which $101,221 million were booked in Canada, $70,230 million were booked in the United States and $25,661 million were booked in other countries ($174,612 million, $92,668 million, $62,193 million and $19,751 million, respectively, as at October 31, 2014). Of the $101,221 million of deposits booked in Canada, $36,353 million mature in less than three months, $7,550 million mature in three to six months, $7,765 million mature in six to twelve months and $49,553 million mature after twelve months ($92,668 million, $27,304 million, $7,465 million, $11,565 million and $46,334 million, respectively, as at October 31, 2014). We have net unencumbered liquid assets of $189,364 million to support these and other deposit liabilities ($170,981 million as at October 31, 2014).

Deposits payable on demand are comprised primarily of our customers’ chequing accounts, some of which we pay interest on. Our customers need not notify us prior to withdrawing money from their chequing accounts.

Deposits payable after notice are comprised primarily of our customers’ savings accounts, on which we pay interest.

Deposits payable on a fixed date are comprised of:

●

Various investment instruments purchased by our customers to earn interest over a fixed period, such as term deposits and guaranteed investment certificates. The terms of these deposits can vary from one day to 10 years.

●

Federal funds purchased, which are overnight borrowings of other banks’ excess reserve funds at a United States Federal Reserve Bank. As at April 30, 2015, we had borrowed $1,872 million of federal funds ($651 million as at October 31, 2014).

●

Commercial paper, which totalled $5,891 million as at April 30, 2015 ($4,294 million as at October 31, 2014).

●

Covered bonds, which totalled $10,650 million as at April 30, 2015 ($7,683 million as at October 31, 2014).

42 • BMO Financial Group Second Quarter Report 2015

Note 10: Subordinated Debt

During the quarter ended April 30, 2015, we redeemed all of our outstanding $500 million Subordinated Debentures, Series C Medium-Term Notes Second Tranche, at a redemption price of 100 percent of the principal amount plus unpaid accrued interest to the redemption date.

Note 11: Equity

Preferred and Common Shares Outstanding (1)

(Canadian $ in millions, except as noted)

April 30, 2015

October 31, 2014

Number

of shares

Amount

Number

of shares

Amount

Convertible into…

Preferred Shares - Classified as Equity

Class B – Series 13

14,000,000

350

14,000,000

350

Class B – Series 14

10,000,000

250

10,000,000

250

Class B – Series 15

10,000,000

250

10,000,000

250

Class B – Series 16

6,267,391

157

6,267,391

157

preferred shares - class B - series 17

(2)

Class B – Series 17

5,732,609

143

5,732,609

143

preferred shares - class B - series 16

(2)

Class B – Series 23

16,000,000

400

preferred shares - class B - series 24

(2)

Class B – Series 25

11,600,000

290

11,600,000

290

preferred shares - class B - series 26

(2)

Class B – Series 27

20,000,000

500

20,000,000

500

preferred shares - class B - series 28

(2)(3)

Class B – Series 29

16,000,000

400

16,000,000

400

preferred shares - class B - series 30

(2)(3)

Class B – Series 31

12,000,000

300

12,000,000

300

preferred shares - class B - series 32

(2)(3)

2,640

3,040

Common Shares (4)

644,255,593

12,330

649,050,049

12,357

Share Capital

14,970

15,397

(1)	For additional information refer to Notes 20 and 23 of our consolidated financial statements for the year ended October 31, 2014 on pages 161 to 166 of our 2014 Annual Report.

(2)	If converted, the holders have the option to convert back to the original preferred shares on subsequent redemption dates.

(3)	The shares are convertible into a variable number of our common shares if OSFI announces that the bank is no longer viable or if the bank accepts a capital injection or equivalent support from the government.

(4)	The stock options issued under the stock option plan are convertible into 12,898,606 common shares as at April 30, 2015 (13,337,765 common shares as at October 31, 2014).

Preferred Shares

On April 23, 2015 we announced our intention to redeem all 14 million Non-Cumulative, Perpetual Class B Preferred Shares Series 13 on May 25, 2015, at a redemption price of $25.25 per share, for an expected gross redemption of $353 million.

On February 25, 2015 we redeemed all 16 million Non-Cumulative, 5-year Rate Reset Class B Preferred Shares Series 23 at a redemption price of $25.00 per share, for gross redemption of $400 million.

During the year ended October 31, 2014 we redeemed all of our Non-Cumulative Class B Preferred shares, Series 18, and 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 dates fixed for redemption, for a gross redemption of $425 million.

On July 30, 2014, we issued 12 million Non-Cumulative, 5-Year Rate Reset Class B Preferred Shares Series 31, at a price of $25.00 cash per share, for gross proceeds of $300 million.

On June 6, 2014, we issued 16 million Non-Cumulative, 5-Year Rate Reset Class B Preferred Shares Series 29, at a price of $25.00 cash per share, for gross proceeds of $400 million.

On April 23, 2014, we issued 20 million Non-Cumulative, 5-Year Rate Reset Class B Preferred Shares Series 27, at a price of $25.00 cash per share, for gross proceeds of $500 million.

Common Shares

During the three and six months ended April 30, 2015, we repurchased 3 million and 6 million common shares at an average cost of $76.12 and $78.07 per share, totalling $229 million and $469 million, respectively. No shares were repurchased for the three and six months ended April 30, 2014.

On February 1, 2015, we renewed our normal course issuer bid effective for one year. Under this bid, we may repurchase up to 15 million of our common shares for cancellation. The timing and amount of purchases under the program are subject to management discretion based on factors such as market conditions and capital adequacy. The bank will periodically consult with OSFI before making purchases under the bid.

Capital Trust Securities

On December 31, 2014, we redeemed all our BMO Capital Trust Securities – Series D (“BMO BOaTS – Series D”) at a redemption amount equal to $1,000 for an aggregate redemption of $600 million, plus unpaid indicated distributions.

BMO Financial Group Second Quarter Report 2015 • 43

Note 12: Capital Management

Our objective is to maintain a strong capital position in a cost-effective structure that: considers our target regulatory capital ratios and internal assessment of required economic capital; is consistent with our targeted credit ratings; underpins our operating groups’ business strategies; and builds depositor confidence and long-term shareholder value.

