BMO Financial Group Reports Third Quarter Net Income of $521 Million



    
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    Canadian Retail Strategy Continues to Deliver Good Results Including
    Record Net Income in Private Client Group

    BMO Capital Markets Reports Strong Revenue Growth

    Provisions For Credit Losses, Booked in Corporate, Due to Continued
    Deterioration in U.S. Real Estate

    Return on Equity at 13.5% Demonstrates the Benefits of Our Diversified
    Businesses
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    Financial Results Highlights:

    Third Quarter 2008 Compared with Third Quarter 2007:

    -   Net income of $521 million compared with $660 million in 2007
    -   EPS(1) of $0.98 compared with $1.28 and cash EPS(2) of $1.00 compared
        with $1.30
    -   Strong Tier 1 Capital Ratio, at 9.90% on a Basel II basis

    Year-to-Date 2008 Compared with a Year Ago:

    -   Net income of $1,418 million compared with $1,679 million in 2007
    -   EPS of $2.70 compared with $3.24 and cash EPS of $2.75 compared with
        $3.29
    -   Return on equity of 12.7% compared with 15.1% in 2007
    

    TORONTO, Aug. 26 /CNW/ - For the third quarter ended July 31, 2008, BMO
Financial Group reported net income of $521 million or $0.98 per share. We
continue to maintain a strong Tier 1 Capital Ratio and the third quarter
return on equity at 13.5% shows the underlying benefits of our diversified
businesses.
    "We remain focused on our strategic goals and objectives with the
customer at the centre of everything we do. This is reflected in the overall
results we've reported and our market share gains in the P&C Canada business.
The impact of the deterioration in the U.S. housing market has affected our
results and while uncertainty exists, we are confident in the earnings
capacity of the core franchise," said Bill Downe, President and Chief
Executive Officer, BMO Financial Group.
    P&C Canada, our Canadian personal and commercial banking unit, again
reported good results with one of its best quarters ever. Results were down
year over year but net income improved slightly after adjusting for a recovery
of prior years' income taxes in 2007, and net income was up $12 million or
3.4% from the second quarter with revenue growth of 5.9%. "We are steadily
improving P&C Canada's market share in both personal and commercial loans. Our
focus on the customer is increasingly becoming entrenched in the organization
and is paying off. Customer loyalty continues to improve, our customer base is
growing and we are strengthening our customer relationships," said Mr. Downe.
    "Results in our U.S. personal and commercial banking group were good,
with net income growing 12% year over year in source currency, driven by
increased volumes, spreads and fees. Net interest margins improved from the
second quarter and are showing early signs of stabilizing, an encouraging
development given the margin pressures of the past. We expect to complete the
bulk of the integration of the Wisconsin-based banks in the fourth quarter.
    "Private Client Group delivered record net income, achieving broad-based
revenue growth in a difficult market environment.
    "Results in BMO Capital Markets were up year over year but continue to
reflect current market conditions with low activity levels in some of our
investment banking businesses. Our interest-rate-sensitive businesses
performed well," Mr. Downe added. The group's results included after-tax
charges related to the current capital markets environment and severance, as
well as the benefit of a recovery of prior period income taxes. Further detail
is provided in the Effects of the Capital Markets Environment on Third Quarter
Results section.
    "Overall, BMO's revenue increased 7.5% year over year, reflecting growth
in our businesses and the impacts of this quarter's charges related to the
capital markets environment and last year's commodities losses. Expenses
increased at a comparable rate, reflecting the impact of investments in our
business, severance and low capital taxes a year ago. Managing expenses while
investing in future growth will continue to be a priority," said Mr. Downe.
    Provisions for credit losses totalled $484 million including a
$50 million increase in the general allowance. Specific provisions of
$434 million were unusually elevated relative to the prior quarter due to the
inclusion of $247 million for two corporate accounts related to the U.S.
housing market that were identified as impaired in the first half of the
current year. The size of the provisions for these two exposures reflects the
weakness in the U.S. residential real estate market and the specific nature of
the underlying loans. Excluding the provisions taken on these two accounts,
specific provisions were $187 million in the quarter.
    The effective tax rate in the quarter was a recovery of 12.2%, and
included the benefit of $95 million of recoveries of prior period income
taxes.

    
    (1) All Earnings per Share (EPS) measures in this document refer to
        diluted EPS unless specified otherwise.
    (2) The adjustments that change results under generally accepted
        accounting principles (GAAP) to cash results are outlined in the Non-
        GAAP Measures section, where all non-GAAP measures and their closest
        GAAP counterparts are outlined.
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    Operating Segment Overview

    P&C Canada

    Net income was $343 million, down $13 million or 3.2% from a year ago.
Results a year ago included a $14 million recovery of prior period income
taxes. This quarter's results represented one of our best ever quarters,
increasing $12 million or 3.4% from the second quarter.
    Revenue rose $35 million or 3.0% year over year. Volume growth continued
to be strong in the face of a slowing economy. There were improved revenues in
personal banking and cards and payment services, with a small decline in
commercial banking due to high recoveries of interest on loans a year ago. Net
interest margin was down year over year but increased slightly from the second
quarter, due in part to favourable product mix changes.
    Expenses increased $46 million or 6.8% from a year ago due to increased
strategic initiative spending and higher capital taxes. We are continuing to
invest in the business through the expansion and renovation of our branch
network, as well as increasing our mortgage specialist and financial planner
workforce. Year to date, we have opened 7 new branches, relocated 4 and
expanded 6. Our customers continue to report an improved customer experience
as a result of the initiatives we are focusing on.
    In personal banking, there continues to be growth in most products. Our
personal loan growth was a strong 19% year over year with market share
increasing 87 basis points from the prior year and 29 basis points from the
second quarter. Our HomeOwner Readiline is an important contributor to our
accelerating personal loan growth. We saw growth in our mortgage portfolio
again this quarter as new originations outpaced the impact of exiting from the
broker mortgage channels. Personal deposit balances were up slightly from a
year ago and the second quarter, with the number of active chequing account
customers continuing to rise and the number of products per household showing
positive trends. Personal deposits market share was down 10 basis points from
a year ago and 6 basis points from the second quarter as competition remains
intense.
    In commercial banking, loans continue to grow strongly, rising 9.3% from
a year ago, despite ongoing intense competition. Market share of business
banking improved 69 basis points from the prior year and 29 basis points from
the second quarter. BMO ranks second in Canadian business banking market share
at 19.89% and our objective is to be the market leader. In the deposit
category, year-over-year balance growth of 4.5% was accompanied by steady
growth in commercial operating deposit customers.
    Cards and payment services revenues grew 10% year over year, driven by
transactions and accelerating balance growth as well as higher revenues from
Moneris, our joint investment with another bank and one of North America's
leading processors of debit and credit payment transactions. Our most recent
AIR MILES and Cashback rewards offers have broad appeal to customers which,
combined with our pricing and credit strategies, have continued to drive
strong balance growth in a highly competitive environment.

    P&C U.S.

    Net income was US$28 million, up US$4 million or 12% from a year ago.
There was solid volume growth and early signs of spread stabilization in both
loans and deposits in both the personal and commercial segments. Although net
interest margin was down from a year ago, it was up appreciably from the
second quarter. Revenue was up US$35 million or 16%, with the Wisconsin
acquisitions contributing a little more than half of the growth and the
balance attributable to core revenue improvements. We incurred US$3 million of
acquisition integration costs in the third quarter and anticipate integration
costs increasing to approximately US$16-US$18 million in the fourth quarter
when we expect to complete the bulk of the integration.
    Results were down slightly from the second quarter, which included a net
US$13 million after-tax benefit related to the Visa Inc. IPO proceeds less an
associated litigation reserve as well as higher than normal expenses and
reduced revenues. Core results were stronger than in the second quarter with
improved volumes, spreads and fees. Results were affected by the more
difficult credit environment with an impact on both revenue and expense but
the effect was less pronounced in the third quarter than in the second quarter
as a result of cash collections.
    Results include a full quarter of revenue and expense of Wisconsin-based
Merchants and Manufacturers Bancorporation Inc. and Ozaukee Bank following the
successful closing of these transactions in the second quarter, which
reflected one month of their results.

    Private Client Group

    Net income was $110 million, up $8 million or 8.4% from a year ago,
marking a record quarter, notwithstanding the more difficult operating
environment.
    Revenue rose $24 million or 4.8%. There was growth in a number of our
businesses with increased fee-based revenue in Full-Service Investing and
higher trust and investment revenue in North American Private Banking. There
were higher deposit balances in brokerage businesses and higher loan and
deposit balances in North American Private Banking.
    Assets under management and administration and term deposits have been
affected by softer market conditions, but increased $4.2 billion or 1.5%,
excluding the impact of foreign exchange.

    BMO Capital Markets

    Net income of $259 million increased $65 million or 34% from a year ago.
Results for the quarter were lowered by the net $33 million impact of: capital
markets environment charges of $96 million after tax, a severance charge of
$19 million after tax and the group's $82 million share of a recovery of prior
period income taxes. Net income a year ago was lowered by $97 million in
respect of losses in our commodities business. See the Effects of the Capital
Markets Environment on Third Quarter Results section for more details of the
capital markets environment charges.
    Revenue rose $56 million or 7.9% to $746 million due in part to strong
performance from our interest-rate-sensitive businesses. Activity in certain
of our investment banking businesses remains slow in the more cautious capital
markets environment with challenging conditions affecting our fee-based
businesses.
    We re-focused some of our businesses during the quarter with the goal of
improving our risk-return profile and concentrating on core, profitable client
relationships. In our lending business, we are focusing on supporting clients
where there are strong, profitable multi-product relationships or the
potential to develop them. As a result, approximately 20% of our U.S.
authorizations were designated non-core and will not be renewed at expiry. In
our equity products and research units, we re-organized to enable the delivery
of an integrated North American research, sales and trading platform to our
global client base. We are focused on lowering the volatility of the group's
results and producing high, stable return on equity by changing our business
mix and in some cases exiting certain businesses. As a result of these
initiatives, we recorded a severance charge of $28 million pre-tax in the
quarter and eliminated a number of positions within BMO Capital Markets.
    During the quarter, we closed the transaction to acquire Chicago-based
Griffin, Kubik, Stephens & Thompson Inc. On closing, BMO became the largest
bank-qualified municipal bond dealer in Illinois and sixth-largest in the
United States. Municipal bonds are a client-driven business and fit well with
our overall business strategy.
    BMO Capital Markets was involved in 107 new issues in the quarter
including 42 corporate debt deals, 22 government debt deals, 8 issues of
preferred shares and 35 common equity transactions, raising $43.3 billion.

    Performance Targets

    As indicated at the end of the first quarter, we do not expect to achieve
four of our five annual targets given the challenging economic environment.

    
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    Annual Targets for 2008                 Performance to July 31, 2008(*)

    -   10% to 15% EPS growth from a base   -   EPS of $2.84, down 33% from
        of $5.24(1)                             $4.24 a year ago

    -   ROE of 18% to 20%                   -   ROE of 13.3% annualized
    -   Specific provision for credit       -   Specific provision for credit
        losses of $475 million or less          losses of $755 million
    -   Tier 1 Capital Ratio of at least    -   Tier 1 Capital Ratio of 9.90%
        8.0% on a Basel II basis                on a Basel II basis

    -   Cash operating leverage of at       -   Cash operating leverage of
        least 2.0%                              - 10.4%

                                           (*) Excluding changes in the
                                               general allowance

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    1)  The base excluded the impact of restructuring, changes in the general
        allowance and commodities losses
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    The above table contains forward-looking statements. Please see the
Caution Regarding Forward-Looking Statements.


                     Management's Discussion and Analysis
    

    MD&A commentary is as of August 26, 2008. Unless otherwise indicated, all
amounts are in Canadian dollars and have been derived from financial
statements prepared in accordance with Canadian generally accepted accounting
principles (GAAP). The MD&A should be read in conjunction with the unaudited
consolidated financial statements for the period ended July 31, 2008, included
in this document, and the annual MD&A for the year ended October 31, 2007,
included in BMO's 2007 Annual Report. The material that precedes this section
comprises part of this MD&A.

    
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    Bank of Montreal uses a unified branding approach that links all of the
    organization's member companies. Bank of Montreal, together with its
    subsidiaries, is known as BMO Financial Group. As such, in this document,
    the names BMO and BMO Financial Group mean Bank of Montreal, together
    with its subsidiaries.
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    Summary Data

    (Unaudited) (Canadian $                     Increase            Increase
     in millions, except                       (Decrease)          (Decrease)
     as noted)               Q3-2008         vs. Q3-2007         vs. Q2-2008
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    Net interest income        1,286        39        3%       112       10%
    Non interest revenue       1,460       152       12%        14        1%
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    Revenue                    2,746       191        8%       126        5%
    Specific provision for
     credit losses               434       343     +100%       283     +100%
    Increase in the
     general allowance            50        50      100%        50      100%
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    Total provision for
     credit losses               484       393     +100%       333     +100%
    Non-interest expense       1,782       123        7%       102        6%
    Restructuring charge           -         -         -         -         -
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    Total non-interest
     expense                   1,782       123        7%       102        6%
    Income taxes                 (59)     (186)   (+100%)     (187)   (+100%)
    Non-controlling interest
     in subsidiaries              18         -         -        (1)      (5%)
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    Net income                   521      (139)     (21%)     (121)     (19%)

    Amortization of intangible
     assets (after tax)            9        (1)      (7%)        1       13%
    Cash net income(1)           530      (140)     (21%)     (120)     (19%)
    Earnings per share
     - basic ($)                1.00     (0.30)     (23%)    (0.25)     (20%)
    Earnings per share
     - diluted ($)              0.98     (0.30)     (23%)    (0.27)     (22%)
    Cash earnings per share
     - diluted ($)(1)           1.00     (0.30)     (23%)    (0.26)     (21%)
    Return on equity (ROE)     13.5%               (4.5%)              (4.4%)
    Cash ROE(1)                13.7%               (4.5%)              (4.4%)
    Productivity ratio         64.9%                   -                0.8%
    Cash productivity ratio(1) 64.5%                   -                0.7%
    Operating leverage          0.1%                  nm                  nm
    Cash operating leverage(1)     -                  nm                  nm
    Net interest margin on
     earning assets            1.59%              (0.02%)              0.11%
    Effective tax rate        (12.2%)             (27.9%)             (28.5%)

    Capital Ratios(2)
      Tier 1 Capital Ratio     9.90%                  nm               0.48%
      Total Capital Ratio     12.29%                  nm               0.65%
    Net income:
    Personal and
     Commercial Banking          371       (10)      (3%)       10        3%
      P&C Canada                 343       (13)      (3%)       12        3%
      P&C U.S.                    28         3        6%        (2)      (4%)
    Private Client Group         110         8        8%         1        1%
    BMO Capital Markets          259        65       34%        77       42%
    Corporate Services,
     including Technology
     and Operations             (219)     (202)   (+100%)     (209)   (+100%)
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    BMO Financial Group
     Net Income                  521      (139)     (21%)     (121)     (19%)
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    (Unaudited) (Canadian $                     Increase
     in millions, except                       (Decrease)
     as noted)              YTD-2008        vs. YTD-2007
    -----------------------------------------------------
    Net interest income        3,674        27        1%
    Non interest revenue       3,718       216        6%
    -----------------------------------------------------
    Revenue                    7,392       243        3%
    Specific provision for
     credit losses               755       553     +100%
    Increase in the
     general allowance           110       110      100%
    -----------------------------------------------------
    Total provision for
     credit losses               865       663     +100%
    Non-interest expense       5,076       265        6%
    Restructuring charge           -      (135)    (100%)
    -----------------------------------------------------
    Total non-interest
     expense                   5,076       130        3%
    Income taxes                 (22)     (288)   (+100%)
    Non-controlling interest
     in subsidiaries              55        (1)      (3%)
    -----------------------------------------------------
    Net income                 1,418      (261)     (16%)

    Amortization of intangible
     assets (after tax)           25        (4)     (14%)
    Cash net income(1)         1,443      (265)     (16%)
    Earnings per share
     - basic ($)                2.73     (0.56)     (17%)
    Earnings per share
     - diluted ($)              2.70     (0.54)     (17%)
    Cash earnings per share
     - diluted ($)(1)           2.75     (0.54)     (16%)
    Return on equity (ROE)     12.7%               (2.4%)
    Cash ROE(1)                12.9%               (2.5%)
    Productivity ratio         68.7%               (0.5%)
    Cash productivity
     ratio(1)                  68.2%               (0.5%)
    Operating leverage          0.8%                  nm
    Cash operating leverage(1)  0.7%                  nm
    Net interest margin on
     earning assets            1.50%              (0.13%)
    Effective tax rate         (1.5%)             (14.8%)

    Capital Ratios(2)
      Tier 1 Capital Ratio     9.90%                  nm
      Total Capital Ratio     12.29%                  nm
    Net income:
    Personal and
     Commercial Banking        1,060        (3)        -
      P&C Canada                 976        (4)        -
      P&C U.S.                    84         1         -
    Private Client Group         317        25        9%
    BMO Capital Markets          407        36       10%
    Corporate Services,
     including Technology
     and Operations             (366)     (319)   (+100%)
    -----------------------------------------------------

    BMO Financial Group
     Net Income                1,418      (261)     (16%)
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    (1) These are non-GAAP amounts or non-GAAP measures. Please see the Non-
        GAAP Measures section that follows, which outlines the use of non-
        GAAP measures in this document.
    (2) Variances to the prior year have not been provided as the basis of
        computation is no longer comparable. In 2008, capital ratios are
        computed under Basel II versus on a Basel I basis in prior periods.
        On a Basel I basis, at the end of the current quarter, the Tier 1
        capital ratio was 9.45% and the total capital ratio was 12.07%
        (Q2 2008: 9.03% and 11.47%; Q3 2007: 9.29% and 11.18%). See the
        Capital Management section.
    nm - not meaningful.
    

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    Management's Responsibility for Financial Information

    BMO's CEO and Interim CFO have signed certifications relating to the
appropriateness of the financial disclosures in our interim MD&A and unaudited
interim consolidated financial statements for the period ended July 31, 2008
and relating to the design of our disclosure controls and procedures and
internal control over financial reporting.
    BMO's internal control over financial reporting includes policies and
procedures that: pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of the
assets of BMO; provide reasonable assurance that transactions are recorded as
necessary to permit preparation of the financial statements in accordance with
Canadian generally accepted accounting principles and the requirements of the
Securities and Exchange Commission in the United States, as applicable, and
that receipts and expenditures of BMO are being made only in accordance with
authorizations of management and directors of BMO; and provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of BMO's assets that could have a material
effect on the financial statements.
    Because of its inherent limitations, internal control over financial
reporting can provide only reasonable assurance and may not prevent or detect
misstatements. Further, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
    There were no changes in our internal control over financial reporting
during the quarter ended July 31, 2008 that materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
    As in prior quarters, BMO's audit committee reviewed this document,
including the attached unaudited interim consolidated financial statements,
and BMO's Board of Directors approved the document prior to its release.
    A comprehensive discussion of our businesses, strategies and objectives
can be found in Management's Discussion and Analysis in BMO's 2007 Annual
Report, which can be accessed on our web site at
www.bmo.com/investorrelations. Readers are also encouraged to visit the site
to view other quarterly financial information.

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    Caution Regarding Forward-Looking Statements

    Bank of Montreal's public communications often include written or oral
forward-looking statements. Statements of this type are included in this
document, and may be included in other filings with Canadian securities
regulators or the U.S. Securities and Exchange Commission, or in other
communications. All such statements are made pursuant to the 'safe harbor'
provisions of, and are intended to be forward-looking statements under, the
United States Private Securities Litigation Reform Act of 1995 and any
applicable Canadian securities legislation. Forward-looking statements may
involve, but are not limited to, comments with respect to our objectives and
priorities for 2008 and beyond, our strategies or future actions, our targets,
expectations for our financial condition or share price, and the results of or
outlook for our operations or for the Canadian and U.S. economies.
    By their nature, forward-looking statements require us to make
assumptions and are subject to inherent risks and uncertainties. There is
significant risk that predictions, forecasts, conclusions or projections will
not prove to be accurate, that our assumptions may not be correct and that
actual results may differ materially from such predictions, forecasts,
conclusions or projections. We caution readers of this document not to place
undue reliance on our forward-looking statements as a number of factors could
cause actual future results, conditions, actions or events to differ
materially from the targets, expectations, estimates or intentions expressed
in the forward-looking statements.
    The future outcomes that relate to forward-looking statements may be
influenced by many factors, including but not limited to: general economic and
market conditions in the countries in which we operate; interest rate and
currency value fluctuations; changes in monetary policy; the degree of
competition in the geographic and business areas in which we operate; changes
in laws; judicial or regulatory proceedings; the accuracy and completeness of
the information we obtain with respect to our customers and counterparties;
our ability to execute our strategic plans and to complete and integrate
acquisitions; critical accounting estimates; operational and infrastructure
risks; general political conditions; global capital market activities; the
possible effects on our business of war or terrorist activities; disease or
illness that impacts on local, national or international economies;
disruptions to public infrastructure, such as transportation, communications,
power or water supply; and technological changes.
    We caution that the foregoing list is not exhaustive of all possible
factors. Other factors could adversely affect our results. For more
information, please see the discussion on pages 28 and 29 of BMO's 2007 Annual
Report, which outlines in detail certain key factors that may affect BMO's
future results. When relying on forward-looking statements to make decisions
with respect to Bank of Montreal, investors and others should carefully
consider these factors, as well as other uncertainties and potential events,
and the inherent uncertainty of forward-looking statements. Bank of Montreal
does not undertake to update any forward-looking statement, whether written or
oral, that may be made, from time to time, by the organization or on its
behalf. The forward-looking information contained in this document is
presented for the purpose of assisting our shareholders in understanding our
financial position as at and for the periods ended on the dates presented and
our strategic priorities and objectives, and may not be appropriate for other
purposes.
    Assumptions about the level of asset sales, expected asset sale prices
and risk of default of the underlying assets of the structured investment
vehicles were material factors we considered when establishing our
expectations regarding the structured investment vehicles discussed in this
document including the amount to be drawn under the BMO liquidity facilities.
Key assumptions included that assets would continue to be sold with a view to
reducing the size of the structured investment vehicles, under various asset
price scenarios.
    Assumptions about the level of defaults and losses on defaults were
material factors we considered when establishing our expectation of the future
performance of the transactions that Apex Trust has entered into. Key
assumptions included that the level of defaults and losses on defaults would
be consistent with historical experience. Material factors which were taken
into account when establishing our expectations of the future risk of credit
losses in Apex Trust as discussed in this document included industry
diversification in the portfolio, initial credit quality by portfolio and the
first-loss protection incorporated into the structure.
    In establishing our expectations regarding the run-rate costs of our
credit card loyalty rewards program discussed in this document, we took into
account the terms of the agreement that was entered into with Loyalty
Management Group Canada Inc. in the quarter.
    In establishing our expectations regarding the timing of completion of
the integration of the Wisconsin acquisitions and associated costs discussed
in this document, we assumed that the integration would be completed in
accordance with the current project plan and in line with current cost
estimates.
    In establishing our fourth quarter expectations for specific provisions
for credit losses and for gross impaired loans, we assumed that the credit
environment would remain consistent with current conditions, and that our
credit exposures would perform in a manner consistent with the expectations we
have developed through the ongoing assessment of our exposures.
    Assumptions about the performance of the Canadian and U.S. economies in
2008 and how it would affect our businesses were material factors we
considered when setting our strategic priorities and objectives, and when
determining our financial targets, including provisions for credit losses and
our expectations about achieving those targets and our outlook for our
businesses. Key assumptions were that the Canadian economy would expand at a
moderate pace in 2008 while the U.S. economy expands modestly, and that
inflation would remain low in North America. We also assumed that interest
rates in 2008 would decline slightly in Canada and the United States, and that
the Canadian dollar would trade at parity to the U.S. dollar at the end of
2008. In determining our expectations for economic growth, both broadly and in
the financial services sector, we primarily consider historical economic data
provided by the Canadian and U.S. governments and their agencies. In the first
quarter, we anticipated that there would be weaker economic growth in Canada
and that the United States would slip into a mild recession in the first half
of 2008. We also updated our views that quarter to expect lower interest rates
and a somewhat weaker Canadian dollar than when we established our 2008
financial targets. Although the United States avoided a technical recession in
the first half of the year, we anticipate further weakness in its economy and
as such our views remain largely unchanged from the first quarter. Tax laws in
the countries in which we operate, primarily Canada and the United States, are
material factors we consider when determining our sustainable effective tax
rate.

    
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    Regulatory Filings

    Our continuous disclosure materials, including our interim filings,
    annual MD&A and audited consolidated financial statements, our Annual
    Information Form and the Notice of Annual Meeting of Shareholders and
    Proxy Circular are available on our web site at
    www.bmo.com/investorrelations, on the Canadian Securities
    Administrators' web site at www.sedar.com and on the EDGAR section of the
    SEC's web site at www.sec.gov.

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    Economic Outlook

    The Canadian economy is expected to grow just 1% in 2008, the slowest
pace since 1992. The weak U.S. economy and strong Canadian dollar continue to
depress exports and manufacturing, though low interest rates and high
commodity prices have supported domestic demand and incomes. Housing markets
have cooled from record levels of activity last year, and should continue to
moderate as past increases in prices have reduced affordability. Consumer
spending remains healthy, especially for automobiles, but will likely soften
in response to weakening employment gains. Business investment is also
expected to slow given the uncertain economic climate and the recent pullback
in commodity prices. Despite higher inflation, Canadian interest rates are
projected to remain near current low levels for the rest of the year in
response to the weak economy. The Canadian dollar is expected to continue
trading below parity against the U.S. dollar, as the trade balance declines.
The resource-based western provinces should continue to outperform Central and
Atlantic Canada.
    The U.S. economy is expected to slow further in the second half of 2008
after expanding modestly in the first half. House prices will continue to
decline until demand strengthens and the large overhang of unsold homes is
reduced. Falling house prices, rising unemployment, tightening credit
standards and high food and fuel prices will continue to depress consumer
spending. Waning support from tax-rebate cheques could cause consumption to
decline in the near term. Businesses are also likely to continue to scale back
investment until the economic outlook brightens. Capital markets activity
remains subdued in response to ongoing dislocations in credit markets. Despite
the highest inflation in 17 years, the Federal Reserve has not indicated any
immediate plans to raise interest rates, given concerns about the economy and
financial markets. It will likely remain on hold for the rest of the year.
    This Economic Outlook section contains forward-looking statements. Please
see the Caution Regarding Forward-Looking Statements.

    Effects of the Capital Markets Environment on Third Quarter Results

    Financial markets remain unsettled with continuing apprehension with
respect to capital markets and concerns about an economic downturn. In the
current quarter, capital markets continued to be affected by volatility in
credit spreads, impacting mark-to-market valuations. The economic downturn is
raising concerns about financial institutions credit exposures on traditional
products such as home equity lines of credit, auto loans and commercial loans.
    BMO's results in the third quarter were affected by capital markets
environment charges of $134 million ($96 million after tax), or $0.19 per
share in respect of:

    
    -   a charge of $88 million ($65 million after tax) including:
        -  a charge of $58 million ($39 million after tax) for mark-to-market
           valuations on counterparty credit exposures on derivative
           contracts largely as a result of widening corporate counterparty
           credit spreads relative to BMO;
        -  a charge of $55 million ($43 million after tax) for other than
           temporary impairments and valuation adjustments on preferred
           shares held in our trading portfolio;
        -  a recovery of $25 million ($17 million after tax) for other
           trading and structured-credit related positions;
    -   a $28 million ($19 million after tax) impairment charge for asset-
        backed commercial paper held that is subject to the Montreal Accord;
    -   a net charge of $15 million ($10 million after tax) related to Apex;
        and
    -   a $3 million ($2 million after tax) charge for our capital notes
        investment in SIVs.
    

    The capital markets environment charges of $134 million above were all
reflected in non-interest revenue with $61 million in securities gains/losses
other than trading, $76 million in trading non-interest revenue and a recovery
of $3 million in other revenue.
    The effects of significant and notable items affecting comparative period
results are discussed at the end of this MD&A.
    Given the uncertainty in the capital markets environment, our investments
in ABCP, SIVs, structured finance vehicles and mark-to-market investments
could experience further valuation gains and losses due to changes in market
value.
    This Effects of the Capital Markets Environment on Third Quarter Results
section contains forward-looking statements. Please see the Caution Regarding
Forward-Looking Statements.

