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BMO Financial Group Reports Solid Results for the Second Quarter of 2013


May 29, 2013 - TORONTO, ONTARIO

BMO Financial Group (TSX: BMO)(NYSE: BMO) and Bank of Montreal -

Financial Results Highlights:

Second Quarter 2013 Compared with Second Quarter 2012:



-- Net income of $975 million, down 5%; adjusted net income(1) of $997
million, up 2%

-- EPS(2) of $1.42, down 6%; adjusted EPS(1,2) of $1.46, up 1%

-- ROE of 14.2%, compared with 16.2%; adjusted ROE(1) of 14.5%, compared
with 15.4%

-- Provisions for credit losses of $145 million, compared with $195
million; adjusted provisions for credit losses(1) of $110 million,
compared with $151 million

-- Basel III Common Equity Ratio is strong at 9.7%

Year-to-Date 2013 Compared with Year-to-Date 2012:

 -- Net income of $2,023 million, down 5%; adjusted net income(1) of $2,038 million, up 4% -- EPS(2) of $2.95, down 6%; adjusted EPS(1,2) of $2.97, up 4% -- ROE of 14.6%, compared with 16.7%; adjusted ROE(1) of 14.7%, compared with 15.2% -- Provisions for credit losses of $323 million, compared with $336 million; adjusted provisions for credit losses(1) of $206 million, compared with $242 million 

For the second quarter ended April 30, 2013, BMO Financial Group reported net income of $975 million or $1.42 per share on a reported basis and net income of $997 million or $1.46 per share on an adjusted basis.

"BMO's second quarter reflects solid operating performance," said Bill Downe, President and Chief Executive Officer, BMO Financial Group. "Our wealth, capital markets, and U.S. personal and commercial banking businesses each had a good quarter. We saw continuing volume growth in Canadian personal and commercial lending as a result of new business opened. P&C Canada is taking share and is confident in its ability to convert new customers into multi-product relationships.

"We continue to have strong performance in commercial banking. The core U.S. commercial and industrial portfolio is up 17 per cent year over year, marking the sixth quarter of sequential growth. In Canada, where we have the number two market share in small and medium-sized commercial loans, both commercial loan and deposit balances increased 12 per cent year over year.

"Management's focus on organizational efficiency is a multi-year commitment. Our first priority is sustainable revenue growth - and the disciplined management of expense is an ongoing dimension of profitable growth. Our strong capital position continues to give us flexibility. During the quarter, our Basel III Common Equity Tier 1 Ratio increased, while we also purchased four million shares under our normal course issuer bid.

"Looking forward, we have an advantaged business mix and are well-positioned for the current environment given our footprint in an improving U.S. Midwest economy, combined with our strength in commercial banking, capital markets and wealth. These are important differentiators. At the same time, we continue to focus on what's necessary to support future growth, and are confident that the value we create for customers will translate into financial performance for 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 in the Adjusted Net Income section, and (for all reported periods) in the Non-GAAP Measures section, where such non-GAAP measures and their closest GAAP counterparts are disclosed.(2) All Earnings per Share (EPS) measures in this document refer to diluted EPS unless specified otherwise. EPS is calculated using net income after deductions for net income attributable to non-controlling interest in subsidiaries and preferred share dividends. Note: All ratios and percentage changes in this document are based onunrounded numbers. 

Concurrent with the release of results, BMO announced a third quarter 2013 dividend of $0.74 per common share, unchanged from the preceding quarter and up $0.04 per share from a year ago, equivalent to an annual dividend of $2.96 per common share.

Our strong capital ratios enabled us to initiate a normal course issuer bid. During the second quarter, we repurchased four million common shares under our share repurchase program.

Our complete Second Quarter 2013 Report to Shareholders, including our unaudited interim consolidated financial statements for the period ended April 30, 2013, is available online at www.bmo.com/investorrelations and at www.sedar.com.

Operating Segment Overview

P&C Canada

Net income was $430 million, little changed from $433 million a year ago. Revenue was consistent with the prior year as the effects of strong volume growth across most products were offset by the impact of lower net interest margin. Expenses were up 3% due to continued investment in the business, including higher employee-related costs with increases in front-line resources across a number of roles. We expanded our branch network by opening or upgrading 18 locations across the country.

The successful execution of our strategy is resulting in strong loan growth and commercial deposit growth, positioning us well for revenue growth in an improving interest rate environment. This, combined with our continued focus on reducing costs through process simplification, will drive future net income growth.

Our focus on making money make sense for our customers, and offering simplified and innovative products and exceptional customer service has resulted in customer loyalty scores that continue to be top-tier, as measured by net promoter score. These strong customer loyalty scores are being translated into strong balance sheet growth with year-over-year loan growth of 10% and deposit growth of 7%. We have also seen an increase in the average number of products held by our customers.

In personal banking, strong lending and deposit balance growth continues. Our investment campaign was a success with strong mutual fund growth and good growth in tax-free savings account balances. We are generating positive early results from the launch of our Spring Home Financing campaign.

In commercial banking, we continue to rank second in Canadian business banking loan market share for small and medium-sized loans due to our focus on offering the integrated products, services and advice that our diverse commercial customer base needs. Our commercial loan and deposit growth continues to show good momentum with year-over-year growth of 12%. Recently, BMO was awarded a seven-year contract to provide a corporate card travel, payment and expense management program for the Government of Canada. This quarter, we also completed the acquisition of the assets of Aver Media LP, a leading private Canadian-based film and TV media lending company.

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

Net income of $152 million increased $9 million or 6% from $143 million in the second quarter a year ago. Adjusted net income was $163 million, an increase of $5 million or 3% from a year ago due to reduced expenses and lower provisions for credit losses. Revenue was 4% lower as the effects of increased commercial lending fees and strong commercial loan growth were more than offset by reductions in certain loan portfolios, net interest margin and deposit fees.

