Financial Highlights For the three months ended For the six months - - PDF document

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• 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

S e c o n d Q u a r t e r Re p o r t

Shareholder Dividend Reinvestment and Share Purchase Plan Average market price

February 2000 $ 44.44 March 2000 $ 50.35 April 2000 $ 53.76 For the Period Ended April 30, 2000

Financial Highlights

For the three months ended For the six months ended Apr 30, Jan 31, Apr 30, Change from Apr 30, Apr 30, Change from (Canadian $ in millions except as noted) 2000 2000 1999 Apr 30, 1999 2000 1999 Apr 30, 1999

Net Income Statement Net interest income (TEB) (a) $ 1,084 $ 1,081 $ 1,112 (2.5)% $ 2,165 $ 2,201 (1.6)% Other income 1,200 1,042 849 41.4 2,242 1,694 32.4 Total revenue (TEB) (a) 2,284 2,123 1,961 16.5 4,407 3,895 13.2 Provision for credit losses 100 100 80 25.0 200 160 25.0 Non-interest expense 1,348 1,254 1,271 6.2 2,602 2,503 4.0 Provision for income taxes (TEB) (a) 322 279 231 39.2 601 472 27.2 Non-controlling interest in subsidiaries 5 4 5 (9.6) 9 12 (27.2) Net income before goodwill 509 486 374 35.9 995 748 33.1 Amortization of goodwill, net of applicable income tax 12 12 10 12.3 24 22 13.5 Net income 497 474 364 36.6 971 726 33.7 Taxable equivalent adjustment 35 31 35 (0.9) 66 71 (6.8) Per Common Share ($) Net income before goodwill – basic $ 1.81 $ 1.72 $ 1.30 $ 0.51 $ 3.53 $ 2.59 $ 0.94 – fully diluted 1.79 1.71 1.29 0.50 3.50 2.57 0.93 Net income – basic 1.76 1.68 1.26 0.50 3.44 2.51 0.93 – fully diluted 1.75 1.66 1.25 0.50 3.41 2.49 0.92 Dividends declared 0.50 0.50 0.47 0.03 1.00 0.94 0.06 Book value per share 37.45 35.77 33.53 3.92 37.45 33.53 3.92 Market value per share 53.75 48.15 60.80 (7.05) 53.75 60.80 (7.05) Total market value of common shares ($ billions) 14.4 12.9 16.2 (1.8) 14.4 16.2 (1.8)

As at Apr 30, Jan 31, Apr 30, Change from 2000 2000 1999 Apr 30, 1999

Balance Sheet Summary Assets $ 238,414 $ 228,525 $ 219,653 8.5% Loans 136,697 133,148 132,984 2.8 Deposits 162,067 154,469 146,965 10.3 Capital funds 16,428 15,920 15,479 6.1 Common equity 10,037 9,571 8,916 12.6 Net impaired loans and acceptances (283) (240) (212) (33.3) Average Balances Loans 136,536 135,659 134,806 1.3 Assets 233,354 230,195 224,762 3.8

For the three months ended For the six months ended Apr 30, 2000 Jan 31, 2000 Apr 30, 1999 Apr 30, 2000 Apr 30, 1999

Primary Financial Measures (%) (b) 5 year total shareholder return 18.2 17.5 23.4 18.2 23.4 Net economic profit ($ millions) 226 201 132 427 262 Earnings per share growth 40.0 33.9 (5.3) 36.9 (3.9) Return on equity 19.8 19.0 15.5 19.4 15.3 Revenue growth 16.5 9.8 2.7 13.2 4.1 Expense-to-revenue ratio 59.1 59.0 64.8 59.1 64.3 Provision for credit losses as a %

