Friday, May 25th, 2012 - BMO Financial Group
BMO Financial Group Reports Another Quarter of Strong Results, Increasing Net Income by 27% Year Over Year to $1.03 Billion

TORONTO, ONTARIO--(Marketwire - May 23, 2012) - BMO Financial Group (TSX: BMO)(NYSE: BMO) and BMO Bank of Montreal -

Second Quarter 2012 Report to Shareholders

BMO Financial Group Reports Another Quarter of Strong Results, Increasing Net Income by 27% Year Over Year to $1.03 Billion

Financial Results Highlights(1):

Second Quarter 2012 Compared with Second Quarter 2011:



-- Net income of $1,028 million, up $215 million or 27%



-- Adjusted net income(2) of $982 million, up $212 million or 28%



-- Reported EPS(3) of $1.51, up 14%



-- Adjusted EPS(2,3) of $1.44, up 15%



-- Reported ROE of 16.2%, compared with 17.5%



-- Adjusted ROE(2) of 15.4%, compared with 16.6%



-- Provisions for credit losses of $195 million, down $102 million



-- Common Equity Ratio remains strong at 9.90%, using a Basel II approach



Year-to-Date 2012 Compared with Year-to-Date 2011:



-- Net income of $2,137 million, up $499 million or 31%



-- Adjusted net income(2) of $1,954 million, up $367 million or 23%



-- Reported EPS(3) of $3.14, up 18%



-- Adjusted EPS(2,3) of $2.86, up 11%



-- Provisions for credit losses of $336 million, down $284 million



For the second quarter ended April 30, 2012, BMO Financial Group (TSX: BMO)(NYSE: BMO) reported strong net income of $1,028 million or $1.51 per share. On an adjusted basis, net income was $982 million or $1.44 per share.

"BMO produced strong financial results again in the second quarter," said Bill Downe, President and Chief Executive Officer, BMO Financial Group. "The consistent focus we have on customers and their success is underpinned by a strong, consistent brand and is grounded in the belief that a relationship bank is relevant to households and companies, as they manage their finances and improve their financial position. Simply stated, the importance we place on giving our customers increased confidence has helped us carve out a distinct position in the marketplace - and is the key to accelerating profitable growth.

"In P&C Canada, our sales efforts are driving higher volumes across most products and higher fee revenues. We continue to benefit from a deeper understanding of customers' evolving needs. In anticipation of market conditions, we acted to introduce offers that we believe are more suitable for all customers - and we are helping to move the market as a consequence, to a better place.

"The integration of our U.S. banking platform is on track. The business has been materially strengthened with expanded access to existing and new regions, increased brand awareness and a better ability to compete in highly attractive markets. The commercial team continues to outperform, and there's visible, strong growth in our commercial and industrial book.

"BMO Capital Markets delivered good performance with higher revenue and net income than last quarter. Obviously, market uncertainty persists, but our diversified portfolio of businesses and broad client base position us well to take advantage of revenue opportunities.

"Private Client Group's net income was up sharply - its best financial performance in two years. The results were strong and we continue to grow. We entered into two definitive agreements to acquire businesses that further enhance our wealth management capabilities and expand our geographic reach. Earlier this month, we opened a representative office in the Gulf Cooperation Council states to get closer to clients we have been dealing with for decades - and raise the visibility of our global asset management capability.

"Our businesses delivered strong performance in a highly competitive environment. Last fall, we embarked on a significant long-term plan to further increase the competitiveness of the bank and enhance our return on equity; the work is well underway, and we're simplifying structures and processes. Ultimately, the BMO brand and the message it carries is our best resource in building the business - and it's also our best protection against uncertainty. There can be no element more important in managing the complexity of regulatory change than our established commitment to making money make sense," concluded Mr. Downe.

Concurrent with the release of results, BMO announced a third quarter dividend of $0.70 per common share, unchanged from the preceding quarter and equivalent to an annual dividend of $2.80 per common share.

(1) Effective the first quarter of 2012, BMO's consolidated financial statements and the accompanying Interim Management's Discussion and Analysis (MD&A) are prepared in accordance with International Financial Reporting Standards (IFRS), as described in Note 1 to the unaudited interim consolidated financial statements. Amounts in respect of comparative periods for 2011 have been restated to conform to the current presentation. References to GAAP mean IFRS, unless indicated otherwise.

