6-K

FORM

6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Private Issuer

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

of the Securities Exchange Act of 1934

For the month of: February, 2023	Commission File Number: <br>001-13354

BANK OF MONTREAL

(Name of Registrant)

100 King Street West
1 First Canadian Place	129 rue Saint-Jacques
Toronto, Ontario	Montreal, Quebec
Canada, M5X 1A1	Canada, H2Y 1L6
(Executive Offices)	(Head Office)

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

Form 20-F ☐ Form 40-F

☒

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

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

INCORPORATION BY REFERENCE

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

SEC:

1.	Registration Statement – Form <br>F-3<br> – File <br>No. 333-214934
2.	Registration Statement – Form <br>F-3<br> – File <br>No. 333-264388
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3.	Registration Statement – Form <br>S-8<br> – File <br>No. 333-191591
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4.	Registration Statement – Form <br>S-8<br> – File <br>No. 333-180968
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5.	Registration Statement – Form <br>S-8<br> – File <br>No. 333-177579
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6.	Registration Statement – Form <br>S-8<br> – File <br>No. 333-177568
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7.	Registration Statement – Form <br>S-8<br> – File <br>No. 333-176479
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8.	Registration Statement – Form <br>S-8<br> – File <br>No. 333-175413
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9.	Registration Statement – Form <br>S-8<br> – File <br>No. 333-175412
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10.	Registration Statement – Form <br>S-8<br> – File <br>No. 333-113096
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11.	Registration Statement – Form <br>S-8<br> – File <br>No. 333-14260
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12.	Registration Statement – Form <br>S-8<br> – File <br>No. 33-92112
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13.	Registration Statement – Form <br>S-8<br> – File <br>No. 333-207739
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14.	Registration Statement – Form <br>S-8<br> – File <br>No. 333-237522
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SIGNATURES

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

	BANK OF MONTREAL
	By:	/s/ Tayfun Tuzun
	Name:	Tayfun Tuzun
	Title:	Chief Financial Officer
Date<br>: February 28, 2023	By:	/s/ Paul V. Noble
	Name:	Paul V. Noble
	Title:	Corporate Secretary

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EXHIBIT INDEX

Exhibit	Description of Exhibit
99.1	First Quarter 2023 Management’s Discussion and Analysis of Results of Operations and Financial Condition
99.2	First Quarter 2023 Consolidated Financial Statements
99.3	First Quarter 2023 Consolidated Capitalization of Bank of Montreal
101.	Interactive Data File (formatted as Inline XBRL)
104.	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

EX-99.1

BMO Financial Group Reports First Quarter 2023 Results

REPORT TO SHAREHOLDERS

BMO’s First Quarter 2023 Report to Shareholders, including the unaudited interim consolidated financial statements for the period ended January 31, 2023, is available online at www.bmo.com/investorrelations and at www.sedar.com.

Financial Results Highlights

First Quarter 2023 Compared with First Quarter 2022:

•	Net income of $247 million, compared with $2,933 million; adjusted net income^1,3^ of $2,272 million, compared with $2,584 million
•	Reported earnings per share (EPS)^2^ of $0.30,<br>compared with $4.43; adjusted EPS^1,2,3^ of $3.22, compared with $3.89
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•	Provision for credit losses (PCL) of $217 million, compared with a recovery of the provision<br>for credit losses of $99 million
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•	Return on equity (ROE) of 1.3%, compared with 21.4%; adjusted ROE^1,3^ of 13.4%, compared with 18.8%
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•	Common Equity Tier 1 Ratio^4^ of 18.2%, compared<br>with 14.1%
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Toronto, February 28, 2023 – For the first quarter ended January 31, 2023, BMO Financial Group recorded net income of $247 million or $0.30 per share on a reported basis, and net income of $2,272 million or $3.22 per share on an adjusted basis.

“We had a very good start to the year, with continued strong operating performance in our Canadian and U.S. Personal and Commercial businesses and improving momentum in BMO Capital Markets, benefitting from our strategic investments in talent and technology. Our results continue to reflect our diversified business mix and our superior risk management approach and credit quality,” said Darryl White, Chief Executive Officer, BMO Financial Group.

“The completion of our acquisition of Bank of the West on February 1^st^ is a historic moment for BMO and the natural next step in our North American growth strategy, as we warmly welcome thousands of employees and 1.8 million customers in key U.S. markets to the BMO family. Our shared commitment to customer loyalty, community reinvestment and sustainability further strengthens our position as a leading North American bank and enhances our long-term growth opportunities.

“This quarter, we were again recognized as the most sustainable bank in North America for the fourth year in a row in Corporate Knights’ 2023 Global 100 Most Sustainable Corporations in the World. Our continued recognition as a global leader in this area reinforces our commitment to sustainable business practices and financing activities, as we deliver on our ambition to be our client’s lead partner in the transition to a net-zero world,” concluded Mr. White.

Concurrent with the release of results, BMO announced a second quarter 2023 dividend of $1.43 per common share, unchanged from the prior quarter, and an increase of $0.10 or 8% from the prior year. The quarterly dividend of $1.43 per common share is equivalent to an annual dividend of $5.72 per common share.

Caution

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

(1)	Results and measures in this document are presented on a generally accepted accounting principles (GAAP) basis. They are<br>also presented on an adjusted basis that excluded the impact of certain specified items from reported results. Adjusted results and ratios are non-GAAP and are detailed for all reported periods in the Non-GAAP and Other Financial Measures section. For details on the composition of non-GAAP amounts, measures and ratios, as well as supplementary financial measures, refer to<br>the Glossary of Financial Terms.
(2)	All EPS measures in this document refer to diluted EPS, unless specified otherwise.
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(3)	Q1-2023 reported net income included a loss of $1,461 million<br>($2,011 million pre-tax) resulting from the impact of fair value management actions related to the acquisition of Bank of the West, compared with revenue of $413 million ($562 million pre-tax) in the prior year, and acquisition and integration costs of $181 million ($239 million pre-tax), compared with $10 million ($12 million pre-tax) in the prior year. In addition, Q1-2023 net income included $371 million of tax expense related to certain tax measures enacted by the Canadian government and<br>$6 million ($8 million pre-tax) of interest expense and legal fees relating to the lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank.<br>Q1-2022 net income included the impact of divestitures of $48 million ($26 million pre-tax) related to the sale of our EMEA Asset Management business. Both the<br>current quarter and prior year included amortization of acquisition-related intangibles assets of $6 million ($8 million pre-tax). Refer to the Non-GAAP and<br>Other Financial Measures section for further information on adjusting items.
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(4)	The Common Equity Tier 1 (CET1) Ratio is disclosed in accordance with the Office of the Superintendent of Financial<br>Institutions’ (OSFI’s) Capital Adequacy Requirements (CAR) Guideline.
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Note: All ratios and percentage changes in this document are based on unrounded numbers.

BMO Financial Group First Quarter Report 2023 1

Significant Events

On February 1, 2023, we completed the acquisition of Bank of the West from BNP Paribas for a cash purchase price of US$13.8 billion, reflecting dividends from Bank of the West to BNP Paribas and other closing adjustments. Bank of the West provides a broad range of banking products and services, primarily in the Western and Midwestern parts of the United States. The acquisition enables our expansion in Bank of the West’s primary markets, including California, and accelerates our commercial banking expansion.

Under International Financial Reporting Standards (IFRS), the purchase price will be allocated to the identifiable assets and liabilities of Bank of the West as at February 1, 2023, based on their relative fair values, with the difference recorded as goodwill. The fair value/par value differences, referred to as the fair value mark, will be amortized to income over the estimated life of the underlying asset (liability). Intangible assets identified, including the core deposit intangible related to non-maturity deposits, will be amortized over their estimated life. Due to the proximity of the closing date to the release of our interim consolidated financial statements, the initial accounting for the acquisition has not been finalized, including the valuation of assets acquired and liabilities assumed, including loans, intangible assets, goodwill, deposits and contingent liabilities. The acquisition, including the purchase accounting impacts, will be reflected in our results in the second quarter of fiscal 2023. We have updated our estimates of the financial impact to the bank’s results to reflect the later than anticipated closing and conversion dates. We remain confident in achieving annual pre-tax cost synergies of US$670 million through operational efficiencies across our combined businesses and for the transaction to be approximately 7% accretive to our fiscal 2024 earnings per share, excluding the impact of the accretion of credit and fair value marks. We expect to incur pre-tax merger and integration costs of approximately US$1.5 billion.

The fair value of fixed rate loans, securities and deposits is largely dependent on interest rates. As interest rates have increased since the announcement of the acquisition, the fair value of the acquired fixed rate assets (in particular, loans and securities) has decreased, resulting in higher goodwill on closing compared with estimates in our original assumptions. Conversely, the fair value of floating rate assets (liabilities) and non-maturity deposits approximate par, providing no natural fair value change offset. Changes in goodwill relative to our original assumptions impacted capital ratios at closing, because goodwill is treated as a deduction from capital under the Office of the Superintendent of Financial Institutions (OSFI) Basel III rules. In addition, given that the purchase price of the acquisition was in U.S. dollars, the change in foreign exchange translation between the Canadian dollar relative to the U.S. dollar between the announcement and the closing resulted in a change to the Canadian dollar equivalent goodwill.

We proactively managed the exposure to capital from changes in fair value of the assets and liabilities of Bank of the West at closing. As part of our fair value management actions, we entered into interest rate swaps that increased in value as interest rates rose, resulting in mark-to-market gains (losses) recorded in trading revenue. These swaps were largely offset from an interest rate risk perspective through the purchase of a portfolio of matched-duration U.S. treasuries and other balance sheet instruments that generated net interest income. Together, these transactions aimed to mitigate the effects of any changes in goodwill arising from changes in interest rates between the announcement and closing of the acquisition. In addition, BMO entered into forward contracts, which qualify as accounting hedges, to mitigate the effects of changes in the Canadian dollar equivalent of the purchase price on closing. Changes in the fair value of these forward contracts were recorded in other comprehensive income (OCI) until closing of the transaction. On close, the accumulated gains in Other Comprehensive Income reduced the Canadian dollar equivalent of the purchase price.

The impact of the fair value management actions on our results was treated as an adjusting item. The current quarter included a loss of $1,461 million ($2,011 million pre-tax) related to the management of interest rate changes, comprising $1,628 million pre-tax of mark-to-market losses on the interest rate swaps as at January 31, 2023, recorded in non-interest revenue, as well as a loss of $383 million pre-tax on a portfolio of primarily U.S. treasuries and other balance sheet instruments recorded in net interest income.

The cumulative impact on our Common Equity Tier 1 Ratio related to these fair value management actions since the announcement of the acquisition was an increase of approximately 120 basis points. In addition, the changes in the fair value of the forward contracts decreased OCI by $264 million in the current quarter and increased OCI by $374 million on a cumulative basis, since the announcement of the acquisition.

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

2 BMO Financial Group First Quarter Report 2023

First Quarter 2023 Performance Review

The order in which the impact on net income is discussed in this section follows the order of revenue, expenses and provision for credit losses, regardless of their relative impact.

Adjusted results and ratios in this First Quarter 2023 Performance Review section are on a non-GAAP basis and discussed in the Non-GAAP and Other Financial Measures section.

Adjusted results in the current quarter excluded a loss of $1,461 million ($2,011 million pre-tax) related to the management of the impact of interest rate changes between the announcement and closing of the Bank of the West acquisition on its fair value and goodwill, compared with revenue of $413 million ($562 million pre-tax) in the prior year, as well as acquisition and integration costs of $181 million ($239 million pre-tax), compared with $10 million ($12 million pre-tax) in the prior year. In addition, the current quarter excluded $371 million of tax expense related to certain tax measures enacted by the Canadian government and a $6 million ($8 million pre-tax) legal provision comprising interest expense and legal fees related to a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank. The prior year excluded the impact of divestitures of $48 million ($26 million pre-tax) related to the sale of our EMEA Asset Management business. Both the current quarter and prior year excluded amortization of acquisition-related intangibles assets of $6 million ($8 million pre-tax). Refer to the Non-GAAP and Other Financial Measures section for further information on adjusting items.

Reported net income decreased from the prior year, primarily due to the impact of the items noted above, and adjusted net income decreased 12%, with higher net revenue more than offset by higher expenses, and a higher provision for credit losses compared with a recovery in the prior year. Net income increased in U.S. P&C due to the impact of the stronger U.S. dollar and decreased in all operating groups on a source currency basis. On a reported basis, Corporate Services recorded a net loss, compared with net income in the prior year, and on an adjusted basis, Corporate Services recorded a higher net loss.

Canadian P&C

Reported and adjusted net income was $980 million, a decrease of $24 million or 2% from the prior year. Results reflected a 9% increase in revenue, driven by higher net interest income reflecting strong growth in balances and higher net interest margins, which was more than offset by higher expenses and a higher provision for credit losses.

U.S. P&C

Reported net income was $698 million, and adjusted net income was $699 million, both increasing $17 million or 3%. The impact of the stronger U.S. dollar increased net income by 6%.

On a U.S. dollar basis, reported net income was $520 million and adjusted net income was $521 million, both decreasing $16 million or 3% from prior year. Results reflected a 12% increase in revenue, primarily due to higher net interest income reflecting higher net interest margins and loan balances, more than offset by higher expenses and a higher provision for credit losses.

BMO Wealth Management

Reported net income was $277 million and adjusted net income was $278 million, both decreasing $38 million or 12% from the prior year. Wealth and Asset Management reported net income was $207 million, a decrease of $54 million or 20% due to lower revenue reflecting weaker global markets and higher expenses. Insurance net income was $70 million, an increase of $16 million or 29% from the prior year.

BMO Capital Markets

Reported net income was $503 million, a decrease of $202 million or 29% from the prior year, and adjusted net income was $510 million, a decrease of $202 million or 28%. Reported and adjusted results were impacted by current market conditions, resulting in lower Investment and Corporate Banking revenue and Global Markets revenue compared with particularly strong results in the prior year, as well as higher expenses and a lower recovery of the provision for credit losses.

Corporate Services

Reported net loss was $2,211 million, compared with reported net income of $228 million in the prior year, and adjusted net loss was $195 million, compared with an adjusted net loss of $130 million. Reported results decreased, primarily due to the adjusting items noted above. Adjusted results decreased primarily due to lower revenue and higher expenses, partially offset by the impact of a more favourable effective tax rate in the current quarter.

Capital

BMO’s Common Equity Tier 1 Ratio was 18.2% as at January 31, 2023, an increase from 16.7% at the end of the fourth quarter of 2022, primarily driven by $3.4 billion common share issuances through a public offering and private placements, and lower risk-weighted assets.

CreditQuality

Total provision for credit losses was $217 million, compared with a recovery of the provision for credit losses of $99 million in the prior year. The total provision for credit losses as a percentage of average net loans and acceptances ratio was 15 basis points, compared with a total recovery of credit losses ratio of 8 basis points in the prior year. The provision for credit losses on impaired loans was $196 million, an increase of $110 million from the prior year. The provision for credit losses on impaired loans as a percentage of average net loans and acceptances ratio was 14 basis points, compared

BMO Financial Group First Quarter Report 2023 3

with 7 basis points in the prior year. There was a $21 million provision for credit losses on performing loans in the current quarter, compared with a $185 million recovery in the prior year. The $21 million provision for credit losses on performing loans in the current quarter reflected increased uncertainty in credit conditions and growth in certain portfolios, largely offset by portfolio credit improvement, including benefits from risk transfer transactions. The $185 million recovery of credit losses in the prior year largely reflected reduced uncertainty on future credit conditions and positive credit migration, partially offset by balance growth and a weaker economic outlook.

Refer to the Critical Accounting Estimates and Judgments section of BMO’s 2022 Annual Report and Note 4 of our audited annual consolidated financial statements for further information on the allowance for credit losses as at October 31, 2022.

Supporting a Sustainable and Inclusive Future

BMO has a deep sense of purpose – to be a champion for progress and a catalyst for change. We are leveraging our position as a leading financial services provider in order to create opportunities for our stakeholders and communities to make positive, sustainable change, because we believe that success can and must be mutual. In support of our customers, communities and employees, in the first quarter of 2023:

•	BMO employees pledged more than $31 million to the United Way and<br>thousands of other community organizations across North America, setting a new BMO record.
•	We completed the acquisition of Radicle Group Inc., a leader in sustainability<br>advisory services and solutions, including carbon credit origination and environmental commodity trading. The acquisition makes BMO a leader in carbon credit development and technology-driven emissions measurement and management, and enhances our<br>commitment to help our clients understand and manage the risks and opportunities of the energy transition.
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•	BMO InvestorLine announced the launch of its new ESG Insights feature that<br>provides self-directed investors with Environmental, Social and Governance (ESG) ratings for individual equities and exchange traded funds (ETFs), to help them evaluate the ESG risks and opportunities of the investments they make.
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•	BMO joined Ontario Soccer as its newest premier partner, collaborating on new<br>empowerment initiatives to foster gender equity for soccer benefiting thousands of women and girls.
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•	We announced a Community Benefits Plan that outlines a commitment of more than<br>$40 billion to local communities across our expanded footprint in the United States, with a focus on increasing home ownership and supporting the growth of small businesses in low to moderate-income neighbourhoods.
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BMO’s leadership continues to be recognized in several rankings, including:

•	Ranked among the most sustainable companies on the Dow Jones Sustainability<br>Indices (DJSI). In addition, BMO ranked in the 95th percentile among banks globally and earned the highest possible score in the areas of Environment Reporting, Social Reporting and Financial Inclusion.
•	Named as one of Corporate Knights’ 2023 Global 100 Most Sustainable<br>Corporations in the World and, for the fourth consecutive year, ranked as North America’s most sustainable bank. We ranked eighth in the world and in the top 15 per cent of banks globally for sustainable revenue and received high marks for<br>diversity on our Board and the representation of diversity among our directors and senior leadership.
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•	Recognized by the World Benchmarking Alliance’s new global benchmark (WBA)<br>as the world’s top ranked financial institution for helping make progress in support of a just and sustainable economy.
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•	Included for the eighth consecutive year in the Bloomberg Gender-Equality Index (GEI), which recognizes BMO<br>as a global leader in gender equality and inclusion within the workplace and the community, and for publicly demonstrating our commitment to equality and advancing women.
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Caution

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

Regulatory Filings

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

Bank of Montreal uses a unified branding approach that links all of the organization’s member companies. Bank of Montreal, together with its subsidiaries, isknown as BMO Financial Group. In this document, the names BMO and BMO Financial Group, as well as the words “bank”, “we” and “our”, mean Bank of Montreal, together with its subsidiaries.

4 BMO Financial Group First Quarter Report 2023

Enhanced Disclosure Task Force

On October 29, 2012, the Enhanced Disclosure Task Force (EDTF) of the Financial Stability Board published its first report, Enhancing the Risk Disclosures of Banks. We support the recommendations issued by EDTF for the provision of high-quality, transparent risk disclosures.

Disclosures related to the EDTF recommendations are detailed in the index below, as presented in the 2022 Annual Report and the First Quarter 2023 Report to Shareholders (RTS), Supplemental Financial Information (SFI) or Supplemental Regulatory Capital Information (SRC). Information on BMO’s website, including information within the SFI or SRC is not and should not be considered incorporated by reference into our First Quarter 2023 Report to Shareholders.

Topic	EDTF Disclosure	Page Number
		2022 Annual    <br>  Report	Q1<br>2023
			RTS	SFI	SRC
General	1.  Present all<br>risk-related information in each report, providing an index for easy navigation	73-113	6	Index	Index
	2.  Define the<br>bank’s risk terminology and risk measures and present key parameters used	83-113,<br>131-133	33	-	-
	3.  Discuss top and<br>emerging risks for the bank	73-75	8, 33-34	-	-
	4.  Outline plans to meet new key regulatory ratios once<br>the applicable rules are finalized	67	20	-	-
Risk Governance,<br><br><br>Risk Management<br> <br>and Business Model	5.  Summarize the bank’s risk management organization, processes, and key functions	77-82	-	-	-
	6.  Describe the<br>bank’s risk culture and procedures applied to support the culture	82	-	-	-
	7.  Describe key risks<br>that arise from the bank’s business model and activities	80	-	-	-
	8.  Describe the use of stress testing within the<br>bank’s risk governance and capital frameworks	81-82	-	-	-
Capital Adequacy and Risk-Weighted Assets (RWA)	9.  Provide minimum Pillar 1 capital requirements	66-68	-	-	3-4, 10
	10. Summarize information<br>contained in the composition of capital templates and reconciliation of the accounting balance sheet to the regulatory balance sheet<br><br><br>•  A Main Features template can also be found on BMO’s website at<br>https://www.bmo.com/main/about-bmo/investor-relations/regulatory-disclosure	68	20	-	3-5
	11. Present a flow statement<br>of movements in regulatory capital, including changes in Common Equity Tier 1, Additional Tier 1, and Tier 2 capital	-	-	-	6
	12. Discuss capital planning<br>within a more general discussion of management’s strategic planning	65	-	-	-
	13. Provide granular<br>information to explain how RWA relate to business activities	69	-	-	11
	14. Present a table showing<br>the capital requirements for each method used for calculating RWA	69, 83-87	-	-	11, 17-30<br>and 37-43
	15. Tabulate credit risk in<br>the banking book for Basel asset classes and major portfolios	-	-	-	17-30 and<br>37-43
	16. Present a flow statement<br>that reconciles movements in RWA by credit risk and market risk	-	-	-	31, 57
	17. Describe the bank’s Basel validation and<br>back-testing process. Included in our SRC information is our estimated and actual loss parameter information	106-107	-	-	58
Liquidity	18. Describe how the bank<br>manages its potential liquidity needs and the liquidity reserve held to meet those needs	95-101	35-36, 38	-	-
Funding	19. Summarize encumbered and unencumbered assets in a table by balance sheet category	97	36	36-37	-
	20. Tabulate consolidated<br>total assets, liabilities and off-balance sheet commitments by remaining contractual maturity	102-103	40-41	-	-
	21. Discuss the bank’s sources of funding and describe<br>the bank’s funding strategy	98-99	36-37	-	-
Market Risk	22. Provide a breakdown of balance sheet positions into trading and non-trading<br>market risk measures	94	34	-	-
	23. Provide qualitative and<br>quantitative breakdowns of significant trading and non-trading market risk measures	90-94	34-35	-	-
	24. Describe significant<br>market risk measurement model validation procedures and back-testing and how these are used to enhance the parameters of the model	90-93,<br>106-107	-	-	-
	25. Describe the primary risk management techniques employed<br>by the bank to measure and assess the risk of loss beyond reported risk measures	90-91	35	-	-
Credit Risk	26. Provide information about the bank’s credit risk profile	83-89,<br>155-161	16-17,<br>55-58	24-33	11-56
	27. Describe the bank’s<br>policies related to impaired loans and renegotiated loans	156, 161	-	-
	28. Provide reconciliations<br>of impaired loans and the allowance for credit losses	88, 159	17, 55-56	-	-
	29. Provide a quantitative<br>and qualitative analysis of the bank’s counterparty credit risk that arises from its derivative transactions	83-84, 89	-	-	35-48
	30. Provide a discussion of credit risk mitigation	83-84, 167,<br>173, 204	-	-	16, 32, 44
Other Risks	31. Describe other risks and discuss how each is identified, governed, measured and managed	77-81,<br>104-113	-	-	-
	32. Discuss publicly known<br>risk events related to other risks, where material or potentially material loss events have occurred	104-113	-	-	-

BMO Financial Group First Quarter Report 2023 5

Management’s Discussion and Analysis

Management’s Discussion and Analysis (MD&A) commentary is as at February 28, 2023. The material that precedes this section comprises part of this MD&A. The MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the period ended January 31, 2023, included in this document, as well as the audited annual consolidated financial statements for the year ended October 31, 2022, and the MD&A for fiscal 2022, contained in BMO’s 2022 Annual Report.

BMO’s 2022 Annual Report includes a comprehensive discussion of its businesses, strategies and objectives, and can be accessed on our website at www.bmo.com/investorrelations. Readers are also encouraged to visit the site to view other quarterly financial information.

Table of Contents
7	Caution Regarding Forward-Looking Statements			31	Transactions with Related Parties
8	Economic Developments and Outlook			31	Off-Balance Sheet Arrangements
9	Financial Highlights			32	Accounting Policies and Critical Accounting Estimates and Judgments
10	Non-GAAP and Other Financial Measures				32	Allowance for Credit Losses
14	Foreign Exchange			32	Disclosure for Global Systemically Important Banks (G-SIB)
14	Net Income			33	Future Changes in Accounting Policies
15	Revenue			33	Other Regulatory Developments
16	Total Provision for Credit Losses			33	Risk Management
17	Impaired Loans				33	Top and Emerging Risks That May Affect Future Results
17	Insurance Claims, Commissions and Changes in Policy Benefit Liabilities				34	Market Risk
17	Non-Interest Expense				35	Liquidity and Funding Risk
18	Provision for Income Taxes				37	Credit Ratings
18	Balance Sheet				42	Real Estate Secured Lending
19	Capital Management				43	International Exposures
22	Review of Operating Groups’ Performance			44	Glossary of Financial Terms
	22	Personal and Commercial Banking (P&C)		47	Interim Consolidated Financial Statements
		23	Canadian Personal and Commercial Banking (Canadian P&C)		47	Consolidated Statement of Income
		24	U.S. Personal and Commercial Banking (U.S. P&C)		48	Consolidated Statement of Comprehensive Income
	26	BMO Wealth Management			49	Consolidated Balance Sheet
	27	BMO Capital Markets			50	Consolidated Statement of Changes in Equity
	28	Corporate Services			51	Consolidated Statement of Cash Flows
30	Summary Quarterly Earnings Trends				52	Notes to Consolidated Financial Statements
				68	Investor and Media Information

Bank of Montreal’s management, under the supervision of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness, as at January 31, 2023, of Bank of Montreal’s disclosure controls and procedures (as defined in the rules of the U.S. Securities and Exchange Commission and the Canadian Securities Administrators) and has concluded that such disclosure controls and procedures are effective.

There were no changes in our internal control over financial reporting during the quarter ended January 31, 2023, which materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

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

6 BMO Financial Group First Quarter Report 2023

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 in this document may include, but are not limited to, statements with respect to our objectives and priorities for fiscal 2023 and beyond, our strategies or future actions, our targets and commitments (including with respect to our Climate Ambition and net zero emissions), expectations for our financial condition, capital position or share price, the regulatory environment in which we operate, the results of, or outlook for, our operations or for the Canadian, U.S. and international economies, plans for the combined operations of BMO and Bank of the West and the financial, operational and capital impacts of the transaction, and include statements made by our management. Forward-looking statements are typically identified by words such as “will”, “would”, “should”, “believe”, “expect”, “anticipate”, “project”, “intend”, “estimate”, “plan”, “goal”, “commit”, “target”, “may”, “might”, “schedule”, “forecast”, “outlook”, “timeline”, “suggest”, “seek” and “could” or negative or grammatical variations thereof.

By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, both general and specific in nature. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that 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 – many of which are beyond our control and the effects of which can be difficult to predict – could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.

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, including labour challenges; the severity, duration and spread of the COVID-19 pandemic, and possibly other outbreaks of disease or illness, and their impact on local, national or international economies, as well as their heightening of certain risks that may affect our future results; information, privacy and cybersecurity, including the threat of data breaches, hacking, identity theft and corporate espionage, as well as the possibility of denial of service resulting from efforts targeted at causing system failure and service disruption; benchmark interest rate reforms; technological changes and technology resiliency; political conditions, including changes relating to, or affecting, economic or trade matters; climate change and other environmental and social risk; the Canadian housing market and consumer leverage; inflationary pressures; global supply-chain disruptions; changes in monetary, fiscal, or economic policy; changes in laws, including tax legislation and interpretation, or in supervisory expectations or requirements, including capital, interest rate and liquidity requirements and guidance, and the effect of such changes on funding costs; weak, volatile or illiquid capital or credit markets; the level of competition in the geographic and business areas in which we operate; exposure to, and the resolution of, significant litigation or regulatory matters, our ability to successfully appeal adverse outcomes of such matters and the timing, determination and recovery of amounts related to such matters; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; failure of third parties to comply with their obligations to us; our ability to execute our strategic plans, complete proposed acquisitions or dispositions and integrate acquisitions, including obtaining regulatory approvals; critical accounting estimates and judgments, and the effects of changes to accounting standards, rules and interpretations on these estimates; operational and infrastructure risks, including with respect to reliance on third parties; the anticipated benefits from acquisitions, including Bank of the West, such as potential synergies, accretion to adjusted earnings per share (EPS), and operational efficiencies, are not realized; changes to our credit ratings; global capital markets activities; the possible effects on our business of war or terrorist activities; natural disasters and disruptions to public infrastructure, such as transportation, communications, power or water supply; and our ability to anticipate and effectively manage risks arising from all of the foregoing factors.

We caution that the foregoing list is not exhaustive of all possible factors. Other factors and risks could adversely affect our results. For more information, please refer to the discussion in the Risks That May Affect Future Results section, and the sections related to credit and counterparty, market, insurance, liquidity and funding, operational non-financial, legal and regulatory, strategic, environmental and social, and reputation risk, in the Enterprise-Wide Risk Management section of BMO’s 2022 Annual Report, and the Risk Management section in this document, all of which outline certain key factors and risks that may affect our future results. Investors and others should carefully consider these factors and risks, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. We do not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by the organization or on its behalf, except as required by law. The forward-looking information contained in this document is presented for the purpose of assisting shareholders and analysts 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.

Material economic assumptions underlying the forward-looking statements contained in this document include those set out in the Economic Developments and Outlook section of BMO’s 2022 Annual Report, as updated in the Economic Developments and Outlook section in our First Quarter 2023 Report to Shareholders, as well as in the Allowance for Credit Losses section of BMO’s 2022 Annual Report, as updated in the Allowance for Credit Losses section in our First Quarter 2023 Report to Shareholders. 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. Assumptions about our integration plan, the efficiency and duration of integration and the alignment of organizational responsibilities were material factors we considered in estimating pre-tax cost synergies and integration costs. Assumptions about BMO and Bank of the West’s current and expected financial performance (including balance sheet, income statement and regulatory capital figures), expected cost and revenue synergies (and timing to achieve), and current and future foreign exchange rates, interest rates and shares outstanding were material factors considered in estimating adjusted EPS accretion.

In determining our expectations for economic growth, we primarily consider historical economic data, past relationships between economic and financial variables, changes in government policies, and the risks to the domestic and global economy.

BMO Financial Group First Quarter Report 2023 7

Economic Developments and Outlook ^(1)^

Canada’s economy is expected to post modest 0.7% growth in 2023 after expanding an estimated 3.6% in 2022. The economy has slowed as a result of high inflation, rising interest rates and weaker global demand, and will likely contract slightly in the second and third quarters of 2023. Positive growth should resume later this year amid support from high levels of household savings and a moderation of inflation. The correction in the housing market will likely continue through 2023, as prices will need to decline further to offset higher borrowing costs and restore affordability to more normal levels. The economic downturn is projected to raise the unemployment rate from a near half-century low of 5.0% in January 2023 to 5.9% by December 2023, which will help to reduce wage and price pressures. After reaching four-decade highs last summer, annual growth in the consumer price index has declined and is projected to moderate further from 5.9% in January 2023 to approximately 3% at year-end. To restore price stability, the Bank of Canada has raised its overnight lending rate by 425 basis points since March 2022, though it recently signalled a probable pause in the tightening cycle. We anticipate the Bank of Canada will reduce its policy rate in 2024 to less restrictive levels. After peaking at a yearly rate of almost 11% in early 2022, industry-wide growth in residential mortgage balances decelerated to below 8% in December 2022 and is expected to moderate further to a low single-digits pace in 2023, as a result of the decrease in housing market activity and prices. Consumer credit balances (excluding mortgages) have been restrained by rising interest rates and elevated household savings and are anticipated to rise only modestly this year as households curtail spending. Following strong growth in 2022, the rate of non-financial corporate credit is projected to decelerate sharply in response to higher interest rates, recession concerns, and elevated cash balances.

After slowing to a 2.1% growth rate in 2022, the U.S. economy is expected to contract slightly for two quarters and register modest 0.7% growth for all of 2023. Rising interest rates, high inflation, and a strong currency have restrained activity, though household spending remains supported by elevated savings and rising employment and wages. The correction in house prices will likely continue in the first half of the year amid the worst affordability in a generation. The expected economic contraction will likely raise the unemployment rate from a 54-year low of 3.4% in January 2023 to 4.8% in December 2023. Amid lower energy prices and improved global supply chains, annual growth in the consumer price index has fallen from 9.1% last summer to 6.4% in January 2023, and it is anticipated to decline to approximately 3% at year-end. After raising its policy rate by 450 basis points since March 2022, the Federal Reserve Bank is projected to tighten its policy by an additional 50 basis points in the months ahead, to sustain lower inflation. Earlier strong growth in industry-wide residential mortgage balances is projected to decelerate as a result of weak housing market activity. Despite the moderation in personal spending last year, consumer credit balances increased as inflation strained household finances. However, credit balance growth is expected to slow in 2023 as a result of rising interest rates and higher unemployment. Non-financial corporate credit growth also strengthened last year as companies took advantage of initially low borrowing costs, but it is projected to decelerate quickly in response to higher interest rates, a weaker economy, and the drawing down of large deposit balances.

The economic outlook is subject to several risks that could lead to a more severe contraction of the North American economy. These include the persistence of high inflation leading to significant further increases in interest rates, an escalation of the conflict in Ukraine, an increase in geopolitical tensions between the United States and China, and the emergence of more lethal strains of COVID-19. In addition, the U.S. Congress will need to raise the debt ceiling by around mid-2023 to avoid a potential default that could lead to financial market turbulence and an even weaker economy.

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

(1)	All periods in this section refer to the calendar quarter and calendar year, rather than the fiscal quarter or fiscal<br>year.

8 BMO Financial Group First Quarter Report 2023

Financial Highlights

(Canadian in millions, except as noted)			Q4-2022			Q1-2022
Summary Income Statement (1)
Net interest income	4,021	****		3,767			4,019
Non-interest revenue	2,449	****		6,803			3,704
Revenue	6,470	****		10,570			7,723
Insurance claims, commissions and changes in policy benefit<br>liabilities (CCPB)	1,193	****		(369	)		81
Revenue, net of CCPB (2)	5,277	****		10,939			7,642
Provision for credit losses on impaired loans	196	****		192			86
Provision for (recovery of) credit losses on performing<br>loans	21	****		34			(185	)
Total provision for (recovery of) credit losses	217	****		226			(99	)
Non-interest expense	4,421	****		4,776			3,846
Provision for income taxes	392	****		1,454			962
Net income	247	****		4,483			2,933
Dividends on preferred shares and distributions on other equity<br>instruments	38	****		77			55
Net income available to common shareholders	209	****		4,406			2,878
Adjusted net income	2,272	****		2,136			2,584
Adjusted net income available to common shareholders	2,234	****		2,059			2,529
Common Share Data (, except as noted) (1)
Basic earnings per share	0.30	****		6.52			4.44
Diluted earnings per share	0.30	****		6.51			4.43
Adjusted diluted earnings per share	3.22	****		3.04			3.89
Dividends declared per share	1.43	****		1.39			1.33
Book value per share	95.76	****		95.60			83.66
Closing share price	133.90	****		125.49			143.88
Number of common shares outstanding (in millions)
End of period	709.7	****		677.1			648.4
Average basic	691.3	****		676.1			648.4
Average diluted	692.6	****		677.5			650.3
Market capitalization ( billions)	95.0	****		85.0			93.3
Dividend yield (%)	4.3	****		4.4			3.7
Dividend payout ratio (%)	474.5	****		21.3			30.0
Adjusted dividend payout ratio (%)	44.3	****		45.6			34.1
Financial Measures and Ratios (%) (1)
Return on equity	1.3	****		27.6			21.4
Adjusted return on equity	13.4	****		12.9			18.8
Return on tangible common equity	1.4	****		30.1			23.6
Adjusted return on tangible common equity	14.6	****		14.0			20.7
Efficiency ratio	68.3	****		45.2			49.8
Efficiency ratio, net of CCPB (2)	83.8	****		43.7			50.3
Adjusted efficiency ratio, net of CCPB (2)	57.2	****		57.2			53.8
Operating leverage	(31.2	)		35.3			4.3
Operating leverage, net of CCPB (2)	(46.0	)		43.3			13.5
Adjusted operating leverage, net of CCPB (2)	(6.4	)		0.4			4.8
Net interest margin on average earning assets	1.48	****		1.46			1.64
Adjusted net interest margin on average earning assets	1.62	****		1.72			1.62
Effective tax rate	61.4	****		24.5			24.7
Adjusted effective tax rate	21.8	****		21.8			23.5
Total PCL-to-average net<br>loans and acceptances	0.15	****		0.16			(0.08	)
PCL on impaired<br>loans-to-average net loans and acceptances	0.14	****		0.14			0.07
Liquidity coverage ratio (LCR) (3)	144	****		135			129
Net stable funding ratio (NSFR) (3)	120	****		114			114
Balance Sheet and other information (as at, millions, except as noted)
Assets	1,145,706	****		1,139,199			1,023,172
Average earning assets	1,078,963	****		1,021,540			972,687
Gross loans and acceptances	562,537	****		567,191			499,568
Net loans and acceptances	559,899	****		564,574			497,163
Deposits	787,376	****		769,478			704,949
Common shareholders’ equity	67,956	****		64,730			54,246
Total risk weighted assets (4)	347,454	****		363,997			337,652
Assets under administration	740,314	****		744,442			657,974
Assets under management	321,540	****		305,462			332,581
Capital ratios (%) (4)
Common Equity Tier 1 Ratio	18.2	****		16.7			14.1
Tier 1 Capital Ratio	20.1	****		18.4			15.5
Total Capital Ratio	22.6	****		20.7			18.1
Leverage Ratio	5.9	****		5.6			4.7
Foreign Exchange Rates ()
As at Canadian/U.S. dollar	1.3306	****		1.3625			1.2698
Average Canadian/U.S. dollar	1.3426	****		1.3516			1.2710

All values are in US Dollars.

(1)	Adjusted results remove certain items from reported results and are used to calculate our adjusted measures as presented<br>in the above table. Management assesses performance on a reported basis and an adjusted basis, and considers both to be useful. Revenue, net of CCPB, as well as reported ratios calculated net of CCPB and adjusted results, measures and ratios in this<br>table are non-GAAP. For further information, refer to the Non-GAAP and Other Financial Measures section, and for details on the composition of non-GAAP amounts, measures and ratios, as well as supplementary financial measures, refer to the Glossary of Financial Terms.
(2)	We present revenue, efficiency ratio and operating leverage on a basis that is net of CCPB, which reduces the variability<br>in insurance revenue from changes in the fair value that are largely offset by changes in the fair value of policy benefit liabilities, the impact of which is reflected in CCPB. For further information, refer to the Insurance Claims, Commissions and<br>Changes in Policy Benefits section.
---	---
(3)	LCR and NSFR are disclosed in accordance with the Office of the Superintendent of Financial Institutions’<br>(OSFI’s) Liquidity Adequacy Requirements (LAR) Guideline, as applicable.
---	---
(4)	Capital ratios and risk-weighted assets are disclosed in accordance with OSFI’s Capital Adequacy Requirements (CAR)<br>Guideline, as applicable.
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BMO Financial Group First Quarter Report 2023 9

Non-GAAP and Other Financial Measures

Results and measures in this document are presented on a GAAP basis. Unless otherwise indicated, all amounts are in Canadian dollars and have been derived from our audited annual consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS). References to GAAP mean IFRS. We use a number of financial measures to assess our performance, as well as the performance of our operating segments, including amounts, measures and ratios that are presented on a non-GAAP basis, as described below. We believe that these non-GAAP amounts, measures and ratios, read together with our GAAP results, provide readers with a better understanding of how management assesses results.

Non-GAAP amounts, measures and ratios do not have standardized meanings under GAAP. They are unlikely to be comparable to similar measures presented by other companies and should not be viewed in isolation from, or as a substitute for, GAAP results.

For further information regarding the composition of non-GAAP and other financial measures, including supplementary financial measures, refer to the Glossary of Financial Terms.