We met OSFI’s stated “all-in” target capital ratios requirement as at April 30, 2015. Our capital position as at April 30, 2015 is detailed in the Capital Management section on pages 11 to 12 of Management’s Discussion and Analysis of the Second Quarter 2015 Report to Shareholders.

Note 13: Employee Compensation

Stock Options

We did not grant any stock options during the three months ended April 30, 2015 and 2014. During the six months ended April 30, 2015, we granted a total of 641,875 stock options (1,618,223 stock options during the six months ended April 30, 2014). The weighted-average fair value of options granted during the six months ended April 30, 2015 was $7.45 per option ($6.36 per option for the six months ended April 30, 2014).

To determine the fair value of the stock option tranches (i.e. the portion that vests each year) on the grant date, the following ranges of values were used for each option pricing assumption:


For stock options granted during the six months ended	April 30, 2015		April 30, 2014
Expected dividend yield		4.7%		5.0%
Expected share price volatility		16.9%-17.0%		16.4%
Risk-free rate of return		1.9%-2.0%		2.5%-2.6%
Expected period until exercise (in years)		6.5-7.0		6.5-7.0

Changes to the input assumptions can result in different fair value estimates.

Pension and Other Employee Future Benefit Expenses

Pension and other employee future benefit expenses are determined as follows:


(Canadian $ in millions)
	Pension benefit plans						Other employee future benefit plans
For the three months ended	April 30, 2015			April 30, 2014			April 30, 2015		April 30, 2014
Benefits earned by employees		70			59			7		7
Net interest (income) expense on net defined benefit (asset) liability		(2	)		(3	)		12		12
Administrative expenses		1			2			-		-
Benefits expense		69			58			19		19
Canada and Quebec pension plan expense		23			23			-		-
Defined contribution expense		2			2			-		-
Total pension and other employee future benefit expenses recognized in the Consolidated Statement of Income		94			83			19		19

(Canadian $ in millions)
	Pension benefit plans						Other employee future benefit plans
For the six months ended	April 30, 2015			April 30, 2014			April 30, 2015		April 30, 2014
Benefits earned by employees		140			119			14		13
Net interest (income) expense on net defined benefit (asset) liability		(3	)		(5	)		25		25
Administrative expenses		2			3			-		-
Benefits expense		139			117			39		38
Canada and Quebec pension plan expense		44			39			-		-
Defined contribution expense		5			4			-		-
Total pension and other employee future benefit expenses recognized in the Consolidated Statement of Income		188			160			39		38

Note 14: Earnings Per Share

The following tables present the bank’s basic and diluted earnings per share:

Basic earnings per share

(Canadian $ in millions, except as noted)

For the three months ended

For the six months ended

April 30,
2015

April 30,
2014

April 30,
2015

April 30,
2014

Net income attributable to bank shareholders

993

1,062

1,979

2,110

Dividends on preferred shares

(31

)

(27

)

(64

)

(55

)

Net income available to common shareholders

962

1,035

1,915

2,055

Average number of common shares outstanding (in thousands)

645,504

644,881

646,938

644,654

Basic earnings per share (Canadian $)

1.49

1.61

2.96

3.19

44 • BMO Financial Group Second Quarter Report 2015

Diluted earnings per share

(Canadian $ in millions, except as noted)

For the three months ended

For the six months ended

April 30,

2015

April 30,

2014

April 30,

2015

April 30,

2014

Net income available to common shareholders adjusted for dilution effect

962

1,035

1,915

2,055

Average number of common shares outstanding (in thousands)

645,504

644,881

646,938

644,654

Stock options potentially exercisable (1)

9,522

11,281

9,654

11,285

Common shares potentially repurchased

(7,171

)

(8,954

)

(7,144

)

(8,979

)

Average diluted number of common shares outstanding (in thousands)

647,855

647,208

649,448

646,960

Diluted earnings per share (Canadian $)

1.49

1.60

2.95

3.18

(1)

In computing diluted earnings per share we excluded average stock options outstanding of 1,994,844 and 1,892,106 with a weighted-average exercise price of $183.86 and $189.63, respectively, for the three and six months ended April 30, 2015 (1,793,254 and 1,805,965 with a weighted-average exercise price of $235.33 and $235.28 for the three and six months ended April 30, 2014) as the average share price for the period did not exceed the exercise price.

Basic Earnings per Share

Our basic earnings per share is calculated by dividing our net income, after deducting total preferred shares dividends, by the daily average number of fully paid common shares outstanding throughout the period.

Diluted Earnings per Share

Diluted earnings per share represents what our earnings per share would have been if instruments convertible into common shares that had the impact of reducing our earnings per share had been converted either at the beginning of the year for instruments that were outstanding at the beginning of the year or from the date of issue for instruments issued during the year.

Note 15: Operating and Geographic Segmentation

Operating Groups

We conduct our business through three operating groups, each of which has a distinct mandate. Our operating groups are Personal and Commercial Banking (“P&C”) (comprised of Canadian Personal and Commercial Banking (“Canadian P&C”) and U.S. Personal and Commercial Banking (“U.S. P&C”)), Wealth Management and BMO Capital Markets (“BMO CM”), along with a Corporate Services unit. We determine our operating groups based on our management structure and therefore these groups, and results attributed to them, may not be comparable with those of other financial services companies. We evaluate the performance of our groups using reported and adjusted measures such as net income, revenue growth, return on equity, non-interest expense-to-revenue (productivity) ratio, as well as operating leverage.

Basis of Presentation

The results of these operating groups are based on our internal financial reporting systems. The accounting policies used in these segments are generally consistent with those followed in the preparation of our interim consolidated financial statements as disclosed in Note 1 and throughout the annual consolidated financial statements. A notable accounting measurement difference is the taxable equivalent basis adjustment as described below.

Taxable Equivalent Basis

We analyze revenue on a taxable equivalent basis (“teb”) at the operating group level. This basis includes an adjustment which increases reported revenues and the reported provision for income taxes by an amount that would raise revenues on certain tax-exempt items to a level that incurs tax at the statutory rate. The offset to the operating groups’ teb adjustments is reflected in Corporate Services revenue and provision for income taxes.