(2) 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. Items excluded from second quarter 2012 results in the determination of adjusted results totalled net income of $46 million after tax, comprised of a $55 million after-tax net benefit of credit-related items in respect of the acquired Marshall & Ilsley Corporation (M&I) performing loan portfolio; costs of $74 million ($47 million after tax) for the integration of the acquired business; a $33 million ($24 million after tax) charge for amortization of acquisition-related intangible assets on all acquisitions; the benefit of run-off structured credit activities of $76 million ($73 million after tax); restructuring charges of $31 million ($23 million after tax) to align our cost structure with the current and future business environment; and a decrease in the collective allowance for credit losses of $18 million ($12 million after tax). Items excluded from the year-to-date adjusted results totalled net income of $183 million after tax and consisted of a $169 million after-tax net benefit of credit-related items in respect of the acquired M&I performing loan portfolio; a $144 million ($90 million after tax) charge for the integration of the acquired business; a $67 million ($48 million after tax) charge for amortization of acquisition-related intangible assets; the benefit of run-off structured credit activities of $212 million ($209 million after tax); restructuring charges of $99 million ($69 million after tax) to align our cost structure with the current and future business environment; and a decrease in the collective allowance for credit losses of $18 million ($12 million after tax). All of the adjusting items are reflected in results of Corporate Services except for the amortization of acquisition-related intangible assets, which is charged across the operating groups. Management assesses performance on both a GAAP basis and adjusted basis and considers both bases to be useful in assessing underlying, ongoing business performance. Presenting results on both bases provides readers with an enhanced understanding of how management views results and may enhance readers' analysis of performance. Adjusted results and measures are non-GAAP and are detailed in the Adjusted Net Income section, and (for all reported periods) in the Non-GAAP Measures section of the MD&A, where such non-GAAP measures and their closest GAAP counterparts are disclosed.

(3) All Earnings per Share (EPS) measures in this document refer to diluted EPS unless specified otherwise. Earnings per share is calculated using net income after deductions for net income attributable to non-controlling interest in subsidiaries and preferred share dividends.

Operating Segment Overview

P&C Canada

Net income was $446 million, up $32 million or 7.8% from a year ago. Results reflect higher revenues from increased volume across most products and increased fee revenue, partially offset by lower net interest margins. Expenses were basically unchanged, reflecting cost management discipline, resulting in positive operating leverage of 2.3%.

Net income was consistent with the first quarter, despite fewer days in the current period.

As we remain focused on making money make sense for our customers, we are seeing our innovative products and enhanced multichannel capabilities make a difference. We are seeing further increases in the average number of product categories used by both personal and commercial customers and customer loyalty, as measured by net promoter score, continues to improve in both our personal and commercial businesses. Through the first half of 2012, we strengthened our branch network, opening or upgrading 17 locations across the country and adding 200 Cash Automated Banking Machines (ABMs). We recently announced plans to add more than 800 ABMs overall across Canada by the end of 2014, which will increase our network to almost 3,000 machines.

In personal banking, our award winning mortgage product is helping new and existing customers become mortgage free faster while improving retention and forming the foundation for new and expanded long-term relationships. For two years now, we have been actively promoting fixed rate products with shorter amortization periods. With these products, Canadians can pay less interest, become mortgage free faster, protect themselves against rising rates and potentially retire debt free.

In commercial banking, we continued to rank #2 in Canadian business banking loan market share. Our Open for Business campaign is underway and we are making $10 billion available to Canadian businesses over the course of the next three years to help them boost productivity and expand into new markets. We saw further growth in sales of our cash management solutions due to our strong Online Banking for Business capability, combined with our growing cash management sales force. Our goal is to become the bank of choice for businesses across Canada by providing the knowledge, advice and guidance that our customers value.

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

Net income of $122 million increased $68 million from $54 million in the second quarter a year ago. Adjusted net income was $137 million, up $78 million from a year ago as a result of the acquisition of Marshall & Ilsley Corporation.

Adjusted net income decreased $15 million from the first quarter primarily due to reductions in net interest income related to lower loan spreads.

Commercial loans, excluding the commercial real estate and run-off portfolios, have seen two sequential quarters of growth.

Average deposits increased $0.8 billion from the prior quarter, due to continued deposit growth in our commercial business.

During the quarter, we celebrated the opening of the first branch built under the BMO Harris Bank brand. Through the transparency and openness of its design, the branch layout supports our commitment to be the bank that defines a great customer experience by making it easier for employees to focus on the customer. The branch is more than just a place to conduct financial transactions; it is a destination for comprehensive financial education, planning and guidance.

Our Commercial Bank team recently launched a new initiative that demonstrates our commitment to market leadership. The Thought Leadership initiative delivers to our customers and prospects valuable insights and information from our industry and financial experts. These tools are available on the Resource Center on the BMO Harris Commercial Bank website, which includes frequently updated blogs, newsletters, white papers, webinars and client success stories. In addition, we've partnered with the Wall Street Journal to create "Boss Talk," a weekly editorial segment where global business leaders discuss their points of view on business and industry challenges and opportunities. We've also partnered with Forbes to produce two custom research studies that will dive into issues that affect mid-market businesses.

