291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 1

For the Period Ended July 31, 2000 Shareholder Dividend Reinvestment and Share Purchase Plan

Average market price May 2000 $ 59.86 June 2000 $ 62.76 July 2000 $ 64.90

For dividend information, change in shareholder address or to advise of duplicate mailings, please contact The Trust Company of 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 , M5X 1A1 Telephone: (416) 867-6785 Fax: (416) 867-6793 E-mail: [email protected] Third Quarter Report

For further information on this report, please contact Annual Meeting 2001 Investor Relations Department The next Annual Meeting of Shareholders will be held on 18th Floor Tuesday,February27,2001inVancouver,BritishColumbia. P.O. Box 1 1 First Canadian Place Toronto, Ontario M5X 1A1

On May 24, 2000, the Bank announced it had filed and the Toronto Stock Exchange had accepted its Notice of Intention to Purchase Common Shares for cancellation. This Normal- Course Issuer Bid provides that the Bank may, at its discre- tion, purchase up to 10,000,000 shares, being approximately 3.7% of the then-issued and outstanding shares. The Bid expires on October 31, 2000. A copy of the Notice may be obtained, without charge, from Shareholder Services at the address above. 291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 2

Financial Highlights For the three months ended For the nine months ended Jul 31, Apr 30, Jan 31, Jul 31, Change from Jul 31, Jul 31, Change from (Canadian $ in millions except as noted) 2000 2000 2000 1999 Jul 31, 1999 2000 1999 Jul 31, 1999 Net Income Statement Net interest income (TEB) (a) $ 1,090 $ 1,084 $ 1,081 $ 1,092 (0.2)% $ 3,255 $ 3,293 (1.1)% Other income 1,005 1,200 1,042 933 7.7 3,247 2,627 23.6 Total revenue (TEB) (a) 2,095 2,284 2,123 2,025 3.4 6,502 5,920 9.8 Provision for credit losses 100 100 100 80 25.0 300 240 25.0 Non-interest expense 1,326 1,348 1,254 1,284 3.1 3,928 3,787 3.7 Provision for income taxes (TEB) (a) 252 322 279 247 1.9 853 721 18.4 Non-controlling interest in subsidiaries 4 5 4 5 (3.4) 13 17 (20.5) Net income before goodwill 413 509 486 409 1.2 1,408 1,155 21.8 Amortization of goodwill, net of applicable income tax 12 12 12 11 13.0 36 31 12.2 Net income 401 497 474 398 0.9 1,372 1,124 22.1 Taxable equivalent adjustment 33 35 31 34 (3.0) 99 105 (5.6) Per Common Share ($) Net income before goodwill – basic $ 1.46 $ 1.81 $ 1.72 $ 1.42 $ 0.04 $ 4.99 $ 4.01 $ 0.98 – fully diluted 1.45 1.79 1.71 1.41 0.04 4.95 3.98 0.97 Net income – basic 1.41 1.76 1.68 1.38 0.03 4.85 3.89 0.96 – fully diluted 1.40 1.75 1.66 1.37 0.03 4.81 3.86 0.95 Dividends declared 0.50 0.50 0.50 0.47 0.03 1.50 1.41 0.09 Book value per share 37.74 37.45 35.77 34.91 2.83 37.74 34.91 2.83 Market value per share 63.75 53.75 48.15 54.90 8.85 63.75 54.90 8.85 Total market value of common shares ($ billions) 16.7 14.4 12.9 14.6 2.1 16.7 14.6 2.1 As at Jul 31, Apr 30, Jan 31, Jul 31, Change from 2000 2000 2000 1999 Jul 31, 1999 Balance Sheet Summary Assets $ 235,646 $ 238,414 $ 228,525 $ 225,218 4.6% Loans 137,134 136,697 133,148 136,263 0.6 Deposits 156,675 162,067 154,469 150,424 4.2 Capital funds 16,603 16,428 15,920 15,914 4.3 Common equity 9,904 10,037 9,571 9,291 6.6 Net impaired loans and acceptances (195) (283) (240) (203) 3.7 Average Balances Loans 135,356 136,536 135,659 136,965 (1.2) Assets 238,488 233,354 230,195 226,541 5.3 For the three months ended For the nine months ended Jul 31, 2000 Apr 30, 2000 Jan 31, 2000 Jul 31, 1999 Jul 31, 2000 Jul 31, 1999 Primary Financial Measures (%) (b) 5 year total shareholder return 21.5 18.2 17.5 22.6 21.5 22.6 Net economic profit ($ millions) 124 226 201 147 551 409 Earnings per share growth 2.2 40.0 33.9 4.6 24.6 (1.0) Return on equity 15.0 19.8 19.0 16.2 17.9 15.6 Revenue growth 3.4 16.5 9.8 5.8 9.8 4.7 Expense-to-revenue ratio 63.2 59.1 59.0 63.4 60.4 64.0 Provision for credit losses as a % of average loans and acceptances 0.28 0.28 0.28 0.22 0.28 0.22 Gross impaired loans and acceptances as a % of equity and allowance for credit losses 9.83 8.71 8.89 8.56 9.83 8.56 Liquidity ratio 29.1 30.1 29.9 28.6 29.1 28.6 Tier 1 capital ratio 8.44 8.06 7.84 7.87 8.44 7.87 Credit rating AA- AA- AA- AA- AA- AA- Other Financial Ratios (% except as noted) (b) Total shareholder return 16.7 (1.0) (12.0) (10.3) 16.7 (10.3) Dividend yield 3.7 4.2 3.3 3.1 3.5 2.9 Price-to-earnings ratio (times) 11.1 9.4 9.3 11.8 11.1 11.8 Market-to-book value (times) 1.69 1.44 1.35 1.57 1.69 1.57 Cash earnings per share – basic ($) 1.49 1.83 1.74 1.44 5.06 4.08 Cash return on common shareholders’ equity 16.6 21.8 21.0 18.1 19.7 17.5 Return on average assets 0.67 0.87 0.82 0.70 0.78 0.66 Net interest margin 1.82 1.89 1.87 1.91 1.86 1.94 Other income as a % of total revenue 48.0 52.5 49.1 46.1 49.9 44.4 Expense growth 3.1 6.2 1.8 6.4 3.7 6.2 Tier 1 capital ratio – U.S. basis 8.07 7.67 7.63 7.56 8.07 7.56 Total capital ratio 12.33 11.13 10.99 10.84 12.33 10.84 Equity-to-assets ratio 5.1 5.1 5.1 5.1 5.1 5.1 (a) Reported on a taxable equivalent basis (TEB). (b) For the period ended or as at, as appropriate. (c) All ratios in this report are based on unrounded numbers.

