News Releases

 PDF format of entire Quarterly news release including this Performance Overview, Financial Highlights table, the Financial Performance Review and Unaudited Financial Statements

Year-over-Year Operating Highlights for the Quarter:

� Net income of $710 million, up $163 million or 30%

� EPS¹of $1.38, up 29%, and cash EPS² of $1.40, up 27%

� ROE of 20.3%, up from 16.8%

�  Revenue² growth of 6.7% (8.9% excluding Harrisdirect³ and 11.5% after also excluding the impact of the

weaker U.S. dollar)

�  Expense growth of 2.0% (6.6% excluding Harrisdirect and 9.3% after also excluding the impact of the weaker

U.S. dollar)

� Productivity ratio² improves 282 basis points to 61.5% and cash productivity ratio² by 226 basis points to

61.1%

� A $42 million provision for credit losses, compared with a $73 million provision

� Tier 1 Capital Ratio of 10.07%, well above our target of 8% and up from 9.41% a year ago but down from

10.20% at the end of the second quarter

� Operating Group Net Income

�  Personal and Commercial Client Group up $69 million or 22% to a record $376 million

�  P&C Canada up $68 million or 25% to a record $345 million, due to strong volume growth, a low

effective tax rate, primarily related to a $26 million recovery of prior years' income taxes, and a $38

million ($25 million after tax) gain on the MasterCard International IPO

�  P&C Chicagoland Banking up $1 million to $31 million, with solid source currency revenue growth

� Private Client Group up $22 million or 35% to $85 million, due to strong revenue growth (excluding

Harrisdirect revenues of a year ago)

�   Investment Banking Group up $17 million or 9.0% to $201 million, due primarily to higher trading revenue

�  Corporate Support up $55 million to $48 million, due to lower provisions for credit losses and lower

income taxes

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

� Net income of $1,967 million, up $235 million or 14%

� EPS of $3.80, up 13%, and cash EPS of $3.86, up 12%.  Excluding a $40 million ($26 million after tax)

reduction in the general allowance in 2005, EPS increased 15% and cash EPS increased 13%

�  ROE of 19.2%, up from 18.4%

� Productivity ratio improves 217 basis points to 62.2% and cash productivity ratio improves 162 basis points to

61.8%

�  Specific provisions for credit losses of $160 million.  We now anticipate specific provisions of $250 million or

less for the year, below our $400 million target and down from our $325 million estimate at the end of the first

quarter

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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.

3         In the fourth quarter of 2005, BMO completed the sale of Harrisdirect, our former U.S. direct-investing business.  Certain of our revenue and expense growth and productivity measures have been disclosed on a basis that excludes Harrisdirect results in the comparative periods, to assist in explaining performance.     

References to retail and business banking refer to Personal and Commercial Client Group activities and references to wealth management refer to Private Client Group activities.

�  Registered trade-mark of Bank of Montreal.

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

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THIRD Quarter 2006 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&a)

MD&A commentary is as of August 22, 2006.  Unless otherwise indicated, all amounts are in Canadian dollars and have been derived from financial statements prepared in accordance with Canadian generally accepted accounting principles (GAAP).  This interim MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the periods ended July 31, 2006, included in this release, and the annual MD&A for the year ended October 31, 2005, included in BMO's 2005 Annual Report.

Summary Data

Toronto, August 22, 2006 – BMO Financial Group reported net income of $710 million for the third quarter ended July 31, 2006, up $163 million or 30% from a year ago.  EPS increased $0.31 or 29% to $1.38 and Cash EPS increased $0.30 or 27% to $1.40.

PERFORMANCE OVERVIEW

“I'm delighted with our performance this quarter, and our record net income,” said Tony Comper, President and Chief Executive Officer, BMO Financial Group.  “All of our client operating groups achieved strong year-over-year growth and we've continued to invest in strategic initiatives to bolster our future growth.  I'm also extremely pleased with our appointment of new leadership in both Canadian and U.S. retail and commercial banking during the quarter and with the overall depth of our senior leadership team.  I have great confidence in the contribution those leaders will make to developing our strategies, growing our businesses and increasing our profitability.”