• f average loans and acceptances

0.28 0.28 0.23 0.28 0.22 Gross impaired loans and acceptances as a %

• f equity and allowance for credit losses

8.71 8.89 8.36 8.71 8.36 Liquidity ratio 30.1 29.9 28.3 30.1 28.3 Tier 1 capital ratio 8.06 7.84 7.73 8.06 7.73 Credit rating AA- AA- AA- AA- AA- Other Financial Ratios (% except as noted) (b) Total shareholder return (1.0) (12.0) (0.8) (1.0) (0.8) Dividend yield 4.2 3.3 2.9 3.4 2.9 Price-to-earnings ratio (times) 9.4 9.3 13.2 9.4 13.2 Market-to-book value (times) 1.44 1.35 1.81 1.44 1.81 Cash earnings per share – basic ($) 1.83 1.74 1.32 3.57 2.64 Cash return on common shareholders’ equity 21.8 21.0 17.4 21.4 17.2 Return on average assets 0.87 0.82 0.66 0.84 0.64 Net interest margin 1.89 1.87 2.03 1.88 1.95 Other income as a % of total revenue 52.5 49.1 43.3 50.9 43.5 Expense growth 6.2 1.8 6.3 4.0 6.2 Tier 1 capital ratio – U.S. basis 7.67 7.63 7.38 7.67 7.38 Total capital ratio 11.13 10.99 10.85 11.13 10.85 Equity-to-assets ratio 5.1 5.1 5.1 5.1 5.1 2

Bank of Montreal Second Quarter Report 2000 (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 record net income of $497 million for the quarter ended April 30, 2000, an increase of 36.6% from the prior year and 4.9% from the first quarter of 2000. Fully diluted earnings per share grew 40.0% versus last year and 5.4% versus the first quarter of

• 2000. Return on equity was 19.8%, compared with 15.5% for

the second quarter of 1999 and 19.0% for the first quarter. The current quarter’s results included $52 million of after-tax gains, resulting from the sales of the Bank’s U.S. corporate trust businesses and 17 branches in Western

• Canada. Excluding these gains, net income increased

22.3% over the prior year and 9.4% over the first quarter. Revenue growth from the prior year of $235 million excluding gains, was generated by volume growth in retail and commercial businesses and by strong equity market conditions in wealth management and institu- tional businesses. Expenses, excluding the impact of revenue-driven compen- sation, decreased from the prior year by $32 million, due to reductions from on-going business operations. Asset quality remained sound throughout the quarter. The Bank’s results this quarter reflect strong business performance across all operating groups and the ability to capitalize on strong capital market activity. Strategic Highlights During the quarter, the Bank continued to aggressively focus

• n its six-point strategy:
• 1. Continue to aggressively build the value of Harris.

On a U.S. GAAP basis, Harris Bank earnings were US$87 million, up US$32 million, or 59.9% from the same quarter a year earlier. Excluding the gains on sales of the corporate trust businesses and securities gains, earnings increased 16.0%.

• 2. Rapidly grow the wealth management business. Private

Client Group net income increased by 71.1% and revenues by 42.4% over the prior year. Assets under management and administration and term deposits increased $28.2 billion,

• r 14.6% from the beginning of the fiscal year.
• 3. Capitalize on the Bank’s strong Canadian position in

personal and commercial banking. Residential mortgages increased by $2.7 billion, or 7 .2%; credit cards and other personal loans increased by $1.3 billion, or 7 .8%; and loans to commercial enterprises, including small businesses, increased $1.7 billion, or 8.3% over the prior year. In-Store branches increased by 12, to a total of 58. Subsequent to the end of the quarter, the Bank announced the purchase

• f 12 branches in the high-growth Kitchener-Waterloo area

from TD Financial Group.

• 4. Build on the Bank’s strong leadership position in

investment banking. On a year-to-date basis, Investment Banking Group ranked #2 in corporate underwriting and institutional equity, and #1 in research and securitiza-

• tions. The Bank formed a new team to lead the U.S. media

and telecommunications investment and merchant banking business and US$450 million was committed to merchant banking in this area over the next three years.

• 5. Drive e-business opportunities. Through a joint venture

with American Management Systems, Competix.com, the Bank sold its state-of-the-art loan approval software to 41 American banks. The Bank’s joint venture with CIT Group Inc., FinanciaLinx, became the first financ- ing company to offer all automobile dealers in Canada access to online, real-time, Internet-based car leases and loans. Private Client Group introduced the BMO Investing portal web-site to assist customers with wealth management product selection. The Bank continued to build on its leadership position in wireless financial services through the introduction of wireless trading with BMO InvestorLine and U.S. wireless banking in conjunction with Sprint. In addition, Bank of Montreal’s Veev wireless service offered the first Canadian wire- less retail application with indigo.ca. The MasterCard wallet was introduced for easy on-line purchasing.