During the quarter, we officially kicked off phase two of our rebranding efforts, during which we will rebrand all remaining legacy M&I and Harris Bank locations under the BMO Harris Bank banner upon systems conversion. The momentum and lessons learned from phase one are serving as a strong foundation for our work.

Private Client Group

Net income was $145 million, up $54 million or 59% from a year ago. Adjusted net income was $150 million, up $57 million or 62% from a year ago. Adjusted net income in PCG excluding insurance was $98 million, up $5 million from a year ago. Results benefited from acquisitions and higher spread-based and fee-based revenue, partly offset by lower transaction volumes in brokerage. Adjusted net income in insurance was $52 million. Prior year insurance results were negatively affected by the $47 million impact of unusually high earthquake-related reinsurance claims. Compared to the first quarter, adjusted net income was up $40 million or 37%, as the prior quarter was negatively impacted by unfavourable movements in long-term interest rates.

Assets under management and administration grew by $159 billion from a year ago to $445 billion primarily due to acquisitions. Compared to the first quarter, assets under management and administration increased 2.4%. We continue to attract new client assets and are benefiting from improved equity market conditions.

On April 12, 2012, BMO announced that it had entered into a definitive agreement to acquire CTC Consulting, a U.S.-based independent investment consulting firm providing dynamic investment research, advice and advisory services to clients and select multi-family offices and wealth advisors. This acquisition expands and enhances our manager research and advisory capabilities and investment offering to ultra-high net worth clients and will further strengthen and expand our presence in the United States. The transaction is expected to close by June 30, 2012, subject to customary closing conditions.

BMO also entered into a definitive agreement in the second quarter to acquire an Asian-based wealth management business. Based in Hong Kong and Singapore, the business provides private banking services to high net worth individuals in the Asia-Pacific region and had assets under management of almost $2 billion as at March 31, 2012. The deal is subject to certain closing conditions including regulatory approvals and is expected to close by early 2013.

For the second consecutive year, Global Banking and Finance Review named BMO Harris Private Banking the Best Private Bank in Canada, citing its industry-leading quality of service and wealth of expertise.

During the quarter, Private Asset Management Magazine presented U.S. Harris MyCFO with its 2012 award for Best Client Service by a Multi-Family Office, recognizing our success serving high net worth individuals and families in an increasingly complex economic and legislative environment.

BMO Capital Markets

Net income for the current quarter was $225 million, largely consistent with the $229 million of a year ago. Net income increased $27 million or 14% from the first quarter in a better capital markets environment. The current quarter saw some improvement in investment and corporate banking market activity, especially in Canada, while trading revenues declined slightly relative to the first quarter.

During the quarter, we were named the Best Investment Bank, Canada for the second time as well as the Best Metals and Mining Investment Bank for the third year in a row by Global Finance magazine. In addition, BMO Capital Markets received the Best FX Bank - North America award at the Dealmakers Monthly Country awards 2012, and Best Foreign Exchange Provider China 2012 award at the Global Banking and Finance Review 2012 awards. These designations reflect our clients' recognition of BMO Capital Markets for distinguished service over the course of the year.

BMO Capital Markets participated in 128 new issues in the quarter including 40 corporate debt deals, 27 government debt deals, 49 common equity transactions and 12 issues of preferred shares, raising $57 billion.

Corporate Services

Corporate Services' net income for the quarter was $91 million, an increase of $65 million from a year ago. On an adjusted basis, net income was $21 million, an improvement of $47 million from a year ago. Adjusting items are detailed in the Adjusted Net Income section and in the Non-GAAP Measures section. Adjusted revenues were $62 million lower, mainly due to the interest received on the settlement of certain tax matters in the prior year. Adjusted non-interest expense was $38 million higher, primarily due to the impact of the acquired business. Adjusted provisions for credit losses were better by $162 million, due to a $117 million ($72 million after-tax) recovery of provisions for credit losses on M&I purchased credit impaired loans, as well as lower provisions charged to Corporate Services under BMO's expected loss provisioning methodology, which is explained in the Corporate Services section at the end of this MD&A.

Acquisition of Marshall & Ilsley Corporation (M&I)

On July 5, 2011, BMO completed the acquisition of M&I. In this document, M&I is generally referred to as the 'acquired business' and other acquisitions are specifically identified. Activities of the acquired business are primarily reflected in the P&C U.S., Private Client Group and Corporate Services segments, with a small amount included in BMO Capital Markets.

The acquired business contributed $171 million to reported net income and $181 million to adjusted net income for the quarter. It contributed $440 million to reported net income and $396 million to adjusted net income for the year to date.