Total loans continued to grow, with year-over-year and sequential increases in average loans, led by continued strong growth in the core commercial and industrial (C&I) loan portfolio. The core C&I portfolio increased by $3.3 billion or 17% from a year ago.

Deposits remained steady with minimal change on a sequential and year-over-year basis.

We continue to support increased home ownership of quality affordable housing in our local communities. During the quarter, we announced our Affordable Housing Grant Program to help put new home purchases or refinancings within reach of our customers. The program offers up to $2,000 to be used towards a down payment or the closing costs on the purchase or refinancing of a primary home.

Private Client Group

Net income was $141 million, down $6 million or 4% from a year ago. Adjusted net income was $148 million, down $5 million or 3% from a year ago. Adjusted net income in Private Client Group (PCG), excluding Insurance, was $114 million, up $13 million or 14% from a year ago. Results reflect higher revenue, driven by growth in new client assets and market appreciation, and a continued focus on productivity. Adjusted net income in Insurance was $34 million, down $18 million or 34% from a year ago. The decrease was due to the $34 million after-tax impact of a decline in long-term interest rates in the current quarter relative to a modest gain a year ago.

Assets under management and administration grew by $57 billion or 12% from a year ago to $522 billion, driven by growth in new client assets and market appreciation.

The BMO Funds U.S. was recently ranked among the Best U.S. Mutual Fund Families of 2012 according to Barron's annual survey. Our U.S. mutual fund family has now surpassed $10 billion in assets under management.

BMO Asset Management Inc. introduced seven new Exchange Traded Funds, increasing its fund line-up to 55 offerings. These innovative new ETFs are designed to help investors construct their portfolios more effectively and, with additional U.S. dollar offerings, investors now have more choice than ever before.

For the third consecutive year, Global Banking and Finance Review named BMO Harris Private Banking the Best Private Bank in Canada, citing its leadership in providing excellent wealth management solutions, access to comprehensive investment solutions and commitment to improved quality.

Harris myCFO won two awards, after being short-listed in four different categories, at the 2013 Private Asset Management Awards.

BMO Capital Markets

Net income was $275 million, up $42 million or 18% from the prior year. There was stronger revenue performance from our Trading Products business, most notably from interest rate activities. We also saw higher corporate banking revenue from our Investment and Corporate Banking business.

During the quarter we earned a number of awards, recognizing our commitment to focusing on clients. BMO Capital Markets was named Canada's Best Investment Bank for the third time and World's Best Metals and Mining Investment Bank for the fourth consecutive year by Global Finance.

BMO Capital Markets participated in 129 new issues in the quarter including 41 corporate debt deals, 28 government debt deals, 51 common equity transactions and nine issues of preferred shares, raising $52 billion.

Corporate Services

Corporate Services net loss for the quarter was $26 million, compared with net income of $73 million a year ago. On an adjusted basis, the net loss was $26 million, compared with net income of $3 million a year ago. The decrease in reported results was significantly larger than the decrease in adjusted results primarily due to high revenues from run-off structured credit activities in reported results a year ago. Adjusting items are detailed in the Adjusted Net Income section and in the Non-GAAP Measures section. Corporate Services adjusted results were lower than a year ago due to lower revenues, partially offset by reduced expenses.

Adjusted Net Income

Adjusted net income was $997 million for the second quarter of 2013, up $15 million or 2% from a year ago. Adjusted earnings per share were $1.46, up 1% from $1.44 a year ago.

Management has designated certain amounts as adjusting items and has adjusted GAAP results so that we can discuss and present financial results without the effects of adjusting items to facilitate understanding of business performance and related trends. 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 2013 results in the determination of adjusted results totalled $22 million of net loss or $0.04 per share and were comprised of:

 -- the $73 million after-tax net benefit for credit-related items in respect of the acquired Marshall & Ilsley (M&I) performing loan portfolio, consisting of $176 million for the recognition in net interest income of a portion of the credit mark on the portfolio (including $68 million for the release of the credit mark related to early repayment of loans), net of a $57 million provision for credit losses (comprised of specific provisions of $65 million and a decrease in the collective allowance of $8 million) and related income taxes of $46 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 $50 million ($31 million after tax) for integration of M&I including amounts related to system conversions, restructuring and other employee-related charges, consulting fees and marketing costs related to rebranding activities;-- a restructuring charge of $82 million ($59 million after tax) to align our cost structure with the current and future business environment. This action is a part of the broader effort underway to improve productivity in the bank;-- a decrease in the collective allowance for credit losses of $22 million ($11 million after tax) on loans other than the M&I purchased loan portfolio;-- the $6 million before and after-tax benefit from run-off structured credit activities; and-- the amortization of acquisition-related intangible assets of $31 million ($22 million after tax). 

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 that follows.

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 29, 2013. 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, 2013, as well as the audited consolidated financial statements for the year ended October 31, 2012, and Management's Discussion and Analysis for fiscal 2012. The material that precedes this section comprises part of this MD&A.