BMO's net income increased $163 million or 30% from the third quarter a year ago.   Personal and Commercial Client Group net income increased $69 million or 22%, driven by volume growth, the $38 million ($25 million after tax) gain on the MasterCard IPO and a low effective tax rate, related primarily to the $26 million recovery of prior years' income taxes.  Private Client Group net income increased $22 million or 35%, in part due to a $12 million Harrisdirect operating loss in results of a year ago.  Adjusted for the impact of last year's sale of Harrisdirect, there was strong broad-based revenue growth.  Investment Banking Group net income rose $17 million or 9.0%, benefiting from higher trading and commission revenue and increased merger and acquisition activities.  Corporate Support net income increased $55 million, primarily due to reductions in provisions for credit losses and income taxes. 

“Our Personal and Commercial Client Group led our earnings growth from the second quarter,” added Mr. Comper.  “The Group earned record net income and, as we anticipated, net interest margin increased in P&C Canada.”

BMO's net income increased $59 million or 9.1% from the second quarter.  Personal and Commercial Client Group net income increased $90 million or 31%.  P&C Canada benefited from good volume growth, improved net interest margin, the low effective tax rate, the gain on the MasterCard IPO and the impact of three more calendar days than in the second quarter.  These factors were partially offset by increased costs incurred to generate future growth, including the expansion of our retail and commercial sales forces.  P&C Chicagoland Banking also contributed strong growth in net income, driven by higher revenues and lower costs.  Private Client Group net income declined $11 million or 12%.  Capital markets were less robust than in the second quarter and there were seasonally lower client trade volumes, while costs rose as the Group increased its investment in its sales force.  Investment Banking Group net income declined $44 million or 18%.  Although trading revenues were high, they were down from the strong second quarter.  Underwriting revenues and investment securities gains were also lower than in the comparative period, while the Group's second quarter results benefited from business-based tax initiatives.  Corporate Support net income increased $24 million, primarily due to increased revenues and reduced provisions for credit losses, partially offset by higher expenses.

Year to date, BMO's net income of $1,967 million rose $235 million or 14% from the comparable period in 2005.  EPS was $3.80, up $0.45 or 13%, and cash EPS was $3.86, up $0.40 or 12%. 

Personal and Commercial Client Group net income for the year to date increased $68 million or 7.5%.  Strong volume growth and the gain on the MasterCard IPO were only partially offset by the effects of lower net interest margin, higher expenses and increased provisions for credit losses.  Private Client Group net income increased $62 million or 29%, as strong revenue growth, excluding the impact of having sold Harrisdirect, more than offset increased revenue-based costs.  Investment Banking Group net income increased $47 million or 7.4%, as strong revenue growth more than offset the impact of higher performance-based costs.  Results in the prior period benefited from the recognition of a $44 million ($37 million after tax) gain on the restructuring of Variable Interest Entities (VIEs) in the second quarter of 2005.  Corporate Support net income increased $58 million to $56 million, due primarily to higher tax benefits and reduced expenses, partially offset by a lower recovery of credit losses.

“We have continued to deliver strong year-to-date performance and so remain solidly on track to achieve the financial targets we set for the year,” added Mr. Comper.  “We are successfully balancing our commitment to achieve our annual targets with the need to invest for future growth, as evidenced by the recent announcement of our intent to acquire bcpbank Canada, which primarily serves the extensive Portuguese-Canadian community.  This acquisition will give us an entry into one of our biggest business opportunities – providing financial services to multicultural and multi-generational Canadians.”