2 Third Quarter Report 2000 291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 3

Overview

Bank of Montreal (the Bank) earned net income of $401 3. Capitalize on the Bank’s strong Canadian position in million for the quarter ended July 31, 2000, an increase of personal and commercial banking. Residential mort- $3 million year-over-year. Excluding after-tax gains on gages increased by $2.6 billion, or 6.9%, after adjusting dispositions of businesses, net income for the quarter was for securitizations; credit cards and other personal $390 million, an increase of $10 million year-over-year. loans increased by $1.1 billion, or 6.4%; and loans to Return on equity for the quarter, on a cash basis, was commercial enterprises, including small business, 16.6%, compared with 18.1% for the third quarter of the increased $1.7 billion, or 8.4% from the third quarter of prior year. Excluding gains on dispositions, return on the prior year. The Bank continued transforming the equity, on a cash basis, was 16.2%, compared with 18.1% distribution channels by arranging for the purchase of 12 in the third quarter of 1999. Ontario TD/Canada Trust branches from TD Financial Fully diluted earnings per share were $1.40 for the Group and opening seven in-store branches in large quarter, up from $1.37 in the third quarter of 1999. supermarkets. Excluding gains on dispositions, fully diluted earnings 4. Build on the Bank’s strong leadership position in per share were $1.36, compared with $1.30 in the third investment banking. On a year-to-date basis, quarter of the prior year. Investment Banking Group ranked first, among Net income was $1,372 million year-to-date, an increase Canadian brokers, in institutional equity, research and of $248 million over the prior year. Excluding gains on securitizations, and second in corporate underwriting. dispositions in the current and 1999 year-to-date results, BMO Nesbitt Burns co-led the $1 billion initial debt net income increased $136 million year-to-date. offering of Hydro One Inc. Return on equity for the year-to-date, on a cash basis, was 5. Drive e-business opportunities. The Bank enhanced its 19.7%, compared with 17.5% for the prior year-to-date. leadership position through Veev wireless financial Excluding gains on dispositions, return on equity, on a cash services with the addition of news reports from basis, was 17.8% year-to-date, compared with 17.2% in the Canadian Press, full-service capability in French, an Air prior year. Miles collector card balance feature and a first-time Fully diluted earnings per share were $4.81 year-to- user Air Miles bonus. E-post, the Bank’s joint venture date, compared with $3.86 in the prior year. Excluding with Canada Post Corporation delivered the first gains on dispositions, fully diluted earnings per share Canadian municipal government e-bill, for the City of were $4.34, up from $3.79 in 1999. Toronto. The Bank announced, subject to regulatory With strong expense management, the Bank is on track approval, the planned launch of a new merchant pro- with its financial objectives. Good progress continues in cessing company, which will be owned equally with the implementation of the Bank’s six-point strategy. Royal . The new company will provide merchants, retailers and e-tailers across North America 1. Continue to aggressively build the value of Harris. with one-stop card-based transaction processing. Harris Bank earnings increased by 11.1%, excluding Harris Wireless was launched in Chicago, making securities gains, over the third quarter of 1999. Small Harris the first bank in the U.S. to provide banking serv- business, consumer and mortgage loans in Harris Bank ices to its customers via digital mobile phones. Community Banking increased 8.9% over last year, with 6. Intensely focus on cost, capital and risk management. particularly strong consumer loan growth of 12.6%. The Bank completed the sale of another 31 branches to a 2. Rapidly grow the wealth management business. Private group of credit unions and has now completed 48 branch Client Group net income increased by 27.0%, and revenues sales this year. During the quarter, the Bank announced by 23.1% from the comparable quarter in the prior year. the sale of three additional branches to local credit Assets under Management and Administration and term unions in Alberta and, recently announced the sale of 13 deposits have increased approximately $26 billion, or branches to credit unions in British Columbia. Most of 13.0% over the prior year. The Bank enhanced its direct these transactions are expected to close by the end of the brokerage capabilities in North America with the purchase year. Cost reduction initiatives totaled $67 million for the of Seattle-based direct brokerage firm Freeman quarter, $182 million year-to-date and were on track to Welwood. The acquisition will allow the Bank to extend achieve the year’s $250 million objective. its service to key locations in the Northwest and West Coast. BMO InvestorLine, the Bank’s direct investing line of business, introduced fixed income trading through Fixed Income Online. The Bank launched BMO Harris Private Banking, its new Private Banking F. Anthony Comper (signed) operation, to provide seamless North American delivery Chairman and of customized wealth management solutions. Chief Executive Officer