Adjusted Net Income

Management has designated certain amounts as adjusting items and has adjusted GAAP results so that we can discuss and present financial results without the effects of adjusting items to facilitate understanding of business performance and related trends. Management assesses performance on a GAAP basis and on an adjusted basis and considers both to be useful in the assessment of underlying business performance. Presenting results on both bases provides readers with a better understanding of how management assesses results. Adjusted results and measures are non-GAAP and, together with items excluded in determining adjusted results, are disclosed in more detail in the Non-GAAP Measures section, along with comments on the uses and limitations of such measures. Items excluded from second quarter 2012 results in the determination of adjusted results totalled $46 million of net income or $0.07 per share and were comprised of:



-- the $55 million after-tax net benefit for credit-related items in

respect of the acquired M&I performing loan portfolio, including $152

million for the recognition in net interest income of a portion of the

credit mark on the portfolio (including $49 million for the release of

the credit mark related to early repayment of loans), net of a $62

million provision for credit losses (comprised of an increase in the

collective allowance of $18 million and specific provisions of $44

million) and related income taxes of $35 million. These credit-related

items in respect of the acquired M&I performing loan portfolio can

significantly impact both net interest income and the provision for

credit losses in different periods over the life of the acquired M&I

performing loan portfolio;

-- costs of $74 million ($47 million after tax) for integration of the

acquired business including amounts related to system conversions,

restructuring and other employee-related charges, consulting fees and

marketing costs in connection with customer communications and

rebranding activities;

-- the $76 million ($73 million after-tax) benefit from run-off structured

credit activities (our credit protection vehicle and structured

investment vehicle). These vehicles are consolidated on our balance

sheet under IFRS and results primarily reflect valuation changes

associated with these activities that have been included in trading

revenue;

-- a restructuring charge of $31 million ($23 million after tax) to align

our cost structure with the current and future business environment.

This action is part of the broader effort underway in the bank to

improve productivity;

-- a decrease in the collective allowance for credit losses of $18 million

($12 million after tax) on loans other than the M&I acquired loan

portfolio; and

-- the amortization of acquisition-related intangible assets of $33 million

($24 million after tax).



Adjusted net income was $982 million for the second quarter of 2012, up $212 million or 28% from a year ago. Adjusted earnings per share were $1.44, up 15% from $1.25 a year ago. All of the above adjusting items were recorded in Corporate Services except the amortization of acquisition-related intangible assets, which is charged to the operating groups. The impact of adjusting items for comparative periods is summarized in the Non-GAAP Measures section.

Caution

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

The foregoing sections contain adjusted results and measures, which are non-GAAP. Please see the Non-GAAP Measures section.

Management's Discussion and Analysis

Management's Discussion and Analysis (MD&A) commentary is as of May 23, 2012. 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, unless indicated otherwise. The MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the period ended April 30, 2012, included in this document, and the annual MD&A for the year ended October 31, 2011, included in BMO's 2011 Annual Report. The material that precedes this section comprises part of this MD&A.

Bank of Montreal uses a unified branding approach that links all of the organization's member companies. Bank of Montreal, together with its subsidiaries, is known as BMO Financial Group. As such, in this document, the names BMO and BMO Financial Group mean Bank of Montreal, together with its subsidiaries.

Summary Data - Reported



Increase Increase

(Unaudited) (Canadian $ in (Decrease) (Decrease)

millions, except as noted) Q2-2012 vs. Q2-2011 vs. Q1-2012

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Net interest income 2,120 428 25% (198) (9%)

Non-interest revenue 1,839 198 12% 40 2%

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Revenue 3,959 626 19% (158) (4%)

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Specific provision for credit

losses 195 (70) (26%) 73 60%

Collective provision for credit

losses - (32) (100%) (19) (100%)

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Total provision for credit losses 195 (102) (34%) 54 38%

Non-interest expense 2,499 469 23% (55) (2%)

Provision for income taxes 237 44 23% (76) (24%)

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Net income 1,028 215 27% (81) (7%)

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Attributable to bank

shareholders 1,010 215 27% (80) (7%)

Attributable to non-controlling

interest in subsidiaries 18 - - (1) (3%)

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Net income 1,028 215 27% (81) (7%)

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Earnings per share - basic ($) 1.52 0.18 13% (0.13) (8%)

Earnings per share - diluted ($) 1.51 0.19 14% (0.12) (7%)

Return on equity (ROE) 16.2% (1.3%) (1.0%)

Productivity ratio 63.1% 2.2% 1.1%

Operating leverage (4.4%) nm nm

Net interest margin on earning

assets 1.89% 0.07% (0.16%)

Effective tax rate 18.7% (0.5%) (3.3%)



Capital Ratios Reported

Basel II Tier 1 Capital Ratio 11.97% (1.85%) 0.28%

Common Equity Ratio - using a

Basel II approach 9.90% (0.77%) 0.25%



Net income by operating group:

Personal and Commercial Banking 567 100 22% (16) (3%)

P&C Canada 446 32 8% - -

P&C U.S. 121 68 +100% (16) (12%)

Private Client Group 145 54 59% 40 39%

BMO Capital Markets 225 (4) (1%) 27 14%

Corporate Services, including T&O 91 65 +100% (132) (59%)

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BMO Financial Group net income 1,028 215 27% (81) (7%)

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Increase

(Unaudited) (Canadian $ in YTD- (Decrease)

millions, except as noted) 2012 vs. YTD-2011

-----------------------------------------------------------

Net interest income 4,438 1,029 30%

Non-interest revenue 3,638 246 7%

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Revenue 8,076 1,275 19%

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Specific provision for credit

losses 317 (265) (46%)

Collective provision for credit

losses 19 (19) (50%)

-----------------------------------------------------------

Total provision for credit losses 336 (284) (46%)

Non-interest expense 5,053 965 24%

Provision for income taxes 550 95 21%

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Net income 2,137 499 31%

-----------------------------------------------------------

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Attributable to bank

shareholders 2,100 498 31%

Attributable to non-controlling

interest in subsidiaries 37 1 2%

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Net income 2,137 499 31%

-----------------------------------------------------------

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Earnings per share - basic ($) 3.16 0.46 17%

Earnings per share - diluted ($) 3.14 0.48 18%

Return on equity (ROE) 16.7% (1.0%)

Productivity ratio 62.6% 2.5%

Operating leverage (4.9%) nm

Net interest margin on earning

assets 1.97% 0.17%

Effective tax rate 20.5% (1.3%)



Capital Ratios Reported

Basel II Tier 1 Capital Ratio 11.97% (1.85%)

Common Equity Ratio - using a

Basel II approach 9.90% (0.77%)



Net income by operating group:

Personal and Commercial Banking 1,150 152 15%

P&C Canada 892 1 -

P&C U.S. 258 151 +100%

Private Client Group 250 15 6%

BMO Capital Markets 423 (66) (13%)

Corporate Services, including T&O 314 398 +100%

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BMO Financial Group net income 2,137 499 31%

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T&O means Technology and Operations.

nm - not meaningful.







Summary Data - Adjusted(1)



Increase Increase

(Unaudited) (Canadian $ in (Decrease) (Decrease)

millions, except as noted) Q2-2012 vs. Q2-2011 vs. Q1-2012



Adjusted net interest income 1,969 261 15% (123) (6%)

Adjusted non-interest revenue 1,758 222 14% 107 6%

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Adjusted revenue 3,727 483 15% (16) -

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Adjusted specific provision and

adjusted total provision for

credit losses 151 (114) (43%) 60 66%

Adjusted non-interest expense 2,357 363 18% (21) (1%)

Adjusted provision for income

taxes 237 22 10% (65) (22%)

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Adjusted net income 982 212 28% 10 1%

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Attributable to bank

shareholders 964 212 28% 11 1%

Attributable to non-controlling

interest in subsidiaries 18 - - (1) (3%)

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Adjusted net income 982 212 28% 10 1%

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Adjusted earnings per share -

basic ($) 1.45 0.19 15% 0.02 1%

Adjusted earnings per share -

diluted ($) 1.44 0.19 15% 0.02 1%

Adjusted return on equity 15.4% (1.2%) 0.4%

Adjusted productivity ratio 63.2% 1.7% (0.3%)

Adjusted operating leverage (3.3%) nm nm

Adjusted net interest margin on

earning assets 1.76% (0.07%) (0.09%)

Adjusted effective tax rate 19.5% (2.3%) (4.2%)



Capital Ratios - Reported

Basel II Tier 1 Capital Ratio 11.97% (1.85%) 0.28%

Common Equity Ratio - using a

Basel II approach 9.90% (0.77%) 0.25%



Adjusted net income by operating

group:

Personal and Commercial Banking 585 111 24% (17) (3%)

P&C Canada 449 32 8% 1 -

P&C U.S. 136 79 +100% (18) (11%)

Private Client Group 150 57 62% 40 37%

BMO Capital Markets 226 (3) (1%) 28 14%

Corporate Services, including T&O 21 47 +100% (41) (68%)

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BMO Financial Group adjusted net

income 982 212 28% 10 1%

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Increase

(Unaudited) (Canadian $ in YTD- (Decrease)

millions, except as noted) 2012 vs. YTD-2011



Adjusted net interest income 4,061 627 18%

Adjusted non-interest revenue 3,409 151 5%

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Adjusted revenue 7,470 778 12%

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Adjusted specific provision and

adjusted total provision for

credit losses 242 (340) (58%)

Adjusted non-interest expense 4,735 692 17%

Adjusted provision for income

taxes 539 59 12%

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Adjusted net income 1,954 367 23%

