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Operating Highlights

• Net income of $346 million, diluted cash EPS¹ of  $0.70 and diluted EPS of $0.65
• Excluding non-recurring items¹, net income of $360 million, diluted cash EPS of $0.72 and diluted EPS of $0.68
• Revenue declines four per cent, affected by investment write-downs that reduce net income $98 million and EPS by $0.20
• Strong revenue growth in Personal and Commercial Client Group with net income up 22 per cent year-over-year and 11 per cent from Q2 as trend of increasing volumes continues
• Acquisitions drive 20 per cent increase in Private Client Group revenues in a difficult market.  Client retention remains strong and Harrisdirect integration of CSFBdirect completed
• Expenses rise three per cent excluding non-recurring items but progress continues on cost management as expenses decline three per cent excluding acquisitions
• Progress on credit quality in Q3 as provisions for credit losses and impaired loans decline. Expected annual loan losses remain unchanged at $775 to $825 million
• Targeted annual cash EPS growth and cash ROE remain unchanged

Retail and business banking performance in both Canada and the United States continued to improve in the third quarter of 2002 due to strong deposit and lending growth.  However, investment write-downs and weak revenues in capital markets businesses affected overall results for BMO Financial Group (BMO)*.

On a reported basis, BMO earned net income of $346 million, diluted earnings per share of $0.65 and a return on equity of 12.9 per cent for the third quarter ended July 31, 2002.  Excluding this quarter’s $23 million of non-recurring CSFBdirect (now part of Harrisdirect) acquisition-related costs, earnings per share were $0.68, return on equity was 13.5 per cent and cash earnings per share were $0.72.   Excluding non-recurring items, net income was $360 million, a decline of 19 per cent from the third quarter a year ago but up 19 per cent from the second quarter.

Results were affected by net investment securities losses of $116 million ($72 million after-tax).  This consisted of write-downs of $158 million ($98 million after-tax), net of realized gains of $42 million ($26 million after-tax). Write-downs included  $56 million ($34 million after-tax) related to BMO’s equity investments in its own collateralized bond obligations (CBOs) and a $27 million ($16 million after-tax) charge against WorldCom, Inc. bonds.  The write-down on CBOs reduced earnings in the quarter by $0.07 per share. The equity investment in CBOs has now been fully written-off.

“Our retail and business banking operations in Canada and the U.S. generated strong earnings growth in the third quarter,” said Tony Comper, Chairman and Chief Executive Officer, BMO Financial Group. “However, overall performance was below our expectations due to investment write-downs and weak revenues in market-sensitive businesses.  Nonetheless, earnings increased by 19 per cent from the second quarter, helped by lower provisions.  And there are encouraging signs of a performance lift in upcoming quarters as our perseverance in implementing our transnational growth strategy, while continuing to contain costs, positions us well for the future.”

Compared to the second quarter, excluding non-recurring items, net income rose $59 million or 19 per cent.  The improvement was attributable to a $160 million ($106 million after-tax) reduction in the required provision for credit losses and stronger Canadian retail and business banking performance.  Improved trading gains were more than offset by higher investment securities losses, while the second quarter had also benefited from corporate loan securitization revenues.

Year-to-date net income declined $448 million on a reported basis and $236 million after excluding the effect of non-recurring items, the most notable of which were last year’s $272 million after-tax gains on sales of BMO’s investment in Bancomer.  Much stronger performance in retail and business banking was more than offset by higher provisions for credit losses and lower wholesale banking revenues in the weaker capital markets environment.  Increased investment losses also contributed to the decline while year-to-date net income benefited from the discontinuance of amortization of goodwill and more favourable income tax rates and tax benefits in fiscal 2002.

Excluding acquisitions, expenses were reduced $43 million or three per cent from the third quarter of last year as BMO continues its focus on expense management.  On a similarly adjusted basis, expenses were reduced from the second quarter, notwithstanding that there were three more calendar days this quarter.

Gross impaired loans declined $93 million from the second quarter despite the designation of  $312 million of loans to six of the operating companies of Adelphia Group as impaired.  These loans are considered adequately secured and no significant loss is anticipated, although results reflect a modest provision for two of the loans. The decline in gross impaired loans was also reflective of write-offs in the corporate loan portfolio, particularly in the telecom sector.  New impaired loan formations were slightly lower than in the second quarter, notwithstanding the designation of the Adelphia loans.  Excluding the Adelphia loans, new impaired loan formations in the quarter were at their lowest level of the past two years.