Bank of Montreal Third Quarter Report 2000 3 291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 4

Financial Performance and Condition

Five-Year Total Shareholder Shareholder Value 26.1 Return (%) 23.3 The average annual total shareholder return (TSR) for the five years ended 22.2 22.0 21.5 July 31, 2000 was 21.5%, versus 22.6% for the period ended July 31, 1999. The annual TSR was 16.7% for the year to date, compared with negative 10.3% in the prior year. The share price increased 18.6% from the second quarter of 2000 and increased 16.1% from the third quarter of 1999. 96 97 98 99 YTD 00

Net Economic Profit Net Economic Profit Growth Neteconomicprofit(NEP)forthefirstninemonthsof2000grew34.6%from Growth (%) 102.7 the comparable period in the prior year, compared with a decline of 12.3% for the first nine months of 1999. The increase in 2000 reflects a higher growth 36.5 34.6 in earnings relative to, the growth in average common shareholders’ equity (4.7) (13.5) andanincreaseinthecostofequity.Excludinggainsonsalesdescribedbelow, NEP growth was 7.5% over the prior year. 96 97 98 99 YTD 00

Fully Diluted Earnings Per Earnings Per Share Growth Share Growth (%) Earnings per share (EPS) rose 24.6% for the first nine months of 2000, compared 24.6 with a decline of 1.0% for the first nine months in 1999, while earnings rose22.1% Objective (Minimum 22.2 over the prior year. The first nine months of 2000 included gains on sales of of 10%) 11.9 Partners First, U.S.corporate trust businesses and retail branches. The first nine

0.9 1.3 months of 1999 included a gain on sale of the Bank’s global custody business. Excluding these gains, EPS grew by 14.5% and earnings grew by 12.3%. The 96 97 98 99 YTD 00 increases were driven by revenues from widespread volume growth, partially offset by increased expenses and a higher provision for credit losses.

Return on Common Profitability Shareholders’ Equity (%) The Bank achieved an annualized 17.9% ROE for the first nine months of 2000, compared with 15.6% for the first nine months of 1999. Excluding the 17.0 17.1 17.9 15.2 14.1 gains on sales of businesses, the annualized ROE was 16.1%.

96 97 98 99 YTD 00

Revenue Growth (%) Revenue Growth Revenue in the first nine months of 2000 grew 9.8% over the comparable period in the prior year, compared with 4.7% growth for the first nine 15.1 monthsof1999.Excludingthegainsonsalesofbusinesses,revenuegrowth 9.9 9.0 9.8 was 6.6%. Revenue growth reflected widespread volume growth. 1.4 96 97 98 99 YTD 00

Expense-to-Revenue Expense-to-Revenue Ratio Ratio (%) 65.8 66.7 The expense-to-revenue ratio was 60.4% for the first nine months of 2000, 62.8 63.7 60.4 compared with 64.0% for the first nine months of 1999. Excluding the gains on sales of businesses, the expense-to-revenue ratio was 62.5%. Expenses on a year-to-date basis grew 3.7% 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 96 97 98 99 YTD 00 a reduction in on-going business expenses.

4 Bank of Montreal Third Quarter Report 2000 291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 5

Financial Performance and Condition

Credit Risk Provision for Credit Losses The provision for credit losses as a percentage of average loans and accept- as a % of Average Loans ances was an annualized 0.28% for the first nine months of 2000, compared 0.28 0.23 0.23 and Acceptances with 0.22% for the first nine months of 1999. 0.22 0.09

96 97 98 99 YTD 00

Gross impaired loans as a percentage of equity and the allowance for credit Gross Impaired Loans as a losses was 9.83% at July 31, 2000, compared with 8.71% at April 30, 2000 % of Equity and Allowance and 8.56% at July 31, 1999. for Credit Losses 15.71

8.53 9.83 7.65 6.66

96 97 98 99 Q3 00

Liquidity Ratio Cash and Securities ($ millions) 74,034 The liquidity ratio was 29.1% at July 31, 2000, compared with 30.1% at 67,309 68,489 60,796 63,195 Cash Resources April 30, 2000 and 28.6% at July 31, 1999. Securities

35.8 35.6 Cash and Securities-to-Total % % 28.4 29.2 29.1 % % % Assets (%) 96 97 98 99 Q3 00

Capital Adequacy Tier 1 Capital 8.44 The Tier 1 Capital ratio was 8.44% at July 31, 2000, compared with 8.06% 7.72 Ratio (%) at April 30, 2000 and 7.87% at July 31, 1999. 6.71 6.80 7.26 Tier 1 Regulatory The Total Capital ratio was 12.33% at July 31, 2000, compared with 11.13% Requirement (4%) at April 30, 2000 and 10.84% at July 31, 1999.