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

 Bank of Montreal's management, under the supervision of the CEO and CFO, hasevaluated the effectiveness, as at April 30, 2013, of Bank of Montreal'sdisclosure controls and procedures (as defined in the rules of theSecurities and Exchange Commission and the Canadian SecuritiesAdministrators) and has concluded that such disclosure controls andprocedures are effective. There were no changes in our internal control over financial reportingduring the quarter ended April 30, 2013, that materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.Because of inherent limitations, disclosure controls and procedures andinternal control over financial reporting can provide only reasonableassurance and may not prevent or detect misstatements. As in prior quarters, Bank of Montreal's Audit and Conduct Review Committeereviewed this document and Bank of Montreal's Board of Directors approvedthe document prior to its release. ---------------------------------------------------------------------------- Regulatory FilingsOur continuous disclosure materials, including our interim filings, annualMD&A and audited consolidated financial statements, Annual Information Formand Notice of Annual Meeting of Shareholders and Proxy Circular areavailable on our website at www.bmo.com/investorrelations, on the CanadianSecurities Administrators' website at http://www.sedar.com/ and on the EDGARsection of the SEC's website at http://www.sec.gov/. ---------------------------------------------------------------------------- Bank of Montreal uses a unified branding approach that links all of theorganization's member companies. Bank of Montreal, together with itssubsidiaries, is known as BMO Financial Group. As such, in this document,the names BMO and BMO Financial Group mean Bank of Montreal, together withits subsidiaries. ---------------------------------------------------------------------------- ----------------------------------------------------------------------------Summary Data - Reported Table 1---------------------------------------------------------------------------- (Unaudited)(Canadian $ % Increase % Increase in millions, Q2- Q2- (Decrease) Q1- (Decrease) except as noted) 2013 2012 vs Q2-2012 2013 vs Q1-2013----------------------------------------------------------------------------Summary Income StatementNet interest income 2,098 2,120 (1) 2,216 (5)Non-interest revenue 1,846 1,839 - 1,865 (1)----------------------------------------------------------------------------Revenue 3,944 3,959 - 4,081 (3)----------------------------------------------------------------------------Specific provision for credit losses 175 195 (10) 178 (2)Collective provision for (recovery of) credit losses (30) - nm - nm----------------------------------------------------------------------------Total provision for credit losses 145 195 (26) 178 (19)Non-interest expense 2,568 2,499 3 2,590 (1)Provision for income taxes 256 237 8 265 (3)----------------------------------------------------------------------------Net income 975 1,028 (5) 1,048 (7)-------------------------------------------------------------------------------------------------------------------------------------------------------- Attributable to bank shareholders 957 1,010 (5) 1,030 (7) Attributable to non- controlling interest in subsidiaries 18 18 - 18 -----------------------------------------------------------------------------Net income 975 1,028 (5) 1,048 (7)--------------------------------------------------------------------------------------------------------------------------------------------------------Common Share Data ($ except as noted)Earnings per share 1.42 1.51 (6) 1.53 (7)Dividends declared per share 0.74 0.70 6 0.72 3Book value per share 41.73 38.06 10 40.87 2Closing share price 63.19 58.67 8 62.99 -Total market value of common shares ($ billions) 41.0 37.7 9 41.1 -Dividend yield (%) 4.7 4.8 nm 4.6 nmPrice-to-earnings ratio (times) 10.6 11.0 nm 10.4 nmMarket-to-book value (times) 1.5 1.5 nm 1.5 nm----------------------------------------------------------------------------Financial Measures and Ratios (%)Return on equity 14.2 16.2 (2.0) 14.9 (0.7)Revenue growth - 19 nm (1) nmNon-interest expense growth 3 23 nm 1 nmEfficiency ratio 65.1 63.1 2.0 63.5 1.6Operating leverage (3.2) (4.4) nm (2.3) nmNet interest margin on earning assets 1.79 1.89 (0.10) 1.85 (0.06)Effective tax rate 20.8 18.7 2.1 20.2 0.6Return on average assets 0.71 0.76 (0.05) 0.74 (0.03)Provision for credit losses-to-average loans and acceptances (annualized) 0.22 0.32 (0.10) 0.28 (0.06)Gross impaired loans and acceptances-to-equity and allowance for credit losses 8.80 9.34 (0.54) 8.98 (0.18)----------------------------------------------------------------------------Value Measures (% except as noted)Average annual three year total shareholder return 4.9 19.9 (15.0) 11.8 (6.9)Twelve month total shareholder return 13.0 (1.0) 14.0 13.5 (0.5)Net economic profit ($ millions) 263 366 (28) 318 (17)----------------------------------------------------------------------------Balance Sheet (as at $billions)Assets 555 526 6 542 2Net loans and acceptances 264 244 8 259 2Deposits 358 316 13 351 2Common shareholders' equity 27.1 24.5 11 26.6 2Cash and securities-to- total assets ratio (%) 30.1 32.0 (1.9) 30.6 (0.5)---------------------------------------------------------------------------- Basel Basel BaselCapital Ratios (%) III II IIICommon Equity Tier 1 Capital Ratio 9.7 9.9 nm 9.4 0.3Tier 1 Capital Ratio 11.3 12.0 nm 11.1 0.2Total Capital Ratio 13.7 14.9 nm 13.4 0.3----------------------------------------------------------------------------Net Income by Operating Group P&C Canada 430 433 (1) 458 (6) P&C U.S. 155 142 9 182 (15)----------------------------------------------------------------------------Personal and Commercial Banking 585 575 2 640 (9)Private Client Group 141 147 (4) 163 (14)BMO Capital Markets 275 233 18 310 (11)Corporate Services, including Technology and Operations (T&O) (26) 73 (+100) (65) 61----------------------------------------------------------------------------BMO Financial Group net income 975 1,028 (5) 1,048 (7)-------------------------------------------------------------------------------------------------------------------------------------------------------- (Unaudited)(Canadian $ % Increase in millions, YTD- YTD- (Decrease) except as noted) 2013 2012 vs YTD-2012-------------------------------------------------------Summary Income StatementNet interest income 4,314 4,438 (3)Non-interest revenue 3,711 3,638 2-------------------------------------------------------Revenue 8,025 8,076 (1)-------------------------------------------------------Specific provision for credit losses 353 317 11Collective provision for (recovery of) credit losses (30) 19 (+100)-------------------------------------------------------Total provision for credit losses 323 336 (4)Non-interest expense 5,158 5,053 2Provision for income taxes 521 550 (5)-------------------------------------------------------Net income 2,023 2,137 (5)-------------------------------------------------------------------------------------------------------------- Attributable to bank shareholders 1,987 2,100 (5) Attributable to non- controlling interest in subsidiaries 36 37 (3)-------------------------------------------------------Net income 2,023 2,137 (5)--------------------------------------------------------------------------------------------------------------Common