Financial Highlights For the three months ended Jan 31, Oct 31, - - PDF document

For dividend information, change in shareholder address or to advise

• f duplicate mailings, please contact

The Trust Company of Bank of Montreal 129 Saint-Jacques Street B Level North Montreal, Quebec H2Y 1L6 Telephone: (514) 877-2500 Fax: (514) 877-9676 For other shareholder information, please contact Shareholder Services Corporate Secretary’s Department 21st Floor 1 First Canadian Place Toronto, Ontario M5X 1A1 Telephone: (416) 867-6785 Fax: (416) 867-6793 E-mail: corp.secretary@bmo.com For further information on this report, please contact Investor Relations Department 18th Floor P .O. Box 1 1 First Canadian Place Toronto, Ontario M5X 1A1

F i r s t Q u a r t e r Re p o r t

Shareholder Dividend Reinvestment and Share Purchase Plan Average market price

November 1999 $ 53.79 December 1999 $ 49.41 January 2000 $ 45.95 For the Period Ended Januar y 31, 2000

2

Bank of Montreal First Quarter Report 2000

Financial Highlights

For the three months ended Jan 31, Oct 31, Jan 31, Change from (Canadian $ in millions except as noted) 2000 1999 1999 Jan 31, 1999

Net Income Statement Net interest income (TEB) (a) $ 1,081 $ 1,124 $ 1,089 (0.7)% Other income 1,042 884 845 23.3 Total revenue (TEB) (a) 2,123 2,008 1,934 9.8 Provision for credit losses 100 80 80 25.0 Non-interest expense 1,254 1,501 1,232 1.8 Provision for income taxes (TEB) (a) 279 153 243 15.6 Non-controlling interest in subsidiaries 4 4 7 (39.3) Net income before goodwill 486 270 372 30.2 Amortization of goodwill, net of applicable income tax 12 12 10 11.2 Net income 474 258 362 30.8 Taxable equivalent adjustment 31 33 36 (12.6) Per Common Share ($) Net income before goodwill • basic $ 1.72 $ 0.91 $ 1.29 $ 0.43

• fully diluted

1.71 0.90 1.28 0.43 Net income • basic 1.68 0.87 1.25 0.43

• fully diluted

1.66 0.86 1.24 0.42 Dividends declared 0.50 0.47 0.47 0.03 Book value per share 35.77 34.87 33.09 2.68 Market value per share 48.15 56.65 66.75 (18.60) Total market value of common shares ($ billions) 12.9 15.1 17.7 (4.8)

As at Jan 31, Oct 31, Jan 31, Change from 2000 1999 1999 Jan 31, 1999

Balance Sheet Summary Assets $ 228,525 $ 230,615 $ 224,919 1.6% Loans 133,148 138,001 134,481 (1.0) Deposits 154,469 156,874 146,577 5.4 Capital funds 15,920 15,693 15,413 3.3 Common equity 9,571 9,313 8,785 8.9 Net impaired loans and acceptances (240) (256) (319) 24.8 Average Balances Loans 135,659 134,362 136,226 (0.4) Assets 230,195 225,321 230,169 0.0

Jan 31, 2000 Oct 31, 1999 Jan 31, 1999 Three Months Twelve Months Three Months

Primary Financial Measures (%) (b) Five-year total shareholder return 17.5 22.0 21.6 Net economic profit ($ millions) 201 401 130 Earnings per share growth 33.9 1.3 (2.4) Return on equity 19.0 14.1 15.1 Revenue growth 9.8 9.0 5.6 Expense-to-revenue ratio 59.0 66.7 63.7 Provision for credit losses as a % of average loans and acceptances 0.28 0.22 0.22 Gross impaired loans and acceptances as a % of equity and allowance for credit losses 8.89 8.53 7.28 Liquidity ratio 29.9 29.2 28.6 Tier 1 capital ratio 7.84 7.72 7.41 Credit rating AA- AA- AA- Other Financial Ratios (% except as noted) (b) Total shareholder return (12.0) (7.4) 8.7 Dividend yield 3.3 2.9 2.8 Price-to-earnings ratio (times) 9.3 11.9 14.3 Market-to-book value (times) 1.35 1.62 2.02 Cash earnings per share – basic ($) 1.74 5.01 1.32 Cash return on common shareholders’ equity 21.0 15.9 17.1 Return on average assets 0.82 0.61 0.62 Net interest margin 1.87 1.95 1.88 Other income as a % of total revenue 49.1 44.3 43.7 Expense growth 1.8 10.5 6.0 Tier 1 capital ratio – U.S. basis 7.63 7.42 7.15 Total capital ratio 10.99 10.77 10.53 Equity-to-assets ratio 5.1 4.9 4.9

(c) All ratios in this report are based on unrounded numbers. (a) Reported on a taxable equivalent basis (TEB). (b) For the period ended or as at, as appropriate.