96 97 98 99 Q3 00

Credit Rating Composite Credit Rating The composite credit rating remained unchanged. The credit rating represents a composite of Moody’s and AA- Standard & Poor’s debt ratings.

Bank of Montreal Third Quarter Report 2000 5 291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 6

Management Analysis of Operations

Quarterly Financial Overview business, offset by lower spreads in capital markets busi- While record breaking performance in the first two quar- nesses, a decline in the contribution from Bancomer and ters has moderated as expected, due to weaker capital reduced cash collections on impaired loans. markets, year-over-year results reflect good growth in Other income was $1,005 million for the quarter, an most core businesses. increase of $72 million from the prior year. Excluding Net income of $401 million for the quarter ending July 31, gains on disposal of businesses, other income increased 2000 increased $3 million, or 0.9% year-over-year. $80 million, or 8.8%. The increase, a result of greater vol- Excluding after-tax gains on dispositions of businesses, of umes across most lines of business and higher investment $11 million in the current quarter and $18 million in the securities gains, was offset partially by lower trading rev- third quarter of the prior year, net income increased $10 enues and lower custodial fees due to the sale of our trust million, or 2.8%. business. Return on equity for the quarter, on a cash-basis, was Revenues for the quarter decreased $189 million, or 16.6%,a decrease of 1.5%over the comparable quarter in the 8.2%, from the second quarter of 2000. The third quarter prior year. Excluding gains on dispositions of businesses, included $19 million of gains on the sale of branches. The the return on equity on a cash-basis was 16.2%, a decrease second quarter included $88 million of revenues related to of 1.9%. the gains on sales of the branches and the corporate trust Net income for the third quarter declined by $96 million, business. Excluding these gains, revenues decreased $120 or 19.2%, from the second quarter. Excluding after-tax million, or 5.4%. The decrease was driven by lower secu- gains on dispositions of businesses, of $11 million in the rities commissions, due to a return to a more normal level third quarter and $52 million in the second quarter of of equity market activities, and by a decline in trading 2000, net income decreased $55 million, or 12.2%. revenues in the third quarter, as explained above. Return on equity for the quarter, on a cash-basis, Particularly strong trading results in the prior quarter also declined 5.2% from the second quarter. Excluding gains affected comparatives, together with the decline in the on dispositions of businesses, the decline was 3.3%. contribution from Bancomer. Year-to-date net income was $1,372 million, an increase of Net interest income increased $6 million, or 0.6%, as a $248 million over the prior year. Excluding the after-tax result of volume growth, and was offset partially by a gains on sales of $130 million in the current year’s results, lower net interest margin in capital markets and the and $18 million of gains in the 1999 year-to-date results, net reduced contribution from Bancomer. income increased $136 million, or 12.3%. The increase was Other income decreased $195 million, or 16.2%. driven by revenue growth of $390 million, or 6.6%. Expenses Excluding gains of $19 million in the third quarter and increased by $141 million, or 3.7%. The provision for credit $88 million in the second quarter, other income declined losses increased by $60 million, or 25.0%. Improved results by $126 million, or 11.2%, driven primarily by lower capital were driven by widespread volume growth. market activities and reduced trading revenues. Return on equity for the year-to-date, on a cash-basis, Non-Interest Expense was 19.7%, an increase of 2.2% over the prior year-to-date. Expenses in the current quarter increased $42 million, or Excluding gains on dispositions of businesses, the return 3.1%, from the third quarter of the prior year. Excluding an on a cash-basis was 17.8%, an increase of 0.6% over the increase in revenue-driven compensation of $60 million, comparative year-to-date. expenses declined by $18 million, or 1.6%. This decline, Revenue which reflected a reduction in ongoing business-operations Total revenues for the quarter were $2,095 million, an expenses, including $67 million of cost reduction initiatives, increase of $70 million, or 3.4%, from a year ago. was partially offset by $50 million of spending on strategic Excluding $19 million of revenues on the sale of branches initiatives. in the current period and $27 million of revenues on the Expenses for the quarter decreased $22 million, or 1.7%, sale of the Bank’s global custody business in the third from the second quarter of 2000. Excluding decreased rev- quarter of the prior year, revenues increased $78 million, enue-driven compensation of $46 million, expenses or 3.9%. The increases were driven by strong loan and fee increased $24 million, or 1.7%. In part, the increase was due growth in retail and commercial banking, and by growth in to higher spending on strategic initiatives. trading commission revenue, retail investment products and loans in wealth management. Results also benefited Harris Bank from higher investment securities gains. Improved results On a U.S. dollar/U.S. GAAP basis, Harris Bank earnings were $60 were partly offset by lower trading revenues, primarily in million, an increase of $4 million, or 6.9% from the same quarter a the commodities area, and by lower net interest income year earlier. Excluding securities gains, earnings increased 11.1% due to lower spreads in capital markets businesses. from the prior year. Harris Bank earnings included in the Bank’s con- Revenues were also reduced by a $16 million decline in solidated results, on a Canadian dollar/Canadian GAAP basis, were the contribution from Bancomer. $88 million, an increase of 9.5% from the same period last year. Net interest income for the quarter was $1,090 million, The increase was driven by continued double digit earnings a decrease of $2 million from the prior year. Net interest growth in community banking, private client banking and mid-mar- income included volume increases across most lines of ket businesses, sustained cost control and top-tier asset quality.