    
    GAAP and Related Non-GAAP Measures used in the MD&A

    (Canadian $ in millions,
     except as noted)    Q3-2008    Q2-2008    Q3-2007   YTD-2008   YTD-2007
    -------------------------------------------------------------------------

    Non-interest
     expense(a)            1,782      1,680      1,659      5,076      4,811
    Restructuring
     charge(b)                 -          -          -          -        135
    -------------------------------------------------------------------------
    Total non-interest
     expense(c)            1,782      1,680      1,659      5,076      4,946
    Amortization of
     intangible assets       (11)       (10)       (11)       (31)       (35)
    -------------------------------------------------------------------------
    Cash-based non-
     interest expense(d)
     (note 1)              1,771      1,670      1,648      5,045      4,911
    -------------------------------------------------------------------------

    Net income(e)            521        642        660      1,418      1,679
    Amortization of
     intangible assets,
     net of income taxes       9          8         10         25         29
    -------------------------------------------------------------------------
    Cash net income(f)
     (note 1)                530        650        670      1,443      1,708
    Preferred share
     dividends               (19)       (14)        (9)       (48)       (31)
    Charge for capital
     (note 1)               (389)      (370)      (381)    (1,134)    (1,145)
    -------------------------------------------------------------------------
    Net economic profit
     (note 1)                122        266        280        261        532
    -------------------------------------------------------------------------

    Restructuring charge(b)    -          -          -          -        135
    Related income taxes(g)    -          -          -          -         47
    -------------------------------------------------------------------------
    Net impact of
     restructuring(h)          -          -          -          -         88
    -------------------------------------------------------------------------

    Commodities losses(i)
     (note 2)                  -          -        149          -        829
    Performance - based
     compensation(j)           -          -          -          -       (120)
    Related income taxes(k)    -          -         52          -        285
    -------------------------------------------------------------------------
    Net impact of
     commodities losses(l)     -          -         97          -        424
    -------------------------------------------------------------------------

    Charges related to
     deterioration in capital
     markets environment(m)    -          -          -        488          -
    Related income taxes(o)    -          -          -        164          -
    -------------------------------------------------------------------------
    Net impact of charges
     related to capital
     markets environment(p)    -          -          -        324          -
    -------------------------------------------------------------------------

    Increase in general
     allowance                50          -          -        110          -
    Related income taxes(q)   20          -          -         42          -
    -------------------------------------------------------------------------
    Net impact of increase
     in general allowance(r)  30          -          -         68          -
    -------------------------------------------------------------------------
    Net impact of
     significant items
     (h+l+p+r)(1)             30          -         97        392        512
    -------------------------------------------------------------------------

    Revenue(s)             2,746      2,620      2,555      7,392      7,149
    Non-interest
     expense(c)            1,782      1,680      1,659      5,076      4,946
    Cash-based non-
     interest expense(d)   1,771      1,670      1,648      5,045      4,911
    Income tax(t)            (59)       128        127        (22)       266
    Productivity ratio
     (%) ((c/s) x 100)      64.9       64.1       64.9       68.7       69.2
    Cash productivity
     ratio (%)
     ((d/s) x 100)
     (note 1)               64.5       63.8       64.5       68.2       68.7
    Revenue growth (%)(u)    7.5        3.6       (0.6)       3.4       (5.0)
    Non-interest expense
     growth (%)(v)           7.4        4.1        3.6        2.6        4.3
    Cash-based non-interest
     expense growth (%)(w)
     (note 1)                7.5        4.3        3.6        2.7        4.3
    Operating leverage
     (%)(u-v)                0.1       (0.5)      (4.2)       0.8       (9.3)
    Cash operating leverage
     (%)(u-w) (note 1)         -       (0.7)      (4.2)       0.7       (9.3)
    EPS (uses net
     income) ($)            0.98       1.25       1.28       2.70       3.24
    Cash EPS (note 1)
     (uses cash net
     income) ($)            1.00       1.26       1.30       2.75       3.29
    Effective tax rate (%)
     (t/(e+t+Min. Int of
     approx. $19MM per
     quarter))             (12.2)      16.3       15.7       (1.5)      13.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Measures on a basis
     that excludes the
     impact of significant
     items (note 1)
    Revenue(s+i+m)(2)      2,746      2,620      2,704      7,880      7,978
    Non-interest
     expense(c-b-j)(3)     1,782      1,680      1,659      5,076      4,931
    Cash-based
     expense(d-b-j)(4)     1,771      1,670      1,648      5,045      4,896
    Income tax
     (t+g+k+o+q)(5)          (39)       128        179        184        598
    Net income(e+1)(6)       551        642        757      1,810      2,191
    Cash net income(f+1)     560        650        767      1,835      2,220
    Productivity ratio (%)
     ((3/2) x 100)          64.9       64.1       61.4       64.4       61.8
    Cash productivity ratio
     (%)((4/2) x 100)       64.5       63.8       60.9       64.0       61.4
    Revenue growth (%)(*)    1.6       (2.9)       5.2       (1.2)       6.0
    Non-interest expense
     growth (%)(y)           7.4        2.0        3.6        2.9        4.0
    Cash-based expense
     growth (%)(z)           7.5        2.2        3.6        3.0        4.0
    Operating leverage
     (%)(x-y)               (5.8)      (4.9)       1.6       (4.1)       2.0
    Cash Operating leverage
     (%)(x-z)               (5.9)      (5.1)       1.6       (4.2)       2.0
    EPS (uses net income
     excluding significant
     items)                 1.04       1.25       1.47       3.48       4.24
    Cash EPS (uses cash
     net income excluding
     significant items)     1.06       1.26       1.49       3.53       4.29
    ROE (%) (uses net
     income excluding
     significant items)     14.3       17.9       20.6       16.3       19.8
    Effective tax rate (%)
     (5/(6+5+Min. Int of
     approx. $19MM per
     quarter))              (7.3)      16.3       18.7        9.0       21.0
    -------------------------------------------------------------------------
    Note 1: These are non-GAAP amounts or non-GAAP measures.
    Note 2: Commodities losses were $15 million ($10 million after tax) in Q3
            2008 and $45 million ($30 million after tax) for the year to
            date. Commodities losses were not considered a significant item
            in 2008.
    


    Non-GAAP Measures

    BMO uses both GAAP and certain non-GAAP measures to assess performance.
Securities regulators require that companies caution readers that earnings and
other measures adjusted to a basis other than GAAP do not have standardized
meanings under GAAP and are unlikely to be comparable to similar measures used
by other companies. The following table reconciles the non-GAAP measures,
which management regularly monitors, to their GAAP counterparts.
    Management discloses amounts on a basis that adjusts for certain
significant items. Amounts and measures stated on a basis that excludes the
significant items are considered useful as they would be expected to be more
reflective of ongoing operating results. These significant items included:
charges related to certain trading activities and valuation adjustments in the
first quarter of 2008; losses in our commodities business in 2007 (including
associated performance-based compensation); restructuring charges recorded in
2007; and changes in the general allowance for credit losses. Amounts are
summarized in the accompanying table and further detail is provided in the
Significant and Notable Items section. Since such charges tend to be
irregular, adjusting for them is helpful in assessing quarterly trends in
results.
    Cash earnings, cash productivity and cash operating leverage measures may
enhance comparisons between periods when there has been an acquisition,
particularly because the purchase decision may not consider the amortization
of intangible assets to be a relevant expense. Cash EPS measures are also
disclosed because analysts often focus on this measure, and cash EPS is used
by Thomson First Call to track third-party earnings estimates that are
frequently reported in the media. Cash measures add the after-tax amortization
of intangible assets to GAAP earnings to derive cash net income (and
associated cash EPS) and deduct the amortization of intangible assets from
non-interest expense to derive cash productivity and cash operating leverage
measures.
    BMO analyzes consolidated revenues on a GAAP basis. However, like many
banks, BMO analyzes revenue of its operating groups, and ratios of the groups
computed using revenue, on a taxable equivalent basis (teb). This basis
includes an adjustment that increases GAAP revenues and the GAAP provision for
income taxes by an amount that would raise revenues on certain tax-exempt
securities to a level equivalent to amounts that would incur tax at the
statutory rate. The effective income tax rate is also analyzed on a taxable
equivalent basis for consistency of approach. The offset to the group teb
adjustments is reflected in Corporate Services. Analysis on a taxable
equivalent basis neutralizes the impact on ratios of investing in tax exempt
or tax-advantaged securities rather than fully-taxable securities with higher
yields. It reduces distortions in ratios between periods and between
institutions related to the choice of tax-advantaged and taxable investments.
In this MD&A, all revenues and tax amounts and related ratios of our operating
groups are stated on a taxable equivalent basis, unless indicated otherwise.
    Net economic profit represents cash net income available to common
shareholders, less a charge for capital, and is considered an effective
measure of economic value added.

    Foreign Exchange

    The Canadian dollar equivalents of BMO's U.S. dollar-denominated net
income, revenues, expenses, provisions for credit losses and income taxes were
lowered relative to the third quarter of 2007 by the weakening of the U.S.
dollar in the past year. The average Canadian/U.S. dollar exchange rate in the
third quarter, expressed in terms of the Canadian dollar cost of a U.S.
dollar, fell by 5% from a year ago but rose 1% from the second quarter of
2008. The following table indicates the relevant average Canadian/U.S. dollar
exchange rates and the impact of changes in the rates.

    
    Effects of U.S. Dollar Exchange Rate Fluctuations on BMO's Results

                                                      Q3-2008       YTD-2008
    (Canadian $ in millions,                        vs.        vs.        vs.
     except as noted)                          Q3-2007    Q2-2008   YTD-2007
    -------------------------------------------------------------------------
    Canadian/U.S. dollar exchange rate
     (average)
      Current period                            1.0122     1.0122     1.0057
      Prior period                              1.0673     1.0065     1.1243
    Increased (Decreased) revenue                  (23)         2       (118)
    Decreased (Increased) expense                   23         (2)       138
    Decreased (Increased) provision for
     credit losses                                  24         (3)        58
    Decreased (Increased) income taxes             (18)         2        (12)
    -------------------------------------------------------------------------
    Increased (Decreased) net income                 6         (1)        66
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    At the start of each quarter, BMO enters into hedging transactions that
are expected to partially offset the pre-tax effects of exchange rate
fluctuations in the quarter on our expected U.S. dollar net income for that
quarter. As such, these activities partially mitigate the impact of exchange
rate fluctuations within a single quarter; however, the hedging transactions
are not designed to offset the impact of year over year or quarter over
quarter fluctuations in exchange rates. The U.S. dollar strengthened in the
first and second quarters. It also strengthened but more modestly over the
course of the current quarter, as the exchange rate increased from Cdn$1.0072
per U.S. dollar at April 30, 2008 to an average of Cdn$1.0122. Hedging
transactions resulted in an after-tax gain of $1 million in the quarter and an
after-tax loss of $7 million for the year to date. The gain or loss from
hedging transactions in future periods will be determined by both future
currency fluctuations and the amount of underlying future hedging
transactions, since the transactions are entered into each quarter in relation
to expected U.S. dollar-denominated net income for the next three months.
    The effect of currency fluctuations on our investments in foreign
operations is discussed in the Income Taxes section.

    Other Value Measures

    Net economic profit was $122 million (see the Non-GAAP Measures section),
compared with $280 million in the third quarter of 2007 and $266 million in
the second quarter.
    The total shareholder return (TSR) on an investment in BMO common shares
was -2.9% in the third quarter and -24.4% for the twelve months ended July 31,
2008. BMO's average annual TSR for the five-year period ended July 31, 2008
was 5.1%.

    Net Income

    Q3 2008 vs Q3 2007

    Net income was $521 million for the third quarter of 2008, down
$139 million or 21% from a year ago. Earnings per share were $0.98, compared
with $1.28. Results for the quarter include $96 million after tax ($0.19 per
share) in respect of the capital markets environment charges as set out in the
Effects of the Capital Markets Environment on Third Quarter Results section.
Results a year ago included $149 million of commodities losses in BMO Capital
Markets ($97 million after tax and $0.19 per share).
    Provisions for credit losses were up $393 million from a year ago.
Provisions for credit losses totalled $484 million including a $50 million
increase in the general allowance. Specific provisions of $434 million were
elevated due to the inclusion of $247 million for two corporate accounts
related to the U.S. housing market that were identified as impaired in the
first half of the current year. The size of the provisions for these two
exposures reflects the continued weakness in the U.S residential real estate
market and the specific nature of the underlying loans. BMO funded these two
accounts out of its U.S. securitization conduit earlier this year. The
remaining increase reflects the weaker economic environment.
    P&C Canada net income decreased $13 million or 3.2% from a year ago.
Results a year ago included a $14 million recovery of prior period income
taxes. Adjusted for this item, net income increased by $1 million or 0.8%.
Volume growth continued to be strong across most products in the face of a
slowing economy, while margins declined due to higher funding costs and
competitive pricing pressures. As anticipated, expenses rose due to higher
capital taxes and the timing of strategic spending.
    P&C U.S. net income increased US$4 million or 12%. There were improved
volumes, spreads and fees.
    Private Client Group net income increased $8 million or 8.4%, to record
levels. The increase was primarily due to higher revenues in the brokerage
businesses and North American Private Banking. Expenses increased, primarily
due to higher revenue-based costs and expansion of the sales force.
    BMO Capital Markets net income increased $65 million or 34%. The capital
markets environment remains challenging, but our interest- rate-sensitive
businesses continue to perform well and trading revenue was up significantly
as prior year results included large commodities losses. Merger and
acquisition fees and equity underwriting fees were down from the strong levels
of a year ago. Results in the quarter were affected by charges of $96 million
after-tax related to the capital markets environment and $19 million after tax
for severance, but benefited from the group's $82 million share of a recovery
of prior period income taxes.
    Corporate Services results were $202 million lower than in the prior year
due primarily to higher specific provisions for credit losses and an increase
in the general allowance. BMO charges the operating groups with expected
credit losses and charges/credits the balance of actual provisions for credit
losses to Corporate Services.

    Q3 2008 vs Q2 2008

    Net income decreased $121 million or 19%. The reduction was attributable
to the valuation adjustments and increased provisions for credit losses. In
addition, results in the second quarter reflected the beneficial impact from
valuation adjustments of $42 million ($28 million after tax) in BMO Capital
Markets. See the Significant and Notable Items section for more details.
    In P&C Canada, net income increased $12 million or 3.4%. There was strong
revenue growth, attributable to the impact of two more calendar days in the
current quarter, volume growth across most products, improved net interest
margin, higher cards revenue and higher Moneris revenues. Non-interest expense
rose due to increased strategic initiative spending, higher capital taxes and
increased advertising.
    P&C U.S. net income fell US$2 million or 5.2%. Results in the preceding
quarter included a US$13 million after-tax gain net of a litigation reserve on
the Visa Inc. initial public offering and higher than normal expenses and
reduced revenues. In the current quarter, there were improvements in core
volumes, spreads & fees. Net interest margin was also higher, with early signs
of spread stabilization in both the consumer and commercial segments, in both
loans and deposits.
    Private Client Group net income increased $1 million or 1.0% from the
second quarter. Revenue rose strongly, primarily driven by higher revenue in
the brokerage and mutual fund businesses. Expenses also increased appreciably,
primarily as a result of higher revenue-based costs.
    BMO Capital Markets net income increased $77 million or 42%. Conditions
in the current quarter were challenging but there was strength in our trading
and interest-rate-sensitive businesses and improvements in equity and debt
underwriting fees. There were increased investment securities losses and lower
merger and acquisition activity. As discussed above, results in the quarter
were affected by charges related to the current capital markets environment
and severance costs, but benefited from the recovery of prior period income
taxes. Results in the second quarter included a net benefit from the credit
markets environment.
    Corporate Services results deteriorated $209 million primarily due to
increased provisions for credit losses.

    Q3 YTD 2008 vs Q3 YTD 2007

    Net income decreased $261 million or 16% to $1,418 million. Net income
for the current period was lowered by $392 million after-tax of charges
related to the capital markets environment and a $68 million after-tax
increase in the general allowance for credit losses. Current period earnings
were increased by the $95 million benefit recognized on the recovery of prior
period income taxes. Net income in the comparable period of 2007 was lowered
by significant items totalling $512 million in respect of commodities losses
($424 million) and a restructuring charge ($88 million). Specific provisions
for credit losses were up $553 million from a year ago due to the credit
environment and weakness in U.S. housing markets.
    P&C Canada net income decreased $4 million or 0.3%, but increased
$42 million or 4.6% adjusted for the benefit in 2007 of insurance and
investment gains and a recovery of prior years' income taxes. There was good
volume growth across most products. Net interest margin decreased 2 basis
points from last year. Expenses were higher due to increased initiatives
spending, including expansion and renovation of the branch network and
increasing our mortgage specialist and financial planner workforce, as well as
higher capital tax expense.
    P&C U.S. net income rose US$10 million or 12%. The increase was
attributable to the Visa transaction and acquisitions, volume growth and
increases in fee and other non-interest revenue, partially offset by the more
difficult credit environment, continued targeted business investment and
expansion, and lower net interest margins.
    Private Client Group net income increased $25 million or 8.9%. Revenue
increased in softer market conditions by $29 million or 1.9%, and $60 million
or 3.9% excluding the impact of the weaker U.S. dollar and the prior year's 
$7 million gain on sale of Montreal Stock Exchange common shares. The growth
was attributable to higher deposits in the brokerage businesses and higher
trust and investment revenue in private banking.
    BMO Capital Markets net income increased $36 million or 9.6%. Capital
markets conditions are much more challenging for many of our businesses in
2008 than in 2007 but interest-rate-sensitive businesses continue to perform
well. Results for the current year to date were affected by the charges of
$392 million after tax related to deterioration in capital markets but
benefited from the $82 million recovery of prior period income taxes. Results
in the comparable period of 2007 were affected by charges related to
commodities losses of $424 million, net of compensation adjustments and taxes.
    Corporate Services net income decreased $319 million, primarily due to
higher provisions for credit losses including increases in the general
allowance for credit losses. Results in 2007 included a $135 million
($88 million after tax) restructuring charge.

    Revenue

    BMO analyzes consolidated revenues on a GAAP basis. However, like many
banks, BMO analyzes revenue of its operating groups and associated ratios
computed using revenue on a taxable equivalent basis (teb). This basis
includes an adjustment that increases GAAP revenues and the GAAP provision for
income taxes by an amount that would raise revenues on certain tax-exempt
securities to a level equivalent to amounts that would incur tax at the
statutory rate. The offset to the group teb adjustments is reflected in
Corporate Services revenues.
    Total revenue for the third quarter of 2008 increased $191 million or
7.5% from a year ago. Revenues in the current quarter were affected by the
charges related to the capital markets environment while revenues of a year
ago were affected by the commodities losses. Revenue increased $126 million
from the second quarter, due to volume growth in P&C Canada, and higher
revenues in the private banking businesses in Private Client Group and from
trading revenues and interest-rate-sensitive businesses in BMO Capital
Markets.
    The weaker U.S. dollar lowered revenue growth by $23 million or 0.9
percentage points year over year. The impact of changes in the Canadian/U.S.
dollar exchange rate from the second quarter was insignificant. Changes in net
interest income and non-interest revenue are reviewed in the sections that
follow.

    Net Interest Income

    Net interest income increased $39 million or 3.0% from a year ago. There
was growth in each of the operating groups and a reduction in Corporate
Services. Average earning assets increased $14 billion with growth in each of
the operating groups. P&C Canada earning assets increased by $6 billion with
growth in all lines of business except mortgages, which decreased due to our
exit from broker channels and the impact of securitizations. BMO Capital
Markets earning assets increased $4 billion due primarily to growth in
corporate loans.
    Relative to the second quarter, net interest income rose $112 million
with growth in each of the operating groups. BMO's average earning assets fell
$2 billion due to a reduction in BMO Capital Markets' trading assets.
    Year to date, net interest income increased $27 million. There was growth
in P&C Canada, Private Client Group, BMO Capital Markets and P&C U.S. on a
U.S. dollar basis, but a decline in Corporate Services. Average earning assets
increased $28 billion. P&C Canada earning assets increased $6 billion with
growth in all lines except mortgages, due to our exit from broker channels and
the impact of securitizations. BMO Capital Markets earning assets increased
$20 billion due to growth in corporate loans and money market assets.
Corporate Services net interest income declined due to higher net funding
costs and a large number of small items that negatively impacted the first
quarter.
    BMO's overall net interest margin on earning assets for the third quarter
of 2008 was 1.59%, or 2 basis points lower than in the third quarter of the
prior year and 11 basis points higher than in the second quarter. The two main
drivers of a change in total bank margin are the individual group margins and
the changes in the magnitude of each operating group's assets. The year-over-
year decrease of 2 basis points was mainly due to growth in lower-spread
assets in BMO Capital Markets, reduced net interest income in Corporate
Services and lower spreads in the operating groups except BMO Capital Markets.
As in the first and second quarters, both P&C U.S. and Private Client Group
had significant margin declines but they are relatively smaller groups and
their effect on the total change in BMO's overall margin was minimal.
    Relative to a year ago, net interest margin was lower by 5 basis points
in P&C Canada due to lower mortgage refinancing fees, higher funding costs and
competitive pricing pressures, partially offset by improving product mix. P&C
Canada net interest margin improved 2 basis points relative to the second
quarter, due to more favourable product mix and higher mortgage refinancing
fees, partially offset by higher funding costs. In P&C U.S., net interest
margin declined by 26 basis points from a year ago, of which 22 basis points
relates to a portfolio transfer in the first quarter. Net interest margin was
affected by weaker credit markets and continued competitive pressures but
improved 18 basis points from the second quarter with early signs of spread
stabilization in loans and deposits. BMO Capital Markets margin improved from
a year ago and the second quarter due to better spreads in trading and
corporate lending. Relative to a year ago, Corporate Services net interest
income declined $45 million in part due to higher net funding costs. The
decline lowered BMO's overall margin.
    Year to date, BMO's overall net interest margin fell 13 basis points. The
decline was due to growth in BMO Capital Markets asset levels, lower margin in
each operating group and reduced net interest income in Corporate Services.

    
    Net Interest Margin            Increase   Increase              Increase
     (teb)(*)                     (Decrease) (Decrease)            (Decrease)
                                         vs.        vs.                   vs.
    (In basis points)    Q3-2008    Q3-2007    Q2-2008   YTD-2008   YTD-2007
    -------------------------------------------------------------------------
    P&C Canada               268         (5)         2        266         (2)
    P&C U.S.                 311        (26)        18        301        (37)
    -------------------------------------------------------------------------
    Personal and
     Commercial Client
     Group                   275         (8)         4        272         (7)
    Private Client Group     887        (70)       (33)       891        (94)
    BMO Capital Markets       67          6         12         62         (1)
    Corporate Services,
     including Technology
     and Operations (T&O)     nm         nm         nm         nm         nm
    -------------------------------------------------------------------------
    Total BMO                159         (2)        11        150        (13)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Canadian
     Retail(xx)              303         (5)         1        300         (4)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*)    Net interest margin is disclosed and computed with reference to
           average earning assets, rather than total assets. This basis
           provides a more relevant measure of margins and changes in
           margins. Operating group margins are stated on a teb basis while
           total BMO margin is stated on a GAAP basis.
    (xx)   Total Canadian retail margin represents the net interest margin of
           the combined Canadian business of P&C Canada and Private Client
           Group.
    nm  -  not meaningful

    Non-Interest Revenue
    

    Non-interest revenue increased $152 million or 12% from a year ago. There
was significant growth in all of the client groups and Corporate Services.
Trading revenues were higher primarily due to last year's commodities losses
and higher interest rate and foreign exchange trading revenues. Investment
banking fees and securities commission revenue declined in the difficult
capital markets environment. Securitization revenues were higher due to gains
totalling $41 million on the securitization of $1.7 billion of residential
mortgages and $1 billion of credit card loans as well as a $33 million
increase in gains on sales of loans to revolving vehicles.
    Relative to the second quarter, non-interest revenue increased
$14 million, due to higher trading revenues and increases in lending fees.
There were also increases in debt and equity underwriting fees, commission
revenues and card services fees. Securities gains fell appreciably and there
were lower merger and acquisition fees.
    Year to date, non-interest revenue increased $216 million or 6.2%. There
was significant growth in trading revenues as commodities losses in 2007
exceeded the charges related to the deterioration in capital markets in 2008.
There was also a significant increase in securitization revenues because of
higher gains on sale and mutual fund fees increased. There were significant
decreases in capital markets related fees such as securities commissions and
fees, equity underwriting fees and merger and acquisition fees. Investments
securities gains were also down appreciably together with other income.

    Non-Interest Expense

    Non-interest expense increased $123 million or 7.4% from a year ago to
$1,782 million. The increase was due to investments in the businesses
including sales force expansion and acquisitions, a charge for severance in
BMO Capital Markets and higher capital tax expense, partially offset by lower
performance-based compensation, primarily in BMO Capital Markets. The weaker
U.S. dollar lowered expense growth by $23 million or 1.4 percentage points
year over year.
    Cash operating leverage was 0% in the current quarter.
    Non-interest expense increased $102 million or 6.0% from the second
quarter. The increase was due to higher performance-based compensation aligned
with higher revenues, investments in the business including acquisitions, a
charge for severance in BMO Capital Markets and higher capital tax expense. In
the second quarter, expenses included a Visa Inc. litigation reserve and
higher than normal benefit costs. The impact of changes in the Canadian/U.S.
dollar exchange rate from the second quarter was insignificant.
    Year to date, non-interest expense increased $130 million or 2.6% to
$5,076 million. There were investments in the businesses including
acquisitions, new branches and new customer-facing roles as well as a charge
in BMO Capital Markets for severance, while benefit costs decreased. The
weaker U.S. dollar lowered expense growth by $138 million or 2.9 percentage
points year over year. Expenses in the prior year included a $135 million
restructuring charge net of a $120 million reduction in performance-based
compensation.
    Cash operating leverage was 0.7% year to date.

    Risk Management

    Market conditions continued to be volatile through the third quarter, due
to concerns related to the U.S. real estate market, structured-finance related
activities and liquidity in the marketplace. These concerns, along with
continuing high energy prices, a strong Canadian dollar through much of the
third quarter as well as the softening in the U.S. economy have contributed to
a continued weaker credit environment.
    Specific provisions for credit losses were unusually elevated and
totalled $434 million in the quarter. Included in the provisions for credit
losses in the current quarter were charges of $27 million for a customer in
the oil & gas sector, as well as $247 million for two corporate accounts
related to the U.S. housing market that were identified as impaired earlier in
the year. The size of the latter provisions reflects the continued weakness in
the U.S. residential real estate market and the specific nature of the
underlying loans. One of the accounts provided funding to a company that was
in the business of buying distressed mortgages and the other was in the
residential real estate development business.
    There were $91 million of specific provisions in the third quarter of
2007 and $151 million of specific provisions in the second quarter of 2008.
There was a $50 million increase in the general allowance for credit losses in
the current quarter, with no corresponding change in the comparative periods.
The increase in the general allowance reflects the weaker outlook for the
economy.
    The provision for credit losses year to date totalled $865 million,
comprised of $755 million of specific provisions and a $110 million increase
in the general allowance. In the comparable period of 2007, there were
$202 million of specific provisions and no changes in the general allowance.
    Specific provisions on an annualized basis for the year to date
represented 46 basis points of average net loans and acceptances, including
securities borrowed or purchased under resale agreements, compared with 13
basis points a year ago, 30 basis points for the second quarter year to date
and a 15 basis point average over the past five fiscal years.
    New impaired loan formations totalled $438 million in the quarter, down
from $554 million in the second quarter but up from $106 million a year ago.
The manufacturing, U.S. commercial real estate and oil & gas sectors accounted
for the majority of third quarter formations. In the second quarter,
$234 million of formations was attributable to the U.S. commercial real estate
sector and $100 million to the manufacturing sector. Second quarter formations
in the U.S. commercial real estate sector included $150 million related to a
single enterprise.
    There were $5 million of impaired loan sales in the third quarter with
related reversals and recoveries of $2 million, compared with no impaired loan
sales in the prior quarter or a year ago.
    Gross impaired loans and acceptances were down slightly from the second
quarter but up from the first quarter due to the formations discussed above.
Reflective of our position in the credit cycle, gross impaired loans are
expected to remain higher than the historically low levels of 2007.
    The total allowance for credit losses increased by $158 million in the
quarter to $1,494 million, and was comprised of a specific allowance of
$427 million and a general allowance of $1,067 million. The allowance for
credit losses was $1,494 million relative to gross impaired loans of $1,798
million at the end of the third quarter, compared with $1,336 million and
$1,820 million, respectively, at the end of the second quarter. The general
allowance is maintained to absorb impairment in the existing credit portfolio
that cannot yet be associated with specific credit assets. It is assessed on a
quarterly basis and increased $169 million from the end of the previous fiscal
year. Of this, $110 million is due to increases in the allowance recorded in
the first and third quarters of 2008, with the remainder attributable to the
acquisition of the Wisconsin-area banks and the impact of the change in the
Canadian/U.S. dollar exchange rate.
    BMO's loan book continues to be comprised largely of more stable consumer
and commercial portfolios, which, excluding securities borrowed or purchased
under resale agreements, represented 77.8% of the loan portfolio at the end of
the quarter, down from 80.9% a year ago and 78.7% at the end of the second
quarter.
    We expect the credit environment to continue to be challenging over the
balance of 2008 as the U.S. real estate and manufacturing sectors remain weak.
    We indicated at the end of the second quarter that the average quarterly
specific provisions over the balance of the year would be higher than in the
first and second quarters, given the continued deterioration in the credit
environment including the U.S. real estate sector. As indicated earlier,
provisions for credit losses in the third quarter were unusually elevated
relative to prior quarters due to large provisions taken on two accounts. We
anticipate that specific provisions in the fourth quarter will be lower than
those in the third quarter.
    BMO's market risk and liquidity and funding management practices and key
measures are outlined on pages 68 to 71 of BMO's 2007 Annual Report. Trading
and Underwriting Market Value Exposure (MVE) and Earnings Volatility (EV)
increased quarter over quarter, primarily as a result of higher observed
market volatilities for credit spreads and interest rates. To align with the
regulatory definition of risk classifications, effective the beginning of
fiscal 2008, general credit spread risk and interest rate risk have been
combined and are now reported in the 'Interest Rate Risk (Mark-to-Market)'
line in the Total Trading and Underwriting MVE Summary. This change does not
impact the Total MVE result but only the way in which the results are
reported. MVE data for October 31, 2007 has been restated to reflect this
change. There were no significant changes to our market risk management
practices in the third quarter.
    There were no significant changes to the levels of structural market risk
and liquidity and funding risk in the quarter. There were also no significant
changes in our structural market risk management practices during the quarter.
We remain satisfied that our liquidity and funding management framework
provides us with a sound position despite market developments. BMO's cash and
securities-to-total assets ratio was 29.6% at the end of the quarter,
unchanged from the end of the second quarter and down from 33.1% at the end of
2007.
    This Risk Management section and the following Income Taxes section
contain forward-looking statements. Please see the Caution Regarding Forward-
Looking Statements.

    
    Provisions for Credit Losses (PCL)

    (Canadian $ in millions,
     except as noted)        Q3-2008   Q2-2008   Q3-2007  YTD-2008  YTD-2007
    -------------------------------------------------------------------------
    New specific provisions      475       201       129       881       308
    Reversals of previously
     established allowances       (7)      (15)      (14)      (35)      (39)
    Recoveries of loans
     previously written-off      (34)      (35)      (24)      (91)      (67)
    -------------------------------------------------------------------------
    Specific provision for
     credit losses               434       151        91       755       202
    Increase in the general
     allowance                    50         -         -       110         -
    -------------------------------------------------------------------------
    Provision for credit
     losses                      484       151        91       865       202
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Specific PCL as a % of
     average net loans and
     acceptances (annualized)   0.80%     0.28%     0.18%     0.46%     0.13%
    PCL as a % of average
     net loans and
     acceptances (annualized)   0.89%     0.28%     0.18%     0.53%     0.13%


    Changes in Gross
     Impaired Loans and
     Acceptances (GIL)

    (Canadian $ in millions,
     except as noted)
    -------------------------------------------------------------------------
    GIL, Beginning of Period   1,820     1,347       688       720       666
    Additions to impaired
     loans & acceptances         438       554       106     1,700       350
    Reductions in impaired
     loans & acceptances(1)      (91)       31       (60)      (39)     (124)
    Write-offs                  (369)     (112)     (116)     (583)     (274)
    -------------------------------------------------------------------------
    GIL, End of Period         1,798     1,820       618     1,798       618
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    GIL as a % of gross
     loans & acceptances        0.86%     0.88%     0.30%     0.86%     0.30%
    GIL as a % of equity
     and allowances for
     credit losses              9.09%     9.54%     3.49%     9.09%     3.49%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Includes impaired amounts returned to performing status, loan sales,
        repayments, the impact of foreign exchange fluctuations and offsets
        for consumer write-offs which have not been recognized as formations
        (Q3-08 $106MM; Q2-08 $98MM; and Q3-07 $76MM).


    Aggregate Market Value Exposure and Earnings Volatility for Trading and
    Underwriting and Structural Positions ($ millions)(*)

    (After-tax
     Canadian                     Market value             12-month earnings
     equivalent)                 exposure (MVE)                   volatility
    -------------------------------------------------------------------------
                   July 31   Apr. 30   Oct. 31   July 31   Apr. 30   Oct. 31
                      2008      2008      2007      2008      2008      2007
    -------------------------------------------------------------------------
    Trading and
     Underwriting    (24.0)    (18.3)    (18.2)    (21.5)    (16.1)    (12.6)
    Structural      (256.8)   (231.1)   (231.6)    (21.7)    (24.3)    (24.2)
    -------------------------------------------------------------------------
    BMO Financial
     Group          (280.8)   (249.4)   (249.8)    (43.2)    (40.4)    (36.8)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*) Measured at a 99% confidence interval. Losses are in brackets.