Bank of Montreal (the Bank) reported net income of $474 million for the quarter ended January 31, 2000, compared with $362 million a year ago, and $258 million in the fourth quarter of 1999. Fully diluted earnings per share were $1.66 ($1.68 basic), versus $1.24 ($1.25 basic) last year and $0.86 ($0.87 basic) in the fourth quarter of 1999. Return on equity was 19.0%, compared with 15.1% for the first quarter of 1999, and 9.8% for the fourth quarter of 1999. Return on equity

• n a cash basis was 21.0% up from 17

.1% a year ago, and 11.2% in the fourth quarter of 1999. Excluding the gain on the sale of Partners First, net income was $407 million, fully diluted earnings per share were $1.42 ($1.43 basic), and return on equity was 16.2%. The net income increase of $45 million, excluding the gain

• n sale, was driven by higher revenues and a higher pro-

portion of foreign income which resulted in lower taxes. This was partly offset by expense growth and an increase in the provision for credit losses. The rise in net income, excluding the gain on sale, was the result of strong business volume growth in the Bank’s retail and commercial businesses, and in the wealth man- agement businesses, particularly full-service and direct

• investing. Net income from institutional businesses was rel-

atively unchanged as lower volumes and narrower spreads

• n fixed income and money market securities, and lower

cash collections on impaired loans, were offset by revenue growth from investment and corporate banking activities. Strategic Highlights The Bank’s record performance in the first quarter reflected the aggressive pursuit and execution of our six point strategy. Key features of the strategy, developed in January, include:

• 1. Continue to aggressively build the value of Harris
• Bank. On a U.S. GAAP basis, Harris Bank earnings were

US$58 million, up US$7 million or 12.7% from the first quarter of 1999.

• 2. Rapidly grow the wealth management business.

During the first quarter Nesbitt Burns full-service

• nline was introduced as Canada’s first full-service
• nline investment program. In addition, the acquisition
• f the Chicago-based discount brokerage Burke,

Christensen & Lewis was completed.

• 3. Capitalize on the Bank’s strong Canadian position in

personal and commercial banking. Year over year resi- dential mortgages rose 6.3%, credit cards and other per- sonal loans 7 .4% and loans to commercial enterprises 6.9%. In addition, three new In-Store branches were

• pened and two branches consolidated during the quarter.
• 4. Build on the Bank’s strong leadership position in

investment banking. The Bank was ranked either first

• r second in corporate underwriting and institutional

equity, and first in mergers and acquisitions, research and securitizations.

• 5. Drive e-business opportunities. During the quarter the

Bank became the first bank in North America to deliver integrated wireless banking and trading services, in partnership with the Toronto-based software company 724 Solutions, which went public in January. The Bank holds 3.4 million shares of common stock, a 9.4% interest in 724 Solutions, after an initial investment of $2 million.

• 6. Intensely focus on cost, capital and risk management.

The Bank sold its investment in Partners First, a U.S. credit card issuing business, to Wachovia Bank Card Services for an after-tax gain of $67 million. Financial Highlights Revenue Total revenues for the first quarter increased $189 million,

• r 9.8%, relative to a year ago. Excluding the gain on sale,

revenues increased $77 million or 4.0%. The 4.0% rise in revenue reflects a decrease of $8 million in net interest income or 0.7%, and an increase of $85 million or 10.1% in

• ther income.

Expenses Expense growth relative to last year was $22 million, or 1.8%, and was driven by higher revenue-driven compensa- tion, spending on new strategic initiatives, offset by a favourable foreign-exchange impact on U.S.-based expenses, and a reduction in on-going business expenses including cost reductions. Asset Quality The provision for credit losses for the quarter was $100 million versus $80 million in 1999. The Bank currently forecasts an annual provision for credit losses

• f $400 million, compared with $320 million in 1999.