Revenue¹ for the quarter increased $162 million or 6.7% from a year ago to $2,603 million, but increased $210 million or 8.9% excluding Harrisdirect.  The weaker U.S. dollar lowered revenue growth by $63 million or 2.6%.  Personal and Commercial Client Group revenue increased $129 million or 9.8%, due to strong volume growth in personal and commercial products and the $38 million MasterCard IPO gain, partially offset by the effects of lower net interest margin and the weaker U.S. dollar.  Private Client Group revenue was $2 million lower, but increased $46 million or 11% excluding Harrisdirect and $54 million or 13% after also excluding the impact of the weaker U.S. dollar.  The Group's revenue growth was broadly based.  Investment Banking Group's revenue increased $31 million or 4.6%, but increased by $64 million or 9.7% excluding the impact of the weaker U.S. dollar.  Trading revenue was up due to favourable market conditions and increased client activities, particularly in commodity derivatives.  Securities commissions and merger and acquisition activities also increased.  BMO's net investment securities gains were $51 million in the quarter.  Excluding the $38 million MasterCard IPO gain, net investment securities gains declined $24 million from the third quarter of 2005 and $17 million from the second quarter of 2006.

Revenue rose $100 million or 4.0% from the second quarter, in part due to three more calendar days in the third quarter.  Personal and Commercial Client Group revenue was up $133 million or 10%, due to volume growth, the MasterCard IPO gain, the impact of more days, improved net interest margin in Canada and higher revenue from cards, securitization and insurance.  These factors were partially offset by the impact of lower net interest margin in the United States and the weaker U.S. dollar.  Private Client Group revenue decreased $10 million or 2.0%, as seasonally lower commission trading revenues were only partially offset by increased net interest income.  Investment Banking Group revenue declined by $48 million or 6.6%, driven by lower trading revenues, decreased investment securities gains and reduced underwriting revenues, partially offset by increased merger and acquisition fees.  Corporate Support revenues increased $25 million due to higher net interest income related to corporate activities.

Year to date, revenue rose $310 million or 4.3% to $7,618 million, but increased $466 million or 6.5% excluding Harrisdirect.    The weaker U.S. dollar lowered revenue growth by $140 million or 1.9%.   Year-to-date revenue growth was largely attributable to the same factors that increased third quarter revenue relative to a year ago.  However, revenues in 2005 included the $44 million gain on restructuring VIEs.

BMO's overall net interest margin¹ was 1.60% in the third quarter of 2006, a decline of 8 basis points from a year ago, but up 5 basis points from the second quarter, largely due to an 8 basis point improvement in P&C Canada.  Net interest margin in P&C Canada and Investment Banking Group declined from a year ago but increased from the second quarter.  Private Client Group's net interest margin improved relative to both comparative periods while P&C Chicagoland Banking's declined.  Net interest margins are detailed in the Revenue section of the Financial Performance Review.

Non-interest expense in the third quarter of 2006 increased $31 million or 2.0% from a year ago to $1,600 million, but increased $98 million or 6.6% excluding Harrisdirect.  The weaker U.S. dollar lowered expense growth by $41 million or 2.7%.  Retail and business banking costs rose due to higher employee-related costs resulting from an expansion of both our retail and commercial sales forces in Canada, and were higher in the United States, after adjusting for the weaker U.S. dollar, because of acquisition-related expenses and branch expansion.  Increased initiative expenditures in both Canada and the United States also added to retail and business banking expenses. There were increased severance costs in Investment Banking Group and higher revenue-based costs in Private Client Group. 

Non-interest expense increased $40 million or 2.7% from the second quarter, in part due to three more calendar days in the third quarter.  There were increased employee-related costs resulting from an expansion of both our retail and commercial sales forces in Canada.  Expenses declined in P&C Chicagoland Banking, as the second quarter included increased credit origination and marketing expenses.  Costs rose in Private Client Group due to increased investment in our sales force, while lower performance-based costs reduced Investment Banking Group's overall expenses.

Year to date, non-interest expense increased $34 million or 0.7% to $4,740 million, but increased $217 million or 4.8% excluding Harrisdirect.  The weaker U.S. dollar lowered expense growth by $92 million or 2.0%.  Increased expenses were primarily due to the same factors that contributed to higher expenses in the third quarter relative to a year ago.  There was a $25 million litigation provision included in Corporate Support expenses in the second quarter of 2005. 