    Total Trading and Underwriting MVE Summary ($ millions)(*)

                                                             As at     As at
                                                          April 30,  October
                     For the quarter ended July 31, 2008      2008  31, 2007
    (Pre-tax
     Canadian      Quarter-                                Quarter-  Quarter-
     equivalent)       end   Average      High       Low       end       end
    -------------------------------------------------------------------------
    Commodities Risk  (1.2)     (3.0)     (6.8)     (1.1)     (2.7)     (2.7)
    Equity Risk       (9.3)     (9.6)    (14.8)     (6.4)    (12.7)     (9.5)
    Foreign Exchange
     Risk             (1.9)     (1.5)     (3.5)     (0.3)     (1.3)     (0.9)
    Interest Rate
     Risk (Mark-to-
     Market)         (22.7)    (18.0)    (27.0)    (10.9)    (12.3)    (10.0)
    Diversification    8.3       8.8      nm(1)     nm(1)      8.3       9.1
    -------------------------------------------------------------------------
    Comprehensive
     Risk            (26.8)    (23.3)    (32.1)    (17.3)    (20.7)    (14.0)
    Interest Rate
     Risk (accrual)   (6.3)     (6.0)     (8.4)     (4.2)     (4.6)     (9.1)
    Issuer Risk       (3.9)     (3.7)     (5.0)     (2.7)     (2.8)     (4.9)
    -------------------------------------------------------------------------
    Total MVE        (37.0)    (33.0)    (43.3)    (25.4)    (28.1)    (28.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    nm  -  not meaningful
    (*)    One-day measure using a 99% confidence interval. Losses are in
           brackets and benefits are presented as positive numbers.
    (1)    Computation of a diversification effect for the high and low is
           not considered meaningful.


    Structural Balance Sheet Earnings and Value Sensitivity to Changes in
    Interest Rates ($ millions)(*)

    (After-tax
     Canadian                                           Earnings sensitivity
     equivalent)    Economic value sensitivity       over the next 12 months
    -------------------------------------------------------------------------
                   July 31   Apr. 30   Oct. 31   July 31   Apr. 30   Oct. 31
                      2008      2008      2007      2008      2008      2007
    -------------------------------------------------------------------------
    100 basis point
     increase       (212.7)   (187.9)   (201.1)      2.5     (20.2)      6.6
    100 basis point
     decrease        152.8     141.5     138.6      (4.2)     27.5     (15.4)

    200 basis point
     increase       (476.9)   (439.4)   (438.1)     (8.3)    (47.0)      0.4
    200 basis point
     decrease        280.0     280.9     234.0    (111.4)    (14.3)    (17.0)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*)    Losses are in brackets and benefits are presented as positive
           numbers.

    Income Taxes
    

    As explained in the Revenue section, in fiscal 2008, management assesses
BMO's consolidated results and associated provisions for income taxes on a
GAAP basis. We continue to assess the performance of the operating groups and
associated income taxes on a taxable equivalent basis and to report
accordingly.
    The provision for income taxes declined $186 million from the third
quarter a year ago and $187 million from the second quarter, to a recovery of
$59 million. The effective tax rate for the quarter was a recovery rate of
12.2%, compared with a tax expense rate of 15.7% in the third quarter a year
ago and 16.3% in the second quarter of 2008. The effective tax rate year to
date was a recovery rate of 1.5%, compared with a tax expense rate of 13.3%
for the same period last year.
    The decreases in the effective rate from the second quarter of 2008 and
third quarter a year ago were mainly attributable to $95 million of recoveries
of prior period income taxes and a higher proportion of income from lower-tax-
rate jurisdictions. Excluding the impact of capital markets environment
charges, the change in the general allowance and tax recoveries, the effective
rate for the year-to-date period in 2008 was 14.5%, compared with 21.0% a year
ago on a basis that excludes commodities losses and the restructuring charge.
The reduction in the 2008 rate was due to the reasons noted above as well as a
reduction in the statutory tax rate. While rates will vary from quarter to
quarter due to one-time adjustments and significant items, our current
estimate is that the sustainable effective tax rate will be in the range of
17% to 21%.
    BMO hedges the foreign exchange risk arising from its investments in U.S.
operations by funding the investments in U.S. dollars. Under this program, the
gain or loss from hedging and the unrealized gain or loss from translation of
the investments in U.S. operations are charged or credited to shareholders'
equity. For income tax purposes, the gain or loss on the hedging activities
attracts an income tax charge or credit in the current period, which is
charged or credited to shareholders' equity, while the associated unrealized
gain or loss on the investments in U.S. operations does not attract income
taxes until the investments are liquidated. The income tax charge/benefit
arising from a hedging gain/loss is a function of the fluctuation in U.S.
rates from period to period. Hedging of the investments in U.S. operations has
given rise to income tax recoveries in shareholders' equity of $57 million for
the quarter and $253 million for the year to date. Refer to the Consolidated
Statement of Changes in Shareholders' Equity included in the attached
unaudited consolidated financial statements for further details.

    
    Summary Quarterly Results Trends

    (Canadian $ in millions,
     except as noted)               Q3-2008    Q2-2008    Q1-2008    Q4-2007
    -------------------------------------------------------------------------
    Total revenue                     2,746      2,620      2,026      2,200
    Provision for credit
     losses - specific                  434        151        170        101
    Provision for credit
     losses - general                    50          -         60         50
    Non-interest expense              1,782      1,680      1,614      1,631
    Restructuring charge                  -          -          -         24
    -------------------------------------------------------------------------
    Total non-interest expense        1,782      1,680      1,614      1,655
    Income taxes (recovery) (teb)       (59)       128        (91)       (77)
    Net income                          521        642        255        452
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic earnings per share ($)       1.00       1.25       0.48       0.89
    Diluted earnings per share ($)     0.98       1.25       0.47       0.87
    Net interest margin on earning
     assets (%)                        1.59       1.48       1.45       1.47
    Effective income tax rate (%)     (12.2)      16.3      (50.3)     (19.3)
    Canadian/U.S. dollar exchange
     rate (average)                    1.01       1.01       1.00       1.00

    Net income:
      P&C Canada                        343        331        302        287
      P&C U.S.                           28         30         26         33
    -------------------------------------------------------------------------
    Personal and Commercial Banking     371        361        328        320
    Private Client Group                110        109         98        103
    BMO Capital Markets                 259        182        (34)        46
    Corporate Services, including T&O  (219)       (10)      (137)       (17)
    -------------------------------------------------------------------------
    BMO Financial Group                 521        642        255        452
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (Canadian $ in millions,
     except as noted)               Q3-2007    Q2-2007    Q1-2007    Q4-2006
    -------------------------------------------------------------------------
    Total revenue                     2,555      2,528      2,066      2,461
    Provision for credit
     losses - specific                   91         59         52         51
    Provision for credit
     losses - general                     -          -          -        (35)
    Non-interest expense              1,659      1,614      1,538      1,613
    Restructuring charge                  -          -        135          -
    -------------------------------------------------------------------------
    Total non-interest expense        1,659      1,614      1,673      1,613
    Income taxes (recovery) (teb)       127        165        (26)       117
    Net income                          660        671        348        696
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic earnings per share ($)       1.30       1.31       0.68       1.37
    Diluted earnings per share ($)     1.28       1.29       0.67       1.35
    Net interest margin on earning
     assets (%)                        1.61       1.65       1.64       1.78
    Effective income tax rate (%)      15.7       19.4       (7.8)      14.1
    Canadian/U.S. dollar exchange
     rate (average)                    1.07       1.14       1.16       1.12

    Net income:
      P&C Canada                        356        327        297        277
      P&C U.S.                           25         29         29         24
    -------------------------------------------------------------------------
    Personal and Commercial Banking     381        356        326        301
    Private Client Group                102         99         91         80
    BMO Capital Markets                 194        197        (20)       185
    Corporate Services, including T&O   (17)        19        (49)       130
    -------------------------------------------------------------------------
    BMO Financial Group                 660        671        348        696
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    BMO's quarterly earning trends were reviewed in detail on pages 75 and 76
of the 2007 Annual Report. Readers are encouraged to refer to that review for
a more complete discussion of trends and factors affecting past quarterly
results including the modest impact of seasonal variations in results. The
above table outlines summary results for the fourth quarter of fiscal 2006
through the third quarter of fiscal 2008.
    Significant items have affected revenues in BMO Capital Markets. There
were commodities losses of $509 million, $171 million and $149 million in the
first through third quarters of 2007 with smaller losses of $24 million in the
fourth quarter of 2007. Losses remained modest in the first through third
quarters of 2008, as the size and risk of the portfolio were reduced.
Associated performance-based compensation was lowered appreciably in the first
and second quarters of 2007. In addition, the fourth quarter of 2007, and the
first and third quarters of 2008 reflected charges for certain trading
activities and valuation adjustments of $318 million, $488 million and
$134 million, respectively. The second quarter of 2008 reflected the
beneficial revenue impact from valuation adjustments of $42 million. BMO
Capital Markets other businesses that were not affected by significant items
performed very strongly over the course of 2007 but market conditions have
been softer in 2008.
    Personal and Commercial Banking has continued to benefit from strong
volume growth over 2007 and into 2008, with stable margins in Canada. P&C U.S.
margin had been pressured in 2006 and early 2007 but stabilized in the latter
part of 2007. In the first quarter of 2008, P&C U.S. margins declined due to
the competitive environment but stabilized in the third quarter of 2008.
    Private Client Group results have demonstrated fairly consistent growth
as capital markets were quite strong over the course of 2006 and 2007, with
revenue growth slowing in late 2007 and in 2008.
    Corporate Services results are impacted by increased provisions for
credit losses because BMO allocates provisions to the operating groups on an
expected loss basis.
    Non-interest expense has increased in the two most recent quarters. The
increase was attributable to higher performance-based compensation, as
revenues have increased, and to investment in our businesses related to
acquisitions, sales force expansion and initiative spending, as well as higher
professional fees.
    Provisions for credit losses started trending higher in 2008 as economic
conditions softened from the particularly favourable credit environment of
recent years. The specific provisions were unusually elevated in the third
quarter of 2008 because of $247 million of provisions taken on two corporate
accounts related to the U.S. housing market. The decline in BMO's net interest
margin over the last two years has been largely due to asset growth in BMO
Capital Markets, which has lower net interest margin than other groups. The
favourable effective tax rates are in part due to losses being incurred in
high-tax-rate jurisdictions and higher income earned in low-rate
jurisdictions. There were recoveries of prior period income taxes in the third
quarter of 2008. The U.S. dollar has weakened over the course of the past two
years but was more stable in 2008, trading at close to parity with the
Canadian dollar through the end of the third quarter. A weaker (stronger) U.S.
dollar lowers (raises) the translated values of BMO's U.S. dollar-denominated
revenues and expenses.

    Balance Sheet

    Total assets of $375.0 billion increased $8.5 billion from $366.5 billion
at October 31, 2007. Asset levels at the end of the quarter were raised
$12.1 billion relative to last year end by the impact of the stronger U.S.
dollar on the translated value of U.S. dollar-denominated assets. The
$8.5 billion increase on a Canadian dollar basis primarily reflects growth in
derivative assets of $10.6 billion, net loans and acceptances of $7.1 billion
and other assets of $1.1 billion, partially offset by a decrease in securities
of $9.4 billion and cash resources of $0.8 billion.
    The net loans and acceptances increase of $7.1 billion was due to growth
in consumer instalment and other personal loans of $7.1 billion and loans to
businesses and governments and related acceptances of $2.0 billion. There were
decreases in credit cards of $1.0 billion due to $1.6 billion of
securitizations and in residential mortgages of $0.7 billion due to
$4.3 billion of securitizations. The allowance for credit losses increased by
$0.4 billion due to credit market conditions. The Wisconsin-based acquisitions
contributed $1.5 billion to the overall increase in loans. Included in the net
loans to businesses and governments were higher loans of $9.3 billion, which
were partially offset by reductions in securities borrowed or purchased under
resale agreements of $4.7 billion and acceptances of $2.6 billion.
    The $10.6 billion increase in derivative assets was driven by a
$9.9 billion increase in interest rate contracts, an $8.3 billion decrease in
foreign exchange contracts and a total increase of $9.0 billion in credit,
equity and commodity contracts. Derivative assets increased largely due to
changes in interest rates, credit spreads and the underlying mark-to-market
valuations on equity securities.
    The $9.4 billion decrease in securities was primarily attributable to
lower trading securities held in BMO Capital Markets, partially offset by
higher available-for-sale securities. Increases in Canadian and provincial
government securities held were more than offset by a decrease in other
corporate securities.
    Liabilities and shareholders' equity of $375.0 billion increased
$8.5 billion from $366.5 billion at October 31, 2007. Liabilities and
shareholders' equity at the end of the quarter were raised $12.1 billion
relative to last year end by the impact of the stronger U.S. dollar on the
translated value of U.S. dollar-denominated liabilities and equity. The
$8.5 billion increase on a Canadian dollar basis reflects growth in deposits
of $16.6 billion, derivative liabilities of $3.2 billion, shareholders equity
of $1.7 billion and subordinated debt of $0.8 billion. There were decreases in
securities sold but not yet purchased of $7.6 billion, securities lent or sold
under repurchase agreements of $3.1 billion and acceptances of $2.6 billion.
    Deposits by businesses and governments, which account for 53% or
$131.7 billion of total deposits, increased $10.0 billion and offset the
decrease in secured funding, which includes securities sold but not yet
purchased and securities lent or sold under repurchase agreements. Deposits
from individuals, which account for 35% or $86.9 billion of total deposits,
increased $10.7 billion and were used to fund growth in loans. Deposits by
banks, which account for the remaining 12% or $30.0 billion of total deposits,
decreased $4.1 billion due to lower funding requirements because of lower
securities. The Wisconsin-based acquisitions contributed $1.6 billion to the
growth in deposits.
    The net decrease in securities lent or sold under repurchase agreements
and securities sold but not yet purchased corresponded to the decrease in
trading securities balances.
    Contractual obligations by year of maturity were outlined in Table 24 on
page 89 of BMO's 2007 Annual Report. There have been no material changes to
contractual obligations that are outside the ordinary course of our business.

    Capital Management

    Effective November 1, 2007, BMO began calculating its regulatory capital
requirements under a new capital management framework. The new framework,
Basel II, replaced Basel I, the framework utilized for the past 20 years.
    BMO uses the Advanced Internal Ratings Based (AIRB) approach to measure
credit risk in our portfolio and the Standardized Approach to measure
operational risk. The Office of the Superintendent of Financial Institutions
(OSFI), our regulator, has granted a waiver to apply the Standardized Approach
to determine the credit risk-weighted assets of our subsidiary Harris
Bankcorp, Inc. The methodology for determining risk-weighted assets for market
risk did not change materially between Basel I and Basel II.
    Basel II is discussed further on pages 66 to 67 of BMO's 2007 Annual
Report.
    At July 31, 2008, BMO's Tier 1 Capital Ratio was 9.90%, with risk-
weighted assets (RWA) of $182.3 billion and Tier 1 Capital of $18.0 billion.
The ratio increased 48 basis points from 9.42% in the second quarter due to
growth in capital and lower RWA. Capital grew due to the issuance of
$300 million of 5.20% Preferred Shares Series 16 on June 23, 2008 and growth
in common shareholders' equity. RWA decreased primarily due to lower credit
and market risk. The ratio remains strong and is well above our minimum target
of 8.0%.
    BMO's Total Capital Ratio was 12.29% at July 31, 2008. The ratio
increased 65 basis points from 11.64% in the second quarter due to higher
capital and lower RWA noted above. Total capital grew due to the items noted
above and a lower deduction for investments in unconsolidated subsidiaries.
    Basel II and Basel I are not comparable. Relative to 2007 and for
comparison purposes only, the Basel I Tier 1 Capital Ratio was 9.45% and the
Total Capital Ratio was 12.07% at July 31, 2008, compared with 9.51% and
11.74%, respectively, at the end of 2007.
    During the quarter, 1,010,806 shares were issued due to the exercise of
stock options, share exchanges and the dividend reinvestment plan. We did not
repurchase any Bank of Montreal common shares under our common share
repurchase program during the quarter or for the year to date.
    On August 26, 2008, we announced that we intend to file a notice of
intention with the Toronto Stock Exchange to make a new normal course issuer
bid, subject to regulatory approval and the approval of the Exchange, that
provides that we may purchase up to 15 million common shares, being
approximately 3% of the public float, between September 8, 2008 and September
7, 2009. Our share repurchase program is primarily used to offset, over time,
the impact of dilution caused by issuing shares through the exercise of stock
options, our dividend reinvestment plan and convertible shares.
    On August 26, 2008, we announced that BMO's Board of Directors declared a
quarterly dividend payable to common shareholders of $0.70 per share,
unchanged from a year ago and from the preceding quarter.


    
    Qualifying Regulatory Capital

    Basel II Regulatory Capital and Risk-Weighted Assets
    (Canadian $ in millions)                               Q3 2008   Q2 2008
    -------------------------------------------------------------------------
    Common shareholders' equity                             15,120    14,866
    Non-cumulative preferred shares                          1,996     1,696
    Innovative Tier 1 Capital Instruments                    2,442     2,438
    Non-controlling interest in subsidiaries                    37        31
    Goodwill and excess intangible assets                   (1,449)   (1,398)
    -------------------------------------------------------------------------
    Net Tier 1 Capital                                      18,146    17,633
    Securitization-related deductions                          (86)      (81)
    Expected loss in excess of allowance - AIRB approach         -         -
    Other deductions                                           (13)       (1)
    -------------------------------------------------------------------------
    Adjusted Tier 1 Capital                                 18,047    17,551
    -------------------------------------------------------------------------
    Subordinated debt                                        4,065     4,060
    Trust subordinated notes                                   800       800
    Accumulated net after-tax unrealized gain from
     available-for-sale equity securities                        7         7
    Eligible general allowance for credit losses               293       268
    -------------------------------------------------------------------------
    Total Tier 2 Capital                                     5,165     5,135
    Securitization-related deductions                          (10)      (12)
    Expected loss in excess of allowance - AIRB approach         -         -
    Investment in non-consolidated
     subsidiaries/substantial investments                     (799)     (998)
    Other deductions                                            (3)       (1)
    -------------------------------------------------------------------------
    Adjusted Tier 2 Capital                                  4,353     4,124
    -------------------------------------------------------------------------
    Total Capital                                           22,400    21,675
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Risk-Weighted Assets (RWA)

    (Canadian $ in millions)                               Q3 2008   Q2 2008
    -------------------------------------------------------------------------
    Credit risk                                            146,535   151,840
    Market risk                                             16,207    18,206
    Operational risk                                        16,426    15,990
    -------------------------------------------------------------------------
    Total risk-weighted assets                             179,168   186,036
    Regulatory floor                                         3,090       216
    Total Transitional Risk-Weighted Assets                182,258   186,252
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Outstanding Shares and Securities Convertible into Common Shares

                                                         Number of shares or
    As of August 20, 2008                             Canadian dollar amount
    -------------------------------------------------------------------------
    Common shares                                                504,488,000
    Class B Preferred Shares
      Series 5                                           $       200,000,000
      Series 13                                          $       350,000,000
      Series 14                                          $       250,000,000
      Series 15                                          $       250,000,000
      Series 16                                          $       300,000,000
    Convertible into common shares:
    Class B Preferred Shares
      Series 6                                           $       250,000,000
      Series 10                                          $       396,000,000
    Stock options
      - vested                                                    15,134,000
      - non-vested                                                 5,693,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Details on share capital are outlined in Notes 21 and 22 to the audited
    financial statements on pages 121 and 122 and the table on page 58 in the
    Annual MD&A included in the 2007 Annual Report.
    

    Eligible Dividends Designation

    For the purposes of the Income Tax Act (Canada) and any similar
provincial and territorial legislation, BMO designates all dividends paid on
both its common and preferred shares in the 2006 calendar year, and all
dividends (including deemed dividends) paid thereafter, as "eligible
dividends" unless BMO indicates otherwise.

    Credit Rating

    BMO's senior debt credit ratings remain unchanged with a stable outlook.
All four ratings are indicative of high-grade, high-quality issues. They
remain: DBRS (AA); Fitch (AA-); Moody's (Aa1); and Standard & Poor's (A+).

    Transactions with Related Parties

    In the ordinary course of business, we provide banking services to our
directors and executives and their affiliated entities, joint ventures and
equity-accounted investees on the same terms that we offer our customers. A
select suite of customer loan and mortgage products is offered to our
employees at rates normally accorded to our preferred customers. We also offer
employees a fee-based subsidy on annual credit card fees.
    Stock options and deferred share units granted to directors were
discussed in Note 27 of the audited consolidated financial statements on page
132 of the 2007 Annual Report.
    Preferred rate loan agreements for executives, relating to transfers we
initiate, are discussed in Note 27 of the audited consolidated financial
statements on page 132 of the 2007 Annual Report.

    Off-Balance-Sheet Arrangements

    BMO enters into a number of off-balance-sheet arrangements in the normal
course of operations. The most significant off-balance-sheet arrangements that
we enter into are credit instruments and VIEs, which are described on pages 59
and 60 of the 2007 Annual Report and in Notes 5 & 6 to the attached unaudited
consolidated financial statements. See both the Effects of the Capital Markets
Environment on Third Quarter Results and the Financial Instruments in the More
Difficult Credit Environment sections for changes to our off-balance-sheet
arrangements during the three months ended July 31, 2008.

    Accounting Policies and Critical Accounting Estimates

    The notes to BMO's October 31, 2007 audited consolidated financial
statements outline our significant accounting policies. There were no changes
to our accounting policies in the first three quarters of 2008.
    Pages 61 to 63 of the 2007 Annual Report contain a discussion of certain
accounting estimates that are considered particularly important as they
require management to make significant judgments, some of which relate to
matters that are inherently uncertain. Readers are encouraged to refer to the
Annual Report to review that discussion.

    Accounting Changes

    Financial Instruments Disclosure and Presentation

    On November 1, 2007, we adopted new CICA Handbook requirements regarding
the disclosure and presentation of financial instruments. The new requirements
are intended to enhance financial statement users' ability to evaluate the
significance of financial instruments to an enterprise and the exposures
inherent within these instruments, and to understand the entity's ongoing
management of such exposures. For new disclosures, refer to Notes 4 and 13 in
the attached unaudited interim consolidated financial statements.

    Capital Disclosures

    On November 1, 2007, we adopted the CICA's new handbook section
establishing requirements to disclose both qualitative and quantitative
information on capital management. This disclosure requirement is intended to
enhance a reader's evaluation of an entity's objectives, policies and
procedures related to ongoing capital management. For new disclosures, refer
to Note 12 in the attached unaudited interim consolidated financial
statements.

    Financial Instruments in the More Difficult Credit Environment

    At the request of the G7 Ministers and Central Bank Governors, The
Financial Stability Forum issued a report in April on enhancing market and
institutional resilience. Among its recommendations, it encouraged enhanced
disclosure of financial instruments that markets now consider to be higher
risk. Effective in the second quarter of 2008, we expanded our discussion of
financial instruments in keeping with these developments.

    Subprime First Mortgage Loans

    In the United States, subprime loans are typically considered to be those
with credit bureau scores of 620 or less. We do not originate subprime
mortgages through a subprime mortgage program in the United States; however,
we make loans available to individuals with credit scores of less than 620 as
part of our lending requirements under the Community Reinvestment Act. We also
occasionally lend to parties with credit scores of less than 620 when there
are other strong qualification criteria. As such, we have authorized
US$0.2 billion of first mortgage loans that had subprime characteristics at
the date of authorization, of which US$0.2 billion was outstanding at July 31,
2008 (US$0.2 billion at April 30, 2008). Of this, $5 million or 2.11% was 90
days or more in arrears at the end of July ($3 million or 1.38% at April 30,
2008). This compares with a rate of 0.59% on BMO's total U.S. first mortgage
portfolio.
    In Canada, BMO does not have any subprime mortgage programs nor does it
purchase subprime mortgage loans from third-party lenders. BMO mortgage
lending decisions incorporate a full assessment of the customer and loan
structure. Credit score is only one component of the adjudication process and
consequently we do not categorize loans based upon credit scores alone. There
is a nominal amount of subprime mortgage loans held in certain BMO-sponsored
Canadian conduits that hold third-party assets, as described in the discussion
of those conduits that follows.
    We also have US$208 million net exposure at July 31, 2008 (US$396 million
at April 30, 2008) to a business that buys distressed mortgages (including
subprime mortgages) at a discounted price. This exposure is one of the three
accounts discussed in the BMO-Sponsored U.S. Conduit section that follows.

    Alt-A First Mortgage Loans

    In the United States, Alt-A loans are generally considered to be loans on
which borrower qualifications are subject to limited verification. The U.S.
portfolio had two loan programs that met this definition - our Easy Doc and
No Doc programs. Loans under the No Doc program, which comprise most of the
exposure in this class, required minimum credit bureau scores of 660 and
maximum loan-to-values ratios of 80% (90% with private mortgage insurance).
Due to these lending requirements, the credit quality of the portfolios is
strong and the loans have performed well. Our direct Alt-A loans totalled
US 1.6 billion at July 31, 2008 (US $1.7 billion at April 30, 2008). Of this,
$6 million or 0.35% was 90 days or more in arrears ($5 million or 0.29% as of
April 30, 2008). This compares with a rate of 0.59% on BMO's total U.S. first
mortgage portfolio. We discontinued offering the Easy Doc and No Doc programs
in the third quarter.
    Subprime and Alt-A loans are generally considered to be higher risk than
traditional prime loans. We also consider loans with credit scores between 620
and 660 and a loan-to-value ratio above 80% (without private mortgage
insurance) to be a higher risk component of our portfolio. This component of
the portfolio was negligible.
    In Canada, we do not have a mortgage program that we consider Alt-A. As
part of our credit adjudication process, we may choose not to verify income or
employment for existing bank customers when there are other strong
characteristics that support the credit worthiness of the loan. We also have a
Newcomers to Canada/non-resident mortgage program that allows for limited
income verification but has other strong qualification criteria. At July 31,
2008, there was approximately $2.9 billion ($2.7 billion at April 30, 2008)
outstanding under this program. Of this, only $10 million or 0.34% was 90 days
or more in arrears ($9 million or 0.34% at April 30, 2008), reflecting the
strong credit quality of these loans.

    Home Equity Products

    Home equity products are secured by the homeowner's equity and rank
subordinate to any existing first mortgage on the property. In the United
States, we have a US$4.8 billion home equity loan portfolio, which amounted to
2% of BMO's total loan portfolio as of July 31, 2008. Of the total portfolio,
US$0.4 billion (US$0.4 billion at April 30, 2008) was extended to customers
with original credit bureau scores of less than 620, and would be categorized
as subprime loans. Of this amount, only US$4 million or 1.3% was greater than
90 days in arrears at July 31, 2008 (US$4 million and 1.1% at April 30, 2008).
    BMO also offered two limited documentation programs within the home
equity portfolio in the United States, which would be categorized as Alt-A if
they were in the First Mortgage loans portfolio. As of July 31, 2008, the
amount authorized under these programs was US$1.1 billion and US$0.6 billion
was outstanding. Loans made under these programs have the same strong credit
score and loan-to-value requirements as the first mortgage portfolio, and as
such the portfolio has performed well. As of July 31, 2008, US$4 million or
0.66% of the portfolio was greater than 90 days in arrears (US$3 million and
0.46% at April 30, 2008). This compares with a rate of 0.74% on BMO's total
U.S. home equity loan portfolio. We discontinued offering the Easy Doc and No
Doc programs in the quarter.
    We also consider home equity loans with credit bureau scores greater than
620 but less than 660 to be a higher risk component of the portfolio. This
component of the portfolio was US$0.3 billion as of July 31, 2008
(US$0.3 billion at April 30, 2008). As of July 31, 2008, US$5 million or 1.87%
of these loans were greater than 90 days in arrears (US$5 million and 1.67% at
April 30, 2008).
    Loans having a loan-to-value ratio of greater than 90% at issuance
represent US$0.4 billion or 8% of the U.S. home equity loan portfolio. Loans
having both a loan-to-value ratio of greater than 80% and a credit bureau
score of below 660 at the time of issuance represent just $0.3 billion.
    In Canada, we have a $12.7 billion home equity line of credit portfolio.
The portfolio is high quality, with loans in arrears greater than 90 days at
only 0.08% of the portfolio. Of these lines of credit, one product line is
offered only in first mortgage position and represents approximately 50% of
the total portfolio. We also have a $0.3 billion home equity instalment loan
portfolio, with loans in arrears greater than 90 days at 0.41% of the
portfolio.

    Leveraged Finance

    Leveraged finance loans are defined by BMO as loans to Private Equity
businesses and mezzanine financings where our assessment indicates a higher
level of credit risk. BMO has limited exposure to leveraged finance loans,
representing less than 1% of our total assets, with $2.9 billion outstanding
as at July 31, 2008 ($4.4 billion authorized), compared with $2.8 billion
outstanding ($4.3 billion authorized) at April 30, 2008.

    Monoline Insurers and Credit Derivative Product Companies

    At July 31, 2008, BMO's direct exposure to companies that specialize in
providing default protection amounted to $242 million ($214 million at
April 30, 2008) in respect of the mark-to-market value of counterparty
derivatives and $10 million ($6 million at April 30, 2008) in respect of the
mark-to-market value of traded credits.
    The $242 million exposure is related to counterparties rated AA or better
and the $10 million exposure is related to counterparties rated BBB- or
better. The notional value of direct contracts involving monolines and credit
derivative product companies was approximately $3.9 billion, substantially
unchanged from April 30, 2008. Contracts with these companies mostly related
to collateralized debt obligations and credit default swaps within our trading
portfolio and provided protection against losses arising from defaults. These
instruments have minimal subprime exposure. BMO also held $924 million
($999 million at April 30, 2008) of securities insured by monolines, of which
$595 million were municipal bonds. Approximately 97% of the municipal bond
portfolio is rated investment grade including the benefits of the insurance
guarantees. Approximately 61% of the municipal bond holdings have ratings
exclusive of the monoline guarantee and all of those are rated investment
grade.