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

The Bank sold its U.S. corporate trust businesses for an after-tax gain of $44 million, to re-deploy capital and resources to grow and expand its other businesses. The Bank announced the sale of 48 branches to a group of credit unions in Western Canada, 17 of which were completed for an after-tax gain of $8 million. The Bank plans to complete the remaining 31 branch sales during the rest of the fiscal

• year. Further progress has been achieved in managing

market risk, through the capture of commodities expo- sures on a Value-at-Risk basis. The Bank announced that it may purchase up to 10,000,000 common shares,

• r approximately 3.7% of the issued and outstanding

common shares of the Bank, through a normal course issuer bid, expiring October 31, 2000.

• F. Anthony Comper (signed)

Chairman and Chief Executive Officer

Overview

Bank of Montreal Second Quarter Report 2000

3

Financial Performance

4

Bank of Montreal Second Quarter Report 2000

Shareholder Value

The average annual total shareholder return (TSR) for the five years ended April 30, 2000 was 18.2%, versus 23.4% for the period ended April 30, 1999.

The annual TSR was negative 1.0% for the year to date, compared with negative 0.8% in the prior year. The share price increased 11.6% from the first quarter of 2000 and decreased 11.6% from the second quarter of 1999.

Net Economic Profit Growth

Net economic profit (NEP) for the first six months of 2000 grew 63.1% from the comparable period in the prior year, compared with a decline of 17 .0% for the first six months of 1999. The increase in 2000 reflects a higher growth in earnings relative to the growth in average common shareholders’ equity and an increase in the cost of equity. Excluding gains on sales described below, NEP growth was 17 .7% over the prior year.

Earnings Per Share Growth

Earnings per share (EPS) rose 36.9% for the first six months of 2000, compared with a decline of 3.9% for the first six months in 1999, while earnings rose 33.7% over the prior year. The first six months of 2000 included gains on sales of Partners First, U.S. corporate trust businesses and retail branches in Western Canada. Excluding these gains, EPS grew by 19.7% and earnings grew by 17 .3%, driven by revenue growth, partially offset by increased expenses and a higher provision for credit losses.

Profitability

The Bank achieved an annualized 19.4% ROE for the first six months of 2000, compared with 15.3% for the first six months of 1999. Excluding the gains on sales of businesses, the annualized ROE was 16.9%.

Revenue Growth

Revenue in the first six months of 2000 grew 13.2% over the comparable period in the prior year, compared with 4.1% growth for the first six months of 1999. Excluding the gains on sales of businesses, revenue growth was 8.0%. Revenue growth reflected business volume growth in the Bank’s retail and commercial businesses, and increased contributions from wealth management and institutional businesses, driven by strong equity markets. 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 59.1% for the first six months of 2000, compared with 64.3% for the first six months of 1999. Excluding the gains

• n sales of businesses, the expense-to-revenue ratio was 61.9%.

Expenses on a year-to-date basis grew 4.0% over the prior year, compared with growth of 6.2% in 1999. Expense growth was driven by higher revenue- driven compensation and spending on strategic initiatives, partly offset by a reduction in on-going business expenses.

Financial Condition

Bank of Montreal Second Quarter Report 2000

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Credit Risk

The provision for credit losses as a percentage of average loans and accept- ances was an annualized 0.28% for the first six months of 2000, compared with 0.22% for the first six months of 1999.

Gross impaired loans as a percentage of equity and the allowance for credit losses was 8.71% at April 30, 2000, compared with 8.89% at January 31, 2000 and 8.36% at April 30, 1999.

Liquidity Ratio

The liquidity ratio was 30.1% at April 30, 2000, compared with 29.9% at January 31, 2000 and 28.3% at April 30, 1999.

Capital Adequacy

The Tier 1 Capital ratio was 8.06% at April 30, 2000, compared with 7 .84% at January 31, 2000 and 7 .73% at April 30, 1999.