The productivity ratio was 61.5% in the third quarter of 2006, compared with 64.3% a year ago.  The cash productivity ratio improved 226 basis points to 61.1%, or by 120 basis points excluding Harrisdirect in the year-ago period.  Our productivity ratio improved by 81 basis points and our cash productivity ratio by 78 basis points from the second quarter.  Year to date, our productivity ratio improved 217 basis points from the comparable period in 2005, while our cash productivity ratio improved by 162 basis points, the differing rates of change relating largely to the sale of Harrisdirect and the resulting reduction in the amortization of intangible assets, a non-cash charge.

Provisions for credit losses remain at low levels, totalling $42 million in the third quarter, compared with $73 million a year ago and $66 million in the second quarter.  Specific provisions for credit losses totalled $160 million for the year to date and there have been no changes in the general allowance in 2006.  The overall provision for credit losses for the comparable year-to-date period in 2005 was $122 million, consisting of $162 million of specific provisions and a $40 million reduction in the general allowance.  We now anticipate specific provisions for credit losses of $250 million or less for fiscal 2006, below the target of $400 million or less established at the beginning of the year and the $325 million estimate at the end of the first quarter.

Net income from U.S.-based businesses totalled US$101 million in the third quarter of 2006, compared with US$68 million a year ago and US$99 million in the second quarter.  The improvement from a year ago was in part due to reduced provisions for credit losses in 2006 and the Harrisdirect operating loss in the year-ago period.

Bank of Montreal has an equity ownership interest in MasterCard Incorporated.  During the quarter, MasterCard undertook an initial public offering in the United States.  A portion of Bank of Montreal's share ownership in MasterCard was redeemed as part of the initial public offering process.  BMO realized a gain of CDN$38 million (CDN$25 million after tax) on the redeemed shares, in line with the estimate we provided when we released our second quarter results.

The Tier 1 capital ratio was 10.07%, down from 10.20% at the end of the second quarter and 10.30% at the end of 2005.  The decreases were primarily attributable to increases in risk-weighted assets, largely due to loan growth in Personal and Commercial Client Group and Investment Banking Group. 

On May 24, 2006, BMO announced that it was increasing its target dividend payout range to 45-55% of net income available to common shareholders.  The increase, from 35-45%, is reflective of our confidence in our continued ability to increase earnings and our strong capital position.  Our disciplined approach to capital management will allow us to continue to execute our attractive growth strategies and maintain our longstanding commitment to enhancing shareholder value.  In keeping with the new payout target, BMO also announced, at that time, a 17% increase in its third quarter dividend to common shareholders, increasing the quarterly dividend by $0.09 from $0.53 to $0.62 per common share, up 35% from $0.46 a year ago.  The return on BMO common shares was the best of Canada's major banks in the third quarter. 

During the quarter, we repurchased 2,544,900 Bank of Montreal common shares under our common share repurchase program at an average cost of $61.90 per share, for a total cost of $158 million.  There have been 5,760,700 common shares repurchased under the existing normal-course issuer bid that expires on September 5, 2006 and pursuant to which BMO is permitted to repurchase for cancellation up to 15 million Bank of Montreal common shares, representing approximately 3% of BMO's public float.  Our common share repurchase program is primarily intended to offset, over time, the impact of dilution caused by the exercise of stock options, our dividend reinvestment plan and the conversion of convertible shares.  Subsequent to the quarter end, BMO's Board of Directors authorized management to file a Notice of Intention to make a new normal-course issuer bid, subject to the approval of the Toronto Stock Exchange, to repurchase for cancellation up to 15 million Bank of Montreal common shares, representing approximately 3% of BMO's public float.

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

Annual Targets for 2006

Year-to-date Performance to July 31, 2006

�         5% to 10% EPS growth from a base of $4.58* (excluding changes in the general allowance) �         ROE of 17% to 19% �         Specific provision for credit losses of $400 million or less We now anticipate specific provisions of $250 million or less in fiscal 2006, down from our estimate of $325 million at the end of the first quarter             �         Tier 1 capital ratio of at least 8.0%    �         Improve our cash productivity ratio by 100 to 150 basis points

�         EPS of $3.80, up 15% from $3.30 (excluding changes in the general allowance) �         ROE of 19.2% annualized �         Specific provision for credit losses of $160 million     �         Tier 1 capital ratio of 10.07% �         Cash productivity improvement of 162 basis points year-over-year

*Restated from $4.59 due to the retroactive application of the change

in accounting policy for stock-based compensation.