Share Data ($ except as noted)Earnings per share 2.95 3.14 (6)Dividends declared per share 1.46 1.40 4Book value per share 41.73 38.06 10Closing share price 63.19 58.67 8Total market value of common shares ($ billions) 41.0 37.7 9Dividend yield (%) 4.6 4.8 nmPrice-to-earnings ratio (times) 10.6 11.0 nmMarket-to-book value (times) 1.5 1.5 nm-------------------------------------------------------Financial Measures and Ratios (%)Return on equity 14.6 16.7 (2.1)Revenue growth (1) 19 nmNon-interest expense growth 2 24 nmEfficiency ratio 64.3 62.6 1.7Operating leverage (2.7) (4.9) nmNet interest margin on earning assets 1.82 1.97 (0.15)Effective tax rate 20.5 20.5 -Return on average assets 0.72 0.78 (0.06)Provision for credit losses-to-average loans and acceptances (annualized) 0.25 0.28 (0.03)Gross impaired loans and acceptances-to-equity and allowance for credit losses 8.80 9.34 (0.54)-------------------------------------------------------Value Measures (% except as noted)Average annual three year total shareholder return 4.9 19.9 (15.0)Twelve month total shareholder return 13.0 (1.0) 14.0Net economic profit ($ millions) 581 800 (27)-------------------------------------------------------Balance Sheet (as at $billions)Assets 555 526 6Net loans and acceptances 264 244 8Deposits 358 316 13Common shareholders' equity 27.1 24.5 11Cash and securities-to- total assets ratio (%) 30.1 32.0 (1.9)------------------------------------------------------- Basel BaselCapital Ratios (%) III IICommon Equity Tier 1 Capital Ratio 9.7 9.9 nmTier 1 Capital Ratio 11.3 12.0 nmTotal Capital Ratio 13.7 14.9 nm-------------------------------------------------------Net Income by Operating Group P&C Canada 888 874 2 P&C U.S. 337 301 12-------------------------------------------------------Personal and Commercial Banking 1,225 1,175 4Private Client Group 304 251 21BMO Capital Markets 585 457 28Corporate Services, including Technology and Operations (T&O) (91) 254 (+100)-------------------------------------------------------BMO Financial Group net income 2,023 2,137 (5)-------------------------------------------------------------------------------------------------------------- nm - not meaningful ----------------------------------------------------------------------------Summary Data - Adjusted (1) Table 2---------------------------------------------------------------------------- (Unaudited)(Canadian $ % Increase % Increase in millions, Q2- Q2- (Decrease) Q1- (Decrease) except as noted) 2013 2012 vs Q2-2012 2013 vs Q1-2013----------------------------------------------------------------------------Summary Income StatementAdjusted net interest income 1,923 1,969 (2) 2,004 (4)Adjusted non-interest revenue 1,836 1,758 4 1,857 (1)----------------------------------------------------------------------------Adjusted revenue 3,759 3,727 1 3,861 (3)----------------------------------------------------------------------------Adjusted specific provision and adjusted total provision for credit losses 110 151 (28) 96 14Adjusted non-interest expense 2,402 2,357 2 2,464 (2)Adjusted provision for income taxes 250 237 5 260 (3)----------------------------------------------------------------------------Adjusted net income 997 982 2 1,041 (4)-------------------------------------------------------------------------------------------------------------------------------------------------------- Attributable to bank shareholders 979 964 2 1,023 (4) Attributable to non- controlling interest in subsidiaries 18 18 - 18 -----------------------------------------------------------------------------Adjusted net income 997 982 2 1,041 (4)-------------------------------------------------------------------------------------------------------------------------------------------------------- Common Share Data ($)Adjusted earnings per share 1.46 1.44 1 1.52 (4)Financial Measures and Ratios (%)Adjusted return on equity 14.5 15.4 (0.9) 14.8 (0.3)Adjusted revenue growth 1 15 nm 3 nmAdjusted non-interest expense growth 2 18 nm 4 nmAdjusted efficiency ratio 63.9 63.2 0.7 63.8 0.1Adjusted operating leverage (1.0) (3.3) nm (0.4) nmAdjusted net interest margin on earning assets 1.64 1.76 (0.12) 1.67 (0.03)Adjusted effective tax rate 20.0 19.5 0.5 19.9 0.1Adjusted provision for credit losses-to-average loans and acceptances (annualized) 0.18 0.28 (0.10) 0.16 0.02---------------------------------------------------------------------------- ----------------------------------------------------------------------------Adjusted net income by operating group P&C Canada 431 436 (1) 461 (6) P&C U.S. 168 157 6 195 (15)----------------------------------------------------------------------------Personal and Commercial Banking 599 593 1 656 (9)Private Client Group 148 153 (3) 169 (13)BMO Capital Markets 276 233 19 310 (11)Corporate Services, including T&O (26) 3 (+100) (94) 73----------------------------------------------------------------------------BMO Financial Group adjusted net income 997 982 2 1,041 (4)-------------------------------------------------------------------------------------------------------------------------------------------------------- (Unaudited)(Canadian $ % Increase in millions, YTD- YTD- (Decrease) except as noted) 2013 2012 vs YTD-2012-------------------------------------------------------Summary Income StatementAdjusted net interest income 3,927 4,061 (3)Adjusted non-interest revenue 3,693 3,409 8-------------------------------------------------------Adjusted revenue 7,620 7,470 2-------------------------------------------------------Adjusted specific provision and adjusted total provision for credit losses 206 242 (15)Adjusted non-interest expense 4,866 4,735 3Adjusted provision for income taxes 510 539 (6)-------------------------------------------------------Adjusted net income 2,038 1,954 4-------------------------------------------------------------------------------------------------------------- Attributable to bank shareholders 2,002 1,917 4 Attributable to non- controlling interest in subsidiaries 36 37 (3)-------------------------------------------------------Adjusted net income 2,038 1,954 4-------------------------------------------------------------------------------------------------------------- Common Share Data ($)Adjusted earnings per share 2.97 2.86 4Financial Measures and Ratios (%)Adjusted return on equity 14.7 15.2 (0.5)Adjusted revenue growth 2 12 nmAdjusted non-interest expense growth 3 17 nmAdjusted efficiency ratio 63.9 63.4 0.5Adjusted operating leverage (0.8) (5.5) nmAdjusted net interest margin on earning assets 1.66 1.81 (0.15)Adjusted effective tax rate 20.0 21.6 (1.6)Adjusted provision for credit losses-to-average loans and acceptances (annualized) 0.17 0.22 (0.05)------------------------------------------------------- -------------------------------------------------------Adjusted net income by operating group P&C Canada 892 879 2 P&C U.S. 363 333 9-------------------------------------------------------Personal and Commercial Banking 1,255 1,212 4Private Client Group 317 262 21BMO Capital Markets 586 457 28Corporate Services, including T&O (120) 23 (+100)-------------------------------------------------------BMO Financial Group adjusted net income 2,038 1,954 4--------------------------------------------------------------------------------------------------------------(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 

