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BMO Financial Group Reports Good Third Quarter Results with Record Revenues

Momentum Continues in Personal and Commercial Banking Canada with Strong Growth in Revenue and Net Income

Good Performance in BMO Capital Markets Businesses, Benefiting from Diversified Business Mix and Market Opportunities

Tier 1 Capital Ratio Remains Strong, increasing to 11.71%

Financial Results Highlights:

Third Quarter 2009 Compared with Third Quarter 2008:

  • Net income of $557 million, up $36 million or 6.9% from a year ago
  • EPS1 of $0.97 and cash EPS2 of $0.98, down $0.01 and $0.02, respectively, from a year ago
  • Adjusted cash EPS2 of $1.05 after excluding an increase in the general allowance of $39 million after tax ($0.07 per share)
  • Provisions for credit losses of $417 million, comprised of $357 million of specific provisions and a $60 million increase in the general allowance, compared with provisions of $484 million, comprised of $434 million of specific provisions and a $50 million increase in the general allowance
  • BMO's Tier 1 Capital Ratio remains strong, increasing to 11.71%

Year-to-Date 2009 Compared with a Year Ago:

  • Net income of $1,140 million, compared with $1,418 million in 2008
  • EPS of $1.97 compared with $2.70 and cash EPS of $2.01 compared with $2.75
  • Adjusted cash EPS of $3.07 after excluding capital markets environment charges of $439 million after tax ($0.84 per share) from the first and second quarters, severance costs of $80 million after tax ($0.15 per share) from the second quarter and an increase in the general allowance of $39 million after tax ($0.07 per share) from the third quarter

Toronto, August 25, 2009 – For the third quarter ended July 31, 2009, BMO Financial Group reported net income of $557 million or $0.97 per common share. Canadian personal and commercial banking reported strong results with net income of $356 million, up $41 million or 13% from a year ago, and BMO Capital Markets net income grew by $80 million or 30% to $343 million.

Today, we announced a fourth-quarter dividend of $0.70 per common share, unchanged from the preceding quarter and reflective of an annual dividend of $2.80 per common share.

“The elements we have put in place over the past three years to strengthen our core businesses - and our focus on building a strong, distinct, and clear presence in the marketplace - are yielding dividends and showing up in the bottom line,” said Bill Downe, President and Chief Executive Officer, BMO Financial Group. “We're successfully executing on our strategy of providing customers with a value proposition that helps them make sense of their banking and investing.

“P&C Canada had a very good quarter with $356 million in net income – up 13% from a year ago. Commercial banking was particularly strong with revenue growth of 17% and increasing market share for loans to small and medium-sized businesses that has now surpassed 20%. Our personal banking customer loyalty scores continue to improve year over year and, most importantly, customers are turning into advocates. And, in their recently announced Best Banking Awards for 2009, global market research firm Synovate recognized BMO Bank of Montreal as showing the most improvement among the Big 5 banks by winning three awards, including the Branch Service Excellence award. BMO Capital Markets also had a strong quarter as the low-interest rate environment – coupled with our strong liquidity and capital positions – has allowed us to capitalize on market opportunities. Trading revenues were up significantly from a year ago as was corporate banking net interest income. The Private Client Group's results increased from the second quarter as broker revenues and mutual fund assets increased amid improving equity markets. Our U.S. retail banking franchise customer loyalty scores remain strong while competitor loyalty scores deteriorate. Our realized loan losses are below the peer group average and retention of maturing deposits is high, reflecting our continued commitment to providing the right products and services to our customers.

“Overall, our businesses had a good quarter. We are seeing positive signs that the economic environment is starting to turn from challenging to more normal conditions and BMO is well-positioned for further growth as conditions continue to improve,” concluded Mr. Downe.

1 All earnings per share (EPS) measures in this document refer to diluted EPS unless specified otherwise.

2 The adjustments that change results under generally accepted accounting principles (GAAP) to cash results are outlined in the Non-GAAP Measures section at the end of Management's Discussion and Analysis (MD&A), where such non-GAAP measures and their closest GAAP counterparts are outlined. Adjusted cash EPS is also a non-GAAP measure; please see details in the Notable Items section and also the Non-GAAP Measures section.

Segment Overview

P&C Canada
Net income was $356 million, up $41 million or 13% from a year ago. Revenue increased across each of our personal, commercial and cards businesses, led by volume growth across most products and an improved net interest margin. We continue to achieve strong results in difficult market conditions.