Our non-GAAP measures broadly fall into the following categories:

Adjusted measures and ratios

Management considers both reported and adjusted results and measures to be useful in assessing underlying ongoing business performance. Adjusted results and measures remove certain specified items from revenue, non-interest expense and income taxes, as detailed in the following table. Adjusted results and measures presented in this document are non-GAAP. Presenting results on both a reported basis and an adjusted basis permits readers to assess the impact of certain items on results for the periods presented, and to better assess results excluding those items that may not be reflective of ongoing business performance. As such, the presentation may facilitate readers’ analysis of trends. Except as otherwise noted, management’s discussion of changes in reported results in this document applies equally to changes in the corresponding adjusted results.

Measures net of insurance claims, commissions and changes in policybenefit liabilities (CCPB)

We also present reported and adjusted revenue on a basis that is net of insurance claims, commissions and changes in policy benefit liabilities (CCPB), and our efficiency ratio and operating leverage are calculated on a similar basis, as reconciled in the Revenue section. Measures and ratios presented on a basis net of CCPB are non-GAAP. Insurance revenue can experience variability arising from fluctuations in the fair value of insurance assets, caused by movements in interest rates and equity markets. The investments that support policy benefit liabilities are predominantly fixed income assets recorded at fair value, with changes in fair value recorded in insurance revenue in the Consolidated Statement of Income. These fair value changes are largely offset by changes in the fair value of policy benefit liabilities, the impact of which is reflected in CCPB. The presentation and discussion of revenue, efficiency ratios and operating leverage on a net basis reduces this variability, which allows for a better assessment of operating results. For more information refer to the Insurance Claims, Commissions and Changes in Policy Benefit Liabilities section.

Tangible common equity and return on tangible common equity

Tangible common equity is calculated as common shareholders’ equity less goodwill and acquisition-related intangible assets, net of related deferred tax liabilities. Return on tangible common equity is commonly used in the North American banking industry and is meaningful because it measures the performance of businesses consistently, whether they were acquired or developed organically.

10 BMO Financial Group First Quarter Report 2023

Non-GAAP and Other Financial Measures

(Canadian in millions, except as noted)			Q4-2022			Q1-2022
Reported Results
Net interest income	4,021	****		3,767			4,019
Non-interest revenue	2,449	****		6,803			3,704
Revenue	6,470	****		10,570			7,723
Insurance claims, commissions and changes in policy benefit<br>liabilities (CCPB)	(1,193	)		369			(81	)
Revenue, net of CCPB	5,277	****		10,939			7,642
Provision for credit losses	(217	)		(226	)		99
Non-interest expense	(4,421	)		(4,776	)		(3,846	)
Income before income taxes	639	****		5,937			3,895
Provision for income taxes (6)	(392	)		(1,454	)		(962	)
Net income	247	****		4,483			2,933
Diluted EPS ()	0.30	****		6.51			4.43
Adjusting Items Impacting Revenue (Pre-tax)
Impact of divestitures (1)	-	****		-			(29	)
Management of fair value changes on the purchase of Bank of the West (2)	(2,011	)		4,541			562
Legal provision (3)	(6	)		(515	)		-
Impact of adjusting items on revenue<br>(pre-tax)	(2,017	)		4,026			533
Adjusting Items Impacting Non-Interest Expense (Pre-tax)
Acquisition and integration costs (4)	(239	)		(193	)		(12	)
Amortization of acquisition-related intangible assets (5)	(8	)		(8	)		(8	)
Impact of divestitures (1)	-	****		6			3
Legal provision (3)	(2	)		(627	)		-
Impact of adjusting items on<br>non-interest expense (pre-tax)	(249	)		(822	)		(17	)
Impact of adjusting items on reported net income (pre-tax)	(2,266	)		3,204			516
Adjusting Items Impacting Revenue (After-tax)
Impact of divestitures (1)	-	****		-			(29	)
Management of fair value changes on the purchase of Bank of the West (2)	(1,461	)		3,336			413
Legal provision (3)	(5	)		(382	)		-
Impact of adjusting items on revenue<br>(after-tax)	(1,466	)		2,954			384
Adjusting Items Impacting Non-Interest Expense (After-tax)
Acquisition and integration costs (4)	(181	)		(145	)		(10	)
Amortization of acquisition-related intangible assets (5)	(6	)		(6	)		(6	)
Impact of divestitures (1)	-	****		8			(19	)
Legal provision (3)	(1	)		(464	)		-
Impact of adjusting items on<br>non-interest expense (after-tax)	(188	)		(607	)		(35	)
Impact of Canadian tax measures (6)	(371	)		-			-
Impact of adjusting items on reported net income (after-tax)	(2,025	)		2,347			349
Impact on diluted EPS ()	(2.92	)		3.47			0.54
Adjusted Results
Net interest income	4,410	****		4,439			3,974
Non-interest revenue	4,077	****		2,105			3,216
Revenue	8,487	****		6,544			7,190
Insurance claims, commissions and changes in policy benefit<br>liabilities (CCPB)	(1,193	)		369			(81	)
Revenue, net of CCPB	7,294	****		6,913			7,109
Provision for credit losses	(217	)		(226	)		99
Non-interest expense	(4,172	)		(3,954	)		(3,829	)
Income before income taxes	2,905	****		2,733			3,379
Provision for income taxes (6)	(633	)		(597	)		(795	)
Net income	2,272	****		2,136			2,584
Diluted EPS ()	3.22	****		3.04			3.89

All values are in US Dollars.

(1)	Reported net income included the impact of divestitures related to the sale of our EMEA Asset Management business. Q4-2022 net income included a $8 million ($6 million pre-tax) recovery of non-interest expense, and Q1-2022 included a $29 million (pre-tax and after-tax) loss related to foreign currency translation reclassified from accumulated<br>other comprehensive income to non-interest revenue, a $3 million pre-tax net recovery of non-interest expense, including<br>taxes of $22 million on closing of the sale of our EMEA Asset Management business. These amounts were recorded in Corporate Services.
(2)	Reported net income included revenue (losses) related to the acquisition of Bank of the West resulting from the management<br>of the impact of interest rate changes between the announcement and closing on its fair value and goodwill. Q1-2023 included a loss of $1,461 million ($2,011 million<br>pre-tax), comprising $1,628 million of pre-tax mark-to-market losses on certain<br>interest rate swaps recorded in non-interest trading revenue and $383 million of pre-tax losses on a portfolio of primarily U.S. treasuries and other balance sheet<br>instruments recorded in net interest income. Q4-2022 included revenue of $3,336 million ($4,541 million pre-tax), comprising $4,698 million of pre-tax mark-to-market gains and $157 million of pre-tax losses recorded in net interest<br>income. Q1-2022 included revenue of $413 million ($562 million pre-tax), comprising $517 million of pre-tax mark-to-market gains and $45 million of pre-tax interest income. These amounts were recorded in Corporate Services. For further<br>information on this acquisition, refer to the Significant Events section.
---	---
(3)	Q1-2023 reported net income included $6 million ($8 million pre-tax) related to a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank, comprising interest expense of $6 million pre-tax and legal fees of<br>$2 million pre-tax. Q4-2022 included $846 million ($1,142 million pre-tax), comprising interest expense of<br>$515 million pre-tax and non-interest expense of $627 million pre-tax, including legal fees of $22 million. These<br>amounts were recorded in Corporate Services. For further information, refer to the Provisions and Contingent Liabilities section in Note 24 of the audited annual consolidated financial statements of BMO’s 2022 Annual Report.<br>
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(4)	Reported net income included acquisition and integration costs related to the acquisition of Bank of the West recorded in non-interest expenses in Corporate Services. Q1-2023 included $178 million ($235 million pre-tax), Q4-2022 included $143 million ($191 million pre-tax) and Q1-2022 included $7 million ($8 million pre-tax). In addition, reported net income included acquisition and integration costs recorded in non-interest expense in BMO Capital Markets related to both Radicle and<br>Clearpool in Q1-2023, and to Clearpool in Q4-2022 and Q1-2022: Q1-2023 included<br>$3 million ($4 million pre-tax), Q4-2022 included $2 million ($2 million pre-tax), and Q1-2022 included $3 million ($4 million pre-tax).
---	---
(5)	Reported income included amortization of acquisition-related intangible assets recorded in<br>non-interest expense in the related operating group and was $6 million ($8 million pre-tax) in each of Q1-2023, Q4-2022 and Q1-2022.
---	---
(6)	Q1-2023 reported net income included a<br>one-time tax expense of $371 million related to certain tax measures enacted by the Canadian government, comprising a Canada Recovery Dividend (CRD) of $312 million and $59 million related to<br>the pro-rated fiscal 2022 impact of the 1.5% tax rate increase, net of a deferred tax asset remeasurement, recorded in Corporate Services. ****
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BMO Financial Group First Quarter Report 2023 11

Summary of Reported and Adjusted Results by Operating Group

(Canadian $ in millions, except as noted)	Canadian P&C		U.S. P&C		Total P&C		BMO WealthManagement		BMO CapitalMarkets		CorporateServices			Total Bank			U.S. Segment (1)(US  in millions)
Q1-2023
Reported net income (loss)	****	980	****	698	****	1,678	****	277	****	503	****	(2,211	)	****	247	****		)
Acquisition and integration costs	****	-	****	-	****	-	****	-	****	3	****	178	****	****	181	****		****
Amortization of acquisition-related intangible assets	****	-	****	1	****	1	****	1	****	4	****	-	****	****	6	****		****
Impact of divestitures	****	-	****	-	****	-	****	-	****	-	****	-	****	****	-	****		****
Management of fair value changes on the purchase of Bank of the West	****	-	****	-	****	-	****	-	****	-	****	1,461	****	****	1,461	****		****
Legal provision	****	-	****	-	****	-	****	-	****	-	****	6	****	****	6	****		****
Impact of Canadian tax measures	****	-	****	-	****	-	****	-	****	-	****	371	****	****	371	****		****
Adjusted net income (loss)	****	980	****	699	****	1,679	****	278	****	510	****	(195	)	****	2,272	****		****
Q4-2022
Reported net income (loss)		917		660		1,577		298		357		2,251			4,483
Acquisition and integration costs		-		-		-		-		2		143			145
Amortization of acquisition-related intangible assets		-		2		2		-		4		-			6
Impact of divestitures		-		-		-		-		-		(8	)		(8	)		)
Management of fair value changes on the purchase of Bank of the West		-		-		-		-		-		(3,336	)		(3,336	)		)
Legal provision		-		-		-		-		-		846			846
Adjusted net income (loss)		917		662		1,579		298		363		(104	)		2,136
Q1-2022
Reported net income (loss)		1,004		681		1,685		315		705		228			2,933
Acquisition and integration costs		-		-		-		-		3		7			10
Amortization of acquisition-related intangible assets		-		1		1		1		4		-			6
Impact of divestitures		-		-		-		-		-		48			48			)
Management of fair value changes on the purchase of Bank of the West		-		-		-		-		-		(413	)		(413	)		)
Adjusted net income (loss)		1,004		682		1,686		316		712		(130	)		2,584

All values are in US Dollars.

(1)	U.S. segment reported and adjusted results comprise net income recorded in U.S. P&C and our U.S. operations in BMO<br>Wealth Management, BMO Capital Markets and Corporate Services.

Refer to footnotes (1) to (6) in the Non-GAAP and Other Financial Measures table for details on adjusting items.

Net Revenue, Efficiencyand Operating Leverage

(Canadian $ in millions, except as noted)	Q1-2023			Q4-2022			Q1-2022
Reported
Net interest income	****	4,021	****		3,767			4,019
Non-interest revenue	****	2,449	****		6,803			3,704
Revenue	****	6,470	****		10,570			7,723
Insurance claims, commissions and changes in policy benefit<br>liabilities (CCPB)	****	1,193	****		(369	)		81
Non-interest revenue, net of CCPB	****	1,256	****		7,172			3,623
Revenue, net of CCPB	****	5,277	****		10,939			7,642
Non-interest expense	****	4,421	****		4,776			3,846
Efficiency ratio (%)	****	68.3	****		45.2			49.8
Efficiency ratio, net of CCPB (%)	****	83.8	****		43.7			50.3
Revenue growth (%)	****	(16.2	)		60.9			10.7
Revenue growth, net of CCPB (%)	****	(31.0	)		68.9			19.9
Non-interest expense growth<br>(%)	****	15.0	****		25.6			6.4
Operating Leverage (%)	****	(31.2	)		35.3			4.3
Operating Leverage, net of CCPB (%)	****	(46.0	)		43.3			13.5
Adjusted (1)
Net interest income	****	4,410	****		4,439			3,974
Non-interest revenue	****	4,077	****		2,105			3,216
Revenue	****	8,487	****		6,544			7,190
Insurance claims, commissions and changes in policy benefit<br>liabilities (CCPB)	****	1,193	****		(369	)		81
Non-interest revenue, net of CCPB	****	2,884	****		2,474			3,135
Revenue, net of CCPB	****	7,294	****		6,913			7,109
Non-interest expense	****	4,172	****		3,954			3,829
Efficiency ratio (%)	****	49.2	****		60.4			53.2
Efficiency ratio, net of CCPB (%)	****	57.2	****		57.2			53.8
Revenue growth, net of CCPB (%)	****	2.6	****		6.7			11.5
Non-interest expense growth (%)	****	9.0	****		6.3			6.7
Operating Leverage, net of CCPB (%)	****	(6.4	)		0.4			4.8
(1)	Refer to footnotes (1) to (6) in the Non-GAAP and Other Financial Measures<br>table for details on adjusting items.
---	---

12 BMO Financial Group First Quarter Report 2023

Return on Equity and Return on Tangible Common Equity

(Canadian $ in millions, except as noted)	Q1-2023			Q4-2022			Q1-2022
Reported net income	****	247	****		4,483			2,933
Dividends on preferred shares and distributions on other equity<br>instruments	****	(38	)		(77	)		(55	)
Net income available to common shareholders (A)	****	209	****		4,406			2,878
After-tax amortization of<br>acquisition-related intangible assets	****	6	****		6			6
Net income available to common shareholders after adjusting for amortization of acquisition-related<br>intangible assets (B)	****	215	****		4,412			2,884
After-tax impact of other<br>adjusting items (1)	****	2,019	****		(2,353	)		(355	)
Adjusted net income available to common shareholders (C)	****	2,234	****		2,059			2,529
Average common shareholders’ equity (D)	****	66,015	****		63,343			53,345
Return on equity (%) (= A/D) (2)	****	1.3	****		27.6			21.4
Adjusted return on equity (%) (= C/D) (2)	****	13.4	****		12.9			18.8
Average tangible common equity (E) (3)	****	60,882	****		58,224			48,431
Return on tangible common equity (%) (= B/E) (2)	****	1.4	****		30.1			23.6
Adjusted return on tangible common equity (%) (= C/E) (2)	****	14.6	****		14.0			20.7
(1)	Refer to footnotes (1) to (6) in the Non-GAAP and Other Financial Measures<br>table for details on adjusting items.
---	---
(2)	Quarterly calculations are on an annualized basis.
---	---
(3)	Average tangible common equity is average common shareholders’ equity (D above) adjusted for goodwill of<br>$5,283 million in Q1-2023, $5,247 million in Q4-2022, and $5,031 million in Q1-2022. Acquisition-related<br>intangible assets of $115 million in Q1-2023, $124 million in Q4-2022, and $138 million in Q1-2022, net of related<br>deferred tax liabilities of $265 million in Q1-2023, $252 million in Q4-2022, and $255 million in Q1-2022.<br>
---	---

Capital is allocated to the operating segments based on the amount of regulatory capital required to support business activities. Effective the first quarter of 2023, our capital allocation rate increased to 11.0% of risk weighted assets, compared with 10.5% in 2022 to reflect increased capital requirements. Unallocated capital is reported in Corporate Services. We review our capital allocation methodologies annually.

Return on Equity by Operating Segment ^(1)^ ****

	Q1-2023
(Canadian $ in millions, except as noted)	Canadian P&C		U.S. P&C		Total P&C		BMO WealthManagement		BMO CapitalMarkets		CorporateServices			Total Bank		U.S. Segment (3)(US  in millions)
Reported
Net income available to common shareholders	****	970	****	690	****	1,660	****	275	****	494	****	(2,220	)	****	209		)
Total average common equity	****	12,553	****	14,241	****	26,794	****	5,646	****	12,108	****	21,467	****	****	66,015		****
Return on equity (%)	****	30.7	****	19.2	****	24.6	****	19.4	****	16.2	****	na	****	****	1.3		)
Adjusted (2)
Net income available to common shareholders	****	970	****	691	****	1,661	****	276	****	501	****	(204	)	****	2,234		****
Total average common equity	****	12,553	****	14,241	****	26,794	****	5,646	****	12,108	****	21,467	****	****	66,015		****
Return on equity (%)	****	30.7	****	19.2	****	24.6	****	19.4	****	16.4	****	na	****	****	13.4		****
	Q4-2022
(Canadian $ in millions, except as noted)	Canadian P&C		U.S. P&C		Total P&C		BMO WealthManagement		BMO CapitalMarkets		CorporateServices			Total Bank		U.S. Segment (3)(US  in millions)
Reported
Net income available to common shareholders		906		650		1,556		296		346		2,208			4,406
Total average common equity		12,231		14,381		26,612		5,400		12,142		19,189			63,343
Return on equity (%)		29.4		17.9		23.2		21.7		11.3		na			27.6
Adjusted (2)
Net income available to common shareholders		906		652		1,558		296		352		(147	)		2,059
Total average common equity		12,231		14,381		26,612		5,400		12,142		19,189			63,343
Return on equity (%)		29.4		18.0		23.2		21.8		11.5		na			12.9
	Q1-2022
(Canadian $ in millions, except as noted)	Canadian P&C		U.S. P&C		Total P&C		BMO WealthManagement		BMO CapitalMarkets		CorporateServices			Total Bank		U.S. Segment (3)(US  in millions)
Reported
Net income available to common shareholders		993		671		1,664		313		695		206			2,878
Total average common equity		11,406		13,667		25,073		5,167		11,027		12,078			53,345
Return on equity (%)		34.6		19.5		26.3		24.0		25.0		na			21.4
Adjusted (2)
Net income available to common shareholders		993		672		1,665		314		702		(152	)		2,529
Total average common equity		11,406		13,667		25,073		5,167		11,027		12,078			53,345
Return on equity (%)		34.6		19.5		26.3		24.1		25.2		na			18.8

All values are in US Dollars.

(1)	Return on equity is based on allocated capital. Effective Q1-2023, the capital<br>allocation rate increased to 11% of risk-weighted assets, compared with 10.5% in 2022. For further information, refer to the How BMO Reports Operating Group Results section.
(2)	Refer to footnotes (1) to (6) in the Non-GAAP and Other Financial Measures<br>table for details on adjusting items.
---	---
(3)	U.S. segment reported and adjusted results comprise net income recorded in U.S. P&C and our U.S. operations in BMO<br>Wealth Management, BMO Capital Markets and Corporate Services.
---	---

na – not applicable

BMO Financial Group First Quarter Report 2023 13

Foreign Exchange

The Canadian dollar equivalents of BMO’s U.S. segment results that are denominated in U.S. dollars increased relative to the first quarter of 2022 and decreased relative to the fourth quarter of 2022, due to changes in the Canadian/U.S. dollar exchange rate. The table below indicates the relevant average Canadian/U.S. dollar exchange rates and the impact of changes in those rates on BMO’s U.S. segment results. References in this document to the impact of the U.S. dollar do not include U.S. dollar-denominated amounts recorded outside of BMO’s U.S. segment.

Economically, our U.S. dollar income stream was not hedged against the risk of changes in foreign exchange rates during 2023 and 2022. Changes in exchange rates will affect future results measured in Canadian dollars, and the impact on those results is a function of the periods in which revenue, expenses, provisions for (recoveries of) credit losses and income taxes arise.

Refer to the Enterprise-Wide Capital Management section of BMO’s 2022 Annual Report for a discussion of the impact that changes in foreign exchange rates can have on BMO’s capital position.

Effects of Changes in Exchange Rates on BMO’s U.S. Segment Reported and AdjustedResults

(Canadian in millions, except as noted)			vs. Q4-2022
Canadian/U.S. dollar exchange rate (average)
Current period	1.3426			1.3426
Prior period	1.2710			1.3516
Effects on U.S. segment reported results
Increased (Decreased) net interest income	91			(8	)
Increased (Decreased)<br>non-interest revenue	85			(36	)
Increased (Decreased) total revenue	176			(44	)
Decreased (Increased) provision for credit losses	7			-
Decreased (Increased) non-interest expense	(75	)		16
Decreased (Increased) provision for income taxes	(26	)		7
Increased (Decreased) net income	82			(21	)
Impact on earnings per share ()	0.13			(0.03	)
Effects on U.S. segment adjusted results
Increased (Decreased) net interest income	88			(12	)
Increased (Decreased)<br>non-interest revenue	56			(5	)
Increased (Decreased) total revenue	144			(17	)
Decreased (Increased) provision for credit losses	7			-
Decreased (Increased) non-interest expense	(78	)		10
Decreased (Increased) provision for income taxes	(16	)		2
Increased (Decreased) net income	57			(5	)
Impact on adjusted earnings per share ()	0.09			(0.01	)

All values are in US Dollars.

Adjusted results in this table are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section.

Net Income

Q1 2023 vs. Q1 2022

Reported net income was $247 million, compared with $2,933 million in the prior year, and adjusted net income was $2,272 million, a decrease of $312 million or 12% from the prior year. Adjusted results in the current quarter excluded a loss of $1,461 million ($2,011 million pre-tax) resulting from the impact of the fair value management actions related to the acquisition of Bank of the West, compared with revenue of $413 million ($562 million pre-tax) in the prior year, and acquisition and integration costs of $181 million ($239 million pre-tax), compared with $10 million ($12 million pre-tax) in the prior year. In addition, the current quarter excluded a $371 million tax expense related to certain tax measures enacted by the Canadian government, and a $6 million ($8 million pre-tax) legal provision, comprising interest expense of $6 million and legal fees of $2 million related to a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank. The prior year excluded the impact of divestitures of $48 million ($26 million pre-tax) related to the sale of our EMEA Asset Management business. Both the current quarter and prior year excluded amortization of acquisition-related intangibles assets. Refer to the Non-GAAP and Other Financial Measures section for further information on adjusting items. Reported EPS was $0.30, a decrease of $4.13 from the prior year, and adjusted EPS was $3.22, a decrease of $0.67. The impact of share issuances on March 29, 2022, December 16, 2022 and January 25, 2023 increased reported EPS by $0.04 and reduced adjusted EPS by $0.11.

The decrease in reported results reflected lower revenue from the fair value management actions, the tax expense and higher acquisition and integration costs. Adjusted results decreased, as higher revenue was more than offset by higher expenses and a provision for credit losses compared with a recovery in the prior year. Net income increased in U.S. P&C due to the stronger U.S. dollar and decreased across all operating groups on a source currency basis. In our P&C businesses, the decrease was due to higher provisions for credit losses compared with recoveries in the prior year. Lower results in our BMO Wealth Management businesses reflected the impact of weaker global markets. BMO Capital Markets results decreased from particularly strong results in the prior year, reflecting current market conditions. On a reported basis, Corporate Services recorded net loss compared with a net income in the prior year, primarily due to the items noted above, and on an adjusted basis, Corporate Services net loss increased from the prior year.

14 BMO Financial Group First Quarter Report 2023

Q1 2023 vs. Q4 2022

Reported net income decreased $4,236 million from the prior quarter, and adjusted net income increased $136 million or 6% from the prior quarter. Reported EPS decreased $6.21 from the prior quarter, and adjusted EPS increased $0.18.

The decrease in reported results reflected a loss in the current quarter resulting from the fair value management actions, compared with revenue in the prior quarter, higher acquisition and integration costs and the tax expense noted above, partially offset by the lower impact of the legal provision compared with the prior quarter. Adjusted results increased driven by higher revenue, partially offset by higher expenses. Net income increased in BMO Capital Markets and in our P&C businesses, and decreased in BMO Wealth Management. On a reported basis, Corporate Services recorded a net loss compared with a net income in the prior quarter, and on an adjusted basis, Corporate Services net loss increased from the prior quarter.

For further information on non-GAAP amounts, measures and ratios in this Net Income section, refer to the Non-GAAP and Other Financial Measures section.

Revenue

Q1 2023 vs. Q1 2022

Reported revenue was $6,470 million, compared with $7,723 million in the prior year. Reported revenue, net of CCPB, was $5,277 million, compared with $7,642 million in the prior year, and adjusted revenue, net of CCPB was $7,294 million, an increase of $185 million or 3%. Adjusted net revenue in the current quarter excluded a loss of $2,011 million resulting from the impact of the fair value management actions, compared with revenue of $562 million in the prior year, and $6 million of interest expense relating to a legal provision. The prior year excluded a $29 million loss relating to the sale of our EMEA Asset Management business. The impact of the stronger U.S. dollar increased revenue growth by 2% on both a reported and an adjusted basis.

The decrease in reported results primarily reflected lower revenue from the fair value management actions. On an adjusted basis, revenue increased in our P&C businesses, primarily due to higher net interest income reflecting higher loan balances and higher margins, partially offset by lower non-interest revenue, and decreased in BMO Capital Markets from particularly strong results in the prior year, with lower revenue in both Investment and Corporate Banking and Global Markets. Adjusted net revenue decreased in BMO Wealth Management, primarily due to the impact of weaker global markets. Revenue in Corporate Services decreased on both a reported and an adjusted basis from the prior year. On a reported basis, revenue decreased due to the adjusting items noted above.

Reported net interest income was $4,021 million, relatively unchanged from the prior year, and adjusted net interest income was $4,410 million, an increase of $436 million or 11%. Adjusted results excluded a loss of $383 million related to the fair value management actions and interest expense of $6 million related to the legal provision. Adjusted non-trading net interest income was $4,125 million, an increase of $715 million or 21%, with increases across all operating groups due to strong balance growth and higher net interest margins, partially offset by the impact of risk transfer transactions. Trading-related net interest income was $285 million, a decrease of $279 million that was partially offset in trading non-interest revenue.

Average earning assets were $1,079.0 billion, an increase of $106.3 billion or 11%, primarily due to loan growth, the impact of the stronger

U.S. dollar, a temporary increase in cash equivalent balances and higher liquidity requirements in Corporate Services.

BMO’s overall reported net interest margin of 1.48% decreased 16 basis points from the prior year, primarily due to the impact of the adjusting items noted above. Adjusted net interest margin was unchanged from the prior year, and adjusted net interest margin excluding trading-related net interest income and earning assets was 1.79%, an increase of 11 basis points, primarily due to higher margins in our P&C businesses, partially offset by higher low-yielding assets in Corporate Services and the impact of risk transfer transactions.

Reported non-interest revenue was $2,449 million, a decrease from $3,704 million in the prior year, and reported non-interest revenue, net of CCPB, was $1,256 million, a decrease from $3,623 million in the prior year, reflecting the impact of the fair value management actions. Adjusted non-interest revenue, net of CCPB, was $2,884 million, a decrease of $251 million or 8% from the prior year, primarily due to lower underwriting and advisory revenue, lower securities gains, other than trading, and lower mutual fund revenue, partially offset by higher trading revenue.

Gross insurance revenue was $1,331 million, compared with $192 million in the prior year, primarily due to changes in the fair value of investments and higher annuity sales. Insurance revenue can experience variability arising from fluctuations in the fair value of insurance assets caused by movements in interest rates and equity markets. The investments that support policy benefit liabilities are predominantly fixed income and equity assets recorded at fair value, with changes in fair value recorded in insurance revenue in the Consolidated Statement of Income. The impact of these fair value changes was largely offset by changes in policy benefit liabilities, which are discussed in the Insurance Claims, Commissions and Changes in Policy Benefit Liabilities section.

Q1 2023 vs. Q4 2022

Reported revenue was $6,470 million, compared with $10,570 million in the prior quarter, and reported revenue, net of CCPB, was $5,277 million, compared with $10,939 million. The decrease was primarily driven by the impact of the fair value management actions, partially offset by lower interest expense relating to the legal provision compared with the prior quarter. Adjusted revenue, net of CCPB, increased $381 million or 6%, primarily due to higher revenue in BMO Capital Markets, in both Global Markets and Investment and Corporate Banking, in our P&C businesses due to higher net interest income driven by higher net interest margins, and in BMO Wealth Management, primarily due to the benefit from stronger global markets.

On a reported basis, revenue in Corporate Services decreased from the prior quarter due to the adjusting items noted above, and decreased on an adjusted basis.

Reported net interest income increased $254 million or 7% from the prior quarter, primarily due to the net impact of the adjusting items noted above, and adjusted net interest income decreased $29 million or 1%. Adjusted non-trading net interest income increased $37 million or 1%, primarily

BMO Financial Group First Quarter Report 2023 15

due to increases in our P&C businesses, partially offset by a decrease in Corporate Services, and a larger impact from risk transfer transactions relative to the prior quarter. Trading-related net interest income decreased $66 million from the prior quarter.

Average earning assets increased $57.4 billion or 6%, driven by a temporary increase in cash equivalent balances, higher trading-related assets, higher liquidity requirements and loan growth.

BMO’s overall reported net interest margin increased 2 basis points, primarily due to the net impact of the adjusting items noted above. Adjusted net interest margin decreased 10 basis points, with higher net interest margins in our P&C businesses more than offset by higher low-yielding assets and lower net interest income in Corporate Services, lower margins in BMO Capital Markets, and lower trading-related net interest income. Adjusted net interest margin excluding trading-related net interest income and earning assets decreased 7 basis points.

Reported non-interest revenue decreased from $6,803 million in the prior quarter, and reported non-interest revenue, net of CCPB, a decrease from $7,172 million in the prior quarter, primarily due to lower trading revenue related to the fair value management actions. Adjusted non-interest revenue, net of CCPB, increased $410 million or 17% from the prior quarter, primarily due to higher trading revenue, securities gains, other than trading, and the impact of hedge ineffectiveness offset in net interest income.

Gross insurance revenue increased $1,549 million from the prior quarter, primarily due to changes in the fair value of investments and higher annuity sales. The increase in insurance revenue was largely offset by changes in CCPB, as discussed in the Insurance Claims, Commissions and Changes in Policy Benefit Liabilities section.

For further information on non-GAAP amounts, measures and ratios, and results presented on a net revenue basis in this Revenue section, refer to the Non-GAAP and Other Financial Measures section.

Change in NetInterest Income, Average Earning Assets and Net Interest Margin (1) ****

						Average earning assets (3)						Net interest margin(in basis points)
(Canadian in millions, except as noted)		Q4-2022		Q1-2022		Q1-2023		Q4-2022		Q1-2022		Q1-2023		Q4-2022		Q1-2022
Canadian P&C	2,030		1,961		1,787	****	298,149		292,124		264,764	****	270		266		268
U.S. P&C	1,489		1,462		1,156	****	150,527		149,721		131,569	****	392		388		349
Personal and Commercial Banking (P&C)	3,519		3,423		2,943	****	448,676		441,845		396,333	****	311		307		295
All other operating groups and Corporate Services (4)	502		344		1,076	****	630,287		579,695		576,354	****	na		na		na
Total reported	4,021		3,767		4,019	****	1,078,963		1,021,540		972,687	****	148		146		164
Total adjusted	4,410		4,439		3,974	****	1,078,963		1,021,540		972,687	****	162		172		162
Trading net interest income and earning assets	285		351		564	****	162,347		150,715		165,915	****	na		na		na
Total reported excluding trading net interest income and earning<br>assets	3,736		3,416		3,455	****	916,616		870,825		806,772	****	162		156		170
Total adjusted excluding trading net interest income and earning<br>assets	4,125		4,088		3,410	****	916,616		870,825		806,772	****	179		186		168
U.S. P&C (US in millions)	1,109		1,082		910	****	112,109		110,753		103,525	****	392		388		349

All values are in US Dollars.

(1)	Adjusted results and ratios in this table are on a non-GAAP basis and are<br>discussed in the Non-GAAP and Other Financial Measures section.
(2)	Operating group revenue is presented on a taxable equivalent basis (teb) in net interest income. For further information,<br>refer to the How BMO Reports Operating Group Results section.
---	---
(3)	Average earning assets represents the daily average balance of deposits with central banks, deposits with other banks,<br>securities borrowed or purchased under resale agreements, securities, and loans, over a one-year period.
---	---
(4)	For further information on net interest income for these other operating groups and Corporate Services, refer to the<br>Review of Operating Groups’ Performance section.
---	---

na – not applicable

Total Provision for Credit Losses

Q1 2023 vs. Q1 2022

Total provision for credit losses was $217 million, compared with a recovery of the provision for credit losses of $99 million in the prior year. The total provision for credit losses as a percentage of average net loans and acceptances ratio was 15 basis points, compared with a total recovery of credit losses ratio of 8 basis points in the prior year. The provision for credit losses on impaired loans was $196 million, an increase of $110 million from the prior year, largely due to higher provisions in our P&C businesses and BMO Capital Markets. The provision for credit losses on impaired loans as a percentage of average net loans and acceptances ratio was 14 basis points, compared with 7 basis points in the prior year. There was a $21 million provision for credit losses on performing loans in the current quarter, compared with a $185 million recovery in the prior year. The $21 million provision for credit losses on performing loans in the current quarter reflected increased uncertainty in credit conditions and growth in certain portfolios, largely offset by portfolio credit improvement, including benefits from risk transfer transactions. The $185 million recovery of credit losses in the prior year largely reflected reduced uncertainty on future credit conditions and positive credit migration, partially offset by balance growth and a weaker economic outlook.

Q1 2023 vs. Q4 2022

Total provision decreased $9 million from the prior quarter. The total provision for credit losses as a percentage of average net loans and acceptances ratio was 15 basis points, compared with 16 basis points in the prior quarter. The provision for credit losses on impaired loans increased $4 million from the prior quarter, primarily due to higher provisions in our Canadian P&C business, partially offset by lower provisions in BMO Capital Markets. The provision for credit losses on impaired loans as a percentage of average net loans and acceptances ratio was 14 basis points, unchanged from the prior quarter. There was a $21 million provision for credit losses on performing loans in the current quarter, compared with a $34 million provision in the prior quarter. The $21 million provision for credit losses on performing loans in the current quarter reflected the items noted above. The $34 million provision for credit losses on performing loans in the prior quarter reflected a deteriorating economic outlook and balance growth, largely offset by continued reduction in uncertainty as a result of the improving pandemic environment and portfolio credit improvement.

16 BMO Financial Group First Quarter Report 2023

Provision for Credit Losses by Operating Group

(Canadian $ in millions)	Canadian P&C			U.S. P&C			Total P&C			BMO WealthManagement		BMO CapitalMarkets			CorporateServices			Total Bank
Q1-2023
Provision for (recovery of) credit losses on impaired loans	****	154	****	****	48	****	****	202	****	****	1	****	(3	)	****	(4	)	****	196	****
Provision for (recovery of) credit losses on performing<br>loans	****	10	****	****	14	****	****	24	****	****	5	****	(7	)	****	(1	)	****	21	****
Total provision for (recovery of) credit losses	****	164	****	****	62	****	****	226	****	****	6	****	(10	)	****	(5	)	****	217	****
Q4-2022
Provision for (recovery of) credit losses on impaired loans		142			47			189			-		5			(2	)		192
Provision for (recovery of) credit losses on performing<br>loans		32			15			47			3		(23	)		7			34
Total provision for (recovery of) credit losses		174			62			236			3		(18	)		5			226
Q1-2022
Provision for (recovery of) credit losses on impaired loans		100			3			103			-		(16	)		(1	)		86
Provision for (recovery of) credit losses on performing<br>loans		(76	)		(77	)		(153	)		4		(35	)		(1	)		(185	)
Total provision for (recovery of) credit losses		24			(74	)		(50	)		4		(51	)		(2	)		(99	)

Provision for Credit Losses Performance Ratios

	Q1-2023		Q4-2022		Q1-2022
Total PCL-to-average net<br>loans and acceptances (annualized) (%)	****	0.15		0.16		(0.08	)
PCL on impaired loans-to-average net loans and acceptances (annualized) (%)	****	0.14		0.14		0.07

Impaired Loans

Total gross impaired loans (GIL) were $2,027 million, compared with $2,219 million in the prior year, with the largest decreases in impaired loans attributable to agriculture, oil and gas, and service industries. GIL increased $36 million from $1,991 million in the prior quarter.

Factors contributing to the change in GIL are outlined in the table below. Loans classified as impaired during the quarter totalled $521 million, compared with $462 million in the prior year and $499 million in the prior quarter.

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

(Canadian $ in millions, except as noted)	Q1-2023			Q4-2022			Q1-2022
GIL, beginning of period	****	1,991	****		1,954			2,169
Classified as impaired during the period	****	521	****		499			462
Transferred to not impaired during the period	****	(140	)		(231	)		(134	)
Net repayments	****	(185	)		(152	)		(226	)
Amounts written-off	****	(141	)		(118	)		(78	)
Recoveries of loans and advances previously written-off	****	-	****		-			-
Disposals of loans	****	-	****		(9	)		-
Foreign exchange and other movements	****	(19	)		48			26
GIL, end of period	****	2,027	****		1,991			2,219
GIL to gross loans and acceptances (%)	****	0.36	****		0.35			0.44
(1)	GIL excluded purchased credit impaired loans.
---	---

Insurance Claims, Commissions and Changes in Policy Benefit Liabilities

Insurance claims, commissions and changes in policy benefit liabilities (CCPB) in the current quarter were $1,193 million, compared with $81 million in the prior year. Results increased, largely due to changes in the fair value of policy benefit liabilities and higher annuity sales. CCPB increased $1,562 million from the prior quarter, due to changes in the fair value of policy benefit liabilities and the impact of higher annuity sales. These changes were largely offset in insurance revenue.

Non-Interest Expense

Q1 2023 vs. Q1 2022

Reported non-interest expense was $4,421 million, an increase of $575 million or 15% from the prior year, and adjusted non-interest expense was $4,172 million, an increase of $343 million or 9%. Adjusted non-interest expense in the current quarter excluded acquisition and integration costs of $239 million, compared with $12 million in the prior year, and $2 million in legal fees relating to a legal provision. The prior year excluded the impact of a recovery of $3 million related to the sale of our EMEA Asset Management business. Both the current quarter and prior year excluded amortization of acquisition-related intangibles assets of $8 million. The increase in reported expenses reflected higher acquisition and integration costs related to the acquisition of Bank of the West. Reported and adjusted expenses increased due to higher employee-related costs driven by sales force expansion, higher salaries and performance-based compensation, as well as higher computer and equipment costs, professional fees, and advertising and business development expenses. The impact of the stronger U.S. dollar increased expenses by approximately 2% on both a reported basis and an adjusted basis.

The reported gross efficiency ratio was 68.3%, compared with 49.8% in the prior year. On a net revenue basis^(1)^, the reported efficiency ratio was 83.8%, compared with 50.3% in the prior year, and the adjusted efficiency ratio was 57.2%, compared with 53.8% in the prior year. Reported gross operating leverage was negative 31.2%. On a net revenue basis, reported operating leverage was negative 46.0% and adjusted net operating leverage was negative 6.4%.

(1)	This ratio is calculated using net revenue and non-interest expense. For further<br>discussion of revenue, refer to the Revenue section.

BMO Financial Group First Quarter Report 2023 17

Q1 2023 vs. Q4 2022

Reported non-interest expense decreased $355 million or 7% from the prior quarter, and adjusted non-interest expense increased $218 million or 6%. Adjusted results in the current quarter excluded acquisition and integration costs of $239 million compared with $193 million in the prior quarter, and $2 million of legal fees relating to the legal provision compared with a $627 million legal provision in the prior quarter. The prior quarter excluded the impact of divestitures of $6 million related to the sale of our EMEA Asset Management business. Both the current quarter and prior quarter excluded amortization of acquisition-related intangibles assets of $8 million. Reported expenses decreased, primarily due to the impact of the legal provision in the prior quarter. Adjusted expenses increased due to higher employee costs, driven by stock-based compensation for employees eligible to retire that are expensed in the first quarter of each year and the seasonality of benefits, partially offset by lower computer and equipment costs.

The reported gross efficiency ratio was 68.3%, compared with 45.2% in the prior quarter. On a net revenue basis, the reported efficiency ratio was 83.8%, compared with 43.7% in the prior quarter, and the adjusted efficiency ratio was 57.2%, unchanged from the prior quarter.

For further information on non-GAAP amounts, measures and ratios in this Non-Interest Expense section, refer to the Non-GAAP and Other Financial Measures section.