Gross impaired loans at the end of the quarter grew $72 million over the last quarter. The allowance for credit losses exceeded gross impaired loans by $240 million at the end of the quarter. Capital Adequacy The Bank’s Tier 1 Capital Ratio was 7 .84% and the Total Capital Ratio was 10.99% at January 31, 2000 compared with 7 .41% and 10.53% at January 31, 1999. This compares with 7 .72% and 10.77% at October 31, 1999. Risk-weighted assets at January 31, 2000 of $138 billion, were relatively unchanged from last year, and up 1.0% from October 31, 1999.

Overview

Bank of Montreal First Quarter Report 2000

3

• F. Anthony Comper (signed)

Chairman and Chief Executive Officer

Financial Performance

Shareholder Value

.5% for the first quarter of 2000, versus 21.6% for the first quarter of 1999.

8.7% for the first quarter of 1999.

27 .9% from the end of the first quarter of 1999.

Net Economic Profit Growth

Net economic profit growth for the first quarter of 2000 was 54.9%, com- pared to negative 13.8% for the first quarter of 1999. The growth in 2000 resulted from earnings growth, which outpaced the growth in average common shareholders’ equity.

Earnings Growth

• n sale of Partners First, earnings grew 12.3%. The increase in net income,

excluding the gain on sale, was driven by higher revenues and a higher pro- portion of foreign income which resulted in lower taxes. This was partially

• ffset by an increase in expenses and a higher provision for credit losses.

(2.4)% in 1999. Excluding the gain on sale, earnings per share increased 14.5%.

Profitability

The Bank achieved a 19.0% ROE for the first quarter of 2000 compared with 15.1% for the first quarter of 1999.

Excluding the gain on sale of Partners First, ROE for the first quarter of the year was 16.2%.

Revenue Growth

Revenue growth for the first quarter of 2000 was 9.8% compared to 5.6% for the first quarter of 1999. Excluding the gain on sale of Partners First, revenue growth was 4.0% for the first quarter of the year.

Revenue growth reflected business volume growth in the Bank’s retail and commercial businesses, and expansion of the wealth management busi- nesses, particularly full-service and direct investing. Five-Year Total Shareholder Return (%) Fully Diluted Earnings per Share Growth (%) Objective (Minimum

• f 10%)

Return on Common Shareholders’ Equity (%) Revenue Growth (%) Net Economic Profit Growth (%) Expense-to-Revenue Ratio (%)

Expense-to-Revenue Ratio

The expense-to-revenue ratio was 59.0% for the first quarter of the year com- pared to 63.7% for the first quarter of 1999.

Expense growth was 1.8% for the first quarter of the year compared to 6.0% for the first quarter of 1999. Expense growth was driven by higher revenue- driven compensation, continued spending on strategic initiatives, offset by a favourable foreign-exchange impact on U.S.-based expenses, and a reduction in on-going business expenses. 4

Bank of Montreal First Quarter Report 2000

Financial Condition

Credit Risk

The provision for credit losses as a percentage of average loans and accep- tances was 0.28% for the first quarter of 2000 compared to 0.22% for the first quarter of 1999.

Gross impaired loans, as a percentage of equity and allowance for credit losses was 8.89% compared to 8.53% at the end of the fourth quarter of 1999, and 7 .28% at the end of the first quarter of 1999.

Liquidity Ratio

The liquidity ratio was 29.9% at January 31, 2000 compared to 29.2% at October 31, 1999 and 28.6% at January 31, 1999.

Capital Adequacy

The Tier 1 Capital ratio was 7 .84% at January 31, 2000 compared to 7 .72% at October 31, 1999, and 7 .41% at January 31, 1999.

The Total Capital ratio was 10.99% at January 31, 2000 compared to 10.77% at October 31, 1999, and 10.53% at January 31, 1999.

Credit Rating

The composite credit rating remained unchanged.

Provision for Credit Losses as a % of Average Loans and Acceptances Gross Impaired Loans as a % of Equity and Allowance for Credit Losses Cash Resources

($ millions)

Securities Cash and Securities-to-Total Assets (%) Tier 1 Capital Ratio (%) Tier 1 Regulatory Requirement (4%) Composite Credit Rating The credit rating represents a composite of Moody’s and Standard & Poor’s debt ratings.