6 Bank of Montreal Third Quarter Report 2000 291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 7

Financial Condition Overview

Asset Quality Caution Regarding Forward-Looking Statements The provision for credit losses was $100 million for the From time to time we make written and verbal forward-looking state- quarter, versus $80 million in 1999. The quarterly provision ments. These may be included in this quarterly report, filings with is based on an annual forecast of $400 million, compared Canadian regulators or the U.S. Securities and Exchange Commission, in with $320 million in 1999. The annual forecast is based on a reports to shareholders and in other communications. These forward- methodology used for a number of years and considers the looking statements include but are not limited to comments with level of expected loss in the loan portfolio, management’s respect to our objectives and strategies, financial condition, the view of the economic cycle, the level of impaired loans, and results of our operations and our businesses, our outlook for the the balance of the general allowance for credit losses, Canadian economy and our risk management discussion. which is currently $970 million. The split of the specific However, by their nature these forward-looking statements involve and general provision will be determined in the fourth numerous assumptions, inherent risks and uncertainties, both general quarter. and specific and the risk that predictions and other forward-looking Gross impaired loans at the end of the quarter were statements will not be achieved. We caution readers of this quarterly $1,334 million, up from $1,110 million a year ago and from report not to place undue reliance on these forward-looking statements $1,189 million at April 30, 2000. The allowance for credit as a number of important factors could cause actual future results to losses continues to exceed the gross amount of impaired differ materially from the plans, objectives, expectations, estimates and loans and was $195 million higher at the end of the third intentions expressed in such forward-looking statements. quarter, compared with a $203 million excess a year earlier Forward-looking statements may be influenced by the following and a $283 million excess at April 30, 2000. factors: fluctuations in interest rates and currency values; regulatory Capital Management developments; the effects of competition in the geographic and business At July 31, 2000, the Bank’s Tier 1 and Total Capital ratios areas in which we operate, including continued pricing pressure on loan were 8.44% and 12.33% respectively, up from 7.87% and and deposit products; and changes in political and economic conditions 10.84% at July 31, 1999, and up from 8.06% and 11.13% at including, among other things, inflation and technological changes. We April 30, 2000. Risk-weighted assets were $132.8 billion, a caution that the foregoing list of important factors is not exhaustive and decrease of 2.8% from a year ago and a decrease of 5.5% that when relying on forward-looking statement to make decisions from April 30, 2000. with respect to Bank of Montreal, investors and others should On May 24, 2000, the Bank announced a program to pur- carefully consider the foregoing factors as well as other uncertainties chase up to 10 million common shares, or approximately and events. 3.7% of the then-issued and outstanding common shares of the Bank, through a normal-course issuer bid expiring October 31, 2000. To July 31, 2000, the Bank had purchased approximately 6.1 million shares at a cost of $385 million. Liquidity Liquid assets, or cash, securities and deposits with , increased by $4.2 billion from the third quarter of last year, and amounted to 29.1% of total assets at July 31, 2000, compared with 30.1% as at April 30, 2000. To main- tain strong liquidity, the Bank continues to ensure that it has well-diversified funding sources, with deposits broadly diversified by customer, type, currency and geog- raphy. 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’sandStandard&Poor’sseniordebtratings,remained unchanged at AA-.

Bank of Montreal Third Quarter Report 2000 7 291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 8

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) July 31, April 30, July 31, April 30, July 31, April 30, July 31, April 30, 2000 2000 2000 2000 2000 2000 2000 2000 Net Income ($ millions) Canada 168 170 39 55 77 77 250 281 United States 33 75 9 8 62 73 112 157 Mexico 3 22 0 0 1 2 23 24 Other Countries 16 15 (3) (2) 5 23 16 35 Total 220 282 45 61 145 175 401 497

Average Assets ($ billions) Canada 81.3 80.5 1.8 1.7 56.4 54.6 130.1 128.0 United States 18.2 17.9 2.4 2.3 59.2 54.2 80.7 77.2 Mexico 0.8 0.7 0.0 0.0 0.8 0.8 1.8 1.7 Other Countries 0.3 0.3 0.1 0.1 25.5 26.1 25.9 26.5 Total 100.6 99.4 4.3 4.1 141.9 135.7 238.5 233.4

