News Releases

Personal and Commercial Banking Canada Continues to Report Strong Revenue and Net Income

Good Underlying Performance in BMO Capital Markets

Tier 1 Capital Ratio Remains Strong at 10.21%

Financial Highlights:

• Net income of $225 million, down $30 million or 12% from a year ago
• EPS¹ of $0.39 and cash EPS² of $0.40, down $0.08 or 17% and $0.09 or 18%, respectively, from a year ago
  • Adjusted cash EPS² of $1.09 after excluding capital markets environment charges of $359 million after tax ($0.69 per share)
• Provisions for credit losses of $428 million, up $198 million from a year ago
• Our strong Tier 1 Capital Ratio, at 10.21%, and strong liquidity position were further enhanced during the quarter

St. John's, Newfoundland & Labrador, March 3, 2009 – For the first quarter ended January 31, 2009, BMO Financial Group reported net income of $225 million or $0.39 per share. Canadian personal and commercial banking had a strong quarter, with net income of $325 million, up $34 million or 12% from a year ago, despite a slowing economy.

Results included losses of $359 million after tax ($0.69 per share) in respect of capital markets environment charges, detailed in the Effects of the Capital Markets Environment on First Quarter Results section.

“Our core business performed well. P&C Canada, our Canadian personal and commercial banking unit, reported strong year-over-year growth, with higher revenues and net income up 12%,” said Bill Downe, President and Chief Executive Officer, BMO Financial Group. “We are adding attractive products that customers want, and we are making gains in customer loyalty and market share. Our focus on the customer is paying off and our success in this area is reflected in strong results again this quarter.

“Financial institutions everywhere continue to face headwinds in credit markets and the capital markets environment,” said Mr. Downe. “BMO is well positioned to meet these challenges, having accessed markets to bolster our capital position and having further strengthened our strong liquidity in the period, albeit at a higher cost. The difficult conditions and our capital strength provide us with the flexibility to acquire attractive businesses at good value, as demonstrated by our agreement in the quarter to acquire the Canadian life insurance business of American International Group.

“Reported results in U.S. personal and commercial banking were up from a year ago and the fourth quarter. Management remains focused on core operations, new customer acquisition and serving our customers effectively. In the quarter, there was deposit growth and improved deposit spreads, with customer loyalty scores remaining consistently high relative to the fourth quarter and up from a year ago,” added Mr. Downe.

In our wealth management business, revenue from term investment products increased year over year. Results were affected by reduced levels of managed and administered assets due primarily to the significant declines in equity markets. Results this quarter were also affected by a further $11 million after-tax charge in respect of last quarter's decision to assist certain U.S. clients by offering to purchase auction-rate securities from their accounts.

"BMO Capital Markets showed strength in equity and foreign exchange trading, and in our corporate banking and interest-rate-sensitive businesses. Equity underwriting performed well in the quarter as we participated in a number of new issuances,” said Mr. Downe. Overall performance in BMO Capital Markets was affected by $348 million of after-tax charges as explained in the Effects of the Capital Markets Environment on First Quarter Results section.

Market conditions continued to be extremely volatile through the first quarter, due to concerns related to the U.S. real estate market and global recessionary pressures. These concerns have led to continued weakness in the credit environment and further tightening of many credit markets. Provisions for credit losses in the current quarter totalled $428 million, comprised of $111 million of specific provisions in Canada and $317 million in the United States, with no increase in the general allowance. Specific provisions increased $258 million from a year ago, primarily related to loans in our U.S. personal and commercial business. In the first quarter of 2008, provisions totalled $230 million, consisting of $170 million of specific provisions and a $60 million increase in the general allowance.

BMO employs an expected loss provisioning methodology whereby expected credit losses are charged to the operating groups and the difference between expected losses and actual losses is charged (or credited) to Corporate Services.