    BMO-Sponsored Canadian Securitization Conduits

    BMO provided liquidity support facilities to six of the non-consolidated
conduits it sponsors in Canada totalling $18.2 billion at July 31, 2008
($20.6 billion at April 30, 2008). All of these facilities remain undrawn.
Notes issued by all six of these programs are rated R-1 (high) by DBRS and
Prime-1 by Moody's. Two of these conduits hold only prime residential
mortgages transferred from BMO and account for $5.1 billion of BMO's liquidity
commitment. The four remaining conduits hold client assets and account for
$13.1 billion of BMO's liquidity commitment. The assets of each of the four
third-party client funding conduits consist primarily of high quality,
diversified pools of Canadian auto receivables and Canadian residential
mortgages. These two asset classes combined comprise from 69% to 93% of the
assets of each of the conduits.
    Assets in the four client-funding conduits include $201 million of
Canadian residential mortgage loans with subprime characteristics,
$1.03 billion of Canadian residential mortgage loans with Alt-A
characteristics and $244 million of small commercial mortgage loans. There are
no CDOs and no exposure to monolines in these conduits.
    BMO's investment in the ABCP of the six non-consolidated conduits
totalled $1.3 billion at July 31, 2008, compared with $3.1 billion at
April 30, 2008 and $5.9 billion at October 31, 2007. No losses have been
recorded on BMO's investment in the ABCP of these conduits.
    BMO consolidates the accounts of two vehicles it sponsors in Canada where
the majority of the gain or loss of the vehicles is expected to accrue to BMO.
One of the vehicles comprises the series of notes rated R-1 (low) by DBRS of
one of the six conduits discussed above. The other vehicle is a conduit, whose
notes are rated R-1 (mid) by DBRS. These two vehicles had, respectively,
$67 million and $210 million of assets at July 31, 2008. The combined assets
include $12 million of mortgage loans with subprime characteristics,
$70 million of mortgage loans with Alt-A characteristics and $14 million of
small commercial mortgage loans. No losses have been recorded on BMO's
exposures to these vehicles.

    BMO-Sponsored U.S. Conduit

    BMO provided committed liquidity support facilities of US$9.2 billion to
our U.S.-sponsored ABCP conduit, Fairway Finance Company, LLC at July 31, 2008
(US$9.6 billion at April 30, 2008). Fairway provides funding to diversified
pools of portfolios through 99 individual securitization transactions with an
average facility size of US$93 million. At present, the size of the pools
range from US$1.2 million to US$510 million. The ten largest pools comprise
31% of the portfolio. Committed amounts comprise a wide-range of asset classes
including mid-market corporate loans (22%), auto loans and leases (13%),
commercial real estate loans and leases (13%), corporate loans (11%), and
consumer instalment (10%) and equipment loans and leases (8%). Residential
mortgages comprise 2.2% of the portfolio, of which a nominal 0.3% is
classified as subprime or Alt-A.
    Approximately 60% of Fairway's commitments have been rated by Moody's
and/or S&P and all of those are rated single A or higher. Approximately $1.9
billion of the commitments are insured by monolines, primarily MBIA and Ambac,
the ratings of which, while downgraded during the quarter to AA, were recently
affirmed. The rating downgrades have no impact on the performance of the
underlying assets. None of the monoline guarantees involve mortgages or
ABS/structured-finance CDOs. All of the underlying transactions are performing
in accordance with their terms and conditions.
    Fairway had US$6.8 billion of commercial paper outstanding at July 31,
2008, down from US$7.2 billion at April 30, 2008. The ABCP of Fairway is rated
A1/P1 by S&P/Moody's. BMO has not invested in the conduit's ABCP. Outstanding
commercial paper has rolled consistently with third-party investors
notwithstanding market disruption, and pricing levels are in line with those
of top-tier ABCP conduits in the United States.
    In the first half of this fiscal year, as a result of the deterioration
in credit and in accordance with the terms of the supporting liquidity
agreements, BMO funded directly three specific commercial accounts that have
exposure to the U.S. housing sector totalling US$851 million. The credit
quality of two of the accounts began to deteriorate and specific provisions
have been taken against them. BMO's provision for credit losses reflects
$247 million related to these accounts in the quarter.

    Non-Bank sponsored Canadian Securitization Conduits

    We hold ABCP of six non-bank sponsored Canadian conduits with a carrying
value of $201 million as at July 31, 2008 ($229 million as at April 30, 2008).
We have not provided backstop liquidity commitments to these conduits. We
recorded impairment charges of $28 million in the third quarter ($36 million
in the second quarter). Our investments in the ABCP reflect a cumulative
mark-to-market loss of $124 million. Realization on our investment in the ABCP
of the non-bank-sponsored conduits will be affected by the outcome of the
agreement reached among certain non-bank-sponsored Canadian ABCP conduits and
investors known as the Montreal Accord. BMO is fully supportive of the
resolution of the Montreal Accord.

    Apex Trust

    We also sponsor Apex Trust (formerly Apex/Sitka Trusts), a Canadian
special purpose vehicle that provides credit protection on highly-rated
leveraged super-senior tranches of a diversified pool of U.S. and European
corporate credits via credit default swaps.
    On May 13, 2008, the Trusts were restructured as investors in the Trusts
exchanged their original holdings for mid-term notes in Apex Trust with terms
of five and eight years. Under the terms of the restructuring, BMO entered
into credit default swap contracts with the swap counterparties and entered
into offsetting swaps with Apex. A senior funding facility of $1.13 billion
was put in place, with BMO providing $1.03 billion of that facility. Advances
under the senior-funding facility rank ahead of the mid-term notes. As of
July 31, 2008, $124 million had been drawn against BMO's committed
$1.03 billion share of the senior-funding facility.
    Under the terms of the restructuring, BMO has exposure to the swap
counterparties for realized credit losses on the notional credit positions
held by the Trusts if those credit losses exceed the first-loss protection and
the posted collateral. The existing collateral plus the additional senior
funding, which are available to absorb credit losses above the first-loss
protection levels, total approximately $3.3 billion and represent
approximately 16% of the net notional credit positions held by the Trusts.
    On May 13, 2008, as part of the restructuring, BMO converted its
$705 million exposure to mid-term notes and invested a further $110 million in
the notes, for a total exposure of $815 million. Another party to the
restructuring holds its $600 million exposure to the mid-term notes through a
total return swap with BMO.
    In the third quarter we reversed $40 million of the charges that had been
previously recorded in relation to our $815 million exposure and recorded a
$55 million charge in relation to the total return swap transaction described
above, resulting in a net loss of $15 million in the quarter. The carrying
value of BMO's exposure to Apex mid-term notes was $730 million at July 31,
2008.
    BMO does not consider the May 2008 purchase of the mid-term notes
described above to imply or be an indication of its intent to provide support
to other mid-term noteholders or provide additional subordinated support to
Apex. Instead, the purchase was a one-time, isolated event upon the
restructuring of Apex. We do not intend to purchase additional mid-term notes
of Apex nor do we intend to reimburse any other mid-term noteholder for any
loss they may incur.
    BMO believes that the credit quality of Apex is strong, based on the
diversification by industry and geography of the underlying credit exposures
in the Apex credit default swaps (CDS) transactions, and the first loss
protection supporting Apex's super-senior positions under the CDS that are
significantly higher than historical credit losses of the underlying corporate
credits.
    Apex Trust has exposure to approximately 450 corporate names of which 79%
are investment grade. Names are diversified by geography and industry with the
largest industry exposures being insurance at 9% and telecommunications at 8%.

    Links and Parkland

    We hold subordinate capital notes of BMO-managed London-based SIVs, Links
Finance Corporation and Parkland Finance Corporation, with a carrying value of
Cdn $8 million. The net asset value of the SIVs capital notes as at July 31,
2008 was approximately US$140 million for Links and approximately
(euro)100 million for Parkland (April 30, 2008 US$382 million and (euro)108
million). The par values of the subordinate capital notes, as reduced by
realized losses of Links and Parkland, at July 31, 2008 were US$1.27 billion
and (euro)158 million, respectively. The assets held by Links and Parkland
were US$8.2 billion and (euro)780 million at July 31, 2008, reduced from
US$9.3 billion and (euro)802 million at April 30, 2008. At July 31, 2008 and
April 30, 2008, we held no senior notes in the SIVs as our $1.4 billion of
senior notes outstanding at January 31, 2008 were repaid when they matured.
    On March 3, 2008, we agreed to provide senior-ranked support for the
funding of Links and Parkland through BMO liquidity facilities. The facilities
backstop the repayment of senior note obligations to facilitate the SIVs
access to further senior funding, provide the SIVs with supplemental funding
and permit the SIVs to continue the strategy of selling assets in an orderly
manner. The liquidity facilities total a maximum of approximately
US$7.9 billion related to Links and (euro)686 million for Parkland as of July
31, 2008, down from US$8.8 billion and (euro)750 million at April 30, 2008.
Advances under the liquidity facilities rank ahead of the subordinate capital
notes. Given the terms and conditions of the liquidity facilities and the
maturity profile of the senior notes, the amount to be drawn is expected to be
below 70% of the maximum amount of the facilities for both SIVs. At July 31,
2008, amounts drawn on the facilities totalled US$3.3 billion and
(euro)423 million (US$288 million and (euro)90 million at April 30, 2008).
Capital noteholders will continue to bear the economic risk from actual losses
up to the full amount of their investment and BMO is not providing any
protection from the economic risk to capital noteholders, now or in the
future.
    The asset quality of the SIVs is high with approximately 86% of assets
rated Aa or better by Moody's, 75% rated AA or better by Standard & Poor's
(S&P) and 98% of the assets rated investment grade; certain of the assets
ratings are on watch. The senior notes of the SIVs are rated AA- by S&P and
Aaa by Moody's. The SIVs hold no direct exposure to U.S. subprime mortgages.
Links assets are comprised of a diversified mix of assets including senior and
subordinated commercial bank debt (34.9%), CBOs and CLOs whose underlying
assets are primarily corporate obligations (19.3%), assets wrapped by
monolines (Ambac, FGIC, FSA and MBIA) (9.6%), RMBS (13.1%) and CMBS (6.0%).
CBOs include US$107 million (1.27% of assets) backed primarily by U.S.
subprime and Alt-A RMBS collateral. Parkland's assets total (euro)780 million
and asset diversification is broadly in line with that of Links.

    Collateralized Debt Obligations (CDOs)

    CDOs are obligations of a special purpose vehicle (SPV) that is created
for a specific financing transaction. The SPV typically has a nominal amount
of equity. The SPV issues various tranches of rated and unrated debt
securities (usually AAA to BB) that have well-defined rights to cash generated
from the operation and liquidation of the vehicle's assets. The risk of loss
on the SPV's portfolio varies by tranche. Losses will first affect the equity
tranche, next the mezzanine tranches and finally the senior tranche.
Super-senior is generally the most secure of all tranches. The SPV uses the
cash raised through the issuance of the CDOs to invest in one or more
different types of assets including bonds, loans and mortgages. The
corresponding obligations of the SPV would be, respectively, collateralized
bond obligations (CBOs), collateralized loan obligations (CLOs) and
collateralized mortgage obligations (CMOs). CMOs for which the underlying
assets are residential properties are referred to as residential
mortgage-backed securities (RMBS); CMOs for which the underlying assets are
commercial properties are referred to as commercial mortgage-backed securities
(CMBS).
    Exposures to CDOs are outlined in the following table.

    CDO-squared Investments

    CDO-squared investments are CDOs that are primarily backed by tranches of
CDOs issued by other vehicles. We do not hold any investments in CDOs that
hold investments in other CDOs.

    Auction-Rate Securities

    Auction-rate securities (ARS) are typically short-term notes issued by
trusts in the United States to fund long-term, fixed-rate debt instruments
(corporate or municipal bonds primarily issued by municipalities, student loan
authorities and other sponsors). The interest rate on ARS is regularly reset
every 7 to 35 days through auctions managed by financial institutions. A
disruption in the market for ARS occurred in the early part of 2008.
    There are no BMO-sponsored ARS programs in the market and BMO does not
own any ARS in its trading portfolios. Currently, BMO has clients with
holdings of approximately $480 million par value of ARS. Auctions are
currently functioning for approximately $160 million of this total. Within the
remaining $320 million, for which the market is disrupted, approximately $130
million represents unsolicited orders executed on behalf of our clients.

    Caution

    Given the uncertainty in the capital markets environment, our capital
market instruments could experience further valuation gains and losses due to
changes in market value.
    This Financial Instruments in the More Difficult Credit Environment
section contains forward-looking statements. Please see the Caution Regarding
Forward-Looking Statements.
    The following table provides additional detail on select financial
instruments that markets may consider to be higher risk that are held in our
investment and trading books. Most of our CDOs and CLOs are held on behalf of
our clients and the risk of loss is fully hedged with other large financial
institutions. Net CDO exposure is minimal at $33 million, consisting of the
$16 million carrying value of unhedged and wrapped instruments and a
$17 million cumulative net loss on hedged investments. Net CLO exposure is
also minimal, at $191 million, consisting of the $114 million carrying value
of unhedged and wrapped investments and a $77 million net loss on hedged
instruments.

    
    Select Financial Instrument Exposures

                    Carrying                   Cumul-
                       Value        Carrying   ative
                          of           Value Loss in         Net
    $million        Unhedged              of   Value  Cumul- Losses
    (Cdn)                  &  Hedged  Hedged      of  ative  on
    as at            Wrapped  Invest- Invest- Hedged   Gain  Hedged
    July 31, Tranche  Invest-   ment    ment  Invest-    on  Invest-
    2008      Rating   ments Amounts Amounts   ments Hedges  ments

    CDO's(xx)  AAA        16
               AAA               967    669    (298)   298     -  Hedged
                                                                   with FI's
                                                                   rated A
                                                                   or better
               AAA               263    238     (25)     9   (16) Hedged
                                                                   with
                                                                   monolines
                                                                   rated AA
                                                                   or better
               A- to           1,557    731    (826)   826     -  Hedged
                AA+                                                with FI's
                                                                   rated A
                                                                   or better
               BBB- to           163    160      (3)     3     -  Hedged
                BBB+                                               with FI's
                                                                   rated AA-
                                                                   or better
                                                                   (*)
               B- to             855    201    (654)   653    (1) Hedged
                BB+                                                with FI's
                                                                   rated A
                                                                   or better
                                                                   (*)
               CCC or          1,077    270    (807)   807     -  Hedged
                worse                                              with FI's
                                                                   rated A
                                                                   or better
              ---------------------------------------------------
                          16   4,882  2,269  (2,613) 2,596   (17)
              ---------------------------------------------------
              ---------------------------------------------------

    CLO's      AAA       114                                      Mostly U.K.
                                                                   and
                                                                   European
                                                                   mid-size
                                                                   corporate
                                                                   loans
               AAA             1,026    910    (116)    39   (77) Hedged
                                                                   with
                                                                   monolines
                                                                   rated AA
                                                                   or better
              ---------------------------------------------------
                         114   1,026    910    (116)    39   (77)
              ---------------------------------------------------
              ---------------------------------------------------
    Residential
     MBS(xxx)
    No         AAA        60                                      Mostly U.K.
     subprime                                                      and
                                                                   Australian
                                                                   mortgages
    U.S.         A- to      24                                    Wrapped
     subprime   AA+                                                with
     - wrapped                                                     monolines
                                                                   rated AA
                                                                   or better
               B- to      12                                      Wrapped
                BB+                                                with
                                                                   monolines
                                                                   rated BB
    U.S.         AAA         2                                    Older
     subprime                                                      mortgages
               AAA               220    133     (87)    87     -  Hedges
                                                                   with FI's
                                                                   rated AA
                                                                   or better
               A- to       4                                      Mostly low
                AA+                                                loan-to-
                                                                   value or
                                                                   older U.S.
                                                                   mortgages
               A- to              94     65     (29)    29     -  Hedges with
                AA+                                                Financials
                                                                   rated AA
              ---------------------------------------------------
                         102     314    198    (116)   116     -
              ---------------------------------------------------
              ---------------------------------------------------

    CMBS       AAA        61                                      European,
                                                                   U.K. and
                                                                   U.S.
                                                                   commercial
                                                                   real
                                                                   estate
                                                                   loans
               A- to      96                                      Mostly
                AA+                                                Canadian
                                                                   commercial
                                                                   and
                                                                   multi-use
                                                                   residen-
                                                                   tial loans
              ---------------------------------------------------
                         157
              ---------------------------------------------------
              ---------------------------------------------------

    ABS        AAA       213                                      Mostly
                                                                   Canadian
                                                                   credit
                                                                   card
                                                                   receiv-
                                                                   ables and
                                                                   auto loans
               AAA               103    103                    -  Hedged with
                                                                   monolines
                                                                   rated AAA
               A- to     114                                      Mostly
                AA+                                                Canadian
                                                                   credit
                                                                   card
                                                                   receiv-
                                                                   ables and
                                                                   auto loans
               BBB- to    69                                      Collateral
                BBB+                                               notes on
                                                                   Canadian
                                                                   credit
                                                                   card
                                                                   receiv-
                                                                   ables
              ---------------------------------------------------
                         396     103    103                    -
              ---------------------------------------------------
              ---------------------------------------------------
                                                                 FI's
                                                                 =
                                                                 Financial
                                                                 Institutions
    (*)   Certain ratings are under review
    (xx)  CDOs include indirect exposure to approximately $1.7 billion of
          U.S. subprime residential mortgages. As noted above, this exposure
          is hedged via total return swaps with three large non-monoline
          financial institutions. Amounts exclude the $1.5 billion notional
          value of CDO credit default swap (CDS) protection purchases from
          two AAA rated credit derivative product company counterparties and
          corresponding CDS protection provided to other financial
          institutions in our role as intermediary.
    (xxx) Wrapped MBS have an insurance guarantee attached and are rated
          inclusive of the wrap protection. RMBS included in the hedged
          investment amounts of $314 million have exposure to approximately
          $153 million of underlying U.S. subprime loans.
    

    BMO has invested only in senior and super-senior tranches of CDOs and
CLOs. Tranche ratings in the table use the lowest external rating available
provided by S&P, Moody's or Fitch. The difference between hedged investment
amounts and carrying value of hedged investment amounts reflect mark-to-market
adjustments, which are generally recoverable through total return or credit
default swaps. The underlying securities are a wide range of assets. BMO's
investments typically represent about 20% of the pool but can be as low as 5%
and as high as 50%. Approximately 80% of the hedged investment amounts have
been hedged through swaps with three Financial Institution counterparties
rated A to AA. The value of BMO's interest in those hedges is supported by
collateral held, with the exception of relatively modest amounts as permitted
under counterparty agreements. The remainder of the hedged investment amounts
is hedged through three monoline insurer counterparties rated AA to AAA.


    
    Review of Operating Groups' Performance

    Operating Groups' Summary Income Statements and Statistics for Q3-2008

                                                 Q3-2008
                              -----------------------------------------------
                                                         Corporate
    (Canadian $ in millions,                             including     Total
     except as noted)            P&C       PCG    BMO CM       T&O       BMO
    -------------------------------------------------------------------------
    Net interest income
     (teb)(1)                  1,019       167       287      (187)    1,286
    Non-interest revenue         521       377       459       103     1,460
    -------------------------------------------------------------------------
    Total revenue (teb)(1)     1,540       544       746       (84)    2,746
    Provision for (recovery
     of) credit losses            99         1        29       355       484
    Non-interest expense         904       380       477        21     1,782
    Restructuring charge           -         -         -         -         -
    -------------------------------------------------------------------------
    Total non-interest expense   904       380       477        21     1,782
    Income before income taxes
     and non-controlling
     interest in subsidiaries    537       163       240      (460)      480
    Income taxes (recovery)
     (teb)(1)                    166        53       (19)     (259)      (59)
    Non-controlling interest
     in subsidiaries               -         -         -        18        18
    -------------------------------------------------------------------------
    Net income Q3-2008           371       110       259      (219)      521
    -------------------------------------------------------------------------
    Net income Q2-2008           361       109       182       (10)      642
    -------------------------------------------------------------------------
    Net income Q3-2007           381       102       194       (17)      660
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Other statistics
    -------------------------------------------------------------------------
    Net economic profit          178        81       107      (244)      122
    Return on equity           20.0%     39.6%     18.5%        nm     13.5%
    Cash return on equity      20.4%     39.9%     18.5%        nm     13.7%
    Operating leverage         (3.5%)    (0.3%)     1.3%        nm      0.1%
    Cash operating leverage    (3.7%)    (0.4%)     1.3%        nm         -
    Productivity ratio (teb)   58.7%     69.9%     64.0%        nm     64.9%
    Cash productivity
     ratio (teb)               58.0%     69.7%     64.0%        nm     64.5%
    Net interest margin on
     earning assets(1)         2.75%     8.87%     0.67%        nm     1.59%
    Average common equity      7,123     1,093     5,314     1,254    14,784
    Average earning assets
     ($ billions)              147.6       7.5     169.4      (2.5)    322.0
    Full-time
     equivalent staff         20,957     4,517     2,449     9,442    37,365
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                YTD-2008
                              -----------------------------------------------
                                                         Corporate
    (Canadian $ in millions,                             including     Total
     except as noted)            P&C       PCG    BMO CM       T&O       BMO
    -------------------------------------------------------------------------
    Net interest income
     (teb)(1)                  2,937       487       824      (574)    3,674
    Non-interest revenue       1,504     1,086       873       255     3,718
    -------------------------------------------------------------------------
    Total revenue (teb)(1)     4,441     1,573     1,697      (319)    7,392
    Provision for (recovery
     of) credit losses           283         3        87       492       865
    Non-interest expense       2,621     1,096     1,301        58     5,076
    Restructuring charge           -         -         -         -         -
    -------------------------------------------------------------------------
    Total non-interest expense 2,621     1,096     1,301        58     5,076
    Income before income taxes
     and non-controlling
     interest in subsidiaries  1,537       474       309      (869)    1,451
    Income taxes (recovery)
     (teb)(1)                    477       157       (98)     (558)      (22)
    Non-controlling interest
     in subsidiaries               -         -         -        55        55
    -------------------------------------------------------------------------
    Net income Q3-2008         1,060       317       407      (366)    1,418
    -------------------------------------------------------------------------
    Net income Q2-2008
    -------------------------------------------------------------------------
    Net income Q3-2007         1,063       292       371       (47)    1,679
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Other statistics
    -------------------------------------------------------------------------
    Net economic profit          519       233       (41)     (450)      261
    Return on equity           20.4%     39.5%      9.5%        nm     12.7%
    Cash return on equity      20.8%     39.8%      9.5%        nm     12.9%
    Operating leverage         (2.5%)     1.3%     (1.1%)       nm      0.8%
    Cash operating leverage    (2.7%)     1.3%     (1.1%)       nm      0.7%
    Productivity ratio (teb)   59.0%     69.7%     76.7%        nm     68.7%
    Cash productivity
     ratio (teb)               58.4%     69.5%     76.6%        nm     68.2%
    Net interest margin on
     earning assets(1)         2.72%     8.91%     0.62%        nm     1.50%
    Average common equity      6,706     1,059     5,280     1,384    14,429
    Average earning assets
     ($ billions)              144.4       7.3     176.8      (2.3)    326.2
    Full-time
     equivalent staff
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    nm - not meaningful
    (1) Operating group revenues, income taxes and net interest margin are
        stated on a taxable equivalent basis (teb). The group teb adjustments
        are offset in Corporate, and Total BMO revenue, income taxes and net
        interest margin are stated on a GAAP basis. See the Non-GAAP Measures
        section.
    

    The following sections review the financial results of each of our
operating segments and operating groups for the third quarter of 2008.
    Periodically, certain business lines and units within the business lines
are transferred between client groups to more closely align BMO's
organizational structure and its strategic priorities. All comparative figures
are reclassified to reflect these transfers.
    Note 15 to the attached unaudited interim consolidated financial
statements outlines how income statement items requiring allocation are
distributed among the operating groups, including the allocation of the
provision for credit losses. Corporate Services is generally charged (or
credited) with differences between the periodic provisions for credit losses
charged to the client groups under our expected loss provisioning methodology
and the periodic provisions required under GAAP.

    
    Personal and Commercial Banking (P&C)

                                                Increase            Increase
    (Canadian $ in millions,                   (Decrease)          (Decrease)
     except as noted)        Q3-2008         vs. Q3-2007         vs. Q2-2008
    -------------------------------------------------------------------------
    Net interest income (teb)  1,019        37        4%        61        6%
    Non-interest revenue         521        22        5%         4        1%
    -------------------------------------------------------------------------
    Total revenue (teb)        1,540        59        4%        65        4%
    Provision for credit
     losses                       99         9       10%         7        7%
    Non-interest expense         904        65        8%        48        5%
    -------------------------------------------------------------------------
    Income before income
     taxes and non-controlling
     interest in subsidiaries    537       (15)      (2%)       10        2%
    Income taxes (teb)           166        (5)      (1%)        -         -
    Non-controlling interest
     in subsidiaries               -         -         -         -         -
    -------------------------------------------------------------------------
    Net income                   371       (10)      (3%)       10        3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization of intangible
     assets (after tax)            8         -         -         1       13%
    -------------------------------------------------------------------------
    Cash net income              379       (10)      (3%)       11        3%
    -------------------------------------------------------------------------

    Return on equity           20.0%               (2.4%)              (1.0%)
    Cash return on equity      20.4%               (2.5%)              (1.0%)
    Operating leverage         (3.5%)                 nm                  nm
    Cash operating leverage    (3.7%)                 nm                  nm
    Productivity ratio (teb)   58.7%                1.9%                0.6%
    Cash productivity
     ratio (teb)               58.0%                1.9%                0.5%
    Net interest margin on
     earning assets (teb)      2.75%              (0.08%)              0.04%
    Average earning assets   147,616    10,031        7%     3,709        3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                Increase
    (Canadian $ in millions,                   (Decrease)
     except as noted)       YTD-2008        vs. YTD-2007
    -----------------------------------------------------
    Net interest income (teb)  2,937        83        3%
    Non-interest revenue       1,504        38        3%
    -----------------------------------------------------
    Total revenue (teb)        4,441       121        3%
    Provision for credit
     losses                      283        14        5%
    Non-interest expense       2,621       135        5%
    -----------------------------------------------------
    Income before income
     taxes and non-controlling
     interest in subsidiaries  1,537       (28)      (2%)
    Income taxes (teb)           477       (25)      (4%)
    Non-controlling interest
     in subsidiaries               -         -         -
    -----------------------------------------------------
    Net income                 1,060        (3)        -
    -----------------------------------------------------
    -----------------------------------------------------

    Amortization of intangible
     assets (after tax)           22        (3)     (15%)
    -----------------------------------------------------
    Cash net income            1,082        (6)      (1%)
    -----------------------------------------------------

    Return on equity           20.4%               (1.3%)
    Cash return on equity      20.8%               (1.5%)
    Operating leverage         (2.5%)                 nm
    Cash operating leverage    (2.7%)                 nm
    Productivity ratio (teb)   59.0%                1.4%
    Cash productivity
     ratio (teb)               58.4%                1.5%
    Net interest margin on
     earning assets (teb)      2.72%              (0.07%)
    Average earning assets   144,405     7,924        6%
    -----------------------------------------------------
    -----------------------------------------------------
    nm - not meaningful


    Personal and Commercial Banking (P&C) represents the sum of our two retail
and business banking operating segments, Personal and Commercial Banking
Canada (P&C Canada) and Personal and Commercial Banking U.S. (P&C U.S.). These
operating segments are reviewed separately in the sections that follow.

    Personal and Commercial Banking Canada (P&C Canada)

                                                Increase            Increase
    (Canadian $ in millions,                   (Decrease)          (Decrease)
     except as noted)        Q3-2008         vs. Q3-2007         vs. Q2-2008
    -------------------------------------------------------------------------
    Net interest income (teb)    822        21        3%        36        5%
    Non-interest revenue         469        14        4%        36        9%
    -------------------------------------------------------------------------
    Total revenue (teb)        1,291        35        3%        72        6%
    Provision for credit
     losses                       87         6        8%         5        6%
    Non-interest expense         710        46        7%        53        8%
    -------------------------------------------------------------------------
    Income before income
     taxes and non-controlling
     interest in subsidiaries    494       (17)      (3%)       14        4%
    Income taxes (teb)           151        (4)      (1%)        2        4%
    Non-controlling interest
     in subsidiaries               -         -         -         -         -
    -------------------------------------------------------------------------
    Net income                   343       (13)      (3%)       12        3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization of intangible
     assets (after tax)           (1)        -         -        (4)       nm
    -------------------------------------------------------------------------
    Cash net income              342       (13)      (4%)        8        3%
    -------------------------------------------------------------------------

    Personal, Insurance &
     Other revenue               654        14        2%        32        5%
    Commercial revenue           343        (6)      (1%)        9        3%
    Cards revenue                294        27       10%        31       12%
    Operating leverage         (3.8%)                 nm                  nm
    Cash operating leverage    (4.1%)                 nm                  nm
    Productivity ratio (teb)   54.9%                1.9%                0.9%
    Cash productivity
     ratio (teb)               54.9%                2.1%                1.0%
    Net interest margin on
     earning assets (teb)      2.68%              (0.05%)              0.02%
    Average earning assets   122,153     6,143        5%     1,866        2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                Increase
    (Canadian $ in millions,                   (Decrease)
     except as noted)       YTD-2008        vs. YTD-2007
    -----------------------------------------------------
    Net interest income (teb)  2,401       105        5%
    Non-interest revenue       1,320       (14)      (1%)
    -----------------------------------------------------
    Total revenue (teb)        3,721        91        3%
    Provision for credit
     losses                      252        10        4%
    Non-interest expense       2,062       108        6%
    -----------------------------------------------------
    Income before income
     taxes and non-controlling
     interest in subsidiaries  1,407       (27)      (2%)
    Income taxes (teb)           431       (23)      (5%)
    Non-controlling interest
     in subsidiaries               -         -         -
    -----------------------------------------------------
    Net income                   976        (4)        -
    -----------------------------------------------------
    -----------------------------------------------------

    Amortization of intangible
     assets (after tax)            2        (3)       nm
    -----------------------------------------------------
    Cash net income              978        (7)      (1%)
    -----------------------------------------------------

    Personal, Insurance &
     Other revenue             1,885        19        1%
    Commercial revenue         1,026        10        1%
    Cards revenue                810        62        8%
    Operating leverage         (3.0%)                 nm
    Cash operating leverage    (3.2%)                 nm
    Productivity ratio (teb)   55.4%                1.5%
    Cash productivity
     ratio (teb)               55.3%                1.6%
    Net interest margin on
     earning assets (teb)      2.66%              (0.02%)
    Average earning assets   120,567     6,154        5%
    -----------------------------------------------------
    -----------------------------------------------------
    nm - not meaningful
    

    Q3 2008 vs Q3 2007

    Net income of $343 million fell $13 million or 3.2% from a year ago. Net
income a year ago included a $14 million recovery of prior period income
taxes. Adjusted for the above item, net income increased $1 million or 0.8%.
    Revenue rose $35 million or 3.0%. Volume growth continued to be strong
across most products in the face of a slowing economy. Our customer loyalty
continues to improve, our customer base is growing and we are strengthening
our customer relationships.
    Net interest margin deteriorated by 5 basis points due to lower mortgage
refinancing fees, higher funding costs and competitive pricing pressures,
partially offset by improving product mix.
    In the personal banking segment, revenue increased $14 million or 2.3%
with growth in most products.
    Personal loan growth from the third quarter of 2007 was a strong 19% with
increased market share of 87 basis points from the prior year and 29 basis
points from the second quarter. Our HomeOwner Readiline product has been an
important part of our accelerating personal loan growth. We continued to see
growth in our branch-originated mortgage portfolio as new originations
outpaced the impact of having exited from the mortgage broker channels. As
expected, mortgage market share has decreased, falling 148 basis points from a
year ago and 33 basis points from the second quarter as broker mortgages
continue to run off.
    Personal deposits increased 1.2% from the third quarter of 2007 as the
number of active chequing customers and the percentage of households retained
showed positive trends. Market share declined 6 basis points relative to the
second quarter and 10 basis points year over year in a highly competitive
environment.
    Within the commercial banking segment, revenue declined $6 million or
1.2%. Loan growth continues to be strong, rising 9.3% from a year ago despite
ongoing intense competition; however, the impact was offset by higher funding
costs and competitive pricing pressures in 2008, and higher recoveries of
interest on loans a year ago. BMO ranks second in Canadian business banking
market share at 19.89%. Our objective is to be the market leader and this
quarter we increased market share by 69 basis points from the prior year and
29 basis points from the second quarter. In the $1 to $5 million segment,
there was loan growth of 10.5% and market share growth of 88 basis points
relative to the third quarter of 2007 and 47 basis points relative to the
second quarter. In the deposit side of the business, balance growth of 4.5%
was accompanied by a steady increase in the number of commercial operating
account customers.
    Cards and payments service revenue increased $27 million or 10% with
growth in transactions and accelerating balance growth, as well as higher
Moneris revenues. This was another quarter with consistent, strong growth from
our cards products. The strength of our AIR MILES and Cashback rewards offers,
which has been enhanced through our two most recent product launches, has
broad appeal to customers. Our Shell co-branded offer further expands the
options we provide to our customers to select a program that best suits their
needs - AIR MILES or Cashback. The coordinated AIR MILES offering on both our
credit and debit cards complement each other, driving increasing cards volumes
as well as branch deposits. The strength of our rewards, combined with our
pricing and credit strategies, continue to drive strong balance and profit
growth in a highly competitive industry. We are also seeing improvement in the
customer experience in this area.
    Non-interest expense increased $46 million or 6.8%, primarily due to
increased strategic initiative spending and higher capital tax expense,
partially offset by lower employee benefits costs. We continue to invest in
the business through the expansion and renovation of our branch network and
expanding our mortgage specialist and financial planner workforce to drive
incremental sales. On a year-to-date basis, we opened 7 new branches,
relocated 4 and expanded 6. We also continue to manage our expense base,
including the largest component, our full-time staffing, to an appropriate
level in light of economic challenges.
    Average loans and acceptances, including securitized loans, increased
$8.7 billion or 7.0% from the third quarter of 2007. Personal and commercial
deposits grew $1.1 billion or 2.4% from a year ago. The group's cash operating
leverage was -4.1%.
    During the quarter, we entered into an agreement to transfer the
liability associated with our credit card loyalty rewards program to Loyalty
Management Group Canada Inc. (LMGCI), our partner in the AIR MILES Reward
Miles program. There was no significant gain on the transfer. In addition, we
have renegotiated and extended the term of our agreement with LMGCI for the
issuance of AIR MILES reward miles. Under the terms of the agreement, we no
longer retain a liability for future AIR MILES reward miles redemptions and as
a result no longer have exposure to changing redemption patterns. We expect
negligible change in run-rate costs as a result of the agreement.