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

Personal & Commercial Private Client Investment Banking Total Client Group (1) Group (2) Group (3) Consolidated (4) July 31, July 31, July 31, July 31, July 31, July 31, July 31, July 31, 2000 1999 2000 1999 2000 1999 2000 1999 Net Income ($ millions) Canada 486 384 133 77 209 71 749 467 United States 207 50 23 17 209 306 444 387 Mexico 57 94 0 0 5 4 82 101 Other Countries 47 36 0 7 53 100 97 169 Total 797 564 156 101 476 481 1,372 1,124

Average Assets ($ billions) Canada 80.3 75.0 1.6 1.3 53.7 42.7 127.0 111.0 United States 17.8 17.1 2.2 1.8 55.8 56.2 78.4 77.8 Mexico 0.8 0.7 0.0 0.0 0.8 1.0 1.7 1.8 Other Countries 0.3 0.2 0.1 0.1 26.5 36.2 26.9 36.6 Total 99.2 93.0 3.9 3.2 136.8 136.1 234.0 227.2

(1) Personal & Commercial Client Group (P&C) is responsible for to retail and Basis of presentation of results of operating groups: Expenses are matched against the revenues commercial businesses in Canada and the U.S. through its branch and automated banking to which they relate. Indirect expenses, such as overhead expenses and any revenue that may networks, electronic banking products, including services, credit card, corporate be associated thereto, are allocated to the operating groups using appropriate allocation formulas electronic banking, telebanking and alliances with the Bank’s affiliated corporation, Grupo applied on a consistent basis. For each currency, the net income effect of funds transferred from Financiero Bancomer. any group with a surplus to any group with a shortfall is at market rates for the currency and (2) Private Client Group is responsible for providing wealth management services to individuals. appropriate term. Segmentation of assets by geographical region is based upon the ultimate risk The Group encompasses six lines of business – BMO Nesbitt Burns, Direct Investing (including of the underlying assets. Segmentation of net income is based upon the geographic location BMO InvestorLine and Harris InvestorLine), BMO Harris Private Banking and Harris Private of the unit responsible for managing the related assets, liabilities, revenues and expenses. Bank serving high net worth clients, Institutional Asset Management, and Retail Investment Products. (3) Investment Banking Group is responsible for relationship management for large corporate and institutional customers, the delivery of treasury products and corporate and investment 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.

8 Bank of Montreal Third Quarter Report 2000 291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 9

Operating Group Review

Personal and Commercial Client Group Net income for the quarter decreased $16 million, or The Personal and Commercial Client Group provides finan- 25.6%, from the second quarter of 2000. Revenues cial services, including electronic financial services, decreased $61 million, or 13.6%, due to a reduction in the to households and commercial businesses in Canada and high volume of equity trading that was experienced in prior the U.S. quarters and, due to weaker institutional asset management Net income for the quarter, excluding the contribution from revenues. This was offset partially by higher mutual fund the Bank’s investment in Bancomer, was $217 million, an management fees. Expenses decreased $31 million, or 9.6%, increase of $39 million, or 22.2%, from the comparable primarily due to lower revenue-driven compensation. period last year. Excluding the $11 million after-tax gains Investment Banking Group on sales of branches in the third quarter and the $18 million The Investment Banking Group provides a full range of of after-tax gains on sale of the global custody business in financial products and services to institutional investors and the corresponding quarter of the prior year, net income corporate, government and institutional client segments. increased $46 million, or 29.1%. Net income for the quarter was $145 million, a decrease Revenues for the quarter increased $93 million, or 8.5%, of $31 million, or 18.0%, from the comparable period in over last year. Excluding branch sales and the sale of the 1999. Revenues decreased by $76 million, or 12.1%. The global custody business, revenues increased $101 million, or decrease in revenue was driven by lower spreads in capital 9.5%, driven by volume growth across most business lines. markets businesses, which resulted from rising interest Expenses for the quarter increased by $20 million, or rates, and lower trading revenues, primarily in the com- 2.8%, from last year, mainly due to strategic initiatives modities area. These items were partly offset by higher spending, partly offset by ongoing cost reductions. The securitization revenues and securities gains. Expenses provision for credit losses increased by $7 million year- declined by $14 million, or 4.5%, from the previous year, over-year. primarily because of higher 1999 expenses associated with Net income declined $44 million, or 16.7%, from the second Y2K projects. quarter. Excluding gains on disposition, net income Net income for the quarter decreased $30 million, or decreased $3 million, or 1.1%. Revenues, excluding gains on 17.1%, from the second quarter of 2000. Revenues declined dispositions of businesses, increased $40 million, or 3.6%, as $100 million, or 15.4%, driven by lower trading revenues a result of volume growth. Expenses increased by $44 mil- due to weaker secondary capital markets. Expenses lion, or 6.0%, due to increased compensation costs and to decreased $39 million, or 11.9%, mainly due to lower rev- the fact that there were more days in the current quarter. enue-driven compensation. Bancomer Corporate Support Net income for the third quarter from the Bank’s investment The net loss for the quarter was $9 million, an improvement in Bancomer was $3 million, a decrease of $16 million from of $2 million from the third quarter of the prior year. This the comparable period last year. Net income declined $18 increase was due to gains from sales of securities and was million from the second quarter. As of June 30, 2000, the offset partially by higher loan loss provisions. shareholders approved Bancomer’s merger with Grupo The net loss for the quarter improved by $12 million Financiero Probursa. With this event, as previously from the second quarter of 2000 because of securities gains announced, the Bank adopted the cost basis of accounting, in the current quarter. replacing the equity basis of accounting for the investment. Private Client Group The Private Client Group 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, BMO Harris private banking, U.S. private banking and institutional asset management. Net income for the quarter was $45 million, an increase of $9 million, or 27.0%, from the comparable period last year. Revenues for the quarter increased $71 million, or 23.1%, over 1999, primarily due to increased volumes in full-service and direct-investing client equity trading. Increased deposit volumes also contributed to higher rev- enues, partially offset by reduced trading returns in the managed futures program. Expenses increased $51 million, or 20.8%, due to higher revenue-driven compensation, expenses associated with higher business volumes and initiative spending.