 

2006 Earnings and Economic Outlook

We remain on track to achieve the annual targets for 2006 outlined above, which were established at the end of 2005.

We now anticipate that the Canadian economy will grow at a moderate pace of 3.0% in 2006, little changed from last year's rate.  Business investment is expected to remain strong in response to continued healthy corporate profit growth, supporting growth in business loans.  In contrast, the housing market is expected to moderate as past increases in interest rates dampen demand and construction.  The strong Canadian dollar will likely continue to restrain exports and manufacturing activity this year.  Interest rates are expected to remain stable for some time, which, along with the steady economic expansion, should support fee-based investment banking activities.  The resource-producing provinces of Western Canada, as well as Newfoundland and Labrador, are expected to lead the nation's expansion this year as a result of historically high commodity prices.

The U.S. economy is projected to grow at a solid rate of 3.4% in 2006, similar to last year's pace.  Following a sharp pickup early this year, the expansion has moderated in response to rising interest rates and high energy costs.  Continued strong business investment, resulting from healthy corporate balance sheets, is expected to support growth in business loans.  In contrast, past increases in interest rates should continue to temper demand for residential mortgages and personal loans.  The U.S. dollar is expected to continue depreciating against most major currencies in response to the large U.S. trade deficit and an expected easing in Federal Reserve policy next year.
 

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 filed certifications, signed by the CEO and CFO, with the Canadian Securities Administrators and the SEC in the United States in December 2005 when we filed our Annual Report and other annual disclosure documents.  In those filings, BMO's CEO and CFO certify, as required in Canada by Multilateral Instrument 52-109 (Certification of Disclosure in Issuers' Annual and Interim Filings) and in the United States by the Sarbanes-Oxley Act, the appropriateness of the financial disclosures in our annual filings and the effectiveness of our disclosure controls and procedures.  BMO's CEO and CFO certify the appropriateness of the financial disclosures in our interim filings with securities regulators, including this MD&A and the accompanying unaudited interim consolidated financial statements for the period ended July 31, 2006.  They also certify that they are responsible for the design of disclosure controls and procedures.

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 in BMO's 2005 Annual Report, which can be accessed on our web site at www.bmo.com/investorrelations.  Readers are also encouraged to visit the site to view other quarterly financial information. 

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 at www.bmo.com/investorrelations, on the Canadian Securities Administrators' web site at www.sedar.com and on the EDGAR section of the SEC's web site at www.sec.gov.

To view the rest of this news release consisting of:

Investor Presentation Materials

Interested parties are invited to visit our web site at www.bmo.com/investorrelations 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, 18^th Floor, 1 First Canadian Place, Toronto, Ontario, M5X 1A1.

Quarterly Conference Call and Webcast Presentations

Interested parties are also invited to listen to our quarterly conference call on Tuesday, August 22, 2006 at

2:30 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 5, 2006 by calling 416-695-5292 (from within Toronto) or 1-888-742-2491 (toll-free outside Toronto) and entering passcode 6790.

A live webcast of the call can be accessed on our web site at www.bmo.com/investorrelations.  A replay can be accessed on the site until Monday, November 27, 2006.

Media Relations Contacts

Ralph Marranca, Toronto, ralph.marranca@bmo.com, 416-867-3996

Ronald Monet, Montreal, ronald.monet@bmo.com, 514-877-1101

Investor Relations Contacts

Viki Lazaris, Senior Vice-President, Investor Relations, viki.lazaris@bmo.com, 416-867-6656

Steven Bonin, Director, Investor Relations, steven.bonin@bmo.com, 416-867-5452

Krista White, Senior Manager, Investor Relations, krista.white@bmo.com, 416-867-7019 

Chief Financial Officer

Karen Maidment, Chief Financial and Administrative Officer,

karen.maidment@bmo.com, 416-867-6776

Corporate Secretary

Robert Horte, Vice-President and Corporate Secretary, Corporate and Legal Affairs