    Q3 2008 vs Q2 2008

    Net income increased $12 million or 3.4%.
    Revenue increased $72 million or 5.9% from the second quarter. Growth was
attributable to the $18 million impact of two more calendar days in the
current quarter, volume growth across most products, improved net interest
margin, and higher cards and Moneris revenues. Net interest margin improved by
2 basis points due to favourable product mix and higher refinancing fees,
partially offset by higher funding costs and competitive pricing pressures.
    Non-interest expense increased $53 million or 7.8% due to increases in
initiatives spending, higher capital taxes, increased advertising and two more
calendar days this quarter.
    Average loans and acceptances, including securitized loans, increased
$2.9 billion or 2.3% from the second quarter, while personal and commercial
deposits increased $1.3 billion or 2.9%.

    Q3 YTD 2008 vs Q3 YTD 2007

    Net income decreased $4 million or 0.3%, but increased $42 million or
4.6% adjusted for the $46 million impact in 2007 of an insurance gain,
investment gains and a recovery of prior period income taxes. Revenue
increased $91 million or 2.5%, but increased $131 million or 3.7% adjusted for
last year's $26 million insurance gain and $14 million investment gains. There
was volume growth across most products. Net interest margin decreased 2 basis
points from last year.
    Non-interest expense increased $108 million or 5.5% primarily due to
initiatives spending including expansion and renovation of the branch network
as well as increasing our mortgage specialist and financial planner workforce.

    
    Personal and Commercial Banking U.S. (P&C U.S.)

                                                Increase            Increase
    (Canadian $ in millions,                   (Decrease)          (Decrease)
     except as noted)        Q3-2008         vs. Q3-2007         vs. Q2-2008
    -------------------------------------------------------------------------
    Net interest income (teb)    197        16        9%        25       15%
    Non-interest revenue          52         8       16%       (32)     (39%)
    -------------------------------------------------------------------------
    Total revenue (teb)          249        24       10%        (7)      (3%)
    Provision for credit
     losses                       12         3       33%         2       19%
    Non-interest expense         194        19       11%        (5)      (3%)
    -------------------------------------------------------------------------
    Income before income
     taxes and non-controlling
     interest in subsidiaries     43         2        4%        (4)     (10%)
    Income taxes (teb)            15        (1)      (6%)       (2)     (19%)
    Non-controlling interest
     in subsidiaries               -         -         -         -         -
    -------------------------------------------------------------------------
    Net income                    28         3        6%        (2)      (4%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization of intangible
     assets (after tax)            9         -         -         5        nm
    -------------------------------------------------------------------------
    Cash net income               37         3        8%         3        9%
    -------------------------------------------------------------------------

    Operating leverage         (0.3%)                 nm                  nm
    Cash operating leverage    (0.2%)                 nm                  nm
    Productivity ratio (teb)   78.1%                0.2%                0.4%
    Cash productivity
     ratio (teb)               74.5%                0.1%               (0.2%)
    Net interest margin on
     earning assets (teb)      3.11%              (0.26%)              0.18%
    Average earning assets    25,463     3,888       18%     1,843        8%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    U.S. Select Financial
     Data (US$ in millions)

    Net interest income (teb)    195        26       15%        24       14%
    Non-interest revenue          51         9       22%       (33)     (39%)
    -------------------------------------------------------------------------
    Total revenue (teb)          246        35       16%        (9)      (4%)
    Non-interest expense         192        27       17%        (6)      (3%)
    Net income                    28         4       12%        (2)      (5%)
    Average earning assets    25,156     4,942       24%     1,690        7%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                Increase
    (Canadian $ in millions,                   (Decrease)
     except as noted)       YTD-2008        vs. YTD-2007
    -----------------------------------------------------
    Net interest income (teb)    536       (22)      (4%)
    Non-interest revenue         184        52       40%
    -----------------------------------------------------
    Total revenue (teb)          720        30        5%
    Provision for credit
     losses                       31         4       13%
    Non-interest expense         559        27        5%
    -----------------------------------------------------
    Income before income
     taxes and non-controlling
     interest in subsidiaries    130        (1)        -
    Income taxes (teb)            46        (2)        -
    Non-controlling interest
     in subsidiaries               -         -         -
    -----------------------------------------------------
    Net income                    84         1         -
    -----------------------------------------------------
    -----------------------------------------------------

    Amortization of intangible
     assets (after tax)           20         -         -
    -----------------------------------------------------
    Cash net income              104         1        1%
    -----------------------------------------------------

    Operating leverage         (0.6%)                 nm
    Cash operating leverage    (0.7%)                 nm
    Productivity ratio (teb)   77.6%                0.4%
    Cash productivity
     ratio (teb)               74.3%                0.6%
    Net interest margin on
     earning assets (teb)      3.01%              (0.37%)
    Average earning assets    23,838     1,770        8%
    -----------------------------------------------------
    -----------------------------------------------------

    U.S. Select Financial
     Data (US$ in millions)

    Net interest income (teb)    533        37        7%
    Non-interest revenue         183        66       56%
    -----------------------------------------------------
    Total revenue (teb)          716       103       17%
    Non-interest expense         556        82       17%
    Net income                    84        10       12%
    Average earning assets    23,697     4,050       21%
    -----------------------------------------------------
    -----------------------------------------------------
    nm - not meaningful
    

    Q3 2008 vs Q3 2007

    Net income increased $3 million or 6.4%. On a U.S. dollar basis, net
income rose $4 million or 12% to $28 million. There was solid volume growth
and early signs of spread stabilization, partially offset by the impact of the
difficult credit environment and continued targeted business investment and
expansion.
    Revenue rose US$35 million or 16% primarily due to the Wisconsin
acquisitions (US$18 million), and core revenue growth related to improved
volumes, spreads and fees. Net interest margin decreased by 26 basis points,
of which 22 basis points relates to a portfolio transfer in the first quarter.
Net interest margin was also affected by the weaker credit market environment.
    Non-interest expense increased US$27 million or 17%. The increase was
attributable to the impact of acquisitions (US$16 million), business volume
growth, the effects of the weaker credit environment and business expansion
initiatives. Cash operating leverage was -0.2%.

    Q3 2008 vs Q2 2008

    Net income decreased $2 million or 4.3%. On a U.S. dollar basis, net
income fell $2 million or 5.2%. Second quarter results included a
US$13 million after-tax gain on the Visa transaction and higher than normal
expenses and reduced revenues.
    Revenue decreased US$9 million or 3.6% as the prior quarter benefited
from the US$38 million Visa gain. Revenue was up US$29 million or 13%
excluding the Visa gain, primarily due to the Wisconsin acquisitions
(US$11 million), and improvements in core volume, spread and fees. Net
interest margin rose 18 basis points due to core spread stabilization and a
lower impact of credit markets in the current quarter as a result of cash
collections. We are seeing early signs of spread stabilization in consumer and
commercial, in both loans and deposits, in part due to pricing initiatives.
    Non-interest expense fell US$6 million or 3.0% due to the US$17 million
Visa litigation reserve taken in the prior quarter. Excluding the Visa
litigation and the impact of the Wisconsin acquisitions (US$11 million),
expenses were unchanged from the prior quarter.
    Our Retail Net Promoter Score, a measure of the strength of customer
loyalty, was consistent with the prior quarter at 42%.

    Q3 YTD 2008 vs Q3 YTD 2007

    Net income of $84 million rose $1 million or 0.3%. On a U.S. dollar
basis, net income rose $10 million or 12%.
    Revenue increased US$103 million or 17%. The increase was attributable to
the Visa transaction and acquisitions, volume growth and increases in fee and
other non-interest revenue. Net interest margin fell by 37 basis points due to
the 22 basis points impact of the portfolio transfer, higher levels of non-
performing loans and the highly competitive environment.
    Non-interest expense rose US$82 million or 17% due to the litigation
charge, acquisitions, continued targeted business investment and expansion and
the impact of credit markets.

    
    Private Client Group (PCG)

                                                Increase            Increase
    (Canadian $ in millions,                   (Decrease)          (Decrease)
     except as noted)        Q3-2008         vs. Q3-2007         vs. Q2-2008
    -------------------------------------------------------------------------
    Net interest income (teb)    167        13        9%         2        2%
    Non-interest revenue         377        11        3%        32        9%
    -------------------------------------------------------------------------
    Total revenue (teb)          544        24        5%        34        7%
    Provision for credit
     losses                        1         -         -         -         -
    Non-interest expense         380        18        5%        32       10%
    -------------------------------------------------------------------------
    Income before income
     taxes                       163         6        4%         2        1%
    Income taxes (teb)            53        (2)      (4%)        1        1%
    -------------------------------------------------------------------------
    Net income                   110         8        8%         1        1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization of intangible
     assets (after tax)            1         -         -         -         -
    -------------------------------------------------------------------------
    Cash net income              111         8        8%         1        1%
    -------------------------------------------------------------------------

    Return on equity           39.6%                5.0%               (1.9%)
    Cash return on equity      39.9%                5.0%               (2.0%)
    Operating leverage         (0.3%)                 nm                  nm
    Cash operating leverage    (0.4%)                 nm                  nm
    Productivity ratio (teb)   69.9%                0.2%                1.8%
    Cash productivity
     ratio (teb)               69.7%                0.3%                1.8%
    Net interest margin on
     earning assets (teb)      8.87%              (0.70%)             (0.33%)
    Average earning assets     7,493     1,140       18%       235        3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    U.S. Select Financial
     Data (US$ in millions)
    Total revenue (teb)           62         -         -         3        7%
    Non-interest expense          58        (1)      (2%)        5       11%
    Net income                     3         1       58%        (1)     (16%)
    Cash net income                3         1       40%        (1)     (15%)
    Average earning assets     2,134       197       10%         4         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                Increase
    (Canadian $ in millions,                   (Decrease)
     except as noted)       YTD-2008        vs. YTD-2007
    -----------------------------------------------------
    Net interest income (teb)    487        29        6%
    Non-interest revenue       1,086         -         -
    -----------------------------------------------------
    Total revenue (teb)        1,573        29        2%
    Provision for credit
     losses                        3         1       26%
    Non-interest expense       1,096         6        1%
    -----------------------------------------------------
    Income before income
     taxes                       474        22        5%
    Income taxes (teb)           157        (3)      (2%)
    -----------------------------------------------------
    Net income                   317        25        9%
    -----------------------------------------------------
    -----------------------------------------------------

    Amortization of intangible
     assets (after tax)            3         -         -
    -----------------------------------------------------
    Cash net income              320        25        9%
    -----------------------------------------------------

    Return on equity           39.5%                5.8%
    Cash return on equity      39.8%                5.7%
    Operating leverage          1.3%                  nm
    Cash operating leverage     1.3%                  nm
    Productivity ratio (teb)   69.7%               (0.9%)
    Cash productivity
     ratio (teb)               69.5%               (0.8%)
    Net interest margin on
     earning assets (teb)      8.91%              (0.94%)
    Average earning assets     7,293     1,082       17%
    -----------------------------------------------------
    -----------------------------------------------------

    U.S. Select Financial
     Data (US$ in millions)
    Total revenue (teb)          183         2        1%
    Non-interest expense         170        (7)      (4%)
    Net income                     9         6     +100%
    Cash net income               10         6     +100%
    Average earning assets     2,119       209       11%
    -----------------------------------------------------
    -----------------------------------------------------
    nm - not meaningful
    

    Q3 2008 vs Q3 2007

    Net income increased $8 million or 8.4% to a record $110 million in a
difficult market environment.
    Revenue increased $24 million or 4.8% and $29 million or 5.6% excluding
the impact of the weaker U.S. dollar. Net interest income increased primarily
due to higher deposit balances in the brokerage businesses. Higher loan and
deposit balances in North American Private Banking also contributed to the
growth. Non-interest revenue increased primarily due to higher fee-based
revenue in Full Service Investing and higher trust and investment revenue in
North American Private Banking. The BMO Mutual Funds fixed administration fee
implemented in the first quarter of 2008 also contributed to the growth.
    Non-interest expense increased $18 million or 5.1% and $22 million or
6.0% excluding the impact of the weaker U.S. dollar, primarily due to higher
revenue-based costs, expansion of the sales force and the impact of the fixed
administration fee.
    Cash operating leverage was -0.4%.
    The Group's $286 billion of assets under management and administration
and term deposits were significantly impacted by softer market conditions.
Assets increased $4.2 billion or 1.5% year over year, excluding the impact of
foreign exchange.

    Q3 2008 vs Q2 2008

    Net income increased $1 million or 1.0%.
    Revenue increased $34 million or 6.9%, primarily due to higher commission
and fee-based revenue in Full Service Investing. Higher deposit balances in
the brokerage businesses and higher mutual fund revenue also contributed to
the growth.
    Non-interest expense increased $32 million or 9.7%, primarily as a result
of higher revenue-based costs. The group continues to invest to drive future
revenue growth.

    Q3 YTD 2008 vs Q3 YTD 2007

    Net income increased $25 million or 8.9%.
    Revenue increased $29 million or 1.9% and excluding the impact of the
weaker U.S. dollar and the prior year's $7 million gain on sale of Montreal
Stock Exchange common shares by $60 million or 3.9% in softer market
conditions. Net interest income improved primarily due to higher deposit
balances in the brokerage businesses. Higher deposit and loan balances in
North American Private Banking also contributed to the growth. Non-interest
revenue improved, adjusted for the gain and the weaker U.S. dollar, primarily
due to higher trust and investment revenue in North American Private Banking
and higher mutual fund revenue including the fixed administration fee. Those
increases were partially offset by lower commission revenue in the brokerage
businesses.
    Non-interest expense increased $6 million or 0.6% and $26 million or 2.4%
excluding the impact of the weaker U.S. dollar, primarily due to the impact of
the fixed administration fee and increased sales force, partially offset by
lower revenue-based costs. The group continues to focus on expense management
in the current market environment, balanced with investment in the sales force
and supporting technology to drive future revenue growth.
    Cash operating leverage was 1.3%.

    
    BMO Capital Markets (BMO CM)

                                                Increase            Increase
    (Canadian $ in millions,                   (Decrease)          (Decrease)
     except as noted)        Q3-2008         vs. Q3-2007         vs. Q2-2008
    -------------------------------------------------------------------------
    Net interest income (teb)    287        34       13%        53       22%
    Non-interest revenue         459        22        5%         8        2%
    -------------------------------------------------------------------------
    Total revenue (teb)          746        56        8%        61        9%
    Provision for credit
     losses                       29        10       52%         -         -
    Non-interest expense         477        29        7%        36        8%
    -------------------------------------------------------------------------
    Income (loss) before
     income taxes                240        17        7%        25       11%
    Income taxes
     (recovery) (teb)            (19)      (48)   (+100%)      (52)   (+100%)
    -------------------------------------------------------------------------
    Net income                   259        65       34%        77       42%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amortization of intangible
     assets (after tax)            -         -         -         -         -
    -------------------------------------------------------------------------
    Cash net income              259        65       34%        77       42%
    -------------------------------------------------------------------------

    Trading Products revenue     390       116       42%        30        9%
    Investment and Corporate
     Banking and Other revenue   356       (60)     (15%)       31        9%
    Return on equity           18.5%                3.8%                5.3%
    Cash return on equity      18.5%                3.8%                5.3%
    Operating leverage          1.3%                  nm                  nm
    Cash operating leverage     1.3%                  nm                  nm
    Productivity ratio (teb)   64.0%               (0.8%)              (0.3%)
    Cash productivity
     ratio (teb)               64.0%               (0.8%)              (0.3%)
    Net interest margin on
     earning assets (teb)      0.67%               0.06%               0.12%
    Average earning assets   169,410     4,452        3%    (5,333)      (3%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    U.S. Select Financial
     Data (US$ in millions)

    Total revenue (teb)          297       147       98%        50       21%
    Non-interest expense         197        35       22%        46       30%
    Net income                    59        57     +100%        (5)      (7%)
    Average assets            66,968    12,445       23%    (4,276)      (6%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                Increase
    (Canadian $ in millions,                   (Decrease)
     except as noted)       YTD-2008        vs. YTD-2007
    -----------------------------------------------------
    Net interest income (teb)    824        83       11%
    Non-interest revenue         873        66        8%
    -----------------------------------------------------
    Total revenue (teb)        1,697       149       10%
    Provision for credit
     losses                       87        29       48%
    Non-interest expense       1,301       126       11%
    -----------------------------------------------------
    Income (loss) before
     income taxes                309        (6)      (2%)
    Income taxes
     (recovery) (teb)            (98)      (42)     (75%)
    -----------------------------------------------------
    Net income                   407        36       10%
    -----------------------------------------------------
    -----------------------------------------------------

    Amortization of intangible
     assets (after tax)            -        (1)      (7%)
    -----------------------------------------------------
    Cash net income              407        35       10%
    -----------------------------------------------------

    Trading Products revenue     715       432     +100%
    Investment and Corporate
     Banking and Other revenue   982      (283)     (23%)
    Return on equity            9.5%                0.1%
    Cash return on equity       9.5%                0.1%
    Operating leverage         (1.1%)                 nm
    Cash operating leverage    (1.1%)                 nm
    Productivity ratio (teb)   76.7%                0.8%
    Cash productivity
     ratio (teb)               76.6%                0.8%
    Net interest margin on
     earning assets (teb)      0.62%              (0.01%)
    Average earning assets   176,840    19,853       13%
    -----------------------------------------------------
    -----------------------------------------------------

    U.S. Select Financial
     Data (US$ in millions)

    Total revenue (teb)          838       705     +100%
    Non-interest expense         556       111       25%
    Net income                   179       338     +100%
    Average assets            70,869    21,861       45%
    -----------------------------------------------------
    -----------------------------------------------------
    nm - not meaningful
    

    Q3 2008 vs Q3 2007

    Net income of $259 million increased $65 million or 34% from a year ago.
Revenue rose $56 million or 7.9% to $746 million, due to significantly higher
trading revenues and strong performance from our interest-rate-sensitive
businesses, partially offset by lower merger and acquisition fees, equity
underwriting revenue and corporate banking net interest income. Results for
the quarter were lowered by the net $33 million impact of: capital markets
environment charges of $96 million after tax, a severance charge of
$19 million after tax and the group's $82 million share of a recovery of prior
period income taxes. Net income a year ago was lowered by $97 million in
respect of losses in our commodities business. See the Effects of the Capital
Markets Environment on Third Quarter Results section for more details of the
capital markets environment charges.
    We re-focused some of our businesses this quarter with the goal of
improving our risk-return profile and concentrating on core, profitable client
relationships.
    Trading Products revenue increased $116 million or 42% due to the
commodities losses in 2007. There was higher revenue from interest-rate-
sensitive businesses, partially offset by higher levels of other than
temporary impairment write-downs and charges for Apex and third party asset-
backed commercial paper. There has been continued volatility in our trading
businesses; however, management is focused on reducing the volatility of the
group's results.
    Investment and Corporate Banking and Other revenue decreased by
$60 million or 15%. There were lower merger and acquisition fees and equity
and debt underwriting fees due to the difficult market environment. The market
environment was much more favourable a year ago and conditions remain
challenging for our fee-based businesses.
    Net interest income rose from a year ago due to higher revenues from our
interest-rate-sensitive businesses and trading net interest income, partially
offset by reduced corporate banking net interest income. Net interest margin
improved 6 basis points from the prior year due to higher trading spreads and
higher spreads in our interest-rate-sensitive businesses.
    Non-interest expense increased $29 million or 6.6%, primarily due to a
$28 million charge for severance costs. The Group's cash operating leverage
was 1.3%.

    Q3 2008 vs Q2 2008

    Net income increased $77 million or 42%. Results in the second quarter
included a $42 million ($28 million after tax) net recovery related to
valuation adjustments, including mark-to-market reversals of some of the first
quarter charges.
    Revenue rose $61 million or 8.6% due to higher revenues from trading and
from our interest-rate-sensitive businesses and improved debt and equity
underwriting performance. These were partially offset by increased net
investment losses consisting of other than temporary impairment write-downs
and charges related to Apex and third party asset-backed commercial paper.
Merger and acquisition fees were lower.
    Non-interest expense was $36 million or 8.1% higher, primarily due to the
$28 million charge for severance costs and an increase in variable
compensation.

    Q3 YTD 2008 vs Q3 YTD 2007

    Net income increased $36 million or 9.6%. Results in 2008 were affected
by charges of $580 million ($392 million after tax) related to deterioration
in capital markets. Results in 2007 were affected by charges of $829 million
($424 million net of compensation adjustments and taxes) related to
commodities losses.
    Revenue rose $149 million or 9.6% due to last year's commodities losses
and favourable performance in our interest-rate-sensitive businesses.
Partially offsetting these increases in revenue were net investment losses and
lower lending revenue including decreased collections on impaired loans, and
reduced merger and acquisition and equity underwriting fees from record levels
in the prior year.
    Non-interest expense was $126 million or 11% higher, due to higher
employee-based costs, including performance-based compensation and charges for
severance, and higher allocated costs.

    
    Corporate Services, Including Technology and Operations

                                                Increase            Increase
    (Canadian $ in millions,                   (Decrease)          (Decrease)
     except as noted)        Q3-2008         vs. Q3-2007         vs. Q2-2008
    -------------------------------------------------------------------------
    Net interest income (teb)   (187)      (45)     (34%)       (4)      (2%)
    Non-interest revenue         103        97     +100%       (30)     (21%)
    -------------------------------------------------------------------------
    Total revenue (teb)          (84)       52       38%       (34)     (65%)
    Provision for (recovery
     of) credit losses           355       374     +100%       326     +100%
    Non-interest expense          21        11       98%       (14)     (41%)
    Restructuring charge           -         -         -         -         -
    -------------------------------------------------------------------------
    Total non-interest
     expense                      21        11       98%       (14)     (41%)
    Income (loss) before
     income taxes and
     non-controlling interest
     in subsidiaries            (460)     (333)   (+100%)     (346)   (+100%)
    Income taxes
     (recovery) (teb)           (259)     (131)   (+100%)     (136)   (+100%)
    Non-controlling interest
     in subsidiaries              18         -         -        (1)      (5%)
    -------------------------------------------------------------------------
    Net income (loss)           (219)     (202)   (+100%)     (209)   (+100%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    U.S. Select Financial
     Data (US$ in millions)
    Total revenue (teb)          (35)        7       17%        (4)     (18%)
    Provision for
     credit losses               412       403     +100%       369     +100%
    Non-interest expense         (20)      (11)   (+100%)      (14)   (+100%)
    Restructuring charge           -         -         -         -         -
    -------------------------------------------------------------------------
    Total non-interest
     expense                     (20)      (11)   (+100%)      (14)   (+100%)
    Income taxes
     (recovery) (teb)           (152)     (129)   (+100%)     (120)   (+100%)
    Net income (loss)           (280)     (256)   (+100%)     (240)   (+100%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                Increase
    (Canadian $ in millions,                   (Decrease)
     except as noted)       YTD-2008        vs. YTD-2007
    -----------------------------------------------------
    Net interest income (teb)   (574)     (168)     (42%)
    Non-interest revenue         255       112       77%
    -----------------------------------------------------
    Total revenue (teb)         (319)      (56)     (22%)
    Provision for (recovery
     of) credit losses           492       619     +100%
    Non-interest expense          58        (2)      (3%)
    Restructuring charge           -      (135)    (100%)
    -----------------------------------------------------
    Total non-interest
     expense                      58      (137)     (70%)
    Income (loss) before
     income taxes and
     non-controlling interest
     in subsidiaries            (869)     (538)   (+100%)
    Income taxes
     (recovery) (teb)           (558)     (218)     (65%)
    Non-controlling interest
     in subsidiaries              55        (1)      (3%)
    -----------------------------------------------------
    Net income (loss)           (366)     (319)   (+100%)
    -----------------------------------------------------
    -----------------------------------------------------

    U.S. Select Financial
     Data (US$ in millions)
    Total revenue (teb)         (134)      (29)     (27%)
    Provision for
     credit losses               574       601     +100%
    Non-interest expense         (45)      (36)   (+100%)
    Restructuring charge           -       (18)    (100%)
    -----------------------------------------------------
    Total non-interest
     expense                     (45)      (54)   (+100%)
    Income taxes
     (recovery) (teb)           (256)     (209)   (+100%)
    Net income (loss)           (421)     (367)   (+100%)
    -----------------------------------------------------
    -----------------------------------------------------
    

    Corporate Services

    Corporate Services includes the corporate units that provide expertise
and governance support to BMO Financial Group in areas such as strategic
planning, law, finance, internal audit, risk management, corporate
communications, corporate marketing, human resources and learning. Operating
results include revenues and expenses associated with certain securitization
activities, the hedging of foreign-source earnings, and activities related to
the management of certain balance sheet positions and BMO's overall asset-
liability structure.
    Corporate Services is generally charged (or credited) with differences
between the periodic provisions for credit losses charged to the client groups
under our expected loss provisioning methodology and the required periodic
provisions charged by the consolidated organization under GAAP.

    Technology and Operations

    Technology and Operations (T&O) manages, maintains and provides
governance over information technology, operations services, real estate and
sourcing for BMO Financial Group. T&O focuses on enterprise-wide priorities
that improve service quality and efficiency to deliver an excellent customer
experience.

    Financial Performance Review

    Technology and Operations operating results are included with Corporate
Services for reporting purposes. Costs of T&O's services are transferred to
the client groups (P&C, PCG and BMO Capital Markets) and only relatively minor
amounts are retained within T&O. As such, results in this section largely
reflect the other corporate units outlined above.
    There was a net loss of $219 million in the quarter compared with a net
loss of $17 million in the prior year, primarily due to high provisions for
credit losses, due to BMO's policy of charging expected losses to the
operating groups, partially offset by higher securitization and other revenues
and more favourable income taxes. The more favourable income taxes were due to
lower income and $13 million of prior period tax recoveries.
    Net income decreased $209 million from the second quarter, primarily due
to higher provisions for credit losses. Results in the current quarter
included a $50 million ($30 million after tax) increase in the general
allowance.
    Net income for the year to date fell $319 million from a year ago, driven
primarily by higher provisions for credit losses, including a $110 million
($68 million after tax) increase in the general allowance.

    Significant and Notable Items

    Q3 2008

    Charges related to the capital markets environment in the third quarter
are detailed in the Effects of the Capital Markets Environment on Third
Quarter Results section. Additionally, a $50 million increase in the general
allowance has been included in significant items as set out in the GAAP and
Related Non-GAAP Measures table.

    Q2 2008

    No amounts were designated as significant items in the second quarter as
the effects of charges related to the credit environment were not large on a
net basis.
    BMO's results in the second quarter included a net benefit of $42 million
($28 million after tax) in respect of charges/recoveries related to the
capital markets environment. The charges/recoveries consisted of:

    
    -   a net recovery of $26 million ($18 million after tax) in respect of:
        -   a mark-to-market recovery of $85 million ($57 million after tax)
            for Apex/Sitka Trust in recognition during the quarter of the
            increased likelihood of a successful restructuring;
        -   a mark-to-market charge of $36 million ($24 million after tax)
            for our holdings of commercial paper of third-party Canadian
            conduits affected by the Montreal Accord;
        -   a charge of $23 million ($15 million after tax) for the capital
            notes in the Links and Parkland SIVs;
    -   a recovery of $35 million ($24 million after tax) for items impacted
        by credit spreads, specifically mark-to-market adjustments,
        consisting of a benefit of $128 million ($86 million after tax) for
        mark-to-market gains on counterparty credit exposures on derivatives
        contracts as BMO's credit spreads have moved out relative to various
        counterparties; less a charge of $93 million ($62 million after tax)
        for other trading and structured-credit related positions; and
    -   a charge of $19 million ($14 million after tax) related to four
        smaller items, each with a net income impact of $10 million or less
        and including mark-to-market charges on our preferred share trading
        portfolio and monoline exposures.
    

    The net benefit of $42 million above was reflected in trading non-
interest revenue ($71 million), other revenue ($6 million) and securities
gains/losses other than trading (-$35 million).