Provision for Income Taxes

During the quarter, we recorded a one-time tax expense of $371 million, including $312 million related to the Canada Recovery Dividend (CRD) and $59 million related to the pro-rated fiscal 2022 impact of the 1.5% increase in tax rate, net of a related remeasurement of our net deferred tax asset.

The reported provision for income taxes was $392 million, a decrease of $570 million from the first quarter of 2022, and a decrease of $1,062 million from the fourth quarter of 2022. The reported effective tax rate for the current quarter was 61.4%, compared with 24.7% in the first quarter of 2022, and 24.5% in the fourth quarter of 2022.

The adjusted provision for income taxes was $633 million, a decrease of $162 million from the first quarter of 2022, and an increase of $36 million from the fourth quarter of 2022. The adjusted effective tax rate was 21.8% in the current quarter, compared with 23.5% in the first quarter of 2022, and 21.8% in the fourth quarter of 2022.

The change in the reported effective tax rate in the current quarter relative to the first quarter of 2022 and the fourth quarter of 2022 was primarily due to the impact of the one-time tax expense noted above. The change in the adjusted effective tax rate in the current quarter relative to the first quarter of 2022 was primarily due to earnings mix.

Additional information regarding accounting for income taxes is included in Note 10 of the unaudited interim consolidated financial statements. For further information on non-GAAP amounts, measures and ratios in this Provision for Income Taxes section, refer to the Non-GAAP and Other Financial Measures section.

Balance Sheet

(Canadian $ in millions)	As at January 31, 2023		As at October 31, 2022
Assets
Cash and cash equivalents and interest bearing deposits with banks	****	108,422		93,200
Securities	****	281,027		273,262
Securities borrowed or purchased under resale agreements	****	118,531		113,194
Net loans and acceptances	****	559,899		564,574
Derivative instruments	****	33,294		48,160
Other assets	****	44,533		46,809
Total assets	****	1,145,706		1,139,199
Liabilities and Equity
Deposits	****	787,376		769,478
Derivative instruments	****	44,090		59,956
Securities lent or sold under repurchase agreements	****	101,484		103,963
Other liabilities	****	129,686		126,614
Subordinated debt	****	8,156		8,150
Equity	****	74,914		71,038
Total liabilities and equity	****	1,145,706		1,139,199

Total assets were $1,145.7 billion as at January 31, 2023, an increase of $6.5 billion from October 31, 2022. The weaker U.S. dollar decreased assets by $12.1 billion, excluding the impact on derivative financial assets.

Cash and cash equivalents and interest bearing deposits with banks increased $15.2 billion, due to higher balances held with central banks, primarily reflecting the accumulation of cash in advance of the closing of the Bank of the West acquisition, partially offset by the impact of the weaker U.S. dollar.

Securities increased $7.8 billion, primarily due to client activity in BMO Capital Markets and treasury activities in Corporate Services, partially offset by the impact of the weaker U.S. dollar.

Securities borrowed or purchased under resale agreements increased $5.3 billion, due to client activity in BMO Capital Markets, partially offset by the impact of the weaker U.S. dollar.

Net loans and acceptances decreased $4.7 billion. Business and government loans and acceptances decreased $5.2 billion, reflecting the impact of the weaker U.S. dollar and lower source currency balances in U.S. P&C, partially offset by growth in Canadian P&C and BMO Capital Markets. Consumer instalment and other personal loans decreased $1.9 billion, due to lower balances in the P&C businesses and BMO Wealth Management and the impact of the weaker U.S. dollar. Residential mortgages increased $2.4 billion, primarily due to growth in Canadian P&C.

18 BMO Financial Group First Quarter Report 2023

Derivative financial assets decreased $14.9 billion, primarily due to a decrease in the value of client-driven trading derivatives in BMO Capital Markets, with decreases in the fair value of foreign exchange, commodities, interest rate and equity contracts.

Other assets decreased $2.3 billion due to lower cash collateral balances posted with counterparties and the impact of the weaker U.S. dollar.

Liabilities increased $2.6 billion from October 31, 2022. The weaker U.S. dollar decreased liabilities by $11.5 billion, excluding the impact on derivative financial liabilities.

Deposits increased $17.9 billion, due to higher wholesale funding balances to fund Global Markets client activity and meet structural funding needs, including accumulation of cash in advance of the closing of the Bank of the West acquisition, as well as growth in customer deposits in Canadian P&C, partially offset by the impact of the weaker U.S. dollar and lower source currency customer deposits in U.S. P&C.

Derivative financial liabilities decreased $15.9 billion, primarily due to a decrease in the value of client-driven trading derivatives in BMO Capital Markets, with decreases in the fair value of foreign exchange, interest rate, equity and commodities contracts.

Securities lent or sold under repurchase agreements decreased $2.5 billion, due to the impact of the weaker U.S. dollar and client activity in BMO Capital Markets.

Other liabilities increased $3.1 billion, driven by an increase in securities sold but not yet purchased, due to client activity in BMO Capital Markets, partially offset by the impact of the weaker U.S. dollar.

Subordinated debt was relatively unchanged in the quarter.

Equity increased $3.9 billion from October 31, 2022, primarily due to common and preferred share issuances, partially offset by a decrease in retained earnings. Common shares increased $3.9 billion as a result of share issuances during the quarter, as well as shares issued under the dividend reinvestment and share purchase plan. Retained earnings decreased $0.9 billion as a result of dividends and distributions on other equity instruments, partially offset by net income earned in the quarter. Preferred shares and other equity instruments increased $0.7 billion reflecting an issuance in the quarter. Accumulated other comprehensive income was relatively unchanged in the quarter, as gains on cash flow hedges due to lower term rates were largely offset by the impact of the weaker U.S. dollar on the translation of net foreign operations and losses on remeasurement of own credit risk on financial liabilities designated at fair value.

Contractual obligations by year of maturity are outlined in the Contractual Maturities of Assets and Liabilities and Off-Balance Sheet Commitments table in the Risk Management section.

Capital Management

BMO continues to manage its capital within the framework described in the Enterprise-Wide Capital Management section of BMO’s 2022 Annual Report.

First Quarter 2023 Regulatory Capital Review

BMO’s Common Equity Tier 1 (CET1) Ratio was 18.2% as at January 31, 2023, an increase from 16.7% at the end of the fourth quarter of 2022, primarily driven by $3.4 billion common share issuances through a public offering and private placements, and lower risk-weighted assets (RWA).

CET1 Capital was $63.1 billion as at January 31, 2023, an increase from $60.9 billion as at October 31, 2022, primarily due to the common share issuances, internal capital generation and common shares issued under the shareholder dividend reinvestment and share purchase plan (DRIP), partially offset by the reduced benefit from the fair value management actions related to the acquisition of Bank of the West and the impact of the Canada Recovery Dividend. The acquisition of Bank of the West closed on February 1, 2023. Refer to the Significant Events section for further information on the fair value management actions. The offering of common shares supports the increased regulatory requirements announced by the Office of the Superintendent of Financial Institutions (OSFI) on December 8, 2022. Please refer to Regulatory Capital Developments below.

The bank is subject to a capital floor as prescribed in OSFI’s Capital Adequacy Requirements (CAR) Guideline. In calculating regulatory capital ratios, there is a requirement to increase total RWA when a capital floor amount calculated under the standardized approach is higher than a similar calculation using the more risk-sensitive advanced approach rules. The capital floor adjustment reflected in our RWA as at January 31, 2023 was $10.8 billion, compared with $12.6 billion at October 31, 2022.

RWA were $347.5 billion as at January 31, 2023, a decrease from $364.0 billion as at October 31, 2022. RWA were lower, primarily due to risk transfer transactions, model updates, the impact of foreign exchange movements and changes in asset quality.

The bank’s Tier 1 and Total Capital Ratios were 20.1% and 22.6%, respectively, as at January 31, 2023, higher compared with 18.4% and 20.7%, respectively, as at October 31, 2022, primarily due to the same factors impacting the CET1 Ratio and a $650 million issuance of institutional preferred shares.

The impact of foreign exchange movements on capital ratios was largely offset. BMO’s investments in foreign operations are primarily denominated in U.S. dollars, and the foreign exchange impact of U.S.-dollar-denominated RWA and capital deductions may result in variability in the bank’s capital ratios. We may manage the impact of foreign exchange movements on our capital ratios, and we did so during the current quarter based on the current balance sheet, and we considered the anticipated impacts of the acquisition of Bank of the West. Any such activities could also impact our book value and return on equity.

Our Leverage Ratio was 5.9% as at January 31, 2023, an increase from 5.6% at the end of the fourth quarter of 2022, primarily due to higher Tier 1 Capital.

The bank’s risk-based Total Loss Absorbing Capacity (TLAC) Ratio and TLAC Leverage Ratio were 37.2% and 10.9%, respectively, as at January 31, 2023, compared with 33.1% and 10.1%, respectively, as at October 31, 2022.

BMO Financial Group First Quarter Report 2023 19

Regulatory Capital Developments

On December 8, 2022, OSFI announced that the Domestic Stability Buffer (DSB) level will be set at 3% of total RWA as of February 1, 2023. In addition, OSFI increased the DSB’s range from 0% to 2.5%, to 0% to 4%.

The domestic implementation of Basel III Reforms related to capital, leverage, liquidity and disclosure requirements take effect in the second quarter of 2023. Capital changes include revised rules for credit risk and operational risk, which took effect on February 1, 2023. Revisions related to market risk and credit valuation adjustment risk will take effect in the first quarter of 2024.

Refer to the Enterprise-Wide Capital Management section of BMO’s 2022 Annual Report for a more detailed discussion of regulatory developments.

Regulatory Capital, Leverage and TLAC

Regulatory capital requirements for BMO are determined in accordance with OSFI’s CAR Guideline and the Leverage Requirements (LR) Guideline, which are based on the standards developed by the Basel Committee on Banking Supervision. TLAC requirements are determined in accordance with OSFI’s TLAC Guideline. For more information see the Enterprise-Wide Capital Management section of BMO’s 2022 Annual Report.

OSFI’s capital, leverage and TLAC requirements are summarized in the following table.

(% of risk-weighted assets or leverage exposures)	Minimum capital,<br>leverage and TLAC<br>requirements		Total Pillar 1 Capital<br>Buffer (1)		Domestic Stability<br>Buffer (2)		Minimum capital,<br>leverage and TLAC<br>requirements<br>including capital<br>buffers		BMO capital, leverage<br>and TLAC ratios as at<br>January 31, 2023
Common Equity Tier 1 Ratio		4.5%		3.5%		2.5%		10.5%		18.2%
Tier 1 Capital Ratio		6.0%		3.5%		2.5%		12.0%		20.1%
Total Capital Ratio		8.0%		3.5%		2.5%		14.0%		22.6%
TLAC Ratio		21.5%		na		2.5%		24.0%		37.2%
Leverage Ratio		3.0%		na		na		3.0%		5.9%
TLAC Leverage Ratio	****	6.75%		na		na		6.75%		10.9%
(1)	The minimum 4.5% CET1 Ratio requirement is augmented by the 3.5% Total Pillar 1 Capital Buffers, which can absorb losses<br>during periods of stress. The Pillar 1 Capital Buffers include a 2.5% Capital Conservation Buffer, a 1.0% Common Equity Surcharge for domestic systemically important banks (D-SIBs) and a<br>Countercyclical Buffer, as prescribed by OSFI (immaterial for the first quarter of 2023). If a bank’s capital ratios fall within the range of this combined buffer, restrictions on discretionary distributions of earnings (such as dividends,<br>share repurchases and discretionary compensation) would ensue, with the degree of such restrictions varying according to the position of the bank’s ratios within the buffer range.
---	---
(2)	OSFI requires all D-SIBs to hold a Domestic Stability Buffer (DSB) against Pillar<br>2 risks associated with systemic vulnerabilities. The DSB was set at 2.5% as at January 31, 2023. OSFI increased the DSB range from 0% to 2.5%, to 0% to 4%, and increased the DSB to 3.0% effective February 1, 2023.<br>Breaches of the DSB do not result in a bank being subject to automatic constraints on capital distributions. The bank may be required to hold Pillar 2 buffers in addition to the DSB.
---	---

na – not applicable

Regulatory Capital andTLAC Position ^(1)^ ****

(Canadian $ in millions, except as noted)	Q1-2023			Q4-2022			Q1-2022
Gross common equity (1)	****	67,956	****		64,730			54,246
Regulatory adjustments applied to common equity	****	(4,841	)		(3,839	)		(6,636	)
Common Equity Tier 1 Capital (CET1)	****	63,115	****		60,891			47,610
Additional Tier 1 eligible capital (2)	****	6,958	****		6,308			4,958
Regulatory adjustments applied to Tier 1	****	(85	)		(78	)		(87	)
Additional Tier 1 Capital (AT1)	****	6,873	****		6,230			4,871
Tier 1 Capital (T1 = CET1 + AT1)	****	69,988	****		67,121			52,481
Tier 2 eligible capital (3)	****	8,447	****		8,238			8,619
Regulatory adjustments applied to Tier 2	****	(79	)		(50	)		(50	)
Tier 2 Capital (T2)	****	8,368	****		8,188			8,569
Total Capital (TC = T1 + T2)	****	78,356	****		75,309			61,050
Other TLAC instruments (4)	****	50,997	****		45,554			35,909
Adjustments applied to other TLAC	****	(116	)		(200	)		(70	)
Other TLAC available after adjustments	****	50,881	****		45,354			35,839
TLAC	****	129,237	****		120,663			96,889
Risk-Weighted Assets (5)	****	347,454	****		363,997			337,652
Leverage Exposures	****	1,181,914	****		1,189,990			1,115,676
Capital, Leverage and TLAC Ratios (%)
CET1 Ratio	****	18.2	****		16.7			14.1
Tier 1 Capital Ratio	****	20.1	****		18.4			15.5
Total Capital Ratio	****	22.6	****		20.7			18.1
TLAC Ratio	****	37.2	****		33.1			28.7
Leverage Ratio	****	5.9	****		5.6			4.7
TLAC Leverage Ratio	****	10.9	****		10.1			8.7
(1)	Gross Common Equity included issued qualifying common shares, retained earnings, accumulated other comprehensive income<br>and eligible common share capital issued by subsidiaries.
---	---
(2)	Additional Tier 1 Eligible Capital included directly and indirectly issued qualifying Additional Tier 1 instruments.<br>
---	---
(3)	Tier 2 Eligible Capital included subordinated debentures and may include portion of expected credit loss provisions.<br>
---	---
(4)	Other TLAC includes senior unsecured debt subject to the Canadian Bail-In Regime.<br>
---	---
(5)	For institutions using advanced approach for credit risk, there is a capital floor as prescribed in OSFI’s CAR<br>Guideline.
---	---

20 BMO Financial Group First Quarter Report 2023

Outstanding Shares and Securities Convertible into Common Shares ^(1)^ ****

As at January 31, 2023	Number of<br><br><br>shares		Amount<br><br><br>(in millions)
Common shares (2)		709,664,228		$21,637
Class B Preferred shares*
Series 27		20,000,000		$500
Series 29		16,000,000		$400
Series 31		12,000,000		$300
Series 33		8,000,000		$200
Series 44		16,000,000		$400
Series 46		14,000,000		$350
Series 50		500,000		$500
Series 52		650,000		$650
Other Equity Instruments*
4.800% Additional Tier 1 Capital Notes				US$500
4.300% Limited Recourse Capital Notes, Series 1 (LRCNs)				$1,250
5.625% Limited Recourse Capital Notes, Series 2 (LRCNs)				$750
7.325% Limited Recourse Capital Notes, Series 3 (LRCNs)				$1,000
Medium-Term Notes*
3.803% Subordinated Notes due 2032				US$1,250
4.338% Subordinated Notes due 2028				US$850
Series J - First Tranche				$1,000
Series J - Second Tranche				$1,250
Series K - First Tranche				$1,000
3.088% Subordinated Notes due 2037				US$1,250
Series L - First Tranche				$750
Stock options
Vested		3,264,505
Non-vested		3,739,271
*	Convertible into common shares. For LRCNs, convertible into common shares by virtue of the recourse to the Preferred<br>Shares Series 48, Preferred Shares Series 49 and Preferred Shares Series 51 for Series 1, Series 2 and Series 3 LRCNs, respectively, issued concurrently with the LRCNs, which currently comprise the limited recourse trust<br>assets.
---	---
(1)	Details on the Medium-Term Notes are outlined in Note 15 of the audited consolidated financial statements of<br>BMO’s 2022 Annual Report. Details on share capital and Other Equity Instruments are outlined in Note 5 of the unaudited interim consolidated financial statements and Note 16 of the audited annual consolidated financial statements of<br>BMO’s 2022 Annual Report.
---	---
(2)	Common Shares included 81,920 treasury shares.
---	---

If an NVCC trigger event were to occur, our NVCC instruments would be converted into BMO common shares pursuant to automatic conversion formulas, with a conversion price based on the greater of: (i) a floor price of $5.00; and (ii) the current market price of our common shares at the time of the trigger event (calculated using a 10-day weighted average). Based on a floor price of $5.00, these NVCC capital instruments would be converted into approximately 4.0 billion BMO common shares, assuming no accrued interest and no declared and unpaid dividends.

Other Capital Developments

During the quarter, we issued $346 million common shares through the DRIP and the exercise of stock options.

On January 31, 2023, we completed the domestic public offering of $650 million Non-Cumulative 5-Year Fixed Rate Reset Class B Preferred Shares, Series 52 (NVCC).

On January 25, 2023, we completed the private placement of $750 million common share with BNP Paribas SA.

On December 16, 2022, we completed a public offering and a concurrent private placement for a total issuance of $2.6 billion common shares.

The common shares were issued to align our capital position with increased regulatory requirements and for general corporate purposes.

Dividends

On February 28, 2023, BMO announced that the Board of Directors had declared a quarterly dividend on common shares of $1.43 per share, unchanged from the prior quarter. The dividend is payable on May 26, 2023 to shareholders of record on April 28, 2023. Common shareholders may elect to have their cash dividends reinvested in common shares of BMO, in accordance with the DRIP. Until further notice, common shares under the DRIP will be issued by the bank from treasury with a 2% discount, calculated in accordance with the terms of the DRIP. The discount will not apply to common shares purchased under the “Optional Cash Payment” feature of the DRIP.

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

Caution

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

BMO Financial Group First Quarter Report 2023 21

Review of Operating Groups’ Performance

How BMO Reports Operating Group Results

BMO reports financial results for its three operating groups, one of which comprises two operating segments, all of which are supported by Corporate Units and Technology and Operations within Corporate Services. Operating segment results include treasury-related allocations in revenue, non-interest expense allocations from Corporate Units and Technology and Operations (T&O) and allocated capital.

BMO employs funds transfer pricing and liquidity transfer pricing between treasury and the operating segments in order to assign the appropriate cost and credit to funds for the appropriate pricing of loans and deposits, and to help assess the profitability performance of each line of business. In addition, these practices capture the cost of holding supplemental liquid assets to meet contingent liquidity requirements, as well as facilitating the management of interest rate risk and liquidity risk within our risk appetite framework and regulatory requirements. We review our transfer pricing methodologies at least annually, to align with our interest rate, liquidity and funding risk management practices.

The costs of Corporate Units and T&O services are largely allocated to the four operating segments, with any remaining amounts retained in Corporate Services. Expenses directly incurred to support a specific operating segment are generally allocated to that operating segment. Other expenses that are not directly attributable to a specific operating segment are allocated across the operating segments, reasonably reflective of the level of support provided to each operating segment. We review these expense allocation methodologies periodically.

Capital is allocated to the operating segments based on the amount of regulatory capital required to support business activities. Effective the first quarter of fiscal 2023, our capital allocation rate increased to 11.0% of risk weighted assets, compared with 10.5% in fiscal 2022 to reflect increased capital requirements. Unallocated capital is reported in Corporate Services. We review our capital allocation methodologies annually.

Periodically, certain lines of business and units within our organizational structure are realigned to support our strategic priorities and prior periods have been reclassified to conform with the current period’s presentation.

We analyze revenue at the consolidated level based on GAAP revenue as reported in the audited annual consolidated financial statements, rather than on a taxable equivalent basis (teb), which is consistent with our Canadian banking peer group. Like many banks, BMO analyzes revenue on a teb basis at the operating segment level. Revenue and the provision for income taxes in BMO Capital Markets and U.S. Personal and Commercial Banking are increased on tax-exempt securities to an equivalent pre-tax basis in order to facilitate comparisons of income between taxable and tax-exempt sources. The offset to the operating segment teb adjustments is reflected in Corporate Services revenue and provision for (recovery of) income taxes.

Personaland Commercial Banking (P&C) ^(1)^ ****

(Canadian $ in millions, except as noted)	Q1-2023		Q4-2022		Q1-2022
Net interest income (teb) (2)	****	3,519		3,423		2,943
Non-interest revenue	****	901		877		983
Total revenue (teb) (2)	****	4,420		4,300		3,926
Provision for credit losses on impaired loans	****	202		189		103
Provision for (recovery of) credit losses on performing<br>loans	****	24		47		(153	)
Total provision for (recovery of) credit losses	****	226		236		(50	)
Non-interest expense	****	1,950		1,965		1,736
Income before income taxes	****	2,244		2,099		2,240
Provision for income taxes (teb) (2)	****	566		522		555
Reported net income	****	1,678		1,577		1,685
Dividends on preferred shares and distributions on other equity<br>instruments	****	18		21		21
Net income available to common shareholders	****	1,660		1,556		1,664
Amortization of acquisition-related intangible assets (3)	****	1		2		1
Adjusted net income	****	1,679		1,579		1,686
Adjusted net income available to common shareholders	****	1,661		1,558		1,665
(1)	Adjusted results in this table are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section.
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(2)	Taxable equivalent basis (teb) amounts of $8 million in Q1-2023,<br>$7 million in Q4-2022, and $6 million in Q1-2022 are recorded in net interest income, revenue and in provision for income taxes.
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(3)	Amortization of acquisition-related intangible assets pre-tax amounts for Total<br>P&C of $2 million in each of Q1-2023, Q4-2022, and Q1-2022 are recorded in non-interest expense.
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The Personal and Commercial Banking (P&C) operating group represents the sum of our two retail and commercial operating segments, Canadian Personal and Commercial Banking (Canadian P&C) and U.S. Personal and Commercial Banking (U.S. P&C). The P&C banking business reported net income was $1,678 million, relatively unchanged from the prior year and an increase of $101 million or 6% from the prior quarter. These operating segments are reviewed separately in the sections that follow.

For further information on non-GAAP amounts, measures, and ratios in this Review of Operating Groups’ Performance section, refer to the Non-GAAP and Other Financial Measures section.

22 BMO Financial Group First Quarter Report 2023

Canadian Personal and Commercial Banking (Canadian P&C)^(1)^ ****

(Canadian $ in millions, except as noted)	Q1-2023			Q4-2022			Q1-2022
Net interest income	****	2,030	****		1,961			1,787
Non-interest revenue	****	599	****		586			620
Total revenue	****	2,629	****		2,547			2,407
Provision for credit losses on impaired loans	****	154	****		142			100
Provision for (recovery of) credit losses on performing<br>loans	****	10	****		32			(76	)
Total provision for credit losses	****	164	****		174			24
Non-interest expense	****	1,117	****		1,131			1,024
Income before income taxes	****	1,348	****		1,242			1,359
Provision for income taxes	****	368	****		325			355
Reported net income	****	980	****		917			1,004
Dividends on preferred shares and distributions on other equity<br>instruments	****	10	****		11			11
Net income available to common shareholders	****	970	****		906			993
Amortization of acquisition-related intangible assets (2)	****	-	****		-			-
Adjusted net income	****	980	****		917			1,004
Adjusted net income available to common shareholders	****	970	****		906			993
Adjusted non-interest<br>expense	****	1,117	****		1,131			1,024
Personal and Business Banking revenue	****	1,852	****		1,797			1,673
Commercial Banking revenue	****	777	****		750			734
Net income growth (%)	****	(2.5	)		(1.7	)		33.9
Revenue growth (%)	****	9.2	****		10.5			14.7
Non-interest expense growth (%)	****	9.1	****		7.8			9.4
Adjusted non-interest expense growth (%)	****	9.1	****		7.8			9.4
Return on equity (%) (3)	****	30.7	****		29.4			34.6
Adjusted return on equity (%) (3)	****	30.7	****		29.4			34.6
Operating leverage (%)	****	0.1	****		2.7			5.3
Adjusted operating leverage (%)	****	0.1	****		2.7			5.3
Efficiency ratio (%)	****	42.5	****		44.4			42.5
Net interest margin on average earning assets (%)	****	2.70	****		2.66			2.68
Average earning assets	****	298,149	****		292,124			264,764
Average gross loans and acceptances	****	309,981	****		304,159			277,068
Average deposits	****	261,331	****		253,143			236,430
(1)	Adjusted results and ratios in this table are on a non-GAAP basis and are<br>discussed in the Non-GAAP and Other Financial Measures section.
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(2)	Amortization of acquisition-related intangible assets pre-tax amount of $nil in<br>each of Q1-2023, Q4-2022, and Q1-2022 are recorded in non-interest expense.<br>
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(3)	Return on equity is based on allocated capital. Effective Q1-2023, the capital<br>allocation rate increased to 11.0% of risk weighted assets, compared with 10.5% in fiscal 2022. For further information, refer to the Non-GAAP and Other Financial Measures section.
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Q1 2023 vs. Q1 2022

Canadian P&C reported net income was $980 million, a decrease of $24 million or 2% from the prior year.

Total revenue was $2,629 million, an increase of $222 million or 9% from the prior year. Net interest income increased $243 million or 14%, primarily due to higher balances and higher net interest margins. Non-interest revenue decreased $21 million or 3%, largely due to lower gains on investments in our commercial business relative to the prior year and lower loan fee revenue, partially offset by higher card-related revenue. Net interest margin of 2.70% increased 2 basis points from the prior year, primarily driven by higher deposit margins reflecting the impact of the higher rate environment, partially offset by lower loan margins and a change in deposit mix.

Personal and Business Banking revenue increased $179 million or 11%, primarily due to higher net interest income. Commercial Banking revenue increased $43 million or 6% due to higher net interest income, partially offset by lower non-interest revenue.

Total provision for credit losses was $164 million, compared with $24 million in the prior year. The provision for credit losses on impaired loans was $154 million, an increase of $54 million, primarily due to higher provisions in our Personal and Business Banking business. There was a $10 million provision for credit losses on performing loans in the current quarter, compared with a recovery of $76 million in the prior year.

Non-interest expense was $1,117 million, an increase of $93 million or 9% from the prior year, reflecting investments in the business, including sales force expansion and technology costs, as well as higher salaries.

Average gross loans and acceptances increased $32.9 billion or 12% from the prior year to $310.0 billion. Personal and Business Banking loan balances increased 9%, Commercial Banking loan balances increased 16% and credit card balances increased 20%. Average deposits increased $24.9 billion or 11% to $261.3 billion. Personal and Business Banking deposits increased 13%, primarily due to strong growth in term deposits, partially offset by lower chequing and savings account deposits. Commercial Banking deposits increased 6%.

Q12023 vs. Q4 2022

Reported net income increased $63 million or 7% from the prior quarter.

Total revenue increased $82 million or 3% from the prior quarter. Net interest income increased $69 million or 4%, primarily due to higher net interest margins and higher balances. Non-interest revenue increased $13 million or 2%, primarily due to higher gains on investments in our Commercial Banking business, relative to the prior quarter. Net interest margin of 2.70% increased 4 basis points from the prior quarter, due to higher deposit and loan margins, partially offset by a change in deposit mix.

Personal and Business Banking revenue increased $55 million or 3%, primarily due to higher net interest income, and Commercial Banking revenue increased $27 million or 4%, due to higher net interest income and non-interest revenue.

Total provision for credit losses decreased $10 million from the prior quarter. The provision for credit losses on impaired loans increased $12 million, primarily due to higher provisions in Personal and Business Banking, partially offset by lower provisions in Commercial Banking. There was a $10 million provision for credit losses on performing loans in the current quarter, compared with a $32 million provision in the prior quarter.

Non-interest expense decreased $14 million or 1% from the prior quarter.

BMO Financial Group First Quarter Report 2023 23

Average gross loans and acceptances increased $5.8 billion or 2% from the prior quarter. Loan balances increased 2% in both Personal and Business Banking and Commercial Banking, while credit card balances increased 5%. Average deposits increased $8.2 billion or 3% from the prior quarter. Personal and Business Banking deposits increased 4%, primarily due to strong growth in term deposits, partially offset by lower chequing and savings account deposits. Commercial Banking deposits increased 1%.

For further information on non-GAAP amounts in this Review of Operating Groups’ Performance section, refer to the Non-GAAP and Other Financial Measures section.

U.S. Personal andCommercial Banking (U.S. P&C) ^(1)^ ****

(Canadian in millions, except as noted)			Q4-2022		Q1-2022
Net interest income (teb) (2)	1,489	****		1,462		1,156
Non-interest revenue	302	****		291		363
Total revenue (teb) (2)	1,791	****		1,753		1,519
Provision for credit losses on impaired loans	48	****		47		3
Provision for (recovery of) credit losses on performing<br>loans	14	****		15		(77	)
Total provision for (recovery of) credit losses	62	****		62		(74	)
Non-interest expense	833	****		834		712
Income before income taxes	896	****		857		881
Provision for income taxes (teb) (2)	198	****		197		200
Reported net income	698	****		660		681
Dividends on preferred shares and distributions on other equity<br>instruments	8	****		10		10
Net income available to common shareholders	690	****		650		671
Amortization of acquisition-related intangible assets (3)	1	****		2		1
Adjusted net income	699	****		662		682
Adjusted net income available to common shareholders	691	****		652		672
Adjusted non-interest<br>expense	831	****		832		710
Net income growth (%)	2.6	****		29.8		17.6
Adjusted net income growth (%)	2.6	****		28.5		16.5
Revenue growth (%)	17.9	****		26.9		7.7
Non-interest expense growth (%)	17.0	****		11.7		3.4
Adjusted non-interest expense growth (%)	17.0	****		12.7		4.4
Average earning assets	150,527	****		149,721		131,569
Average gross loans and acceptances	145,020	****		144,110		125,147
Average net loans and acceptances	144,133	****		143,179		124,287
Average deposits	148,533	****		148,849		146,529
(US equivalent in millions)
Net interest income (teb) (4)	1,109	****		1,082		910
Non-interest revenue	225	****		215		286
Total revenue (teb) (4)	1,334	****		1,297		1,196
Provision for credit losses on impaired loans	36	****		35		3
Provision for (recovery of) credit losses on performing<br>loans	10	****		11		(61	)
Total provision for (recovery of) credit losses	46	****		46		(58	)
Non-interest expense	621	****		617		560
Income before income taxes	667	****		634		694
Provision for income taxes (teb) (4)	147	****		146		158
Reported net income	520	****		488		536
Dividends on preferred shares and distributions on other equity<br>instruments	6	****		7		8
Net income available to common shareholders	514	****		481		528
Amortization of acquisition-related intangible assets (5)	1	****		1		1
Adjusted net income	521	****		489		537
Adjusted net income available to common shareholders	515	****		482		529
Adjusted non-interest<br>expense	620	****		616		559
Key Performance Metrics and Drivers (US basis)
Personal and Business Banking revenue	420	****		402		337
Commercial Banking revenue	914	****		895		859
Net income growth (%)	(2.9	)		20.5		18.7
Adjusted net income growth (%)	(3.0	)		19.3		17.6
Revenue growth (%)	11.5	****		17.8		8.8
Non-interest expense growth (%)	10.7	****		3.5		4.4
Adjusted non-interest expense growth (%)	10.8	****		4.4		5.5
Return on equity (%) (6)	19.2	****		17.9		19.5
Adjusted return on equity (%) (6)	19.2	****		18.0		19.5
Operating leverage (%)	0.8	****		14.3		4.4
Adjusted operating leverage (%)	0.7	****		13.4		3.3
Efficiency ratio (%)	46.5	****		47.6		46.9
Adjusted efficiency ratio (%)	46.4	****		47.5		46.8
Net interest margin on average earning assets (%)	3.92	****		3.88		3.49
Average earning assets	112,109	****		110,753		103,525
Average gross loans and acceptances	108,007	****		106,603		98,472
Average deposits	110,629	****		110,138		115,286

All values are in US Dollars.

(1)	Adjusted results and ratios in this table are on a non-GAAP basis and are<br>discussed in the Non-GAAP and Other Financial Measures section.
(2)	Taxable equivalent basis (teb) amounts of $8 million in Q1-2023,<br>$7 million in Q4-2022, and $6 million in Q1-2022 are recorded in net interest income, revenue and provision for income taxes, and are reflected in the ratios.<br>
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(3)	Amortization of acquisition-related intangible assets pre-tax amounts of<br>$2 million in each of Q1-2023, Q4-2022, and Q1-2022 are recorded in non-interest<br>expense.
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(4)	Taxable equivalent basis (teb) amounts of US$6 million in Q1-2023 and Q4-2022, and US$5 million in Q1-2022 are recorded in net interest income, revenue and provision for income taxes, and are reflected in the ratios.
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(5)	Amortization of acquisition-related intangible assets pre-tax amounts of<br>US$1 million in each of Q1-2023, Q4-2022, and Q1-2022 are recorded in non-interest<br>expense.
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(6)	Return on equity is based on allocated capital. Effective Q1-2023, the capital<br>allocation rate increased to 11.0% of risk weighted assets, compared with 10.5% in fiscal 2022. For further information, refer to the Non-GAAP and Other Financial Measures section.
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24 BMO Financial Group First Quarter Report 2023

Q1 2023 vs. Q1 2022

U.S. P&C reported net income was $698 million, an increase of $17 million or 3% from the prior year. The impact of the stronger U.S. dollar increased net income, revenue and expense growth by 6%, respectively. All amounts in the remainder of this section are on a U.S. dollar basis.

Reported net income was $520 million, a decrease of $16 million or 3% from the prior year.

Total revenue was $1,334 million, an increase of $138 million or 12% from the prior year. Net interest income increased $199 million or 22%, primarily due to higher deposit margins and loan balances, partially offset by lower loan margins. Non-interest revenue decreased $61 million or 21%, primarily due to lower deposit, lending and operating lease revenue. Net interest margin of 3.92% increased 43 basis points, primarily due to higher deposit margins reflecting the impact of the higher rate environment, partially offset by lower loan margins and loans growing faster than deposits.

Personal and Business Banking revenue increased $83 million or 25%, and Commercial Banking revenue increased $55 million or 6%, due to higher net interest income, partially offset by lower non-interest revenue.

Total provision for credit losses was $46 million, compared with a recovery of $58 million in the prior year. The provision for credit losses on impaired loans was $36 million, an increase of $33 million, due to higher provisions in both Commercial Banking and Personal and Business Banking. There was a $10 million provision for credit losses on performing loans in the current quarter, compared with a recovery of $61 million in the prior year.

Non-interest expense was $621 million, an increase of $61 million or 11% from the prior year, primarily reflecting higher employee-related and technology costs.

Average gross loans and acceptances increased $9.5 billion or 10% from the prior year to $108.0 billion. Commercial Banking loan balances increased 11% and Personal and Business Banking loan balances increased 2%. Average deposits decreased $4.7 billion or 4% from the prior year to $110.6 billion. Commercial Banking deposits decreased 6% and Personal and Business Banking deposits decreased 2%, as growth in term deposits in both businesses was more than offset by decreases in other products.

Q1 2023 vs. Q42022

Reported net income increased $38 million or 6% from the prior quarter. All amounts in the remainder of this section are on a U.S. dollar basis.

Reported net income increased $32 million or 6% from the prior quarter.

Total revenue increased $37 million or 3% from the prior quarter. Net interest income increased $27 million or 3%, primarily due to higher deposit margins and loan balances, partially offset by lower loan margins. Non-interest revenue increased $10 million or 4% from the prior quarter, primarily due to higher lending fee revenue. Net interest margin of 3.92% increased 4 basis points from the prior quarter, driven by higher deposit margins reflecting the impact of the higher rate environment, partially offset by lower loan margins, higher loan balances and a change in deposit product mix.

Personal and Business Banking revenue increased $18 million or 4%, primarily due to higher net interest income. Commercial Banking revenue increased $19 million or 2%, due to higher non-interest revenue and net interest income.

Total provision for credit losses was unchanged from the prior quarter. The provision for credit losses on impaired loans increased $1 million. There was a $10 million provision for credit losses on performing loans in the current quarter, compared with an $11 million provision in the prior quarter.

Non-interest expense increased $4 million or 1% from the prior quarter, as higher employee-related costs were offset by lower other expenses.

Average gross loans and acceptances increased $1.4 billion or 1% from the prior quarter. Commercial Banking loan balances increased 2% and Personal and Business Banking loan balances decreased 2%. Average deposits was relatively unchanged. Commercial Banking deposits increased 1% and Personal and Business Banking deposits decreased 1%.

For further information on non-GAAP amounts in this Review of Operating Groups’ Performance section, refer to the Non-GAAP and Other Financial Measures section.

BMO Financial Group First Quarter Report 2023 25

BMO Wealth Management ^(1)^ ****

(Canadian in millions, except as noted)			Q4-2022			Q1-2022
Net interest income	313	****		324			272
Non-interest revenue	2,191	****		606			1,133
Total revenue	2,504	****		930			1,405
Insurance claims, commissions and changes in policy benefit<br>liabilities (CCPB)	1,193	****		(369	)		81
Revenue, net of CCPB	1,311	****		1,299			1,324
Provision for credit losses on impaired loans	1	****		-			-
Provision for credit losses on performing loans	5	****		3			4
Total provision for credit losses	6	****		3			4
Non-interest expense	946	****		901			908
Income before income taxes	359	****		395			412
Provision for income taxes	82	****		97			97
Reported net income	277	****		298			315
Dividends on preferred shares and distributions on other equity<br>instruments	2	****		2			2
Net income available to common shareholders	275	****		296			313
Amortization of acquisition-related intangible assets (2)	1	****		-			1
Adjusted net income	278	****		298			316
Adjusted net income available to common shareholders	276	****		296			314
Adjusted non-interest<br>expense	945	****		900			907
Wealth and Asset Management reported net income	207	****		221			261
Wealth and Asset Management adjusted net income	208	****		221			262
Insurance reported net income	70	****		77			54
Insurance adjusted net income	70	****		77			54
Net income growth (%)	(11.9	)		(13.7	)		(6.3	)
Adjusted net income growth (%)	(11.9	)		(14.5	)		(8.1	)
Revenue growth (%)	78.2	****		(39.3	)		(29.0	)
Revenue growth, net of CCPB (%)	(0.9	)		(9.7	)		(3.8	)
Non-interest expense growth (%)	4.2	****		(8.9	)		(3.1	)
Adjusted non-interest expense growth (%)	4.2	****		(8.6	)		(2.2	)
Return on equity (%) (3)	19.4	****		21.7			24.0
Adjusted return on equity (%) (4)	19.4	****		21.8			24.1
Operating leverage, net of CCPB (%)	(5.1	)		(0.8	)		(0.7	)
Adjusted operating leverage, net of CCPB (%)	(5.1	)		(1.1	)		(1.6	)
Reported efficiency ratio (%)	37.8	****		96.8			64.6
Reported efficiency ratio, net of CCPB (%)	72.1	****		69.3			68.6
Adjusted efficiency ratio (%)	37.7	****		96.6			64.5
Adjusted efficiency ratio, net of CCPB (%)	72.0	****		69.2			68.5
Assets under management	321,540	****		305,462			332,581
Assets under administration (4)	416,745	****		424,191			440,070
Average assets	53,225	****		51,915			49,504
Average gross loans and acceptances	36,180	****		36,036			31,916
Average deposits	56,589	****		56,428			55,069
U.S. Business Select Financial Data (US in millions)
Total revenue	141	****		145			150
Non-interest expense	113	****		116			121
Reported net income	21	****		20			22
Adjusted non-interest expense	112	****		115			120
Adjusted net income	22	****		21			23
Average gross loans and acceptances	6,476	****		6,423			5,408
Average deposits	6,759	****		7,119			7,911

All values are in US Dollars.