AA-

Bank of Montreal First Quarter Report 2000

5

6

Bank of Montreal First Quarter Report 2000

Quarterly Financial Overview The Bank reported net income of $474 million for the quar- ter ended January 31, 1999, compared with $362 million a year ago and $258 million in the fourth quarter of 1999. Fully diluted earnings per share were $1.66 versus $1.24 last year and $0.86 in the fourth quarter of 1999. Return on equity was 19.0%, compared with 15.1% for the first quarter

• f 1999 and 9.8% for the fourth quarter of 1999. Return on

equity on a cash basis was 21.0% up from 17 .1% a year ago, and 11.2% in the fourth quarter of 1999. Net income in the current period included an after-tax gain of $67 million from the sale of the Bank’s investment in Partners First, a U.S. credit card issuing business. Excluding the gain on the sale, net income was $407 mil- lion, fully diluted earnings per share were $1.42 ($1.43 basic), and return on equity was 16.2%. Revenue Total revenues for the first quarter increased $189 million,

• r 9.8%. This increase consisted of an $8 million decrease

in net interest income and an increase of $197 million, or 23.3%, in other income. Excluding the gain on sale of Partners First, revenues increased $77 million, or 4.0%. Relative to the fourth quarter of 1999, revenue increased $115 million or 5.8%. The fourth quarter of 1999 included a $55 million one-time charge for distressed securities, and $89 million from an additional month’s revenues due to the Nesbitt Burns change of year-end. Excluding these non- recurring items, including the gain on sale during the first quarter of 2000, revenues increased $37 million, or 1.9%. The increase reflected business volume growth in retail and commercial businesses, and wealth management. Investment banking revenues were essentially unchanged while support revenue declined due to narrower spreads

• n securitizations and capital funds.

Net Interest Income Average assets for the total Bank were unchanged com- pared to the prior year, with a 6.3% growth in retail and commercial assets, being offset by a reduction in the assets

• f institutional businesses. Net interest margin decreased

marginally by 0.01%, to 1.87%. The overall decrease was due to a $42 million, or 4.5%, increase in retail, commer- cial and wealth management businesses, which was more than offset by lower cash collections on impaired loans, and lower volumes and spreads on fixed income and money market businesses. In Canada, the Bank’s residential mortgages rose $2.4 billion, or 6.3%, from a year ago. Credit card and other per- sonal loans were up $1.2 billion, or 7 .4%, and loans to com- mercial enterprises, including small and medium-sized businesses, were up $1.2 billion, or 6.9%. Average loan growth of US$956 million, or 7.1%, at Harris Bank increased U.S. retail banking results. Net interest income decreased $43 million, or 3.8% from the fourth quarter of 1999. Excluding the non-recurring items

Management Analysis of Operations

referred to above, net interest income decreased $35 million. Other Income Excluding the gain on sale, other income increased $85 million, or 10.1%, and can be attributed to higher business volumes across most areas of the Bank. Other income rose $158 million, or 17 .9%, from the fourth quarter of 1999. Excluding the non-recurring items

• ther income rose $72 million or 8.4%.

Non-Interest Expense Expense growth relative to last year was $22 million, or 1.8%. This was driven by higher revenue-driven compen- sation (4.4%), spending on new strategic initiatives (1.1%), largely offset by a favourable foreign exchange rate impact

• n U.S.-based expenses (1.1%), and a reduction in on-going

business expenses, including $50 million in cost reduc- tions (2.6%). Expenses decreased $247 million, or 16.5% relative to the fourth quarter of 1999. Excluding non-recurring items, being the one-time charge for restructuring and the addi- tional month’s expenses in the last quarter from the Nesbitt Burns change of year-end, expenses decreased $34 million

• r 2.7% across the Bank. The expense decline of 2.7% was

driven by reduced revenue-driven compensation (1.7%), a reduction in on-going business expenses, including $50 million in cost reductions (2.1%) partially offset by invest- ment in strategic initiatives (1.1%). Caution Regarding Forward-Looking Statements From time to time we make written and verbal forward-looking state-

• ments. These may be included in this quarterly report, filings with

Canadian regulators or the U.S. Securities and Exchange Commission, in reports to shareholders and in other communications. These forward- looking statements include but are not limited to comments with respect to our objectives and strategies, financial condition, the results of our

• perations and our businesses, our outlook for the Canadian economy

and our risk management discussion including the Year 2000 issue. However, by their nature these forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific and the risk that predictions and other forward-looking statements will not be achieved. We caution readers of this quarterly report not to place undue reliance on these forward-looking statements as a number of important factors could cause actual future results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. Forward-looking statements may be influenced by the following fac- tors: fluctuations in interest rates and currency values; regulatory devel-

• pments; the effects of competition in the geographic and business

areas in which we operate, including continued pricing pressure on loan and deposit products; and changes in political and economic conditions including, among other things, inflation and technological changes. We caution that the foregoing list of important 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 the foregoing factors as well as other uncertainties and events.