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 2013 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 below, 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.

Effective the first quarter of 2013, our regulatory capital, risk-weighted assets and regulatory capital ratios have been calculated pursuant to the Capital Adequacy Requirement (CAR) Guideline released by the Office of the Superintendent of Financial Institutions (OSFI) in December 2012 to implement the Basel III Accord in Canada. When calculating the pro-forma impact of Basel III on our regulatory capital (including capital deductions and qualifying and grandfathered ineligible capital), risk-weighted assets and regulatory capital ratios in prior periods, we assumed that our interpretation of OSFI's draft implementation guideline of rules and amendments announced by the Basel Committee on Banking Supervision (BCBS), and our models used to assess those requirements, were consistent with the final requirements that would be promulgated by OSFI. We have not recalculated our pro-forma Basel III regulatory capital, risk-weighted assets or capital ratios based on the CAR Guideline and references to Basel III pro-forma items refer to these items as previously estimated.

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, 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 Bank of Montreal included industry diversification in the portfolio, initial credit quality by portfolio, the first-loss protection incorporated into the structure and the hedges into which Bank of Montreal has entered.

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

Economic Review and Outlook

The Canadian economy continues to grow modestly, held back by a strong currency, slowing household credit and fiscal policy restraint. Tighter mortgage rules have restrained activity in the housing market, while weak global demand is holding back exports. Although consumer spending and housing activity are expected to grow modestly in 2013, exports should improve as U.S. demand picks up. Business investment is expected to remain healthy, given low commercial real estate vacancy rates and ongoing development of natural resources. Strength in business loan growth should partly offset a slowing in consumer loans and residential mortgages. GDP growth is expected to increase from 1.6% in 2013 to 2.3% in 2014. The unemployment rate is projected to fall to 6.7% in 2014, below the average of the past decade. The Canadian dollar is expected to trade near parity with the U.S. dollar, supported by interest rates that are higher in Canada than in the U.S. The strong currency, together with continued low inflation, should encourage the central bank to keep overnight lending rates at 1% well into next year.

The U.S. economy continues to grow moderately, supported by a pickup in consumer spending, strength in residential construction and continued growth in business investment. A reduction in federal government spending likely slowed economic growth in the second quarter; however, improved household finances, the continued housing market recovery and pent-up demand for motor vehicles should lead to stronger growth in the second half of the year. The shale-energy renaissance will continue to support economic activity in a number of states including North Dakota, Texas and Pennsylvania. GDP growth is projected to increase from 2.2% in 2013 to 3.2% in 2014. The unemployment rate is expected to decline from 7.4% in 2013 to 6.7% in 2014, the lowest rate in five years. Nonetheless, the Federal Reserve is expected to maintain a near-zero interest-rate policy for two more years, while continuing to purchase fixed-income securities in 2013 to hold down long-term interest rates.

The U.S. Midwest economy is growing in line with the national average, supported by rising automotive production and, indirectly, the resurgent energy sector. The Midwest economy is expected to strengthen this year as the housing recovery progresses and the agricultural industry rebounds from last year's drought. In addition, an expected pickup in global demand should support manufacturing.

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

Other Value Measures

BMO's average annual total shareholder returns for the one-year, three-year and five-year periods ending April 30, 2013, were 13.0%, 4.9% and 10.5%, respectively.