Corporate Services incurred a net loss in the quarter of $370 million, with approximately one-half due to provisions for credit losses allocated to Corporate Services under our expected loss provisioning methodology and the remaining half due to lower revenues. Low revenues in Corporate Services were attributable to three factors: the impact of market interest rate changes that created a negative carry on certain asset liability interest rate positions; mark-to-market losses on hedging activities; and funding activities to further enhance our strong liquidity position. These factors coupled with increased provisions for credit losses, primarily related to U.S. real estate, muted the continuing strong fundamentals of our core businesses. Capital and term-funding actions taken through the first quarter contributed to BMO's strong capital and liquidity position; the majority of our estimated fiscal 2009 term-funding requirements have now been met.

Today, we announced a second quarter dividend of $0.70 per common share, reflective of an annual dividend of $2.80 per common share.

Operating Segment Overview
P&C Canada
Net income was $325 million, up $34 million or 12% from a year ago, despite a slowing economy. Revenue increased across our personal, commercial and cards businesses, led by volume growth and improved net interest margin. Margins increased from a year ago due to higher volumes in more profitable products, pricing initiatives in light of rising long-term funding costs, and favourable prime rates relative to rates on Bankers' Acceptances (BA rates), partially offset by lower mortgage refinancing fees.

We achieved strong results this quarter in tough market conditions. Our customers are telling us our services have improved. Our focus on the quality of our customer relationships has translated into improved loyalty scores and revenue growth. In 2009, our objective remains to increase market share in an environment of slower growth.

In personal banking, we introduced a new high interest Smart Saver Account where customers can open an account online, a new Tax-Free Savings Account and the BMO First Home Essentials kit to guide first time homebuyers step by step in financing, choosing and purchasing their first home. We launched a new 5-year variable rate mortgage product on February 9th to provide our customers with more choices in managing their mortgage needs. In addition, on January 13, 2009, we announced a definitive agreement with American International Group, Inc. (AIG) to purchase AIG's Canadian life insurance business, providing BMO customers with a broader suite of BMO-branded wealth and insurance products. The acquisition is expected to close by June 1, 2009, subject to regulatory approval.

In commercial banking, we are progressing toward our goal of becoming the bank of choice for business across Canada. In the tight credit environment, we continue to make credit available to our small and medium-sized business clients. Loan growth was 5.8% year over year. We rank second in Canadian business market share at 19.93%, up 56 basis points year over year. Customer service scores improved in both branch managed and relationship managed businesses.

We also grew our card business, leveraging the launch of new products last year including Shell Mosaik MasterCard, AIR MILES and CashBack rewards. Cards and Payment Services revenue increased $57 million or 24% year over year. Our brand marketing and promotions together with better integration of card sales across the branch system have resulted in continued growth in the card portfolio.

P&C U.S. (all amounts in U.S. $)
Net income was $27 million, up $1 million or 3.4% from a year ago. Cash net income was $33 million, unchanged from a year ago. In the quarter, there was growth in deposits and loans as well as improved deposit spreads. We continue to make good progress in our core business with higher revenues and better operating leverage. The weak credit environment is affecting results as there are higher levels of non-performing loans and costs of managing our portfolio have increased, which lowered net income in the current quarter by $10 million, compared with $4 million a year ago. We continue to focus on managing discretionary costs. We also continue to be focused on winning new customers, including consumer and commercial customers, while maintaining our strong underwriting standards.

Revenue increased $29 million or 13%, largely driven by the $19 million impact of our Wisconsin acquisitions and improved deposit spreads. Excluding expenses associated with the Wisconsin acquisitions of $16 million, expenses increased $6 million or 3.7%.

Net interest margin increased from last year due to our continued focus on pricing and new deposit generation.

Private Client Group
Net income was $57 million, compared with $96 million a year ago, as results were impacted by a more difficult operating environment and by a $17 million ($11 million after tax) charge in respect of last quarter's decision to assist certain U.S. clients by offering to purchase auction-rate securities from their accounts.