    Q1 2008

    Notable items in the first quarter were reported as significant items.
    In the first quarter of 2008, BMO recorded $548 million ($362 million
after tax and $0.72 per share) of charges for certain trading activities and
valuation adjustments and an increase in the general allowance for credit
losses. They included $488 million ($324 million after tax) in BMO Capital
Markets in respect of: losses on exiting positions related to monoline insurer
ACA Financial Guarantee Corporation ($158 million); trading and structured-
credit related positions, preferred shares, third party Canadian conduits and
other mark-to-market losses ($177 million); investments in Apex
($130 million); and capital notes in the Links and Parkland SIVs
($23 million). BMO has no further exposure to ACA. Reduced performance-based
compensation associated with the charges was not included in the determination
of the impact of significant items.
    The $177 million charge above was primarily due to the impact of widening
credit spreads on a number of our trading portfolios. The charge was comprised
of a number of items, the largest of which was $78 million for counterparty
credit risk on our derivatives, with approximately half related to monoline
insurers (other than ACA) and similar credit derivative product companies. The
$488 million charge included reductions in trading non-interest revenue
($420 million), investment securities gains ($23 million) and other income
($45 million).
    Corporate Services results included a $60 million ($38 million after tax)
increase in the general allowance for credit losses to reflect portfolio
growth and risk migration.

    Q3 2007

    In the third quarter of 2007, BMO recorded $149 million ($97 million
after tax and $0.19 per share) of charges in respect of commodities trading
losses.

    YTD 2008

    Significant and notable items in 2008 are detailed above.

    YTD 2007

    Net income for the year-to-date 2007 was reduced by $512 million of
significant items. They included $424 million after tax in respect of
commodities losses of $829 million net of $120 million of reduced performance-
based compensation. They also included the $88 million after-tax impact of a
$135 million restructuring charge.

    INVESTOR AND MEDIA PRESENTATION

    Investor Presentation Materials

    Interested parties are invited to visit our web site at
www.bmo.com/investorrelations to review this quarterly news release,
presentation materials and a supplementary financial information package
online. Copies of these documents are also available at BMO Financial Group's
offices at 100 King Street West, 18th Floor, 1 First Canadian Place, Toronto,
Ontario, M5X 1A1.

    Quarterly Conference Call and Webcast Presentations

    Interested parties are also invited to listen to our quarterly conference
call on Tuesday, August 26, 2008 at 3:30 p.m. (EDT). At that time, senior BMO
executives will comment on results for the quarter and respond to questions
from the investor community. The call may be accessed by telephone at 416-695-
9753 (from within Toronto) or 1-888-789-0089 (toll-free outside Toronto). A
replay of the conference call can be accessed until Monday, November 24, 2008
by calling 416-695-5800 (from within Toronto) or 1-800-408-3053 (toll-free
outside Toronto) and entering passcode 648304.
    A live webcast of the call can be accessed on our web site at
www.bmo.com/investorrelations. A replay can be accessed on the site until
Monday, November 24, 2008.

    
    Media Relations Contacts

    Ralph Marranca, Toronto, ralph.marranca@bmo.com, 416-867-3996
    Ronald Monet, Montreal, ronald.monet@bmo.com, 514-877-1873

    Investor Relations Contacts

    Viki Lazaris, Senior Vice-President, viki.lazaris@bmo.com,
    416-867-6656
    Steven Bonin, Director, steven.bonin@bmo.com, 416-867-5452
    Krista White, Senior Manager, krista.white@bmo.com, 416-867-7019

    Chief Financial Officer

    Russel Robertson, Interim Chief Financial Officer
    russ.robertson@bmo.com, 416-867-7360

    Corporate Secretary

    Blair Morrison, Vice-President & Corporate Secretary
    corp.secretary@bmo.com, 416-867-6785

    -------------------------------------------------------------------------
    Shareholder Dividend Reinvestment    For other shareholder information,
    and Share Purchase Plan              please contact

    Average market price                 Bank of Montreal
    May 2008 $ 48.33                     Shareholder Services
    June 2008 $ 42.86                    Corporate Secretary's Department
    July 2008 $ 47.73                    One First Canadian Place, 19th Floor
                                         Toronto, Ontario M5X 1A1
    For dividend information, change     Telephone: (416) 867-6785
    in shareholder address or to         Fax: (416) 867-6793
    advise of duplicate mailings,        E-mail: corp.secretary@bmo.com
    please contact
                                         For further information on this
    Computershare Trust Company          report, please contact
    of Canada
    100 University Avenue, 9th Floor     Bank of Montreal
    Toronto, Ontario M5J 2Y1             Investor Relations Department
    Telephone: 1-800-340-5021 (Canada    P.O. Box 1, One First Canadian
    and the United States)               Place, 18th Floor
    Telephone: (514) 982-7800            Toronto, Ontario M5X 1A1
    (international)
    Fax: 1-888-453-0330 (Canada          To review financial results online,
    and the United States)               please visit our web site at
    Fax: (416) 263-9394                  www.bmo.com
    (international)
    E-mail: service@computershare.com
    -------------------------------------------------------------------------

    (R) Registered trade-mark of Bank of Montreal



    Financial Highlights

    (Unaudited)
    (Canadian $
     in millions,
     except as
     noted)                       For the three months ended
    -------------------------------------------------------------------------
                                                                      Change
                                                                        from
                      July     April   January   October      July      July
                  31, 2008  30, 2008  31, 2008  31, 2007  31, 2007  31, 2007
    -------------------------------------------------------------------------
    Income Statement
     Highlights
    Total revenue $  2,746  $  2,620  $  2,026  $  2,200  $  2,555       7.5%
    Provision for
     credit losses     484       151       230       151        91      +100
    Non-interest
     expense         1,782     1,680     1,614     1,655     1,659       7.4
    Net income         521       642       255       452       660     (21.1)
    -------------------------------------------------------------------------
    Common Share
     Data ($)
    Diluted
     earnings
     per share    $   0.98  $   1.25  $   0.47  $   0.87  $   1.28  $  (0.30)
    Diluted cash
     earnings per
     share(a)         1.00      1.26      0.49      0.89      1.30     (0.30)
    Dividends
     declared per
     share            0.70      0.70      0.70      0.70      0.68      0.02
    Book value
     per share       30.15     29.71     28.64     28.29     28.81      1.34
    Closing share
     price           47.94     50.10     56.75     63.00     66.59    (18.65)
    Total market
     value of
     common shares
     ($ billions)     24.2      25.2      28.3      31.4      33.2      (9.0)
    -------------------------------------------------------------------------

                                              As at
    -------------------------------------------------------------------------
                                                                      Change
                                                                        from
                      July     April   January   October      July      July
                  31, 2008  30, 2008  31, 2008  31, 2007  31, 2007  31, 2007
    -------------------------------------------------------------------------
    Balance Sheet
     Highlights
    Assets        $375,047  $375,158  $376,825  $366,524  $359,154       4.4%
    Net loans and
     acceptances   208,315   205,422   211,931   201,188   205,612       1.3
    Deposits       248,657   238,580   242,911   232,050   229,027       8.6
    Common
     shareholders'
     equity         15,207    14,954    14,304    14,102    14,374       5.8
    -------------------------------------------------------------------------

                                  For the three months ended
    -------------------------------------------------------------------------
                      July     April   January   October      July
                  31, 2008  30, 2008  31, 2008  31, 2007  31, 2007
    -------------------------------------------------------------------------
    Primary Financial
     Measures(%)(b)
    Average annual
     five year total
     shareholder
     return            5.1       8.2      10.1      14.2      17.2
    Diluted earnings
     per share
     growth          (23.4)     (3.1)    (29.9)    (35.6)     (7.2)
    Diluted cash
     earnings per
     share growth(a) (23.1)     (3.8)    (27.9)    (35.0)     (7.1)
    Return on equity  13.5      17.9       6.7      12.2      18.0
    Cash return on
     equity(a)        13.7      18.1       6.9      12.5      18.2
    Net economic
     profit (NEP)
     growth(a)       (56.5)     (7.9)    (+100)    (78.1)    (19.8)
    Operating
     leverage          0.1      (0.5)      1.5     (13.2)     (4.2)
    Cash operating
     leverage(a)       0.0      (0.7)      1.5     (13.2)     (4.2)
    Revenue growth     7.5       3.6      (2.0)    (10.6)     (0.6)
    Non-interest
     expense-to-
     revenue ratio    64.9      64.1      79.7      75.2      64.9
    Cash non-interest
     expense-to-
     revenue ratio
     (a)              64.5      63.8      79.2      74.7      64.5
    Provision for
     credit losses-
     to-average loans
     and acceptances
     (annualized)     0.89      0.28      0.42      0.29      0.18
    Gross impaired
     loans and
     acceptances-to-
     equity and
     allowance for
     credit losses    9.09      9.54      7.46      4.07      3.49
    Cash and
     securities-to-
     total assets
     ratio            29.6      29.6      30.7      33.1      31.0
    Tier 1 capital
     ratio -
     Basel II         9.90      9.42      9.48       n/a       n/a
    Tier 1 capital
     ratio -
     Basel I          9.45      9.03      9.05      9.51      9.29
    Credit rating
      Standard &
       Poor's           A+        A+        A+        A+        A+
      Moody's          Aa1       Aa1       Aa1       Aa1       Aa1
      Fitch            AA-       AA-       AA-       AA-       AA-
      DBRS              AA        AA        AA        AA        AA
    -------------------------------------------------------------------------
    Other Financial
     Ratios (% except
     as noted)(b)
    Twelve month
     total
     shareholder
     return          (24.4)    (24.6)    (15.6)     (5.8)      8.0
    Dividend yield    5.84      5.59      4.93      4.44      4.08
    Price-to-earnings
     ratio (times)    13.4      12.9      14.5      15.3      14.5
    Market-to-book
     value (times)    1.59      1.69      1.98      2.23      2.31
    Net economic
     profit
     ($ millions)(a)   122       266      (127)       71       280
    Return on
     average assets   0.52      0.66      0.26      0.48      0.72
    Net interest
     margin on
     average earning
     assets           1.59      1.48      1.45      1.47      1.61
    Non-interest
     revenue-to-total
     revenue          53.2      55.2      40.1      45.7      51.2
    Non-interest
     expense growth    7.4       4.1      (3.5)      2.6       3.6
    Cash non-interest
     expense growth(a) 7.5       4.3      (3.5)      2.6       3.6
    Total capital
     ratio -
     Basel II        12.29     11.64     11.26       n/a       n/a
    Total capital
     ratio -
     Basel I         12.07     11.47     11.09     11.74     11.18
    Equity-to-assets
     ratio             4.5       4.4       4.1       4.2       4.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (Unaudited)
    (Canadian $
     in millions,
     except as
     noted)          For the nine months ended
    -------------------------------------------
                                        Change
                                          from
                      July      July      July
                  31, 2008  31, 2007  31, 2007
    -------------------------------------------
    Income Statement
     Highlights
    Total revenue $  7,392  $  7,149       3.4%
    Provision for
     credit losses     865       202      +100
    Non-interest
     expense         5,076     4,946       2.6
    Net income       1,418     1,679     (15.5)
    -------------------------------------------
    Common Share
     Data ($)
    Diluted
     earnings
     per share    $   2.70  $   3.24  $  (0.54)
    Diluted cash
     earnings per
     share(a)         2.75      3.29     (0.54)
    Dividends
     declared per
     share            2.10      2.01      0.09
    Book value
     per share       30.15     28.81      1.34
    Closing share
     price           47.94     66.59    (18.65)
    Total market
     value of
     common shares
     ($ billions)     24.2      33.2      (9.0)
    -------------------------------------------


                       For the
                   nine months ended
    ---------------------------------
                      July      July
                  31, 2008  31, 2007
    ---------------------------------
    Primary Financial
     Measures(%)(b)
    Average annual
     five year total
     shareholder
     return            5.1      17.2
    Diluted earnings
     per share
     growth          (16.7)    (14.7)
    Diluted cash
     earnings per
     share growth(a) (16.4)    (14.8)
    Return on equity  12.7      15.1
    Cash return on
     equity(a)        12.9      15.4
    Net economic
     profit (NEP)
     growth(a)       (51.0)    (41.2)
    Operating
     leverage          0.8      (9.3)
    Cash operating
     leverage(a)       0.7      (9.3)
    Revenue growth     3.4      (5.0)
    Non-interest
     expense-to-
     revenue ratio    68.7      69.2
    Cash non-interest
     expense-to-
     revenue ratio
     (a)              68.2      68.7
    Provision for
     credit losses-
     to-average loans
     and acceptances
     (annualized)     0.53      0.13
    Gross impaired
     loans and
     acceptances-to-
     equity and
     allowance for
     credit losses    9.09      3.49
    Cash and
     securities-to-
     total assets
     ratio            29.6      31.0
    Tier 1 capital
     ratio -
     Basel II         9.90       n/a
    Tier 1 capital
     ratio -
     Basel I          9.45      9.29
    Credit rating
      Standard &
       Poor's           A+        A+
      Moody's          Aa1       Aa1
      Fitch            AA-       AA-
      DBRS              AA        AA
    ----------------------------------
    Other Financial
     Ratios (% except
     as noted)(b)
    Twelve month
     total
     shareholder
     return          (24.4)      8.0
    Dividend yield    5.84      4.02
    Price-to-earnings
     ratio (times)    13.4      14.5
    Market-to-book
     value (times)    1.59      2.31
    Net economic
     profit
     ($ millions)(a)   261       532
    Return on
     average assets   0.48      0.63
    Net interest
     margin on
     average earning
     assets           1.50      1.63
    Non-interest
     revenue-to-total
     revenue          50.3      49.0
    Non-interest
     expense growth    2.6       4.3
    Cash non-interest
     expense growth(a) 2.7       4.3
    Total capital
     ratio -
     Basel II        12.29       n/a
    Total capital
     ratio -
     Basel I         12.07     11.18
    Equity-to-assets
     ratio             4.5       4.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    All ratios in this report are based on unrounded numbers.
    (a) Refer to the "Non-GAAP Measures" section of Management's Discussion
        and Analysis for an explanation of cash results and net economic
        profit. Securities regulators require that companies caution readers
        that earnings and other measures adjusted to a basis other than
        generally accepted accounting principles (GAAP) do not have
        standardized meanings under GAAP and are unlikely to be comparable to
        similar measures used by other companies.
    (b) For the period ended, or as at, as appropriate.
    n/a - not applicable.



    Interim Consolidated Financial Statements

    Consolidated Statement of Income

    (Unaudited)
    (Canadian $ in millions,
     except as noted)                    For the three months ended
    -------------------------------------------------------------------------
                                July     April   January   October      July
                            31, 2008  30, 2008  31, 2008  31, 2007  31, 2007
    -------------------------------------------------------------------------
    Interest, Dividend and
     Fee Income
    Loans                   $  2,467  $  2,609  $  2,984  $  2,971  $  2,935
    Securities                   705       805       948       910       786
    Deposits with banks          203       230       315       387       291
    -------------------------------------------------------------------------
                               3,375     3,644     4,247     4,268     4,012
    -------------------------------------------------------------------------
    Interest Expense
    Deposits                   1,612     1,842     2,297     2,328     1,968
    Subordinated debt             61        51        49        51        46
    Preferred shares and
     capital trust
     securities                   22        23        23        24        24
    Other liabilities            394       554       664       669       727
    -------------------------------------------------------------------------
                               2,089     2,470     3,033     3,072     2,765
    -------------------------------------------------------------------------
    Net Interest Income        1,286     1,174     1,214     1,196     1,247
    Provision for credit
     losses (Note 2)             484       151       230       151        91
    -------------------------------------------------------------------------
    Net Interest Income After
     Provision for Credit
     Losses                      802     1,023       984     1,045     1,156
    -------------------------------------------------------------------------
    Non-Interest Revenue
    Securities commissions
     and fees                    294       270       271       265       299
    Deposit and payment
     service charges             190       181       182       183       180
    Trading revenues (losses)    220       192      (301)     (165)       40
    Lending fees                 116       101        92       105       102
    Card fees                     88        78        67      (105)       79
    Investment management
     and custodial fees           86        85        81        83        81
    Mutual fund revenues         151       144       154       148       151
    Securitization revenues      133       133        80        61        65
    Underwriting and
     advisory fees                97        98        92       103       160
    Securities gains (losses),
     other than trading          (75)       14        (2)      148         6
    Foreign exchange,
     other than trading           25        30        29        48        30
    Insurance income              56        52        62        52        55
    Other                         79        68         5        78        60
    -------------------------------------------------------------------------
                               1,460     1,446       812     1,004     1,308
    -------------------------------------------------------------------------
    Net Interest Income and
     Non-Interest Revenue      2,262     2,469     1,796     2,049     2,464
    -------------------------------------------------------------------------
    Non-Interest Expense
    Employee compensation
     (Note 8)                  1,044       980       945       901     1,024
    Premises and equipment       346       335       326       350       325
    Amortization of
     intangible assets            11        10        10        11        11
    Travel and business
     development                  87        74        72        92        72
    Communications                50        53        42        36        38
    Business and capital taxes    20        (1)       12         6         -
    Professional fees            102        90        79       108        62
    Other                        122       139       128       127       127
    -------------------------------------------------------------------------
                               1,782     1,680     1,614     1,631     1,659
    -------------------------------------------------------------------------
    Restructuring Charge
     (Note 9)                      -         -         -        24         -
    -------------------------------------------------------------------------
    Income Before Provision
     for (Recovery of)
     Income Taxes and
      Non-Controlling Interest
      in Subsidiaries            480       789       182       394       805
    Income taxes                 (59)      128       (91)      (77)      127
    -------------------------------------------------------------------------
                                 539       661       273       471       678
    Non-controlling interest
     in subsidiaries              18        19        18        19        18
    -------------------------------------------------------------------------
    Net Income              $    521  $    642  $    255  $    452  $    660
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Preferred share
     dividends              $     19  $     14  $     15  $     12  $      9
    Net income available to
     common shareholders    $    502  $    628  $    240  $    440  $    651
    Average common shares
     (in thousands)          504,124   502,054   499,067   498,379   499,793
    Average diluted common
     shares (in thousands)   508,032   506,638   505,572   506,173   507,913
    -------------------------------------------------------------------------
    Earnings Per Share
     (Canadian $)
    Basic                   $   1.00  $   1.25  $   0.48  $   0.89  $   1.30
    Diluted                     0.98      1.25      0.47      0.87      1.28
    Dividends Declared
     Per Common Share           0.70      0.70      0.70      0.70      0.68
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (Unaudited)
    (Canadian $ in millions       For the
     except as noted)        nine months ended
    -------------------------------------------
                                July      July
                            31, 2008  31, 2007
    -------------------------------------------
    Interest, Dividend and
     Fee Income
    Loans                   $  8,060  $  8,586
    Securities                 2,458     2,243
    Deposits with banks          748       741
    -------------------------------------------
                              11,266    11,570
    -------------------------------------------
    Interest Expense
    Deposits                   5,751     5,577
    Subordinated debt            161       129
    Preferred shares and
     capital trust
     securities                   68        75
    Other liabilities          1,612     2,142
    -------------------------------------------
                               7,592     7,923
    -------------------------------------------
    Net Interest Income        3,674     3,647
    Provision for credit
     losses (Note 2)             865       202
    -------------------------------------------
    Net Interest Income
     After Provision for
     Credit Losses             2,809     3,445
    -------------------------------------------
    Non-Interest Revenue
    Securities commissions
     and fees                    835       880
    Deposit and payment
     service charges             553       545
    Trading revenues
     (losses)                    111      (322)
    Lending fees                 309       301
    Card fees                    233       212
    Investment management
     and custodial fees          252       239
    Mutual fund revenues         449       428
    Securitization revenues      346       235
    Underwriting and
     advisory fees               287       425
    Securities gains (losses),
     other than trading          (63)       98
    Foreign exchange,
     other than trading           84        84
    Insurance income             170       178
    Other                        152       199
    -------------------------------------------
                               3,718     3,502
    -------------------------------------------
    Net Interest Income and
     Non-Interest Revenue      6,527     6,947
    -------------------------------------------
    Non-Interest Expense
    Employee compensation
     (Note 8)                  2,969     2,924
    Premises and equipment     1,007       953
    Amortization of
     intangible assets            31        35
    Travel and business
     development                 233       195
    Communications               145       113
    Business and capital
     taxes                        31        41
    Professional fees            271       193
    Other                        389       357
    -------------------------------------------
                               5,076     4,811
    -------------------------------------------
    Restructuring Charge
     (Note 9)                      -       135
    -------------------------------------------
    Income Before Provision
     for (Recovery of)
     Income Taxes and
     Non-Controlling
      Interest in
      Subsidiaries             1,451     2,001
    Income taxes                 (22)      266
    -------------------------------------------
                               1,473     1,735
    Non-controlling interest
     in subsidiaries              55        56
    -------------------------------------------
    Net Income              $  1,418  $  1,679
    -------------------------------------------
    -------------------------------------------

    Preferred share
     dividends              $     48  $     31
    Net income available to
     common shareholders    $  1,370  $  1,648
    Average common shares
     (in thousands)          501,746   500,480
    Average diluted common
     shares (in thousands)   506,732   509,242
    -------------------------------------------
    Earnings Per Share
     (Canadian $)
    Basic                   $   2.73  $   3.29
    Diluted                     2.70      3.24
    Dividends Declared
     Per Common Share           2.10      2.01
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these interim consolidated
    financial statements.



    Interim Consolidated Financial Statements

    Consolidated Balance Sheet

    (Unaudited)
     (Canadian $ in millions)                      As at
    -------------------------------------------------------------------------
                                July     April   January   October      July
                            31, 2008  30, 2008  31, 2008  31, 2007  31, 2007
    -------------------------------------------------------------------------
    Assets
    Cash Resources          $ 22,054  $ 22,237  $ 26,122  $ 22,890  $ 25,041
    -------------------------------------------------------------------------
    Securities
    Trading                   63,628    64,443    63,377    70,773    67,716
    Available-for-sale        23,426    22,453    24,341    26,010    17,046
    Other                      1,821     1,774     1,747     1,494     1,456
    Loan substitutes               -         -         -         -        11
    -------------------------------------------------------------------------
                              88,875    88,670    89,465    98,277    86,229
    -------------------------------------------------------------------------
    Loans
    Residential mortgages     51,757    52,583    53,224    52,429    62,297
    Consumer instalment and
     other personal           40,292    37,954    34,517    33,189    33,009
    Credit cards               3,532     4,338     4,685     4,493     4,347
    Businesses and
     governments              71,961    67,942    66,205    62,650    63,795
    Securities borrowed or
     purchased under resale
     agreements               32,433    33,596    42,937    37,093    34,216
    -------------------------------------------------------------------------
                             199,975   196,413   201,568   189,854   197,664
    Customers' liability
     under acceptances         9,834    10,345    11,590    12,389     8,993
    Allowance for credit
     losses (Note 2)          (1,494)   (1,336)   (1,227)   (1,055)   (1,045)
    -------------------------------------------------------------------------
                             208,315   205,422   211,931   201,188   205,612
    -------------------------------------------------------------------------
    Other Assets
    Derivative instruments    43,167    44,557    36,857    32,585    30,030
    Premises and equipment     2,051     2,024     1,977     1,980     2,015
    Goodwill                   1,449     1,398     1,189     1,140     1,232
    Intangible assets            189       208       152       124       149
    Other                      8,947    10,642     9,132     8,340     8,846
    -------------------------------------------------------------------------
                              55,803    58,829    49,307    44,169    42,272
    -------------------------------------------------------------------------
    Total Assets            $375,047  $375,158  $376,825  $366,524  $359,154
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and
     Shareholders' Equity
    Deposits
    Banks                   $ 29,988  $ 30,938  $ 34,991  $ 34,100  $ 30,561
    Businesses and
     governments             131,748   122,707   125,312   121,748   120,757
    Individuals               86,921    84,935    82,608    76,202    77,709
    -------------------------------------------------------------------------
                             248,657   238,580   242,911   232,050   229,027
    -------------------------------------------------------------------------
    Other Liabilities
    Derivative instruments    36,786    40,347    32,776    33,584    30,543
    Acceptances                9,834    10,345    11,590    12,389     8,993
    Securities sold but
     not yet purchased        17,415    20,053    28,393    25,039    28,551
    Securities lent or sold
     under repurchase
     agreements               28,148    29,894    28,331    31,263    30,992
    Other                     11,650    13,940    12,478    12,055    10,682
    -------------------------------------------------------------------------
                             103,833   114,579   113,568   114,330   109,761
    -------------------------------------------------------------------------
    Subordinated Debt
     (Note 10)                 4,204     4,199     3,446     3,446     3,446
    -------------------------------------------------------------------------
    Preferred Share
     Liability (Note 11)         250       250       250       250       450
    -------------------------------------------------------------------------
    Capital Trust Securities   1,150     1,150     1,150     1,150     1,150
    -------------------------------------------------------------------------
    Shareholders' Equity
    Share capital (Note 11)    6,458     6,114     5,648     5,607     5,318
    Contributed surplus           68        67        65        58        56
    Retained earnings         11,471    11,327    11,056    11,166    11,158
    Accumulated other
     comprehensive loss       (1,044)   (1,108)   (1,269)   (1,533)   (1,212)
    -------------------------------------------------------------------------
                              16,953    16,400    15,500    15,298    15,320
    -------------------------------------------------------------------------
    Total Liabilities and
     Shareholders' Equity   $375,047  $375,158  $376,825  $366,524  $359,154
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these interim consolidated
    financial statements.



    Interim Consolidated Financial Statements

    Consolidated Statement of Comprehensive Income

    (Unaudited)                            For the             For the
     (Canadian $ in millions)         three months ended   nine months ended
    -------------------------------------------------------------------------
                                          July      July      July      July
                                      31, 2008  31, 2007  31, 2008  31, 2007
    -------------------------------------------------------------------------
    Net income                        $    521  $    660  $  1,418  $  1,679
    Other Comprehensive Income
      Net change in unrealized gains
       (losses) on available-for-sale
       securities                          (51)      (59)       24       (55)
      Net change in unrealized gains
       (losses) on cash flow hedges         50      (110)      194      (154)
      Net gain (loss) on translation
       of net foreign operations            65      (120)      271      (166)
    -------------------------------------------------------------------------
    Total Comprehensive Income        $    585  $    371  $  1,907  $  1,304
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statement of Changes in Shareholders' Equity

    (Unaudited)                            For the             For the
     (Canadian $ in millions)         three months ended   nine months ended
    -------------------------------------------------------------------------
                                          July      July      July      July
                                      31, 2008  31, 2007  31, 2008  31, 2007
    -------------------------------------------------------------------------
    Preferred Shares
    Balance at beginning of period    $  1,446  $    946  $  1,196  $    596
    Issued during the period (Note 11)     300         -       550       350
    -------------------------------------------------------------------------
    Balance at End of Period             1,746       946     1,746       946
    -------------------------------------------------------------------------
    Common Shares
    Balance at beginning of period       4,668     4,326     4,411     4,231
    Issued under the Shareholder
     Dividend Reinvestment and
     Share Purchase Plan                    32        30        87        85
    Issued under the Stock Option Plan      12        41        34       109
    Issued on the exchange of shares
     of a subsidiary corporation             -         -         -         1
    Issued on the acquisition of
     a business (Note 7)                     -         -       180         -
    Repurchased for cancellation
     (Note 11)                               -       (25)        -       (54)
    -------------------------------------------------------------------------
    Balance at End of Period             4,712     4,372     4,712     4,372
    -------------------------------------------------------------------------
    Contributed Surplus
    Balance at beginning of period          67        55        58        49
    Stock option expense                     1         1        10         7
    -------------------------------------------------------------------------
    Balance at End of Period                68        56        68        56
    -------------------------------------------------------------------------
    Retained Earnings
    Balance at beginning of period      11,327    11,017    11,166    10,974
    Cumulative impact of adopting
     new accounting requirements for
     financial instruments (net of
     income taxes of $39)                    -         -         -       (71)
    Net income                             521       660     1,418     1,679
    Dividends - Preferred shares           (19)       (9)      (48)      (31)
              - Common shares             (353)     (340)   (1,055)   (1,005)
    Common shares repurchased for
     cancellation (Note 11)                  -      (170)        -      (379)
    Share issue expense                     (5)        -       (10)       (9)
    -------------------------------------------------------------------------
    Balance at End of Period            11,471    11,158    11,471    11,158
    -------------------------------------------------------------------------
    Accumulated Other Comprehensive
     Income (Loss) on
     Available-for-Sale Securities
    Balance at beginning of period         110         7        35         -
    Impact of remeasuring
     available-for-sale securities to
     market value on November 1, 2006
     (net of income taxes of $1)             -         -         -         3
    Unrealized losses on
     available-for-sale securities
     arising during the period (net of
     income taxes of $42, $39,
     $25 and $35)                          (89)      (73)      (54)      (65)
    Reclassification to earnings of
     losses in the period (net of
     income taxes of $18, $10,
     $37 and $8)                            38        14        78        10
    -------------------------------------------------------------------------
    Balance at End of Period                59       (52)       59       (52)
    -------------------------------------------------------------------------
    Accumulated Other Comprehensive
     Income (Loss) on Cash Flow Hedges
    Balance at beginning of period         (22)      (95)     (166)        -
    Impact of adopting new cash flow
     hedge accounting rules on
     November 1, 2006 (net of income
     taxes of $28)                           -         -         -       (51)
    Gains (losses) on cash flow hedges
     arising during the period
     (net of income taxes of $20, $55,
     $72 and $79)                           37      (109)      141      (156)
    Reclassification to earnings of
     losses (gains) on cash flow hedges
     (net of income taxes of $6, $1,
     $25 and $1)                            13        (1)       53         2
    -------------------------------------------------------------------------
    Balance at End of Period                28      (205)       28      (205)
    -------------------------------------------------------------------------
    Accumulated Other Comprehensive
     Loss on Translation of Net
     Foreign Operations
    Balance at beginning of period      (1,196)     (835)   (1,402)     (789)
    Unrealized gain (loss) on
     translation of net foreign
     operations                            182      (375)      800      (501)
    Impact of hedging unrealized
     gain (loss) on translation of
     net foreign operations (net
     of income taxes of $57, $135,
     $253 and $178)                       (117)      255      (529)      335
    -------------------------------------------------------------------------
    Balance at End of Period            (1,131)     (955)   (1,131)     (955)
    -------------------------------------------------------------------------
    Total Accumulated Other
     Comprehensive Loss                 (1,044)   (1,212)   (1,044)   (1,212)
    -------------------------------------------------------------------------
    Total Shareholders' Equity        $ 16,953  $ 15,320  $ 16,953  $ 15,320
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these interim consolidated
    financial statements.