-----------------------------------------------------------

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Attributable to bank

shareholders 1,917 366 24%

Attributable to non-controlling

interest in subsidiaries 37 1 2%

-----------------------------------------------------------

Adjusted net income 1,954 367 23%

-----------------------------------------------------------

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Adjusted earnings per share -

basic ($) 2.88 0.27 10%

Adjusted earnings per share -

diluted ($) 2.86 0.29 11%

Adjusted return on equity 15.2% (1.9%)

Adjusted productivity ratio 63.4% 3.0%

Adjusted operating leverage (5.5%) nm

Adjusted net interest margin on

earning assets 1.81% -

Adjusted effective tax rate 21.7% (1.5%)



Capital Ratios - Reported

Basel II Tier 1 Capital Ratio 11.97% (1.85%)

Common Equity Ratio - using a

Basel II approach 9.90% (0.77%)



Adjusted net income by operating

group:

Personal and Commercial Banking 1,187 175 17%

P&C Canada 897 1 -

P&C U.S. 290 174 +100%

Private Client Group 260 22 9%

BMO Capital Markets 424 (65) (13%)

Corporate Services, including T&O 83 235 +100%

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BMO Financial Group adjusted net

income 1,954 367 23%

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(1) The above results and statistics are presented on an adjusted basis.

These are non-GAAP amounts or non-GAAP measures. Please see the Non-

GAAP Measures section.

nm - not meaningful



Management's Responsibility for Financial Information

Bank of Montreal's Chief Executive Officer and Chief Financial Officer have signed certifications relating to the appropriateness of the financial disclosures in our interim MD&A and unaudited interim consolidated financial statements for the period ended April 30, 2012, and relating to the design of our disclosure controls and procedures and internal control over financial reporting. Bank of Montreal's management, under the supervision of the CEO and CFO, has evaluated the effectiveness, as at April 30, 2012, 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.

Bank of Montreal's internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of BMO; provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with Canadian generally accepted accounting principles and the requirements of the Securities and Exchange Commission in the United States, as applicable; ensure receipts and expenditures of BMO are being made only in accordance with authorizations of management and directors of Bank of Montreal; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of BMO assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

There were no changes in our internal control over financial reporting during the quarter ended April 30, 2012, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As in prior quarters, Bank of Montreal's audit committee reviewed this document, including the unaudited interim consolidated financial statements, and Bank of Montreal's Board of Directors approved the document prior to its release.

A comprehensive discussion of our businesses, strategies and objectives can be found in Management's Discussion and Analysis in BMO's 2011 Annual Report, which 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.

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 2012 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 and U.S. economies.

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

The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: general economic and market conditions in the countries in which we operate; weak, volatile or illiquid capital and/or credit markets; interest rate and currency value fluctuations; changes in monetary, fiscal or economic policy; the degree of competition in the geographic and business areas in which we operate; changes in laws or in supervisory expectations or requirements, including capital, interest rate and liquidity requirements and guidance; judicial or regulatory proceedings; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; our ability to execute our strategic plans and to complete and integrate acquisitions; critical accounting estimates and the effect of changes to accounting standards, rules and interpretations on these estimates; operational and infrastructure risks; changes to our credit ratings; general political conditions; global capital markets activities; the possible effects on our business of war or terrorist activities; disease or illness that affects local, national or international economies; natural disasters and disruptions to public infrastructure, such as transportation, communications, power or water supply; technological changes; and our ability to anticipate and effectively manage risks associated with all of the foregoing factors.

We caution that the foregoing list is not exhaustive of all possible factors. Other factors could adversely affect our results. For more information, please see the discussion on pages 30 and 31 of BMO's 2011 annual MD&A, which outlines in detail certain key factors that may affect Bank of Montreal's future results. When relying on forward-looking statements to make decisions with respect to Bank of Montreal, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Bank of Montreal does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by the organization or on its behalf, except as required by law. The forward-looking information contained in this document is presented for the purpose of assisting our shareholders in understanding our financial position as at and for the periods ended on the dates presented, as well as our strategic priorities and objectives, and may not be appropriate for other purposes.

In calculating the pro-forma impact of Basel III on our regulatory capital, risk-weighted assets (including Counterparty Credit Risk and Market Risk) and regulatory capital ratios, we have assumed that our interpretation of the proposed rules and proposals announced by the Basel Committee on Banking Supervision (BCBS) as of this date, and our models used to assess those requirements, are consistent with the final requirements that will be promulgated by BCBS and the Office of the Superintendent of Financial Institutions Canada (OSFI). We have also assumed that the proposed changes affecting capital deductions, risk-weighted assets, the regulatory capital treatment for non-common share capital instruments (i.e. grandfathered capital instruments) and the minimum regulatory capital ratios are adopted by OSFI as proposed by BCBS. We have also assumed that existing capital instruments that are non-Basel III compliant but are Basel II compliant can be fully included in the April 30, 2012, pro-forma calculations. The full impact of the Basel III proposals has been quantified based on our financial and risk positions at quarter end or as close to quarter end as was practical. In setting out the expectation that we will be able to refinance certain capital instruments in the future, as and when necessary to meet regulatory capital requirements, we have assumed that factors beyond our control, including the state of the economic and capital markets environment, will not impair our ability to do so.