Bank of Montreal Third Quarter Report 2000 9 291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 10

Consolidated Statement of Income For the three months ended For the nine months ended (Unaudited) (Canadian $ in millions except number of common shares) Jul 31, 2000 Apr 30, 2000 Jan 31, 2000 Jul 31, 1999 Jul 31, 2000 Jul 31, 1999 Interest, Dividend and Fee Income Loans $ 2,604 $ 2,654 $ 2,449 $ 2,405 $ 7,707 $ 7,292 Securities 745 673 701 569 2,119 1,817 Deposits with banks 283 263 231 258 777 795 3,632 3,590 3,381 3,232 10,603 9,904 Interest Expense Deposits 1,835 1,905 1,754 1,545 5,494 4,757 Subordinated debt 90 83 86 85 259 254 Other liabilities 650 553 491 544 1,694 1,705 2,575 2,541 2,331 2,174 7,447 6,716 Net Interest Income 1,057 1,049 1,050 1,058 3,156 3,188 Provision for credit losses 100 100 100 80 300 240 Net Interest Income After Provision for Credit Losses 957 949 950 978 2,856 2,948

Other Income Deposit and payment service charges 162 159 164 155 485 451 Lending fees 85 72 80 89 237 238 Capital market fees 237 341 224 207 802 576 Card services 59 47 53 56 159 150 Investment management and custodial fees 92 100 104 111 296 316 Mutual fund revenues 62 57 52 52 171 147 Trading revenues 50 140 77 86 267 243 Securitization revenues 83 81 70 69 234 212 Other fees and commissions 175 203 218 108 596 294 1,005 1,200 1,042 933 3,247 2,627 Net Interest and Other Income 1,962 2,149 1,992 1,911 6,103 5,575 Non-Interest Expense Salaries and employee benefits 764 805 734 705 2,303 2,071 Premises and equipment 270 272 257 280 799 828 Communications 66 64 65 62 195 196 Other expenses 220 201 194 232 615 676 1,320 1,342 1,250 1,279 3,912 3,771 Amortization of intangible assets 6 64516 16 Total non-interest expense 1,326 1,348 1,254 1,284 3,928 3,787 Income Before Provision for Income Taxes, Non- Controlling Interest in Subsidiaries and Goodwill 636 801 738 627 2,175 1,788 Income taxes 219 287 248 213 754 616 417 514 490 414 1,421 1,172 Non-controlling interest 4 54513 17 Net Income Before Goodwill 413 509 486 409 1,408 1,155 Amortization of goodwill, net of applicable income tax 12 12 12 11 36 31 Net Income $ 401 $ 497 $ 474 $ 398 $ 1,372 $ 1,124 Dividends Declared – preferred shares $ 25 $ 26 $ 25 $ 30 $ 76 $ 90 – common shares $ 131 $ 134 $ 134 $ 125 $ 399 $ 375 Average Number of Common Shares Outstanding 266,387,269 267,820,009 267,248,718 266,031,542 267,147,123 265,558,358 Average Assets $ 238,488 $ 233,354 $ 230,195 $ 226,541 $ 234,017 $ 227,184 Net Income Per Common Share Before Goodwill Basic $ 1.46 $ 1.81 $ 1.72 $ 1.42 $ 4.99 $ 4.01 Fully Diluted 1.45 1.79 1.71 1.41 4.95 3.98 Net Income Per Common Share Basic 1.41 1.76 1.68 1.38 4.85 3.89 Fully Diluted 1.40 1.75 1.66 1.37 4.81 3.86

Note: Reporting under United States generally accepted accounting principles would have resulted in consolidated net income of $382, basic earnings per share of $1.34 and fully diluted earnings per share of $1.32 for the three months and $1,317, $4.65 and $4.59, respectively, for the nine months ended July 31, 2000.