(1)	Revenue measures, net of CCPB, adjusted results and ratios in this table are on a<br>non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section.
(2)	Amortization of acquisition-related intangible assets pre-tax amounts of<br>$1 million in each of Q1-2023, Q4-2022, and Q1-2022 are recorded in non-interest expense.
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(3)	Return on equity is based on allocated capital. Effective Q1-2023, the capital<br>allocation rate increased to 11.0% of risk weighted assets, compared with 10.5% in fiscal 2022. For further information, refer to the Non-GAAP and Other Financial Measures section.
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(4)	Certain assets under management that are also administered by the bank are included in assets under administration.<br>
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Q1 2023 vs. Q1 2022

BMO Wealth Management reported net income was $277 million, a decrease of $38 million or 12% from the prior year. Wealth and Asset Management reported net income was $207 million, a decrease of $54 million or 20% from the prior year, and Insurance net income was $70 million, an increase of $16 million or 29%.

Total revenue was $2,504 million, an increase of $1,099 million from the prior year. Revenue, net of CCPB, was $1,311 million, a decrease of $13 million or 1%. Revenue in Wealth and Asset Management was $1,186 million, a decrease of $45 million or 4%, as the impact of weaker global markets and lower online brokerage transaction revenue was partially offset by higher net interest income from higher margins and loan and deposit growth, as well as the benefit from higher net new client assets. Insurance revenue, net of CCPB, was $125 million, an increase of $32 million or 35% from the prior year, primarily due to business growth driven by above-trend pension sales in the current quarter.

Non-interest expense was $946 million, an increase of $38 million or 4%, primarily due to higher sales force and technology costs.

Assets under management of $321.5 billion decreased $11.0 billion or 3%, and assets under administration of $416.7 billion decreased

$23.3 billion or 5% from the prior year, primarily due to weaker global markets, partially offset by higher net new client assets and favourable foreign exchange rate movements. Average gross loans increased 13% and average deposits increased 3%.

Q1 2023 vs. Q4 2022

Reported net income decreased $21 million or 7% from the prior quarter. Wealth and Asset Management reported net income decreased $14 million or 6% and Insurance net income decreased $7 million or 10%.

26 BMO Financial Group First Quarter Report 2023

Total revenue was $2,504 million, an increase of $1,574 million from the prior quarter. Revenue, net of CCPB, increased $12 million or 1% from the prior quarter. Wealth and Asset Management revenue increased $22 million or 2%, primarily due to the benefit from stronger global markets, partially offset by lower margins due to changes in product mix. Insurance revenue, net of CCPB, decreased $10 million or 7%, primarily due to favourable market movements in the prior quarter, partially offset by above-trend pension sales in the current quarter.

Non-interest expense increased $45 million or 5%, primarily due to higher stock-based compensation for employees eligible to retire that are expensed in the first quarter of each year.

Assets under management increased $16.1 billion or 5% from the prior quarter, primarily due to stronger global markets and higher net new client assets, and assets under administration decreased $7.4 billion or 2%, reflecting the impact of unfavourable foreign exchange rate movements. Average gross loans and average deposits were relatively unchanged from the prior quarter.

For further information on non-GAAP amounts in this Review of Operating Groups’ Performance section, refer to the Non-GAAP and Other Financial Measures section.

BMO Capital Markets ^(1)^ ****

(Canadian in millions, except as noted)			Q4-2022			Q1-2022
Net interest income (teb) (2)	719	****		778			924
Non-interest revenue	999	****		627			1,015
Total revenue (teb) (2)	1,718	****		1,405			1,939
Provision for (recovery of) credit losses on impaired loans	(3	)		5			(16	)
Provision for (recovery of) credit losses on performing<br>loans	(7	)		(23	)		(35	)
Total provision for (recovery of) credit losses	(10	)		(18	)		(51	)
Non-interest expense	1,091	****		965			1,041
Income before income taxes	637	****		458			949
Provision for income taxes (teb) (2)	134	****		101			244
Reported net income	503	****		357			705
Dividends on preferred shares and distributions on other equity<br>instruments	9	****		11			10
Net income available to common shareholders	494	****		346			695
Acquisition and integration costs (3)	3	****		2			3
Amortization of acquisition-related intangible assets (4)	4	****		4			4
Adjusted net income	510	****		363			712
Adjusted net income available to common shareholders	501	****		352			702
Adjusted non-interest<br>expense	1,082	****		958			1,032
Global Markets revenue	1,100	****		851			1,171
Investment and Corporate Banking revenue	618	****		554			768
Net income growth (%)	(28.6	)		(32.9	)		47.4
Adjusted net income growth (%)	(28.4	)		(32.6	)		46.8
Revenue growth (%)	(11.4	)		(1.8	)		23.2
Non-interest expense growth (%)	4.8	****		19.3			17.5
Adjusted non-interest expense growth (%)	4.9	****		19.5			17.7
Return on equity (%) (5)	16.2	****		11.3			25.0
Adjusted return on equity (%) (5)	16.4	****		11.5			25.2
Operating leverage (%)	(16.2	)		(21.1	)		5.7
Adjusted operating leverage (%)	(16.3	)		(21.3	)		5.5
Efficiency ratio (%)	63.5	****		68.8			53.7
Adjusted efficiency ratio (%)	63.0	****		68.3			53.2
Average assets	424,503	****		408,824			393,312
Average gross loans and acceptances	74,233	****		71,541			57,918
U.S. Business Select Financial Data (US in millions)
Total revenue (teb) (6)	521	****		419			677
Non-interest expense	402	****		400			367
Reported net income	104	****		11			261
Adjusted non-interest expense	398	****		395			361
Adjusted net income	107	****		14			265
Average assets	135,770	****		132,349			138,881
Average gross loans and acceptances	28,110	****		26,661			23,890

All values are in US Dollars.

(1)	Adjusted results and ratios in this table are on a non-GAAP basis and are<br>discussed in the Non-GAAP and Other Financial Measures section.
(2)	Taxable equivalent basis (teb) amounts of $70 million in Q1-2023,<br>$61 million in Q4-2022, and $64 million in Q1-2022 are recorded in net interest income, revenue and provision for income taxes, and are reflected in the<br>ratios.
---	---
(3)	Clearpool and Radicle acquisition pre-tax integration costs of $4 million in Q1-2023, $2 million in Q4-2022, and $4 million in Q1-2022 are recorded in<br>non-interest expense.
---	---
(4)	Amortization of acquisition-related intangible assets pre-tax amounts of<br>$5 million in each of Q1-2023, Q4-2022, and Q1-2022 are recorded in non-interest<br>expense.
---	---
(5)	Return on equity is based on allocated capital. Effective Q1-2023, the capital<br>allocation rate increased to 11.0% of risk weighted assets, compared with 10.5% in fiscal 2022. For further information, refer to the Non-GAAP and Other Financial Measures section.
---	---
(6)	Taxable equivalent basis (teb) amounts of US$nil in Q1-2023, US$1 million in Q4-2022, and US$2 million in Q1-2022 are recorded in net interest income, revenue and provision for income taxes.
---	---

Q1 2023 vs. Q1 2022

BMO Capital Markets reported net income was $503 million, a decrease of $202 million or 29% from the prior year.

Total revenue was $1,718 million, a decrease of $221 million or 11% from particularly strong results in the prior year. Global Markets revenue decreased $71 million or 6%, due to lower equities and interest rate trading revenue and lower new debt and equity issuances, partially offset by higher foreign exchange trading revenue, as well as the impact of the stronger U.S. dollar. Investment and Corporate Banking revenue decreased $150 million or 19%, due to lower investment banking revenue and lower net securities gains, partially offset by higher corporate banking-related revenue and the impact of the stronger U.S. dollar.

Total recovery of the provision for credit losses was $10 million, compared with a recovery of $51 million in the prior year. The recovery of the provision for credit losses on impaired loans was $3 million, compared with a recovery of $16 million in the prior year. There was a $7 million recovery of the provision for credit losses on performing loans in the current quarter, compared with a recovery of $35 million in the prior year.

BMO Financial Group First Quarter Report 2023 27

Non-interest expense was $1,091 million, an increase of $50 million or 5% from the prior year, driven by the impact of the stronger U.S. dollar, continued technology investments in the business and higher transaction-based expenses, partially offset by lower employee-related costs given business performance.

Average gross loans and acceptances of $74.2 billion increased $16.3 billion or 28% from the prior year, due to higher lending activity across loan portfolios and the impact of the stronger U.S. dollar.

Q1 2023 vs. Q4 2022

Reported net income increased $146 million or 41% from the prior quarter.

Total revenue increased $313 million or 22% from the prior quarter. Global Markets revenue increased $249 million or 29%, due to higher equities, foreign exchange and interest rate trading revenue and higher net securities gains. Investment and Corporate Banking revenue increased $64 million or 12%, due to higher investment banking and corporate banking-related revenue.

Total recovery of the provision for credit losses was $10 million, compared with a recovery of $18 million in the prior quarter. The recovery of the provision for credit losses on impaired loans was $3 million, compared with a provision of $5 million in the prior quarter. There was a $7 million recovery of the provision for credit losses on performing loans in the current quarter, compared with a recovery of $23 million in the prior quarter.

Non-interest expense increased $126 million or 13% from the prior quarter, primarily due to higher employee-related costs driven by performance, including the impact of stock-based compensation for employees eligible to retire that is expensed in the first quarter of each year.

Average gross loans and acceptances increased $2.7 billion or 4% from the prior quarter, due to higher lending activity across our loan portfolios. For further information on non-GAAP amounts in this Review of Operating Groups’ Performance section, refer to the Non-GAAP and Other Financial Measures section.

Corporate Services ^(1)^ ****

(Canadian in millions, except as noted)			Q4-2022			Q1-2022
Net interest income before group teb offset	(452	)		(690	)		(50	)
Group teb offset	(78	)		(68	)		(70	)
Net interest income (teb)	(530	)		(758	)		(120	)
Non-interest revenue	(1,642	)		4,693			573
Total revenue (teb)	(2,172	)		3,935			453
Provision for (recovery of) credit losses on impaired loans	(4	)		(2	)		(1	)
Provision for (recovery of) credit losses on performing<br>loans	(1	)		7			(1	)
Total provision for (recovery of) credit losses	(5	)		5			(2	)
Non-interest expense	434	****		945			161
Income (loss) before income taxes	(2,601	)		2,985			294
Provision for (recovery of) income taxes (teb)	(390	)		734			66
Reported net income (loss)	(2,211	)		2,251			228
Dividends on preferred shares and distributions on other equity<br>instruments	9	****		43			22
Net income (loss) available to common shareholders	(2,220	)		2,208			206
Acquisition and integration costs (2)	178	****		143			7
Impact of divestitures (3)	-	****		(8	)		48
Management of fair value changes on the purchase of Bank of the West (4)	1,461	****		(3,336	)		(413	)
Legal provision (5)	6	****		846			-
Impact of Canadian tax measures (6)	371	****		-			-
Adjusted net income (loss)	(195	)		(104	)		(130	)
Adjusted net income (loss) available to common shareholders	(204	)		(147	)		(152	)
Adjusted total revenue	(155	)		(91	)		(80	)
Adjusted non-interest<br>expense	197	****		133			156
U.S. Business Select Financial Data (US in millions)
Total revenue (teb) (7)	(1,430	)		3,018			435
Total provision for (recovery of) credit losses	(1	)		-			(2	)
Non-interest expense	235	****		598			(2	)
Provision for (recovery of) income taxes (teb)	(461	)		633			113
Reported net income (loss)	(1,203	)		1,787			326
Adjusted total revenue	80	****		34			(8	)
Adjusted non-interest expense	59	****		1			48
Adjusted net income (loss)	26	****		40			(34	)

All values are in US Dollars.

(1)	Adjusted results in this table are on a non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section.
(2)	Reported net income included acquisition and integration costs related to the acquisition of Bank of the West of<br>$178 million ($235 million pre-tax) in Q1-2023, $143 million ($191 million pre-tax) in Q4-2022, $7 million ($8 million pre-tax) in Q1-2022, recorded in non-interest<br>expense.
---	---
(3)	Reported net income in fiscal 2022 included the impact of divestitures of our EMEA Asset Management business. Q4-2022 included a $8 million ($6 million pre-tax) recovery of non-interest expense, and<br>Q1-2022 included a $29 million (pre-tax and after-tax) loss relating to foreign currency translation reclassified from<br>accumulated other comprehensive income, recorded in non-interest revenue, a $3 million pre-tax net recovery of non-interest<br>expense, including taxes of $22 million on closing of the sale of our EMEA Asset Management business.
---	---
(4)	Reported net income included revenue (losses) related to the acquisition of Bank of the West resulting from the management<br>of the impact of interest rate changes between the announcement and closing on its fair value and goodwill. Q1-2023 included a loss of $1,461 million ($2,011 million<br>pre-tax), comprising $1,628 million of pre-tax mark-to-market losses on certain<br>interest rate swaps recorded in non-interest trading revenue and $383 million of pre-tax losses on a portfolio of primarily U.S. treasuries and other balance sheet<br>instruments recorded in net interest income. Q4-2022 included revenue of $3,336 million ($4,541 million pre-tax), comprising $4,698 million of pre-tax mark-to-market gains and $157 million of pre-tax losses recorded in net interest<br>income. Q1-2022 included revenue of $413 million ($562 million pre-tax), comprising $517 million of pre-tax mark-to-market gains and $45 million of pre-tax interest income. For further information on this acquisition refer to the<br>Significant Events section.
---	---
(5)	Q1-2023 reported net income included a legal provision of $6 million<br>($8 million pre-tax) related to a lawsuit associated with a predecessor bank, M&I Marshall and Ilsley Bank, comprising interest expense of $6 million<br>pre-tax and legal fees of $2 million pre-tax. Q4-2022 included $846 million ($1,142 million pre-tax), comprising interest expense of $515 million pre-tax and non-interest expense of $627 million pre-tax, including legal fees of $22 million. For further information, refer to the Provisions and Contingent Liabilities section in Note 24 of the audited annual consolidated financial statements of<br>BMO’s 2022 Annual Report.
---	---
(6)	Q1-2023 reported net income included a<br>one-time tax expense of $371 million related to certain tax measures enacted by the Canadian government, comprising a Canada Recovery Dividend (CRD) of $312 million and $59 million related to<br>the pro-rated fiscal 2022 impact of the 1.5% tax rate increase, net of a deferred tax asset remeasurement, recorded in Corporate Services.
---	---
(7)	Group teb offset amounts of US$6 million in Q1-2023, and US$7 million in<br>Q4-2022 and Q1-2022 are recorded in revenue and provision for (recovery of) income taxes.
---	---
Adjusted results exclude the impact of the items described in footnotes (2) to (6).
---

28 BMO Financial Group First Quarter Report 2023

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

The costs of Corporate Units and T&O services are largely allocated to the four operating segments (Canadian P&C, U.S. P&C, BMO Wealth Management and BMO Capital Markets), with any remaining amounts retained in Corporate Services results. As such, Corporate Services results largely reflect the impact of residual treasury-related activities, the elimination of taxable equivalent adjustments, and residual unallocated expenses.

Q1 2023 vs. Q1 2022

Corporate Services reported net loss was $2,211 million and adjusted net loss was $195 million, compared with a reported net income of $228 million and an adjusted net loss of $130 million in the prior year. Results in the current quarter included a loss resulting from the impact of the fair value management actions related to the acquisition of Bank of the West, compared with revenue in the prior year, as well as related acquisition and integration costs. In addition, the current quarter included a tax expense related to certain tax measures enacted by the Canadian government, and the impact of a legal provision. The prior year included the impact of divestitures related to the sale of our EMEA Asset Management business.

Adjusted net loss excluded the above factors and was primarily driven by lower revenue reflecting lower securities gains and treasury-related activities, and higher expenses, primarily due to higher technology costs, partially offset by the impact of a more favourable effective tax rate in the current quarter.

Q1 2023 vs. Q4 2022

Reported net loss was $2,211 million and adjusted net loss was $195 million, compared with a reported net income of $2,251 million and an adjusted net loss of $104 million in the prior quarter. The current quarter included the adjusting items noted above. In addition, the prior quarter included the impact of the legal provision. Reported net loss was higher, primarily due to a loss from the fair value management actions, compared with a gain in the prior quarter, a tax expense related to certain tax measures enacted by the Canadian government and higher acquisition and integration costs, partially offset by a lower legal provision.

Adjusted net loss excluded the above factors and was primarily driven by higher expenses, primarily due to the seasonal impact of employee benefits, lower revenue and the impact of a more favourable effective tax rate in the prior quarter.

For further information on non-GAAP amounts in this Review of Operating Groups’ Performance section, refer to the Non-GAAP and Other Financial Measures section.

BMO Financial Group First Quarter Report 2023 29

Summary Quarterly Earnings Trends ^(1)^

(Canadian in millions, except as noted)			Q4-2022			Q3-2022			Q2-2022			Q1-2022			Q4-2021			Q3-2021			Q2-2021
Revenue (1)	6,470	****		10,570			6,099			9,318			7,723			6,573			7,562			6,076
Insurance claims, commissions and changes in policy benefit<br>liabilities (CCPB)	1,193	****		(369	)		413			(808	)		81			97			984			(283	)
Revenue, net of CCPB (1)	5,277	****		10,939			5,686			10,126			7,642			6,476			6,578			6,359
Provision for credit losses on impaired loans	196	****		192			104			120			86			84			71			155
Provision for (recovery of) credit losses on performing<br>loans	21	****		34			32			(70	)		(185	)		(210	)		(141	)		(95	)
Total provision for (recovery of) credit losses	217	****		226			136			50			(99	)		(126	)		(70	)		60
Non-interest expense<br>(1)	4,421	****		4,776			3,859			3,713			3,846			3,803			3,684			4,409
Income before income taxes	639	****		5,937			1,691			6,363			3,895			2,799			2,964			1,890
Provision for income taxes	392	****		1,454			326			1,607			962			640			689			587
Reported net income (see below)	247	****		4,483			1,365			4,756			2,933			2,159			2,275			1,303
Acquisition and integration costs (2)	181	****		145			62			28			10			1			2			2
Amortization of acquisition-related intangible assets (3)	6	****		6			5			6			6			14			15			18
Impact of divestitures (4)	-	****		(8	)		6			9			48			52			18			772
Management of Fair Value Changes on the Purchase of Bank of the West (5)	1,461	****		(3,336	)		694			(2,612	)		(413	)		-			-			-
Restructuring costs (reversals) (6)	-	****		-			-			-			-			-			(18	)		-
Legal Provision (7)	6	****		846			-			-			-			-			-			-
Impact of Canadian tax measures (8)	371	****		-			-			-			-			-			-			-
Adjusted net income (see below)	2,272	****		2,136			2,132			2,187			2,584			2,226			2,292			2,095
Operating group reported net income
Canadian P&C reported net income	980	****		917			965			940			1,004			933			828			777
Amortization of acquisition-related intangible assets (3)	-	****		-			-			1			-			-			-			1
Canadian P&C adjusted net income	980	****		917			965			941			1,004			933			828			778
U.S. P&C reported net income	698	****		660			568			588			681			509			550			538
Amortization of acquisition-related intangible assets (3)	1	****		2			1			1			1			6			6			5
U.S. P&C adjusted net income	699	****		662			569			589			682			515			556			543
BMO Wealth Management reported net income	277	****		298			324			314			315			345			379			322
Amortization of acquisition-related intangible assets (3)	1	****		-			1			1			1			4			5			7
BMO Wealth Management adjusted net income	278	****		298			325			315			316			349			384			329
BMO Capital Markets reported net income	503	****		357			262			448			705			531			553			558
Acquisition and integration costs (2)	3	****		2			1			2			3			1			2			2
Amortization of acquisition-related intangible assets (3)	4	****		4			3			3			4			4			4			5
BMO Capital Markets adjusted net income	510	****		363			266			453			712			536			559			565
Corporate Services reported net income (loss)	(2,211	)		2,251			(754	)		2,466			228			(159	)		(35	)		(892	)
Acquisition and integration costs (2)	178	****		143			61			26			7			-			-			-
Impact of divestitures (4)	-	****		(8	)		6			9			48			52			18			772
Management of fair value changes on the purchase of Bank of the West (5)	1,461	****		(3,336	)		694			(2,612	)		(413	)		-			-			-
Restructuring costs (reversals) (6)	-	****		-			-			-			-			-			(18	)		-
Legal Provision (7)	6	****		846			-			-			-			-			-			-
Impact of Canadian tax measures (8)	371	****		-			-			-			-			-			-			-
Corporate Services adjusted net income (loss)	(195	)		(104	)		7			(111	)		(130	)		(107	)		(35	)		(120	)
Basic earnings per share () (9) (10)	0.30	****		6.52			1.96			7.15			4.44			3.24			3.42			1.91
Diluted earnings per share () (9) (10)	0.30	****		6.51			1.95			7.13			4.43			3.23			3.41			1.91
Adjusted diluted earnings per share ()	3.22	****		3.04			3.09			3.23			3.89			3.33			3.44			3.13

All values are in US Dollars.

(1)	Revenue measures, net of CCPB, adjusted results and ratios in this table are on a<br>non-GAAP basis and are discussed in the Non-GAAP and Other Financial Measures section.
(2)	Reported net income included acquisition and integration costs related to the acquisition of Bank of the West recorded in non-interest expenses in Corporate Services: Q1-2023 included $178 million ($235 million pre-tax); Q4-2022 included $143 million ($191 million pre-tax); Q3-2022 included $61 million ($82 million pre-tax); Q2-2022 included $26 million ($35 million pre-tax) and Q1-2022 included<br>$7 million ($8 million pre-tax). In addition, net income included acquisition and integration costs recorded in non-interest expense in BMO Capital Markets<br>related to both Radicle and Clearpool in Q1-2023 of $3 million ($4 million pre-tax); and for Clearpool $2 million ($2 million pre-tax) in Q4-2022, $1 million ($2 million pre-tax) in Q3-2022, $2 million<br>($2 million pre-tax) in Q2-2022 and $3 million ($4 million pre-tax) in<br>Q1-2022; and Clearpool and KGS-Alpha $1 million ($1 million pre-tax) in<br>Q4-2021, $2 million ($3 million pre-tax) in Q3-2021, and $2 million ($2 million pre-tax) in Q2-2021.
---	---
(3)	Amortization of acquisition-related intangible assets was charged to non-interest expense in the related operating group.<br>
---	---
(4)	Reported net income included the impact of divestitures related to the sale of our EMEA Asset Management business and our<br>Private Banking business in Hong Kong and Singapore. The impact of the sale of our EMEA Asset Management business comprised the following in fiscal 2022: Q4-2022 included an $8 million ($6 million pre-tax) recovery of non-interest expense; Q3-2022 included expenses of $6 million ($7 million<br>pre-tax); Q2-2022 included a gain of $6 million ($8 million pre-tax) related to the transfer of certain U.S. asset<br>management clients recorded in revenue and expenses of $15 million ($18 million pre-tax); and Q1-2022 included a $29 million (pre-tax and after-tax) loss related to foreign currency translation reclassified from accumulated other comprehensive income to<br>non-interest revenue, a $3 million pre-tax net recovery of non-interest expense, including taxes of $22 million on<br>closing of the sale of our EMEA Asset Management business. Divestitures in fiscal 2021 comprised the following: Q4-2021 included expenses of $52 million ($62 million pre-tax) related to the sale of<br>our EMEA Asset Management business; Q3-2021 included expenses of $18 million ($24 million pre-tax) related to the sale of our EMEA Asset Management business<br>and the sale of our Private Banking business in Hong Kong and Singapore; Q2-2021 included a $747 million pre-tax and<br>after-tax write-down of goodwill related to the sale of our EMEA Asset Management business, a $22 million ($29 million pre-tax) gain on the sale of our Private<br>Banking business, and $47 million ($53 million pre-tax) of divestiture-related costs for both transactions – the gain on the sale was recorded in revenue and the goodwill write-down and<br>divestiture costs were recorded in non-interest expense in Corporate Services.
---	---
(5)	Reported net income included revenue (losses) related to the acquisition of Bank of the West resulting from the management<br>of the impact of interest rate changes between the announcement and closing on its fair value and goodwill: Q1-2023 included a loss of $1,461 million ($2,011 million<br>pre-tax), comprising $1,628 million of pre-tax mark-to-market losses on certain<br>interest rate swaps recorded in non-interest trading revenue and $383 million of pre-tax losses on a portfolio of primarily U.S. treasuries and other balance sheet<br>instruments recorded in net interest income. Q4-2022 included revenue of $3,336 million ($4,541 million pre-tax), comprising $4,698 million of pre-tax mark-to-market revenue on certain interest rate swaps recorded in non-interest trading<br>revenue and a loss of $157 million pre-tax in net interest income on a portfolio of primarily U.S. treasury securities recorded in net interest income; Q3-2022<br>included a loss of $694 million ($945 million pre-tax), comprising $983 million of pre-tax<br>mark-to-market non-interest losses and $38 million of pre-tax interest income on a<br>portfolio of primarily U.S. treasury securities recorded in net interest income; Q2-2022 included revenue of $2,612 million ($3,555 million pre-tax),<br>comprising $3,433 million of pre-tax mark-to-market gains and $122 million of<br>pre-tax net interest income; and Q1-2022 included revenue of $413 million ($562 million pre-tax), comprising<br>$517 million of pre-tax mark-to-market gains and $45 million of pre-tax<br>interest income. These amounts were recorded in Corporate Services. For further information on this acquisition, refer to the Significant Events section.
---	---
(6)	Q3-2021 reported net income included a partial reversal of $18 million ($24 million pre-tax) of restructuring<br>charges related to severance recorded in 2019 in non-interest expense, in Corporate Services.
---	---
(7)	Reported net income included a legal provision related to a lawsuit associated with a predecessor bank, M&I Marshall<br>and Ilsley Bank. Q1-2023 included $6 million ($8 million pre-tax) comprising interest expense of $6 million<br>pre-tax and legal fees of $2 million pre-tax. Q4-2022 included $846 million ($1,142 million pre-tax), comprising interest expense of $515 million pre-tax and non-interest expense of $627 million pre-tax, including legal fees of $22 million. These amounts were recorded in Corporate Services. For further information, refer to the Provisions and Contingent Liabilities section in Note 24 of the audited<br>annual consolidated financial statements of BMO’s 2022 Annual Report.
---	---
(8)	Q1-2023 reported net income included a<br>one-time tax expense of $371 million related to certain tax measures enacted by the Canadian government, comprising a Canada Recovery Dividend (CRD) of $312 million and $59 million related to<br>the pro-rated fiscal 2022 impact of the 1.5% tax rate increase, net of a deferred tax asset remeasurement, recorded in Corporate Services.
---	---
(9)	Earnings per share (EPS) is calculated using net income after deducting total dividends on preferred shares and<br>distributions on other equity instruments. For more information on EPS, refer to Note 9 of the unaudited interim consolidated financial statements.
---	---
(10)	Net income and earnings from our business operations are attributable to shareholders by way of EPS and diluted EPS.<br>Adjusted EPS and adjusted diluted EPS are non-GAAP measures. For further information, refer to the Non-GAAP and Other Financial Measures section.
---	---

30 BMO Financial Group First Quarter Report 2023

BMO’s quarterly earnings trends were reviewed in detail in the Summary Quarterly Earnings Trends section of BMO’s 2022 Annual Report. Please refer to that review for a more complete discussion of trends and factors affecting past quarterly results, including the modest impact of seasonal variations in results, such as higher employee expenses due to higher employee benefits and stock-based compensation for employees eligible to retire that are recorded in the first quarter of each year, as well as the impact of fewer days in the second quarter relative to other quarters. Quarterly earnings are also impacted by foreign currency translation. Divestitures in BMO Wealth Management reduced overall revenue expenses in 2022 relative to 2021. The table above outlines summary results for the second quarter of 2021 through the first quarter of 2023.

Earnings Trends

Financial performance in the most recent quarter and second half of 2022 was impacted by the higher interest rate environment and volatility in equity markets, with lower client activity in our market sensitive businesses, as well as higher provisions for credit losses. Performance in the first half of 2022 and in 2021 benefitted from improving economic conditions and good operating momentum across our businesses, including strong revenue growth.

Reported results in the first quarter of 2023 and in 2022 were impacted by the acquisition of Bank of the West comprising revenue (losses) related to the fair value management actions, as well as acquisition and integration costs. In addition, the current quarter included a tax expense related to certain tax measures enacted by the Canadian government. Both the current quarter and fourth quarter of 2022 were impacted by a legal provision. Results in 2022 and 2021 included the impact of divestitures, including a write-down of goodwill related to the sale of our EMEA Asset Management business and a gain on the sale of our Private Banking business in Hong Kong and Singapore in the second quarter of 2021. All periods included the amortization of acquisition-related intangible assets and acquisition and integration costs.

Total revenue reflects the benefit of our diversified businesses. Revenue growth in our P&C businesses has strengthened in recent quarters, supported by customer acquisition, higher volumes and margin expansion, reflective of the higher rate environment. Revenue in BMO Wealth Management remained relatively stable with steady growth in net interest income, while non-interest revenue was impacted by fluctuations in global markets and divestitures in 2022. Insurance revenue, net of CCPB, was subject to variability, resulting from changes in interest rates and equity markets. BMO Capital Markets revenue in the current quarter reflects improved performance across both Global Markets and Investment and Corporate Banking, following challenging market conditions experienced after the first quarter of 2022 that impacted our trading and underwriting and advisory activity.

As the economy recovered from the economic downturn brought on by the pandemic, we recorded lower provisions for credit losses on impaired loans, as well as recoveries of provisions for credit losses on performing loans, which reflected an improving economic outlook, favourable credit conditions and positive credit migration. The most recent quarters reflected the impact of increased uncertainty in credit conditions and growth in certain portfolios, largely offset by portfolio credit improvement, including benefits from risk transfer transactions.

Non-interest expense reflected our focus on expense management and efficiency improvement. Non-interest expense growth was driven by higher employee-related costs, including sales force expansion, higher salaries and performance-based compensation, as well as higher technology costs. Expense growth in 2022 was impacted by divestitures.

The effective tax rate has varied with legislative changes; changes in tax policy, including their interpretation by tax authorities and the courts; earnings mix, including the relative proportion of earnings attributable to the different jurisdictions in which we operate, the level of pre-tax income, and the level of tax-exempt income from securities. The reported effective tax rate in the past six quarters was impacted by the fair value management actions relating to the acquisition of Bank of the West and the tax measures enacted by the Canadian government, including the Canada Recovery Dividend and a permanent 1.5% increase in the Canadian tax rate, as well as the sale of our EMEA Asset Management business.

For further information on non-GAAP amounts, measures and ratios in this Summary Quarterly Earnings Trends section, refer to the Non-GAAP and Other Financial Measures section.

Transactions with Related Parties

In the ordinary course of business, we provide banking services to our key management personnel on the same terms that we offer to our preferred customers for those services. Key management personnel are defined as those persons having authority and responsibility for planning, directing and/or controlling the activities of an entity, being the directors and most senior executives of the bank. We provide banking services to our joint ventures and equity-accounted investees on the same terms offered to our customers for these services. We also offer employees a subsidy on annual credit card fees.

The bank’s policies and procedures for related party transactions did not materially change from October 31, 2022, as described in Note 27 of the audited annual consolidated financial statements of BMO’s 2022 Annual Report.

Off-Balance Sheet Arrangements

We enter into a number of off-balance sheet arrangements in the normal course of operations. The most significant of these are structured entities, credit instruments and guarantees, which are described in the Off-Balance Sheet Arrangements section of BMO’s 2022 Annual Report. We consolidate our own securitization vehicles, certain capital and funding vehicles, and other structured entities created to meet our own, as well as our customer’s needs. We do not consolidate Canadian and U.S. customer securitization vehicles, certain capital vehicles, various BMO-managed funds or various other structured entities where investments are held. There have been no significant changes to the bank’s off-balance sheet arrangements since October 31, 2022.

BMO Financial Group First Quarter Report 2023 31

Accounting Policies and Critical Accounting Estimates and Judgments

Significant accounting policies are described in BMO’s 2022 Annual Report and in the notes to our annual consolidated financial statements for the year ended October 31, 2022, and in Note 1 of the unaudited interim consolidated financial statements, together with a discussion of certain accounting estimates that are considered particularly important as they require management to make significant judgments, some of which relate to matters that are inherently uncertain. Readers are encouraged to review that discussion in Note 1 of the audited annual consolidated financial statements of BMO’s 2022 Annual Report, as well as the updates provided in Note 1 of the unaudited interim consolidated financial statements.

Allowance for CreditLosses

The allowance for credit losses (ACL) consists of allowances on impaired loans, which represent estimated losses related to impaired loans in the portfolio provided for but not yet written off, and allowances on performing loans, which is the bank’s best estimate of impairment in the existing portfolio for loans that have not yet been individually identified as impaired. Expected credit losses (ECL) are calculated on a probability-weighted basis, based on the economic scenarios described below, and are calculated for each exposure in the portfolio as a function of the probability of default (PD), exposure at default (EAD) and loss given default (LGD), with the timing of the loss also considered. Where there has been a significant increase in credit risk, lifetime ECL is recorded; otherwise 12 months of ECL is generally recorded. A significant increase in credit risk considers many different factors and will vary by product and risk segment. The main factors considered in making this determination are the change in PD since origination and certain other criteria, such as 30-day past due and watchlist status. We may apply experienced credit judgment to reflect factors not captured in the ECL models, as we deem necessary. We applied experienced credit judgment to reflect the continuing impact of the uncertain environment on credit conditions and the economy.

Our total allowance for credit losses as at January 31, 2023, was $3,028 million ($2,998 million as at October 31, 2022) and comprised an allowance on performing loans of $2,490 million and an allowance on impaired loans of $538 million ($2,441 million and $557 million, respectively, as at October 31, 2022). The allowance on performing loans increased $49 million from the fourth quarter of 2022, primarily driven by increased uncertainty in credit conditions and growth in certain portfolios, largely offset by movements in foreign exchange rates and portfolio credit improvement.

In establishing our allowance for performing loans, we attach probability weightings to three economic scenarios, which are representative of our view of economic and market conditions – a base scenario, which in our view represents the most probable outcome, as well as benign and adverse scenarios, all developed by our Economics group.

When changes in economic performance in the forecasts are measured, we use real GDP as the basis, which acts as the key driver for movements in many of the other economic and market variables used, including the equity volatility index (VIX), corporate BBB credit spreads, unemployment rates, housing price indices and consumer credit. In addition, we also consider industry-specific variables, where applicable. Many of the variables have a high degree of interdependency, and as such, there is no single factor to which the allowances as a whole are sensitive.

Information on the Provision for Credit Losses for the three months ended January 31, 2023, can be found in the Total Provision for Credit Losses section.

For additional information, refer to Risk Management section, Allowance for Credit Losses section of BMO’s 2022 Annual Report, Note 4 of the audited annual consolidated financial statements, as well as Note 3 of the unaudited interim consolidated financial statements.

Caution

This Accounting Policies and Critical Accounting Estimates and Judgments section contains forward-looking statements. Please refer to the Caution Regarding Forward-Looking Statements.

Disclosure for Global Systemically Important Banks (G-SIB)

As a domestic systemically important bank (D-SIB), the Office of the Superintendent of Financial Institutions (OSFI) requires that we disclose on an annual basis the 13 indicators utilized in the global systemically important banks’ assessment methodology. These indicators measure the impact a bank’s failure would have on the global financial system and wider economy. The indicators reflect the size of banks, their interconnectedness, the lack of alternative infrastructure for services banks provide, their global activity and complexity. This methodology is outlined in a paper, Global systemically important banks: updated assessment methodology and the higher loss absorbencyrequirement, issued by the Basel Committee on Banking Supervision (BCBS) in July 2013. Effective fiscal 2021, the results reflect BCBS’s updated assessment methodology issued in July 2018. As required under the methodology, the indicators are calculated based on specific instructions issued by the BCBS, and as a result, the measures used may not be based on the most recent version of Basel III. Therefore, values may not be consistent with other measures used in this report.

Indicator values have been reported based on regulatory requirements for consolidation and therefore, insurance and other non-banking information is only included insofar as it is included in the regulatory consolidation of the group or as otherwise specified by the assessment methodology. This level of consolidation differs from that used in the consolidated financial statements. Results may therefore not be comparable to other disclosures in this report.

Year-over-year movements in indicators reflect normal changes in business activity.

32 BMO Financial Group First Quarter Report 2023

Disclosure for Global Systemically Important Banks
		As at October 31
(Canadian $ in millions)	Indicators	2022		2021
A. Cross-jurisdictional activity	1. Cross-jurisdictional claims	****	552,634		503,481
	2. Cross-jurisdictional liabilities	****	527,644		472,642
B. Size	3. Total exposures as defined for use in the Basel III leverage ratio	****	1,286,878		1,135,164
C. Interconnectedness	4. Intra-financial system assets	****	172,647		142,328
	5. Intra-financial system liabilities	****	78,230		71,275
	6. Securities outstanding	****	322,757		283,723
D. Substitutability/Financial institution infrastructure	7. Payments activity (1)	****	29,383,078		33,313,613
	8. Assets under custody	****	320,251		207,267
	9. Underwritten transactions in debt and equity markets	****	92,304		102,614
	10. Trading volume (includes the two sub indicators)
	Trading volume fixed income sub indicator	****	11,516,502		12,001,515
	Trading volume equities and other securities sub indicator	****	4,779,866		2,733,512
E. Complexity	11. Notional amount of over-the-counter (OTC) derivatives	****	7,662,199		5,787,189
	12. Trading, FVTPL and FVOCI securities (2)	****	54,178		52,472
	13. Level 3 assets	****	5,289		3,263
(1)	Includes intercompany transactions that are cleared through a correspondent bank.
---	---
(2)	FVTPL: Fair value through profit or loss; FVOCI: Fair value through other comprehensive income
---	---

Future Changes in Accounting Policies

We monitor the potential changes proposed by the International Accounting Standards Board (IASB) and analyze the effect that changes in the standards may have on BMO’s financial reporting and accounting policies. New standards and amendments to existing standards, which are effective for the bank in the future, can be found in Note 1 of the audited annual consolidated financial statements of BMO’s 2022 Annual Report.

Other Regulatory Developments

We continue to monitor and prepare for regulatory developments, including those referenced elsewhere in this document.

For a comprehensive discussion of other regulatory developments, refer to the Enterprise-Wide Capital Management section, the Risks That May Affect Future Results section, the Liquidity and Funding Risk section, and the Legal and Regulatory Risk section of BMO’s 2022 Annual Report.

New Canadian Tax Measures

On December 15, 2022, the Canadian government enacted legislation related to certain tax measures that are applicable to certain Canadian companies in a bank or life insurer group, including a one-time 15% tax (referred to as the Canada Recovery Dividend, or CRD), based on the average taxable income for fiscal 2020 and fiscal 2021, less a $1 billion exemption, payable in equal instalments over five years. The legislation also included a permanent 1.5% increase in the tax rate, based on taxable income above $100 million (effective for taxation years that end after April 7, 2022, and pro-rated for the first year). During the quarter, we recorded a one-time tax expense of $371 million, including $312 million related to the CRD and $59 million related to the pro-rated fiscal 2022 impact of the 1.5% increase in tax rate, net of a related remeasurement of our net deferred tax asset.

Caution

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

Risk Management

BMO’s risk management policies and processes to identify, measure, manage, monitor, mitigate and report its credit and counterparty, market, insurance, liquidity and funding, operational, including technology and cyber-related risks, legal and regulatory, strategic, environmental and social, and reputation risks are outlined in the Enterprise-Wide Risk Management section of BMO’s 2022 Annual Report.

Top and Emerging Risks That May Affect Future Results

BMO’s top and emerging risks and other factors that may affect future results are described in the Enterprise-Wide Risk Management section of BMO’s 2022 Annual Report. The following is an update to the 2022 Annual Report.

Update on General Economic Conditions

The economic outlook is subject to several risks including the persistence of high inflation leading to further increases in interest rates, an escalation of the conflict in Ukraine, an increase in geopolitical tensions between the United States and China, and the emergence of new strains of the COVID-19 virus. The Bank of Canada and Federal Reserve Bank continued to increase interest rates during the first quarter of 2023, with further actions largely dependent on continued efforts to address inflation. The high-rate environment could have a direct impact on our customers through higher borrowing (e.g., mortgage rates) and debt servicing costs. In addition, the correction in the housing market will likely continue through much of 2023, as prices will need to decline further to restore affordability to more normal levels. A general economic slowdown and higher unemployment could place further pressure on customers and impact financial markets.