We are maintaining our commitment to helping customers choose the best solutions for them in the current economic environment. As a result, we continue to narrow the gap to the industry leader on both personal and commercial loyalty scores relative to a year ago.

In personal banking, our focus on improving performance management, investing in our branch network and new product offerings has led to improved revenues and accelerating growth in deposit products. During the quarter we introduced BMO SmartSteps to help customers save, borrow wisely and manage their financial affairs in a few simple steps. Year to date, we have opened eight new branches, redeveloped five and renovated three. We have also closed 88 in-store branches, reflecting our customers' preferences for the services of a full-service bank offering professional advice and relationship management capabilities, combined with the convenience of online banking channels.

In commercial banking, we are progressing toward our goal of becoming the bank of choice for businesses across Canada. We rank second in Canadian business banking market share. BMO continues to make credit available to our small and medium-sized business clients. Although loan growth was relatively flat, we increased our market share 21 basis points year over year and 13 basis points quarter over quarter to 20.1%.

We are also growing our cards business while being prudently attentive to the current credit environment. We simplified and enhanced our entire suite of credit card products by eliminating annual fees for 400,000 customers and doubling AIR MILES rewards for another 1.2 million customers. For the fourth consecutive year, our group was awarded the Global Quality Standards Platinum award from MasterCard Worldwide, an acknowledgement of superior performance in the key areas that affect customer experience when making a purchase.

Effective in the third quarter, the term investments business has moved to P&C Canada where it is now better aligned with P&C's retail product strategy. At the same time, all of BMO's insurance businesses now operate within Private Client Group.

P&C U.S. (all amounts in U.S. $)
Net income was $23 million, down $5 million or 16% from a year ago. Cash net income was $29 million, down $6 million or 15%. Results benefited from improved loan spreads and deposit retention as well as increased gains on the sale of mortgages.

Cash net income has exceeded $40 million for the last five quarters and was at its highest in the current quarter at $43 million, on a basis that adjusts for the impact of impaired loans, integration costs and Visa gains and charges.

Net income increased $2 million or 16% from the second quarter as net interest margin improved due to higher lending spreads.

There are higher levels of impaired loans and the costs of managing this portfolio have increased, reducing earnings in the current quarter by $13 million, compared with a $5 million reduction a year ago.

Revenue decreased $1 million or 0.5% from a year ago. Revenue increased $8 million or 3.3% excluding the impact of the impaired loan portfolio, largely driven by mortgage sale gains. Net interest margin increased from last year due to new deposit generation and pricing actions.

We are maintaining our strong focus on new customer acquisition in both the consumer and commercial businesses and continuing to make loans and provide deposit services to our customers, while managing expenses. These efforts should position us well as we come out of the current economic downturn. Mortgage originations are strong, with the majority of loans originated sold in the secondary market. We have eliminated high loan-to-value products in home equity. We have enhanced our loan quality review for underwriting groups, implemented an updated loan-to-value line management strategy and enhanced our monitoring practices. On the deposit side, we are seeing high retention rates of maturing deposits, reflecting our continued commitment to provide the right products and services for our customers.

The Harris Contact Center was recently certified as a Center of Excellence by Purdue University's Center for Customer-Driven Quality (CCDQ). This is a great accomplishment. The CCDQ is a recognized leader in benchmarking and certifying contact centers with only 10% of applicants earning the designation.

Our Retail Net Promoter Score, a measure of the strength of customer loyalty, remains strong and consistent, at a time when the scores of a number of our competitors have deteriorated.

Private Client Group
Effective in the third quarter, all of BMO's insurance businesses now operate within Private Client Group (PCG), better aligning our wealth management strategy and bringing our insurance capabilities and skill-sets together. At the same time, the term investments business has moved to P&C Canada where it is now better aligned with P&C's retail product strategy.

Net income for the quarter was $120 million, an increase of $42 million or 54% from the second quarter. All of our lines of business achieved revenue growth, as we remain focused on continuing to deliver the high level of service and advice that our clients expect, especially in the current economic environment.

PCG net income excluding the insurance business was $53 million, up $6 million or 14% from the second quarter, as revenue grew by 8.3% amid improved equity markets and a continued focus on attracting new client assets. Assets under management and administration improved by $6 billion or 2.7% and by 6.5% in source currency.