Assumptions about the level of asset sales, expected asset sale prices, net funding cost, credit quality, risk of default and losses on default of the underlying assets of the structured investment vehicle were material factors we considered when establishing our expectations regarding the structured investment vehicle discussed in this interim MD&A, including the adequacy of first-loss protection. Key assumptions included that assets will continue to be sold with a view to reducing the size of the structured investment vehicle, under various asset price scenarios, and that the level of default and losses will be consistent with the credit quality of the underlying assets and our current expectations regarding continuing difficult market conditions.

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

In determining the impact of reductions to interchange fees in the U.S. Legislative and Regulatory Developments section, we have assumed that business volumes remain consistent with our expectations and that certain management actions are implemented that will modestly reduce the impact of the rules on our revenues.

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 Outlook and Review section of this interim MD&A.

Regulatory Filings

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

Economic Outlook and Review

The Canadian economy is growing modestly, supported by low interest rates, but restrained by the strong Canadian dollar. The economy is expected to expand 2% in 2012, before picking up to 2.5% in 2013 on firmer U.S. demand. Households are spending more cautiously in the face of elevated debt levels and higher gasoline prices. Housing market activity has softened in most regions and mortgage growth is showing tentative signs of slowing. Governments are reining in spending to reduce budget deficits. Business investment continues to lead the expansion, notably in resource-rich Alberta and Saskatchewan, as most commodity prices remain elevated. The Canadian dollar is expected to generally trade above parity with the U.S. dollar for several years and improved U.S. demand should support exports in 2013. Amid modest growth, subdued inflation and a strong currency, the Bank of Canada will likely hold interest rates steady for the rest of this year. However, there is some risk of earlier rate increases should the economy outperform expectations.

The U.S. economy continues to expand moderately, abetted by low interest rates and improved household finances. The economy is expected to grow 2.4% in 2012 and 2.6% in 2013, a moderate rate but the highest of the Group of Seven nations. Despite the weak European economy, U.S. export growth remains healthy due to improved labour costs relative to other countries and the U.S. dollar's past depreciation. Rising employment levels have lifted consumer confidence and spending, offsetting the adverse impact of higher fuel costs. Housing market activity is stabilizing, though home prices remain weak due to the still-large number of foreclosures. Business investment continues to lead the expansion and earnings growth remains strong. Although improved household finances should encourage a moderate pickup in consumer spending and housing market activity in 2013, restrictive fiscal policies will likely restrain growth. Unemployment is expected to decline very slowly, encouraging the Federal Reserve to keep short-term interest rates low for at least two more years.

The U.S. Midwest economy continues to grow moderately, supported by increased automotive production, solid global demand for agricultural products and rising output from the Bakken shale oil reserve, though held back by restrictive fiscal policies.

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

Foreign Exchange

The Canadian dollar equivalents of BMO's U.S.-dollar-denominated net income, revenues, expenses, provisions for credit losses and income taxes were increased relative to the second quarter of 2011 and for the year to date relative to the comparable period in 2011 by the strengthening of the U.S. dollar. They were lowered relative to the first quarter of 2012 by a slight weakening of the U.S. dollar. The average Canadian/U.S. dollar exchange rate for the quarter, expressed in terms of the Canadian dollar cost of a U.S. dollar, increased by 3.1% from a year ago and fell by 2.1% from the average of the first quarter. The average rate for the year to date increased by 1.8%. The following table indicates the relevant average Canadian/U.S. dollar exchange rates and the impact of changes in the rates.



Effects of U.S. Dollar Exchange Rate Fluctuations on BMO's Results





(Canadian $ in millions, Q2-2012 YTD-2012

except as noted) vs. Q2-2011 vs. Q1-2012 vs. YTD-2011

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Canadian/U.S. dollar exchange rate

(average)

Current period 0.9917 0.9917 1.0026

Prior period 0.9623 1.0133 0.9852



Effects on reported results

Increased (decreased) net interest

income 26 (19) 32

Increased (decreased) non-interest

revenue 14 (10) 17

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Increased (decreased) revenues 40 (29) 49

Decreased (increased) expenses (27) 18 (32)

Decreased (increased) provision for

credit loses 1 - -

Decreased (increased) income taxes (1) 1 (1)

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Increased (decreased) net income 13 (10) 16

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Effects on adjusted results

Increased (decreased) net interest

income 21 (16) 26

Increased (decreased) non-interest

revenues 14 (10) 17

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Increased (decreased) revenues 35 (26) 43

Decreased (increased) expenses (23) 17 (28)

Decreased (increased) provision for

credit loses 1 - -

Decreased (increased) income taxes (1) - (1)

----------------------------------------------------------------------------

Increased (decreased) adjusted net

income 12 (9) 14

----------------------------------------------------------------------------

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

Please see the Non-GAAP Measures section.