10 Bank of Montreal Third Quarter Report 2000 291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 11

Condensed Consolidated Balance Sheet As at (Unaudited) (Canadian $ in millions) July 31, 2000 April 30, 2000 January 31, 2000 October 31, 1999 July 31, 1999 Cash resources $ 21,027 $ 23,257 $ 23,441 $ 24,036 $ 25,776 Securities 47,462 48,398 44,913 43,273 38,557 68,489 71,655 68,354 67,309 64,333 Loans Residential mortgages 39,416 39,190 38,598 38,189 37,280 Consumer instalment and other personal loans 17,617 17,589 17,052 16,912 16,554 Credit card loans 1,367 1,275 1,217 1,160 1,026 Loans to businesses and governments 60,270 58,887 59,727 57,998 60,292 Securities purchased under resale agreements 19,993 21,228 17,958 25,090 22,424 Allowance for credit losses 138,663 138,169 134,552 139,349 137,576 (1,529) (1,472) (1,404) (1,348) (1,313) 137,134 136,697 133,148 138,001 136,263 Customers’ liability under acceptances 7,977 8,227 8,195 6,753 6,583 Other assets 22,046 21,835 18,828 18,552 18,039 Total Assets $ 235,646 $ 238,414 $ 228,525 $ 230,615 $ 225,218 Deposits Banks $ 29,170 $ 30,248 $ 27,869 $ 30,398 $ 29,407 Businesses and governments 64,755 68,253 64,564 65,459 60,051 Individuals 62,750 63,566 62,036 61,017 60,966 156,675 162,067 154,469 156,874 150,424 Acceptances 7,977 8,227 8,195 6,753 6,583 Securities sold but not yet purchased 13,698 14,334 14,161 10,450 10,942 Securities sold under repurchase agreements 21,371 18,425 19,504 24,177 25,527 Other liabilities 19,322 18,933 16,276 16,668 15,828 62,368 59,919 58,136 58,048 58,880 Subordinated debt 5,027 4,721 4,688 4,712 4,746 Shareholders’ equity Share capital Preferred shares 1,672 1,670 1,661 1,668 1,877 Common shares 3,164 3,219 3,205 3,190 3,162 Retained earnings 6,740 6,818 6,366 6,123 6,129 11,576 11,707 11,232 10,981 11,168 Total Liabilities and Shareholders’ Equity $ 235,646 $ 238,414 $ 228,525 $ 230,615 $ 225,218

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. On May 24, 2000 we announced a program to repurchase through recognized exchanges up to 10,000,000 of our common shares to be completed no later than October 31, 2000. At an average price of $63.09 per share we had repurchased 6,106,100 shares as at July 31, 2000. 3. On June 8, 2000 we issued new subordinated debt in the form of Series B Medium-Term Notes in the amount of $300, redeemable at our option, carrying an interest rate of 6.6% per annum. The notes mature on June 8, 2010. 4. Subsequent event – On August 8, 2000 we redeemed all of our Series 13 debentures at a redemption price equal to their principal amount of $150.

Bank of Montreal Third Quarter Report 2000 11 291.472 3rdQtr_ENG FIN 9/7/00 2:12 PM Page 12

Condensed Consolidated Statement of Cash Flow For the three months ended For the nine months ended (Unaudited) (Canadian $ in millions) July 31, 2000 July 31, 1999 July 31, 2000 July 31, 1999 Cash Flows From (Used in) Operating Activities Net income $ 401 $ 398 $ 1,372 $ 1,124 Other adjustments to determine net cash flows (130) 1,115 (4,878) 5,217 271 1,513 (3,506) 6,341 Cash Flows From (Used in) Financing Activities Deposits (5,392) 3,459 (199) 6,441 Securities sold but not yet purchased 2,668 1,626 (504) (63) Debt and share capital (67) 70 (38) (59) Dividends paid (156) (155) (475) (465) (2,947) 5,000 (1,216) 5,854 Cash Flows From (Used in) Investing Activities Investment securities 1,056 (565) 1,341 790 Loans (537) (3,282) 567 (6,702) Premises and equipment – net purchases (73) (105) (136) (237) Interest bearing deposits with banks 2,166 (2,463) 3,248 (6,125) Acquisition of an interest in a subsidiary – – (59) – 2,612 (6,415) 4,961 (12,274) Net Increase (Decrease) in Cash and Cash Equivalents (64) 98 239 (79) Cash and Cash Equivalents at Beginning of Period 2,722 2,785 2,419 2,962 Cash and Cash Equivalents at End of Period $ 2,658 $ 2,883 $ 2,658 $ 2,883

Condensed Consolidated Statement of Changes in Shareholders’ Equity For the nine months ended (Unaudited) (Canadian $ in millions) July 31, 2000 July 31, 1999 Balance at Beginning of Period $ 10,981 $ 10,608 Net income 1,372 1,124 Dividends – Preferred shares (76) (90) – Common shares (399) (375) Preferred share redemption – (72) Common share issues 47 67 Common shares repurchased (385) – Translation adjustment on preferred shares issued in a foreign currency 4 (9) Unrealized gain (loss) on translation of net investment in foreign operations, net of hedging activities and applicable income taxes 32 (60) Costs of proposed merger, net of applicable income taxes – (25) Balance at End of Period $ 11,576 $ 11,168

Share Capital Information July 31, 2000 Number Principal Amount Convertible into… Preferred Shares Class B – Series 1 10,000,000 $ 250 common shares 1 Class B – Series 2 10,000,000 372 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 262,405,712 3,164 – 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 17,241,259 n/a 17,241,259 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.

12 Bank of Montreal Third Quarter Report 2000