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BMO Financial Group's Strong Credit Performance Results in Record Net Income and Year-Over-Year Earnings Growth of 30% in the Third Quarter of 2004  

Improved Credit Performance and Increased Business Volumes Drive Growth

Year-over-Year Operating Highlights for the Quarter:

  • Record net income of $654 million, up 30%
  • EPS1 of $1.24, up 31%, and cash EPS2 of $1.27, up 28%
  • ROE 21.0%, up from 18.0%
  • A $110 million net recovery of credit losses, consisting of a $70 million net recovery of specific losses and a $40 million reduction of the general allowance, compared with a specific provision of $90 million a year ago
  • Revenue2 growth of 3.9% and expense growth of 3.6%
  • Productivity ratio2 improves to 63.5% from 63.7% and cash productivity ratio2 improves 20 basis points to 62.4%
  • Strong Tier 1 Capital Ratio of 9.44%, up from 9.21%

Year-over-Year Operating Highlights for the Year to Date:

  • EPS of $3.36, up 36%, and cash EPS of $3.47, up 34%
  • ROE of 20.0%, up from 15.8%
  • Productivity ratio improves 230 basis points to 63.9% and cash productivity ratio improves 220 basis points to 62.8%

Other Highlights:

  • Fiscal 2004 earnings and ROE now anticipated to exceed our targets of 10% to 15% EPS growth and 16% to 18% ROE
  • Fiscal 2004 specific provision for credit losses now anticipated to be $100 million or less, compared with our annual target of $500 million or less and our most recent $300 million estimate
  • Quarterly dividends increase for the second time this year, rising $0.04 or 10% to $0.44 per share, up 26% from a year ago

1 All Earnings per Share (EPS) measures in this release refer to diluted EPS unless specified otherwise.

2 The adjustments that change results under generally accepted accounting principles (GAAP) to cash results and GAAP revenue and income taxes to a taxable equivalent basis (teb) are outlined in the Non-GAAP Measures section in the Financial Performance Review, where all non-GAAP measures and their closest GAAP counterparts are outlined. Revenues and income taxes in the financial statements are stated in accordance with GAAP. Otherwise, all revenues and income taxes and measures that include revenues or income taxes in this document are stated on a taxable equivalent basis.

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.


Summary Data

(1) These are non-GAAP amounts or non-GAAP measures. Please see footnote 2 to the previous table and the Non-GAAP Measures section in the Financial Performance Review, which outline the use of non-GAAP measures in this MD&A.

Toronto, August 24, 2004 - BMO Financial Group reported that its net income for the third quarter ended July 31, 2004 was up 30% from a year ago.

Net income was $654 million and EPS was $1.24 for the third quarter of 2004, increasing $150 million and $0.29, respectively, from the third quarter of 2003. The increase was driven by a $200 million ($130 million after tax) improvement in credit performance, volume-based revenue growth and cost containment.

“Our net income continues to grow strongly,” said Tony Comper, President and Chief Executive Officer, BMO Financial Group. “We have increased earnings for the ninth consecutive quarter and, although improving credit performance was a significant contributor to results, our strengths were broadly based. Both the Personal and Commercial and Investment Banking client groups contributed their highest quarterly earnings ever, while Private Client Group’s net income remained strong, despite some recent softening in equity markets.”

Net income increased $52 million or 9% from the second quarter of 2004 and EPS increased $0.12 per share or 11%. The increase was driven by a $115 million ($75 million after tax) improvement in the provision for credit losses. Origination fees and trading revenue declined, but there was strong volume growth in personal and commercial banking.

Year to date, net income of $1,788 million was up $476 million or 36% from the comparable period in 2003. Improved credit performance contributed significantly to net income growth, as the provision for credit losses was down $450 million ($293 million after tax) from the comparable period a year ago. In addition, business volumes were up strongly and net income of each of the operating groups was higher than a year ago. Private Client Group net income of $177 million was up $77 million or 77% from the comparable period in 2003, while Investment Banking Group net income of $659 million was $125 million or 24% higher, as both benefited from the more favourable capital markets environment. Personal and Commercial Client Group net income of $728 million was $44 million or 6% higher. The benefits of the group's volume growth were only partially offset by the impact of lower net interest margins in the competitive low interest rate environment.

"Based on our year-to-date performance on EPS growth, ROE and productivity measures, we anticipate achieving or exceeding all of the financial targets we set for the year," added Mr. Comper. "We have benefited from very effective credit management, from our focus on enhancing productivity, and from growth in our business volumes. Today's announcement of a second dividend increase this year, raising dividends by 10% from the third quarter and 26% year-over-year, is reflective of our success in increasing earnings and our strong capital position."

Revenue1 for the quarter increased $89 million or 4% from a year ago to $2,423 million. The growth was attributable to improved business volumes, including the impact of acquired businesses, and interest received on loans that were previously impaired or written-off, partially offset by the effects of lower net interest margins in personal and commercial banking and a slightly weaker U.S. dollar.

Revenue was down $53 million or 2% from the second quarter, despite two more calendar days in the current quarter. Private Client Group revenue declined because of lower securities trading commissions. Despite higher interest received on previously impaired or written-off loans, Investment Banking Group revenue declined, as this group was also affected by lower securities trading commissions, and reduced underwriting fees. The Group's second quarter revenues included higher net investment securities gains but they were largely offset by interest expense incurred on the unwinding of related hedge contracts. Revenue also fell in the Corporate Support Group, as net investment securities gains were $54 million lower and foreign exchange translation gains declined. Personal and commercial banking revenues were higher in both Canada and the United States, driven by volume growth. Second quarter Personal and Commercial Client Group revenue included a $51 million adjustment to reduce card fees.