Asset Quality The provision for credit losses for the quarter was $100 million versus $80 million in 1999. This is based on a fore- cast provision for the year of $400 million, compared to $320 million in 1999. In line with the methodology estab- lished for a number of years, this estimate takes into account several factors including the level of expected loss in the loan portfolio, management’s view of the current economic cycle, the level of impaired loans, as well as the amount of the general allowance for credit losses which is currently $970 million. Gross impaired loans at the end of the quarter grew $72 million over the last quarter. At the end of the first quarter, the allowance exceeded gross impaired loans by $240 million, compared with $319 million at the end of the first quarter of 1999, and $256 million at the end of the last quarter. Capital Management The Bank’s Tier 1 Capital Ratio increased to 7 .84% and the Total Capital Ratio increased to 10.99% at January 31,

• 2000. This compares with 7

.72% and 10.77% at October 31,

• 1999. Risk weighted assets at January 31, 2000 were

relatively unchanged at $138 billion from last year and up 1% from October 31, 1999. Liquidity Liquid assets or cash, securities and deposits with banks increased by $4.1 billion from the first quarter of last year, and amounted to 29.9% of total assets at January 31, 2000 compared to 29.2% at October 31, 1999. To maintain strong liquidity the Bank continues to ensure that it has well- diversified funding sources, with deposits broadly diversified by customer, type, currency and geography. The Bank’s large base of deposits by individuals provides a strong and secure source of funding in both the Canadian and U.S. dollar markets. These deposits along with the Bank’s strong capital base reduce the reliance on other more volatile sources of funds. Credit Rating The Bank’s credit rating, as measured by a composite of Moody’s and Standard & Poor’s senior debt ratings, remained unchanged at AA-.

Financial Condition Overview

Bank of Montreal First Quarter Report 2000

7 Geographic Segmentation

In the current quarter, foreign earnings were $250 million, representing 52.7% of total earnings, compared to $216 million or 59.6% a year ago. The Bank’s equity stake in Bancomer generated earnings of $31 million, which has decreased $1 million compared with the same period last

• year. The contribution from Harris Bank was $78 million,

compared to $76 million a year ago. Geographic Diversification of Net Income – First Quarter

($ millions) 2000 1999

Canada 224 146 United States 184 146 Mexico 35 35 Other 31 35 Total 474 362

The Annual and Special Meeting of Common Shareholders and the Special Meeting of Class B Preferred Shareholders were held on February 29, 2000 in London, Ontario. At the Common Shareholders meeting, shareholders appointed the auditors of the Bank, approved an amendment to the Stock Option Plan, and confirmed Special By-law “F” to change and increase the authorized capital of the Bank. The following seventeen individuals were elected directors of the Bank: Stephen Bachand, David Beatty, Peter Bentley, Robert Chevrier, Tony Comper, John Fraser, David Galloway, Eva Lee Kwok, Blair MacAulay, Frank McKenna, Robert McKercher, Bruce Mitchell, Philip Orsino, Jeremy Reitman, Joseph Rotman, Guylaine Saucier and Nancy Southern. Five of six shareholder proposals before the meeting, details of which were included in the Proxy Circular forwarded to all share- holders in January 2000, were not accepted by shareholders. A sixth proposal, Publication of Auditor’s Fees, was accepted. In addition, the Chairman and Chief Executive Officer, Tony Comper, outlined the Bank’s six-point growth strategy. At the Special Meeting of Class B Preferred Shareholders, share- holders approved special resolutions to change and increase the aggregate consideration with respect to Class B and Class A Preferred Shares. Shareholders wishing to receive the minutes of the meetings may contact: Bank of Montreal Corporate Secretary’s Department – Shareholder Services 1 First Canadian Place, 21st Floor 100 King Street West Toronto, Ontario M5X 1A1 Telephone: (416) 867-6785 Fax: (416) 867-6793 E-mail: corp.secretary@bmo.com

Net Income and Average Assets by Operating Group (For the three months ended)