Net income in the insurance business amounted to $67 million, including a $23 million recovery of prior periods' income taxes. The BMO Life Assurance acquisition increased net income by $3 million as the prior quarter only included one month of its earnings.

Private Client Group net income in the third quarter decreased $5 million or 4.2% from the same quarter a year ago, reflective of challenging equity markets and a low interest rate environment. Net income in the current quarter benefited from the recovery of prior periods' income taxes and the BMO Life Assurance acquisition.

Private Client Group entered the exchange traded fund (ETF) market by launching four new funds in the quarter to expand the investment options available to our clients. This makes us the only major Canadian financial institution to offer a family of these low-cost, easy-to-understand, risk-diversifying investment products. Our initial suite offers investors the primary building blocks of a clear and well-diversified investment portfolio and consists of the BMO Canadian Government Bond Index ETF, BMO Dow Jones Canada Titans 60 Index ETF, BMO U.S. Equity Index ETF and BMO Dow Jones Diamonds SM Index ETF.

BMO Capital Markets
Net income for the quarter was $343 million, an increase of $80 million or 30% from a year ago. No charges in respect of the capital markets environment have been designated as notable items this quarter in light of the relative insignificance of the amounts. Results a year ago were lowered by a net $14 million that included charges in respect of the capital markets environment of $134 million ($96 million after tax) as described in the Notable Items section at the end of the MD&A, as well as an $82 million recovery of prior periods' income taxes.

The strong performance in the quarter compared to a year ago was driven by significantly higher trading revenues as well as improved performance in corporate banking. This quarter's results reflect the strength and resilience of our core businesses and demonstrate the benefits of maintaining a dynamic and diversified portfolio. The diversification of our business mix was reflected in growth in debt underwriting fees in Canada and public finance in the United States. We continue to expand our U.S. distribution channel in terms of financial products and third-party distributors, resulting in increased revenue.

BMO Capital Markets was involved in 115 new issues in the quarter including 33 corporate debt deals, 29 government debt deals, 48 common equity transactions and five issues of preferred shares, raising $50.6 billion, up $3.5 billion from last quarter.

Corporate Services
The net loss was $287 million in the quarter with approximately one-half due to provisions for credit losses and the balance due primarily to low revenue. The net loss decreased from the second quarter primarily due to the severance charges recorded in that quarter. There was significant improvement in net interest income due in part to management actions to lower the negative carry on certain asset-liability interest rate and liquidity positions and to more stable market conditions. Overall revenue fell slightly as non-interest revenue decreased due in large part to lower securitization revenue and to mark-to-market losses on certain hedging activities compared to gains in the second quarter. The loan portfolio continues to be impacted by negative credit risk migration as expected but the pace of negative migration is slowing in a number of areas.

BMO employs a methodology for segmented reporting purposes whereby expected credit losses are charged to the operating groups quarterly based on their share of expected credit losses over an economic cycle. The difference between quarterly charges based on expected losses and required quarterly provisions based on actual losses is charged (or credited) to Corporate Services.

The foregoing contains forward-looking statements. Please see the Caution Regarding Forward-Looking Statements.

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 harbour 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 the BMO 2008 Annual Report, which outlines in detail certain key factors that may affect our 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.

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 challenging market conditions continuing.

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 as well as overall market conditions and their combined effect on the bank's business, including those described under the heading Economic Outlook, are material factors we consider when determining our strategic priorities, objectives and expectations for our business. 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.

To view the rest of this news release consisting of:

Financial Highlights click here
Management's Discussion and Analysis click here
Unaudited Financial Statements click here

INVESTOR AND MEDIA PRESENTATION

Investor Presentation Materials
Interested parties are invited to visit our website at www.bmo.com/investorrelations to review this quarterly news release, presentation materials and a supplementary financial information package online.

Quarterly Conference Call and Webcast Presentations
Interested parties are also invited to listen to our quarterly conference call on Tuesday, August 25, 2009 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 Monday, November 23, 2009 by calling 416-695-5800 (from within Toronto) or 1-800-408-3053 (toll-free outside Toronto) and entering passcode 3278112.

A live webcast of the call can be accessed on our website at www.bmo.com/investorrelations. A replay can be accessed on the site until Monday, November 23, 2009.

Media Relations Contacts
Ralph Marranca, Toronto, ralph.marranca@bmo.com, 416-867-3996
Ronald Monet, Montreal, ronald.monet@bmo.com, 514-877-1873

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, 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

For further information: