Demonstrating the fundamental strength and diversity of our business

Financial Results

BMO Financial Group’s net income for 2007 was $2,131 million, with a return on equity of 14.4%, despite the impact of four significant items: commodities losses, charges related to the difficult capital markets environment, restructuring costs and an increase in the general allowance for credit losses.

Excluding these items, our net income was $2,918 million, an increase of $278 million or 10.5% over 2006, representing a return on equity of 19.8% and an improvement in our cash productivity ratio of 150 basis points to 60.9% in 2007. We were able to build solid momentum in most of our businesses by focusing on our customers and delivering on our priorities. The businesses performed well, which should pay off as market conditions improve.

Operating Groups

In 2007, our Personal and Commercial Banking Canada (P&C Canada) and Private Client Group (PCG) both set new net income records. P&C Canada is now fundamentally stronger and better positioned, a reflection of our renewed commitment to customers that we will make it easier for them to do business with us. This strength is reflected in net income, which increased to $1,250 million in 2007, an increase of 9%, while we continued to invest in the businesses. PCG, a consistent performer once again in 2007, achieved outstanding results with net income of $408 million, an increase of 15% over 2006. P&C U.S. enjoyed a solid year, achieving net income of US$105 million, including acquisition integration expenses. Net income excluding these costs was better in each successive quarter in 2007, a substantial accomplishment in a difficult operating environment. The financial performance of BMO Capital Markets saw a significant decline to net income of $425 million due to the impact of commodities losses and the capital markets environment. Excluding these items, net income rose to $1,076 million, an increase of 25% with favourable results in a number of our capital markets businesses, including strong activity in mergers and acquisitions, equity underwriting and lending fees and commissions.

Foreign Exchange

Net income in 2007 was minimally impacted by the significant Canadian and U.S. foreign exchange rate fluctuations, reduced by $2 million in 2007, compared to a $24 million reduction in 2006. The minimal impact in 2007 was in part due to the hedging transactions we enter into at the beginning of each quarter.

Capital

We ended the year with a strong Tier 1 Capital Ratio of 9.51%, which remained comfortably ahead of our policy of at least 8%. This strength in capital provides BMO with the financial flexibility to invest in our businesses as opportunities arise.

Summary

The financial results in 2007 demonstrated the strength, diversity and continued momentum of BMO’s businesses. We continued to deliver consistent returns, with a reported return on equity above 13% for the 18th consecutive year, the only bank in our North American peer group to achieve this, and we continue to deliver to shareholders through a Canadian industry-leading dividend payout ratio. We enter 2008 with significant momentum in our businesses, providing us with confidence in achieving our targets.

(1) Results stated on a basis that excludes commodities losses, charges related to deterioration in the capital markets environment, changes in the general allowance for credit losses and/or restructuring charges are non-GAAP measures. Please see the Non-GAAP Measures in the 2007 Financial Performance Review (PDF, 396 KB) section of Management’s Discussion and Analysis.