Personal & Commercial Private Client Investment Banking Total Client Group (a) Group (b) Group (c) Consolidated (d) Jan 31, Oct 31, Jan 31, Oct 31, Jan 31, Oct 31, Jan 31, Oct 31, 2000 1999 2000 1999 2000 1999 2000 1999

Net Income ($ millions) Canada 166 143 24 5 56 50 224 80 United States 143 79 8 8 34 87 184 145 Mexico 32 17 2 3 35 19 Other Countries 16 14 1 3 14 (3) 31 14 Total 357 253 33 16 106 137 474 258 Average Assets ($ billions) Canada 79.0 77.8 1.6 1.8 50.6 40.7 123.7 112.0 United States 37.5 36.2 1.9 1.9 34.6 37.1 77.9 79.1 Mexico 0.8 0.8 0.0 0.0 0.8 0.8 1.7 1.7 Other Countries 0.2 0.2 0.1 0.1 26.5 32.1 26.9 32.5 Total 117.5 115.0 3.6 3.8 112.5 110.7 230.2 225.3

Net Income and Average Assets by Operating Group (For the three months ended)

Personal & Commercial Private Client Investment Banking Total Client Group (a) Group (b) Group (c) Consolidated (d) Jan 31, Jan 31, Jan 31, Jan 31, Jan 31, Jan 31, Jan 31, Jan 31, 2000 1999 2000 1999 2000 1999 2000 1999

Net Income ($ millions) Canada 166 140 24 6 56 31 224 146 United States 143 68 8 6 34 55 184 146 Mexico 32 33 2 1 35 35 Other Countries 16 13 1 3 14 19 31 35 Total 357 254 33 15 106 106 474 362 Average Assets ($ billions) Canada 79.0 74.1 1.6 1.6 50.6 45.8 123.7 114.0 United States 37.5 35.5 1.9 1.8 34.6 40.0 77.9 78.3 Mexico 0.8 0.7 0.0 0.0 0.8 1.0 1.7 1.8 Other Countries 0.2 0.2 0.1 0.1 26.5 35.8 26.9 36.1 Total 117.5 110.5 3.6 3.5 112.5 122.6 230.2 230.2

(a) Personal and Commercial Client Group (P&C) is responsible for financial services to retail and commercial businesses in Canada and the U.S. through its branch and automated bank- ing networks, electronic banking products, including mbanx services, credit card, corporate electronic banking, telebanking and alliances with the Bank’s affiliated corporation Grupo Financiero Bancomer. (b) Private Client Group (PCG) is responsible for providing wealth management services to individuals, including the services of Nesbitt Burns and Asset Management Services, which includes InvestorLine discount brokerage, First Canadian Funds, Jones Heward Investment Management Services and Harris Private Bank. (c) Investment Banking Group (IBG) is responsible for relationship management for large corporate and institutional customers, the delivery of treasury products and corporate and investment banking in Canada and the U.S. (d) Total Consolidated includes general provisions for credit losses and any residual revenues and expenses representing the difference between actual amounts incurred and the amounts allocated to operating groups. Basis of presentation of results of operating groups: Expenses are matched against the revenues to which they relate. Indirect expenses, such as overhead expenses and any revenue that may be associated thereto, are allocated to the operating groups using appropriate allocation formulas applied on a consistent basis. For each currency, the net income effect of funds transferred from any group with a surplus to any group with a shortfall is at market rates for the currency and appropriate term. Segmentation of assets by geographical region is based upon the ultimate risk of the underlying assets. Segmentation of net income is based upon the geographic location of the unit responsible for managing the related assets, liabilities, revenues and expenses.

8

Bank of Montreal First Quarter Report 2000

Personal and Commercial Client Group The Personal and Commercial Client Group (P&C) provides financial services including electronic financial services, to households and commercial businesses, including small businesses, in Canada, the U.S. and Mexico. Net income for the first quarter was $357 million, an increase of $103 million or 40.7% from the comparable period last year. Excluding the gain on the sale of Partners First, net income increased $36 million, or 14.2%. Business growth was driven by increased volumes, partially offset by narrower spreads and an increase in the provision for credit losses. Revenues increased $160 million or 12.7% over last year. Excluding the gain on sale, revenues were up $48 million or 3.8%. Net interest income and other revenue growth were driven by volume growth across most lines of business. Expenses decreased $6 million or 0.8% from last year. Compared with the fourth quarter of 1999, net income was $104 million or 40.5% higher. Excluding the gain on the sale of Partners First, net income increased $37 million

• r 14.1%. The increase resulted from business growth in

Canada, the U.S. and an increase in the contribution from the Bank’s investment in Bancomer, partly offset by an increase in the provision for credit losses. Business growth was driven by increased volumes across most lines of busi- ness, increased margins in Canada and a reduction in

• perating expenses.