The Total Capital ratio was 11.13% at April 30, 2000, compared with 10.99% at January 31, 2000 and 10.85% at April 30, 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 and Securities ($ millions) Cash Resources 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-

Quarterly Financial Overview Net income was $497 million for the quarter ended April 30, 2000, compared with $364 million a year ago and $474 mil- lion in the first quarter of 2000. Fully diluted earnings per share were $1.75 ($1.76 basic), versus $1.25 ($1.26 basic) last year and $1.66 ($1.68 basic) in the first quarter of 2000. Return on equity was 19.8%, compared with 15.5% in the second quarter of 1999 and 19.0% in the first quarter of 2000. Net income for the quarter included after-tax gains of $52 million ($88 million pre-tax) resulting from the sales

• f the Bank’s U.S. corporate trust businesses and 17 branches

in Western Canada. Excluding these gains, net income was $445 million, fully diluted earnings per share were $1.56 ($1.57 basic), and return on equity was 17 .6%. Net income for the first six months of the year was $971 mil- lion, compared with $726 million in 1999. Fully diluted earnings per share for the first six months were $3.41 ($3.44 basic), up from $2.49 ($2.51 basic) in the previous year. The first quarter of 2000 included an after-tax gain of $67 million ($112 million pre-tax) from the sale of the Bank’s investment in Partners First. Excluding the gains, net income was $852 million, fully diluted earnings per share were $2.98 ($3.00 basic), and return on equity was 16.9%. Revenue Total revenues for the quarter were $2,284 million, an in- crease of $323 million, or 16.5% from a year ago. Excluding the gains from the sales of businesses, revenues increased $235 million, or 12.0%. Net interest income for the quarter was $1,084 million, a decrease of $28 million from the prior year. Net interest income increased in retail and commercial and wealth management businesses due to loan and term deposit volume growth, partly offset by a lower net interest margin and lower contribution from Bancomer. Net interest margin

• n these businesses declined in Canada as the positive

impact of rising interest rates was more than offset by the impact of additional higher-cost wholesale funding. Net interest income in institutional businesses declined as the impact of volume growth and increased net interest margin

• n the corporate loan portfolio was more than offset by net

interest margin declines in capital markets businesses. Also contributing to a reduction in net interest income year-over- year, were gains from the sale of bonds of lesser-developed countries included in revenue in the prior year. Other income for the quarter was $1,200 million, an increase of $351 million from the prior year. Excluding the gains on sales of businesses, other income increased $263 million, or 31.0%. Active equity markets benefited many of the Bank’s businesses as reflected in increased securities commissions and fees, underwriting fees and trading income. Revenues for the quarter increased $161 million, or 7.5% from the first quarter of 2000. Excluding gains from the sales of businesses in both quarters, revenues increased $185 million, or 9.1%. The increase was mainly due to increased equity-related commissions and fees and increased trading income. During the first half of the year, equity markets were particularly strong and contributed to the overall increase in net income. Equity market volumes moder- ated somewhat in the latter part of the second quarter from the exceptional levels seen to that point. Non-Interest Expense Expenses for the quarter increased $77 million, or 6.2% from the second quarter of the prior year. Excluding an increase in revenue-driven compensation of $109 million, expenses declined by $32 million, or 2.4%. This decline reflected a reduction in ongoing business operations expenses, includ- ing $64 million of cost reduction initiatives, partially offset by spending on strategic initiatives of $37 million. Expenses for the quarter increased $94 million, or 7 .5% from the first quarter of 2000. Excluding increased revenue- driven compensation of $71 million, expenses increased $23 million, or 1.9%. The increase was due to a reduction in ongoing business operations expenses, which was more than offset by higher spending on strategic initiatives. Harris Bank On a U.S. dollar/U.S. GAAP basis, Harris Bank earnings were $87 million, up $32 million, or 59.9% from the same quarter a year earlier. Earnings in the current quarter included a pre-tax gain of $50 million on the sale of corporate trust businesses, while the corresponding quarter of 1999 included pre-tax gains on securities sales of $8 million. Excluding these gains, earnings increased 16.0% from the prior year. Earnings growth was strong in community banking, private client and mid-market businesses, while a challenging interest rate environment resulted in reduced contributions from treasury and trading activities.