Geographic Information

We operate primarily in Canada and the United States but we also have operations in the United Kingdom, Europe, the Caribbean and Asia, which are grouped in Other countries. We allocate our results by geographic region based on the location of the unit responsible for managing the related assets, liabilities, revenues and expenses, except for the consolidated provision for credit losses, which is allocated based upon the country of ultimate risk.

BMO Financial Group Second Quarter Report 2015 • 45

Our results and average assets, grouped by operating segment, are as follows:


(Canadian $ in millions)

For the three months ended April 30, 2015	Canadian P&C	U.S. P&C	Wealth Management	BMO CM		Corporate Services	(1)	Total
Net interest income	1,194	684	150	274		(190	)	2,112
Non-interest revenue	411	194	1,038	738		33		2,414
Total Revenue	1,605	878	1,188	1,012		(157	)	4,526
Provision for credit losses	143	18	1	5		(6	)	161
Insurance Claims, Commissions and Changes in Policy Benefit Liabilities	-	-	24	-		-		24
Amortization	36	44	39	11		66		196
Non-interest expense	777	534	797	606		202		2,916
Income before taxes and non-controlling interest in subsidiaries	649	282	327	390		(419	)	1,229
Provision for income taxes	163	76	89	94		(192	)	230
Reported net income	486	206	238	296		(227	)	999
Non-controlling interest in subsidiaries	-	-	-	-		6		6
Net Income attributable to bank shareholders	486	206	238	296		(233	)	993
Average Assets	195,128	87,947	29,173	289,891		59,301		661,440

For the three months ended April 30, 2014	Canadian P&C	U.S. P&C	Wealth Management	BMO CM		Corporate Services	(1)	Total
Net interest income	1,152	612	135	327		(163	)	2,063
Non-interest revenue	386	174	1,072	624		50		2,306
Total Revenue	1,538	786	1,207	951		(113	)	4,369
Provision for credit losses	131	52	2	(4	)	(19	)	162
Insurance Claims, Commissions and Changes in Policy Benefit Liabilities	-	-	328	-		-		328
Amortization	34	44	23	12		68		181
Non-interest expense	731	471	608	569		34		2,413
Income before taxes and non-controlling interest in subsidiaries	642	219	246	374		(196	)	1,285
Provision for income taxes	162	62	54	69		(138	)	209
Reported net income	480	157	192	305		(58	)	1,076
Non-controlling interest in subsidiaries	-	-	-	-		14		14
Net Income attributable to bank shareholders	480	157	192	305		(72	)	1,062
Average Assets	188,940	74,623	23,589	264,036		43,572		594,760

(Canadian $ in millions)

For the six months ended April 30, 2015	Canadian P&C	U.S. P&C	Wealth Management	BMO CM		Corporate Services	(1)	Total
Net interest income	2,411	1,365	310	662		(417	)	4,331
Non-interest revenue	822	372	2,660	1,271		125		5,250
Total Revenue	3,233	1,737	2,970	1,933		(292	)	9,581
Provision for credit losses	275	58	3	14		(26	)	324
Insurance Claims, Commissions and Changes in Policy Benefit Liabilities	-	-	771	-		-		771
Amortization	72	87	76	21		128		384
Non-interest expense	1,576	1,051	1,588	1,219		300		5,734
Income before taxes and non-controlling interest in subsidiaries	1,310	541	532	679		(694	)	2,368
Provision for income taxes	322	143	135	162		(393	)	369
Reported net income	988	398	397	517		(301	)	1,999
Non-controlling interest in subsidiaries	-	-	-	-		20		20
Net Income attributable to bank shareholders	988	398	397	517		(321	)	1,979
Average Assets	194,684	86,310	28,482	288,760		57,853		656,089

For the six months ended April 30, 2014	Canadian P&C	U.S. P&C	Wealth Management	BMO CM		Corporate Services	(1)	Total
Net interest income	2,348	1,217	275	587		(251	)	4,176
Non-interest revenue	768	342	2,155	1,337		70		4,672
Total Revenue	3,116	1,559	2,430	1,924		(181	)	8,848
Provision for credit losses	270	73	1	(5	)	(78	)	261
Insurance Claims, Commissions and Changes in Policy Benefit Liabilities	-	-	685	-		-		685
Amortization	71	90	44	24		132		361
Non-interest expense	1,484	948	1,232	1,165		88		4,917
Income before taxes and non-controlling interest in subsidiaries	1,291	448	468	740		(323	)	2,624
Provision for income taxes	326	124	102	159		(224	)	487
Reported net income	965	324	366	581		(99	)	2,137
Non-controlling interest in subsidiaries	-	-	-	-		27		27
Net Income attributable to bank shareholders	965	324	366	581		(126	)	2,110
Average Assets	188,090	72,496	23,340	259,014		44,397		587,337
(1) Corporate Services includes Technology and Operations. Certain comparative figures have been reclassified to conform with the current period’s presentation.

46 • BMO Financial Group Second Quarter Report 2015

Our results and average assets, allocated by geographic region, are as follows:


(Canadian $ in millions)
For the three months ended April 30, 2015	Canada			United States			Other countries			Total
Net interest income		1,331			736			45			2,112
Non-interest revenue		1,437			647			330			2,414
Total Revenue		2,768			1,383			375			4,526
Provision for credit losses		180			(19	)		-			161
Insurance Claims, Commissions and Changes in Policy Benefit Liabilities		(94	)		-			118			24
Amortization		107			70			19			196
Non-interest expense		1,692			1,037			187			2,916
Income before taxes and non-controlling interest in subsidiaries		883			295			51			1,229
Provision for income taxes		165			57			8			230
Reported net income		718			238			43			999
Non-controlling interest in subsidiaries		5			-			1			6
Net Income attributable to bank shareholders		713			238			42			993
Average Assets		405,677			228,596			27,167			661,440

For the three months ended April 30, 2014	Canada			United States			Other countries			Total
Net interest income		1,322			702			39			2,063
Non-interest revenue		1,566			575			165			2,306
Total Revenue		2,888			1,277			204			4,369
Provision for credit losses		138			25			(1	)		162
Insurance Claims, Commissions and Changes in Policy Benefit Liabilities		258			-			70			328
Amortization		107			70			4			181
Non-interest expense		1,418			904			91			2,413
Income before taxes and non-controlling interest in subsidiaries		967			278			40			1,285
Provision for income taxes		172			55			(18	)		209
Reported net income		795			223			58			1,076
Non-controlling interest in subsidiaries		14			-			-			14
Net Income attributable to bank shareholders		781			223			58			1,062
Average Assets		370,243			202,955			21,562			594,760