Provisions for credit losses totalled $160 million for the quarter and $660 million year-to-date.  This quarter’s provisions were down $160 million from the second quarter but were up $43 million from the third quarter of last year. BMO continues to anticipate that its provision for credit losses will approximate $775 million to $825 million for the year, representing a range of about 55 basis points of average net loans and acceptances (including securities purchased under resale agreements).

The annual targets of cash EPS growth of 8 to 12 per cent and cash ROE of 14 to 15 per cent are considered achievable but will require higher levels of earnings in the fourth quarter of the year. Achieving the targets will require better performance than in the third quarter from Investment Banking Group and continued revenue growth in retail and business banking.  BMO also anticipates achieving its annual target of Tier 1 capital of at least 8.0 per cent. 

Management’s Responsibility for Financial Information
A rigorous and comprehensive financial governance framework is in place at Bank of Montreal and its subsidiaries at both the management and board levels.   Each year, Bank of Montreal’s Annual Report has contained a statement signed by the Chief Executive Officer and Chief Financial Officer outlining management’s responsibility for financial information contained in the report.  This quarter, we have included in this press release a statement signed by those same officers affirming management’s responsibility for financial information contained in this release.  In addition, on August 14, 2002, the Chief Executive Officer and Chief Financial Officer of Harris Bank certified Harris’ results under the new U.S. Sarbanes-Oxley Act.  Bank of Montreal will file a certification on a voluntary basis, signed by the Chief Executive Officer and Chief Financial Officer, following the release of these results.

Economic Outlook
Growth in the Canadian economy is expected to remain strong in the year ahead as a result of continuing low interest rates and a weak currency. Exceptional job growth for the year-to-date will support incomes and spending. Demand for interest-sensitive goods, such as housing and motor vehicles, should remain elevated, but will likely ease from near record levels of activity. The jobless rate is expected to trend lower. Canadian interest rates will likely increase as the expansion progresses. The Canadian dollar is expected to appreciate against the U.S. dollar in response to supportive interest-rate differentials and trade flows. While growth in the U.S. economy has weakened in the summer, activity should pick up in the fall in response to past reductions in interest rates and income taxes. Nonetheless, U.S. interest rates are projected to remain low for the balance of the year, as the economy is vulnerable to recent weakness in labour and equity markets. Should the U.S. economy under-perform our expectations, Canada’s economic expansion would be less robust than anticipated.  Activity in capital markets has not kept pace with the improved economic conditions in Canada, but should increase in both Canada and the United States as the economy gathers strength.

Note on Performance Analysis
Management and certain of BMO’s stakeholders believe that performance analysis is enhanced by focusing on cash results and results excluding non-recurring items. These adjustments and their effects are outlined in the “Effects of Non-Recurring Items” table. Securities regulators require that corporations caution readers that earnings as adjusted for such items do not have standardized meanings under generally accepted accounting principles (GAAP) and are unlikely to be comparable to similar measures used by other companies.

Management’s Discussion and Analysis of Results of Operations (MD&A) is attached.  A more comprehensive discussion of our businesses and strategies and objectives can be found in the MD&A in Bank of Montreal’s 2001 Annual Report, which can be accessed on BMO’s web site indicated below.

OTHER INVESTOR AND MEDIA INFORMATION

Online Investor Presentations
Interested investors, the media and others are invited to visit our web site at www.bmo.com/investorrelations to review this quarterly news release, presentations and supplementary financial information package.

Quarterly Conference Call
Interested parties are also invited to join our quarterly conference call, in listen-only mode, on Tuesday, August 27, 2002 at 2:00p.m. (EDT). The call may be accessed by telephone at 1-800-213-1351 (toll free) or 416-641-6678 (from within Toronto). A replay of the conference call will be available until Friday, September 6, 2002 by calling 1-800-558-5253 and quoting reservation number 19964112.

Webcast
A live webcast of the quarterly conference call can be accessed at www.bmo.com/investorrelations. A replay of the webcast can be accessed on our web site until November 25, 2002.