    Interim Consolidated Financial Statements

    Consolidated Statement of Cash Flows

    (Unaudited)                            For the             For the
     (Canadian $ in millions)         three months ended   nine months ended
    -------------------------------------------------------------------------
                                          July      July      July      July
                                      31, 2008  31, 2007  31, 2008  31, 2007
    -------------------------------------------------------------------------
    Cash Flows from Operating
     Activities
    Net income                        $    521  $    660  $  1,418  $  1,679
    Adjustments to determine net cash
     flows provided by (used in)
     operating activities
      Write-down of securities,
       other than trading                   61         -       135         -
      Net loss (gain) on securities,
       other than trading                   14        (6)      (72)      (98)
      Net (increase) decrease in
       trading securities                1,158    (5,145)    9,510   (17,042)
      Provision for credit losses          484        91       865       202
      Gain on sale of securitized
       loans (Note 3)                     (113)      (41)     (288)     (155)
      Change in derivative instruments
        - (Increase) decrease in
          derivative asset               1,918     7,688    (8,949)   (1,130)
        - Increase (decrease) in
          derivative liability          (4,096)   (8,484)    1,471       880
      Amortization of premises and
       equipment                            98       100       291       291
      Amortization of intangible assets     11        11        31        35
      Net increase (decrease) in
       future income taxes                 109       (61)      152      (140)
      Net decrease in current
       income taxes                       (341)       (5)     (868)     (589)
      Change in accrued interest
        - Decrease in interest
          receivable                       105         1       435       126
        - Increase (decrease) in
          interest payable                (111)      126      (373)      159
      Changes in other items and
       accruals, net                        15      (263)   (4,492)      489
      Gain on sale of land and buildings   (13)        -       (13)        -
    -------------------------------------------------------------------------
    Net Cash Used in
     Operating Activities                 (180)   (5,328)     (747)  (15,293)
    -------------------------------------------------------------------------
    Cash Flows from Financing Activities
    Net increase in deposits             8,199    11,192     5,924    28,296
    Net increase (decrease) in
     securities sold but not
     yet purchased                      (2,714)    3,974    (7,962)   13,309
    Net increase (decrease) in
     securities lent or sold under
     repurchase agreements              (2,083)      631    (4,886)      (38)
    Net increase (decrease) in
     liabilities of subsidiaries          (832)      160     2,054       362
    Repayment of subordinated debt
     (Note 10)                               -      (150)     (150)     (483)
    Proceeds from issuance of
     subordinated debt (Note 10)             -     1,200       900     1,200
    Proceeds from issuance of
     preferred shares                      300         -       550       350
    Proceeds from issuance of
     common shares                          44        71       121       194
    Share issue expense                     (5)        -       (10)       (9)
    Common shares repurchased for
     cancellation (Note 11)                  -      (195)        -      (433)
    Dividends paid                        (372)     (349)   (1,103)   (1,036)
    -------------------------------------------------------------------------
    Net Cash Provided by (Used in)
     Financing Activities                2,537    16,534    (4,562)   41,712
    -------------------------------------------------------------------------
    Cash Flows from Investing Activities
    Net (increase) decrease in
     interest bearing deposits
     with banks                            631    (5,226)    1,901    (5,370)
    Purchases of securities,
     other than trading                 (3,933)  (13,133)  (17,250)  (32,650)
    Maturities of securities,
     other than trading                  1,994     6,885    14,188    20,899
    Proceeds from sales of securities,
     other than trading                  1,169     6,043     6,967     8,355
    Net (increase) in loans,
     customers' liability under
     acceptances and loan substitute
     securities                         (6,149)   (6,299)  (12,683)  (15,599)
    Proceeds from securitization of
     loans (Note 3)                      2,626     1,207     5,771     2,636
    Net (increase) decrease in
     securities borrowed or purchased
     under resale agreements             1,492       368     6,332    (3,544)
    Proceeds from sale of land
     and buildings                          19         -        19         -
    Premises and equipment -
     net purchases                        (120)      (96)     (284)     (251)
    Acquisitions (Note 7)                  (31)       (2)     (207)     (387)
    -------------------------------------------------------------------------
    Net Cash Provided by (Used in)
     Investing Activities               (2,302)  (10,253)    4,754   (25,911)
    -------------------------------------------------------------------------
    Effect of Exchange Rate Changes
     on Cash and Cash Equivalents           41       (63)      149       (23)
    -------------------------------------------------------------------------
    Net Increase (Decrease) in Cash
     and Cash Equivalents                   96       890      (406)      485
    Cash and Cash Equivalents at
     Beginning of Period                 3,148     2,053     3,650     2,458
    -------------------------------------------------------------------------
    Cash and Cash Equivalents
     at End of Period                 $  3,244  $  2,943  $  3,244  $  2,943
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these interim consolidated
    financial statements.
    Certain comparative figures have been reclassified to conform with the
    current period's presentation.



    Notes to Consolidated Financial Statements

    July 31, 2008 (Unaudited)
    -------------------------------------------------------------------------

    Note 1: Basis of Presentation

    These interim consolidated financial statements should be read in
    conjunction with the notes to our annual consolidated financial
    statements for the year ended October 31, 2007 as set out on pages 96 to
    137 of our 2007 Annual Report. These interim consolidated financial
    statements have been prepared in accordance with Canadian generally
    accepted accounting principles ("GAAP") using the same accounting
    policies and methods of computation as were used for our annual
    consolidated financial statements for the year ended October 31, 2007.

    Note 2: Allowance for Credit Losses

    The allowance for credit losses recorded in our Consolidated Balance
    Sheet is maintained at a level which we consider adequate to absorb
    credit-related losses on our loans, customers' liability under
    acceptances and other credit instruments. The portion related to other
    credit instruments is recorded in other liabilities in our Consolidated
    Balance Sheet. As at July 31, 2008 and July 31, 2007 there was no
    allowance for credit losses related to other credit instruments included
    in other liabilities.

    A continuity of our allowance for credit losses is as follows:


    (Canadian $ in millions)           For the three months ended
    -------------------------------------------------------------------------
                                              Credit card,
                                          consumer instalment   Business and
                            Residential    and other personal    government
                             mortgages           loans             loans
    -------------------------------------------------------------------------
                           July     July     July     July     July     July
                             31,      31,      31,      31,      31,      31,
                           2008     2007     2008     2007     2008     2007
    -------------------------------------------------------------------------
    Specific Allowance
     at beginning of
     period             $    12  $     5  $     1  $     1  $   312  $   152
    Provision for
     credit losses            3       15       82       56      349       20
    Recoveries                -        -       24       20       10        4
    Write-offs                -        -     (106)     (76)    (263)     (40)
    Foreign exchange
     and other                -        -        -        -        3        -
    -------------------------------------------------------------------------
    Specific Allowance
     at end of period        15       20        1        1      411      136
    -------------------------------------------------------------------------

    General Allowance at
     beginning of period      7       19      316      336      636      508
    Provision for credit
     losses                   1       (7)      33        1       19        7
    Foreign exchange
     and other                -        -        -        -        6      (13)
    -------------------------------------------------------------------------
    General Allowance at
     end of period            8       12      349      337      661      502
    -------------------------------------------------------------------------
    Total Allowance     $    23  $    32  $   350  $   338  $ 1,072  $   638
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (Canadian $
     in millions)             For the three months ended
    -------------------------------------------------------
                             Customers'
                          liability under
                            acceptances          Total
    -------------------------------------------------------
                           July     July     July     July
                             31,      31,      31,      31,
                           2008     2007     2008     2007
    -------------------------------------------------------
    Specific Allowance
     at beginning of
     period             $     -  $     -  $   325  $   158
    Provision for
     credit losses            -        -      434       91
    Recoveries                -        -       34       24
    Write-offs                -        -     (369)    (116)
    Foreign exchange
     and other                -        -        3        -
    -------------------------------------------------------
    Specific Allowance
     at end of period         -        -      427      157
    -------------------------------------------------------

    General Allowance at
     beginning of period     52       38    1,011      901
    Provision for credit
     losses                  (3)      (1)      50        -
    Foreign exchange
     and other                -        -        6      (13)
    -------------------------------------------------------
    General Allowance at
     end of period           49       37    1,067      888
    -------------------------------------------------------
    Total Allowance     $    49  $    37  $ 1,494  $ 1,045
    -------------------------------------------------------
    -------------------------------------------------------



    (Canadian $ in millions)           For the nine months ended
    -------------------------------------------------------------------------
                                              Credit card,
                                          consumer instalment   Business and
                            Residential    and other personal    government
                             mortgages           loans             loans
    -------------------------------------------------------------------------
                           July     July     July     July     July     July
                             31,      31,      31,      31,      31,      31,
                           2008     2007     2008     2007     2008     2007
    -------------------------------------------------------------------------
    Specific Allowance
     at beginning of
     period             $    14  $     5  $     1  $     1  $   142  $   147
    Provision for
     credit losses            3       16      219      160      533       26
    Recoveries                -        -       70       55       21       12
    Write-offs               (2)      (1)    (289)    (215)    (292)     (58)
    Foreign exchange
     and other                -        -        -        -        7        9
    -------------------------------------------------------------------------
    Specific Allowance
     at end of period        15       20        1        1      411      136
    -------------------------------------------------------------------------

    General Allowance at
     beginning of period     11       23      327      340      517      506
    Provision for
     credit losses           (3)     (11)      22       (3)      85       13
    Foreign exchange
     and other                -        -        -        -       59      (17)
    -------------------------------------------------------------------------
    General Allowance at
     end of period            8       12      349      337      661      502
    -------------------------------------------------------------------------
    Total Allowance     $    23  $    32  $   350  $   338  $ 1,072  $   638
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (Canadian $
     in millions)            For the nine months ended
    -------------------------------------------------------
                             Customers'
                          liability under
                            acceptances          Total
    -------------------------------------------------------
                           July     July     July     July
                             31,      31,      31,      31,
                           2008     2007     2008     2007
    -------------------------------------------------------
    Specific Allowance
     at beginning of
     period             $     -  $     -  $   157  $   153
    Provision for
     credit losses            -        -      755      202
    Recoveries                -        -       91       67
    Write-offs                -        -     (583)    (274)
    Foreign exchange
     and other                -        -        7        9
    -------------------------------------------------------
    Specific Allowance
     at end of period         -        -      427      157
    -------------------------------------------------------

    General Allowance at
     beginning of period     43       36      898      905
    Provision for
     credit losses            6        1      110        -
    Foreign exchange
     and other                -        -       59      (17)
    -------------------------------------------------------
    General Allowance at
     end of period           49       37    1,067      888
    -------------------------------------------------------
    Total Allowance     $    49  $    37  $ 1,494  $ 1,045
    -------------------------------------------------------
    -------------------------------------------------------

    Sale of Impaired Loans

    During the quarter ended July 31, 2008, we recorded a net gain on the
    sale of impaired loans of $2 million ($nil for the quarter ended July 31,
    2007). For the nine months ended July 31, 2008, the net gain on sale of
    impaired loans was $2 million ($5 million for the nine months ended
    July 31, 2007).

    Note 3: Securitization

    The following tables summarize the Bank's securitization activities
    related to its own assets, for the three and nine months ended July 31:

    (Canadian $ in
     millions)                        For the three months ended
    -------------------------------------------------------------------------
                       Residential         Credit card
                        mortgages            loans               Total
    -------------------------------------------------------------------------
                   July 31,  July 31,  July 31,  July 31,  July 31,  July 31,
                      2008      2007      2008      2007      2008      2007
    -------------------------------------------------------------------------
    Net cash
     proceeds(1)  $  1,622  $  1,217  $    999  $      -  $  2,621  $  1,217
    Investment in
     securitization
     vehicles            -         -        47         -        47         -
    Deferred
     purchase price     59        38        25         -        84        38
    Servicing
     liability          (9)       (8)       (4)        -       (13)       (8)
    -------------------------------------------------------------------------
                     1,672     1,247     1,067         -     2,739     1,247
    Securitized
     and sold(2)     1,651     1,245     1,047         -     2,698     1,245
    -------------------------------------------------------------------------
    Gain on sale
     of loans
     from new
     securiti-
     zations      $     21  $      2  $     20  $      -  $     41  $      2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Gain on sale
     of loans sold
     to revolving
     securiti-
     zation
     vehicles     $     19  $      1  $     53  $     38  $     72  $     39
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (Canadian $ in
     millions)                        For the nine months ended
    -------------------------------------------------------------------------
                       Residential         Credit card
                        mortgages            loans               Total
    -------------------------------------------------------------------------
                   July 31,  July 31,  July 31,  July 31,  July 31,  July 31,
                      2008      2007      2008      2007      2008      2007
    -------------------------------------------------------------------------
    Net cash
     proceeds(1)  $  4,233  $  2,624  $  1,524  $      -  $  5,757  $  2,624
    Investment in
     securitization
     vehicles            -         -        71         -        71         -
    Deferred
     purchase price    193       100        38         -       231       100
    Servicing
     liability         (28)      (20)       (6)        -       (34)      (20)
    -------------------------------------------------------------------------
                     4,398     2,704     1,627         -     6,025     2,704
    Securitized
     and sold(2)     4,326     2,692     1,597         -     5,923     2,692
    -------------------------------------------------------------------------
    Gain on sale
     of loans from
     new securiti-
     zations      $     72  $     12  $     30  $      -  $    102  $     12
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Gain on sale
     of loans sold
     to revolving
     securiti
     -zation
     vehicles     $     54  $     20  $    132  $    123  $    186  $    143
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Net cash proceeds represent cash proceeds less issuance costs and
        write-offs of loan origination costs.
    (2) Credit card loans securitized and sold include interests retained by
        the Bank as reflected in investment in securitization vehicles.

    The key weighted average assumptions used to value the deferred purchase
    price for these securitizations were as follows:

                                              For the three months ended
    -------------------------------------------------------------------------
                                           Residential         Credit card
                                            mortgages            loans
    -------------------------------------------------------------------------
                                       July 31,  July 31,  July 31,  July 31,
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    Average term (in years)                3.7       4.3       0.5       n/a
    Prepayment rate (%)                   14.0      10.0      40.5       n/a
    Interest rate (%)                     5.22      5.07     21.25       n/a
    Discount rate (%)                     4.19      5.01     10.19       n/a
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                               For the nine months ended
    -------------------------------------------------------------------------
                                           Residential         Credit card
                                            mortgages            loans
    -------------------------------------------------------------------------
                                       July 31,  July 31,  July 31,  July 31,
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    Average term (in years)                4.2       4.5       0.5       n/a
    Prepayment rate (%)                   13.5       9.6      40.7       n/a
    Interest rate (%)                     5.42      5.19     21.26       n/a
    Discount rate (%)                     4.24      4.57     10.26       n/a
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    n/a - not applicable

    Note 4: Variable Interest Entities

    Canadian Customer Securitization Vehicles

    Customer securitization vehicles assist our customers with the
    securitization of their assets to provide them with alternative sources
    of funding. Assets held by our unconsolidated Canadian customer
    securitization vehicles amounted to $13,113 million as at July 31, 2008
    ($17,536 million as at October 31, 2007). Our exposure to losses relates
    to our investment in commercial paper issued by the vehicles, derivative
    contracts we have entered into with the vehicles and the liquidity
    support we provide through commitments to extend credit. As at July 31,
    2008, we have a net exposure of $1,253 million from commercial paper held
    ($5,564 million as at October 31, 2007) classified as trading securities,
    and undrawn backstop liquidity facilities of $13,073 million
    ($20,756 million as at October 31, 2007). No amounts have been drawn
    against these Canadian facilities as at July 31, 2008 or October 31,
    2007. The fair value of derivatives outstanding with these Variable
    Interest Entities ("VIEs") and recorded in our Consolidated Balance Sheet
    was a derivative asset of $38 million as at July 31, 2008 (derivative
    liability of $20 million as at October 31, 2007).

    Included in our Consolidated Balance Sheet as at July 31, 2008 were other
    assets totalling $277 million and $4 million as a deposit liability
    ($311 million and $65 million, respectively, as at October 31, 2007) as a
    result of consolidating two Canadian customer securitization vehicles.

    U.S. Customer Securitization Vehicle

    Our exposure to losses in our U.S. customer securitization vehicle
    relates to liquidity support we provide through backstop liquidity
    facilities. Assets held by our unconsolidated U.S. customer
    securitization vehicle amounted to $7,189 million as at July 31, 2008
    ($7,929 million as at October 31, 2007). As at July 31, 2008, exposure
    from undrawn backstop liquidity facilities amounted to $8,580 million
    ($10,719 million as at October 31, 2007). As at July 31, 2008, the Bank
    has advanced US$851 million ($nil as at October 31, 2007) in accordance
    with the terms of these liquidity facilities. We are not required to
    consolidate our U.S. customer securitization vehicle.

    Bank Securitization Vehicles

    We use bank securitization vehicles to securitize our Canadian mortgage
    loans and Canadian credit card loans either for capital management
    purposes or to obtain alternate sources of funding. Total assets held by
    these vehicles amounted to $8,097 million as at July 31, 2008
    ($6,552 million as at October 31, 2007). We are not required to
    consolidate our bank securitization vehicles. We held $67 million of the
    commercial paper issued by these vehicles as at July 31, 2008
    ($367 million as at October 31, 2007) classified as trading securities.
    We also provide liquidity support to certain of our bank securitization
    vehicles for the face value of the commercial paper outstanding. The
    total contract amount of the liquidity support was $5,100 million as at
    July 31, 2008 and October 31, 2007. No amounts were drawn as at July 31,
    2008 and October 31, 2007. The fair value of derivatives outstanding with
    these vehicles and recorded in our Consolidated Balance Sheet was a
    derivative asset of $58 million as at July 31, 2008 (derivative liability
    of $52 million as at October 31, 2007).

    Credit Investment Management Vehicles

    Credit investment management vehicles provide investment opportunities in
    customized, diversified debt portfolios in a variety of asset and rating
    classes. We hold an interest in high grade Structured Investment Vehicles
    ("SIVs") and act as asset manager. Assets held by these vehicles amounted
    to $9,438 million, including cash of $4 million, as at July 31, 2008
    (assets of $22,754 million as at October 31, 2007). Our exposure to loss
    relates to our investments in these vehicles, derivative contracts we
    have entered into with the vehicles and senior funding we provide through
    a liquidity facility in order to backstop the repayment of senior notes.
    Our investment in the capital notes of the SIVs is recorded in available-
    for-sale securities in our Consolidated Balance Sheet and was $8 million
    as at July 31, 2008 ($53 million as at October 31, 2007), net of write-
    downs of $3 million for the quarter ended July 31, 2008 and $49 million
    for the nine months ended July 31, 2008 ($13 million for the quarter
    ended October 31, 2007). Amounts drawn from the liquidity facility
    provided to the SIVs totalled $4,093 million as at July 31, 2008 ($nil as
    at October 31, 2007). Our exposure includes undrawn facilities of
    $5,130 million as at July 31, 2008 ($1,158 million as at October 31,
    2007). The fair value of our derivative contracts outstanding with these
    SIVs and recorded in our Consolidated Balance Sheet was $nil as at
    July 31, 2008 (derivative liability of $11 million as at October 31,
    2007). We are not required to consolidate these VIEs.

    Structured Finance Vehicles

    We facilitate development of investment products by third parties
    including mutual funds, unit investment trusts and other investment funds
    that are sold to retail investors. We enter into derivatives with these
    funds to provide the investors their desired exposure and hedge our
    exposure from these derivatives by investing in other funds. We
    consolidate those VIEs where our interests expose us to a majority of the
    expected losses or residual returns, or both. Total assets and our
    exposure to losses in these consolidated VIEs were $395 million as at
    July 31, 2008 ($440 million as at October 31, 2007). Assets held by these
    VIEs in which we have a significant variable interest but we do not
    consolidate totalled $142 million as at July 31, 2008 ($353 million as at
    October 31, 2007). Our exposure to loss from VIEs related to this
    activity is limited to the amount of our investment, which totalled
    $43 million as at July 31, 2008 ($99 million as at October 31, 2007).

    We also sponsor Apex Trust ("Apex"), formerly known as Apex/Sitka Trusts,
    a VIE that provides investors credit protection on investments in debt
    portfolios through credit default swaps. Assets held by Apex were
    $2,324 million and $2,012 million as at July 31, 2008 and October 31,
    2007, respectively. During the quarter ended July 31, 2008, we
    successfully restructured Apex and asset-backed commercial paper ("ABCP")
    was exchanged for mid-term notes ("MTNs") in Apex with maturities of five
    to eight years. A senior funding facility of $1,130 million was provided
    of which we provide $1,030 million. As at July 31, 2008, $124 million had
    been drawn against our facility. Under the terms of the restructuring, we
    also entered into credit default swaps with swap counterparties and
    offsetting swaps with Apex.

    As at July 31, 2008, the Bank held $730 million of MTNs classified as
    available-for-sale securities (face value of $815 million). A third party
    holds its exposure to Apex through a total return swap on $600 million of
    MTNs with the Bank. The total return swap and underlying MTNs are
    classified as trading instruments.

    The Bank does not consider the May 2008 purchase of the MTNs described
    above to imply or be an indicator of our intent to provide support to
    other mid-term noteholders or provide additional subordinated support to
    Apex. Instead, the purchase was a one-time, isolated event, upon the
    restructuring of Apex. We do not intend to purchase additional MTNs of
    Apex nor do we intend to reimburse any other mid-term noteholder for any
    loss they may incur. We are not required to consolidate Apex.

    Capital Trusts

    BMO Covered Bond Trust (the "CB Trust") was created in 2007 to guarantee
    payments due to the bondholders in respect of (euro)1 billion BMO Covered
    Bonds issued by the Bank in the first quarter of 2008. The guarantee is
    secured by the assets of the CB Trust. We are required to consolidate CB
    Trust. Total assets in the CB Trust as at July 31, 2008 were
    $6.1 billion.

    The Bank is also involved with two VIEs that are used to issue
    subordinated notes and securities of BMO Capital Trust. We are required
    to consolidate BMO Capital Trust.

    Note 5: Financial Instruments

    Fair Value Option

    Management can elect to account for any financial instruments that would
    not otherwise be accounted for at fair value as trading instruments with
    changes in fair value recorded in income provided they meet certain
    criteria.

    The Bank has designated bonds purchased to support our Municipal Tender
    Option Bond Program as trading under the fair value option. These bonds
    would otherwise be accounted for as available-for-sale securities with
    unrealized gains and losses recorded in Other Comprehensive Income. In
    managing this program, we enter into derivatives to hedge against changes
    in the fair value of those bonds that arise due to changes in interest
    rates. Electing the fair value option for the bonds better aligns the
    accounting result with how the portfolio is managed. The fair value of
    the bonds as at July 31, 2008 was $28 million. The impact of recording
    the bonds as trading securities was a decrease in non-interest revenue,
    trading revenues of less than $1 million for the quarter and nine months
    ended July 31, 2008.

    The change in fair value of our structured notes designated as held for
    trading was an increase in non-interest revenue, trading revenues of
    $14 million for the quarter ended July 31, 2008 and an increase in non-
    interest revenue, trading revenues of $11 million for the nine months
    ended July 31, 2008. The portion of the change in fair value attributable
    to changes in our own credit risk was an unrealized gain of $6 million
    for the quarter ended July 31, 2008 and $19 million for the nine months
    ended July 31, 2008.

    Fair Value Measurement

    We use a fair value hierarchy to categorize the inputs we use in
    valuation techniques to measure fair value. The extent of our use of
    quoted market prices (Level 1), internal models using observable market
    information as inputs (Level 2) and internal models without observable
    market information (Level 3) in the valuation of securities, fair value
    liabilities, derivative assets and derivative liabilities as at July 31,
    2008 were as follows:


                                                    Fair        Derivative
                          Available-   Trading     value       Instruments
                            for-sale    secur-   liabil-    -----------------
                          securities     ities     ities     Asset  Liability
    -------------------------------------------------------------------------
    Valued using quoted
     market prices               56%       99%        -%       10%        9%
    Valued using internal
     models (with
     observable inputs)           39         -       100        83        89
    Valued using internal
     models (without
     observable inputs)            5         1         -         7         2
    -------------------------------------------------------------------------
    Total                       100%      100%      100%      100%      100%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Sensitivity analysis for the most significant items valued using internal
    models without observable inputs is described below.

    Within available-for-sale securities as at July 31, 2008 was $730 million
    of Apex MTNs with a face value of $815 million. These MTNs are considered
    Level 3 as their value has been determined by management based on
    expected discounted cash flows. The determination of the discount rate
    used in the discounted cash flow model has the most significant impact on
    the valuation of the MTNs. The impact of assuming the discount rate
    increased or decreased by 50 basis points would result in a change in
    fair value of $18 million and $(20) million, respectively. The impact on
    net income for the quarter ended July 31, 2008 related to changes in the
    fair value of our investment in Apex MTNs, including changes resulting
    from the completion of the restructuring, was a net recovery of
    $40 million before tax.

    A third party holds its exposure to the Apex MTNs through a total return
    swap with the Bank. This swap and the related underlying MTNs are
    considered Level 3 as their value has been determined by management based
    on expected discounted cash flows. The determination of the discount rate
    used in the discounted cash flow model has the most significant impact on
    the valuation of the swap and underlying securities. The impact of
    assuming the discount rate increased or decreased by 50 basis points
    would result in a change in fair value of $13 million and $(14) million,
    respectively. The impact on net income for the quarter ended July 31,
    2008 related to changes in the fair value of the swap and underlying
    MTNs, including changes resulting from the completion of the
    restructuring, was a charge of $55 million before tax.

    Within trading securities as at July 31, 2008 was $201 million of third
    party ABCP with a face value of $325 million. This ABCP is considered
    Level 3 as its value has been determined by management based on expected
    discounted cash flows and expectations of the probability of
    restructuring the vehicles in accordance with the Montreal Accord versus
    the liquidation value. The determination of the discount rate used in the
    discounted cash flow model has the most significant impact on the
    valuation of the ABCP. The impact of assuming the discount rate increased
    or decreased by 50 basis points would result in a change in fair value of
    $6 million and $(6) million, respectively. The impact on net income for
    the quarter ended July 31, 2008 related to changes in the fair value of
    this investment was a charge of $28 million before tax.

    Within derivative assets and derivative liabilities as at July 31, 2008
    was $2,212 million and $4 million, respectively, related to the mark-
    to-market of credit default swaps and total return swaps on structured
    products. These derivatives are considered Level 3 as their values have
    been determined by management, based on estimates of current market
    spreads for similar structured products.  The impact of assuming a 10
    basis point increase or decrease in that spread would result in a change
    in fair value of $11 million or $(11) million, respectively.  The impact
    on net income in the quarter ended July 31, 2008 related to the change in
    the fair value of these derivatives was a charge of $2 million before
    tax.

    Note 6: Guarantees

    In the normal course of business we enter into a variety of guarantees,
    the most significant of which are as follows:

    (Canadian $ in millions)                                    As at
    -------------------------------------------------------------------------
                                                    Maximum potential amount
                                                          of future payments
    -------------------------------------------------------------------------
                                                         July 31, October 31,
                                                            2008        2007
    -------------------------------------------------------------------------
    Standby letters of credit and guarantees            $ 14,679    $ 12,395
    Backstop and other liquidity facilities               35,055      39,428
    -------------------------------------------------------------------------
    Total                                               $ 49,734    $ 51,823
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Standby Letters of Credit and Guarantees

    Standby letters of credit and guarantees represent our obligation to make
    payments to third parties on behalf of another party if they are unable
    to make the required payments or meet other contractual requirements.
    Collateral requirements for standby letters of credit and guarantees are
    consistent with our collateral requirements for loans.

    No amount was included in our Consolidated Balance Sheet as at July 31,
    2008 and October 31, 2007 related to these standby letters of credit and
    guarantees.

    Backstop and Other Liquidity Facilities

    Backstop liquidity facilities are provided to ABCP programs administered
    by either us or third parties as an alternative source of financing in
    the event that such programs are unable to access ABCP markets or, in
    limited circumstances, when predetermined performance measures of the
    financial assets owned by these programs are not met. The terms of the
    backstop liquidity facilities do not require us to advance money to
    these programs in the event of bankruptcy of the borrower. The
    facilities' terms are generally no longer than one year, but can be
    several years.

    As at July 31, 2008, $874 million was drawn ($16 million as at
    October 31, 2007), in accordance with the terms of the backstop liquidity
    facilities, of which $872 million (US$851 million) ($nil as at
    October 31, 2007) relates to VIEs discussed in Note 4.

    We also provide senior funding support to our credit investment vehicles,
    structured finance vehicles, and capital trusts. These facilities support
    the repayment of senior note obligations. As at July 31, 2008,
    $4,222 million was drawn ($5 million as at October 31, 2007), in
    accordance with the terms of the funding facilities related to the VIEs
    discussed in Note 4.

    Credit Enhancement Facilities

    Where warranted, we provide partial credit enhancement facilities to
    transactions within ABCP programs administered by either us or third
    parties. Credit enhancement facilities of $5,809 million ($5,449 million
    as at October 31, 2007) are included in backstop liquidity facilities.
    The facilities' terms are generally no longer than one year, but can be
    several years.

    Note 7: Acquisitions

    Griffin, Kubik, Stephens & Thompson, Inc.

    On May 1, 2008, we completed the acquisition of Chicago-based Griffin,
    Kubik, Stephens & Thompson, Inc. ("GKST"), for cash consideration of
    $31 million, subject to a post-closing adjustment based on net equity.
    The results of GKST's operations have been included in our consolidated
    financial statements since that date. The acquisition of GKST will
    provide us with the opportunity to significantly expand our presence in
    the U.S. municipal bond market. Goodwill related to this acquisition is
    deductible for tax purposes. GKST is part of our BMO Capital Markets
    reporting segment.

    Merchants and Manufacturers Bancorporation, Inc.

    On February 29, 2008, we completed the acquisition of Merchants and
    Manufacturers Bancorporation, Inc. ("Merchants and Manufacturers"), for
    total cash consideration of $135 million. The results of Merchants and
    Manufacturers' operations have been included in our consolidated
    financial statements since that date. The acquisition of Merchants and
    Manufacturers will provide us with the opportunity to expand our banking
    locations into Wisconsin. As part of this acquisition, we acquired a core
    deposit intangible asset, which will be amortized on an accelerated basis
    over a period not to exceed 10 years. Goodwill related to this
    acquisition is not deductible for tax purposes. Merchants and
    Manufacturers is part of our Personal and Commercial Banking U.S.
    reporting segment.

    Ozaukee Bank

    On February 29, 2008, we completed the acquisition of Ozaukee Bank
    ("Ozaukee"), a Wisconsin-based community bank, for 3,283,190 shares of
    Bank of Montreal with a market value of $54.97 per share for total
    consideration of $180 million. The results of Ozaukee's operations have
    been included in our consolidated financial statements since that date.
    The acquisition of Ozaukee will provide us with the opportunity to expand
    our banking locations into Wisconsin. As part of this acquisition, we
    acquired a core deposit intangible asset, which will be amortized on an
    accelerated basis over a period not to exceed 10 years. Goodwill related
    to this acquisition is not deductible for tax purposes. Ozaukee is part
    of our Personal and Commercial Banking U.S. reporting segment.

    Pyrford International plc

    On December 14, 2007, we completed the acquisition of Pyrford
    International plc ("Pyrford"), a London, U.K.-based asset manager, for
    total cash consideration of $41 million, plus contingent consideration up
    to $10 million based on our retention of the assets under management one
    year from the closing date. The results of Pyrford's operations have been
    included in our consolidated financial statements since that date. The
    acquisition of Pyrford will provide us with the opportunity to expand our
    investment management capabilities outside of North America. As part of
    this acquisition, we acquired a customer relationship intangible asset,
    which will be amortized on a straight line basis over a period not to
    exceed 15 years. Goodwill related to this acquisition is not deductible
    for tax purposes. Pyrford is part of our Private Client Group reporting
    segment.