Private Client Group Bank of Montreal’s Private Client Group (PCG) brings together all of the Bank’s wealth management capabilities in six lines of business: retail investment products, direct and full service investing, Canadian and U.S. private bank- ing and institutional asset management. Net income for the first quarter of 2000 was $33 mil- lion, an increase of $18 million or 112.2% from the com- parable period last year. Revenues increased $70 million

• r 28.7% over last year primarily due to increased vol-

umes in both full-service and direct investing, which ben- efited from strong equity markets. Expenses increased $44 million or 20.8% due to higher variable compensation and the expansion of the Bank’s wealth management busi-

• ness. PCG has total assets under management and admin-

istration of $171 billion. Net income increased $17 million, or 110.2% compared to the fourth quarter of 1999. During 1999, Nesbitt Burns changed its year-end, resulting in one additional month of results being included in the fourth quarter of 1999. The inclusion of the additional month of results accounted for an additional $56 million in revenue and $53 million in expenses, with a positive net income impact of $2 million. Revenue growth of $55 million, excluding the extra month in the previous quarter, was driven by increased volumes in both full service and direct investing, while expenses increased $28 million due to revenue-driven compensa- tion and continued investment in the wealth management line of business. Investment Banking Group The Investment Banking Group (IBG) services the corpo- rate and investment banking needs of larger corporate and institutional clients. Net income was $106 million for the quarter, unchanged from the prior year. Revenues of $439 million were down $2 million, or 0.5%. Expenses were up $10 million, or 4.3%, over last year. Lower provisions for credit losses

• ffset these changes.

Overall, the decline in revenues was due to lower volumes and narrower spreads on fixed income and money market securities, and lower cash collections on impaired

• loans. These were offset by revenue growth from invest-

ment and corporate banking activities. Expense growth was driven by increased revenue-driven compensation in trading and investment lines of business. Net income decreased $31 million, or 22.6%, from the fourth quarter of 1999. Revenues were down $32 million, while expenses decreased $14 million. In 1999, Nesbitt Burns changed its year-end, resulting in the inclusion of an additional month of results in the fourth quarter. This inclusion resulted in an additional $37 million of revenues, $20 million of expenses and a positive net income impact

• f $9 million. Excluding the impact of the extra month’s

results, net income for the current quarter was down $22 million, as the revenue increase of $5 million was more than offset by a rise in expenses of $6 million, and an increase in the provision for credit losses. The provision for credit losses returned to normal levels, after a recovery

• f $32 million in the fourth quarter of 1999.

Operating Group Review

Bank of Montreal First Quarter Report 2000

9

Consolidated Statement of Income

For the three months ended (Unaudited) (Canadian $ in millions except number of common shares) January 31, 2000 October 31, 1999 January 31, 1999

Interest, Dividend and Fee Income Loans $ 2,449 $ 2,364 $ 2,566 Securities 701 632 637 Deposits with banks 231 274 277 3,381 3,270 3,480 Interest Expense Deposits 1,754 1,571 1,730 Subordinated debt 86 85 86 Other liabilities 491 523 611 2,331 2,179 2,427 Net Interest Income 1,050 1,091 1,053 Provision for credit losses 100 80 80 Net Interest Income After Provision for Credit Losses 950 1,011 973 Other Income Deposit and payment service charges 164 165 146 Lending fees 80 91 78 Capital market fees 224 265 184 Card services 53 55 48 Investment management and custodial fees 104 103 104 Mutual fund revenues 52 60 49 Trading revenues 77 52 65 Securitization revenues 70 84 75 Other fees and commissions 218 9 96 1,042 884 845 Net Interest and Other Income 1,992 1,895 1,818 Non-Interest Expense Salaries and employee benefits 734 749 668 Premises and equipment 257 295 274 Communications 65 72 66 Other expenses 194 239 218 1,250 1,355 1,226 Amortization of intangible assets 4 5 6 1,254 1,360 1,232 Restructuring charge – 141 – Total non-interest expense 1,254 1,501 1,232 Income Before Provision for Income Taxes, Non-Controlling Interest in Subsidiaries and Goodwill 738 394 586 Income taxes 248 120 207 490 274 379 Non-controlling interest 4 4 7 Net Income Before Goodwill 486 270 372 Amortization of goodwill, net of applicable income tax 12 12 10 Net Income $ 474 $ 258 $ 362 Dividends Declared • preferred shares $ 25 $ 27 $ 30