(Canadian $ in millions)
For the six months ended April 30, 2015	Canada			United States			Other countries			Total
Net interest income		2,726			1,519			86			4,331
Non-interest revenue		3,382			1,206			662			5,250
Total Revenue		6,108			2,725			748			9,581
Provision for credit losses		290			34			-			324
Insurance Claims, Commissions and Changes in Policy Benefit Liabilities		558			-			213			771
Amortization		209			138			37			384
Non-interest expense		3,336			2,047			351			5,734
Income before taxes and non-controlling interest in subsidiaries		1,715			506			147			2,368
Provision for income taxes		262			81			26			369
Reported net income		1,453			425			121			1,999
Non-controlling interest in subsidiaries		20			-			-			20
Net Income attributable to bank shareholders		1,433			425			121			1,979
Average Assets		403,548			224,914			27,627			656,089

For the six months ended April 30, 2014	Canada			United States			Other countries			Total
Net interest income		2,667			1,431			78			4,176
Non-interest revenue		3,196			1,153			323			4,672
Total Revenue		5,863			2,584			401			8,848
Provision for credit losses		269			(6	)		(2	)		261
Insurance Claims, Commissions and Changes in Policy Benefit Liabilities		556			-			129			685
Amortization		213			140			8			361
Non-interest expense		2,963			1,782			172			4,917
Income before taxes and non-controlling interest in subsidiaries		1,862			668			94			2,624
Provision for income taxes		351			150			(14	)		487
Reported net income		1,511			518			108			2,137
Non-controlling interest in subsidiaries		27			-			-			27
Net Income attributable to bank shareholders		1,484			518			108			2,110
Average Assets		368,628			197,597			21,112			587,337



Certain comparative figures have been reclassified to conform with the current period’s presentation.

BMO Financial Group Second Quarter Report 2015 • 47

Note 16: Fair Value of Financial Instruments

Fair Value of Financial Instruments Not Carried at Fair Value on the Balance Sheet

Set out in the following tables are the amounts that would be reported if all financial assets and liabilities not currently carried at fair value were reported at their fair values. Refer to notes to our annual consolidated financial statements for the year ended October 31, 2014 on pages 178 to 185 for further discussion on the determination of fair value.

April 30,
2015

October 31,
2014

Carrying

value

Fair

value

Carrying

value

Fair

value

Securities

Held to maturity

10,015

10,149

10,344

10,490

Other (1)

594

2,112

510

1,829

10,609

12,261

10,854

12,319

Securities purchased under resale agreements (2)

51,554

51,197

33,141

33,095

Loans

Residential mortgages

101,839

102,373

101,013

101,273

Consumer instalment and other personal

64,273

63,406

64,143

63,280

Credit cards

7,896

7,652

7,972

7,706

Businesses and governments

132,153

130,750

120,766

119,399

306,161

304,181

293,894

291,658

Deposits

424,231

424,514

393,088

393,242

Securities sold under repurchase agreements (3)

35,597

35,675

25,485

25,505

Other liabilities (4)

23,335

23,951

23,546

23,927

Subordinated debt

4,435

4,688

4,913

5,110

This table excludes financial instruments with a carrying value approximating fair value such as cash and cash equivalents, interest bearing deposits with banks, securities borrowed, customers’ liabilities under acceptances, other assets, acceptances, securities lent and certain other liabilities.

(1) Excluded from other securities is $466 million of securities related to our merchant banking business that are carried at fair value on the balance sheet ($477 million as at October 31, 2014).

(2) Excludes $13,022 million of securities borrowed for which carrying value approximates fair value ($20,414 million as at October 31, 2014).

(3) Excludes $6,442 million of securities lent for which carrying value approximates fair value ($14,210 million as at October 31, 2014).

(4) Other liabilities include securitization and SE liabilities and certain other liabilities of subsidiaries, other than deposits.

Financial Instruments Designated at Fair Value

A portion of our structured note liabilities have been designated at fair value through profit or loss and are accounted for at fair value, which aligns the accounting result with the way the portfolio is managed. The change in fair value of these structured notes was recorded as a decrease of $23 million and $126 million in non-interest revenue, trading revenue and a decrease of $19 million and an increase of less than $1 million before tax recorded in other comprehensive income related to changes in our credit spread, respectively, for the three and six months ended April 30, 2015 (a decrease of $13 million and $25 million recorded in non-interest revenue, trading revenue, of which $39 million and $37 million related to changes in our own credit spread, respectively, for the three and six months ended April 30, 2014). The impact of changes in our credit spread is measured based on movements in the bank’s credit spread quarter over quarter.

The fair value and notional amount due at contractual maturity of these structured notes as at April 30, 2015 were $8,246 million and $8,219 million, respectively ($7,639 million and $7,733 million, respectively, as at October 31, 2014). These structured notes are recorded in deposits in our Consolidated Balance Sheet.

We designate certain securities held by our insurance subsidiaries that support our insurance liabilities at fair value through profit or loss since the actuarial calculation of insurance liabilities is based on the fair value of the investments supporting them. This designation aligns the accounting result with the way the portfolio is managed on a fair value basis. The change in fair value of the assets is recorded in non-interest revenue, insurance revenue and the change in fair value of the liabilities is recorded in insurance claims, commissions and changes in policy benefit liabilities. The fair value of these investments as at April 30, 2015 of $7,069 million ($6,599 million as at October 31, 2014) is recorded in securities, trading in our Consolidated Balance Sheet. The impact of recording these investments at fair value through profit or loss was a decrease of $231 million and an increase of $304 million in non-interest revenue, insurance revenue, respectively for the three and six months ended April 30, 2015 (an increase of $71 million and $227 million, respectively, for the three and six months ended April 30, 2014).