Management Analysis of Operations

6

Bank of Montreal Second Quarter Report 2000

Asset Quality The provision for credit losses was $100 million for the quarter, versus $80 million in 1999. The quarterly provision is based on an annual forecast of $400 million, compared with $320 million in 1999. The annual forecast is based on a methodology used for a number of years and considers the level of expected loss in the loan portfolio, manage- ment’s view of the economic cycle, the level of impaired loans, and the balance of the general allowance for credit losses, which is currently $970 million. The split of the specific and general provision will be determined by the fourth quarter. Gross impaired loans at the end of the quarter were $1,189 million, up from $1,047 million a year ago. The allowance for credit losses exceeded the gross amount of impaired loans by $283 million at the end of the second quarter, compared with a $212 million excess a year earlier. Capital Management At April 30, 2000, the Bank’s Tier 1 and Total Capital ratios were 8.06% and 11.13% respectively, up from 7 .73% and 10.85% at April 30, 1999, and up from 7 .84% and 10.99% at January 31, 2000. Risk-weighted assets were $140.5 billion, an increase of 4.8% from a year ago, and up 1.6% from January 31, 2000. Liquidity Liquid assets, or cash, securities and deposits with banks, increased by $9.4 billion from the second quarter of last year, and amounted to 30.1% of total assets at April 30, 2000, compared with 29.9% at January 31, 2000. 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-. Geographic Segmentation In the current quarter, foreign earnings were $221 mil- lion, representing 44.6% of total earnings, compared with $237 million, or 65.2% a year ago. The Bank’s equity stake in Bancomer generated earnings of $21 million, $19 million less than in the second quarter of 1999. The contribution from Harris Bank was $125 million, compared with $79 mil- lion a year ago. Geographic Diversification of Net Income – Second Quarter

($ millions) 2000 1999

Canada 276 127 United States 157 117 Mexico 24 44 Other 40 76 Total 497 364 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. 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 factors: fluctuations in interest rates and currency values; regulatory developments; 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.

Financial Condition Overview

Bank of Montreal Second Quarter Report 2000

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

Personal & Commercial Private Client Investment Banking Total Client Group (1) Group (2) Group (3) Consolidated (4) April 30, Jan 31, April 30, Jan 31, April 30, Jan 31, April 30, Jan 31, 2000 2000 2000 2000 2000 2000 2000 2000

Net Income ($ millions) Canada 170 148 54 39 73 52 276 214 United States 72 100 7 6 77 73 157 174 Mexico 22 32 2 2 24 35 Other Countries 15 16 (2) 5 28 30 40 51 Total 279 296 59 50 180 157 497 474 Average Assets ($ billions) Canada 80.5 79.2 1.7 1.3 54.6 50.1 128.0 123.0 United States 17.3 17.4 2.2 1.9 54.9 53.9 77.2 77.2 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 26.1 27.9 26.5 28.3 Total 98.8 97.6 4.0 3.3 136.4 132.7 233.4 230.2

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

Personal & Commercial Private Client Investment Banking Total Client Group (1) Group (2) Group (3) Consolidated (4) April 30, April 30, April 30, April 30, April 30, April 30, April 30, April 30, 2000 1999 2000 1999 2000 1999 2000 1999

Net Income ($ millions) Canada 318 236 93 48 125 34 490 268 United States 172 32 13 13 150 201 331 257 Mexico 54 75 4 3 59 79 Other Countries 31 24 3 4 58 67 91 122 Total 575 367 109 65 337 305 971 726 Average Assets ($ billions) Canada 79.8 74.3 1.5 1.2 52.3 44.2 125.5 112.0 United States 17.4 17.1 2.1 1.8 54.4 56.0 77.2 77.0 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 27.0 36.3 27.4 36.7 Total 98.2 92.3 3.7 3.1 134.5 137.5 231.8 227.5 8

Bank of Montreal Second Quarter Report 2000 (1) Personal & Commercial Client Group is responsible for financial services to retail and commercial businesses in Canada and the U.S. through its branch and automated banking networks, electronic banking products, including mbanx services, credit card, corporate electronic banking, telebanking and alliances with the Bank’s affiliated corporation, Grupo Financiero Bancomer. (2) Private Client Group 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. (3) Investment Banking Group 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. (4) 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

• f the underlying assets. Segmentation of net income is based upon the geographic location
• f the unit responsible for managing the related assets, liabilities, revenues and expenses.

