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Remarks by William A. Downe, President and Chief Executive Officer, BMO Financial Group at the Scotia Capital Financials Summit

Toronto, ON, September 15, 2010

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Thank you, Kevin, for your kind introduction, and the opportunity to be here again this year.

Good morning, everyone. It’s a pleasure to be back at the Scotia Capital conference.

I would like to frame my remarks today in the context of BMO’s strong capital position in light of Sunday’s announcement from the Basel Committee on new capital rules.

Based on our estimates, BMO meets the 2019 capital rules today on all three capital measures and on the leverage ratio. Clearly, a very good position for the bank to be in.

Now, turning to my prepared remarks, I intend to cover three topics. First: a review of BMO’s year-to-date financial and operating results, including the performance of our four business groups.

Second: a look at what’s next. I’ll provide our views on the North American economy, capital management and how the banking industry is evolving. And to that point, we believe the success factors for universal banks are changing. This gives us an opportunity to create value in a market that is well-suited to our strategy and our strengths.

And third, I’ll speak directly to how we are addressing these factors, specifically the role of customers and our brand promise in the growth of our businesses.

Slide 1 – Forward-Looking Statements & Non-GAAP

Before I continue, please note the caution regarding forward-looking statements. For your information, further details about such statements are available in BMO Financial Group’s public filings.

Slide 2 – Financial Highlights

As you know, BMO recently reported good third-quarter results. Retail banking in Canada was particularly strong, while our Capital Markets results like much of the industry reflected reduced spreads and limited market opportunity. Our ability to generate continued strong earnings despite the weak trading environment is reflected in both our diversified business mix as well as our strong credit performance.

This chart highlights our year-to-date financial results. Revenue continues to be a key growth driver. Through nine months, revenue was up 11% from 2009 to $9 billion. Net income was $2.1 billion, 82% above last year, reflecting strong revenue growth as well as a 35% reduction in credit losses. Fully diluted cash EPS was $3.55 per share and year-to-date cash ROE was 14.9%.

Our tier 1 capital ratio was 13.55% and tangible common equity to risk weighted asset ratio was 10.39%.

Our results reflect the success of our businesses through clear priorities to strengthen our brand and to increase customer loyalty, competitiveness and core business performance. Let me take a few moments to provide some group highlights that underline these achievements.

Slide 3 – Personal & Commercial Canada

P&C Canada has posted excellent results for eight consecutive quarters. So far this year, revenue is up 10% and net income is up 20% 23.5% on an actual loss basis driven by volume growth across most products, an improved net interest margin and the inclusion of seven months of Diners Club financial results in the current year. The improvement in NIM reflects higher volume in more profitable products, as well as actions taken in 2009 to mitigate the impact of long-term funding costs.

We’re continuing to make gains in market share. In personal banking, our share of wallet is going up and we’re seeing growth in our mortgage portfolio. In commercial banking, we’re generating solid growth in loans and deposits.

We continue to invest strategically to improve our competitive position, while managing our operating expenses prudently. We’re meeting our goal of improving customer experience across the entire relationship and we remain aggressive with new customer offers. As an example, we just recently announced a financial services partnership with Sobeys and the launch of new BMO-branded credit card products for Sobeys customers, offering them convenience, flexibility and rewards. More innovative products will follow as we expand this relationship.

Slide 4 – Personal & Commercial U.S.

In P&C U.S., our year-to-date results reflect the reality of the economy and markets in the United States. Our objective in this environment is to position our businesses for growth.

It’s been four months since we announced the AMCORE transaction in Illinois and Wisconsin, and this weekend we will complete the systems conversion, confirming the efficiency of our integration teams.

Our long-term vision for Harris encompasses a retail business about the same size as P&C Canada in terms of branches. We aspire to a “top three” retail deposit position in most of the markets where we compete and we intend to maintain our high customer loyalty scores. On the commercial side, we are aiming to be the “Bank for Business” in the U.S. Midwest, and Harris has the brand and reputation to get us there.

We continue to believe that both FDIC-assisted and non-assisted transactions are cost-effective ways to add customers and distribution points.

We have an active and experienced acquisition team with considerable relationships in the market and we are looking at all potential opportunities to grow our Midwest network.

And, with the clarity being provided by U.S. regulators and the Basel Committee, we are likely entering a two-to-three-year period of considerable banking consolidation in the U.S. market.

Slide 5 – Private Client Group

Turning now to the Private Client Group, year-to-date revenue was up 13% to $1.7 billion, with growth across all of our businesses. Insurance revenue increased from higher net premiums, including the benefit of the BMO Life Assurance acquisition, which we acquired in 2009. Assets under management and administration improved 11% year-over-year to $252 billion, after adjusting to exclude the impact of a weaker U.S. dollar.

Net income was up 34% to $339 million, powered by our traditional wealth offerings. Excluding the insurance business, year-to-date net income was up 74%.

