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BMO Financial Group Reports 46 Per Cent Earnings Growth  

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Productivity Improvements, Strong Results in all Operating Groups and Lower Credit Provisions Drive Earnings Growth
Year-over-Year Highlights1:
  • Net income of $504 million, up 46 per cent from $346 million
  • EPS3 of $0.95, up 46 per cent, and cash EPS2 of $0.99, up 41 per cent
  • ROE of 18.0 per cent, up 5.1 percentage points, and cash ROE2 of 18.8 per cent, up 5.0 percentage points
  • Revenue growth of nine per cent, while expenses remain flat
  • Provision for credit losses of $90 million, improves from $160 million
  • Productivity ratio improves to 63.7 per cent, from 69.4 per cent a year ago and 67.2 per cent in the second quarter
  • Strong Tier 1 Capital Ratio of 9.21 per cent, up from 8.72 per cent
Other Highlights:
  • BMO is solidly on track to surpass all of its annual operating targets.  Annual EPS growth now estimated to be 15 to 20 per cent and ROE estimated to be 15 to 16 per cent, up from our targets of 10 to 15 per cent and 14 to 15 per cent, respectively
  • Anticipated annual provision for credit losses reduced to at or below $500 million, down from the previously-reduced guidance of at or below $600 million
  • EPS up $0.18 or 23 per cent from the second quarter, driven by improved investment securities gains ($0.07), lower provision for credit losses ($0.04), effective cost containment and higher volume-driven non-interest revenue in wealth management and Canadian personal and commercial banking

1. In the third quarter of 2002, $23 million ($14 million after tax) of acquisition-related costs were designated as non-recurring, increasing earnings per share (EPS) by $0.03.   We have discontinued prominent disclosures of results excluding non-recurring items as explained in the Note on Performance Analysis and Performance Relative to Targets section. 

2. The adjustments that change results under generally accepted accounting principles (GAAP) to cash results are outlined in the following table and explained in the section referenced in note 1 above.  The adjustment that changes GAAP revenue to its taxable equivalent basis (teb) is discussed in the revenue section of Management’s Discussion and Analysis.

3. All earnings per share (EPS) measures in this release refer to diluted EPS, unless specified otherwise.


Toronto August 26, 2003 – BMO Financial Group reported that its earnings for the third quarter ended July 31, 2003 were up 46 per cent from a year ago.  Net income was $504 million and EPS was $0.95 for the quarter, compared with net income of $346 million and EPS of $0.65 in the third quarter of last year.  Cash net income was $523 million and cash EPS was $0.99.  Cash net income reflects the add-back of the after-tax amortization of intangible assets.

“BMO’s strong third quarter results continue the earnings momentum established in earlier quarters and we are now solidly positioned to exceed our financial performance targets for the year,” said Tony Comper, Chairman and Chief Executive Officer, BMO Financial Group.  “I am very pleased that earnings from all of our operating groups are up from a year ago in a very competitive market and that credit performance continues to improve.”

Mr. Comper indicated that improving the productivity ratio is BMO’s top priority.  He added,  “Our improving revenues and the effective cost containment efforts of our employees have us well-positioned to achieve our goal of lowering the cash-productivity ratios of each of our operating groups by 150 to 200 basis points for the year.”

Net income for the third quarter of 2003 increased $158 million from the third quarter a year ago.  Each of the operating groups contributed strongly to the improvement.  Personal and Commercial Client Group continues to generate higher earnings from Canadian operations, which benefited from sustained volume growth in all products.  Private Client Group results were up sharply from last year as revenue grew while expenses declined.  However, Investment Banking Group was the biggest contributor to earnings growth as a result of improved performance from investment securities.  BMO had $12 million ($8 million after tax) of net investment securities gains in the current quarter versus net losses of $116 million ($72 million after tax) a year ago.  All of the operating groups were successful in their cost management efforts, which contributed to the improved performance.

Relative to the second quarter of 2003, net income rose $95 million or 23 per cent, driven by higher revenue and a reduced provision for credit losses.  Expenses were essentially unchanged in spite of three more calendar days in the third quarter.  Personal and Commercial Client Group net income rose on broadly-based higher volumes, while Private Client Group net income was up due to higher brokerage commissions, driven by moderate improvements in equity markets.  Investment Banking Group also rose, due to better performance from investment securities, and Corporate Support benefited from lower provisions for credit losses and lower costs.

Year-to-date, net income of $1,312 million increased $293 million or 29 per cent from the comparable period in 2002.  The increase was largely attributable to improving credit performance, as the provision for credit losses was reduced by $300 million, and to improved performance across all operating groups.  Investment securities losses were down $107 million from a year ago.

Revenue was $2,334 million in the third quarter of 2003, up $191 million or nine per cent from a year earlier.  The prior year was affected by investment securities losses in the Investment Banking Group.  Volume growth in Canadian personal and commercial banking and higher capital markets revenue in wealth management also contributed to improved revenue.  The growth was tempered by the impact of the weaker U.S. dollar on U.S. denominated revenue.