During the quarter, certain business lines were transferred between client groups to more closely align with the Bank’s client segments. The mid-market corporate banking and treasury units of Harris Bank were transferred from the Personal and Commercial Client Group (P&C) to the Investment Banking Group, combining the strengths of the Harris client relationships with BMO Nesbitt Burns investment banking and capital markets capabilities in

• Chicago. In addition, the Canadian term deposit business

and Private Client Service Centres were transferred from P&C to the Private Client Group. All comparative figures have been restated to reflect the transfers. Personal and Commercial Client Group The Personal and Commercial Client Group provides financial services, including electronic financial services, to households and commercial businesses in Canada, the U.S. and Mexico. Net income for the quarter was $279 million, an increase

• f $97 million, or 52.3% from the comparable period last
• year. Excluding the gains on sales of U.S. corporate trust

businesses and Western branches, net income increased $45 million, or 23.9%. Revenues for the quarter increased $172 million, or 16.3%

• ver last year. Excluding the revenues from the foregoing

sales, revenues were up $84 million, or 7 .9%. Net interest income and other income growth of $30 million and $54 million respectively, were driven by strong volume growth across most business lines, particularly in the mortgage and commercial lines of business in Canada. Net interest margins declined in Canada as the positive impact of rising interest rates was more than offset by the impact of addi- tional higher cost wholesale funding. Gains on sales of investments increased $15 million over the prior year. Expenses for the quarter declined by $10 million, or 1.3% from last year, mainly due to strong expense controls. Earnings on the Bank’s investment in Grupo Financiero Bancomer declined by $19 million, or 47 .8% from the prior

• year. During the quarter, Bancomer signed an agreement

with Spain’s Grupo Banco Bilbao Vizcaya Argentaria (BBVA) to proceed with a merger and capitalization program. Subsequent to the end of the quarter, Bancomer received an unsolicited merger and capitalization proposal from Mexico’s Grupo Financiero Banamex-Accival (Banamex). The Bank is continuing to study its options for its invest- ment in Bancomer and is not committed to any course of action at this time. Private Client Group The Private Client Group (PCG) encompasses all of the Bank’s wealth management capabilities in six lines of business: retail investment products (including term deposits), direct and full-service investing, Canadian and U.S. private bank- ing, and institutional asset management. Net income for the quarter was $59 million, a substantial increase of $24 million, or 71.1% from the comparable period last year. Revenues for the quarter increased $132 million,

• r 42.4% over 1999, primarily due to increased client trading

volumes in both full-service and direct investing, which benefited from strong equity markets. Increased deposit volumes also contributed to increased revenues, partially

• ffset by reduced trading returns in the managed futures
• program. Expenses increased $82 million, or 33.5% due to

higher revenue-driven compensation and other expenses associated with the higher volumes. PCG assets under management and administration ($187 .5 billion) and term deposits ($33.9 billion) grew to a total of $221.4 billion by the end of the quarter. This rep- resents an increase of $18.1 billion, or 8.9% over the prior quarter, and an increase of $28.2 billion, or 14.6% from the beginning of the fiscal year. Investment Banking Group The Investment Banking Group services the corporate and investment banking needs of larger corporate and institu- tional clients. Net income for the quarter was $180 million, an increase

• f $38 million, or 27.4% from the comparable period in
• 1999. Revenues increased by $95 million, or 16.7%, driven

by increased equity market activity resulting in higher trading gains, commissions, merger and acquisition fees and underwriting fees. This was partially offset by an

• verall decline in net interest margin as the improvement

in margin in the corporate loan portfolio was less than the decline in margins in capital markets related businesses. Expenses were up $31 million, or 10.2% over last year, due to higher revenue-driven compensation.

Operating Group Review

Bank of Montreal Second Quarter Report 2000

9

Consolidated Statement of Income

For the three months ended For the six months ended (Unaudited) (Canadian $ in millions except number of common shares) Apr 30, 2000 Jan 31, 2000 Apr 30, 1999 Apr 30, 2000 Apr 30, 1999