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 first quarter of 2013, the second quarter of 2012 and the current year to date by 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 2.7% from a year ago and 2.3% from the average of the first quarter. The average rate for the year to date was essentially unchanged from a year ago. 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 Table 3Results---------------------------------------------------------------------------- Q2-2013 ---------------------------(Canadian $ in millions, YTD-2013 vs except as noted) vs Q2-2012 vs Q1-2013 YTD-2012------------------------------------------------------------- --------------Canadian/U.S. dollar exchange rate (average) Current period 1.0180 1.0180 1.0064 Prior period 0.9917 0.9953 1.0026 Effects on reported resultsIncreased (decreased) net interest income 22 19 5Increased (decreased) non- interest revenue 10 9 1----------------------------------------------------------------------------Increased (decreased) revenues 32 28 6Decreased (increased) expenses (23) (20) (6)Decreased (increased) provision for credit losses - - -Decreased (increased) income taxes (1) (1) (1)----------------------------------------------------------------------------Increased (decreased) net income 8 7 (1)---------------------------------------------------------------------------- Effects on adjusted resultsIncreased (decreased) net interest income 18 15 5Increased (decreased) non- interest revenues 10 9 1----------------------------------------------------------------------------Increased (decreased) revenues 28 24 6Decreased (increased) expenses (21) (18) (6)Decreased (increased) provision for credit losses 1 1 -Decreased (increased) income taxes - - (1)----------------------------------------------------------------------------Increased (decreased) adjusted net income 8 7 (1)-------------------------------------------------------------------------------------------------------------------------------------------------------- Adjusted results in this section are non-GAAP amounts or non-GAAP measures.Please see the Non-GAAP Measures section. 

Net Income

Q2 2013 vs Q2 2012

Net income was $975 million for the second quarter of 2013, down $53 million or 5% from a year ago. Earnings per share were $1.42, down 6% from $1.51 a year ago.

Adjusted net income was $997 million, up $15 million or 2% from a year ago. Adjusted earnings per share were $1.46, up 1% from $1.44 a year ago. Adjusted results and items excluded in determining adjusted results are disclosed in detail in the preceding Adjusted Net Income section and in the Non-GAAP Measures section, together with comments on the uses and limitations of such measures.

On an adjusted basis, there were modest increases in revenue and expense, and reduced provisions for credit losses. There was strong growth in BMO Capital Markets, with a significant increase in revenue from interest rate activities, as well as higher corporate banking revenue. PCG, excluding Insurance, posted strong results with net income up 14% due to growth in new client assets and market appreciation, and a continued focus on productivity. PCG's overall results were lower due to the impact of a decline in long-term interest rates that lowered Insurance revenues. P&C U.S. adjusted net income also improved from a year ago, due to the benefits of reduced expenses and lower provisions for credit losses. P&C Canada net income was lower with the effects of strong volume growth across most products and lower provisions for credit losses being offset by the impact of reduced net interest margin. Corporate Services adjusted results were lower than a year ago due to lower revenues, partially offset by reduced expenses.

Q2 2013 vs Q1 2013

Net income decreased $73 million or 7% from a strong first quarter, and earnings per share decreased $0.11 or 7%. Adjusted net income decreased $44 million or 4% and adjusted earnings per share decreased $0.06 or 4%.

Results were lower than in the first quarter primarily due to lower revenue, partially mitigated by reduced expenses. Revenue decreased as a result of three fewer days in the current quarter and lower BMO Capital Markets revenue, compared to the levels of a very strong first quarter. P&C Canada net income decreased due to the impact of fewer days in the current quarter and higher provisions for credit losses. P&C U.S. adjusted net income decreased from a very strong first quarter that reflected high revenue on sales of newly originated mortgages and commercial lending fees, due to customers' response to anticipated U.S. tax changes that accelerated commercial borrowing, as well as high credit recoveries. Results in the current quarter were lowered by the impact of three fewer days. PCG results were lowered by the unfavourable impact of a decline in long-term interest rates relative to the prior quarter but increased, excluding Insurance, due to higher revenues from fee-based products and increased brokerage transactions. BMO Capital Markets net income was lower due to very strong first quarter investment banking revenue, primarily merger and acquisition fees. Corporate Services adjusted results improved due to reduced expenses, more favourable recoveries of credit losses on the M&I purchased credit impaired loan portfolio and higher revenues.

Q2 YTD 2013 vs Q2 YTD 2012

Net income decreased $114 million or 5% to $2,023 million. Earnings per share were $2.95, down $0.19 or 6% from a year ago. Adjusted net income increased $84 million or 4% to $2,038 million and adjusted earnings per share were $2.97, up $0.11 or 4% from a year ago. On an adjusted basis, there was strong growth in BMO Capital Markets and PCG, good growth in P&C U.S., and a more modest increase in P&C Canada. Adjusted net income in Corporate Services was lower relative to the same period a year ago.

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

Revenue

Total revenue of $3,944 million decreased $15 million from the second quarter last year. Adjusted revenue increased $32 million or 1% to $3,759 million. There was good growth in BMO Capital Markets, due to a significant increase in revenue from interest rate activities, as well as higher corporate banking revenue. There were also increases in PCG, as revenue growth in the wealth businesses was only partly offset by reduced Insurance revenue. P&C Canada revenues were consistent with the prior year as the effects of strong volume growth across most products were offset by the impact of lower net interest margin. P&C U.S. revenues decreased 4% on a U.S. dollar basis, as the effects of increased commercial lending fees and strong commercial loan growth were more than offset by reductions in certain loan portfolios, net interest margin and deposit fees. Corporate Services' adjusted revenues decreased, due to a higher taxable equivalent basis (teb) group offset in the current quarter and lower revenue from a variety of items, none of which were individually significant. The stronger U.S. dollar increased adjusted revenue growth by $28 million.

Revenue decreased $137 million or 3% from the first quarter. Adjusted revenue decreased $102 million or 3%. There were lower revenues in both P&C Canada and P&C U.S. due to fewer days in the second quarter as well as reduced margins. In the first quarter, P&C U.S. had high revenue on sales of newly originated mortgages and strong commercial lending fees. Revenue decreased in BMO Capital Markets, compared to very strong investment banking revenue, primarily merger and acquisition fees, in the first quarter. Revenue in PCG declined due to unfavourable movements in long-term interest rates relative to the first quarter. Adjusted revenues increased in Corporate Services from a variety of items, none of which were individually significant. The stronger U.S. dollar increased adjusted revenue growth by $24 million.