We designate the obligation related to certain investment contracts at fair value through profit or loss, which eliminates a measurement inconsistency that would otherwise arise from measuring the investment contract liabilities and offsetting changes in the fair value of the investments supporting them on a different basis. The fair value of these investment contract liabilities as at April 30, 2015 of $507 million ($407 million as at October 31, 2014) is recorded in other liabilities in our Consolidated Balance Sheet. The change in fair value of these investment contract liabilities resulted in a decrease of $13 million and an increase of $16 million in insurance claims, commissions, and changes in policy benefit liabilities, respectively, for the three and six months ended April 30, 2015 (an increase of $5 million and $13 million, respectively, for the three and six months ended April 30, 2014). For the three and six months ended April 30, 2015 a decrease of $4 million and an increase of $1 million, respectively, was recorded in other comprehensive income related to changes in our own credit spread. Changes in the fair value of investments backing these annuity liabilities are also recorded in non-interest revenue, insurance revenue. The impact of changes in our credit spread is measured based on movements in the bank’s credit spread quarter over quarter.

Note liabilities issued by our credit protection vehicle have been designated at fair value through profit or loss and are accounted for at fair value. This eliminates a measurement inconsistency that would otherwise arise from measuring the note liabilities and offsetting

48 • BMO Financial Group Second Quarter Report 2015

changes in the fair value of investments and derivatives on a different basis. The fair value of these note liabilities as at April 30, 2015 of $139 million ($139 million as at October 31, 2014) is recorded in other liabilities in our Consolidated Balance Sheet. The change in fair value of these note liabilities resulted in a decrease of less than $1 million and less than $1 million in non-interest revenue, trading revenues, respectively, for the three and six months ended April 30, 2015 (an increase of $1 million and $1 million, respectively, for the three and six months ended April 30, 2014).

We designate certain investments held in our merchant banking business at fair value through profit or loss, which aligns the accounting result with the way the portfolio is managed. The fair value of these investments as at April 30, 2015 of $466 million ($467 million as at October 31, 2014) is recorded in securities, other in our Consolidated Balance Sheet. The impact of recording these investments at fair value through profit or loss was a decrease in non-interest revenue, securities gains, other than trading of $4 million and $20 million, respectively, for the three and six months ended April 30, 2015 (an increase of $14 million and $8 million, respectively, for the three and six months ended April 30, 2014).

Fair Value Hierarchy

We use a fair value hierarchy to categorize financial instruments according to the inputs we use in valuation techniques to measure fair value. The extent of our use of actively quoted market prices (Level 1), internal models using observable market information as inputs (Level 2) and internal models without observable market information as inputs (Level 3) in the valuation of securities, fair value liabilities, derivative assets and derivative liabilities was as follows:


(Canadian $ in millions)	April 30, 2015						October 31, 2014
	Valued using quoted market prices		Valued using models (with observable inputs)		Valued using models (without observable inputs)		Valued using quoted market prices		Valued using models (with observable inputs)		Valued using models (without observable inputs)
Trading Securities
Issued or guaranteed by:
Canadian federal government		7,796		2,020		-		8,737		1,725		-
Canadian provincial and municipal governments		3,904		3,832		-		3,134		4,062		-
U.S. federal government		4,641		448		-		5,725		440		-
U.S. states, municipalities and agencies		-		999		90		-		626		85
Other governments		383		89		-		124		99		-
Mortgage-backed securities and collateralized mortgage obligations		-		726		-		-		702		-
Corporate debt		292		8,966		457		1,974		9,319		538
Corporate equity		42,179		5,209		-		37,221		10,511		-
		59,195		22,289		547		56,915		27,484		623
Available-for-Sale Securities
Issued or guaranteed by:
Canadian federal government		5,234		5,193		-		4,946		5,555		-
Canadian provincial and municipal governments		2,316		2,165		-		1,679		2,425		-
U.S. federal government		1,865		-		-		1,093		-		-
U.S. states, municipalities and agencies		-		6,403		1		-		5,814		1
Other governments		1,993		3,674		-		2,136		3,996		-
Mortgage-backed securities and collateralized mortgage obligations		-		10,561		-		-		9,949		-
Corporate debt		5,918		2,275		7		5,687		1,971		8
Corporate equity		349		135		1,251		422		146		1,138
		17,675		30,406		1,259		15,963		29,856		1,147
Other Securities		-		-		466		10		-		467
Fair Value Liabilities
Securities sold but not yet purchased		23,164		2,744		-		23,615		3,733		-
Structured note liabilities and other note liabilities		-		8,393		-		-		7,785		-
Annuity liabilities		-		507		-		-		407		-
		23,164		11,644		-		23,615		11,925		-
Derivative Assets
Interest rate contracts		9		19,738		-		23		18,241		-
Foreign exchange contracts		39		17,868		-		32		12,649		-
Commodity contracts		1,248		53		-		653		30		-
Equity contracts		43		757		-		51		896		-
Credit default swaps		-		73		3		-		68		12
		1,339		38,489		3		759		31,884		12
Derivative Liabilities
Interest rate contracts		33		18,021		-		33		16,983		-
Foreign exchange contracts		31		20,947		-		33		12,110		-
Commodity contracts		1,929		456		-		1,101		233		-
Equity contracts		40		2,655		-		38		3,002		-
Credit default swaps		-		125		-		-		116		8
		2,033		42,204		-		1,205		32,444		8

BMO Financial Group Second Quarter Report 2015 • 49

Valuation Techniques and Significant Inputs

We determine the fair value of publicly traded fixed maturity and equity securities using quoted prices in active markets (Level 1) when these are available. When quoted prices in active markets are not available, we determine the fair value of financial instruments using models such as discounted cash flows with observable market data for inputs such as yield and prepayment rates or broker quotes and other third-party vendor quotes (Level 2). Fair value may also be determined using models where significant market inputs are not observable due to inactive markets or minimal market activity (Level 3). We maximize the use of market inputs to the extent possible.

Our Level 2 trading securities are primarily valued using discounted cash flow models with observable spreads or broker quotes. The fair value of Level 2 available-for-sale securities is determined using discounted cash flow models with observable spreads or third-party vendor quotes. Level 2 structured note liabilities are valued using models with observable market information. Level 2 derivative assets and liabilities are valued using industry-standard models and observable market information.

Quantitative Information about Level 3 Fair Value Measurements

The table below presents fair values of our significant Level 3 financial instruments, the valuation techniques used to determine their fair values and the value ranges of significant unobservable inputs used in the valuations.