Interest, Dividend and Fee Income Loans $ 2,654 $ 2,449 $ 2,321 $ 5,103 $ 4,887 Securities 673 701 611 1,374 1,248 Deposits with banks 263 231 260 494 537 3,590 3,381 3,192 6,971 6,672 Interest Expense Deposits 1,905 1,754 1,482 3,659 3,212 Subordinated debt 83 86 83 169 169 Other liabilities 553 491 550 1,044 1,161 2,541 2,331 2,115 4,872 4,542 Net Interest Income 1,049 1,050 1,077 2,099 2,130 Provision for credit losses 100 100 80 200 160 Net Interest Income After Provision for Credit Losses 949 950 997 1,899 1,970 Other Income Deposit and payment service charges 159 164 150 323 296 Lending fees 72 80 71 152 149 Capital market fees 341 224 185 565 369 Card services 47 53 46 100 94 Investment management and custodial fees 100 104 101 204 205 Mutual fund revenues 57 52 46 109 95 Trading revenues 140 77 92 217 157 Securitization revenues 81 70 68 151 143 Other fees and commissions 203 218 90 421 186 1,200 1,042 849 2,242 1,694 Net Interest and Other Income 2,149 1,992 1,846 4,141 3,664 Non-Interest Expense Salaries and employee benefits 805 734 698 1,539 1,366 Premises and equipment 272 257 274 529 548 Communications 64 65 68 129 134 Other expenses 201 194 226 395 444 1,342 1,250 1,266 2,592 2,492 Amortization of intangible assets 6 4 5 10 11 Total non-interest expense 1,348 1,254 1,271 2,602 2,503 Income Before Provision for Income Taxes, Non- Controlling Interest in Subsidiaries and Goodwill 801 738 575 1,539 1,161 Income taxes 287 248 196 535 401 514 490 379 1,004 760 Non-controlling interest 5 4 5 9 12 Net Income Before Goodwill 509 486 374 995 748 Amortization of goodwill, net of applicable income tax 12 12 10 24 22 Net Income $ 497 $ 474 $ 364 $ 971 $ 726 Dividends Declared – preferred shares $ 26 $ 25 $ 30 $ 51 $ 60 – common shares $ 134 $ 134 $ 125 $ 268 $ 250 Average Number of Common Shares Outstanding 267,820,009 267,248,718 265,695,473 267,531,225 265,317,845 Average Assets $ 233,354 $ 230,195 $ 224,762 $ 231,757 $ 227,510 Net Income Per Common Share Before Goodwill Basic $ 1.81 $ 1.72 $ 1.30 $ 3.53 $ 2.59 Fully Diluted 1.79 1.71 1.29 3.50 2.57 Net Income Per Common Share Basic 1.76 1.68 1.26 3.44 2.51 Fully Diluted 1.75 1.66 1.25 3.41 2.49

Note: Reporting under United States generally accepted accounting principles would have resulted in consolidated net income of $479, basic earnings per share of $1.69 and fully diluted earnings per share of $1.68 for the three months and $935, $3.31 and $3.27 , respectively, for the six months ended April 30, 2000.

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Bank of Montreal Second Quarter Report 2000

Condensed Consolidated Balance Sheet

As at (Unaudited) (Canadian $ in millions) April 30, 2000 January 31, 2000 October 31, 1999 April 30, 1999

Cash resources $ 23,257 $ 23,441 $ 24,036 $ 23,215 Securities 48,398 44,913 43,273 39,035 71,655 68,354 67,309 62,250 Loans Residential mortgages 39,190 38,598 38,189 36,196 Consumer instalment and other personal loans 17,589 17,052 16,912 16,226 Credit card loans 1,275 1,217 1,160 919 Loans to businesses and governments 58,887 59,727 57,998 51,999 Securities purchased under resale agreements 21,228 17,958 25,090 28,903 Allowance for credit losses 138,169 134,552 139,349 134,243 (1,472) (1,404) (1,348) (1,259) 136,697 133,148 138,001 132,984 Customers’ liability under acceptances 8,227 8,195 6,753 6,530 Other assets 21,835 18,828 18,552 17,889 Total Assets $ 238,414 $ 228,525 $ 230,615 $ 219,653 Deposits Banks $ 30,248 $ 27,869 $ 30,398 $ 27,930 Businesses and governments 68,253 64,564 65,459 58,199 Individuals 63,566 62,036 61,017 60,836 162,067 154,469 156,874 146,965 Acceptances 8,227 8,195 6,753 6,530 Securities sold but not yet purchased 14,334 14,161 10,450 9,181 Securities sold under repurchase agreements 18,425 19,504 24,177 26,526 Other liabilities 18,933 16,276 16,668 14,972 59,919 58,136 58,048 57,209 Subordinated debt 4,721 4,688 4,712 4,699 Shareholders’ equity Share capital Preferred shares 1,670 1,661 1,668 1,864 Common shares 3,219 3,205 3,190 3,152 Retained earnings 6,818 6,366 6,123 5,764 11,707 11,232 10,981 10,780 Total Liabilities and Shareholders’ Equity $ 238,414 $ 228,525 $ 230,615 $ 219,653