Revenue for the year to date decreased $51 million or 1% and adjusted revenue increased $150 million or 2%. There was growth in BMO Capital Markets, driven by increases in trading revenues and investment banking fees, and in PCG, due to higher revenues from fee-based products and recent acquisitions. P&C Canada revenues increased modestly, with the effects of higher balance and fee volumes across most products largely offset by the impact of lower net interest margin. There was a reduction in Corporate Services adjusted revenues, due to a higher group teb offset and lower revenue from a variety of items, none of which were individually significant. P&C U.S. revenue decreased moderately as the benefit of increased commercial loans and fees and higher gains on the sale of newly originated mortgages were more than offset by the effect of lower net interest margin. The stronger U.S. dollar increased adjusted revenue growth by $6 million.

Changes in net interest income and non-interest revenue are reviewed in the sections that follow.

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

Net Interest Income

Net interest income decreased $22 million or 1% from a year ago to $2,098 million in the second quarter of 2013. Adjusted net interest income excludes amounts for the recognition of a portion of the credit mark on the M&I purchased performing loan portfolio. Adjusted net interest income decreased $46 million or 2% to $1,923 million.

Average earning assets in the second quarter of 2013 increased $25 billion or 5% relative to a year ago, including a $5 billion increase as a result of the stronger U.S. dollar. There was strong growth in P&C Canada and PCG, with moderate growth in P&C U.S. and BMO Capital Markets and a reduction in Corporate Services. P&C U.S. average earning assets increased US$0.9 billion or 2% primarily driven by strong commercial loan growth, partially offset by expected decreases in certain loan portfolios and personal loan balances.

Adjusted net interest margin decreased by 12 basis points to 1.64%. Changes are discussed in the Review of Operating Groups' Performance section.

Relative to the first quarter, net interest income decreased $118 million or 5%. Adjusted net interest income decreased $81 million or 4%, in part due to three fewer days in the current quarter. Adjusted net interest margin decreased 3 basis points.

Average earning assets increased $5 billion or 1% from the first quarter, of which $4 billion related to the stronger U.S. dollar. There were increases in each of the operating groups with a slight reduction in Corporate Services.

BMO's overall net interest margin decreased on a reported basis by 6 basis points from the first quarter.

Year to date, net interest income decreased $124 million or 3%. Adjusted net interest income decreased $134 million or 3% to $3,927 million, due to lower net interest margin.

Average earning assets for the year to date increased $26 billion or 6%, including a $1 billion increase as a result of a stronger U.S. dollar. There was strong growth in P&C Canada and PCG with moderate increases in the other operating groups, including P&C U.S., and a reduction in Corporate Services. P&C U.S. average earning assets increased by US$0.8 billion or 1% from the prior year primarily due to strong commercial loan growth, partially offset by expected decreases in certain loan portfolios and personal loan balances.

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

 ----------------------------------------------------------------------------Adjusted Net Interest Margin on Earning Assets (teb)(i) Table 4---------------------------------------------------------------------------- % Increase % Increase Q2- Q2- (Decrease) Q1- (Decrease) YTD-(In basis points) 2013 2012 vs Q2-2012 2013 vs Q1-2013 2013---------------------------------------------------------------------------- P&C Canada 259 283 (24) 265 (6) 262 P&C U.S. 417 439 (22) 421 (4) 419----------------------------------------------------------------------------Personal and Commercial Banking 301 325 (24) 305 (4) 303Private Client Group 286 300 (14) 290 (4) 288BMO Capital Markets 61 66 (5) 59 2 60Corporate Services, including T&O(ii) nm nm nm nm nm nm----------------------------------------------------------------------------Total BMO adjusted net interest margin (1) 164 176 (12) 167 (3) 166--------------------------------------------------------------------------------------------------------------------------------------------------------Total BMO reported net interest margin 179 189 (10) 185 (6) 182----------------------------------------------------------------------------Total Canadian Retail (reported and adjusted)(iii) 258 282 (24) 265 (7) 261---------------------------------------------------------------------------- ---------------------------------------------------------------------------- % Increase YTD- (Decrease)(In basis points) 2012 vs YTD-2012---------------------------------------- P&C Canada 287 (25) P&C U.S. 443 (24)----------------------------------------Personal and Commercial Banking 330 (27)Private Client Group 342 (54)BMO Capital Markets 64 (4)Corporate Services, including T&O(ii) nm nm----------------------------------------Total BMO adjusted net interest margin (1) 181 (15)--------------------------------------------------------------------------------Total BMO reported net interest margin 197 (15)----------------------------------------Total Canadian Retail (reported and adjusted)(iii) 287 (26)---------------------------------------- ---------------------------------------- (i) Net interest margin is disclosed and computed with reference to average earning assets, rather than total assets. This basis provides a more relevant measure of margins and changes in margins. Operating group margins are stated on a taxable equivalent basis (teb) while total BMO margin is stated on a GAAP basis.(ii) Corporate Services adjusted net interest income is negative in all periods and its variability affects changes in net interest margin.(iii) Total Canadian retail margin represents the net interest margin of the combined Canadian businesses of P&C Canada and Private Client Group.(1) These are non-GAAP amounts or non-GAAP measures. Please see the Non- GAAP Measures section.nm - not meaningful 

Non-Interest Revenue

Non-interest revenue increased $7 million from the second quarter a year ago to $1,846 million. Adjusted non-interest revenue increased $78 million or 4% to $1,836 million. Adjusting items in non-interest revenue relate to the run-off of structured credit activities, which are reflected in trading revenues recorded in Corporate Services. There was an improvement in adjusted trading revenues, primarily due to increased revenue from interest rate activities. There was good growth in mutual fund revenues and lending fees. There were declines in Insurance revenues, primarily due to unfavourable movements in long-term interest rates, and underwriting and advisory fees, due to lower new issuance volumes in the current quarter and the closing of several particularly large advisory transactions in the prior year.