In addition to the risks cited above, the U.S. Treasury has invoked extraordinary measures to avoid a breach of the federal government’s debt ceiling, and there will need to be a congressional deal to increase or suspend the debt limit to avoid a potential default. The spending concessions

BMO Financial Group First Quarter Report 2023 33

needed to reach a deal could be a further impediment to economic growth, while political negotiations in the lead up to a potential deal could cause volatility in equity markets, especially if it results in a credit-rating downgrade.

Management continues to monitor the economic environment closely to understand any significant changes and the impact on our operations.

Benchmark Interest Rate Reform

The transition from London interbank rates (LIBORs) and other interbank offered rates to alternative reference rates continues, with no significant changes to the project or transition risks from our disclosure in Note 1 of the annual audited consolidated financial statements in BMO’s 2022 Annual Report.

As we approach the June 30, 2023 cessation date for the remaining USD LIBOR settings, our overall USD LIBOR exposures continue to decline, and our USD LIBOR derivative exposures will largely transition when central counterparties convert LIBOR trades to secured overnight financing rate.

Market Risk

BMO’s market risk management practices and key measures are outlined in the Market Risk section of BMO’s 2022 Annual Report.

Linkages between Balance Sheet Items and Market Risk Disclosures

The table below presents items reported in our Consolidated Balance Sheet that are subject to market risk, comprising balances that are subject to either traded risk or non-traded risk measurement techniques.

				As at October 31, 2022
	Subject to market risk		Not subjectto marketrisk	Consolidated<br><br><br>Balance<br>Sheet	Subject to market risk		Not subject<br>to market<br>risk	Primary risk factors for<br><br><br>non-traded risk<br>balances
(Canadian in millions)	Traded<br> <br>risk(1)	Non-tradedrisk (2)			Traded<br>risk (1)	Non-traded<br>risk (2)
Assets Subject to Market Risk
Cash and cash equivalents	-	103,342	-	87,466	-	87,466	-	Interest rate
Interest bearing deposits with banks	146	4,934	-	5,734	142	5,592	-	Interest rate
Securities	110,904	170,123	-	273,262	108,303	164,959	-	Interest rate, credit spread, equity
Securities borrowed or purchased under resale agreements	-	118,531	-	113,194	-	113,194	-	Interest rate
Loans and acceptances (net of allowance for credit losses)	2,114	544,149	-	551,339	3,501	547,838	-	Interest rate, foreign exchange
Derivative instruments	31,130	2,164	-	48,160	45,537	2,623	-	Interest rate, foreign exchange
Customer’s liabilities under acceptances	-	13,636	-	13,235	-	13,235	-	Interest rate
Other assets	3,402	22,396	18,735	46,809	3,030	26,561	17,218	Interest rate
Total Assets	147,696	979,275	18,735	1,139,199	160,513	961,468	17,218
Liabilities Subject to Market Risk
Deposits	30,303	757,073	-	769,478	26,305	743,173	-	Interest rate, foreign exchange
Derivative instruments	37,886	6,204	-	59,956	46,803	13,153	-	Interest rate, foreign exchange
Acceptances	-	13,636	-	13,235	-	13,235	-	Interest rate
Securities sold but not yet purchased	45,226	-	-	40,979	40,979	-	-
Securities lent or sold under repurchase agreements	-	101,484	-	103,963	-	103,963	-	Interest rate
Other liabilities	63	70,425	336	72,400	60	71,815	525	Interest rate
Subordinated debt	-	8,156	-	8,150	-	8,150	-	Interest rate
Total Liabilities	113,478	956,978	336	1,068,161	114,147	953,489	525

All values are in US Dollars.

(1)	Primarily comprises balance sheet items that are subject to the trading and underwriting risk management framework and<br>recorded at fair valued through profit or loss.
(2)	Primarily comprises balance sheet items that are subject to the structural balance sheet insurance risk management<br>framework and secured financing transactions.
---	---

Trading Market Risk Measures

Average Total Trading Value at Risk (VaR) and Average Total Trading Stressed Value at Risk (SVaR) increased quarter-over-quarter from volatility in interest rate markets and increased exposure in fixed income trading. Average diversification levels increased and provided a significant offset to the rise in average interest rate VaR and debt-specific risk VaR.

Total Trading Value at Risk (VaR) and Trading Stressed Value at Risk (SVaR) Summary ^(1)(2)^ ****

(Pre-tax<br>Canadian $ equivalent in millions)	For the quarter ended January 31, 2023						October 31, 2022		January 31, 2022
	Quarter-end	****	Average	****	High	Low	Average		Average
Commodity VaR	1.9	****	2.2	****	4.1	1.3	3.1		2.0
Equity VaR	15.3	****	14.5	****	19.7	9.1	13.1		11.3
Foreign exchange VaR	4.6	****	2.9	****	5.6	1.6	1.8		1.3
Interest rate VaR (3)	27.5	****	31.8	****	41.5	21.9	18.0		16.6
Debt-specific risk	13.9	****	12.2	****	15.7	8.6	5.7		3.1
Diversification	(29.0	)	(26.4	)	nm	nm	(15.1	)	(11.3	)
Total Trading VaR	34.2	****	37.2	****	47.9	28.8	26.6		23.0
Total Trading SVaR	67.5	****	63.9	****	84.7	45.8	53.6		59.4
(1)	One-day measure using a 99% confidence interval. Benefits are presented in parentheses and losses are presented as<br>positive numbers.
---	---
(2)	Stressed VaR is produced weekly and at month end.
---	---
(3)	Interest rate VaR includes general credit spread risk.
---	---

nm - not meaningful

34 BMO Financial Group First Quarter Report 2023

Structural (Non-Trading) Market Risk

Structural economic value exposure to rising interest rates and the benefit to falling interest rates decreased, relative to October 31, 2022, primarily driven by increased non-maturity deposit duration due to lower projected forward interest rates as the yield curve flattened and longer term rates fell. In addition, the bank was positioned with a modestly shorter duration relative to the prior period in anticipation of longer duration assets acquired from Bank of the West, and this somewhat elevated the earnings sensitivity.

Structural Balance Sheet Earnings and Value Sensitivity to Changes in Interest Rates (1)(2) ****

															Earnings sensitivity over the next 12 months
(Pre-tax Canadian equivalent in<br>millions)						January 31,2023			October 31,<br>2022			January 31,<br>2022									January 31,2023			October 31,<br>2022			January 31,<br>2022
			United States			Total			Total			Total (4)			Canada(3) ****			United States			Total			Total			Total
100 basis point increase	(785.1	)	****	210.9	****	****	(574.2	)		(990.2	)		(1,341.0	)	****	253.5	****	****	288.6	****	****	542.1	****		498.9			539.6
25 basis point decrease	180.5	****	****	(104.8	)	****	75.7	****		201.6			227.4		****	(64.0	)	****	(70.4	)	****	(134.3	)		(139.6	)		(208.6	)
100 basis point decrease (4)	688.3	****	****	(604.0	)	****	84.3	****		647.9			na		****	(262.3	)	****	(282.8	)	****	(545.0	)		(595.2	)		na

All values are in US Dollars.

(1)	Losses are presented in brackets and gains are presented as positive numbers.
(2)	The impact of insurance market risk is not reflected in the table. Insurance market risk includes interest rate and equity<br>market risk arising from BMO’s insurance business activities. A 100 basis point increase in interest rates as at January 31, 2023 would result in an increase in earnings before tax of $34 million ($35 million as at<br>October 31, 2022 and $46 million as at January 31, 2022). A 100 basis point decrease in interest rates as at January 31, 2023 would result in a decrease in earnings before tax of $33 million ($34 million as at<br>October 31, 2022 and $44 million as at January 31, 2022). A 10% increase in equity market values as at January 31, 2023 would result in an increase in earnings before tax of $14 million ($13 million as at<br>October 31, 2022 and $21 million as at January 31, 2022). A 10% decrease in equity market values as at January 31, 2023 would result in a decrease in earnings before tax of $13 million ($13 million as at<br>October 31, 2022 and $22 million as at January 31, 2022). BMO may enter into hedging arrangements to offset the impact of changes in equity market values on its earnings, and did so during the 2022 fiscal year. The impact of insurance<br>market risk on earnings is reflected in insurance claims, commissions and changes in policy benefit liabilities on the Consolidated Statement of Income, and the corresponding change in the fair value of the bank’s policy benefit liabilities is<br>reflected in other liabilities on the Consolidated Balance Sheet.
---	---
(3)	Includes Canadian dollar and other currencies.
---	---
(4)	Due to the low interest rate environment between April 30, 2020 and April 30, 2022, economic value sensitivity<br>and earnings sensitivity to declining interest rates are measured using a decrease of 25 basis points.
---	---

na – not applicable

Liquidity and Funding Risk

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

BMO continued to maintain a strong liquidity position in the first quarter of 2023. Customer loans declined while customer deposits were largely unchanged in the quarter. Wholesale funding increased reflecting net issuances. BMO’s liquidity metrics, including the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), remained well above internal targets and regulatory requirements.

BMO’s liquid assets are primarily held in our trading businesses, as well as in liquidity portfolios that are maintained for contingent liquidity risk management purposes and as investments of excess structural liquidity. Liquid assets include unencumbered, high-quality assets that are marketable, can be pledged as security for borrowings, and can be converted to cash in a time frame that meets our liquidity and funding requirements. BMO’s liquid assets are summarized in the table below.

In the ordinary course of business, BMO may encumber a portion of cash and securities holdings as collateral in support of trading activities and our participation in clearing and payment systems in Canada, the United States and abroad. In addition, BMO may receive liquid assets as collateral and may re-pledge these assets in exchange for cash or as collateral in support of trading activities. Net unencumbered liquid assets, defined as on-balance sheet assets, such as BMO-owned cash and securities and securities borrowed or purchased under resale agreements, plus other off-balance sheet eligible collateral received, less collateral encumbered, totalled $357.0 billion as at January 31, 2023, compared with $335.3 billion as at October 31, 2022. The increase in unencumbered liquid assets was primarily due to higher cash and security balances.

Net unencumbered liquid assets are primarily held at the parent bank level, at our U.S. bank entity BMO Harris Bank, and in our broker/dealer operations. In addition to liquid assets, BMO has access to the Bank of Canada’s lending assistance programs, the Federal Reserve Bank discount window in the United States and European Central Bank standby liquidity facilities.

In addition to cash and securities holdings, BMO may also pledge other assets, including mortgages and loans, to raise long-term secured funding. BMO’s total encumbered assets and unencumbered liquid assets are summarized in the Asset Encumbrance table.

BMO Financial Group First Quarter Report 2023 35

Liquid Assets

	****	As at January 31, 2023										As at October 31, 2022
(Canadian $ in millions)	Bank-ownedassets		Other cash &securitiesreceived		Total grossassets (1)		Encumberedassets		Netunencumberedassets (2)		Net<br><br><br>unencumbered<br> <br>assets (2)
Cash and cash equivalents	****	103,342	****	-	****	103,342	****	93	****	103,249		87,379
Deposits with other banks	****	5,080	****	-	****	5,080	****	-	****	5,080		5,734
Securities and securities borrowed or purchased under resale agreements
Sovereigns/Central banks/Multilateral development banks	****	147,173	****	103,568	****	250,741	****	139,119	****	111,622		111,940
NHA mortgage-backed securities and U.S. agency mortgage-backed securities and collateralized mortgage<br>obligations	****	61,602	****	6,378	****	67,980	****	22,342	****	45,638		39,978
Corporate & other debt	****	22,221	****	19,252	****	41,473	****	9,607	****	31,866		33,698
Corporate equity	****	50,031	****	50,660	****	100,691	****	58,406	****	42,285		39,966
Total securities and securities borrowed or purchased under resale agreements	****	281,027	****	179,858	****	460,885	****	229,474	****	231,411		225,582
NHA mortgage-backed securities (reported as loans at amortized cost)<br>(3)	****	22,125	****	-	****	22,125	****	4,906	****	17,219		16,604
Total liquid assets	****	411,574	****	179,858	****	591,432	****	234,473	****	356,959		335,299
(1)	Gross assets include bank-owned assets and cash and securities received from third parties.
---	---
(2)	Net unencumbered assets are defined as total gross assets less encumbered assets.
---	---
(3)	Under IFRS, National Housing Act (NHA) mortgage-backed securities that include mortgages owned by BMO as the underlying<br>collateral are classified as loans. Unencumbered NHA mortgage-backed securities have liquidity value and are included as liquid assets under BMO’s Liquidity and Funding Management Framework. This amount is shown as a separate line item, NHA<br>mortgage-backed securities.
---	---

Asset Encumbrance

			Encumbered(2)				Net unencumbered
(Canadian $ in millions)<br><br><br>As at January 31, 2023	Total grossassets (1)		Pledged ascollateral		Otherencumbered		Otherunencumbered(3)		Available ascollateral(4)
Cash and deposits with other banks	****	108,422	****	-	****	93	****	-	****	108,329
Securities (5)	****	483,010	****	183,155	****	51,225	****	13,740	****	234,890
Loans	****	524,138	****	69,670	****	631	****	295,793	****	158,044
Other assets
Derivative instruments	****	33,294	****	-	****	-	****	33,294	****	-
Customers’ liability under acceptances	****	13,636	****	-	****	-	****	13,636	****	-
Premises and equipment	****	4,865	****	-	****	-	****	4,865	****	-
Goodwill	****	5,260	****	-	****	-	****	5,260	****	-
Intangible assets	****	2,277	****	-	****	-	****	2,277	****	-
Current tax assets	****	1,815	****	-	****	-	****	1,815	****	-
Deferred tax assets	****	1,392	****	-	****	-	****	1,392	****	-
Other assets	****	28,924	****	9,843	****	-	****	19,081	****	-
Total other assets	****	91,463	****	9,843	****	-	****	81,620	****	-
Total assets	****	1,207,033	****	262,668	****	51,949	****	391,153	****	501,263
			Encumbered (2)				Net unencumbered
(Canadian $ in millions)<br><br><br>As at October 31, 2022	Total gross<br>assets (1)		Pledged as<br>collateral		Other<br>encumbered		Other<br>unencumbered (3)		Available as<br>collateral (4)
Cash and deposits with other banks		93,200		-		87		-		93,113
Securities (5)		472,443		183,275		46,982		12,620		229,566
Loans		529,458		71,139		656		299,358		158,305
Other assets
Derivative instruments		48,160		-		-		48,160		-
Customers’ liability under acceptances		13,235		-		-		13,235		-
Premises and equipment		4,841		-		-		4,841		-
Goodwill		5,285		-		-		5,285		-
Intangible assets		2,193		-		-		2,193		-
Current tax assets		1,421		-		-		1,421		-
Deferred tax assets		1,175		-		-		1,175		-
Other assets		31,894		13,991		-		17,903		-
Total other assets		108,204		13,991		-		94,213		-
Total assets		1,203,305		268,405		47,725		406,191		480,984
(1)	Gross assets included on-balance sheet and<br>off-balance sheet assets.
---	---
(2)	Pledged as collateral refers to the portion of on-balance sheet assets and other cash and securities that are pledged<br>through repurchase agreements, securities lending, derivative contracts, minimum required deposits at central banks and requirements associated with participation in clearing houses and payment systems. Other encumbered assets include assets that<br>are restricted for legal or other reasons, such as restricted cash and short sales.
---	---
(3)	Other unencumbered assets include select liquid asset holdings that management believes are not readily available to<br>support BMO’s liquidity requirements. These include securities of $13.7 billion as at January 31, 2023, which include securities held at BMO’s insurance subsidiary, significant equity investments, and certain investments held in<br>our merchant banking business. Other unencumbered assets also include mortgages and loans that may be securitized to access secured funding.
---	---
(4)	Loans included in available as collateral represent loans currently lodged at central banks that could potentially be used<br>to access central bank funding. Loans available for pledging as collateral do not include other sources of additional liquidity that may be realized from BMO’s loan portfolio, such as incremental securitization, covered bond issuances and U.S.<br>Federal Home Loan Bank (FHLB) advances.
---	---
(5)	Includes securities, securities borrowed or purchased under resale agreements and NHA mortgage-backed securities (reported<br>as loans at amortized cost).
---	---

Funding Strategy

BMO’s funding strategy requires that secured and unsecured wholesale funding used to support loans and less liquid assets must have a term (typically maturing in two to ten years) that will support the effective term to maturity of these assets. Secured and unsecured wholesale funding for liquid trading assets is largely shorter term (maturing in one year or less), is aligned with the liquidity of the assets being funded, and is subject to limits on aggregate maturities that are permitted across different periods. Supplemental liquidity pools are funded largely with wholesale term funding.

We maintain a large and stable base of customer deposits that, in combination with our strong capital position, is a source of strength. This supports the maintenance of a sound liquidity position and reduces reliance on wholesale funding. Customer deposits totalled $545.1 billion as at January 31, 2023, increasing from $544.4 billion as at October 31, 2022.

Total secured and unsecured wholesale funding outstanding, which largely consists of negotiable marketable securities, was $251.1 billion as at

36 BMO Financial Group First Quarter Report 2023

January 31, 2023, with $65.4 billion sourced as secured funding and $185.7 billion as unsecured funding. Wholesale funding outstanding increased from $236.8 billion as at October 31, 2022, primarily due to net wholesale funding issuances during the quarter. The mix and maturities of BMO’s wholesale term funding are outlined in the following table. Additional information on deposit maturities can be found in the Contractual Maturities of Assets and Liabilities and Off-Balance Sheet Commitments section. We maintain a sizeable portfolio of unencumbered liquid assets, totalling $357.0 billion as at January 31, 2023, that can be monetized to meet potential funding requirements, as described in the Unencumbered Liquid Assets section.

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

BMO’s wholesale funding plan seeks to ensure sufficient funding capacity is available to execute our business strategies. The funding plan considers expected maturities, as well as asset and liability growth projected for our businesses in our forecasting and planning processes, and assesses funding needs in relation to the sources available. The funding plan is reviewed annually by the senior management committees with specific related responsibilities and approved by the Risk Review Committee, and is regularly updated to reflect actual results and incorporate updated forecast information.

Wholesale Funding Maturities^(1)^ ****

	As at January 31, 2023																As at October 31, 2022
(Canadian $ in millions)	Less than1 month		1 to 3        months		3 to 6        months		6 to 12        months		Subtotal lessthan 1 year		1 to 2        years		Over<br><br><br>2 years		Total		Total
Deposits from banks	****	3,183	****	1,460	****	1,647	****	2,528	****	8,818	****	-	****	-	****	8,818		9,550
Certificates of deposit and commercial paper	****	9,147	****	16,529	****	32,671	****	31,774	****	90,121	****	998	****	118	****	91,237		80,696
Bearer deposit notes	****	99	****	1,336	****	57	****	46	****	1,538	****	-	****	-	****	1,538		1,661
Asset-backed commercial paper (ABCP)	****	265	****	813	****	364	****	97	****	1,539	****	-	****	-	****	1,539		-
Senior unsecured medium-term notes	****	492	****	3,474	****	5,336	****	6,594	****	15,896	****	21,227	****	30,636	****	67,759		65,234
Senior unsecured structured notes (2)	****	81	****	77	****	69	****	132	****	359	****	-	****	7,854	****	8,213		7,950
Secured Funding
Mortgage and HELOC securitizations	****	-	****	407	****	629	****	2,156	****	3,192	****	3,435	****	13,625	****	20,252		20,385
Covered bonds	****	1,700	****	4,340	****	-	****	4,809	****	10,849	****	-	****	19,251	****	30,100		29,047
Other asset-backed securitizations (3)	****	-	****	704	****	-	****	-	****	704	****	171	****	5,310	****	6,185		6,631
Federal Home Loan Bank advances	****	-	****	-	****	-	****	3,342	****	3,342	****	-	****	3,992	****	7,334		7,494
Subordinated debt	****	-	****	-	****	-	****	-	****	-	****	-	****	8,154	****	8,154		8,150
Total	****	14,967	****	29,140	****	40,773	****	51,478	****	136,358	****	25,831	****	88,940	****	251,129		236,798
Of which:
Secured	****	1,965	****	6,264	****	993	****	10,404	****	19,626	****	3,606	****	42,178	****	65,410		63,557
Unsecured	****	13,002	****	22,876	****	39,780	****	41,074	****	116,732	****	22,225	****	46,762	****	185,719		173,241
Total (4)	****	14,967	****	29,140	****	40,773	****	51,478	****	136,358	****	25,831	****	88,940	****	251,129		236,798
(1)	Wholesale unsecured funding primarily includes funding raised through the issuance of negotiable marketable securities.<br>Wholesale funding excludes repo transactions and bankers’ acceptances, which are disclosed in the Contractual Maturities or Assets and Liabilities and Off-Balance Sheet Commitments sections, and also<br>excludes ABCP issued by certain ABCP conduits that are not consolidated for financial reporting purposes.
---	---
(2)	Primarily issued to institutional investors.
---	---
(3)	Includes credit card, auto and transportation finance loan securitizations.
---	---
(4)	Total wholesale funding consists of Canadian-dollar-denominated funding totalling $50.8 billion and<br>U.S.-dollar-denominated and other foreign-currency-denominated funding totalling $200.3 billion as at January 31, 2023.
---	---

Additional information on Liquidity and Funding Risk governance can be found in the Liquidity and Funding Risk section of BMO’s 2022 Annual Report. Please also see the Risk Management section.

Credit Ratings

The credit ratings assigned to BMO’s short-term and senior long-term debt securities by external rating agencies are important for the bank in raising both capital and funding to support its business operations. Maintaining strong credit ratings allows us to access the wholesale markets at competitive pricing levels. Should BMO’s credit ratings experience a downgrade, our cost of funding would likely increase and our access to funding and capital through the wholesale markets could be reduced. A material downgrade of BMO’s ratings could also have other consequences, including those set out in Note 8 of the audited annual consolidated financial statements of BMO’s 2022 Annual Report.

The credit ratings assigned to BMO’s senior debt by rating agencies are indicative of high-grade, high-quality issues. Moody’s, S&P and DBRS have a stable outlook on BMO and Fitch has a negative outlook.

As at January 31, 2023
Rating agency	Short-term debt	Senior debt (1)	Long-term<br> <br>deposits /  Legacy<br>senior debt<br>(2)	Subordinated<br>debt (NVCC)	Outlook
Moody’s	P-1	A2	Aa2	Baa1 (hyb)	Stable
S&P	A-1	A-	A+	BBB+	Stable
Fitch	F1+	AA-	AA	A	Negative
DBRS	R-1 (high)	AA (low)	AA	A (low)	Stable
(1)	Subject to conversion under the Bank Recapitalization (Bail-In) Regime.<br>
---	---
(2)	Long-term deposits/Legacy senior debt includes senior debt issued prior to September 23, 2018, and senior debt issued<br>on or after September 23, 2018, that is excluded from the Bank Recapitalization (Bail-In) Regime.
---	---

BMO Financial Group First Quarter Report 2023 37

We are required to deliver collateral to certain counterparties in the event of a downgrade of BMO’s current credit rating. The incremental collateral required is based on mark-to-market exposure, collateral valuations and collateral threshold arrangements, as applicable. As at January 31, 2023, we would be required to provide additional collateral to counterparties totalling $144 million, $362 million and $865 million as a result of a one-notch, two-notch and three-notch downgrade, respectively.

Liquidity Coverage Ratio

The Liquidity Coverage Ratio (LCR) is calculated in accordance with the Office of the Superintendent of Financial Institutions’ (OSFI’s) Liquidity Adequacy Requirements Guideline and is summarized in the following table. The LCR is calculated on a daily basis as the ratio of the stock of High-Quality Liquid Assets (HQLA) held to total net stressed cash outflows over the next 30 calendar days. BMO’s HQLA primarily comprises cash, highly-rated debt issued or backed by governments, highly-rated covered bonds and non-financial corporate debt, and non-financial equities that are part of a major stock index. Net cash flows include outflows from deposits, secured and unsecured wholesale funding, commitments and potential collateral requirements, offset by permitted inflows from loans, securities lending activities and other non-HQLA debt maturing over a 30-day horizon. Weightings prescribed by OSFI are applied to cash flows and HQLA to arrive at the weighted values and the LCR. The LCR does not reflect excess liquidity in BMO Financial Corp. (BFC) that is greater than 100%, because of limitations on the transfer of liquidity between BFC and the parent bank. Canadian domestic systemically important banks (D-SIBs), including BMO, are required to maintain a minimum LCR of 100%. The average daily LCR for the quarter ended January 31, 2023 was 144%, indicating a surplus of $71 billion above the regulatory minimum, an increase of 9% from 135% in the prior quarter, due to higher HQLA and lower net cash outflows. The LCR was elevated in the quarter as the bank maintained higher cash balances to support the closing of the Bank of the West acquisition. While banks are required to maintain an LCR of greater than 100% in normal conditions, they are also expected to be able to utilize HQLA during a period of stress, which may result in an LCR of less than 100% during such a period. The LCR is only one measure of a bank’s liquidity position and does not fully capture all of its liquid assets or the funding alternatives that may be available during a period of stress. BMO’s total liquid assets are shown in the Liquid Assets table.

	For the quarter ended January 31, 2023
(Canadian $ in billions, except as noted)	Total unweighted value (average) (1) (2)		Total weighted value (average) (2) (3)
High-Quality Liquid Assets
Total high-quality liquid assets (HQLA)	****	*	****	229.3
Cash Outflows
Retail deposits and deposits from small business customers, of which:	****	244.1	****	16.5
Stable deposits	****	116.3	****	3.5
Less stable deposits	****	127.8	****	13.0
Unsecured wholesale funding, of which:	****	257.6	****	117.4
Operational deposits (all counterparties) and deposits in networks of cooperative banks	****	137.2	****	34.1
Non-operational deposits (all counterparties)	****	97.5	****	60.4
Unsecured debt	****	22.9	****	22.9
Secured wholesale funding	****	*	****	23.7
Additional requirements, of which:	****	215.4	****	42.5
Outflows related to derivatives exposures and other collateral requirements	****	25.3	****	7.0
Outflows related to loss of funding on debt products	****	4.2	****	4.2
Credit and liquidity facilities	****	185.9	****	31.3
Other contractual funding obligations	****	1.1	****	-
Other contingent funding obligations	****	498.6	****	9.3
Total cash outflows	****	*	****	209.4
Cash Inflows
Secured lending (e.g. reverse repos)	****	144.3	****	33.1
Inflows from fully performing exposures	****	13.0	****	6.9
Other cash inflows	****	10.6	****	10.6
Total cash inflows	****	167.9	****	50.6
For the quarter ended January 31, 2023			Total adjusted value(4)
Total HQLA			****	229.3
Total net cash outflows			****	158.8
Liquidity Coverage Ratio (%) (2)			****	144
For the quarter ended October 31, 2022			Total adjusted value (4)
Total HQLA				204.3
Total net cash outflows				151.1
Liquidity Coverage Ratio (%)				135
*	Disclosure is not required under the LCR disclosure standard.
---	---
(1)	Unweighted values are calculated at market value (for HQLA) or as outstanding balances maturing or callable within 30 days<br>(for inflows and outflows).
---	---
(2)	Values are calculated based on the simple average of the daily LCR over 60 business days in the first quarter of 2023.<br>
---	---
(3)	Weighted values are calculated after the application of the weights prescribed under the OSFI Liquidity Adequacy<br>Requirements (LAR) Guideline for HQLA and cash inflows and outflows.
---	---
(4)	Adjusted values are calculated based on total weighted values after applicable caps as defined by the LAR Guideline.<br>
---	---

38 BMO Financial Group First Quarter Report 2023

Net Stable Funding Ratio

The Net Stable Funding Ratio (NSFR) is a regulatory liquidity metric that assesses the stability of a bank’s funding profile in relation to the liquidity value of its assets and is calculated in accordance with OSFI’s Liquidity Adequacy Requirements Guideline. Unlike the LCR, which is a short-term metric, the NSFR assesses a bank’s medium-term and long-term resilience. The NSFR is defined as the ratio between the amount of available stable funding (ASF) and the amount of required stable funding (RSF). ASF represents the proportion of capital and liabilities expected to be reliably available over a one-year horizon (including customer deposits, long-term wholesale funding, and capital). The stable funding requirements for each institution are set by OSFI based on the liquidity and maturity characteristics of its balance sheet assets and off-balance sheet exposures. Weightings prescribed by OSFI are applied to notional asset and liability balances to determine ASF and RSF and the NSFR. Canadian domestic systemically important banks (D-SIBs), including BMO, are required to maintain a minimum NSFR of 100%. BMO’s NSFR was 120% as at January 31, 2023, indicating a surplus of $103 billion above the regulatory minimum. The NSFR increased from 114% in the prior quarter due to both higher available stable funding and lower required stable funding.

	For the quarter ended January 31, 2023
	Unweighted Value by Residual Maturity								WeightedValue (2)
(Canadian $ in billions, except as noted)	Nomaturity(1)		Less than 6months		6 to 12months		Over 1 year
Available Stable Funding (ASF) Item
Capital:	****	-	****	-	****	-	****	86.5	****	86.5
Regulatory capital	****	-	****	-	****	-	****	86.5	****	86.5
Other capital instruments	****	-	****	-	****	-	****	-	****	-
Retail deposits and deposits from small business customers:	****	201.0	****	38.0	****	28.8	****	44.9	****	286.2
Stable deposits	****	102.6	****	16.3	****	10.5	****	9.4	****	132.3
Less stable deposits	****	98.4	****	21.7	****	18.3	****	35.5	****	153.9
Wholesale funding:	****	252.0	****	235.7	****	59.3	****	102.7	****	249.3
Operational deposits	****	141.4	****	0.2	****	-	****	-	****	70.8
Other wholesale funding	****	110.6	****	235.5	****	59.3	****	102.7	****	178.5
Liabilities with matching interdependent assets	****	-	****	1.0	****	2.0	****	11.6	****	-
Other liabilities:	****	3.5	****	*	****	*	****	31.5	****	4.5
NSFR derivative liabilities	****	*	****	*	****	*	****	14.9	****	*
All other liabilities and equity not included in the above<br>categories	****	3.5	****	11.7	****	0.8	****	4.1	****	4.5
Total ASF	****	*	****	*	****	*	****	*	****	626.5
Required Stable Funding (RSF) Item
Total NSFR high-quality liquid assets (HQLA)	****	*	****	*	****	*	****	*	****	12.1
Deposits held at other financial institutions for operational purposes	****	-	****	-	****	-	****	-	****	-
Performing loans and securities:	****	178.3	****	170.5	****	44.7	****	308.6	****	449.2
Performing loans to financial institutions secured by Level 1 HQLA	****	-	****	94.3	****	0.7	****	-	****	2.8
Performing loans to financial institutions secured by non-Level 1<br>HQLA and unsecured performing loans to financial institutions	****	33.4	****	37.5	****	4.2	****	16.7	****	56.5
Performing loans to non-financial corporate clients, loans to retail<br>and small business customers, and loans to sovereigns, central banks and public sector entities, of which:	****	105.2	****	26.7	****	29.7	****	156.4	****	247.8
With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit<br>risk	****	-	****	-	****	-	****	-	****	-
Performing residential mortgages, of which:	****	13.1	****	9.7	****	9.8	****	122.3	****	107.0
With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit<br>risk	****	13.1	****	9.7	****	9.8	****	122.3	****	107.0
Securities that are not in default and do not qualify as HQLA, including exchange-traded equities	****	26.6	****	2.3	****	0.3	****	13.2	****	35.1
Assets with matching interdependent liabilities	****	-	****	1.0	****	2.0	****	11.6	****	-
Other assets:	****	23.1	****	*	****	*	****	51.6	****	43.7
Physical traded commodities, including gold	****	3.5	****	*	****	*	****	*	****	3.0
Assets posted as initial margin for derivative contracts and contributions to default funds of central<br>clearing parties	****	*	****	*	****	*	****	11.7	****	10.0
NSFR derivative assets	****	*	****	*	****	*	****	6.4	****	-
NSFR derivative liabilities before deduction of variation margin posted	****	*	****	*	****	*	****	23.7	****	1.2
All other assets not included in the above categories	****	19.6	****	4.6	****	0.1	****	5.1	****	29.5
Off-balance sheet<br>items	****	*	****	*	****	*	****	549.4	****	18.8
Total RSF	****	*	****	*	****	*	****	*	****	523.8
Net Stable Funding Ratio (%)	****	*	****	*	****	*	****	*	****	120
For the quarter ended October 31, 2022									Weighted<br>Value (2)
Total ASF										610.2
Total RSF										534.1
Net Stable Funding Ratio (%)										114

* Disclosure is not required under the NSFR disclosure standard.

(1)	Items to be reported in the “no maturity” time bucket do not have a stated maturity. These may include, but are<br>not limited to, items such as non-maturity deposits, short positions, open maturity positions, non-HQLA equities, physical traded commodities and demand loans.
(2)	Weighted values are calculated after the application of the weights prescribed under the OSFI LAR Guideline for ASF and<br>RSF.
---	---

BMO Financial Group First Quarter Report 2023 39

Contractual Maturities of Assets and Liabilities andOff-Balance Sheet Commitments

The tables below show the remaining contractual maturities of on-balance sheet assets and liabilities and off-balance sheet commitments. The contractual maturity of financial assets and liabilities is an input to, but is not necessarily consistent with, the expected maturity of assets and liabilities that is used in the management of liquidity and funding risk. We forecast asset and liability cash flows, under both normal market conditions and a number of stress scenarios, to manage liquidity and funding risk. Stress scenarios include assumptions for loan repayments, deposit withdrawals, and credit commitment and liquidity facility drawdowns by counterparty and product type. Stress scenarios also consider the time horizon over which liquid assets can be monetized and the related discounts (“haircuts”) and potential collateral requirements that may result from both market volatility and credit rating downgrades, among other assumptions.

(Canadian in millions)																January 31, 2023
		1 to 3months		3 to 6months		6 to 9months		9 to 12months		1 to 2years		2 to 5years		Over 5years		Nomaturity			Total
On-Balance Sheet Financial Instruments
Assets
Cash and Cash Equivalents	101,941	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	1,401	****	****	103,342	****
Interest Bearing Deposits with Banks	4,159	****	558	****	102	****	168	****	93	****	-	****	-	****	-	****	-	****	****	5,080	****
Securities	2,920	****	5,043	****	4,896	****	5,644	****	6,236	****	22,810	****	67,739	****	115,708	****	50,031	****	****	281,027	****
Securities Borrowed or Purchased under Resale Agreements	95,383	****	16,583	****	5,893	****	584	****	88	****	-	****	-	****	-	****	-	****	****	118,531	****
Loans (1)
Residential mortgages	895	****	2,119	****	5,653	****	6,314	****	4,016	****	16,209	****	105,982	****	9,981	****	125	****	****	151,294	****
Consumer instalment and other personal	194	****	589	****	1,593	****	1,461	****	1,161	****	5,523	****	36,648	****	12,646	****	24,369	****	****	84,184	****
Credit cards	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	9,841	****	****	9,841	****
Business and government	12,221	****	14,307	****	8,830	****	9,449	****	9,994	****	40,378	****	101,286	****	16,363	****	90,754	****	****	303,582	****
Allowance for credit losses	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	(2,638	)	****	(2,638	)
Total loans, net of allowance	13,310	****	17,015	****	16,076	****	17,224	****	15,171	****	62,110	****	243,916	****	38,990	****	122,451	****	****	546,263	****
Other Assets
Derivative instruments	2,099	****	2,679	****	2,132	****	2,075	****	3,066	****	6,369	****	8,201	****	6,673	****	-	****	****	33,294	****
Customers’ liabilities under acceptances	9,963	****	3,654	****	18	****	-	****	-	****	-	****	-	****	-	****	1	****	****	13,636	****
Other	3,069	****	496	****	394	****	10	****	3	****	8	****	14	****	5,659	****	34,880	****	****	44,533	****
Total Other assets	15,131	****	6,829	****	2,544	****	2,085	****	3,069	****	6,377	****	8,215	****	12,332	****	34,881	****	****	91,463	****
Total Assets	232,844	****	46,028	****	29,511	****	25,705	****	24,657	****	91,297	****	319,870	****	167,030	****	208,764	****	****	1,145,706	****
(Canadian in millions)																January 31, 2023
		1 to 3months		3 to 6months		6 to 9months		9 to 12months		1 to 2years		2 to 5years		Over 5years		Nomaturity			Total
Liabilities and Equity
Deposits (2) (3)	31,888	****	48,057	****	63,602	****	48,613	****	56,385	****	43,932	****	69,759	****	20,774	****	404,366	****	****	787,376	****
Other Liabilities
Derivative instruments	3,427	****	5,213	****	4,081	****	2,555	****	4,789	****	5,646	****	9,302	****	9,077	****	-	****	****	44,090	****
Acceptances	9,963	****	3,654	****	18	****	-	****	-	****	-	****	-	****	-	****	1	****	****	13,636	****
Securities sold but not yet purchased (4)	45,226	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	****	45,226	****
Securities lent or sold under repurchase agreements (4)	92,657	****	6,520	****	117	****	2,190	****	-	****	-	****	-	****	-	****	-	****	****	101,484	****
Securitization and liabilities related to structured entities	89	****	1,244	****	715	****	1,716	****	734	****	5,375	****	10,130	****	6,333	****	-	****	****	26,336	****
Other	11,495	****	200	****	95	****	82	****	4,372	****	694	****	2,447	****	5,691	****	19,412	****	****	44,488	****
Total Other Liabilities	162,857	****	16,831	****	5,026	****	6,543	****	9,895	****	11,715	****	21,879	****	21,101	****	19,413	****	****	275,260	****
Subordinated Debt	-	****	-	****	-	****	-	****	-	****	-	****	25	****	8,131	****	-	****	****	8,156	****
Total Equity	-	****	-	****	-	****	-	****	-	****	-	****	-	****	-	****	74,914	****	****	74,914	****
Total Liabilities and Equity	194,745	****	64,888	****	68,628	****	55,156	****	66,280	****	55,647	****	91,663	****	50,006	****	498,693	****	****	1,145,706	****

All values are in US Dollars.

(1)	Loans receivable on demand have been included under no maturity.
(2)	Deposits payable on demand and payable after notice have been included under no maturity.
---	---
(3)	Deposits totalling $31,120 million as at January 31, 2023 have a fixed maturity date; however, they can be early<br>redeemed (either fully or partially) by customers without penalty. These are classified as payable on a fixed date due to their stated contractual maturity date.
---	---
(4)	Presented based on their earliest maturity date.
---	---
(Canadian in millions)																January 31, 2023
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
		1 to 3months		3 to 6months		6 to 9months		9 to 12months		1 to 2years		2 to 5years		Over 5years		No maturity		Total
Off-Balance Sheet Commitments
Commitments to extend credit (1)	2,522	****	7,710	****	8,640	****	8,263	****	12,820	****	38,515	****	117,077	****	4,381	****	-	****	199,928
Letters of credit (2)	1,804	****	3,085	****	5,187	****	4,375	****	7,158	****	3,494	****	3,669	****	54	****	-	****	28,826
Backstop liquidity facilities	-	****	-	****	1,405	****	1,079	****	701	****	9,412	****	2,714	****	863	****	-	****	16,174
Leases	-	****	-	****	-	****	-	****	1	****	3	****	49	****	247	****	-	****	300
Purchase obligations	32	****	62	****	78	****	82	****	95	****	303	****	555	****	78	****	-	****	1,285

All values are in US Dollars.