Range of input values (1)

As at April 30, 2015

(Canadian $ in millions, except as noted)

Reporting line in fair
value hierarchy table

Fair value

of assets

Valuation techniques

Significant

unobservable

inputs

Low

High

Securities

Private equity (2)

Corporate equity

1,251

Net Asset Value

EV/EBITDA

Multiple

5.5x

9.5x

Collateralized loan obligations securities (3)

Corporate debt

464

Discounted Cash Flow Model

Yield/Discount Margin

1.25%

Merchant banking securities

Other

466

Net Asset Value

EV/EBITDA

Multiple

4.4x

8.7x

(1) The low and high input values represent the actual highest and lowest level of inputs used to value a group of financial instruments in a particular product category. These input ranges do not reflect the level of input uncertainty, but are affected by the specific underlying instruments within the product category. The input ranges will therefore vary from period to period based on the characteristics of the underlying instruments held at each balance sheet date.

(2) Included in private equity is $642 million of Federal Reserve Bank and U.S. Federal Home Loan Bank shares that we hold to meet regulatory requirements. These shares are carried at cost, which is deemed to approximate fair value as a result of these shares not being traded in the market.

(3) Includes both trading and available-for-sale instruments.

na – not applicable

Significant Unobservable Inputs in Level 3 Instrument Valuations

Net Asset Value

Net asset value represents the estimated value of a security based on valuations received from the investment or fund manager. The valuation of certain private equity securities is based on the economic benefit derived from our investment.

EV/EBITDA Multiple

The fair value of private equity and merchant banking investments is derived by calculating an enterprise value (“EV”) using the EV/EBITDA multiple and then proceeding through a waterfall of the company’s capital structure to determine the value of the assets or securities we hold. The EV/EBITDA multiple is determined using judgment in considering factors such as multiples for comparable listed companies, recent transactions and company-specific factors, as well as liquidity discounts that account for the lack of active trading in these assets and securities.

Yield/Discount Margin

A financial instrument’s yield is the interest rate used to discount future cash flows in a valuation model. An increase in the yield, in isolation, would result in a decrease in the related fair value measurement. The discount margin is the difference between a debt instrument’s yield and a benchmark instrument’s yield. Benchmark instruments have high credit quality ratings and similar maturities and are often government bonds. The discount margin for an instrument forms part of the yield used in a discounted cash flow calculation. Generally, an increase in the discount margin will result in a decrease in fair value.

Sensitivity Analysis of Level 3 Instruments

Sensitivity analysis at April 30, 2015 for significant Level 3 instruments, that is securities which represent greater than 10% of Level 3 instruments, is provided below.

Within Level 3 trading securities is corporate debt of $452 million related to securities that are hedged with credit default swaps that are also considered to be Level 3 instruments. As at April 30, 2015, the derivative assets and derivative liabilities were valued at $3 million and $nil, respectively. We have determined the valuation of these derivatives and the related securities based on market-standard models we use to model the specific collateral composition and cash flow structure of the related deal. As at April 30, 2015, the impact of assuming a 10 basis point increase or decrease in the discount margin would be a $1 million decrease or increase in fair value, respectively.

We have not applied another reasonably possible alternative assumption to the significant Level 3 categories of private equity investments and merchant banking securities, as the net asset values are provided by the investment or fund managers.

50 • BMO Financial Group Second Quarter Report 2015

Significant Transfers

Our policy is to record transfers of assets and liabilities between fair value hierarchy levels at their fair values as at the end of each reporting period, consistent with the date of the determination of fair value. Transfers are made between the various fair value hierarchy levels that result from changes in the availability of quoted market prices or observable market inputs that result from changing market conditions. The following is a discussion of the significant transfers between Level 1, Level 2 and Level 3 balances for the three and six months ended April 30, 2015.

During the three and six months ended April 30, 2015, $6 million and $139 million, respectively, of trading securities were transferred from Level 1 to Level 2 due to reduced observability of the inputs used to value these securities. During the three and six months ended April 30, 2015, $60 million and $67 million, respectively, of trading securities, and $180 million and $180 million, respectively, of available-for-sale securities were transferred from Level 2 to Level 1 due to increased availability of quoted prices in active markets.

During the three and six months ended April 30, 2015, no available-for-sale securities or trading securities were transferred into or out of Level 3.

Changes in Level 3 Fair Value Measurements

The tables below present a reconciliation of all changes in Level 3 financial instruments during the three months ended April 30, 2015, including realized and unrealized gains (losses) included in earnings and other comprehensive income.


			Change in fair value

For the three months ended April 30, 2015	Balance January 31, 2015		Included in earnings			Included in other compre- hensive income		Purchases		Sales			Maturities/ Settlement (1)			Transfers into Level 3		Transfers out of Level 3		Fair Value as at April 30, 2015		Unrealized gains (losses) (2)
Trading Securities
Issued or guaranteed by:
U.S. states, municipalities and agencies		95		(5	)		-		-		-			-			-		-		90		(5	)
Corporate debt		544		(28	)		-		-		-			(59	)		-		-		457		(28	)
Total trading securities		639		(33	)		-		-		-			(59	)		-		-		547		(33	)
Available-for-Sale Securities
Issued or guaranteed by:
U.S. states, municipalities and agencies		1		-			-		-		-			-			-		-		1		-
Corporate debt		8		-			-		-		(1	)		-			-		-		7		-
Corporate equity		1,289		(13	)		(47)		34		(12	)		-			-		-		1,251		(47	)
Total available-for-sale securities		1,298		(13	)		(47)		34		(13	)		-			-		-		1,259		(47	)
Other Securities		488		35			-		13		(70	)		-			-		-		466		35
Derivative Assets
Credit default swaps		3		-			-		-		-			-			-		-		3		(1	)
Derivative Liabilities
Credit default swaps		-		-			-		-		-			-			-		-		-		-


(1)		Includes cash settlement of derivative assets and derivative liabilities.
(2)		Unrealized gains or losses on trading securities, derivative assets and derivative liabilities still held on April 30, 2015 are included in earnings in the period. For available-for-sale securities, the unrealized gains or losses on securities still held on April 30, 2015 are included in Accumulated Other Comprehensive Income.