Revenue for the quarter decreased $61 million or 12% from a year ago, primarily due to lower fee-based and commission revenue in Full-Service Investing and lower revenue in our mutual fund businesses on significantly lower assets, which have been impacted by difficult market conditions. This was partially offset by increased revenue from term investment products.

Assets under management and administration have been affected by softer market conditions and decreased $20 billion or 8.3%, despite the $16 billion benefit related to the stronger U.S. dollar. There was strong volume growth in term deposits, which increased $8 billion or 21% year over year.

Given recent challenges in the global economy and equity markets, we are making adjustments in how we spend and allocate resources. We will continue to deliver the high level of service our clients expect while continuing to responsibly manage our employee and discretionary expenses in these difficult market conditions.

The group continues to innovate on its products and services. During the quarter, BMO was proud to be the first bank to offer a Registered Disability Savings Plan (RDSP), a new federal government initiative introduced to enhance the long-term financial security of people with disabilities. BMO RDSPs feature a wide range of investment solutions that are suitable for long-term investors including guaranteed investment certificates, mutual funds and managed solutions portfolios.

For the third year in a row, BMO Mutual Funds was ranked first for client service in both the English and French programs in Dalbar's annual rankings of mutual funds. As well, BMO InvestorLine ranked second for its service to investors in the direct brokerage rankings.

In addition, we acquired a further 18% equity stake in Virtus Investment Partners, Inc. and now hold a 23% voting interest through voting preferred shares. Virtus provides investment management products and services to individuals and institutions, operating as a multi-manager asset management business that comprises a number of individual affiliated wholly-owned managers.

BMO Capital Markets
Net income was $179 million, up $208 million from a year ago. Revenue rose $454 million to $727 million. There was significantly higher trading revenue, stronger corporate banking revenues and continued robust performance in our interest-rate-sensitive businesses. Results were lowered by unrealized losses totalling $511 million ($348 million after tax) due to credit valuation adjustments, the Canadian credit protection vehicle Apex, and third-party asset-backed commercial paper subject to the completed Montreal Accord as described in the Effects of the Capital Markets Environment on First Quarter Results section. Results a year ago reflected charges of $488 million ($324 million after tax) in respect of the capital markets environment, as described in the Notable Items section at the end of the MD&A.

Market conditions allowed the group to achieve strong earnings during the quarter through a diversified, dynamic portfolio of businesses that is focused on serving the evolving needs of our clients. This focus has resulted in strong equity and foreign exchange trading, higher corporate banking revenues and a turnaround in equity underwriting activity as issuers chose to bolster their capital base in the current economic environment. Consistent with this strategy, we continue to focus on improving our risk-return profile by optimizing our capital usage and adjusting our trading strategies accordingly.

BMO Capital Markets was involved in 102 new issues in the quarter including 20 corporate debt deals, 29 government deals, 14 issues of preferred shares and 39 common equity transactions, raising $43.3 billion, up $19.8 billion from last quarter.

Caution Regarding Forward-Looking Statements
Bank of Montreal's public communications often include written or oral forward-looking statements. Statements of this type are included in this document, and may be included in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made pursuant to the ‘safe harbor' provisions of, and are intended to be forward-looking statements under, the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives and priorities for 2009 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price, and the results of or outlook for our operations or for the Canadian and U.S. economies.

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

The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: general economic and market conditions in the countries in which we operate; interest rate and currency value fluctuations; changes in monetary policy; the degree of competition in the geographic and business areas in which we operate; changes in laws; judicial or regulatory proceedings; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; our ability to execute our strategic plans and to complete and integrate acquisitions; critical accounting estimates; operational and infrastructure risks; general political conditions; global capital market activities; the possible effects on our business of war or terrorist activities; disease or illness that impacts on local, national or international economies; disruptions to public infrastructure, such as transportation, communications, power or water supply; and technological changes.