Document Copies
Copies of the quarterly news release, presentations and supplementary financial information package are also available at BMO Financial Group's offices at 100 King Street West, 18^th Floor, 1 First Canadian Place, Toronto, Ontario, M5X 1A1.

Media Relations Contacts
Ralph Marranca, Toronto, 416-867-3996
Ian Blair, Toronto, 416-867-3996
Ronald Monet, Montreal, 514-877-1101

Investor Relations Contacts
Susan Payne, Senior Vice President, Investor Relations, susan.payne@bmo.com, 416-867-6656
Lynn Inglis, Director, Investor Relations, lynn.inglis@bmo.com, 416-867-5452

Chief Financial Officer
Karen Maidment, Executive Vice President and Chief Financial Officer,
karen.maidment@bmo.com, 416-867-6776

Corporate Secretary
corp.secretary@bmo.com, 416-867-6785

CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This news release in respect of earnings for the third quarter of 2002 includes forward-looking statements, which are made pursuant to the ‘safe harbor’ provisions of the United States Private Securities Litigation Reform Act of 1995.  These forward-looking statements include, but are not limited to, comments with respect to our objectives, targets, strategies, financial condition, the results of our operations and our businesses, our outlook for our businesses and for the Canadian and U.S. economies, and risk management.

By their very nature, 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 prove to be accurate.  We caution readers of this document 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, targets, expectations, estimates and intentions expressed in such forward-looking statements.

The future outcomes that relate to forward-looking statements may be influenced by the following factors: fluctuations in interest rates and currency values; regulatory developments; statutory changes; 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 potential events.  The Bank does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Bank.

STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL INFORMATION

Bank of Montreal’s management is responsible for presentation and preparation of the interim consolidated financial statements and interim Management’s Discussion and Analysis (MD&A).

The interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and the requirements of the Securities and Exchange Commission in the United States, as applicable.  The financial statements also comply with the provisions of the Bank Act and related regulations, including the accounting requirements of the Superintendent of Financial Institutions Canada.

The attached interim MD&A has been prepared in accordance with the requirements of securities regulators, including Ontario Securities Commission Rule 51-501, as well as Item 303 of Regulation S-K of the U.S. Securities Exchange Act of 1934.

The interim consolidated financial statements and information in the interim MD&A necessarily include amounts based on informed judgments and estimates of the expected effect of current events and transactions with appropriate consideration to materiality.  In addition, in preparing the financial information we must interpret the requirements described above, make determinations as to the relevancy of information to be included, and make estimates and assumptions that affect reported information.  The interim MD&A also includes information regarding the estimated impact of current transactions and events, sources of liquidity and capital resources, operating trends, risks and uncertainties.  Actual results in the future may differ materially from our present assessment of this information because future events and circumstances may not occur as expected.

In meeting our responsibility for the reliability of financial information, we maintain and rely on a comprehensive system of internal control and internal audit, including organizational and procedural controls and internal accounting controls.  Our system of internal control includes written communication of our policies and procedures governing corporate conduct and risk management; comprehensive business planning; effective segregation of duties; delegation of authority and personal accountability; careful selection and training of personnel; and sound and conservative accounting policies which we regularly update.  This structure ensures appropriate internal control over transactions, assets and records.  We also regularly audit internal controls.  These controls and audits are designed to provide us with reasonable assurance that the financial records are reliable for preparing interim and annual financial statements and other financial information, assets are safeguarded against unauthorized use or disposition, liabilities are recognized and we are in compliance with all regulatory requirements.  In order to provide their opinion on our annual consolidated financial statements, the Shareholders’ Auditors review our system of internal control and conduct their work to the extent that they consider appropriate.

The Board of Directors is responsible for reviewing and approving the interim consolidated financial statements and the financial information contained in the interim MD&A and for overseeing management’s responsibilities for the presentation and preparation of financial information, maintenance of appropriate internal controls, management and control of major risk areas, and assessment of significant and related party transactions.  The Board delegates these responsibilities to its Audit and Conduct Review Committees, comprised of non-Bank directors, and its Risk Review Committee.

The Shareholders’ Auditors and Bank of Montreal’s Chief Auditor have full and free access to the Board of Directors and its committees to discuss financial reporting and related matters.

TO VIEW THIRD QUARTER 2002 MD&A CLICK HERE

TO VIEW FINANCIAL HIGHLIGHTS AND STATEMENTS CLICK HERE