    First National Bank & Trust

    On January 4, 2007, we completed the acquisition of First National Bank &
    Trust ("First National") for total cash consideration of $345 million.
    The results of First National's operations have been included in our
    consolidated financial statements since that date. The acquisition of
    First National provides us with the opportunity to expand our banking
    services into the Indianapolis, Indiana market. As part of this
    acquisition, we acquired a core deposit intangible asset, which will be
    amortized on an accelerated basis over a period not to exceed 10 years.
    Goodwill related to this acquisition is deductible for tax purposes.
    First National is part of our Personal and Commercial Banking U.S.
    reporting segment.

    bcpbank Canada

    On December 4, 2006, we completed the acquisition of bcpbank Canada, a
    full-service chartered bank, for total cash consideration of $41 million.
    The results of bcpbank Canada's operations have been included in our
    consolidated financial statements since that date. The acquisition of
    bcpbank Canada expands our branch network and provides our customers with
    greater access to banking services across the greater Toronto area. As
    part of this acquisition, we acquired a core deposit intangible asset,
    which will be amortized on an accelerated basis over 10 years. Goodwill
    related to this acquisition is not deductible for tax purposes. bcpbank
    Canada is part of our Personal and Commercial Banking Canada reporting
    segment.

    The estimated fair values of the assets acquired and the liabilities
    assumed at the date of acquisition are as follows:

                                                 July 31,         October 31,
    (Canadian $ in millions)                        2008                2007
    -------------------------------------------------------------------------
                           Merchants
                                 and
                            Manufact-                        First   bcpbank
                      GKST     urers   Ozaukee   Pyrford  National    Canada
    -------------------------------------------------------------------------
    Cash
     resources    $      -  $     43  $     50  $      1  $    110  $     47
    Securities          63       134       115         -       317        23
    Loans                -     1,013       517         -     1,009       293
    Premises and
     equipment           1        31         8         1        30         9
    Goodwill             8        90       123        20       175        13
    Core deposit/
     Customer
     relationship
     intangible
     asset               -        39        24        17        37         5
    Other assets        24        18        14         4        52         2
    -------------------------------------------------------------------------
    Total assets        96     1,368       851        43     1,730       392
    -------------------------------------------------------------------------
    Deposits             -     1,029       584         -     1,375       339
    Other
     liabilities        65       204        87         2        10        12
    -------------------------------------------------------------------------
    Total
     liabilities        65     1,233       671         2     1,385       351
    -------------------------------------------------------------------------
    Purchase
     Price        $     31  $    135  $    180  $     41  $    345  $     41
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The allocations of the purchase price for GKST, Merchants and
    Manufacturers, Ozaukee and Pyrford are subject to refinement as we
    complete the valuation of the assets acquired and liabilities assumed.

    Note 8: Employee Compensation

    Stock Options

    During the nine months ended July 31, 2008, we granted a total of
    1,404,213 stock options. The weighted-average fair value of these options
    was $8.25 per option and was determined using a trinomial option pricing
    model, based on the following weighted-average assumptions.

    For stock options granted during the nine months ended July 31, 2008
    -------------------------------------------------------------------------
    Expected dividend yield                                             4.0%
    Expected share price volatility                                    19.4%
    Risk-free rate of return                                            4.1%
    Expected period until exercise                                 7.4 years
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Pension and Other Employee Future Benefit Expenses

    We recorded pension and other employee future benefit expenses in our
    Consolidated Statement of Income as follows:

    (Canadian $ in millions)                For the three months ended
    -------------------------------------------------------------------------
                                                            Other employee
                                        Pension benefit     future benefit
                                             plans              plans
    -------------------------------------------------------------------------
                                          July      July      July      July
                                      31, 2008  31, 2007  31, 2008  31, 2007
    -------------------------------------------------------------------------
    Benefits earned by employees      $     34  $     35  $      4  $      5
    Interest cost on accrued
     benefit liability                      57        54        14        12
    Actuarial loss recognized-
     in expense                              2        16         2         4
    Amortization of plan amendment
     costs                                   3         3        (1)        -
    Expected return on plan assets         (73)      (70)       (1)       (1)
    -------------------------------------------------------------------------
    Benefits expense                        23        38        18        20
    Canada and Quebec pension plan
     expense                                15        14         -         -
    Defined contribution expense             4         3         -         -
    -------------------------------------------------------------------------
    Total pension and other employee
     future benefit expenses          $     42  $     55  $     18  $     20
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    (Canadian $ in millions)                 For the nine months ended
    -------------------------------------------------------------------------
                                                            Other employee
                                        Pension benefit     future benefit
                                             plans              plans
    -------------------------------------------------------------------------
                                          July      July      July      July
                                      31, 2008  31, 2007  31, 2008  31, 2007
    -------------------------------------------------------------------------
    Benefits earned by employees      $    114  $    114  $     14  $     16
    Interest cost on accrued
     benefit liability                     171       164        39        37
    Actuarial loss recognized
     in expense                              8        46         8        12
    Amortization of plan amendment
     costs                                   8         8        (4)       (3)
    Expected return on plan assets        (218)     (209)       (4)       (4)
    -------------------------------------------------------------------------
    Benefits expense                        83       123        53        58
    Canada and Quebec pension plan
     expense                                47        44         -         -
    Defined contribution expense            11        11         -         -
    -------------------------------------------------------------------------
    Total pension and other employee
     future benefit expenses          $    141  $    178  $     53  $     58
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 9: Restructuring Charge

    The continuity of our restructuring charge is as follows:

                                     Severance- Premises-
                                       related   related
    (Canadian $ in millions)           charges   charges     Other     Total
    -------------------------------------------------------------------------
    Year Ended October 31, 2007
    ---------------------------
    Opening Balance                   $    117  $     11  $      7  $    135
    Paid in the year                       (46)      (10)       (7)      (63)
    Reversal in the year                   (15)       (1)        -       (16)
    Additional charge in the year           40         -         -        40
    -------------------------------------------------------------------------
    Balance as at October 31, 2007          96         -         -        96
    Paid in the quarter ended
     January 31, 2008                      (12)        -         -       (12)
    -------------------------------------------------------------------------
    Balance as at January 31, 2008          84         -         -        84
    Paid in the quarter ended
     April 30, 2008                        (12)        -         -       (12)
    -------------------------------------------------------------------------
    Balance as at April 30, 2008            72         -         -        72
    Paid in the quarter ended
     July 31, 2008                         (11)        -         -       (11)
    -------------------------------------------------------------------------
    Balance as at July 31, 2008       $     61  $      -  $      -  $     61
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 10: Subordinated Debt

    During the quarter ended April 30, 2008, we issued $900 million of
    subordinated debt under our Canadian Medium-Term Note Program. The issue,
    Series F Medium-Term Notes, First Tranche, is due March 2023. Interest on
    this issue is payable semi-annually at a fixed rate of 6.17% until
    March 28, 2018, and at a floating rate equal to the rate on three month
    Bankers' Acceptances plus 2.50%, paid quarterly, thereafter to maturity.

    During the quarter ended April 30, 2008, we redeemed all of our
    5.75% Series A Medium-Term Notes, Second Tranche, due 2013, totalling
    $150 million. The notes were redeemed at a redemption price of
    100 percent of the principal amount plus unpaid accrued interest to the
    redemption date.

    During the quarter ended July 31, 2007, we issued $1.2 billion of
    subordinated debt under our Canadian Medium-Term Note Program. The issue,
    Series D Medium-Term Notes, Second Tranche, is due June 2017. Interest on
    this issue is payable semi-annually at a fixed rate of 5.20% until
    June 21, 2012, and at a floating rate equal to the rate on three month
    Bankers' Acceptances plus 1.00%, paid quarterly, thereafter to maturity.

    During the quarter ended July 31, 2007, we redeemed all of our
    7.92% Debentures, Series 22, due 2012, totalling $150 million. The
    debentures were redeemed at a redemption price of 100 percent of the
    principal amount plus unpaid accrued interest to the redemption date.

    During the quarter ended April 30, 2007, our US$300 million 7.80% Notes
    matured.

    Note 11: Share Capital

    During the quarter ended July 31, 2008, we issued 12,000,000 5.2%
    Non-Cumulative Rate Reset Class B Preferred Shares, Series 16, at a price
    of $25.00 per share, representing an aggregate issue price of
    $300 million.

    During the quarter ended April 30, 2008, we issued 10,000,000 5.8%
    Non-Cumulative Perpetual Class B Preferred Shares, Series 15, at a price
    of $25.00 per share, representing an aggregate issue price of
    $250 million.

    During the quarter ended January 31, 2007, we issued 14,000,000 4.5%
    Non-Cumulative Perpetual Class B Preferred Shares, Series 13, at a price
    of $25.00 per share, representing an aggregate issue price of
    $350 million.

    During the quarter ended July 31, 2008, we did not repurchase any common
    shares. During the quarter ended July 31, 2007, we repurchased 2,809,900
    common shares at an average cost of $69.12 per share, totalling
    $195 million. During the nine months ended July 31, 2008, we did not
    repurchase any common shares. During the nine months ended July 31, 2007,
    we repurchased 6,215,300 common shares at an average cost of $69.69 per
    share, totalling $433 million.

    There have been 27,800 common shares repurchased under the existing
    normal course issuer bid that expires on September 5, 2008 and pursuant
    to which we are permitted to purchase up to 25,000,000 common shares.

    On August 26, 2008, we announced that we intend to file a notice of
    intention with the Toronto Stock Exchange to make a new normal course
    issuer bid, subject to regulatory approval and the approval of the
    Exchange, which provides that we may repurchase up to 15,000,000 common
    shares, being approximately 3% of our outstanding common shares, between
    September 8, 2008 and September 7, 2009.

    Share Capital Outstanding(a)

    (Canadian $ in millions,
     except as noted)                          July 31, 2008
    -------------------------------------------------------------------------
                             Number of shares   Amount   Convertible into...
    -------------------------------------------------------------------------
    Preferred Shares -
     Classified as Liabilities
      Class B - Series 6           10,000,000  $   250   common shares(b)
    -------------------------------------------------------------------------
                                                   250
    -------------------------------------------------------------------------
    Preferred Shares -
     Classified as Equity
      Class B - Series 5            8,000,000      200   -
      Class B - Series 10(c)       12,000,000      396   common shares(b)
      Class B - Series 13          14,000,000      350   -
      Class B - Series 14          10,000,000      250   -
      Class B - Series 15          10,000,000      250   -
      Class B - Series 16          12,000,000      300   -
    -------------------------------------------------------------------------
                                                 1,746
    Common Shares                 504,445,457    4,712   -
    -------------------------------------------------------------------------
    Share Capital                              $ 6,458
    -------------------------------------------------------------------------
    Stock options issued under                           20,869,660
     stock option plan                             n/a    common shares
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (a) For additional information refer to Notes 21 and 22 to our
        consolidated financial statements for the year ended October 31, 2007
        on pages 121 to 124 of our 2007 Annual Report.
    (b) The number of shares issuable on conversion is not determinable until
        the date of conversion.
    (c) Face value is US$300 million.
    n/a - not applicable

    Note 12: Capital Management

    Our capital management framework is designed to maintain the level of
    capital that: meets target ratios as set out by our regulator, the
    Superintendent of Financial Institutions Canada; supports our internal
    assessment of required capital; results in targeted credit ratings; funds
    our operating groups' business strategies; and builds long-term
    shareholder value.

    Our policies and processes for managing capital as well as the nature of
    our capital are outlined in the Enterprise-Wide Capital Management
    section of Management's Discussion and Analysis on page 57 of our
    2007 Annual Report.

    Effective November 1, 2007, a new regulatory capital management framework
    was implemented in Canada. The new framework, Basel II, replaced Basel I,
    the framework utilized for the past 20 years. It establishes regulatory
    capital requirements that are more sensitive to a bank's risk profile.

    We have met our capital targets as at July 31, 2008. Our capital position
    as at July 31, 2008 is detailed in the Capital Management section on
    page 15 of Management's Discussion and Analysis of the Third Quarter
    Report to Shareholders.

    Note 13: Risk Management

    We have an enterprise-wide approach to the identification, measurement,
    monitoring and management of risks faced across the organization. The key
    financial instrument risks are classified as credit and counterparty,
    market and liquidity and funding risk.

    Credit and Counterparty Risk

    We are exposed to credit risk from the possibility that counterparties
    may default on their financial obligations to us. This is the most
    significant measurable risk that we face. Our risk management practices
    and key measures are disclosed in Management's Discussion and Analysis on
    pages 67 to 68 of our 2007 Annual Report. Key measures as at July 31,
    2008 are outlined in the Risk Management section on pages 11 to 12 of
    Management's Discussion and Analysis of the Third Quarter Report to
    Shareholders.

    Market, Liquidity and Funding Risk

    Market risk is the potential for a negative impact on the balance sheet
    and/or income statement resulting from adverse changes in the value of
    financial instruments as a result of changes in certain market variables.
    These variables include interest rates, foreign exchange rates, equity or
    commodity prices and their implied volatilities, as well as credit
    spreads, credit migration and default. We incur market risk in our
    trading and underwriting activities and structural banking activities.

    Liquidity and funding risk is the potential for loss if we are unable to
    meet financial commitments in a timely manner at reasonable prices as
    they fall due. It is our policy to ensure that sufficient liquid assets
    and funding capacity are available to meet financial commitments,
    including liabilities to depositors and suppliers, and lending,
    investment and pledging commitments, even in times of stress. Managing
    liquidity and funding risk is essential to maintaining both depositor
    confidence and stability in earnings.

    Our market risk and liquidity funding management practices and key
    measures are outlined on pages 68 to 71 of our 2007 Annual Report. Key
    measures as at July 31, 2008 are outlined in the Risk Management section
    on pages 11 to 12 of Management's Discussion and Analysis of the Third
    Quarter Report to Shareholders.

    Financial liabilities are comprised of trading and non-trading
    liabilities. As liabilities in trading portfolios are typically held for
    short periods of time, they are not included in the table below.
    Contractual maturities of non-trading financial liabilities and
    commitments to extend credit as at July 31, 2008 were as follows:

    (Canadian $ in millions)
    -------------------------------------------------------------------------
                      Less
                      than    1 to 3    4 to 5    Over 5  No fixed
                    1 year     years     years     years  maturity     Total
    -------------------------------------------------------------------------
    Deposits      $118,182  $ 26,486  $  8,638  $  8,146  $ 87,205  $248,657
    Subordinated
     debt (1)          414       818       551     6,582         -     8,365
    Capital trust
     securities          -       750       400     1,050         -     2,200
    Preferred share
     liability         250         -         -         -         -       250
    Other financial
     liabilities(1) 34,862       183       217     2,979        43    38,284
    Commitments to
     extend credit  42,461    18,637    18,165     2,189         -    81,452
    -------------------------------------------------------------------------
    Total         $196,169  $ 46,874  $ 27,971  $ 20,946  $ 87,248  $379,208
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Includes interest payments.

    Note 14: United States Generally Accepted Accounting Principles

    Reporting under United States GAAP would have resulted in the following:

    (Canadian $ in millions,
     except earnings per share             For the             For the
     figures)                         three months ended   nine months ended
    -------------------------------------------------------------------------
                                          July      July      July      July
                                      31, 2008  31, 2007  31, 2008  31, 2007
    -------------------------------------------------------------------------
    Net Income - Canadian GAAP        $    521  $    660  $  1,418  $  1,679
    United States GAAP adjustments           5        (4)       23       (28)
    -------------------------------------------------------------------------
    Net Income - United States GAAP   $    526  $    656  $  1,441  $  1,651
    -------------------------------------------------------------------------
    Earnings Per Share
      Basic - Canadian GAAP           $   1.00  $   1.30  $   2.73  $   3.29
      Basic - United States GAAP          1.01      1.30      2.78      3.24
      Diluted - Canadian GAAP             0.98      1.28      2.70      3.24
      Diluted - United States GAAP        1.00      1.27      2.75      3.18
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Fair Value Option

    During the quarter ended January 31, 2008, we adopted the new
    United States accounting standard which allows the option to report
    selected financial assets and liabilities at fair value and establishes
    new disclosure requirements for assets and liabilities to which the fair
    value option is applied. The new standard eliminated a difference between
    Canadian GAAP and United States GAAP.

    Note 15: Operating and Geographic Segmentation

    Operating Groups

    We conduct our business through operating groups, each of which has a
    distinct mandate. We determine operating groups based on our management
    structure and therefore our groups, and results attributed to them, may
    not be comparable with those of other financial services companies. We
    evaluate the performance of our groups using measures such as net income,
    revenue growth, return on equity, net economic profit and non-interest
    expense-to-revenue (productivity) ratio as well as cash operating
    leverage.

    Personal and Commercial Banking

    Personal and Commercial Banking ("P&C") is comprised of two operating
    segments: Personal and Commercial Banking Canada and Personal and
    Commercial Banking U.S.

    Personal and Commercial Banking Canada

    Personal and Commercial Banking Canada ("P&C Canada") offers a full range
    of consumer and business products and services, including: everyday
    banking, financing, investing, credit cards and insurance, as well as a
    full suite of commercial and capital market products and financial
    advisory services, through a network of branches, telephone banking,
    online banking, mortgage specialists and automated banking machines.

    Personal and Commercial Banking U.S.

    Personal and Commercial Banking U.S. ("P&C U.S.") offers a full range of
    products and services to personal and business clients in select markets
    of the U.S. Midwest through branches and direct banking channels such as
    telephone banking, online banking and a network of automated banking
    machines.

    Private Client Group

    Private Client Group ("PCG") brings together all of our wealth management
    businesses. Operating under the BMO brand in Canada and Harris in the
    United States, PCG serves a full range of client segments, from
    mainstream to ultra-high net worth, as well as select institutional
    market segments. We offer our clients a broad range of wealth management
    products and services, including full-service and online brokerage in
    Canada, and private banking and investment products in Canada and the
    United States.

    BMO Capital Markets

    BMO Capital Markets ("BMO CM") combines all of our businesses serving
    corporate, institutional and government clients. In Canada and the
    United States, its clients span a broad range of industry sectors. BMO CM
    also serves clients in the United Kingdom, Europe, Asia and Australia. It
    offers clients complete financial solutions, including equity and debt
    underwriting, corporate lending and project financing, mergers and
    acquisitions, advisory services, merchant banking, securitization,
    treasury and market risk management, debt and equity research and
    institutional sales and trading.

    Corporate Services

    Corporate Services includes the corporate units that provide expertise
    and governance support in areas such as strategic planning, law, finance,
    internal audit, risk management, corporate communications, economics,
    corporate marketing, human resources and learning. Operating results
    include revenues and expenses associated with certain securitization
    activities, the hedging of foreign-source earnings and activities related
    to the management of certain balance sheet positions and our overall
    asset liability structure.

    Technology and Operations ("T&O") manages, maintains and provides
    governance over our information technology, real estate, operations
    services and sourcing. T&O focuses on enterprise-wide priorities that
    improve quality and efficiency to deliver an excellent customer
    experience.

    Operating results for T&O are included with Corporate Services for
    reporting purposes. However, costs of T&O services are transferred to
    three operating groups. As such, results for Corporate Services largely
    reflect the activities outlined above.

    Corporate Services also includes residual revenues and expenses
    representing the differences between actual amounts earned or incurred
    and the amounts allocated to operating groups.

    Basis of Presentation

    The results of these operating segments are based on our internal
    financial reporting systems. The accounting policies used in these
    segments are generally consistent with those followed in the preparation
    of our consolidated financial statements as disclosed in Note 1. Notable
    accounting measurement differences are the taxable equivalent basis
    adjustment and the provision for credit losses, as described below.

    Taxable Equivalent Basis

    We analyze net interest income on a taxable equivalent basis ("teb") at
    the operating group level. This basis includes an adjustment which
    increases GAAP revenues and the GAAP provision for income taxes by an
    amount that would raise revenues on certain tax-exempt securities to a
    level that would incur tax at the statutory rate.

    Analysis on a teb basis neutralizes the impact of investing in tax-exempt
    or tax-advantaged securities rather than fully taxable securities with
    higher yields. It reduces distortions in net interest income related to
    the choice of tax-advantaged and taxable investments.

    Provisions for Credit Losses

    Provisions for credit losses are generally allocated to each group based
    on expected losses for that group over an economic cycle. Differences
    between expected loss provisions and provisions required under GAAP are
    included in Corporate Services.

    Inter-Group Allocations

    Various estimates and allocation methodologies are used in the
    preparation of the operating groups' financial information. We allocate
    expenses directly related to earning revenue to the groups that earned
    the related revenue. Expenses not directly related to earning revenue,
    such as overhead expenses, are allocated to operating groups using
    allocation formulas applied on a consistent basis. Operating group net
    interest income reflects internal funding charges and credits on the
    groups' assets, liabilities and capital, at market rates, taking into
    account relevant terms and currency considerations. The offset of the net
    impact of these charges and credits is reflected in Corporate Services.

    Geographic Information

    We operate primarily in Canada and the United States but also have
    operations in the United Kingdom, Europe, the Caribbean and Asia, which
    are grouped in Other countries. We allocate our results by geographic
    region based on the location of the unit responsible for managing the
    related assets, liabilities, revenues and expenses, except for the
    consolidated provision for credit losses, which is allocated based upon
    the country of ultimate risk.

    Our results and average assets, allocated by operating segment, are as
    follows:

    (Canadian $
     in millions)
    -------------------------------------------------------------------------
    For the three
     months ended                                                      Total
     July 31,          P&C       P&C                      Corporate    (GAAP
     2008(2)        Canada       U.S.      PCG    BMO CM  Services(1)  basis)
    -------------------------------------------------------------------------
    Net interest
     income       $    822  $    197  $    167  $    287  $   (187) $  1,286
    Non-interest
     revenue           469        52       377       459       103     1,460
    -------------------------------------------------------------------------
    Total Revenue    1,291       249       544       746       (84)    2,746
    Provision for
     credit losses      87        12         1        29       355       484
    Non-interest
     expense           710       194       380       477        21     1,782
    -------------------------------------------------------------------------
    Income before
     taxes and non-
     controlling
     interest in
     subsidiaries      494        43       163       240      (460)      480
    Income taxes       151        15        53       (19)     (259)      (59)
    Non-controlling
     interest in
     subsidiaries        -         -         -         -        18        18
    -------------------------------------------------------------------------
    Net Income    $    343  $     28  $    110  $    259  $   (219) $    521
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average
     Assets       $126,678  $ 27,538  $  8,261  $231,265  $  2,131  $395,873
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill
     (As At)      $    104  $    903  $    338  $    102  $      2  $  1,449
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    For the three
     months ended                                                      Total
     July 31,          P&C       P&C                      Corporate    (GAAP
     2007(2)        Canada       U.S.      PCG    BMO CM  Services(1)  basis)
    -------------------------------------------------------------------------
    Net interest
     income       $    801  $    181  $    154  $    253  $   (142) $  1,247
    Non-interest
     revenue           455        44       366       437         6     1,308
    -------------------------------------------------------------------------
    Total Revenue    1,256       225       520       690      (136)    2,555
    Provision for
     credit losses      81         9         1        19       (19)       91
    Non-interest
     expense           664       175       362       448        10     1,659
    -------------------------------------------------------------------------
    Income before
     taxes and non-
     controlling
     interest in
     subsidiaries      511        41       157       223      (127)      805
    Income taxes       155        16        55        29      (128)      127
    Non-controlling
     interest in
     subsidiaries        -         -         -         -        18        18
    -------------------------------------------------------------------------
    Net Income    $    356  $     25  $    102  $    194  $    (17) $    660
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average
     Assets       $120,000  $ 23,454  $  7,033  $210,834  $  4,014  $365,335
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill
     (As At)      $    107  $    708  $    320  $     95  $      2  $  1,232
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    For the nine
     months ended                                                      Total
     July 31,          P&C       P&C                      Corporate    (GAAP
     2008(2)        Canada       U.S.      PCG    BMO CM  Services(1)  basis)
    -------------------------------------------------------------------------
    Net interest
     income       $  2,401  $    536  $    487  $    824  $   (574) $  3,674
    Non-interest
     revenue         1,320       184     1,086       873       255     3,718
    -------------------------------------------------------------------------
    Total Revenue    3,721       720     1,573     1,697      (319)    7,392
    Provision for
     credit losses     252        31         3        87       492       865
    Non-interest
     expense         2,062       559     1,096     1,301        58     5,076
    -------------------------------------------------------------------------
    Income before
     taxes and non-
     controlling
     interest in
     subsidiaries    1,407       130       474       309      (869)    1,451
    Income taxes       431        46       157       (98)     (558)      (22)
    Non-controlling
     interest in
     subsidiaries        -         -         -         -        55        55
    -------------------------------------------------------------------------
    Net Income    $    976  $     84  $    317  $    407  $   (366) $  1,418
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average
     Assets       $124,921  $ 25,744  $  8,047  $232,024  $  3,029  $393,765
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill
     (As At)      $    104  $    903  $    338  $    102  $      2  $  1,449
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    For the nine
     months ended                                                      Total
     July 31,          P&C       P&C                      Corporate    (GAAP
     2007(2)        Canada       U.S.      PCG    BMO CM  Services(1)  basis)
    -------------------------------------------------------------------------
    Net interest
     income       $  2,296  $    558  $    458  $    741  $   (406) $  3,647
    Non-interest
     revenue         1,334       132     1,086       807       143     3,502
    -------------------------------------------------------------------------
    Total Revenue    3,630       690     1,544     1,548      (263)    7,149
    Provision for
     credit losses     242        27         2        58      (127)      202
    Non-interest
     expense         1,954       532     1,090     1,175       195     4,946
    -------------------------------------------------------------------------
    Income before
     taxes and non-
     controlling
     interest in
     subsidiaries    1,434       131       452       315      (331)    2,001
    Income taxes       454        48       160       (56)     (340)      266
    Non-controlling
     interest in
     subsidiaries        -         -         -         -        56        56
    -------------------------------------------------------------------------
    Net Income    $    980  $     83  $    292  $    371  $    (47) $  1,679
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average
     Assets       $118,307  $ 23,921  $  6,960  $202,653  $  3,574  $355,415
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill
     (As At)      $    107  $    708  $    320  $     95  $      2  $  1,232
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Corporate Services includes Technology and Operations.
    (2) Operating groups report on a taxable equivalent basis - see Basis of
        Presentation section.
    Prior periods have been restated to give effect to the current period's
    organization structure and presentation changes.



    Our results and average assets, allocated by geographic region, are as
    follows:

    (Canadian $ in millions)
    -------------------------------------------------------------------------
    For the three months ended                    United      Other
     July 31, 2008                      Canada    States  countries    Total
    -------------------------------------------------------------------------
    Net interest income               $    936  $    284  $     66  $  1,286
    Non-interest revenue                 1,153       293        14     1,460
    -------------------------------------------------------------------------
    Total Revenue                        2,089       577        80     2,746
    Provision for credit losses             32       452         -       484
    Non-interest expense                 1,303       433        46     1,782
    -------------------------------------------------------------------------
    Income before taxes and non-
     controlling interest in
     subsidiaries                          754      (308)       34       480
    Income taxes                            51      (117)        7       (59)
    Non-controlling interest in
     subsidiaries                           13         5         -        18
    -------------------------------------------------------------------------
    Net Income                        $    690  $   (196) $     27  $    521
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average Assets                    $232,104  $131,972  $ 31,797  $395,873
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill (As At)                  $    422  $  1,007  $     20  $  1,449
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the three months ended                    United      Other
     July 31, 2007                      Canada    States  countries    Total
    -------------------------------------------------------------------------
    Net interest income               $    948  $    220  $     79  $  1,247
    Non-interest revenue                 1,030       187        91     1,308
    -------------------------------------------------------------------------
    Total Revenue                        1,978       407       170     2,555
    Provision for credit losses             59        32         -        91
    Non-interest expense                 1,220       403        36     1,659
    -------------------------------------------------------------------------
    Income before taxes and non-
     controlling interest in
     subsidiaries                          699       (28)      134       805
    Income taxes                           147       (38)       18       127
    Non-controlling interest in
     subsidiaries                           13         5         -        18
    -------------------------------------------------------------------------
    Net Income                        $    539  $      5  $    116  $    660
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average Assets                    $221,240  $111,384  $ 32,711  $365,335
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill (As At)                  $    424  $    808  $      -  $  1,232
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    For the nine months ended                     United      Other
     July 31, 2008                      Canada    States  countries    Total
    -------------------------------------------------------------------------
    Net interest income               $  2,694  $    744  $    236  $  3,674
    Non-interest revenue                 2,899       869       (50)    3,718
    -------------------------------------------------------------------------
    Total Revenue                        5,593     1,613       186     7,392
    Provision for credit losses            185       673         7       865
    Non-interest expense                 3,694     1,244       138     5,076
    -------------------------------------------------------------------------
    Income before taxes and non-
     controlling interest in
     subsidiaries                        1,714      (304)       41     1,451
    Income taxes                           194      (164)      (52)      (22)
    Non-controlling interest in
     subsidiaries                           41        14         -        55
    -------------------------------------------------------------------------
    Net Income                        $  1,479  $   (154) $     93  $  1,418
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average Assets                    $234,065  $127,656  $ 32,044  $393,765
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill (As At)                  $    422  $  1,007  $     20  $  1,449
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    For the nine months ended                     United      Other
     July 31, 2007                      Canada    States  countries    Total
    -------------------------------------------------------------------------
    Net interest income               $  2,710  $    702  $    235  $  3,647
    Non-interest revenue                 3,093       215       194     3,502
    -------------------------------------------------------------------------
    Total Revenue                        5,803       917       429     7,149
    Provision for credit losses            170        36        (4)      202
    Non-interest expense                 3,585     1,242       119     4,946
    -------------------------------------------------------------------------
    Income before taxes and non-
     controlling interest in
     subsidiaries                        2,048      (361)      314     2,001
    Income taxes                           433      (220)       53       266
    Non-controlling interest in
     subsidiaries                           40        16         -        56
    -------------------------------------------------------------------------
    Net Income                        $  1,575  $   (157) $    261  $  1,679
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Average Assets                    $211,032  $111,574  $ 32,809  $355,415
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill (As At)                  $    424  $    808  $      -  $  1,232
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Prior periods have been restated to give effect to the current period's
    organization structure and presentation changes.
    





For further information:

For further information: Media Relations Contacts: Ralph Marranca,
Toronto, ralph.marranca@bmo.com, (416) 867-3996; Ronald Monet, Montreal,
ronald.monet@bmo.com, (514) 877-1873; Investor Relations Contacts: Viki
Lazaris, Senior Vice-President, viki.lazaris@bmo.com, (416) 867-6656; Steven
Bonin, Director, steven.bonin@bmo.com, (416) 867-5452; Krista White, Senior
Manager, krista.white@bmo.com, (416) 867-7019; Chief Financial Officer: Russel
Robertson, Interim Chief Financial Officer, russ.robertson@bmo.com, (416)
867-7360; Corporate Secretary: Blair Morrison, Vice-President & Corporate
Secretary, corp.secretary@bmo.com, (416) 867-6785


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