We caution that the foregoing list is not exhaustive of all possible factors. Other factors could adversely affect our results. For more information, please see the discussion on pages 30 and 31 of BMO's 2008 Annual Report, which outlines in detail certain key factors that may affect BMO's future results. When relying on forward-looking statements to make decisions with respect to Bank of Montreal, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Bank of Montreal does not undertake to update any forward-looking statement, whether written or oral, that may be made, from time to time, by the organization or on its behalf, except as required by law. The forward-looking information contained in this document is presented for the purpose of assisting our shareholders in understanding our financial position as at and for the periods ended on the dates presented and our strategic priorities and objectives, and may not be appropriate for other purposes.

In determining that the acquisition of American International Group, Inc.'s Canadian life insurance business is expected to close by June 1, 2009, subject to regulatory approval, we have assumed that our joint plans for the completion of pre-closing activities proceed according to the mutually agreed schedule and that the results of our pre-closing activities are consistent with our expectations. In determining that the acquisition is expected to reduce our Tier 1 and Total Capital Ratios by less than 15 and 25 basis points, respectively, we have assumed that the purchase price will approximate $375 million.

In concluding that mark-to-market adjustments to derivative hedges that do not qualify for hedge accounting are expected to reverse over the life of the hedges with no economic loss, we have assumed that we will hold the derivative instruments until their expiry.

Assumptions about the level of asset sales, expected asset sale prices, net funding cost, credit quality and risk of default and losses on default of the underlying assets of the structured investment vehicles were material factors we considered when establishing our expectations regarding the structured investment vehicles discussed in this document, including the amount to be drawn under the BMO liquidity facilities and the expectation that the first-loss protection provided by the subordinate capital notes will exceed future losses. Key assumptions included that assets would continue to be sold with a view to reducing the size of the structured investment vehicles, under various asset price scenarios, and that the level of defaults and losses will be consistent with the credit quality of the underlying assets and our current expectations regarding continuing difficult market conditions.

Assumptions about the level of defaults and losses on defaults were material factors we considered when establishing our expectation of the future performance of the transactions that Apex Trust has entered into. Key assumptions included that the level of defaults and losses on defaults would be consistent with historical experience. Material factors that were taken into account when establishing our expectations of the future risk of credit losses in Apex Trust included industry diversification in the portfolio, initial credit quality by portfolio and the first-loss protection incorporated into the structure.

Assumptions about the performance of the Canadian and U.S. economies in 2009 and how it would affect our businesses were material factors we considered when setting our strategic priorities and objectives and our outlook for our businesses. Key assumptions included that the Canadian and the U.S. economies would contract in the first half of 2009, and that interest rates and inflation would remain low. Our current expectations are for weaker economic conditions and lower interest rates than we anticipated at the end of fiscal 2008. We also assumed that housing markets in Canada would weaken in 2009 and strengthen in the second half of the year in the United States. We assumed that capital markets would improve somewhat in the second half of 2009 and that the Canadian dollar would strengthen modestly relative to the U.S. dollar. In determining our expectations for economic growth, both broadly and in the financial services sector, we primarily consider historical economic data provided by the Canadian and U.S. governments and their agencies. Tax laws in the countries in which we operate, primarily Canada and the United States, are material factors we consider when determining our sustainable effective tax rate.

Economic Outlook and Review
The Canadian economy is expected to contract about 2% in 2009, marking the nation's first recession in 17 years. Declining global demand and lower commodity prices are expected to continue to reduce exports. Stimulative monetary and fiscal polices, however, should encourage a gradual recovery late in the year. Housing market activity and residential mortgage growth are expected to moderate further amid deepening consumer caution. Growth in consumer spending and personal credit should slow in the face of rising unemployment, though remain positive due to low interest rates. Business investment and loan growth are expected to decline, led by the resource and manufacturing sectors. The unemployment rate will likely climb above 8% before year end, about three percentage points above last year's low but well below the highs of previous recessions. The Bank of Canada is expected to reduce overnight rates to new record lows in 2009. The Canadian dollar and commodity prices are projected to remain weak in the near term, but should strengthen as the global economy recovers later this year.