(1)	Commitments to extend credit exclude personal lines of credit and credit cards that are unconditionally cancellable at<br>BMO’s discretion. A large majority of these commitments expire without being drawn upon. As a result, the total contractual amounts may not be representative of the funding likely to be required for these commitments.
(2)	Letters of credit can be drawn down at any time. These are classified based on their stated contractual maturity date.<br>
---	---

40 BMO Financial Group First Quarter Report 2023

(Canadian in millions)																October 31, 2022
		1 to 3<br>months		3 to 6<br>months		6 to 9<br>months		9 to 12<br>months		1 to 2<br>years		2 to 5<br>years		Over 5<br>years		No<br>maturity			Total
On-Balance Sheet Financial Instruments
Assets
Cash and Cash Equivalents	86,003		-		-		-		-		-		-		-		1,463			87,466
Interest Bearing Deposits with Banks	3,844		1,662		86		44		98		-		-		-		-			5,734
Securities	4,189		4,284		5,480		5,375		6,060		18,272		68,521		108,072		53,009			273,262
Securities Borrowed or Purchased under Resale Agreements	83,861		21,736		5,101		2,448		48		-		-		-		-			113,194
Loans (1)
Residential mortgages	526		1,519		3,708		5,778		6,501		14,665		105,285		10,810		88			148,880
Consumer instalment and other personal	211		553		940		1,693		1,537		4,844		37,742		14,084		24,499			86,103
Credit cards	-		-		-		-		-		-		-		-		9,663			9,663
Business and government	13,003		9,595		11,724		9,300		11,394		37,250		105,009		17,776		94,259			309,310
Allowance for credit losses	-		-		-		-		-		-		-		-		(2,617	)		(2,617	)
Total loans, net of allowance	13,740		11,667		16,372		16,771		19,432		56,759		248,036		42,670		125,892			551,339
Other Assets
Derivative instruments	5,362		7,147		3,359		2,552		2,225		7,787		11,636		8,092		-			48,160
Customers’ liabilities under acceptances	9,752		3,461		19		3		-		-		-		-		-			13,235
Other	2,735		625		225		21		2		10		19		5,817		37,355			46,809
Total Other assets	17,849		11,233		3,603		2,576		2,227		7,797		11,655		13,909		37,355			108,204
Total Assets	209,486		50,582		30,642		27,214		27,865		82,828		328,212		164,651		217,719			1,139,199
(Canadian in millions)																October 31, 2022
		1 to 3<br>months		3 to 6<br>months		6 to 9<br>months		9 to 12<br>months		1 to 2<br>years		2 to 5<br>years		Over 5<br>years		No<br>maturity			Total
Liabilities and Equity
Deposits (2) (3)	38,064		44,637		49,626		47,908		48,444		39,992		62,978		16,265		421,564			769,478
Other Liabilities
Derivative instruments	3,370		11,764		4,399		3,814		2,895		7,619		14,092		12,003		-			59,956
Acceptances	9,752		3,461		19		3		-		-		-		-		-			13,235
Securities sold but not yet purchased (4)	40,979		-		-		-		-		-		-		-		-			40,979
Securities lent or sold under repurchase agreements (4)	94,215		6,476		1,046		2,226		-		-		-		-		-			103,963
Securitization and liabilities related to	14		2,803		1,300		794		1,673		5,136		9,342		6,006		-			27,068
structured entities
Other	12,143		4,980		101		97		146		872		2,558		5,722		18,713			45,332
Total Other Liabilities	160,473		29,484		6,865		6,934		4,714		13,627		25,992		23,731		18,713			290,533
Subordinated Debt	-		-		-		-		-		-		25		8,125		-			8,150
Total Equity	-		-		-		-		-		-		-		-		71,038			71,038
Total Liabilities and Equity	198,537		74,121		56,491		54,842		53,158		53,619		88,995		48,121		511,315			1,139,199

All values are in US Dollars.

(1)	Loans receivable on demand have been included under no maturity.
(2)	Deposits payable on demand and payable after notice have been included under no maturity.
---	---
(3)	Deposits totalling $29,966 million as at October 31, 2022 have a fixed maturity date; however, they can be early<br>redeemed (either fully or partially) by customers without penalty. These are classified as payable on a fixed date due to their stated contractual maturity date.
---	---
(4)	Presented based on their earliest maturity date.
---	---
(Canadian in millions)																October 31, 2022
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
		1 to 3<br>months		3 to 6<br>months		6 to 9<br>months		9 to 12<br>months		1 to 2<br>years		2 to 5<br>years		Over 5<br>years		No<br>maturity		Total
Off-Balance Sheet Commitments
Commitments to extend credit (1)	1,932		3,610		10,461		13,373		14,753		38,057		119,430		5,490		-		207,106
Letters of credit (2)	1,680		4,601		4,936		4,662		4,922		2,832		3,680		57		-		27,370
Backstop liquidity facilities	-		585		393		1,438		1,275		3,465		9,189		985		-		17,330
Leases	-		-		-		-		-		3		44		256		-		303
Purchase obligations	27		98		55		55		58		217		309		22		-		841

All values are in US Dollars.

(1)	Commitments to extend credit exclude personal lines of credit and credit cards that are unconditionally cancellable at<br>BMO’s discretion. A large majority of these commitments expire without being drawn upon. As a result, the total contractual amounts may not be representative of the funding likely to be required for these commitments.
(2)	Letters of credit can be drawn down at any time. These are classified based on their stated contractual maturities.<br>
---	---

BMO Financial Group First Quarter Report 2023 41

Real Estate Secured Lending

Real Estate Secured Lending includes residential mortgage and home equity line of credit (HELOC) exposures. The following tables provide a breakdown of residential mortgages and home equity lines of credit by geographic region, as well as insured and uninsured balances. Residential mortgages and home equity lines of credit are secured by residential properties.

Canadian Real Estate Secured Lending

(Canadian $ in millions, except as noted)	Residentialmortgages		Home equitylines of credit		Total amortizingreal estatesecured lending		Non-amortizinghome equitylines of credit		Total Canadianreal estatesecured lending
As at January 31, 2023	****	141,740	****	47,971	****	34,836	****	13,135	****	189,711
As at October 31, 2022		139,394		47,302		34,083		13,219		186,696

Residential Mortgages ^(1)^ ****

	January 31, 2023										As at October 31, 2022
(Canadian $ in millions, except as noted)	Outstanding Balances								For the threemonths ended		Outstanding Balances								For the three<br>months ended
Region (2)	Insured(3)		Uninsured		Total		% of total		Average LTVuninsured(4)		Insured (3)		Uninsured		Total		% of<br>total		Average LTV<br>uninsured (4)
Atlantic	****	3,190	****	3,321	****	6,511	****	4.3%	****	72%		3,197		3,255		6,452		4.3%		71%
Quebec	****	8,914	****	12,378	****	21,292	****	14.1%	****	71%		8,892		12,156		21,048		14.2%		71%
Ontario	****	14,415	****	51,290	****	65,705	****	43.4%	****	71%		14,411		49,664		64,075		43.0%		71%
Alberta	****	9,563	****	6,970	****	16,533	****	10.9%	****	72%		9,552		6,854		16,406		11.0%		73%
British Columbia	****	4,683	****	23,184	****	27,867	****	18.4%	****	67%		4,680		22,919		27,599		18.5%		68%
All other Canada	****	2,192	****	1,640	****	3,832	****	2.6%	****	73%		2,179		1,635		3,814		2.6%		72%
Total Canada	****	42,957	****	98,783	****	141,740	****	93.7%	****	70%		42,911		96,483		139,394		93.6%		70%
United States	****	20	****	9,534	****	9,554	****	6.3%	****	79%		16		9,470		9,486		6.4%		77%
Total	****	42,977	****	108,317	****	151,294	****	100.0%	****	71%		42,927		105,953		148,880		100.0%		71%

HomeEquity Lines of Credit (HELOC) ^(1)^ ****

	As at January 31, 2023										As at October 31, 2022
(Canadian $ in millions, except as noted)	Portfolio								For the threemonths ended		Portfolio								For the three<br>months ended
Region (2)	OutstandingBalances		%		Authorizations		%		Average LTV(4)		Outstanding<br>Balances		%		Authorizations		%		Average LTV (4)
Atlantic	****	971	****	1.9%	****	1,854	****	1.9%	****	61%		967		1.9%		1,835		1.9%		61%
Quebec	****	8,983	****	17.6%	****	17,379	****	17.4%	****	64%		8,897		17.6%		17,085		17.4%		68%
Ontario	****	24,128	****	47.2%	****	44,044	****	44.2%	****	58%		23,647		46.8%		43,063		43.9%		61%
Alberta	****	3,273	****	6.4%	****	6,927	****	6.9%	****	60%		3,232		6.4%		6,835		6.9%		64%
British Columbia	****	9,868	****	19.3%	****	18,242	****	18.3%	****	58%		9,826		19.5%		17,953		18.3%		59%
All other Canada	****	748	****	1.5%	****	1,466	****	1.5%	****	61%		733		1.5%		1,443		1.5%		67%
Total Canada	****	47,971	****	93.9%	****	89,912	****	90.2%	****	59%		47,302		93.7%		88,214		89.9%		62%
United States	****	3,119	****	6.1%	****	9,787	****	9.8%	****	60%		3,196		6.3%		9,902		10.1%		64%
Total	****	51,090	****	100.0%	****	99,699	****	100.0%	****	59%		50,498		100.0%		98,116		100.0%		62%
(1)	Reporting methodologies are in accordance with OSFI’s B-20 guideline.<br>
---	---
(2)	Region is based upon address of the property mortgaged.
---	---
(3)	Portfolio insured mortgages are defined as mortgages that are insured individually or in bulk through an eligible insurer<br>(i.e., CMHC, Sagen MI CanadaTM).
---	---
(4)	Loan-to-Value (LTV) is based on the value<br>of the property at mortgage origination and outstanding balances for mortgages, authorized amounts for HELOCs.
---	---

Residential Mortgages by Remaining Term of Amortization^(1)(2)^ ****

	As at January 31, 2023
	Amortization period
	< 5 Years %		6-10 Years %		11-15 Years %		16-20 Years %		21-25 Years %		26-30 Years %		> 30 Years %(4)
Canada	****	0.8%	****	2.7%	****	5.9%	****	13.4%	****	31.7%	****	13.1%	****	32.4%
United States (3)	****	0.7%	****	5.0%	****	9.2%	****	4.6%	****	14.0%	****	66.2%	****	0.3%
Total	****	0.8%	****	2.8%	****	6.1%	****	12.8%	****	30.6%	****	16.4%	****	30.5%
	As at October 31, 2022
	Amortization period
	< 5 Years %		6-10 Years %		11-15 Years %		16-20 Years %		21-25 Years %		26-30 Years %		> 30 Years % (4)
Canada	****	0.8%		2.6%		5.7%		13.5%		32.3%		13.8%		31.3%
United States (3)	****	0.7%		4.9%		9.9%		4.9%		14.3%		65.0%		0.3%
Total	****	0.8%		2.7%		6.0%		13.0%		31.1%		17.1%		29.3%
(1)	Remaining amortization is based upon current balance, interest rate, customer payment amount and payment frequency in<br>Canada. Contractual payment schedule is used in the United States.
---	---
(2)	Reporting methodologies are in accordance with OSFI’s B-20 guideline.<br>
---	---
(3)	A large proportion of U.S. based mortgages in the longer amortization band are primarily driven by modification programs<br>for troubled borrowers and regulator-initiated mortgage refinance programs.
---	---
(4)	Accounts with negative amortization are included in the >30 year category, reflecting the impact of increases in<br>interest rates on our variable rate mortgage portfolios.
---	---

42 BMO Financial Group First Quarter Report 2023

International Exposures

BMO’s geographic exposures outside of Canada and the United States are subject to a risk management framework that incorporates assessments of the economic and political risk in each region or country, as well as management of exposures within limits based on product, entity and country of ultimate risk. Our exposure to these regions as at January 31, 2023 is set out in the following table.

On October 26, 2021, OSFI recommended that Canadian Global Systemically Important Banks (G-SIBs) cease country-by-country disclosures of European exposures and begin to disclose sovereign exposures at the regional (continent) level, effective the first quarter of 2022.

The table outlines total net exposure for funded lending and undrawn commitments, securities (including cash products, traded credit and credit default swap activity), repo-style transactions and derivatives. Repo-style transactions and derivatives exposure are reported as mark-to-market value. Derivatives exposure incorporates transaction netting where master netting agreements with counterparties have been entered into, and collateral offsets for counterparties where a Credit Support Annex is in effect.

Exposure by Region

	As at January 31, 2023																										As at<br>October 31, 2022
(Canadian $ in millions)	Funded Lending and Commitments								Securities								Repo-Style Transactions andDerivatives								Total Net<br><br><br>Exposure		Total Net<br><br><br>Exposure
Region	Bank		Corporate		Sovereign		Total		Bank		Corporate		Sovereign		Total		Bank		Corporate		Sovereign		Total
Europe (excluding United Kingdom)	****	438	****	2,903	****	-	****	3,341	****	562	****	75	****	6,520	****	7,157	****	335	****	475	****	58	****	868	****	11,366		11,817
United Kingdom	****	58	****	5,272	****	358	****	5,688	****	105	****	151	****	2,253	****	2,509	****	507	****	533	****	20	****	1,060	****	9,257		7,095
Latin America	****	2,995	****	6,295	****	-	****	9,290	****	-	****	66	****	-	****	66	****	1	****	129	****	8	****	138	****	9,494		9,285
Asia-Pacific	****	4,201	****	3,085	****	45	****	7,331	****	1,244	****	44	****	2,890	****	4,178	****	158	****	140	****	78	****	376	****	11,885		13,706
Africa and Middle East	****	1,019	****	311	****	-	****	1,330	****	-	****	22	****	17	****	39	****	2	****	5	****	395	****	402	****	1,771		2,303
Other (1)	****	-	****	3	****	33	****	36	****	-	****	-	****	4,994	****	4,994	****	-	****	-	****	1,643	****	1,643	****	6,673		5,902
Total	****	8,711	****	17,869	****	436	****	27,016	****	1,911	****	358	****	16,674	****	18,943	****	1,003	****	1,282	****	2,202	****	4,487	****	50,446		50,108
(1)	Primarily exposure to supranational entities.
---	---

Caution

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

BMO Financial Group First Quarter Report 2023 43

Glossary of Financial Terms

Adjusted Earnings and Measures

•	Adjusted Revenue – calculated as revenue excluding the impact of certain non-recurring items, and adjusted net revenue is adjusted revenue, net of CCPB, as set out in<br>the Non-GAAP and Other Financial Measures section.
•	Adjusted Non-Interest Expense – calculated as non-interest expense excluding the impact of certain non-recurring items, as set out in the Non- GAAP and Other Financial Measures section.
---	---
•	Adjusted Net Income – calculated as net income excluding the impact of certain non-recurring items, as set out in the Non-GAAP<br>and Other Financial Measures section.
---	---

Management considers both reported and adjusted results to be useful in assessing underlying ongoing business performance.

Adjusted Effective Tax Rate is calculated as adjusted provision for income taxes divided by adjusted income before provision for income taxes.

Allowance for Credit Losses represents an amount deemed appropriate by management to absorb credit-related losses on loans and acceptances and other credit instruments, in accordance with applicable accounting standards. Allowance on Performing Loans is maintained to cover impairment in the existing portfolio for loans that have not yet been individually identified as impaired. Allowance on Impaired Loans is maintained to reduce the carrying value of individually identified impaired loans to the expected recoverable amount.

Assets under Administration andAssets under Management refers to assets administered or managed by a financial institution that are beneficially owned by clients and therefore not reported on the balance sheet of the administering or managing financial institution.

Asset-Backed Commercial Paper (ABCP) is a short-term investment. The commercial paper is backed by assets such as trade receivables, and is generally used for short-term financing needs.

Average annual total shareholder return (TSR) represents the average annual total return earned on an investment in BMO common shares made at the beginning of a fixed period. The return includes the change in share price and assumes dividends received were reinvested in additional common shares.

Average Earning Assets represents the daily average balance of deposits at central banks, deposits with other banks, securities borrowed or purchased under resale agreements, securities, and loans over a one-year period.

Average Net Loans and Acceptances is the daily or monthly average balance of loans and customers’ liability under acceptances, net of the allowance for credit losses, over a one-year period.

Bail-In Debt is senior unsecured debt subject to the Canadian Bail-In Regime. Bail-in debt includes senior unsecured debt issued directly by the bank on or after September 23, 2018, which has an original term greater than 400 days and is marketable, subject to certain exceptions. Some or all of this debt may be statutorily converted into common shares of the bank under the Bail-In Regime if the bank enters resolution.

Bankers’ Acceptances (BAs) are bills of exchange or negotiable instruments drawn by a borrower for payment at maturity and accepted by a bank. BAs constitute a guarantee of payment by the bank and can be traded in the money market. The bank earns a “stamping fee” for providing this guarantee.

BasisPoint is one one-hundredth of a percentage point.

Common Equity Tier 1 (CET1) Capital comprises common shareholders’ equity net of deductions for goodwill, intangible assets, pension assets, certain deferred tax assets and other items, which may include a portion of expected credit loss provisions.

Common Equity Tier 1 (CET1) Ratio is calculated as CET1 Capital, which comprises common shareholders’ equity, net of deductions for goodwill, intangible assets, pension assets, certain deferred tax assets and other items, which may include a portion of expected credit loss provisions, divided by risk-weighted assets. The CET1 Ratio is calculated in accordance with the Office of the Superintendent of Financial Institutions’ (OSFI’s) Capital Adequacy Requirements (CAR) Guideline.

Common Shareholders’ Equity is the most permanent form of capital. For regulatory capital purposes, common shareholders’ equity comprises common shareholders’ equity, net of capital deductions.

Credit andCounterparty Risk is the potential for credit loss due to the failure of an obligor (i.e., a borrower, endorser, guarantor or counterparty) to repay a loan or honour another predetermined financial obligation.

Derivatives are contracts, requiring no initial or little investment, with a value that is derived from movements in underlying interest or foreign exchange rates, equity or commodity prices or other indices. Derivatives are used to transfer, modify or reduce current or expected risks from changes in rates and prices. ****

Dividend Payout Ratio represents common share dividends as a percentage of net income available to common shareholders. It is computed by dividing dividends per share by basic earnings per share. Adjusted dividend payout ratio is calculated in the same manner, using adjusted net income.

Earnings per Share (EPS) is calculated by dividing net income, after deducting preferred share dividends and distributions on other equity instruments, by the average number of common shares outstanding. Adjusted EPS is calculated in the same manner, using adjusted net income. Diluted EPS, which is BMO’s basis for measuring performance, adjusts for possible conversions of financial instruments into common shares if those conversions would reduce EPS, and is more fully explained in Note 9 of the unaudited interim consolidated financial statements.

Earnings Sensitivity is a measure of the impact of potential changes in interest rates on the projected 12-month pre-tax net income of a portfolio of assets, liabilities and off-balance sheet positions in response to prescribed parallel interest rate movements, with interest rates floored at zero.

Economic Capital is an expression of the enterprise’s capital demand requirement relative to its view of the economic risks in its underlying business activities. It represents management’s estimation of the likely magnitude of economic losses that could occur should severely adverse situations arise. Economic capital is calculated for various types of risk, including credit, market (trading and non-trading), operational non-financial, business and insurance, based on a one-year time horizon using a defined confidence level.

Economic Value Sensitivity is a measure of the impact of potential changes in interest rates on the market value of a portfolio of assets, liabilities and off-balance sheet positions in response to prescribed parallel interest rate movements, with interest rates floored at zero.

Efficiency Ratio (or Expense-to-Revenue Ratio) is a measure of productivity. It is calculated as non-interest expense divided by total revenue on a taxable equivalent basis in the operating groups, expressed as a percentage.

Efficiency Ratio, net of CCPB, is calculated as non-interest expense divided by total revenue, net of insurance claims, commissions and changes in policy benefit liabilities (CCPB).The adjusted efficiency ratio, net of CCPB, is calculated in the same manner, utilizing adjusted revenue, net of CCPB, and adjusted non-interest expense.

Environmental and Social Risk is the potential for loss or harm, directly or indirectly, resulting from environmental or social factors that impact BMO or its customers,and BMO’s impact on the environment.

Fair Value is the amount of consideration that would be agreed upon in an arm’s-length transaction between knowledgeable, willing parties who are under no compulsion to act in an orderly market transaction.

44 BMO Financial Group First Quarter Report 2023

Forwards and Futures are contractual agreements to either buy or sell a specified amount of a currency, commodity, interest-rate-sensitive financial instrument or security at a specified price and date in the future. Forwards are customized contracts transacted in the over-the-counter market. Futures are transacted in standardized amounts on regulated exchanges and are subject to daily cash margin requirements.

Gross impaired loans and acceptances (GIL) are calculated as the credit impaired balance of loans and customers’ liability under acceptances, excluding purchased credit impaired loans.

Hedging is a risk management technique used to neutralize, manage or offset interest rate, foreign currency, equity, commodity or credit risk exposures arising from normal banking activities.

Impaired Loans are loans for which there is no longer reasonable assurance of the timely collection of principal or interest.

Incremental Risk Charge (IRC) complements the VaR and SVaR metrics and represents an estimate of the default and migration risks of non-securitization products held in the trading book with exposure to interest rate risk, measured over a one-year horizon at a 99.9% confidence level.

Insurance Risk is the potential for loss as a result of actual experience differing from that assumed when an insurance product was designed and priced, and comprises claims risk, policyholder behaviour risk and expense risk.

Insurance Revenue, net of CCPB, is insurance revenue, net of insurance claims, commissions and changes in policy benefit liabilities (CCPB).

Legal and Regulatory Risk is the potential for loss or harm resulting from a failure to comply with laws or satisfy contractual obligations or regulatory requirements. This includes the risk of failure to: comply with the law (in letter or in spirit) or maintain standards of care; implement legal or regulatory requirements; enforce or comply with contractual terms; assert non-contractual rights; effectively manage disputes; or act in a manner so as to maintain our reputation.

**Leverage Exposures (LE)**consist of on-balance sheet items and specified off-balance sheet items, net of specified adjustments.

Leverage Ratio reflects Tier 1 Capital divided by LE.

Liquidity and Funding Risk is the potential for loss if we are unable to meet our financial commitments in a timely manner at reasonable prices as they become due. Financial commitments include liabilities to depositors and suppliers, as well as lending, investment and pledging commitments.

Liquidity CoverageRatio (LCR) is a Basel III regulatory metric calculated as the ratio of high-quality liquid assets to total net stressed cash outflows over a thirty-day period under a stress scenario prescribed by OSFI.

Market Risk is the potential for adverse changes in the value of our assets and liabilities resulting from changes in market variables such as interest rates, foreign exchange rates, equity and commodity prices and their implied volatilities, and credit spreads, and includes the risk of credit migration and default in our trading book.

Mark-to-Market represents the valuation of financial instruments at fair value (as defined above) as of the balance sheet date.

Model Risk is the potential for adverse consequences resulting from decisions that are based on incorrect or misused model results. These adverse consequences can include financial loss, poor business decision-making and damage to reputation.

Net Interest Income comprises earnings on assets, such as loans and securities, including interest and certain dividend income, less interest expense paid on liabilities, such as deposits. Net interest income, excluding trading, is presented on a basis that excludes trading-related interest income.

Net Interest Margin is the ratio of net interest income to average earning assets, expressed as a percentage or in basis points. Net interest margin, excluding trading, is computed in the same manner, excluding trading-related interest income and earning assets.

Net Non-Interest Revenue is non-interest revenue, net of insurance claims, commissions and changes in policy benefit liabilities (CCPB).

Net Promoter Score (NPS) is the percentage of surveyed customers who would recommend BMO to a friend or colleague. Data is gathered in a survey that uses a 0–10 point scale. “Detractors” are defined as those who provide a rating of 0–6, “Passives” are defined as those who provide a rating of 7 or 8, and “Promoters” are defined as those who provide a rating of 9 or 10. The NPS score is calculated by subtracting the percentage of “Detractors” from the percentage of “Promoters”.

Notional Amount refers to the principal amount used to calculate interest and other payments under derivative contracts. The principal amount does not change hands under the terms of a derivative contract, except in the case of cross-currency swaps.

Off-Balance Sheet Financial Instruments consist of a variety of financial arrangements offered to clients, which include credit derivatives, written put options, backstop liquidity facilities, standby letters of credit, performance guarantees, credit enhancements, commitments to extend credit, securities lending, documentary and commercial letters of credit, and other indemnifications.

Office of the Superintendent of Financial Institutions (OSFI) Canada is the government agency responsible for regulating banks, insurance companies, trust companies, loan companies and pension plans in Canada.

Operating Leverage is the difference between revenue and non- interest expense growth rates. Adjusted operating leverage is the difference between adjusted revenue and adjusted non-interest expense growth rates.

Operating Leverage, net of CCPB, is the difference between revenue, net of CCPB (net revenue), and non-interest expense growth rates. Adjusted net operating leverage is the difference between adjusted revenue, net of CCPB, and adjusted non-interest expense growth rates. The bank evaluates performance using adjusted revenue, net of CCPB.

Operational Non-Financial Risk (ONFR) encompasses a wide range of non-financial risks, including those related to business change, customer trust, reputation and data that can result in financial loss. These losses can stem from inadequate or failed internal processes or systems, human error or misconduct, and external events that may directly or indirectly impact the fair value of assets we fold in our credit or investment portfolios. Examples of these risks include cyber and cloud security risk, technology risk, fraud risk, business continuity risk and human resources risk, but exclude legal and regulatory risk, credit risk, market risk, liquidity risk and other types of financial risk.

Options are contractual agreements that convey to the purchaser the right but not the obligation to either buy or sell a specified amount of a currency, commodity, interest-rate-sensitive financial instrument or security at a fixed future date or at any time within a fixed future period.

Pre-Provision, Pre-Tax Earnings (PPPT) is calculated as income before the provision for income taxes and provision for/(recovery of) credit losses. We use PPPT on both a reported and adjusted basis to assess our ability to generate sustained earnings growth excluding credit losses, which are impacted by the cyclical nature of a credit cycle.

Provision for Credit Losses (PCL) is a charge to income that represents an amount deemed adequate by management to fully provide for impairment in a portfolio of loans and acceptances and other credit instruments, given the composition of the portfolio, the probability of default, the economic environment and the allowance for credit losses already established. PCL can comprise both a provision for credit losses on impaired loans and a provision for credit losses on performing loans. For more information, refer to the Credit and Counterparty Risk – Provision for Credit Losses and Critical Accounting Estimates and Judgments – Allowance for Credit Losses sections and Note 3 of the unaudited interim consolidated financial statements.

Reputation Risk is the potential for loss or harm to the BMO brand. It can arise even if other risks are managed effectively.

BMO Financial Group First Quarter Report 2023 45

Return on Equity or Return on Common Shareholders’ Equity (ROE) is calculated as net income, less preferred dividends and distributions on other equity instruments, as a percentage of average common shareholders’ equity. Common shareholders’ equity comprises common share capital, contributed surplus, accumulated other comprehensive income (loss) and retained earnings. Adjusted ROE is calculated using adjusted net income rather than net income.

Return on Tangible Common Equity (ROTCE) is calculated as net income available to common shareholders, adjusted for the amortization of acquisition-related intangible assets, as a percentage of average tangible common equity. Adjusted ROTCE is calculated using adjusted net income rather than net income.

Risk-Weighted Assets (RWA) are defined as on-balance sheet and off-balance sheet exposures that are risk-weighted based on guidelines established by OSFI. The measure is used for capital management and regulatory reporting purposes.

Securities Borrowed or Purchased under Resale Agreements are low-cost, low-risk instruments, often supported by the pledge of cash collateral, which arise from transactions that involve the borrowing or purchasing of securities.

Securities Lent or Sold under Repurchase Agreements are low-cost, low-risk liabilities, often supported by cash collateral, which arise from transactions that involve the lending or selling of securities.

Securitization is the practice of selling pools of contractual debts, such as residential mortgages, auto loans and credit card debt obligations, to third parties or trusts, which then typically issue a series of asset-backed securities to investors to fund the purchase of the contractual debts.

Strategic Risk arises from the possibility that the bank could experience financial loss or other types of harm due to changes in the external business environment and failure to respond effectively to these changes as a result of inaction, inappropriate strategies or poor implementation of strategies. Strategic risk also includes business risk, which arises from the specific business activities of the enterprise, and the effects these could have on its earnings.

Stressed Value at Risk (SVaR) measures the maximum loss likely to be experienced in the trading and underwriting portfolios, measured at a 99% confidence level over a one-day holding period, with model inputs calibrated to historical data from a period of significant financial stress. SVaR is calculated for specific classes of risk in BMO’s trading and underwriting activities related to interest rates, foreign exchange rates, credit spreads, equity and commodity prices and their implied volatilities.

Structured Entities (SEs) include entities for which voting or similar rights are not the dominant factor in determining control of the entity. BMO is required to consolidate a SE if it controls the entity by having power over the entity, exposure to variable returns as a result of its involvement and the ability to exercise power to affect the amount of those returns.

Structural (Non-Trading) Market Risk comprises interest rate risk arising from banking activities (loans and deposits) and foreign exchange risk arising from foreign currency operations and exposures.

Swaps are contractual agreements between two parties to exchange a series of cash flows. The various swap agreements that BMO enters into are as follows:

•	Commodity swaps – counterparties generally exchange fixed-rate and floating rate payments based on a notional value of a single commodity.
•	Credit default swaps – one counter party pays the other a fee in exchange for an agreement by the other counterparty to make a payment if a credit event occurs, such as bankruptcy or failure to pay.
---	---
•	Cross-currency interest rate swaps – fixed rate and floating-rate interest payments and principal amounts are exchanged in different currencies. Cross-currency swaps – fixed-rate interest payments and<br>principal amounts are exchanged in different currencies.
---	---
•	Equity swaps – counterparties exchange the return on an equity security or a group of equity securities for a return based on a fixed or floating interest rate or the return on another equity security or<br>group of equity securities.
---	---
•	Interest rate swaps – counterparties generally exchange fixed-rate and floating rate interest payments based on a notional value in a single currency.
---	---
•	Total return swaps – one counterparty agrees to pay or receive from the other cash amounts based on changes in the value of a reference asset or group of assets, including any returns such as interest earned<br>on these assets, in exchange for amounts that are based on prevailing market funding rates.
---	---

Tangible Common Equity is calculated as common shareholders’ equity, less goodwill and acquisition-related intangible assets, net of related deferred tax liabilities.

Taxable Equivalent Basis (teb): Operating segment revenue is presented on a taxable equivalent basis (teb). Revenue and the provision for income taxes in BMO Capital Markets and U.S. Personal and Commercial Banking are increased on tax-exempt securities to an equivalent pre-tax basis to facilitate comparisons of income between taxable and tax-exempt sources. The offset to operating segment teb adjustments is reflected in Corporate Services revenue and provision for (recovery) income taxes.

Tier 1 Capital comprises CET1 Capital and Additional Tier 1 (AT1) Capital. AT1 Capital consists of preferred shares and other AT1 Capital instruments, less regulatory deductions. ****

Tier 1 Capital Ratio reflects Tier 1 Capital divided by risk-weighted assets.

Tier 2 Capital comprises subordinated debentures and may include certain credit loss provisions, less regulatory deductions.

Total Capital includes Tier 1 and Tier 2 Capital. ****

Total CapitalRatio reflects Total Capital divided by risk-weighted assets.

Total Loss Absorbing Capacity (TLAC) comprises Total Capital and senior unsecured debt subject to the Canadian Bail-In Regime, less regulatory deductions.

Total Loss Absorbing Capacity (TLAC) Ratioreflects TLAC divided by risk-weighted assets.

Total Loss Absorbing Capacity (TLAC) Leverage Ratio reflects TLAC divided by leverage exposures.

Total Shareholder Return: The annual total shareholder return (TSR) represents the average annual total return earned on an investment in BMO common shares made at the beginning of the respective period. The return includes the change in share price and assumes dividends received were reinvested in additional common shares.

Trading and Underwriting Market Risk is associated with buying and selling financial products in the course of meeting customer requirements, including market-making and related financing activities, and assisting clients to raise funds by way of securities issuance.

Trading-Related Revenue includes net interest income and non-interest revenue earned from on-balance sheet and off-balance sheet positions undertaken for trading purposes. The management of these positions typically includes marking them to market on daily basis. Trading-related revenue also includes income (expense) and gains (losses) from both on-balance sheet instruments and interest rate, foreign exchange (including spot positions), equity, commodity and credit contracts.

Value-at-Risk (VaR) measures the maximum loss likely to be experienced in the trading and underwriting portfolios, measured at a 99% confidence level over a one-day holding period. VaR is calculated for specific classes of risk in BMO’s trading and underwriting activities related to interest rates, foreign exchange rates, credit spreads, equity and commodity prices and their implied volatilities.

46 BMO Financial Group First Quarter Report 2023

INVESTOR AND MEDIA INFORMATION

Investor Presentation Materials

Interested parties are invited to visit BMO’s website at www.bmo.com/investorrelations to review the 2022 Annual MD&A and audited annual consolidated financial statements, quarterly presentation materials and supplementary financial and regulatory information package.

Quarterly Conference Call and Webcast Presentations

Interested parties are also invited to listen to our quarterly conference call on Tuesday, February 28, 2023, at 7.15 a.m. (ET). The call may be accessed by telephone at 416-340-2217 (from within Toronto) or 1-800-806 5484 (toll-free outside Toronto), entering Passcode: 1713282#. A replay of the conference call can be accessed until March 31, 2023, by calling 905-694-9451 (from within Toronto) or 1-800-408-3053 (toll-free outside Toronto) and entering Passcode: 1518711#.

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

Media Relations Contact

Jeff Roman, Director, Enterprise Media Relations, jeff.roman@bmo.com, 416-867-3996

Investor Relations Contacts

Christine Viau, Head, Investor Relations, christine.viau@bmo.com, 416-867-6956

Bill Anderson, Director, Investor Relations, bill2.anderson@bmo.com, 416-867-7834

Shareholder Dividend Reinvestment and Share Purchase<br><br><br>Plan (the Plan)<br> <br>Average market price as defined<br>under DRIP<br> <br>November 2022: $129.42<br> <br>December 2022: $122.67<br><br><br>January 2023: $133.62<br> <br><br><br><br>For dividend information, change in shareholder address<br><br><br>or to advise of duplicate mailings, please contact<br><br><br>Computershare Trust Company of Canada<br> <br>100 University Avenue, 8th Floor<br><br><br>Toronto, Ontario M5J 2Y1<br> <br>Telephone: 1-800-340-5021 (Canada and the United States)<br> <br>Telephone: (514) 982-7800 (international)<br> <br>Fax:<br>1-888-453-0330 (Canada and the United States)<br><br><br>Fax: (416) 263-9394 (international)<br> <br>E-mail: service@computershare.com

For other shareholder information, please contact<br><br><br>Bank of Montreal<br> <br>Shareholder Services<br><br><br>Corporate Secretary’s Department<br> <br>One First Canadian Place, 21st Floor<br><br><br>Toronto, Ontario M5X 1A1<br> <br>Telephone: (416)<br>867-6785<br> <br>E-mail: corp.secretary@bmo.com<br><br><br><br> <br>For further information on this document, please contact<br><br><br>Bank of Montreal<br> <br>Investor Relations Department<br><br><br>P.O. Box 1, One First Canadian Place, 10th Floor<br> <br>Toronto, Ontario M5X 1A1<br><br><br><br> <br>To review financial results and regulatory filings and disclosuresonline, please visit BMO’s website at www.bmo.com/ investorrelations.

BMO’s 2022 Annual MD&A, audited consolidated financial statements, annual information form and annual report on Form 40-F (filed with the U.S. Securities and Exchange Commission) are available online at www.bmo.com/investorrelations and at www.sedar.com. Printed copies of the bank’s complete 2022 audited consolidated financial statements are available free of charge upon request at 416-867-6785 or corp.secretary@bmo.com.

Annual Meeting 2023

The next Annual Meeting of Shareholders will be held on Tuesday, April 18, 2023.

® Registered trademark of Bank of Montreal

68 BMO Financial Group First Quarter Report 2023

EX-99.2

Interim Consolidated Financial Statements

Consolidated Statement of Income

(Unaudited) (Canadian in millions, except as noted)
			October 31,<br><br>2022			January 31,<br><br>2022
Interest, Dividend and Fee Income
Loans	8,194		$	6,875		$	4,081
Securities (Note 2)	2,138			1,766			1,067
Deposits with banks	1,039			483			58
	11,371			9,124			5,206
Interest Expense
Deposits	5,283			3,409			705
Subordinated debt	101			74			45
Other liabilities	1,966			1,874			437
	7,350			5,357			1,187
Net Interest Income	4,021			3,767			4,019
Non-Interest Revenue
Securities commissions and fees	263			257			282
Deposit and payment service charges	316			319			329
Trading revenues (Note 12)	(1,283	)		4,797			799
Lending fees	382			370			385
Card fees	147			143			131
Investment management and custodial fees	439			431			466
Mutual fund revenues	313			309			356
Underwriting and advisory fees	208			231			434
Securities gains, other than trading (Note 2)	75			(28	)		138
Foreign exchange gains, other than trading	54			53			22
Insurance revenue	1,331			(218	)		192
Share of profit (loss) in associates and joint ventures	69			59			66
Other	135			80			104
	2,449			6,803			3,704
Total Revenue	6,470			10,570			7,723
Provision for Credit Losses (Note 3)	217			226			(99	)
Insurance Claims, Commissions and Changes in Policy Benefit Liabilities	1,193			(369	)		81
Non-Interest Expense
Employee compensation	2,566			2,274			2,299
Premises and equipment	955			1,039			828
Amortization of intangible assets	163			156			150
Advertising and business development	140			161			106
Communications	74			72			64
Professional fees	232			271			155
Other	291			803			244
	4,421			4,776			3,846
Income Before Provision for Income Taxes	639			5,937			3,895
Provision for income taxes (Note 10)	392			1,454			962
Net Income	247		$	4,483		$	2,933
Earnings Per Common Share (Canadian ) (Note 9)
Basic	0.30		$	6.52		$	4.44
Diluted	0.30			6.51			4.43
Dividends per common share	1.43			1.39			1.33

All values are in US Dollars.

The accompanying notes are an integral part of these interim consolidated financial statements.

BMO Financial Group First Quarter Report 2023

47

---

Interim Consolidated Financial Statements

Consolidated Statement of Comprehensive Income

(Unaudited) (Canadian $ in millions)	For the three months ended
	January 31,<br> 2023			October 31,<br> 2022			January 31,<br> 2022
Net Income	$	247		$	4,483		$	2,933
Other Comprehensive Income (Loss), net of taxes
Items that may subsequently be reclassified to net income
Net change in unrealized gains (losses) on fair value through OCI debt securities
Unrealized gains (losses) on fair value through OCI debt securities arising during the period (1)		142			(218	)		(62	)
Reclassification to earnings of (gains) losses during the period (2)		(6	)		19			(28	)
		136			(199	)		(90	)
Net change in unrealized gains (losses) on cash flow hedges
Gains (losses) on derivatives designated as cash flow hedges arising during the period (3)		1,124			(2,634	)		(478	)
Reclassification to earnings of (gains) losses on derivatives designated as cash flow hedges during the period (4)		235			14			(138	)
		1,359			(2,620	)		(616	)
Net gains (losses) on translation of net foreign operations
Unrealized gains (losses) on translation of net foreign operations		(850	)		2,149			808
Unrealized gains (losses) on hedges of net foreign operations (5)		23			(115	)		(128	)
Reclassification to earnings of net losses related to divestitures (6)		-			-			29
		(827	)		2,034			709
Items that will not be reclassified to net income
Net unrealized gains on fair value through OCI equity securities arising during the period (7)		-			-			2
Net gains (losses) on remeasurement of pension and other employee future benefit plans (8)		(64	)		148			162
Net gains (losses) on remeasurement of own credit risk on financial liabilities designated at fair value (9)		(410	)		263			66
		(474	)		411			230
Other Comprehensive Income (Loss), net of taxes		194			(374	)		233
Total Comprehensive Income	$	441		$	4,109		$	3,166
(1)	Net of income tax (provision) recovery of $<br>(48) million, $76 million, $22 million for the three months ended.
---	---
(2)	Net of income tax provision (recovery) of $<br>2 million, $(6) million, $10 million for the three months ended.
---	---
(3)	Net of income tax (provision) recovery of $<br>(317) million, $952 million, $172 million for the three months ended.
---	---
(4)	Net of income tax provision (recovery) of $<br>(104) million, $(5) million, $50 million for the three months ended.
---	---
(5)	Net of income tax (provision) recovery of $<br>(59) million, $41 million, $48 million for the three months ended.
---	---
(6)	Net of income tax (provision) of na<br>, na, $<br>nil million for the three months ended.
---	---
(7)	Net of income tax (provision) recovery of $nil million, $(1) million, $nil million for the three months ended.
---	---
(8)	Net of income tax (provision) recovery of $2 million, $(54) million, $(60) million for the three months ended.
---	---
(9)	Net of income tax (provision) recovery of $<br>139 million, $(95) million, and $(24) million for the three m<br>o<br>nths ended.
---	---

The accompanying notes are an integral part of these interim consolidated financial statements.

48

BMO Financial Group First Quarter Report 2023

---

Interim Consolidated Financial Statements

Consolidated Balance Sheet

(Unaudited) (Canadian $ in millions)	As at
	January 31,<br> 2023			October 31,<br> 2022			January 31,<br> 2022
Assets
Cash and Cash Equivalents	$	103,342		$	87,466		$	50,123
Interest Bearing Deposits with Banks		5,080			5,734			8,573
Securities (Note 2)
Trading		110,728			108,177			118,641
Fair value through profit or loss		14,739			13,641			14,663
Fair value through other comprehensive income		48,365			43,561			43,071
Debt securities at amortized cost		105,784			106,590			98,456
Investments in associates and joint ventures		1,411			1,293			1,234
		281,027			273,262			276,065
Securities Borrowed or Purchased Under Resale Agreements		118,531			113,194			117,444
Loans (Note 3)
Residential mortgages		151,294			148,880			137,382
Consumer instalment and other personal		84,184			86,103			79,080
Credit cards		9,841			9,663			8,050
Business and government		303,582			309,310			262,253
		548,901			553,956			486,765
Allowance for credit losses (Note 3)		(2,638	)		(2,617	)		(2,405	)
		546,263			551,339			484,360
Other Assets
Derivative instruments		33,294			48,160			34,827
Customers’ liability under acceptances		13,636			13,235			12,803
Premises and equipment		4,865			4,841			4,550
Goodwill		5,260			5,285			4,957
Intangible assets		2,277			2,193			2,071
Current tax assets		1,815			1,421			1,615
Deferred tax assets		1,392			1,175			1,027
Other		28,924			31,894			24,757
		91,463			108,204			86,607
Total Assets	$	1,145,706		$	1,139,199		$	1,023,172
Liabilities and Equity
Deposits (Note 4)	$	787,376		$	769,478		$	704,949
Other Liabilities
Derivative instruments		44,090			59,956			29,825
Acceptances		13,636			13,235			12,803
Securities sold but not yet purchased		45,226			40,979			36,760
Securities lent or sold under repurchase agreements		101,484			103,963			107,979
Securitization and structured entities’ liabilities		26,336			27,068			25,158
Current tax liabilities		200			425			192
Deferred tax liabilities		136			102			135
Other		44,152			44,805			37,086
		275,260			290,533			249,938
Subordinated Debt (Note 4)		8,156			8,150			8,481
Total Liabilities	$	1,070,792		$	1,068,161		$	963,368
Equity
Preferred shares and other equity instruments (Note 5)		6,958			6,308			5,558
Common shares (Note 5)		21,637			17,744			13,625
Contributed surplus		335			317			319
Retained earnings		44,238			45,117			37,513
Accumulated other comprehensive income		1,746			1,552			2,789
Total Equity		74,914			71,038			59,804
Total Liabilities and Equity	$	1,145,706		$	1,139,199		$	1,023,172

The accompanying notes are an integral part of these interim consolidated financial

statements.

BMO Financial Group First Quarter Report 2023

49

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Interim Consolidated Financial Statements

Consolidated Statement of Changes in Equity

(Unaudited) (Canadian $ in millions)	For the three months ended
	January 31,<br>2023			January 31,<br>2022
Preferred Shares and Other Equity Instruments (Note 5)
Balance at beginning of period	$	6,308		$	5,558
Issued during the period		650			-
Balance at End of Period		6,958			5,558
Common Shares (Note 5)
Balance at beginning of period		17,744			13,599
Issued under the Shareholder Dividend Reinvestment and Share Purchase Plan		346			-
Issued under the Stock Option Plan		23			22
Treasury shares sold		11			4
Issued to align capital position <br>with increased regulatory requirements as announced by OSFI (Note 5)		3,360			-
Issued for the acquisition of Radicle Group Inc. (Notes 5 and 12)		153			-
Balance at End of Period		21,637			13,625
Contributed Surplus
Balance at beginning of period		317			313
Stock option expense, net of options exercised		14			5
Other		4			1
Balance at End of Period		335			319
Retained Earnings
Balance at beginning of period		45,117			35,497
Net income		247			2,933
Dividends on preferred shares and distributions payable on other equity instruments		(38	)		(55	)
Dividends on common shares		(1,015	)		(862	)
Equity issue expense and premium paid on redemption of preferred shares		(73	)		-
Balance at End of Period		44,238			37,513
Accumulated Other Comprehensive Income (Loss) on Fair Value through OCI Securities, net of taxes
Balance at beginning of period		(359	)		171
Unrealized gains (losses) on fair value through OCI debt securities arising during the period		142			(62	)
Unrealized gains on fair value through OCI equity securities arising during the period		-			2
Reclassification to earnings of (gains) during the period		(6	)		(28	)
Balance at End of Period		(223	)		83
Accumulated Other Comprehensive Income (Loss) on Cash Flow Hedges, net of taxes
Balance at beginning of period		(5,129	)		185
Gains (losses) on derivatives designated as cash flow hedges arising during the period		1,124			(478	)
Reclassification to earnings of losses (gains) on derivatives designated as cash flow hedges during the period		235			(138	)
Balance at End of Period		(3,770	)		(431	)
Accumulated Other Comprehensive Income on Translation of Net Foreign Operations, net of taxes
Balance at beginning of period		5,168			2,269
Unrealized gains (losses) on translation of net foreign operations		(850	)		808
Unrealized gains (losses) on hedges of net foreign operations		23			(128	)
Reclassification to earnings of net losses related to divestitures (Note 12)		-			29
Balance at End of Period		4,341			2,978
Accumulated Other Comprehensive Income (Loss) on Pension and Other Employee Future Benefit Plans, net of taxes
Balance at beginning of period		944			285
Gains (losses) on remeasurement of pension and other employee future benefit plans		(64	)		162
Balance at End of Period		880			447
Accumulated Other<br> <br>Comprehensive Income (Loss)<br> <br>on Own Credit Risk on Financial Liabilities Designated at Fair Value, net of taxes
Balance at beginning of period		928			(354	)
Gains (losses) on remeasurement of own credit risk on financial liabilities designated at fair value		(410	)		66
Balance at End of Period		518			(288	)
Total Accumulated Other Comprehensive Income		1,746			2,789
Total Equity	$	74,914		$	59,804

The accompanying notes are an integral part of these interim consolidated financial

statements.

50

BMO Financial Group First Quarter Report 2023

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Interim Consolidated Financial Statements

Consolidated Statement of Cash Flows

(Unaudited) (Canadian $ in millions, except as noted)	For the three months ended
	January 31,<br> <br>2023			January 31,<br>2022
Cash Flows from Operating Activities
Net Income	$	247		$	2,933
Adjustments to determine net cash flows provided by (used in) operating activities:
Securities (gains), other than trading (Note 2)		(75	)		(138	)
Depreciation of premises and equipment		203			195
Depreciation of other assets		19			28
Amortization of intangible assets		163			150
Provision for (recovery of) credit losses (Note 3)		217			(99	)
Deferred taxes		(48	)		183
Net loss on divestitures		-			29
Changes in operating assets and liabilities:
Net (increase) in trading securities		(3,804	)		(12,747	)
Change in derivative instruments – decrease in derivative asset		17,687			3,218
– (decrease) in derivative liability		(15,995	)		(2,746	)
Net (increase) decrease in current tax asset		(461	)		31
Net (decrease) in current tax liability		(219	)		(42	)
Change in accrued interest – (increase) decrease in interest receivable		(256	)		56
– increase (decrease) in interest payable		1,190			(71	)
Changes in other items and accruals, net		48			(6,002	)
Net increase in deposits		24,604			8,895
Net (increase) in loans		(191	)		(21,630	)
Net increase in securities sold but not yet purchased		4,523			4,421
Net increase (decrease) in securities lent or sold under repurchase agreements		(1,071	)		8,854
Net (increase) in securities borrowed or purchased under resale agreements		(6,405	)		(8,550	)
Net (decrease) in securitization and structured entities’ liabilities		(552	)		(481	)
Net Cash Provided by (Used in) Operating Activities		19,824			(23,513	)
Cash Flows from Financing Activities
Net increase in liabilities of subsidiaries		-			3,795
Proceeds from issuance of covered bonds		1,636			3,925
Redemption/buyback of covered bonds		(2,168	)		(2,222	)
Proceeds from issuance of subordinated debt (Note 4)		-			1,587
Proceeds from issuance of preferred shares, net of issuance costs (Note 5)		648			-
Net proceeds from issuance of common shares (Note 5)		3,298			17
Net proceeds from the sale of treasury shares		11			4
Cash dividends and distributions paid		(671	)		(746	)
Repayment of lease liabilities		(71	)		(57	)
Net Cash Provided by Financing Activities		2,683			6,303
Cash Flows from Investing Activities
Net (increase) decrease in interest bearing deposits with banks		546			(72	)
Purchases of securities, other than trading		(15,427	)		(53,325	)
Maturities of securities, other than trading		4,679			7,191
Proceeds from sales of securities, other than trading		4,529			18,400
Premises and equipment – net (purchases)		(174	)		(135	)
Purchased and developed software – net (purchases)		(193	)		(134	)
Acquisition of Radicle Group Inc. (Note 12)		(42	)		-
Net proceeds from divestitures		-			1,218
Net Cash (Used in) Investing Activities		(6,082	)		(26,857	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		(549	)		929
Net increase (decrease) in Cash and Cash Equivalents		15,876			(43,138	)
Cash and Cash Equivalents at Beginning of Period		87,466			93,261
Cash and Cash Equivalents at End of Period	$	103,342		$	50,123
Supplemental Disclosure of Cash Flow Information
Net cash provided by operating activities includes:
Interest paid in the period (1)	$	6,145		$	1,228
Income taxes paid in the period	$	1,326		$	545
Interest received in the period	$	10,755		$	4,818
Dividends received in the period	$	451		$	424
(1)	Includes dividends paid on securities sold but not yet purchased.
---	---

The accompanying notes are an integral part of these interim consolidated financial statements.

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

BMO Financial Group First Quarter Report 2023

51

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Notes to Interim Financial Statements

January 31, 2023 (Unaudited)

Note 1: Basis of Presentation

Bank of Montreal (the bank or BMO) is a chartered bank under the Bank Act (Canada) and is a public company incorporated in Canada. We are a highly diversified financial services company, providing a broad range of personal and commercial banking, wealth management and investment banking products and services. The bank’s head office is at 129 rue Saint Jacques, Montreal, Quebec. Our executive offices are at 100 King Street West, 1 First Canadian Place, Toronto, Ontario. Our common shares are listed on the Toronto Stock Exchange (TSX) and the New York Stock Exchange.

These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting as issued by the International Accounting Standards Board (IASB) using the same accounting policies as disclosed in our annual consolidated financial statements for the year ended October 31, 2022. These condensed interim consolidated financial statements should be read in conjunction with the notes to our annual consolidated financial statements for the year ended October 31, 2022. We also comply with interpretations of International Financial Reporting Standards (IFRS) by our regulator, the Office of the Superintendent of Financial Institutions of Canada (OSFI). These interim consolidated financial statements were authorized for issue by the Board of Directors on February 28, 2023.

Interbank Offered Rate (IBOR) Reform

The transition from London Interbank rates (LIBORs) and other IBORs to alternative reference rates continues, with no significant changes to the project or transition risks from our disclosure in Note 1 of our annual consolidated financial statements for the year ended October 31, 2022.

As we approach the June 30, 2023 cessation date for the remaining USD LIBOR settings, our overall USD LIBOR exposures continue to decline and our USD LIBOR derivative exposures will largely transition when central counterparties convert existing LIBOR trades to Secured Overnight Financing Rate.

Use of Estimates and Judgments

The preparation of the interim consolidated financial statements requires management to use estimates and assumptions that affect the carrying amounts of certain assets and liabilities, certain amounts reported in net income and other related disclosures.

The most significant assets and liabilities for which we must make estimates and judgments include the allowance for credit losses; financial instruments measured at fair value; pension and other employee future benefits; impairment of securities; income taxes and deferred tax assets; goodwill and intangible assets; insurance-related liabilities; provisions including legal proceedings and restructuring charges; transfer of financial assets and consolidation of structured entities. We make judgments in assessing the business model for financial assets as well as whether substantially all risks and rewards have been transferred in respect of transfers of financial assets and whether we control structured entities. If actual results were to differ from the estimates, the impact would be recorded in future periods.

The economic outlook for Canada and the U.S. is subject to several risks that could lead to a severe downturn, including, persistent high inflation and significant further increases in interest rates, an escalation of the conflict in Ukraine, rising geopolitical tensions between the U.S. and China, and the pandemic. A significant housing market correction could also occur if monetary policy becomes overly restrictive to control inflation. The impact on BMO’s business, results of operations, reputation, financial performance and condition, including the potential for credit, counterparty and mark-to-market losses, its credit ratings and regulatory capital and liquidity ratios, as well as impacts to its customers and competitors, will depend on future developments, which remain uncertain. By their very nature, the judgments and estimates we make for the purposes of preparing our consolidated financial statements relate to matters that are inherently uncertain. However, we have detailed policies and internal controls that are intended to ensure the judgments made in estimating these amounts are well controlled and independently reviewed, and that our policies are consistently applied from period to period. We believe that our estimates of the value of our assets and liabilities are appropriate as at January 31, 2023.

Allowance for Credit Losses

As detailed further in Note 1 of our annual consolidated financial statements for the year ended October 31, 2022, the allowance for credit losses (ACL) consists of allowances on impaired loans, which represent estimated losses related to impaired loans in the portfolio provided for but not yet written off, and allowances on performing loans, which is our best estimate of impairment in the existing portfolio for loans that have not yet been individually identified as impaired.

The expected credit loss model requires the recognition of credit losses generally based on 12 months of expected losses for performing loans and the recognition of lifetime losses on performing loans that have experienced a significant increase in credit risk since origination.

The determination of a significant increase in credit risk takes into account many different factors and varies by product and risk segment. The bank’s methodology for determining significant increase in credit risk is based on the change in probability of default between origination, and reporting date, assessed using probability weighted scenarios as well as certain other criteria, such as 30-day past due and watchlist status. The assessment of a significant increase in credit risk requires experienced credit judgment.

In determining whether there has been a significant increase in credit risk and in calculating the amount of expected credit losses, we must rely on estimates and exercise judgment regarding matters for which the ultimate outcome is unknown. These judgments include changes in circumstances that may cause future assessments of credit risk to be materially different from current assessments, which could require an increase or decrease in the allowance for credit losses. The calculation of expected credit losses includes the explicit incorporation of forecasts of future economic conditions. We have developed models incorporating specific macroeconomic variables that are relevant to each portfolio. Key economic variables for our retail portfolios include primary operating markets of Canada, the United States (U.S.) and regional markets, where considered significant. Forecasts are developed internally by our Economics group, considering external data and our view of future economic conditions. We exercise experienced credit

52

BMO Financial Group First Quarter Report 2023

judgment to incorporate multiple economic forecasts, which are probability-weighted, in the determination of the final expected credit loss. The allowance is sensitive to changes in both economic forecasts and the probability weight assigned to each forecast scenario.

Additional information regarding the allowance for credit losses is included in Note 3.

Note 2: Securities

Classification of Securities

The bank’s fair value through profit or loss (FVTPL) securities of $14,739 million ($13,641 million as at October 31, 2022) are comprised of $4,613 million mandatorily measured at fair value and $10,126 million investment securities held by insurance subsidiaries designated at fair value ($4,410 million and $9,231 million, respectively, as at October 31, 2022).

Our fair value through other comprehensive income (FVOCI) securities totalling $48,365 million ($43,561 million as at October 31, 2022), are net of an allowance for credit losses of $2 million ($3 million as at October 31, 2022).

Amortized cost securities totalling $105,784 million ($106,590 million as at October 31, 2022), are net of an allowance for credit losses of $1 million ($3 million as at October 31, 2022).

Amortized Cost Securities

The following table summarizes the carrying value and fair value for amortized cost debt securities:

(Canadian $ in millions)	January 31, 2023				October 31, 2022
	Carrying value		Fair value		Carrying value		Fair value
Issued or guaranteed by:
Canadian federal government		6,896		6,895		7,136		7,129
Canadian provincial and municipal governments		5,566		5,592		5,588		5,583
U.S. federal government		57,892		52,145		59,245		51,717
U.S. states, municipalities and agencies		106		106		109		105
Other governments		1,370		1,363		1,387		1,377
NHA MBS, U.S. agency MBS and CMO (1)		31,838		28,702		31,013		26,864
Corporate debt		2,116		2,056		2,112		2,057
Total		105,784		96,859		106,590		94,832
(1)	These amounts are either supported by insured mortgages or issued by U.S. agencies and government-sponsored enterprises. NHA refers to the National Housing Act, MBS refers to mortgage-backed securities and CMO refers to collateralized mortgage obligations.
---	---

The carrying value of securities that are part of fair value hedging relationships are adjusted for related gains (losses) on hedge contracts.

Unrealized Gains and Losses on FVOCI Securities

The following table summarizes the unrealized gains and losses:

(Canadian $ in millions)	January 31, 2023								October 31, 2022
	Cost/<br>Amortized<br>cost		Gross<br>unrealized<br>gains		Gross<br>unrealized<br>losses		Fair value		Cost/<br>Amortized<br>cost		Gross<br>unrealized<br>gains		Gross<br>unrealized<br>losses		Fair value
Issued or guaranteed by:
Canadian federal government		13,889		82		105		13,866		12,498		11		208		12,301
Canadian provincial and municipal governments		4,863		33		95		4,801		4,724		6		159		4,571
U.S. federal government		3,020		22		197		2,845		3,403		-		293		3,110
U.S. states, municipalities and agencies		4,466		9		91		4,384		3,863		5		154		3,714
Other governments		6,542		15		69		6,488		6,532		4		125		6,411
NHA MBS		1,641		3		9		1,635		1,376		1		14		1,363
U.S. agency MBS and CMO		10,528		8		204		10,332		8,196		12		303		7,905
Corporate debt		3,957		7		106		3,858		4,203		25		195		4,033
Corporate equity		125		31		-		156		122		31		-		153
Total		49,031		210		876		48,365		44,917		95		1,451		43,561

Unrealized gains (losses) may be offset by related (losses) gains on hedge contracts.

Interest Income on Debt Securities

The following table presents interest income calculated using the effective interest method:

(Canadian $ in millions)	For the three months ended
	January 31, 2023		January 31, 2022
FVOCI		479		96
Amortized cost		531		172
Total		1,010		268

BMO Financial Group First Quarter Report 2023

53

Non-Interest Revenue

Net gains and losses from securities, excluding gains and losses on trading securities, have been included in our Consolidated Statement of Income as follows:

(Canadian $ in millions)	For the three months ended
	January 31, 2023		January 31, 2022
FVTPL securities		62		102
FVOCI securities - realized gains (losses) (1)		11		36
Impairment <br>recovery		2		-
Securities gains, other than trading		75		138
(1)	Gains (losses) are net of (losses) gains on hedge contracts.
---	---

Interest and dividend income and gains (losses) on securities held in our Insurance business are recorded in non-interest revenue, insurance revenue, in our Consolidated Statement of Income. These include:

•	Interest and dividend income of $108 million and $95 million for the three months ended January 31, 2023 and 2022, respectively. Interest income is calculated using the effective interest method;
•	Gains (losses) from securities designated as FVTPL of $560 million and $(244) million for the three months ended January 31, 2023 and 2022, respectively; and
---	---
•	Realized gains from FVOCI securities were<br>$nil<br>million for the three months ended January 31, 2023 and 2022.
---	---

54

BMO Financial Group First Quarter Report 2023

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Note 3: Loans and Allowance for Credit Losses

Credit Risk Exposure

The following table sets out our credit risk exposure for all loans carried at amortized cost, FVOCI or FVTPL as at January 31, 2023 and October 31, 2022. Stage 1 represents those performing loans carried with up to a 12 month expected credit loss, Stage 2 represents those performing loans carried with a lifetime expected credit loss, and Stage 3 represents those loans with a lifetime expected credit loss that are credit impaired.

(Canadian $ in millions)	January 31, 2023								October 31, 2022
	Stage 1		Stage 2		Stage 3		Total		Stage 1		Stage 2		Stage 3		Total
Loans: Residential mortgages
Exceptionally low		20		-		-		20		7		-		-		7
Very low		79,344		138		-		79,482		94,743		81		-		94,824
Low		48,113		10,395		-		58,508		31,617		3,134		-		34,751
Medium		6,785		3,210		-		9,995		13,474		3,871		-		17,345
High		245		1,567		-		1,812		138		341		-		479
Not rated		1,122		49		-		1,171		1,126		53		-		1,179
Impaired		-		-		306		306		-		-		295		295
Gross residential mortgages		135,629		15,359		306		151,294		141,105		7,480		295		148,880
Allowance for credit losses		50		94		8		152		59		66		10		135
Carrying amount		135,579		15,265		298		151,142		141,046		7,414		285		148,745
Loans: Consumer instalment and other personal
Exceptionally low		1,502		3		-		1,505		1,792		35		-		1,827
Very low		39,537		103		-		39,640		33,554		83		-		33,637
Low		22,111		924		-		23,035		24,369		1,307		-		25,676
Medium		8,350		5,052		-		13,402		13,536		4,633		-		18,169
High		673		1,775		-		2,448		873		1,525		-		2,398
Not rated		3,780		35		-		3,815		4,052		32		-		4,084
Impaired		-		-		339		339		-		-		312		312
Gross consumer instalment and other personal		75,953		7,892		339		84,184		78,176		7,615		312		86,103
Allowance for credit losses		100		299		112		511		101		288		102		491
Carrying amount		75,853		7,593		227		83,673		78,075		7,327		210		85,612
Loans: Credit cards (1)
Exceptionally low		2,689		-		-		2,689		2,920		-		-		2,920
Very low		439		-		-		439		442		1		-		443
Low		1,591		52		-		1,643		1,569		51		-		1,620
Medium		3,167		827		-		3,994		2,918		792		-		3,710
High		372		617		-		989		316		563		-		879
Not rated		85		2		-		87		90		1		-		91
Impaired		-		-		-		-		-		-		-		-
Gross credit cards		8,343		1,498		-		9,841		8,255		1,408		-		9,663
Allowance for credit losses		77		226		-		303		69		207		-		276
Carrying amount		8,266		1,272		-		9,538		8,186		1,201		-		9,387
Loans: Business and government (2)
Acceptable
Investment grade		185,720		5,102		-		190,822		187,245		6,765		-		194,010
Sub-investment<br> grade		95,331		23,436		-		118,767		98,451		22,390		-		120,841
Watchlist		-		6,247		-		6,247		-		6,310		-		6,310
Impaired		-		-		1,382		1,382		-		-		1,384		1,384
Gross business and government		281,051		34,785		1,382		317,218		285,696		35,465		1,384		322,545
Allowance for credit losses		613		652		407		1,672		608		675		432		1,715
Carrying amount		280,438		34,133		975		315,546		285,088		34,790		952		320,830
Gross total loans and acceptances		500,976		59,534		2,027		562,537		513,232		51,968		1,991		567,191
Net total loans and acceptances		500,136		58,263		1,500		559,899		512,395		50,732		1,447		564,574
Commitments and financial guarantee contracts
Acceptable
Investment grade		181,687		1,759		-		183,446		182,153		5,134		-		187,287
Sub-investment<br> grade		43,867		13,338		-		57,205		45,920		14,047		-		59,967
Watchlist		-		2,072		-		2,072		2		2,176		-		2,178
Impaired		-		-		334		334		-		-		292		292
Allowance for credit losses		198		181		11		390		194		174		13		381
Carrying amount (3)(4)		225,356		16,988		323		242,667		227,881		21,183		279		249,343
(1)	Credit card loans are immediately written off when principal or interest payments are 180 days past due, and as a result are not reported as impaired in Stage 3.
---	---
(2)	Includes customers’ liability under acceptances.
---	---
(3)	Represents the total contractual amounts of undrawn credit facilities and other <br>off-balance<br> sheet exposures, excluding personal lines of credit and credit cards that are unconditionally cancellable at our discretion.
---	---
(4)	Certain commercial borrower commitments are conditional and may include recourse to counterparties.
---	---

Allowance for Credit Losses

The allowance for credit losses recorded in our Consolidated Balance Sheet is maintained at a level we consider adequate to absorb credit-related losses on our loans and other credit instruments. The allowance for credit losses amounted to $3,028 million at January 31, 2023 ($2,998 million as at October 31, 2022) of which $2,638 million ($2,617 million as at October 31, 2022) was recorded in loans and $390 million ($381 million as at October 31, 2022) was recorded in other liabilities in our Consolidated Balance Sheet.

BMO Financial Group First Quarter Report 2023

55

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Significant changes in the gross balances, including originations, maturities and repayments in the normal course of operations, impact the allowance for credit losses.

The following tables show the continuity in the loss allowance by product type for the three months ended January 31, 2023 and January 31, 2022. Transfers represent the amount of expected credit loss (ECL) that moved between stages during the period, for example, moving from a 12-month (Stage 1) to lifetime (Stage 2) ECL measurement basis. Net remeasurements represent the ECL impact due to transfers between stages, as well as changes in economic forecasts and credit quality. Model changes include new calculation models or methodologies.

(Canadian in millions)
For the three months ended												January 31, 2022
			Stage 2			Stage 3			Total			Stage 1			Stage 2			Stage 3			Total
Loans: Residential mortgages
Balance as at beginning of period	59			67			16			142			46			40			19			105
Transfer to Stage 1	24			(24	)		-			-			11			(10	)		(1	)		-
Transfer to Stage 2	(9	)		10			(1	)		-			(1	)		3			(2	)		-
Transfer to Stage 3	-			(2	)		2			-			-			(2	)		2			-
Net remeasurement of loss allowance	(7	)		30			2			25			(11	)		10			3			2
Loan originations	7			-			-			7			5			-			-			5
Derecognitions and maturities	(1	)		(1	)		-			(2	)		(1	)		(2	)		-			(3	)
Model changes	(24	)		17			-			(7	)		-			-			-			-
Total Provision for Credit Losses (PCL) (1)	(10	)		30			3			23			3			(1	)		2			4
Write-offs (2)	-			-			(3	)		(3	)		-			-			(1	)		(1	)
Recoveries of previous write-offs	-			-			1			1			-			-			1			1
Foreign exchange and other	1			(1	)		(4	)		(4	)		-			1			(4	)		(3	)
Balance as at end of period	50			96			13			159			49			40			17			106
Loans: Consumer instalment and other personal
Balance as at beginning of period	111			304			102			517			128			357			91			576
Transfer to Stage 1	60			(58	)		(2	)		-			58			(56	)		(2	)		-
Transfer to Stage 2	(11	)		20			(9	)		-			(9	)		15			(6	)		-
Transfer to Stage 3	(1	)		(22	)		23			-			(1	)		(23	)		24			-
Net remeasurement of loss allowance	(40	)		77			50			87			(55	)		40			18			3
Loan originations	12			-			-			12			16			-			-			16
Derecognitions and maturities	(3	)		(7	)		-			(10	)		(6	)		(11	)		-			(17	)
Model changes	(16	)		3			-			(13	)		-			-			-			-
Total PCL (1)	1			13			62			76			3			(35	)		34			2
Write-offs (2)	-			-			(62	)		(62	)		-			-			(50	)		(50	)
Recoveries of previous write-offs	-			-			15			15			-			-			18			18
Foreign exchange and other	(1	)		(1	)		(5	)		(7	)		-			2			(2	)		-
Balance as at end of period	111			316			112			539			131			324			91			546
Loans: Credit cards
Balance as at beginning of period	115			250			-			365			114			245			-			359
Transfer to Stage 1	40			(40	)		-			-			51			(51	)		-			-
Transfer to Stage 2	(9	)		9			-			-			(10	)		10			-			-
Transfer to Stage 3	(1	)		(33	)		34			-			-			(29	)		29			-
Net remeasurement of loss allowance	(36	)		90			34			88			(57	)		45			12			-
Loan originations	18			-			-			18			13			-			-			13
Derecognitions and maturities	(1	)		(5	)		-			(6	)		(2	)		(6	)		-			(8	)
Model changes	-			-			-			-			2			(8	)		-			(6	)
Total PCL (1)	11			21			68			100			(3	)		(39	)		41			(1	)
Write-offs (2)	-			-			(80	)		(80	)		-			-			(57	)		(57	)
Recoveries of previous write-offs	-			-			19			19			-			-			20			20
Foreign exchange and other	-			(2	)		(7	)		(9	)		2			-			(4	)		(2	)
Balance as at end of period	126			269			-			395			113			206			-			319
Loans: Business and government
Balance as at beginning of period	746			789			439			1,974			662			855			401			1,918
Transfer to Stage 1	87			(86	)		(1	)		-			93			(65	)		(28	)		-
Transfer to Stage 2	(30	)		75			(45	)		-			(16	)		57			(41	)		-
Transfer to Stage 3	(1	)		(30	)		31			-			-			(8	)		8			-
Net remeasurement of loss allowance	(114	)		64			78			28			(129	)		(54	)		70			(113	)
Loan originations	81			-			-			81			118			-			-			118
Derecognitions and maturities	(41	)		(51	)		-			(92	)		(41	)		(59	)		-			(100	)
Model changes	-			-			-			-			1			(6	)		-			(5	)
Total PCL (1)	(18	)		(28	)		63			17			26			(135	)		9			(100	)
Write-offs (2)	-			-			(76	)		(76	)		-			-			(27	)		(27	)
Recoveries of previous write-offs	-			-			11			11			-			-			7			7
Foreign exchange and other	23			10			(24	)		9			12			15			(4	)		23
Balance as at end of period	751			771			413			1,935			700			735			386			1,821
Total as at end of period	1,038			1,452			538			3,028			993			1,305			494			2,792
Comprised of: Loans	840			1,271			527			2,638			786			1,138			481			2,405
Other credit instruments (3)	198			181			11			390			207			167			13			387

All values are in US Dollars.

(1)	Excludes PCL on other assets of $1 million for the three months ended January 31, 2023 ($(4<br>) million recovery for the three months ended January 31, 2022).
(2)	Generally, we continue to seek recovery on amounts that were written off during the year, unless the loan is sold, we no longer have the right to collect or we have exhausted all reasonable efforts to collect.
---	---
(3)	Other credit instruments, including <br>off-balance<br> sheet items, are recorded in other liabilities in our Consolidated Balance Sheet.
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56

BMO Financial Group First Quarter Report 2023

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Loans and allowance for credit losses by geographic region as at January 31, 2023 and October 31, 2022 are as follows:

(Canadian $ in millions)	January 31, 2023								October 31, 2022
	Gross<br>amount		Allowance for credit losses<br>on impaired loans (2)		Allowance for credit losses<br>on performing loans (3)		Net<br>amount		Gross<br>amount		Allowance for credit losses<br>on impaired loans (2)		Allowance for credit losses<br>on performing loans (3)		Net<br>amount
By geographic region (1):
Canada		343,834		378		1,123		342,333		342,430		363		1,102		340,965
United States		193,516		144		975		192,397		200,439		176		959		199,304
Other countries		11,551		5		13		11,533		11,087		5		12		11,070
Total		548,901		527		2,111		546,263		553,956		544		2,073		551,339
(1)	Geographic region is based upon the country of ultimate risk.
---	---
(2)	Excludes allowance for credit losses on impaired loans of $11 million for other credit instruments, which is included in other liabilities ($13 million as at October 31, 2022).
---	---
(3)	Excludes allowance for credit losses on performing loans of $379 million for other credit instruments, which is included in other liabilities ($368 million as at October 31, 2022).
---	---

Impaired (Stage 3) loans, including the related allowances, as at January 31, 2023 and October 31, 2022 are as follows:

(Canadian in millions)				January 31, 2023						October 31, 2022
		Allowance for credit losses on<br>impaired loans (4)		Net impaired<br>amount (3)		Gross impaired<br>amount (3)		Allowance for credit losses<br>on impaired loans (4)		Net impaired<br>amount (3)
Residential mortgages	306		8		298		295		10		285
Consumer instalment and other personal	339		112		227		312		102		210
Business and government (1)	1,382		407		975		1,384		432		952
Total	2,027		527		1,500		1,991		544		1,447
By geographic region (2):
Canada	1,196		378		818		1,158		363		795
United States	818		144		674		820		176		644
Other countries	13		5		8		13		5		8
Total	2,027		527		1,500		1,991		544		1,447

All values are in US Dollars.

(1)	Includes customers’ liability under acceptances.
(2)	Geographic region is based upon the country of ultimate risk.
---	---
(3)	Gross impaired loans and net impaired loans exclude purchased credit impaired loans.
---	---
(4)	Excludes allowance for credit losses on impaired loans of $11 million for other credit instruments, which is included in other liabilities ($13 million as at October 31, 2022).
---	---

Loans Past Due Not Impaired

Loans that are past due but not classified as impaired are loans where our customers have failed to make payments when contractually due but for which we expect the full amount of principal and interest payments to be collected, or loans which are held at fair value.

The following table presents loans that are past due but not classified as impaired as at January 31, 2023 and October 31, 2022. Loans less than 30 days past due are excluded as they are not generally representative of the borrower’s ability to meet their payment obligations.

(Canadian in millions)		January 31, 2023						October 31, 2022
		90 days or more		Total		30 to 89 days		90 days or more		Total
Residential mortgages	414		10		424		411		19		430
Credit card, consumer instalment and other personal	423		86		509		392		84		476
Business and government	219		11		230		198		38		236
Total	1,056		107		1,163		1,001		141		1,142

All values are in US Dollars.

Fully secured loans with amounts between 90 and 180 days past due that we have not classified as impaired totalled $14 million and $43 million as at January 31, 2023 and October 31, 2022, respectively.

ECL Sensitivity and Key Economic Variables

The expected credit loss model requires the recognition of credit losses generally based on 12 months of expected losses for performing loans and the recognition of lifetime losses on performing loans that have experienced a significant increase in credit risk since origination.

The allowance for performing loans is sensitive to changes in both economic forecasts and the probability-weight assigned to each forecast scenario. Many of the factors have a high degree of interdependency, although there is no single factor to which loan impairment allowances as a whole are sensitive.

The benign scenario as at January 31, 2023 involves a materially stronger economic environment than the base case forecast, with a considerably lower unemployment rate.

As at January 31, 2023, our base case scenario depicts weaker economic growth in both Canada and the U.S., as

growth is tempered by high inflation, rapidly-rising interest rates, and weaker global demand. In contrast, our base case economic forecast as at October 31, 2022, depicted a stronger economic forecast in both Canada and the United States over the projection period. If we assumed a 100% base case economic forecast and included the impact of loan migration by restaging, with other assumptions held constant, including the application of experienced credit judgment, the allowance on performing loans would be approximately $1,950 million as at January 31, 2023 ($1,900 million as at October 31, 2022), compared to the reported allowance for performing loans of $2,490 million ($2,441 million as at October 31, 2022).

As at January 31, 2023, our adverse economic scenario depicts a contracting economy, with annual average real GDP declining in both Canada and the U.S. The adverse case as at October 31, 2022 depicted a fairly similar economic environment in Canada and the U.S. If we assumed a

100% adverse economic forecast and included the impact of loan migration by restaging, with other assumptions held constant, including the application of experienced credit judgment, the allowance on performing loans would be approximately $3,250 million as at January 31, 2023 ($3,250 million as at October 31, 2022), compared to the reported allowance for performing loans of $2,490 million ($2,441 million as at October 31, 2022).

BMO Financial Group First Quarter Report 2023

57

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Actual results in a recession will differ as our portfolio will change through time due to migration, growth, risk mitigation actions and other factors. In addition, our allowance will reflect the three economic scenarios used in assessing the allowance, with weightings attached to adverse and benign scenarios often unequally weighted and the weightings will change through time.

The following table shows the key economic variables used to estimate the allowance on performing loans forecast over the next 12 months or lifetime measurement period. While the values disclosed below are national variables, we use regional variables in the underlying models and consider factors impacting particular industries where appropriate.

	As at January 31, 2023												As at October 31, 2022
All figures are average annual values	Benign scenario				Base scenario				Adverse scenario				Benign scenario				Base scenario				Adverse scenario
	First 12<br>Months		Remaining<br>horizon (1)		First 12<br>Months		Remaining<br>horizon (1)		First 12<br>Months		Remaining<br>horizon (1)		First 12<br>Months		Remaining<br>horizon (1)		First 12<br>Months		Remaining<br>horizon (1)		First 12<br>Months		Remaining<br>horizon (1)
Real GDP growth rates (2)
Canada		2.8%		2.4%		0.0%		1.6%		(3.5)%		1.2%		3.7%		2.2%		1.5%		1.1%		(2.3)%		0.4%
United States		2.6%		2.3%		0.0%		1.8%		(3.5)%		1.4%		2.4%		2.1%		0.2%		1.3%		(3.3)%		0.6%
Corporate BBB <br>10-year<br> spread
Canada		1.9%		1.9%		2.4%		2.1%		4.2%		3.5%		1.9%		1.9%		2.4%		2.2%		3.7%		3.9%
United States		1.8%		1.9%		2.2%		2.1%		4.6%		3.4%		1.8%		1.9%		2.2%		2.2%		4.2%		3.9%
Unemployment rates
Canada		4.2%		3.7%		6.1%		6.4%		8.8%		9.6%		4.3%		3.6%		5.9%		6.5%		8.0%		9.9%
United States		2.9%		2.5%		4.8%		4.7%		7.5%		8.3%		3.2%		2.6%		4.2%		4.8%		6.5%		8.4%
Housing Price Index (2)
Canada (3)		(9.8)%		5.2%		(14.0)%		2.7%		(26.0)%		(5.0)%		(6.7)%		2.1%		(10.0)%		(1.0)%		(13.6)%		(8.0)%
United States (4)		(7.6)%		2.4%		(10.8)%		0.9%		(19.2)%		(4.3)%		1.6%		(0.7)%		(0.9)%		(2.6)%		(7.5)%		(8.4)%
(1)	The remaining forecast period is two years.
---	---
(2)	Real gross domestic product and housing price index are averages of quarterly year-over-year growth rates.
---	---
(3)	In Canada, we use the HPI Benchmark Composite.
---	---
(4)	In the United States, we use the National Case-Shiller House Price Index.
---	---

The ECL approach requires the recognition of credit losses generally based on 12 months of expected losses for performing loans (Stage 1) and the recognition of lifetime expected losses for performing loans that have experienced a significant increase in credit risk since origination (Stage 2). Under our current probability-weighted scenarios, if all our performing loans were in Stage 1, our models would generate an allowance for performing loans of approximately $1,900 million ($1,850 million as at October 31, 2022), compared to the reported allowance for performing loans of $2,490 million ($2,441 million as at October 31, 2022).

Note 4: Deposits and Subordinated Debt

Deposits

	Payable on demand				Payable<br>after notice		Payable on<br>a fixed date (2)(3)		January 31, 2023		October 31, 2022
(Canadian $ in millions)	Interest bearing		Non-interest<br> <br>bearing
Deposits by:
Banks (1)		3,967		1,983		1,550		22,115		29,615		30,901
Business and government		52,152		48,039		144,150		264,066		508,407		495,831
Individuals		3,776		35,471		113,278		96,829		249,354		242,746
Total (4)		59,895		85,493		258,978		383,010		787,376		769,478
Booked in:
Canada		50,418		75,558		123,143		278,444		527,563		515,290
United States		9,245		9,860		133,771		61,168		214,044		217,720
Other countries		232		75		2,064		43,398		45,769		36,468
Total		59,895		85,493		258,978		383,010		787,376		769,478
(1)	Includes regulated and central banks.
---	---
(2)	Includes $58,481 million of senior unsecured debt as at January 31, 2023 subject to the Bank Recapitalization <br>(Bail-In)<br> regime ($51,746 million as at October 31, 2022). The <br>Bail-In<br> regime provides certain statutory powers to the Canada Deposit Insurance Corporation, including the ability to convert specified eligible shares and liabilities into common shares if the bank becomes <br>non-viable.
---	---
(3)	Deposits totalling $31,120 million as at January 31, 2023 ($29,966<br>million as at October 31, 2022) can be early redeemed, either fully or partially, by customers without penalty. These are classified as payable on a fixed date, based on their remaining contractual maturities.
---	---
(4)	Includes $<br>383,976<br>million of deposits denominated in U.S. dollars as at January 31, 2023 ($<br>384,080<br>million as at October 31, 2022), and $<br>57,025<br>million of deposits denominated in other foreign currencies ($<br>46,830<br>million as at October 31, 2022).
---	---

The following table presents deposits payable on a fixed date and greater than one hundred thousand dollars:

(Canadian $ in millions)	Canada		United States		Other		Total
As at January 31, 2023		244,815		56,393		43,396		344,604
As at October 31, 2022		230,475		50,542		34,241		315,258

The following table presents the maturity schedule for deposits payable on a fixed date and greater than one hundred thousand dollars, which are booked in Canada:

(Canadian $ in millions)	Less than 3 months		3 to 6 months		6 to 12 months		Over 12 months		Total
As at January 31, 2023		45,998		31,946		57,018		109,853		244,815
As at October 31, 2022		46,792		28,826		55,288		99,569		230,475

58

BMO Financial Group First Quarter Report 2023

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Subordinated Debt

During the three months ended January 31, 2023, we did not issue or redeem any subordinated debt.

Note 5: Equity

Preferred and Common Shares Outstanding and Other Equity Instruments

(1)

(Canadian $ in millions, except as noted)	January 31, 2023						October 31, 2022
	Number<br>of shares		Amount		Dividends declared<br>per share		Number<br>of shares		Amount		Dividends declared<br>per share		Convertible into
Preferred Shares - Classified as Equity
Class B – Series 27		20,000,000		500		0.24		20,000,000		500		0.96		Class B - Series 28	(2)(3)
Class B – Series 29		16,000,000		400		0.23		16,000,000		400		0.91		Class B - Series 30	(2)(3)
Class B – Series 31		12,000,000		300		0.24		12,000,000		300		0.96		Class B - Series 32	(2)(3)
Class B – Series 33		8,000,000		200		0.19		8,000,000		200		0.76		Class B - Series 34	(2)(3)
Class B – Series 44		16,000,000		400		0.30		16,000,000		400		1.21		Class B - Series 45	(2)(3)
Class B – Series 46		14,000,000		350		0.32		14,000,000		350		1.28		Class B - Series 47	(2)(3)
Class B – Series 50		500,000		500		-		500,000		500		24.64		Not convertible	(3)
Class B – Series 52 (11)		650,000		650		-		-		-		-		Not convertible	(3)
Preferred Shares - Classified as Equity				3,300						2,650
Other Equity Instruments
4.800<br>%<br>Additional Tier 1 Capital Notes (AT1 Notes)				658						658				Variable number of common shares	(3)(5)
4.300<br>%<br>Limited Recourse Capital Notes, Series 1 (Series 1 <br>LRCNs)				1,250						1,250				Variable number of common shares	(3)(4)<br>(5)
5.625<br>%<br>Limited Recourse Capital Notes, Series 2 (Series 2 <br>LRCNs)				750						750				Variable number of common shares	(3)(4)<br>(5)
7.325<br>%<br>Limited Recourse Capital Notes, Series 3 (Series 3 <br>LRCNs)				1,000						1,000				Variable number of common shares	(3)(4)<br>(5)
Other Equity Instruments				3,658						3,658
Preferred Shares and Other Equity Instruments				6,958						6,308
Common Shares (6)(7)(8)(9)(10)		709,664,228		21,637		1.43		677,106,878		17,744		5.44
(1)	For additional information refer to Notes 16 and 20 of our annual consolidated financial statements for the year ended October 31, 2022.
---	---
(2)	If<br><br>converted, the holders have the option to convert back to the original preferred shares on subsequent redemption dates, subject to certain conditions.
---	---
(3)	The instruments issued include a <br>non-viability<br> contingent capital provision (NVCC), which is necessary for the preferred shares, AT1 Notes and by virtue of the recourse to Preferred Shares Series 48, Preferred Shares Series 49 and Preferred Shares Series 51 for Series 1, Series 2 and Series 3 LRCNs, respectively, to qualify as regulatory capital under Basel III, (see (4) below). As such, they are convertible into a variable number of our common shares if OSFI announces that the bank is, or is about to become, <br>non-viable<br> or if a federal or provincial government in Canada publicly announces that the bank has accepted or agreed to accept a capital injection, or equivalent support, to avoid <br>non-viability.<br> In such an event, each preferred share, including Preferred Shares Series 48, Preferred Shares Series 49 and Preferred Shares Series 51 for Series 1, Series 2 and Series 3 LRCNs, respectively, and AT1 Notes, is convertible into common shares pursuant to an automatic conversion formula and a conversion price based on the greater of: (i) a floor price of $5.00 <br>and (ii) the current market price of our common shares based on the volume weighted average trading price of our common shares on the TSX. The number of common shares issued is determined by dividing the value of the preferred share or other equity instrument, including declared and unpaid dividends, by the conversion price and then applying the multiplier. Non-cumulative dividends on preferred shares are payable quarterly as and when declared by the Board of Directors, except for Class B – Series 50 and 52 preferred share dividends, which are payable semi-annually.
---	---
(4)	Non-deferrable<br> interest is payable semi-annually on the LRCNs at the bank’s discretion. <br>Non-payment<br> of interest will result in a recourse event, with the noteholders’ sole remedy being the holders’ proportionate share of trust assets comprised of our NVCC Preferred Shares Series 48, Preferred Shares Series 49 and Preferred Shares Series 51 for Series 1, Series 2 and Series 3 LRCNs, respectively, which are eliminated on consolidation. In such an event, the delivery of the trust assets will represent the full and complete extinguishment of our obligations under the LRCNs. In circumstances under which NVCC, including the Preferred Shares Series 48, Preferred Shares Series 49 and Preferred Shares Series 51 for Series 1, Series 2 and Series 3 LRCNs, respectively, would be converted into common shares of the bank, the LRCNs would be redeemed and the noteholders’ sole remedy would be their proportionate share of trust assets, then comprised of common shares of the bank received by the trust on conversion.
---	---
(5)	The rates represent the annual interest rate percentage applicable to the notes issued as at the reporting date.
---	---
(6)	The stock options issued under the Stock Option Plan are convertible into 7,003,776 common shares as at January 31, 2023 (5,976,870 common shares as at October 31, 2022) of which 3,264,505 are exercisable as at January 31, 2023 (2,648,426 as at October 31, 2022).
---	---
(<br>7<br>)	During the three months ended January 31, 2023, we issued 2,676,317 common shares, under the Shareholder Dividend Reinvestment and Share Purchase Plan (nil during the three months ended January 31, 2022) and we issued 294,326 common shares, under the Stock Option Plan (282,072 common shares during the three months ended January 31, 2022).
(8)	Common shares are net of 81,920 treasury shares as at January 31, 2023 (174,689 treasury shares as at October 31, 2022).
---	---
(9)	On December 1, 2022, we issued 1,162,711 shares for $153 million for the acquisition of Radicle Group Inc. Refer to Note 12 for further information.
---	---
(10)	On December 16, 2022, we issued 13,575,750 common shares for $1,610 million<br>through public offering and<br>8,431,700 common shares for $1,000 million under private placement. On January 25, 2023, we issued an additional 6,323,777 common shares for $750 million to BNP Paribas S.A. under private placement. In total we issued 28,331,227 common shares for $3,360 <br>million to align our capital position with increased regulatory requirements as announced by OSFI on December 8, 2022 (refer to Note 7).
---	---
(11)	On January 31, 2023, we issued Class B - Series 52 Preferred<br> Shares for $650 million.
---	---

Other Equity Instruments

The AT1 Notes and LRCNs are compound financial instruments that have both equity and liability features. On the date of issuance, we assigned an insignificant value to the liability components of both instruments and, as a result, the full amount of proceeds has been classified as equity and form part of our additional Tier 1 non-viability contingent capital (NVCC). Semi-annual distributions are recognized as a reduction in equity when payable. The AT1 Notes and LRCNs are subordinate to the claims of the depositors and certain other creditors in right of payment.

Preferred Shares

On January 31, 2023, we issued 650,000 Non-Cumulative 5-Year Fixed Rate Reset Class B Preferred Shares Series 52 (NVCC) at a price of $1,000 per share for gross proceeds of $650 million. For the initial fixed rate period to, but excluding May 26, 2028, the shares pay non-cumulative preferential fixed semi-annual cash dividends, as and when declared, in the amount of $ 70.57 per share per annum, to yield 7.057 % annually. The dividend rate will reset on May 26, 2028 and every fifth year thereafter at a rate equal to the 5-year Government of Canada bond yield plus 4.250%.

BMO Financial Group First Quarter Report 2023

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Common Shares

On

December 1, 2022, we issued 1,162,711 shares for $153 million for the acquisition of Radicle Group Inc. Refer to Note 12 for further information.

On December 16, 2022, we issued 13,575,750 common shares for $1,610 million

through public offering and 8,431,700 common shares for $1,000 million under private placement

. On January 25, 2023, we issued an additional 6,323,777 common shares for $750 million to BNP Paribas S.A. under private placement. In total, we issued 28,331,227 common shares for $3,360

million to align our capital position with increased regulatory requirements as announced by OSFI on December 8, 2022.

Shareholder Dividend Reinvestment and Share Purchase Plan

Until further notice, common shares under the Shareholder Dividend Reinvestment and Share Purchase Plan (the Plan) are issued by the bank from treasury with a

2

% discount, calculated in accordance with the terms of the Plan.

We issue

d 2,676,317 common shares under the Plan for the three months ended January 31, 2023 (nil for the three months ended January 31, 2022).

Note 6: Fair Value of Financial Instruments

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

Set out in the following table are the amounts that would be reported if all financial assets and liabilities not currently carried at fair value were reported at their fair values. Refer to Note 17 of our annual consolidated financial statements for the year ended October 31, 2022 for further discussion on the determination of fair value.

(Canadian $ in millions)	January 31, 2023		October 31, 2022
	Carrying value	Fair value	Carrying value	Fair value
Securities (1)
Amortized cost	105,784	96,859	106,590	94,832
Loans (1)(2)
Residential mortgages	150,772	145,982	148,569	142,526
Consumer instalment and other personal	83,673	82,388	85,612	83,948
Credit cards	9,538	9,538	9,387	9,387
Business and government	295,656	294,345	302,079	300,173
	539,639	532,253	545,647	536,034
Deposits (3)	756,296	754,252	742,419	739,339
Securitization and structured entities’ liabilities (4)	24,716	24,125	25,816	24,989
Other liabilities (5)	3,992	3,304	4,088	3,181
Subordinated debt	8,156	7,979	8,150	7,743

This table excludes financial instruments with a carrying value approximating fair value, such as cash and cash equivalents, interest bearing deposits with banks, securities borrowed or purchased under resale agreements,

customers’ liability under acceptances, certain other assets, certain other liabilities, acceptances and securities lent or sold under repurchase agreements.

(1)	Carrying value is net of allowances for credit losses.
(2)	Excludes $370<br><br>million of residential mortgages classified as FVTPL, $6,229<br><br>million of business and government loans classified as FVTPL and $61<br><br>million of business and government loans classified as FVOCI ($176 million, $5,496 million and $60 million, respectively, as at October 31, 2022).
---	---
(3)	Excludes $30,303 million of structured note liabilities ($26,305 million as at October 31, 2022), $603 million of structured deposits ($536 million as at October 31, 2022) and $174 million of metals deposits ($218 million as at October 31, 2022) measured at fair value.
---	---
(4)	Excludes $1,620 million of securitization and structured note entities’ liabilities classified as FVTPL ($1,252 million as at October 31, 2022).
---	---
(5)	Other liabilities include certain other liabilities of subsidiaries, other than deposits.
---	---

Fair Value Hierarchy

We use a fair value hierarchy to categorize financial instruments according to the inputs we use in valuation techniques to measure fair value.

Valuation Techniques and Significant Inputs

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

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

60

BMO Financial Group First Quarter Report 2023

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The extent

of our use of actively quoted market prices (Level 1), internal models using observable market information as inputs (Level 2) and models without observable market information as inputs (Level 3) in the valuation of securities, residential mortgages, business and government loans classified as FVTPL and FVOCI, other assets, fair value liabilities, derivative assets and derivative liabilities is presented in the following table:

(Canadian in millions)				January 31, 2023				October 31, 2022
		Valued using<br>models (with<br>observable<br>inputs)		Valued using<br>models (without<br>observable<br>inputs)		Total		Valued using<br>quoted<br>market<br>prices		Valued using<br>models (with<br>observable<br>inputs)		Valued using<br>models (without<br>observable<br>inputs)		Total
Trading Securities
Issued or guaranteed by:
Canadian federal government	7,292		4,402		-		11,694		6,981		3,955		-		10,936
Canadian provincial and municipal governments	1,868		4,078		-		5,946		1,120		4,990		-		6,110
U.S. federal government	9,678		9,787		-		19,465		7,326		9,373		-		16,699
U.S. states, municipalities and agencies	-		142		-		142		56		83		-		139
Other governments	1,565		2,180		-		3,745		1,085		2,885		-		3,970
NHA MBS, and U.S. agency MBS and CMO	-		17,195		595		17,790		-		13,327		985		14,312
Corporate debt	1,977		6,834		5		8,816		1,445		8,144		3		9,592
Trading loans	-		371		-		371		-		346		-		346
Corporate equity	42,759		-		-		42,759		46,073		-		-		46,073
	65,139		44,989		600		110,728		64,086		43,103		988		108,177
FVTPL Securities
Issued or guaranteed by:
Canadian federal government	414		184		-		598		319		174		-		493
Canadian provincial and municipal governments	278		997		-		1,275		36		1,044		-		1,080
U.S. federal government	4		1		-		5		-		4		-		4
Other governments	-		88		-		88		-		87		-		87
NHA MBS, and U.S. agency MBS and CMO	-		8		-		8		-		8		-		8
Corporate debt	95		6,954		11		7,060		62		6,409		8		6,479
Corporate equity	1,540		4		4,161		5,705		1,440		6		4,044		5,490
	2,331		8,236		4,172		14,739		1,857		7,732		4,052		13,641
FVOCI Securities
Issued or guaranteed by:
Canadian federal government	2,483		11,383		-		13,866		3,544		8,757		-		12,301
Canadian provincial and municipal governments	1,121		3,680		-		4,801		972		3,599		-		4,571
U.S. federal government	1,564		1,281		-		2,845		1,443		1,667		-		3,110
U.S. states, municipalities and agencies	-		4,383		1		4,384		-		3,713		1		3,714
Other governments	1,350		5,138		-		6,488		1,795		4,616		-		6,411
NHA MBS, and U.S. agency MBS and CMO	-		11,967		-		11,967		-		9,268		-		9,268
Corporate debt	240		3,618		-		3,858		355		3,678		-		4,033
Corporate equity	-		-		156		156		-		-		153		153
	6,758		41,450		157		48,365		8,109		35,298		154		43,561
Loans
Residential mortgages	-		370		-		370		-		176		-		176
Business and government loans	-		6,170		120		6,290		-		5,536		20		5,556
	-		6,540		120		6,660		-		5,712		20		5,732
Other Assets (1)	4,601		63		66		4,730		4,148		60		49		4,257
Fair Value Liabilities
Securities sold but not yet purchased	22,542		22,684		-		45,226		18,465		22,514		-		40,979
Structured note liabilities (2)	-		30,303		-		30,303		-		26,305		-		26,305
Structured deposits (3)	-		603		-		603		-		536		-		536
Other liabilities (4)	1,263		2,662		3		3,928		1,179		2,298		2		3,479
	23,805		56,252		3		80,060		19,644		51,653		2		71,299
Derivative Assets
Interest rate contracts	27		10,085		-		10,112		80		12,682		-		12,762
Foreign exchange contracts	1		14,817		-		14,818		21		22,475		26		22,522
Commodity contracts	1,063		2,551		13		3,627		1,514		4,810		-		6,324
Equity contracts	430		4,280		1		4,711		939		5,552		-		6,491
Credit default swaps	9		17		-		26		-		61		-		61
	1,530		31,750		14		33,294		2,554		45,580		26		48,160
Derivative Liabilities
Interest rate contracts	14		12,126		-		12,140		58		16,540		-		16,598
Foreign exchange contracts	12		16,387		12		16,411		2		25,108		-		25,110
Commodity contracts	1,145		1,339		-		2,484		1,523		2,066		-		3,589
Equity contracts	820		12,200		-		13,020		1,203		13,381		-		14,584
Credit default swaps	23		10		2		35		-		73		2		75
	2,014		42,062		14		44,090		2,786		57,168		2		59,956

All values are in US Dollars.

(1)	Other assets include precious metals, segregated <br>fund assets in our insurance business, certain receivables and other items measured at fair value.
(2)	These structured note liabilities included in deposits have been designated at FVTPL.
---	---
(3)	This represents certain embedded options related to structured deposits carried at amortized cost.
---	---
(4)	Other liabilities include investment contract liabilities and segregated fund liabilities in our insurance business, certain payables and metals deposits that have been designated at FVTPL as well as certain securitization and structured entities’ liabilities measured at FVTPL.
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BMO Financial Group First Quarter Report 2023

61

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Quantitative Information about Level 3 Fair Value Measurements

The table below presents the fair values of our significant Level 3 financial instruments measured at fair value on a recurring basis, the valuation techniques used to determine their fair values and the value ranges of significant unobservable inputs used in the valuations. We have not applied any other reasonably possible alternative assumptions to the significant Level 3 categories of private equity investments, as the net asset values are provided by the investment or fund managers.

						Range of input values (1)
As at January 31, 2023<br> <br>(Canadian $ in millions, except as noted)	Reporting line in fair<br>value hierarchy table	Fair value<br>of assets		Valuation techniques	Significant<br>unobservable inputs	Low		High
Private equity (2)	Corporate equity		4,161	Net asset value	Net asset value		na		na
				EV/EBITDA	Multiple		4x		19x
NHA MBS, U.S. agency MBS and CMO	NHA MBS, U.S. agency MBS and CMO		595	Discounted cash flows	Prepayment rate		3%		12%
				Market Comparable	Comparability Adjustment (3)		(3.77)		6.66
(1)	The low and high input values represent the lowest and highest actual level of inputs used to value a group of financial instruments in a particular product category. These input ranges do not reflect the level of input uncertainty, but are affected by the specific underlying instruments within each product category. The input ranges will therefore vary from period to period based on the characteristics of the underlying instruments held at each balance sheet date.
---	---
(2)	Included in private equity is $812<br><br>million of U.S. Federal Reserve Bank and U.S. Federal Home Loan Bank shares that we carry at cost as at January 31, 2023 ($832 million as at October 31, 2022), which approximates fair value, and are held to meet regulatory requirements.
---	---
(3)	Range of input values represents price per security adjustment (Canadian $).
---	---
na	– not applicable
---	---

Significant Transfers

Our policy is to record transfers of assets and liabilities between fair value hierarchy levels at their fair values as at the end of each reporting period, consistent with the date of the determination of fair value. Transfers between the various fair value hierarchy levels reflect changes in the availability of quoted market prices or observable market inputs that result from changes in market conditions. Transfers from Level 1 to Level 2 were due to reduced observability of the inputs used to value the securities. Transfers from Level 2 to Level 1 were due to increased availability of quoted prices in active markets.

The following table presents significant transfers between Level 1 and Level 2 for the three months ended January 31, 2023 and January 31, 2022:

(Canadian in millions)
For the three months ended		January 31, 2023				January 31, 2022
		Level 2 to Level 1		Level 1 to Level 2		Level 2 to Level 1
Trading securities	848		2,129		2,655		2,526
FVTPL securities	17		299		129		17
FVOCI securities	1,637		1,282		3,119		2,143
Securities sold but not yet purchased	185		2,150		629		833

All values are in US Dollars.

Changes in Level 3 Fair Value Measurements

The tables below present a reconciliation of all changes in Level 3 financial instruments for the three months ended January 31, 2023 and January 31, 2022, including realized and unrealized gains (losses) included in earnings and other comprehensive income as well as transfers into and out of Level 3. Transfers from Level 2 into Level 3 were due to an increase in unobservable market inputs used in pricing the securities. Transfers out of Level 3 into Level 2 were due to an increase in observable market inputs used in pricing the securities.

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BMO Financial Group First Quarter Report 2023

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			Change in fair value								Movements						Transfers
For the three months ended January 31, 2023<br> <br>(Canadian $ in millions)	Balance<br> October 31,<br> 2022		Included in<br> earnings			Included<br> in other<br> comprehensive<br> income (1)			Issuances/<br> Purchases		Sales			Maturities/<br> Settlement			Transfers<br> into<br> Level 3		Transfers<br> out of<br> Level 3			Fair Value<br> as at January 31,<br> 2023		Change in<br> unrealized gains<br> (losses) recorded<br> in income<br> for instruments<br> still held (2)
Trading Securities
NHA MBS and U.S. agency MBS and CMO		985		(13	)		(22	)		145		(143	)		-			17		(374	)		595		(3	)
Corporate debt		3		-			-			4		-			-			-		(2	)		5		-
Total trading securities		988		(13	)		(22	)		149		(143	)		-			17		(376	)		600		(3	)
FVTPL Securities
Corporate debt		8		-			-			3		-			-			-		-			11		-
Corporate equity		4,044		5			(44	)		220		(63	)		(1	)		-		-			4,161		22
Total FVTPL securities		4,052		5			(44	)		223		(63	)		(1	)		-		-			4,172		22
FVOCI Securities
Issued or guaranteed by:
U.S. states, municipalities and agencies		1		-			-			-		-			-			-		-			1		na
Corporate equity		153		-			(1	)		4		-			-			-		-			156		na
Total FVOCI securities		154		-			(1	)		4		-			-			-		-			157		na
Business and Government Loans		20		-			-			115		-			(15	)		-		-			120		-
Other Assets		49		(3	)		-			22		-			(2	)		-		-			66		(3	)
Derivative Assets
Foreign exchange contracts		26		(26	)		-			-		-			-			-		-			-		-
Commodity contracts		-		-			-			13		-			-			-		-			13		-
Equity contracts		-		-			-			-		-			-			1		-			1		-
Total derivative assets		26		(26	)		-			13		-			-			1		-			14		-
Other Liabilities		2		-			-			1		-			-			-		-			3		-
Derivative Liabilities
Foreign exchange contracts		-		12			-			-		-			-			-		-			12		(38	)
Credit default swaps		2		-			-			-		-			-			-		-			2		-
Total derivative liabilities		2		12			-			-		-			-			-		-			14		(38	)
			Change in fair value								Movements						Transfers
For the three months ended January 31, 2022<br> <br>(Canadian $ in millions)	Balance<br> October 31,<br> 2021		Included in<br> earnings			Included<br> in other<br> comprehensive<br> income (1)			Issuances/<br> Purchases		Sales			Maturities/<br> Settlement			Transfers<br> into<br> Level 3		Transfers<br> out of<br> Level 3			Fair Value<br> as at January 31,<br> 2022		Change in<br> unrealized gains<br> (losses) recorded<br> in income<br> for instruments<br> still held (2)
Trading Securities
NHA MBS and U.S. agency MBS and CMO		675		(44	)		19			382		(192	)		-			114		(86	)		868		8
Corporate debt		7		(1	)		(1	)		9		-			-			-		(1	)		13		(1	)
Total trading securities		682		(45	)		18			391		(192	)		-			114		(87	)		881		7
FVTPL Securities
Corporate debt		-		-			-			-		-			-			-		-			-		-
Corporate equity		2,442		76			36			713		(81	)		-			-		-			3,186		78
Total FVTPL securities		2,442		76			36			713		(81	)		-			-		-			3,186		78
FVOCI Securities
Issued or guaranteed by:
U.S. states, municipalities and agencies		1		-			-			-		-			-			-		-			1		na
Corporate equity		132		-			2			11		-			-			6		-			151		na
Total FVOCI securities		133		-			2			11		-			-			6		-			152		na
Business and Government Loans		6		-			-			-		-			-			-		-			6		-
Other Assets		-		-			-			-		-			-			-		-			-		-
Derivative Assets
Foreign exchange contracts		-		-			-			-		-			-			-		-			-		-
Commodity contracts		-		-			-			-		-			-			-		-			-		-
Equity contracts		-		-			-			-		-			-			-		-			-		-
Total derivative assets		-		-			-			-		-			-			-		-			-		-
Other Liabilities		-		-			-			-		-			-			-		-			-		-
Derivative Liabilities
Foreign exchange contracts		-		-			-			-		-			-			-		-			-		-
Credit default swaps		2		-			-			-		-			-			-		-			2		-
Total derivative liabilities		2		-			-			-		-			-			-		-			2		-
(1)	Foreign exchange translation on assets and liabilities held by foreign operations is included in other comprehensive income, net foreign operations.
---	---
(2)	Changes in unrealized gains (losses) on Trading and FVTPL securities still held on January 31, 2023 and 2022 are included in earnings for the period.
---	---

Unrealized gains (losses) recognized on Level 3 financial instruments may be offset by (losses) gains on economic hedge contracts.

na – not applicable

BMO Financial Group First Quarter Report 2023

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Note 7: Capital Management

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

As at January 31, 2023, we met OSFI’s target capital ratio requirements, which include a 2.5% Capital Conservation Buffer, a 1.0% Common Equity Surcharge for Domestic Systemically Important Banks (D-SIBs), a Countercyclical Buffer and a 2.5 % Domestic Stability Buffer (DSB) applicable to D-SIBs. On December 8, 2022, OSFI announced that the DSB level will be set at 3 % of total risk-weighted assets as of February 1, 2023. In addition, OSFI increased the DSB’s range from 0 % to 2.5 %, to 0 % to 4 %. Our capital position as at January 31, 2023 is further detailed in the Capital Management section of our interim Management’s Discussion and Analysis.

Regulatory Capital and Total Loss Absorbing Capacity Measures, Risk-Weighted Assets and Leverage Exposures

(1)

(Canadian $ in millions, except as noted)	January 31, 2023		October 31, 2022
CET1 Capital		63,115		60,891
Tier 1 Capital		69,988		67,121
Total Capital		78,356		75,309
Total Loss-Absorbing Capacity (TLAC)		129,237		120,663
Risk-Weighted Assets		347,454		363,997
Leverage Exposures		1,181,914		1,189,990
CET1 Ratio		18.2%		16.7%
Tier 1 Capital Ratio		20.1%		18.4%
Total Capital Ratio		22.6%		20.7%
TLAC Ratio		37.2%		33.1%
Leverage Ratio		5.9%		5.6%
TLAC Leverage Ratio		10.9%		10.1%
(1)	Calculated in accordance with OSFI’s Capital Adequacy Requirements Guideline, Leverage Requirements Guideline and Total Loss Absorbing Capacity Guideline.
---	---

Note 8: Employee Compensation

Stock Options

During the three months ended January 31, 2023, we granted a total of 1,322,817 stock options (1,028,255 stock options during the three months ended January 31, 2022) with a weighted-average fair value of $18.94 per option ($14.17 per option for the three months ended January 31, 2022).

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

pricing assumption:

For stock options granted during the three months ended		January 31, 2022
Expected dividend yield	4.5% - 4.6%		4.2%
Expected share price volatility	20.9%		16.8%
Risk-free rate of return	3.2%		1.8<br>% -<br>1.9%
Expected period until exercise (in years)	6.5 - 7.0		6.5 - 7.0
Exercise price ()	122.31		135.58

All values are in US Dollars.

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

Pension and Other Employee Future Benefit Expenses

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

(Canadian in millions)
						Other employee future benefit plans
For the three months ended			January 31, 2022			January 31, 2023		January 31, 2022
Current service cost	41			59			1		2
Net interest (income) expense on net defined benefit (asset) liability	(17	)		(7	)		11		9
Past service cost (income)	(1	)		-			-		-
Gain on settlement	-			(1	)		-		-
Administrative expenses	2			1			-		-
Remeasurement of other long-term benefits	-			-			-		-
Benefits expense	25			52			12		11
Government pension plans expense (1)	76			65			-		-
Defined contribution expense	81			65			-		-
Total pension and other employee future benefit expenses recognized in the Consolidated Statement of Income	182			182			12		11

All values are in US Dollars.

(1)	Includes Canada Pension Plan, Quebec Pension Plan and U.S. Federal Insurance Contributions Act.

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Note

9: Earnings Per Share

Basic earnings per share is calculated by dividing net income, after deducting dividends payable on preferred shares and distributions payable on other equity instruments, by the daily average number of fully paid common shares outstanding throughout the period.

Diluted earnings per share is calculated in the same manner, with further adjustments made to reflect the dilutive impact of instruments convertible into our common shares.

The following tables present our basic and diluted earnings per share:

Basic Earnings Per Common Share

(Canadian in millions, except as noted)
			January 31, 2022
Net income	247			2,933
Dividends on preferred shares and distributions on other equity instruments	(38	)		(55	)
Net income available to common shareholders	209			2,878
Weighted-average number of common shares outstanding (in thousands)	691,259			648,359
Basic earnings per common share (Canadian )	0.30			4.44

All values are in US Dollars.

Diluted Earnings Per Common Share

(Canadian in millions, except as noted)
			January 31, 2022
Net income available to common shareholders adjusted for impact of dilutive instruments	209			2,878
Weighted-average number of common shares outstanding (in thousands)	691,259			648,359
Effect of dilutive instruments
Stock options potentially exercisable (1)	4,760			5,507
Common shares potentially repurchased	(3,392	)		(3,529	)
Weighted-average number of diluted common shares outstanding (in thousands)	692,627			650,337
Diluted earnings per common share (Canadian )	0.30			4.43

All values are in US Dollars.

(1)	In computing diluted earnings per share, we excluded average stock options outstanding of <br>1,919,719<br>with a weighted-average exercise price of $138.48 for the three months ended January 31, 2023 (692,954 <br>with a weighted-average price of<br>$144.13 <br>for the three months ended January 31, 2022) as the average share price for the period did not exceed the exercise price.

Note 10: Income Taxes

On December 15, 2022, the Canadian government enacted legislation related to certain tax measures that are applicable to certain Canadian companies in a bank or life insurer group, including a one-time 15% tax (referred to as the Canada Recovery Dividend, or CRD), based on the average taxable income for fiscal 2020 and fiscal 2021, less a $1 billion exemption, payable in equal instalments over five years. The legislation also included a permanent 1.5% increase in the tax rate, based on taxable income above $100 million (effective for taxation years that end after April 7, 2022 and pro-rated for the first year). During the quarter, we recorded a one-time tax expense of $371

million in income tax expense, including $ 312 million relating to the CRD, and $ 59 million relating to the pro-rated fiscal 2022 impact of the 1.5% increase in tax rate, net of a related remeasurement of our net deferred tax asset.

Canadian tax authorities have reassessed us for additional income tax and interest in an amount of approximately $1,425 million, to date, in respect of certain 2011-2017 Canadian corporate dividends. Those reassessments denied certain dividend deductions on the basis that the dividends were received as part of a “dividend rental arrangement”. In general, the tax rules raised by the Canadian tax authorities were prospectively addressed in the 2015 and 2018 Canadian Federal Budgets. We filed Notices of Appeal with the Tax Court of Canada and the matter is in litigation. We expect to be reassessed for income tax in respect of similar activities undertaken in 2018. We remain of the view that our tax filing positions were appropriate and intend to challenge all reassessments. However, if such challenges are unsuccessful, the additional expense would negatively impact our net income.

BMO Financial Group First Quarter Report 2023

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Note 11: Operating Segmentation

Operating Groups

We conduct our business through three operating groups, each of which has a distinct mandate. Our operating groups are Personal and Commercial Banking (P&C) (comprised of Canadian Personal and Commercial Banking (Canadian P&C) and U.S. Personal and Commercial Banking (U.S. P&C)), BMO Wealth Management (BMO WM) and BMO Capital Markets (BMO CM), along with a Corporate Services unit.

For additional information refer to Note 25 of our annual consolidated financial statements for the year ended October 31, 2022.

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

(Canadian in millions)
For the three months ended January 31, 2023			U.S. P&C			BMO WM		BMO CM			Corporate<br> Services (1)			Total
Net interest income (2)	2,030			1,489			313		719			(530	)		4,021
Non-interest revenue	599			302			2,191		999			(1,642	)		2,449
Total Revenue	2,629			1,791			2,504		1,718			(2,172	)		6,470
Provision for (recovery of) credit losses on impaired loans	154			48			1		(3	)		(4	)		196
Provision for (recovery of) credit losses on performing loans	10			14			5		(7	)		(1	)		21
Total provision for (recovery of) credit losses	164			62			6		(10	)		(5	)		217
Insurance claims, commissions and changes in policy benefit liabilities	-			-			1,193		-			-			1,193
Depreciation and amortization	132			107			68		78			-			385
Non-interest expense	985			726			878		1,013			434			4,036
Income (loss) before taxes	1,348			896			359		637			(2,601	)		639
Provision for (recovery of) income taxes	368			198			82		134			(390	)		392
Reported net income (loss)	980			698			277		503			(2,211	)		247
Average assets (3)	312,216			157,758			53,225		424,503			225,916			1,173,618
For the three months ended January 31, 2022			U.S. P&C			BMO WM		BMO CM			Corporate<br> Services (1)			Total
Net interest income (2)	1,787			1,156			272		924			(120	)		4,019
Non-interest revenue	620			363			1,133		1,015			573			3,704
Total Revenue	2,407			1,519			1,405		1,939			453			7,723
Provision for (recovery of) credit losses on impaired loans	100			3			-		(16	)		(1	)		86
Provision for (recovery of) credit losses on performing loans	(76	)		(77	)		4		(35	)		(1	)		(185	)
Total provision for (recovery of) credit losses	24			(74	)		4		(51	)		(2	)		(99	)
Insurance claims, commissions and changes in policy benefit liabilities	-			-			81		-			-			81
Depreciation and amortization	125			107			66		75			-			373
Non-interest expense	899			605			842		966			161			3,473
Income before taxes	1,359			881			412		949			294			3,895
Provision for income taxes	355			200			97		244			66			962
Reported net income	1,004			681			315		705			228			2,933
Average assets (3)	278,523			138,735			49,504		393,312			195,822			1,055,896

All values are in US Dollars.

(1)	Corporate Services includes Technology and Operations.
(2)	Operating groups report on a taxable equivalent basis (teb). Revenue and the provision for income taxes are increased on <br>tax-exempt<br> securities to an equivalent <br>before-tax<br> basis to facilitate comparisons of income between taxable and <br>tax-exempt<br> sources. The offset to the groups’ teb adjustments is reflected in Corporate Services revenue and provision for income taxes.
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(3)	Included within average assets are average earning assets, which are comprised of deposits with other banks, deposits at central banks, reverse repos, loans and securities. Total average earning assets for three months ended January 31, 2023 are $1,078,963<br>million, including<br>$298,149 <br>million for Canadian P&C,<br>$150,527 <br>million for U.S. P&C, and<br>$630,287<br>million for<br>all other operating segments including Corporate Services (for three months ended January 31, 2022 - Total: $972,687<br>million, Canadian<br><br>P&C:<br>$264,764<br>million, U.S. P&C:<br>$131,569<br>million and all other operating segments:<br>$576,354<br>million).
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Certain comparative figures have been reclassified to conform with the current period’s presentation.

Note 12: Acquisitions

Acquisitions

Bank of the West

On December 20, 2021, we announced a definitive agreement with BNP Paribas to acquire 100% of the outstanding shares of Bank of the West and its subsidiaries. All regulatory approvals for the acquisition were received and the acquisition closed on February 1, 2023, for a cash purchase price of US $13.8  billion. Bank of the West provides a broad range of banking products and services primarily in the Western and Midwestern parts of the U.S. The merger enables BMO’s market extension in Bank of the West’s primary markets, including California, and accelerates BMO’s commercial banking expansion.

The acquisition will be reflected in our results in the second quarter of fiscal 2023 as a business combination, primarily in the U.S. P&C reporting segment. The purchase price will be allocated to the identifiable assets and liabilities of Bank of the West, on the basis of their relative fair values, with the difference recorded as goodwill. Due to the proximity of the close date to the release of our interim consolidated financial statements, we are not able to finalize the initial accounting for the acquisition, including the valuation of assets acquired and liabilities assumed including loans, intangible assets, goodwill, deposits and contingent

liabilities.

66

BMO Financial Group First Quarter Report 2023

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The

fair value of fixed rate loans, securities and deposits is largely dependent on interest rates. As interest rates increased since announcement of the acquisition, the fair value of the acquired fixed rate assets (in particular, loans and securities) has decreased, resulting in higher goodwill on close as compared to our estimates on the announcement date. Conversely, the fair value of floating rate assets (liabilities) and

non-maturity

deposits approximates par, providing no natural fair value change offset.

Changes in goodwill relative to our original assumptions announced on December 20, 2021 impacted capital ratios on close because goodwill is treated as a deduction from capital under OSFI Basel III rules. In addition, given that the purchase price of the acquisition was in U.S. dollars, changes in foreign exchange translation between the Canadian dollar relative to the U.S. dollar between the announcement and the close of the acquisition resulted in a change to the Canadian dollar equivalent goodwill.

To mitigate the impact of changes in interest rates between announcement and close, we entered into pay fixed/receive float interest rate swaps and purchased a portfolio of matched duration government debt securities and other balance sheet instruments that generate interest income (the impact of which is recorded in Corporate Services). We recorded mark-to-market (losses) gains of

$ (1,628) million and $ 517 million on the swaps for the three months ended January 31, 2023 and January 31, 2022, respectively, in our Consolidated Statement of Income in non-interest revenue, trading revenues, as the swaps do not qualify for hedge accounting. Government debt securities and other instruments, which are measured at amortized cost, generated (losses) gains of

$ (383) million and $ 45

million in our Consolidated Statement of Income in interest, dividend and fee income, securities, for the three months ended January 31, 2023 and January 31, 2022, respectively.

To mitigate changes in the Canadian dollar equivalent of the purchase price on close, we entered into forward contracts, which qualify for hedge accounting. Changes in the fair value of these forward contracts of

$(264) million and $(234)

million for the three months ended January 31, 2023 and January 31, 2022, respectively, were recorded in Other Comprehensive Income until close of the transaction. On close, the accumulated gains in Other Comprehensive Income reduced the Canadian dollar equivalent of the purchase price.

Leasing Solutions Canada Inc.

On February 1, 2023, we acquired Leasing Solutions Canada Inc. from BNP Paribas. The acquisition will be reflected in our results in the second quarter of fiscal 2023 as a business combination, in the Canadian P&C reporting segment and is not material to the bank.

Radicle Group Inc.

On December 1, 2022, we completed the acquisition of Radicle Group Inc. (Radicle), a Calgary-based leader in sustainability advisory services and solutions, and technology-driven emissions measurement and management, for 1.2 million BMO common shares for a total value of $153  million plus cash consideration of $42 million. The acquisition was accounted for as a business combination, and the acquired business and corresponding goodwill are included in our BMO Capital Markets reporting segment.

As part of this acquisition, we acquired intangible assets of $61 million and goodwill of $89

million. The intangible assets are being amortized over 3 to 15 years. Goodwill related to this acquisition is not deductible for tax purposes.

The fair values of the assets acquired and liabilities assumed at the date of acquisition are as follows:

(Canadian in millions)
Goodwill and intangible assets	150
Other assets	85
Total assets	235
Liabilities	40
Purchase price	195

All values are in US Dollars.

The purchase price allocation for Radicle is subject to refinement as we complete the valuation of the assets acquired and liabilities assumed.

BMO Financial Group First Quarter Report 2023

67

EX-99.3

Exhibit 99.3

CONSOLIDATED CAPITALIZATION OF BANK OF MONTREAL

The following table sets forth the consolidated capitalization of the Bank at January 31, 2023.

	As atJanuary 31, 2023
	(in millions of Canadian<br>dollars)
Subordinated Debt		8,156
Total Equity
Preferred Shares^(1)^ and Other Equity Instruments^(2)^		6,958
Common Shares		21,637
Contributed Surplus		335
Retained Earnings		44,238
Accumulated Other Comprehensive Income		1,746
Total Equity		74,914
Total Capitalization		83,070

Notes:

(1)	Preferred Shares classified under Total Equity consist of Class B Preferred Shares Series 27, 29, 31, 33, 44, 46, 50<br>and 52. For more information on the classification of Preferred Shares, please refer to Note 5 of the unaudited interim consolidated financial statements of Bank of Montreal for the three-months ended January 31, 2023.
(2)	The Other Equity Instruments described under Total Equity consist of Additional Tier 1 Capital Notes and Limited Recourse<br>Capital Notes, Series 1, 2 and 3. Please refer to Note 5 of the unaudited interim consolidated financial statements of Bank of Montreal for the three-months ended January 31, 2023.
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