			Change in fair value

For the six months ended April 30, 2015	Balance October 31, 2014		Included in earnings			Included in other compre- hensive income		Purchases		Sales			Maturities/ Settlement (1)			Transfers into Level 3		Transfers out of Level 3		Fair Value as at April 30, 2015		Unrealized gains (losses) (2)
Trading Securities
Issued or guaranteed by:
U.S. states, municipalities and agencies		85		5			-		-		-			-			-		-		90		5
Corporate debt		538		25			-		-		-			(106	)		-		-		457		25
Total trading securities		623		30			-		-		-			(106	)		-		-		547		30
Available-for-Sale Securities
Issued or guaranteed by:
U.S. states, municipalities and agencies		1		-			-		-		-			-			-		-		1		-
Corporate debt		8		-			-		-		(1	)		-			-		-		7		-
Corporate equity		1,138		(20	)		90		74		(31	)		-			-		-		1,251		90
Total available-for-sale securities		1,147		(20	)		90		74		(32	)		-			-		-		1,259		90
Other Securities		467		45			-		84		(130	)		-			-		-		466		41
Derivative Assets
Credit default swaps		12		(9	)		-		-		-			-			-		-		3		(9	)
Derivative Liabilities
Credit default swaps		8		(8	)		-		-		-			-			-		-		-		(8	)


(1)		Includes cash settlement of derivative assets and derivative liabilities.
(2)		Unrealized gains or losses on trading securities, derivative assets and derivative liabilities still held on April 30, 2015 are included in earnings in the period. For available-for-sale securities, the unrealized gains or losses on securities still held on April 30, 2015 are included in Accumulated Other Comprehensive Income.

BMO Financial Group Second Quarter Report 2015 • 51

Note 17: Contractual Maturities of Assets and Liabilities and Off-Balance Sheet Commitments

The tables below show the remaining contractual maturity of on-balance sheet assets and liabilities and off-balance sheet commitments. The contractual maturity of financial assets and liabilities is an input to but is not necessarily consistent with the expected maturity of assets and liabilities that is used in the management of liquidity and funding risk. We forecast asset and liability cash flows under both normal market conditions and under a number of stress scenarios to manage liquidity and funding risk. Stress scenarios include assumptions for loan repayments, deposit withdrawals, and credit commitment and liquidity facility drawdowns by counterparty and product type. Stress scenarios also consider the time horizon over which liquid assets can be monetized and the related haircuts and potential collateral requirements that may occur due to both market volatility and credit rating downgrades amongst other assumptions. For further details, see the Liquidity and Funding Risk Section on pages 95-100 of our 2014 Annual Report.

(Canadian $ in millions)

April 30,
2015

0 to 1

month

1 to 3

months

3 to 6

months

6 to 9

months

9 to 12

months

1 to 2

years

2 to 5

years

Over 5

years

maturity

Total

On-Balance Sheet Financial Instruments

Assets

Cash and cash equivalents

39,576

827

40,403

Interest bearing deposits with banks

4,905

1,704

546

7,256

Securities

Trading

524

1,461

1,186

1,016

2,109

4,361

7,153

16,833

47,388

82,031

Available-for-sale

1,236

608

882

1,637

1,444

8,020

19,803

13,974

1,736

49,340

Held-to-maturity

225

284

376

962

3,849

4,234

10,015

Other

995

1,060

Total securities

1,768

2,153

2,293

2,937

3,929

13,343

30,863

35,041

50,119

142,446

Securities borrowed or purchased under resale agreements

47,485

11,582

4,039

968

485

64,576

Loans

Residential mortgages

1,586

2,314

3,945

4,486

4,673

18,483

56,525

9,827

101,839

Consumer instalment and other personal

421

869

1,100

1,372

1,515

5,127

20,161

10,169

23,539

64,273

Credit cards

7,896

Businesses and governments

8,313

11,173

3,617

3,495

13,875

13,997

38,567

7,178

31,938

132,153

Customers’ liability under acceptances

9,373

1,989

11,453

Allowance for credit losses

(1,758

)

(1,758

)

Total loans and acceptances, net of allowance

19,693

16,345

8,743

9,354

20,072

37,607

115,253

27,174

61,615

315,856

Other Assets

Derivative instruments

3,682

3,541

1,481

2,072

744

4,236

10,239

13,836

39,831

Premises and equipment

2,274

Goodwill

5,646

Intangible assets

2,136

Current tax assets

596

Deferred tax assets

3,174

Other

1,488

329

127

3,779

3,317

9,081

Total other assets

5,170

3,870

1,608

2,072

746

4,236

10,278

17,615

17,143

62,738

Total Assets

118,597

35,654

17,229

15,385

25,279

55,203

156,394

79,830

129,704

633,275

52 • BMO Financial Group Second Quarter Report 2015

(Canadian $ in millions)

April 30,
2015

0 to 1

month

1 to 3

months

3 to 6

months

6 to 9

months

9 to 12

months

1 to 2

years

2 to 5

years

Over 5

years

maturity

Total

Liabilities and Equity

Deposits (1)

Banks

15,005

6,840

1,192

556

531

4,740

28,864

Businesses and governments

28,257

27,923

24,366

12,843

6,691

16,542

23,519

9,903

104,694

254,738

Individuals

1,541

3,174

6,121

4,426

4,852

7,919

14,940

1,715

95,941

140,629

Total deposits

44,803

37,937

31,679

17,825

12,074

24,461

38,459

11,618

205,375

424,231

Other liabilities

Derivative instruments

2,871

4,210

2,537

3,399

1,411

6,563

11,283

11,963

44,237

Acceptances

9,373

1,989

11,453

Securities sold but not yet purchased

25,908

Securities lent or sold under repurchase agreements

41,096

752

122

42,039

Current tax liabilities

211

Deferred tax liabilities

188

Securitization and liabilities related to structured entities

437

1,205

788

437

5,040

9,777

4,535

22,220

Other

7,120

502

1,125

2,875

1,816

8,493

21,950

Total other liabilities

86,369

7,890

3,901

4,188

1,989

12,728

23,935

18,314

8,892

168,206

Subordinated debt

100

4,335

4,435

Total Equity

36,403

Total Liabilities and Equity

131,172

45,827

35,580

22,013

14,063

37,289

62,394

34,267

250,670

633,275

(1) Deposits payable on demand and payable after notice have been included under no maturity.