• common shares

$ 134 $ 125 $ 125 Average Number of Common Shares Outstanding 267,248,718 266,761,950 264,952,530 Average Assets $ 230,195 $ 225,321 $ 230,169

Note: Reporting under United States generally accepted accounting principles would have resulted in Consolidated Net Income of $456, basic earnings per share of $1.61 and fully diluted earnings per share of $1.59 for the three months ended January 31, 2000.

10

Bank of Montreal First Quarter Report 2000

Condensed Consolidated Balance Sheet

As at (Unaudited) (Canadian $ in millions) January 31, 2000 October 31, 1999 January 31, 1999

Cash resources $ 23,441 $ 24,036 $ 23,823 Securities 44,913 43,273 40,420 68,354 67,309 64,243 Loans Residential mortgages 38,598 38,189 36,349 Consumer instalment and other personal loans 17,052 16,912 15,817 Credit card loans 1,217 1,160 882 Loans to businesses and governments 59,727 57,998 50,658 Securities purchased under resale agreements 17,958 25,090 31,996 134,552 139,349 135,702 Allowance for credit losses (1,404) (1,348) (1,221) 133,148 138,001 134,481 Customers’ liability under acceptances 8,195 6,753 6,649 Other assets 18,828 18,552 19,546 Total Assets $ 228,525 $ 230,615 $ 224,919 Deposits Banks $ 27,869 $ 30,398 $ 28,926 Businesses and governments 64,564 65,459 56,968 Individuals 62,036 61,017 60,683 154,469 156,874 146,577 Acceptances 8,195 6,753 6,649 Securities sold but not yet purchased 14,161 10,450 8,038 Securities sold under repurchase agreements 19,504 24,177 31,655 Other liabilities 16,276 16,668 16,587 58,136 58,048 62,929 Subordinated debt 4,688 4,712 4,750 Shareholders’ equity Share capital Preferred shares 1,661 1,668 1,878 Common shares 3,205 3,190 3,138 Retained earnings 6,366 6,123 5,647 11,232 10,981 10,663 Total Liabilities and Shareholders’ Equity $ 228,525 $ 230,615 $ 224,919

Note: These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles, including the accounting requirements of the Superintendent of Financial Institutions Canada. Bank of Montreal First Quarter Report 2000

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Condensed Consolidated Statement of Cash Flow

For the three months ended (Unaudited) (Canadian $ in millions) January 31, 2000 January 31, 1999

Cash Flows From (Used in) Operating Activities Net income $ 474 $ 362 Adjustments to determine net cash flows (4,228) 2,816 (3,754) 3,178 Cash Flows From (Used in) Financing Activities Deposits (2,405) 2,594 Other liabilities (1,351) 2,429 Debt and share capital 15 (78) Dividends paid (152) (155) (3,893) 4,790 Cash Flows From (Used in) Investing Activities Investment securities 2,334 1,046 Loans 4,753 (4,837) Premises and equipment – net purchases (35) (84) Interest bearing deposits with banks 1,041 (4,273) 8,093 (8,148) Net Increase (Decrease) in Cash and Cash Equivalents 446 (180) Cash and Cash Equivalents at Beginning of Period 2,419 2,962 Cash and Cash Equivalents at End of Period $ 2,865 $ 2,782

Condensed Consolidated Statement of Changes in Shareholders’ Equity

For the three months ended (Unaudited) (Canadian $ in millions) January 31, 2000 January 31, 1999

Balance at Beginning of Period $ 10,981 $ 10,608 Net income 474 362 Dividends • Preferred shares (25) (30)

• Common shares

(134) (125) Preferred share redemption – (72) Common share issues 15 43 Translation adjustment on preferred shares issued in a foreign currency (7) (8) Unrealized gain (loss) on translation of net investment in foreign operations, net of hedging activities and applicable income taxes (72) (90) Costs of proposed merger, net of applicable income taxes – (25) Balance at End of Period $ 11,232 $ 10,663 12

Bank of Montreal First Quarter Report 2000