Net interest margin was 1.84 per cent, a decline of 11 basis points from a year earlier and of 12 basis points relative to the second quarter.  Investment Banking Group was the largest contributor to the declines as lower margin capital markets assets rose while higher margin corporate loans volumes declined in the weak lending environment.  Personal and Commercial Client Group net interest margin was stable relative to a year ago, though lower relative to the second quarter.  The reduction was due to declining interest rates and the competitive Canadian lending environment.

Non-interest expenses of $1,485 million were down $3 million from a year ago.  Effective cost controls and the impact of the weaker U.S. dollar drove the reduction.  These were partially offset by higher costs in Canadian personal and commercial banking, associated with performance-based compensation, strategic initiatives and higher employee benefits costs, and by higher performance-based costs in wealth management.

The expense-to-revenue ratio improved to 63.7 per cent in the third quarter, down from 69.4 per cent a year ago and from 67.2 per cent in the second quarter.

Gross impaired loans decreased by $269 million from the second quarter.  Impaired loan formations totalled $249 million, down $101 million from the second quarter.

The provision for credit losses was $90 million, down from $160 million a year ago.  Year-to-date, the provision for credit losses was $360 million, down from $660 million in the comparable period a year ago.  Management now estimates that the annual provision for credit losses will be at or below $500 million for 2003, down from our target of at or below $820 million, which had been established following the fourth quarter of 2002, and down from our estimate of $600 million that was established following the second quarter of 2003.  The reductions are attributable to our favourable loan loss experience this year.

The Canadian dollar equivalent of BMO’s U.S. denominated revenues, expenses and provision for credit losses included in results was affected by the weakening of the U.S. dollar.  The Canadian/U.S. dollar exchange rate averaged 1.37 in the third quarter, compared with 1.54 in the third quarter a year ago and 1.46 in the second quarter.  The lower Canadian/U.S. dollar exchange rate reduced revenue by $82 million, expenses by $53 million and the provision for credit losses by $9 million relative to the third quarter a year ago.  Relative to the second quarter, the lower rate reduced revenue by $43 million, expenses by $28 million and the provision for credit losses by $4 million.  Year-to-date, the Canadian/U.S.dollar exchange rate averaged 1.46, compared with 1.57 in the comparable period a year ago.  The lower translation rate caused revenue to decline $153 million, expenses by $103 million and the provision for credit losses by $18 million year-to-date.  The effect of exchange rate movements is discussed more fully in the discussions of Net Income and Income Taxes in the MD&A.

Annual Targets for 2003

2003 Earnings Outlook
Management expects to surpass the annual targets for fiscal 2003.  We now anticipate EPS growth of 15 to 20 per cent and ROE of 15 to 16 per cent.  The outlook anticipates the continuation of strong growth in Personal and Commercial Client Group and maintaining current performance levels in Private Client Group and Investment Banking Group.  Lower provisions for credit losses, improving revenue and effective cost controls have compensated for the softer than expected economic environment, the sustained weakness in some of our business sectors and the effect of the lower U.S. dollar on Canadian equivalent earnings from U.S. operations and, based on results to date, appear to have positioned us to exceed our targets for the year.

Canadian real GDP is now anticipated to grow 2.1 per cent in 2003 after expanding 3.3 per cent in 2002.  We had forecast growth of 3.8 per cent at the end of last year and 2.9 per cent at the end of the second quarter.  The lower growth is largely attributable to a decline in exports, amid softer U.S. demand and a weaker U.S. dollar, and to the earlier outbreak this year of severe acute respiratory syndrome (SARS). Weak exports have held back business investment and, in turn, restrained growth in commercial loans. In contrast, consumer demand, especially for interest-sensitive goods such as homes and automobiles, continues to grow at a healthy pace, supporting strong growth in personal loans and mortgages.  The Canadian economy is expected to strengthen in the second half of the year as U.S. demand picks up. With short-term interest rates likely to remain low for the balance of the year, the stronger economy should lead to an upturn in business lending and support growth in personal loans and mortgages.

The U.S. economic expansion, though uneven, shows tentative signs of improvement.  Real GDP growth in 2003 is now expected to match the moderate 2.4 per cent increase in 2002.  We had forecast growth of 3.2 per cent at the end of last year and 2.3 per cent at the end of the second quarter.  Personal spending and borrowing continue to grow at a moderate pace, supported by low interest rates but tempered by sluggish employment.  However, record sales of new homes and a strong resale market have sustained strong growth in residential mortgages.  While business investment has picked up recently, commercial lending remains soft. The U.S. economy is expected to strengthen in the second half of the year in response to lower income taxes, a weaker U.S. dollar and low interest rates. This should support personal lending and translate into growth in business lending.  The improved economic climate, coupled with second quarter increases in equity prices, should lead to an upturn in capital markets activity.

Note on Performance Analysis and Performance Relative to Targets
Management and certain other observers believe that analyzing results excluding non-recurring items can enhance analysis of financial performance.  However, the Securities and Exchange Commission (SEC) has enacted rules over the past year that severely restrict the future designation of items as non-recurring.  This impairs the usefulness of such measures and so we have discontinued our practice of reporting results excluding non-recurring items as prominently as results under generally accepted accounting principles.  There have been no non-recurring items in fiscal 2003.  In the third quarter of 2002, there were $23 million ($14 million after tax) of acquisition-related costs incurred by our Private Client Group that were designated as non-recurring, increasing EPS for the first nine months of 2002 by $0.03 when stated on a basis that excludes non-recurring items.  Our performance relative to EPS growth targets has been measured relative to the higher EPS base.

Cash-based earnings measures may enhance comparisons between periods when there has been an acquisition, particularly because the purchase decision may not consider the amortization of intangible assets to be a relevant expense.  Cash EPS measures are also provided because analysts frequently focus on these measures and cash EPS is used by Thomson First Call, which tracks third-party earnings forecast estimates that are frequently reported in the media.  Securities regulators require that corporations caution readers that earnings as adjusted for such items do not have standardized meanings under GAAP and are unlikely to be comparable to similar measures used by other companies.

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

Management's Responsibility for Financial Information
A rigorous and comprehensive financial governance framework is in place at BMO and its subsidiaries at both the management and board levels.  Each year, BMO's Annual Report contains a statement signed by the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) outlining management's responsibility for financial information contained in the report.  BMO also filed certifications, signed by the CEO and CFO, with the SEC in the United States on January 24, 2003 when it filed its Annual Report and other continuous disclosure documents.  In those filings, BMO's CEO and CFO certified, as required by U.S. law, the appropriateness of BMO's financial disclosures in the Annual Report and the effectiveness of controls and procedures over those disclosures.  Our CEO and CFO voluntarily certify to the SEC the appropriateness of our financial disclosures in BMO's quarterly results news releases, including the attached unaudited interim consolidated financial statements.  The certifications of the financial disclosures in the second quarter release were filed on June 11, 2003.

As in prior quarters, BMO's audit committee reviewed this release, including the attached unaudited consolidated financial statements and Management's Discussion and Analysis of Results of Operations and Financial Condition.  BMO's Board of Directors continues to approve these documents prior to their release.

Management's Discussion and Analysis of Results of Operations and Financial Condition (MD&A) for the quarter is attached.  A more comprehensive discussion of our businesses, strategies and objectives can be found in the MD&A in BMO's 2002 Annual Report, which can be accessed on our web site as directed in the Investor and Media Presentations section.  Readers are also encouraged to visit our web site to view other quarterly financial information.

To view the rest of this news release consisting of:
Financial Highlights  
Third Quarter 2003 MD&A  
Unaudited Financial Statements  

Bank of Montreal's public communications often include written or oral forward-looking statements.  Statements of this type are included in this news release, and may be included in 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 the United States Private Securities Litigation Reform Act of 1995.  Forward-looking statements may involve, but are not limited to, comments with respect to our objectives for 2003 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price, and the results of or outlook for our operations or for the Canadian and U.S. economies.

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

The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: global capital market activities; interest rate and currency value fluctuations; the effects of war or terrorist activities; the effects of disease or illness that impact on local, national or international economies; the effects of disruptions to public infrastructure, such as transportation, power or water supply disruptions; industry and worldwide economic and political conditions; regulatory and statutory developments; the effects of competition in the geographic and business areas in which we operate; management actions; and technological changes.  We caution that the foregoing list of factors is not exhaustive and that when relying on forward-looking statements to make decisions with respect to Bank of Montreal, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements.  Bank of Montreal does not undertake to update any forward-looking statement, whether written or oral, that may be made, from time to time, by the organization or on its behalf.


Investor Presentation Materials
Interested investors, the media and others are invited to visit our web site at to review this quarterly news release, presentations and a supplementary financial information package.  Copies of these documents are also available at BMO Financial Group’s offices at 100 King Street West, 18th Floor, 1 First Canadian Place, Toronto, Ontario, M5X 1A1.

Quarterly Conference Call and Webcast Presentations
Interested parties are invited to listen to our quarterly conference call on Tuesday, August 26, 2003 at 2:00 p.m. (EDT).  At that time, senior BMO executives will comment on results for the quarter and respond to questions from the investor community.  The call may be accessed by telephone at 416-695-9753 (from within Toronto) or 1-888-789-0089 (toll-free outside Toronto).  A replay of the conference call can be accessed until Friday, September 5, 2003 by calling 416-695-5278 (from within Toronto) or 1-888-742-2491 (toll-free outside Toronto) and entering passcode 5965.

A live webcast of the quarterly conference call can be accessed at  A replay of the webcast can be accessed on our website until November 24, 2003.

Media Relations Contacts
Ralph Marranca, Toronto,, 416-867-3996
Ian Blair, Toronto,, 416-867-3996

Ronald Monet, Montreal,, 514-877-1101

Investor Relations Contacts
Susan Payne, Senior Vice-President, Investor Relations,, 416-867-6656
Lynn Inglis, Director, Investor Relations,, 416-867-5452
Amanda Mason, Senior Manager, Investor Relations,, 416-867-3562

Chief Financial Officer
Karen Maidment, Executive Vice-President and Chief Financial Officer,, 416-867-6776

Corporate Secretary, 416-867-6785