Year to date, revenue rose $440 million or 6%, driven by higher personal and commercial banking volumes, strong growth in securities trading commissions and underwriting fees, and net gains on investment securities, compared with net losses a year ago. Acquired businesses also contributed to the growth. These increases were partially offset by the card fees adjustment, lower securitization revenue and the impacts of lower net interest margins and the weaker U.S. dollar.

Net interest margin1 for the third quarter of 2004 was 1.92%, an increase of 8 basis points from a year ago. Net interest margin was higher in Investment Banking Group, which benefited from interest received on loans that were previously impaired or written-off. Net interest margin was lower in the other operating groups, because of shifts in customer preferences to low spread products and the competitive low interest rate environment. Higher net interest margin in Investment Banking Group drove an overall 12 basis points increase from the second quarter. Margins rose slightly in personal and commercial banking, as a small increase in Canada offset a decline in the United States. Net interest margins are detailed in the Revenue section of the Financial Performance Review.

Non-interest expense of $1,538 million was $53 million or 4% higher than a year ago. The increase was largely attributable to higher performance-based compensation costs and the incremental impact of acquired businesses. The non-interest expense-to-revenue ratio1 (productivity ratio) was 63.5% in the third quarter, compared with 63.7% a year ago. The cash productivity ratio1 of 62.4% improved 20 basis points from a year ago. Year to date, the cash productivity ratio of 62.8% improved 220 basis points from a year ago. Our target at the start of the year was to improve cash productivity by 150 to 200 basis points in 2004.

This quarter's results included a $70 million net recovery of specific credit losses, compared with a specific provision of $90 million in the third quarter of 2003. The improvement reflects low levels of new provisions, relatively high levels of reductions of previously established allowances on certain loans and $60 million of recoveries on loans previously written-off, including a $39 million recovery on a single account.

Results also included a $40 million reduction in the general allowance for credit losses, producing a total net recovery of credit losses of $110 million for the quarter. In the second quarter, the net provision for credit losses was $5 million, consisting of a specific provision of $45 million, net of a $40 million reduction in the general allowance. Year to date, there was a net recovery of $90 million, consisting of a specific provision of $30 million, net of a $120 million reduction in the general allowance. This compares with a $360 million specific provision and no change in the general allowance in the first nine months of fiscal 2003. We now expect our annual specific provision for credit losses to be $100 million or less for fiscal 2004, below the $500 million target established at the beginning of the year and the $300 million estimate established following the first quarter.

During the quarter, we repurchased 3,055,100 Bank of Montreal common shares under our common share repurchase program at an average cost of $53.25 per share for a total of $162.7 million. Under the program, which expired on August 6, 2004, there were 5,123,900 shares repurchased at a total cost of $271.3 million. On August 6, 2004, BMO announced a new normal-course issuer bid under which BMO may purchase for cancellation up to a further 15 million common shares.


1 On a taxable equivalent basis -- see the Non-GAAP Measures section

Annual Targets for 2004

2004 Economic Outlook
Canadian real GDP is now expected to grow 2.8% in 2004, down from our 3.1% estimate established at the start of the year. The Canadian economy has been supported by low interest rates and strong U.S. demand for Canada's exports. U.S. real GDP is projected to grow at a brisk pace of 4.4% in 2004, consistent with our estimate established at the start of the year. Low interest rates, expansionary fiscal policies and a pickup in job growth have supported American demand. Recent U.S. data indicate that business investment is growing briskly, though growth in consumer spending has moderated in response to rising energy costs. In both Canada and the United States, the past year's recovery in equity markets continues to promote investment banking and wealth management activities. Although business investment is on the rise, rapid growth in corporate profits and increased capital financing have permitted companies to self-finance expansion, undermining the demand for business loans. Low credit costs continue to underpin growth in personal loans and residential mortgages, driving home sales and prices to record highs. However, projected rate increases by the Federal Reserve and the Bank of Canada will likely temper household credit growth in the year ahead.

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. As in the prior year, BMO filed certifications, signed by the CEO and CFO, with the SEC in the United States on January 23, 2004 when we filed our Annual Report and other continuous disclosure documents. In those filings, BMO's CEO and CFO certify, as required by the United States Sarbanes Oxley Act, the appropriateness of BMO's financial disclosures in our Form 40-F filings of continuous disclosure materials and the effectiveness of controls and procedures over those disclosures. Pursuant to new Canadian securities legislation, BMO's CEO and CFO certify the appropriateness of our financial disclosures in BMO's interim filings with securities regulators, including this quarterly results news release and the attached unaudited interim consolidated financial statements.

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

A comprehensive discussion of our businesses, strategies and objectives can be found in Management's Discussion and Analysis of Operations and Financial Condition in BMO's 2003 Annual Report, which can be accessed on our web site at Readers are also encouraged to visit our web site to view quarterly financial information.

Regulatory Filings
Our continuous disclosure materials, including our interim filings, annual MD&A and audited consolidated financial statements, our Annual Information Form and the Notice of Annual Meeting of Shareholders and Proxy Circular are available on our web site, on the Canadian Securities Administrators' web site at, and on the EDGAR section of the SEC's web site at

To view the rest of this news release consisting of:

Financial Highlights  
Financial Performance Review  
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 2004 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, communications, 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, presentation materials and a supplementary financial information package online. 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 24, 2004 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 Tuesday, September 7, 2004 by calling 416-695-5292 (from within Toronto) or 1-888-742-2491 (toll-free outside Toronto) and entering pass code 3483.

A live webcast of the quarterly conference call can be accessed on our web site at A replay can be accessed on the site until Monday, November 22, 2004.

Media Relations Contacts
Ralph Marranca, Toronto,, 416-867-3996
Ronald Monet, Montreal,, 514-877-1101

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

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

Corporate Secretary, 416-867-6785