At the start of each quarter, BMO assesses whether to enter into hedging transactions that are expected to partially offset the pre-tax effects of exchange rate fluctuations in the quarter on our expected U.S.-dollar-denominated net income for that quarter. As such, these activities partially mitigate the impact of exchange rate fluctuations, but only within that quarter. The impact of these hedging activities was insignificant.

The gain or loss from hedging transactions in future periods will be determined by both future currency fluctuations and the amount of underlying future hedging transactions, since the transactions are entered into each quarter in relation to expected U.S.-dollar-denominated net income for the next three months.

The effect of currency fluctuations on our investments in foreign operations is discussed in the Income Taxes section.

Other Value Measures

BMO's average annual total shareholder return for the five-year period ended April 30, 2012, was 2.0%.

Net economic profit (NEP) was $366 million, compared with $434 million in the first quarter and $315 million in the second quarter of 2011. Adjusted NEP was $296 million, compared with $273 million in the first quarter and $264 million in the second quarter of 2011. Changes in adjusted NEP relative to a year ago are reflective of higher earnings and increased capital, due largely to the M&I acquisition. Changes relative to the first quarter were attributable to improved earnings. NEP of $366 million represents the net income that is attributable to shareholders ($1,010 million), less preferred share dividends ($34 million), plus the after-tax amortization of intangible assets ($24 million), net of a charge for capital ($634 million), and is considered an effective measure of added economic value. Adjusted NEP is calculated in the same manner using adjusted net income rather than reported net income and excluding the addition of the amortization of intangible assets. NEP and adjusted NEP are non-GAAP measures. Please see the Non-GAAP Measures section for a discussion on the use and limitations of non-GAAP measures.

Net Income

Q2 2012 vs Q2 2011

Net income was $1,028 million for the second quarter of 2012, up $215 million or 27% from a year ago. Earnings per share were $1.51, up 14% from $1.32 a year ago.

Adjusted net income was $982 million for the second quarter of 2012, up $212 million or 28% from a year ago. Adjusted earnings per share were $1.44, up 15% from $1.25 a year ago. Adjusted results and items excluded in determining adjusted results are disclosed in more detail in the preceding Adjusted Net Income section and in the Non-GAAP Measures section, together with comments on the uses and limitations of such measures.

Adjusted net income growth reflects the benefits from both acquisitions and organic growth. There was significant growth in P&C U.S. as a result of the acquired business and in Private Client Group, as its results a year ago were negatively affected by unusually high earthquake-related reinsurance claims that lowered net income by $47 million. There was good growth in P&C Canada due largely to higher revenues from increased volumes across most products, while expenses were relatively unchanged. BMO Capital Markets was modestly lower and adjusted net income was higher in Corporate Services.

Provisions for credit losses were lower due to the impact of a $72 million after-tax recovery of provisions for credit losses on M&I purchased credit impaired loans. The effective tax rate was also lower, as explained in the Income Taxes section.

Q2 2012 vs Q1 2012

Net income decreased $81 million or 7.3% from the first quarter and earnings per share decreased $0.12 or 7.4%. Adjusted net income increased $10 million or 1.0% and adjusted earnings per share increased $0.02 or 1.4%.

On an adjusted basis, there were strong increases in Private Client Group and BMO Capital Markets. P&C Canada adjusted net income was consistent with the first quarter despite fewer days in the current quarter. There were reduced earnings in P&C U.S. and Corporate Services.

Adjusted revenues and expenses were slightly lower than in the first quarter, due in part to the impact of two fewer days in the current quarter. Provisions for credit losses increased due to higher provisions charged to Corporate Services under our expected loss provisioning methodology and lower recoveries of credit losses on M&I purchased credit impaired loans. The effective tax rate was lower in the current quarter.

Q2 YTD 2012 vs Q2 YTD 2011

Net income increased $499 million or 31% to $2,137 million. Earnings per share were $3.14, up $0.48 or 18% from a year ago. Adjusted net income increased $367 million or 23% to $1,954 million. Adjusted earnings per share were $2.86, up $0.29 or 11% from a year ago. The acquired business added $396 million to year-to-date adjusted net income.

This section contains adjusted results and measures which are non-GAAP. Please see the Non-GAAP Measures section.

Revenue

Total revenue increased $626 million or 19% from a year ago. Adjusted revenue increased $483 million or 15% primarily due to the acquired business. P&C Canada revenues were relatively consistent while Private Client Group revenues were appreciably higher due to the effects of acquisitions a

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Ralph Marranca

P: 416-867-3996
W: www.bmo.com

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