Relative to the first quarter, non-interest revenue decreased $19 million or 1%, and adjusted non-interest revenue decreased $21 million or 1%. Underwriting, lending and advisory fees declined from the high levels of the first quarter. Insurance revenues were appreciably lower, primarily due to unfavourable movements in long-term interest rates relative to the prior quarter. The above reductions were offset in part by increases in most other types of non-interest revenue.

Year to date, non-interest revenue increased $73 million or 2% to $3,711 million. Adjusted non-interest revenue increased $284 million or 8% to $3,693 million. There was strong growth in trading revenues, mutual fund revenues, lending fees including fees in the U.S. business, and underwriting and advisory fees.

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

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

Non-Interest Expense

Non-interest expense increased $69 million or 3% from the second quarter a year ago to $2,568 million. Adjusted non-interest expense increased $45 million or 2% to $2,402 million primarily due to higher employee-related costs including higher revenue-based costs in select businesses, in line with revenue growth, increased operating costs due to recent acquisitions and select initiative spending. These factors were partially offset by savings from a continued focus on productivity. The stronger U.S. dollar increased adjusted expense growth by $21 million or 1%.

Relative to the first quarter, non-interest expense decreased $22 million or 1%. Adjusted non-interest expense decreased $62 million or 2%, primarily due to fewer days and employee compensation costs in respect of employees that are eligible to retire, which are expensed each year in the first quarter. These factors were partially offset by increased professional fees, and communication and premises costs. The stronger U.S. dollar increased adjusted expense growth by $18 million or 1%.

Year-over-year operating leverage on a reported basis was negative 3.2% and adjusted operating leverage was negative 1.0%. Adjusted quarter-over-quarter operating leverage was essentially break even.

Non-interest expense for the year to date increased $105 million or 2% to $5,158 million. Adjusted non-interest expense increased $131 million or 3% to $4,866 million, primarily due to higher employee-related costs including higher performance-based compensation, in line with higher revenues in select businesses. The stronger U.S. dollar increased adjusted expense growth by $6 million.

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

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

Risk Management

Our risk management practices and key measures have not changed significantly from those outlined on pages 75 to 92 of BMO's 2012 annual MD&A.

Provisions for Credit Losses

Q2 2013 vs Q2 2012

The provision for credit losses (PCL) was $145 million, a decrease of $50 million from the prior year. Adjusted PCL was $110 million, a decrease of $41 million. The majority of the decrease in adjusted PCL was due to lower provisions in P&C Canada and BMO Capital Markets.

P&C Canada provisions decreased by $13 million due to a decrease in provisions in the consumer portfolio. P&C U.S. provisions decreased by $5 million, primarily reflecting better credit quality across all retail portfolios, partially offset by higher provisions on commercial loans. In BMO Capital Markets, provisions declined by $25 million due to a combination of higher recoveries of previously written-off amounts, coupled with elevated provisions in the prior year primarily due to a single large account. Corporate Services provisions were relatively stable year over year.

Q2 2013 vs Q1 2013

The PCL of $145 million decreased $33 million from the prior quarter. Adjusted PCL of $110 million was up $14 million from the prior quarter mainly due to higher provisions in P&C Canada and P&C U.S., partially offset by higher recoveries related to the purchased credit impaired loan portfolio. Adjusting items this quarter included a $65 million specific provision on the M&I purchased performing loan portfolio and a $30 million reduction in the collective allowance, of which $8 million was related to the M&I purchased performing loan portfolio.

P&C Canada provisions increased by $26 million, with the bulk of the increase in the commercial portfolio, primarily due to a higher provision related to one account. P&C U.S. provisions increased by $23 million from the unusually low levels of the prior quarter, with the majority of the increase in the commercial portfolio, due to higher recoveries in the prior quarter. BMO Capital Markets recoveries decreased by $9 million, due to a large recovery related to a single account that was realized last quarter. Corporate Services adjusted provisions reflect a $48 million increase in recoveries related to the purchased credit impaired loan portfolio.

 ----------------------------------------------------------------------------Provision for Credit Losses Table 5---------------------------------------------------------------------------- ----------------------------------------------------------------------------(Canadian $ in millions, except as noted) Q2-2013 Q1-2013 Q2-2012 YTD-2013 YTD-2012----------------------------------------------------------------------------New specific provisions 407 418 458 825 870Reversals of previously established allowances (49) (82) (66) (131) (133)Recoveries of loans previously written-off (183) (158) (197) (341) (420)----------------------------------------------------------------------------Specific provision for credit losses 175 178 195 353 317Increase (decrease) in collective allowance (30) - - (30) 19----------------------------------------------------------------------------Provision for credit losses (PCL) 145 178 195 323 336--------------------------------------------------------------------------------------------------------------------------------------------------------Adjusted provision for credit losses (1) 110 96 151 206 242 PCL as a % of average net loans and acceptances (annualized) (2) 0.22 0.28 0.32 0.25 0.28PCL as a % of average net loans and acceptances excluding purchased portfolios (annualized) (2) (3) 0.31 0.29 0.46 0.30 0.47Specific PCL as a % of average net loans and acceptances (annualized) 0.27 0.28 0.32 0.27 0.26Adjusted specific PCL as a % of average net loans and acceptances (annualized) (1) 0.18 0.16 0.28 0.17 0.22--------------------------------------------------------------------------------------------------------------------------------------------------------(1) Adjusted provision for credit losses excludes provisio

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