The U.S. economy is projected to remain in a deep recession in the first half of 2009. A slow recovery is expected to emerge late in the year in response to stimulative monetary and fiscal policies and lower fuel prices. Despite greatly improved affordability, housing markets should remain weak in the first half of the year because of still-high inventories of unsold homes, tight credit standards and heavy job losses, implying continued softness in demand for new mortgages. Consumer spending and personal credit will likely decline as households rebuild savings and pay down debt. Companies will likely continue to reduce spending, resulting in weak growth in business credit. The unemployment rate is expected to climb above 9% later this year, the highest in 25 years. Certain capital market activities should remain weak until the uncertainty in credit markets and the economy abates. The Federal Reserve is expected to keep rates near zero in 2009, and to employ a wide range of special lending programs to increase the availability of credit to businesses and households.

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

Effects of the Capital Market Environment on First Quarter Results
The market environment remains weak. Results in the first quarter of 2009 were affected by unrealized capital markets environment charges of $528 million ($359 million after tax and $0.69 per share).

BMO Capital Markets recorded unrealized capital markets environment charges of $511 million ($348 million after tax) in respect of:

PCG also recorded unrealized charges of $17 million ($11 million after tax) related to auction-rate securities.

The $528 million of charges outlined above reduced trading non-interest revenue ($285 million), investment securities gains ($226 million) and other income ($17 million).

Notable Items
Q1 2009
Charges related to the capital markets environment in the first quarter are detailed in the Effects of the Capital Markets Environment on First Quarter Results section.

Q1 2008
In the first quarter of 2008, BMO recorded $548 million ($362 million after tax and $0.72 per share) of charges for certain trading activities and valuation adjustments and an increase in the general allowance for credit losses. They included $488 million ($324 million after tax) of charges in respect of the capital markets environment in BMO Capital Markets and a $60 million ($38 million after tax) increase in the general allowance for credit losses to reflect portfolio growth and risk migration recorded in Corporate Services.

Non-interest revenue in the first quarter of 2008 was affected by the $488 million of charges outlined above. They included reductions in trading non-interest revenue ($420 million), investment securities gains ($23 million) and other income ($45 million).

Q4 2008
BMO's results in the fourth quarter of 2008 were affected by capital markets environment charges of $45 million ($27 million after tax and $0.06 per share) reflected in BMO Capital Markets and Private Client Group. There were $14 million ($8 million after tax) of charges recorded in BMO Capital Markets and $31 million ($19 million after tax) recorded in Private Client Group.

The above capital markets environment charges of $45 million were all reflected in non-interest revenue. There was $228 million of losses in securities gains (losses), other than trading, a reduction of $30 million in other revenue and a $213 million increase in trading non-interest revenue.

Results also reflected a $150 million ($98 million after tax) increase in the general allowance for credit losses recorded in Corporate Services.

To view the rest of this news release consisting of:

INVESTOR AND MEDIA PRESENTATION

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, March 3, 2009, at 12:30 p.m. (EST). 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 Monday, May 25, 2009, by calling 416-695-5800 (from within Toronto) or 1-800-408-3053 (toll-free outside Toronto) and entering passcode 3277495.

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, May 25, 2009.

Media Relations Contacts
Ralph Marranca, Toronto, ralph.marranca@bmo.com, (416) 867-3996
Lucie Gosselin, Montreal, lucie.gosselin@bmo.com, (514) 877-8224

Investor Relations Contacts
Viki Lazaris, Senior Vice-President, viki.lazaris@bmo.com, (416) 867-6656
Steven Bonin, Director, steven.bonin@bmo.com, (416) 867-5452
Andrew Chin, Senior Manager, andrew.chin@bmo.com, (416) 867-7019

Chief Financial Officer
Russel Robertson, Interim Chief Financial Officer
russ.robertson@bmo.com, (416) 867-7360

Corporate Secretary
Blair Morrison, Vice-President & Corporate Secretary
corp.secretary@bmo.com, (416) 867-6785