Notes: 1. These consolidated financial statements should be read in conjunction with our consolidated financial statements for the year ended October 31, 1999 as set out on pages 73 to 99 of our 1999 Annual Report. These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles, including the requirements of the Superintendent of Financial Institutions Canada, using the same accounting policies and methods of computation as were used for our consolidated financial statements for the year ended October 31, 1999. 2. During the quarter the aggregate consideration for which our shares may be issued was increased to an unlimited amount upon approval by our shareholders and regulators. For additional information refer to pages 86 and 87 of our Annual Report, and pages 10 to 12 of our Proxy Circular. Bank of Montreal Second Quarter Report 2000

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Condensed Consolidated Statement of Cash Flow

For the three months ended For the six months ended (Unaudited) (Canadian $ in millions) April 30, 2000 April 30, 1999 April 30, 2000 April 30, 1999

Cash Flows From (Used in) Operating Activities Net income $ 497 $ 364 $ 971 $ 726 Adjustments to determine net cash flows (520) 1,286 (4,748) 4,102 (23) 1,650 (3,777) 4,828 Cash Flows From (Used in) Financing Activities Deposits 7,598 388 5,193 2,982 Other liabilities (1,821) (4,118) (3,172) (1,689) Debt and share capital 14 (51) 29 (129) Dividends paid (167) (155) (319) (310) 5,624 (3,936) 1,731 854 Cash Flows From (Used in) Investing Activities Investment securities (2,049) 309 285 1,355 Loans (3,649) 1,417 1,104 (3,420) Premises and equipment – net purchases (28) (48) (63) (132) Interest bearing deposits with banks 41 611 1,082 (3,662) Acquisition of an interest in a subsidiary (59) – (59) – (5,744) 2,289 2,349 (5,859) Net Increase (Decrease) in Cash and Cash Equivalents (143) 3 303 (177) Cash and Cash Equivalents at Beginning of Period 2,865 2,782 2,419 2,962 Cash and Cash Equivalents at End of Period $ 2,722 $ 2,785 $ 2,722 $ 2,785

Condensed Consolidated Statement of Changes in Shareholders’ Equity

For the six months ended (Unaudited) (Canadian $ in millions) April 30, 2000 April 30, 1999

Balance at Beginning of Period $ 10,981 $ 10,608 Net income 971 726 Dividends – Preferred shares (51) (60) – Common shares (268) (250) Preferred share redemption – (72) Common share issues 29 57 Translation adjustment on preferred shares issued in a foreign currency 2 (22) Unrealized gain (loss) on translation of net investment in foreign operations, net of hedging activities and applicable income taxes 43 (182) Costs of proposed merger, net of applicable income taxes – (25) Balance at End of Period $ 11,707 $ 10,780

Share Capital Information

April 30, 2000 Number Principal Amount Convertible into…

Preferred Shares Class B – Series 1 10,000,000 $ 250 common shares 1 Class B – Series 2 10,000,000 370 common shares 1 Class B – Series 3 16,000,000 400 common shares 1 Class B – Series 4 8,000,000 200 common shares 1 Class B – Series 5 8,000,000 200 – Class B – Series 6 10,000,000 250 common shares 1 Common Shares 268,025,702 3,219 – Subordinated Debt – Series 13 n/a 150 common shares 1 Stock options issued for investment in Grupo Financiero Bancomer 9,957 ,285 n/a 9,957 ,285 common shares Stock options issued under Stock Option Plan 17 ,722,050 n/a 17 ,722,050 common shares

1. The number of shares issuable on conversion is not determinable until the date of conversion. 2. n/a – not applicable 3. For additional information refer to pages 86 and 87 of our 1999 Annual Report.

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Bank of Montreal Second Quarter Report 2000