(Canadian $ in millions)

April 30,
2015

0 to 1

month

1 to 3

months

3 to 6

months

6 to 9

months

9 to 12

months

1 to 2

years

2 to 5

years

Over 5

years

maturity

Total

Off-Balance Sheet Commitments

Commitments to extend credit (1)

971

4,144

3,231

8,369

7,210

13,674

54,542

3,521

95,662

Operating leases

285

621

604

1,825

Financial guarantee contracts (1)

5,494

Purchase obligations

125

183

163

164

612

877

206

2,393

(1) A large majority of these commitments expire without being drawn upon. As a result, the total contractual amounts may not be representative of the funding likely to be required for these commitments.

BMO Financial Group Second Quarter Report 2015 • 53


(Canadian $ in millions)																				October 31, 2014
	0 to 1 month		1 to 3 months		3 to 6 months		6 to 9 months		9 to 12 months		1 to 2 years		2 to 5 years		Over 5 years		No maturity			Total
On-Balance Sheet Financial Instruments
Assets
Cash and cash equivalents		27,625		-		-		-		-		-		-		-		761			28,386
Interest bearing deposits with banks		4,124		1,420		521		14		31		-		-		-		-			6,110
Securities
Trading		542		1,159		584		1,344		1,274		5,255		9,722		17,409		47,733			85,022
Available-for-sale		1,014		345		553		1,138		714		8,750		21,047		11,699		1,706			46,966
Held-to-maturity		-		-		113		98		294		1,356		4,172		4,311		-			10,344
Other		-		10		3		2		-		-		45		19		908			987
Total securities		1,556		1,514		1,253		2,582		2,282		15,361		34,986		33,438		50,347			143,319
Securities borrowed or purchased under resale agreements		39,014		10,255		2,536		678		938		134		-		-		-			53,555
Loans
Residential mortgages		1,284		1,528		3,763		4,725		4,470		20,497		55,659		9,087		-			101,013
Consumer instalment and other personal		386		458		1,097		1,193		1,257		6,491		20,847		8,981		23,433			64,143
Credit cards		-		-		-		-		-		-		-		-		7,972			7,972
Businesses and governments		7,701		9,520		3,438		4,201		11,019		10,315		37,537		6,294		30,741			120,766
Customers’ liability under acceptances		8,871		1,920		77		1		9		-		-		-		-			10,878
Allowance for credit losses		-		-		-		-		-		-		-		-		(1,734	)		(1,734	)
Total loans and acceptances, net of allowance		18,242		13,426		8,375		10,120		16,755		37,303		114,043		24,362		60,412			303,038
Other Assets
Derivative instruments		2,703		2,348		1,387		1,746		796		3,436		8,955		11,284		-			32,655
Premises and equipment		-		-		-		-		-		-		-		-		2,276			2,276
Goodwill		-		-		-		-		-		-		-		-		5,353			5,353
Intangible assets		-		-		-		-		-		-		-		-		2,052			2,052
Current tax assets		-		-		-		-		-		-		-		-		665			665
Deferred tax assets		-		-		-		-		-		-		-		-		3,019			3,019
Other		1,509		271		149		4		-		-		64		3,545		2,689			8,231
Total other assets		4,212		2,619		1,536		1,750		796		3,436		9,019		14,829		16,054			54,251
Total Assets		94,773		29,234		14,221		15,144		20,802		56,234		158,048		72,629		127,574			588,659

54 • BMO Financial Group Second Quarter Report 2015


(Canadian $ in millions)																			October 31, 2014
	0 to 1 month		1 to 3 months		3 to 6 months		6 to 9 months		9 to 12 months		1 to 2 years		2 to 5 years		Over 5 years		No maturity		Total
Liabilities and Equity
Deposits (1)
Banks		7,495		4,680		1,067		597		2		-		-		-		4,402		18,243
Businesses and governments		26,644		25,061		20,255		10,157		8,439		16,347		23,914		8,198		100,124		239,139
Individuals		2,039		3,290		5,472		4,296		5,288		6,386		16,454		1,528		90,953		135,706
Total deposits		36,178		33,031		26,794		15,050		13,729		22,733		40,368		9,726		195,479		393,088
Other liabilities
Derivative instruments		1,545		2,321		1,325		2,095		1,399		4,565		9,633		10,774		-		33,657
Acceptances		8,871		1,920		77		1		9		-		-		-		-		10,878
Securities sold but not yet purchased		27,348		-		-		-		-		-		-		-		-		27,348
Securities lent or sold under repurchase agreements		36,757		2,624		149		95		70		-		-		-		-		39,695
Current tax liabilities		-		-		-		-		-		-		-		-		235		235
Deferred tax liabilities		-		-		-		-		-		-		-		-		178		178
Securitization and liabilities related to structured entities		3		429		1,560		341		1,135		3,976		10,066		4,955		-		22,465
Other		7,226		142		16		330		26		193		3,577		1,723		7,565		20,798
Total other liabilities		81,750		7,436		3,127		2,862		2,639		8,734		23,276		17,452		7,978		155,254
Subordinated debt		-		-		-		-		-		-		100		4,813		-		4,913
Total Equity		-		-		-		-		-		-		-		-		35,404		35,404
Total Liabilities and Equity		117,928		40,467		29,921		17,912		16,368		31,467		63,744		31,991		238,861		588,659
(1) Deposits payable on demand and payable after notice have been included as having no maturity.
(Canadian $ in millions)																			October 31, 2014
	0 to 1 month		1 to 3 months		3 to 6 months		6 to 9 months		9 to 12 months		1 to 2 years		2 to 5 years		Over 5 years		No maturity		Total
Off-Balance Sheet Commitments
Commitments to extend credit (1)		1,313		1,717		3,844		6,048		3,830		15,872		51,086		1,549		-		85,259
Operating leases		26		52		77		77		76		281		630		638		-		1,857
Financial guarantee contracts (1)		5,269		-		-		-		-		-		-		-		-		5,269
Purchase obligations		58		113		169		169		169		586		783		209		-		2,256

BMO Financial Group Second Quarter Report 2015 • 55

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