Slide 6 – BMO Capital Markets

BMO Capital Markets’ financial results continue to meet our expectations for the year as a whole, despite weak industry trading levels in the third quarter. Revenue is up 7% year to date with net income essentially flat. On an actual loss basis, however, net income was up 47%, reflecting the benefit of credit recoveries.

In wholesale banking, we expect quarterly variability in earnings. However, we’re working to minimize that variability with a strategy that is based on client relationships that encompass multiple offerings. Our financial objective is to produce an attractive, sustainable risk-adjusted return, with an average ROE in the high teens. Our ROE to date in 2010 is 18.4%, compared favourably to 14.2% in 2009.

Current conditions provide opportunities to add talent and depth for the long term, and we’ve significantly expanded our capital markets team across the board. We’re well-positioned for growth across our key target sectors as the market environment improves.

Slide 7 – Strong Credit Performance History

Turning now to credit. We’re experiencing a clear downward trend in consolidated provisions and impaired formations since they peaked.

Recent peer comparisons are influenced by early recognition of credit losses in BMO’s U.S. business, which has performed better than U.S. peers.

Credit losses quarter to quarter still have the potential for variability, given the weak recovery and the extent to which performance in the last two quarters has benefited from low capital market provisions plus recoveries.

Slide 8 – Economic Outlook

Let me turn now to our views on the North American economy, capital management and how the banking industry is evolving.

Here in Canada, all recent indications support the widespread consensus that economic expansion is slowing after a very strong rebound in the early part of the year. Looking ahead, however, while we expect the business expansion to slow to more moderate levels, we have confidence in the prospects for continued positive GDP growth. That said, we recognize the potential for variability in our outlook. Housing is a particular area that we’re monitoring.

In line with our economic forecast, we expect the Bank of Canada to very gradually raise interest rates over the next two years, likely pausing at stages along the way to ensure that the economic recovery is sustained. We expect the Canadian dollar to trade around parity in late 2011 as certainty about the global economic recovery emerges and keeps a floor under commodity prices.

In the U.S., we’ve seen the moderation in economic growth that was expected after the stimulus spending abated, but clearly the slowdown has been more pronounced.

We expect U.S. growth to be lower in the second half of 2010 with jobs a continuing concern keeping the unemployment rate just below 10%. The Fed will likely keep interest rates near zero well into next year to ensure the sustainability of the recovery. And moreover, the Fed has additional tools to stimulate demand and we’re confident they will not hesitate to employ them, if necessary. The White House recently announced initiatives to support business spending.
However, the mid-term elections are complicating fiscal policy actions.

Looking a little further out, we’re more optimistic. Recent evidence suggests that U.S. consumers are in fact repairing their balance sheets quickly – for example, the rate of personal savings is up significantly from their lows before the recession. Businesses are already well-positioned with strong balance sheets. We continue to believe it will be a business-led recovery as uncertainty abates.

Slide 9 – Capital

Now, let me talk about capital.

We’ve demonstrated the ability to build capital, to grow the business and to increase the dividend when appropriate.

We are currently paying an annual dividend of $2.80 placing us at the high end of our payout range.

Going forward our dividend will continue to grow in line with the earnings growth of the bank.

Slide 10 – BMO – Moving With Our Customers

Regulation is only part of the story when we talk about changes in the North American banking industry. There is also a sea change underway with consumers their preferences have shifted and their relationship with money has changed. Customers and those looking for straightforward advice to control spending, grow savings, borrow smartly and invest wisely all respond well to our brand and what it stands for. This is a territory in the market we see as underserved. And, in this respect, our brand more than lines up we believe we can define the category.

First, we remain focused on our strategy and our customers. We’ve implemented changes at BMO over the last four years and demonstrated a rapid response to customer needs during the economic downturn evident through re-pricing, business model changes and winding down non-core activities. Our relentless focus on the customer has driven our improved performance and remains a differentiator for BMO.

Second, we concentrate on where customers are going and foster progressive innovation. Our offers are based on facts and knowledge of the customer. And we’ll continue to invest in our North American platform and global reach to better serve our clients as their businesses expand across borders.

Our technology investments will continue to enhance our value proposition and our execution for customers. We’re investing in our online presence and we’re also merging that capability with a rationalized call-centre network.

This November, customers nationwide will benefit from our new Customer Contact Centre. We are relocating 1,700 agents along with their managers and support teams from Personal, Commercial, Card and Collections groups. This provides a simplified business model that will make it easier to deal with BMO. When a customer picks up the phone and calls, they have a brand-supported experience. It’s clear and straightforward -- and they don’t need to understand how to navigate ‘us’ to get their banking done.

In addition, our customers are going to see more of our SmartSteps programs for example, we’ve just launched SmartSteps for Students, with a social media feature to follow. We’re moving with our customers.

Third, we continue to demonstrate that a strong brand drives growth. The BMO brand is highly visible, clear and strong across all of our businesses and underpins our customer strategy.

For example, 18 months ago, we acquired a well-known Canadian life insurance business. At that time, managing general agents were recommending mainly on price. Now, as a result of the association with the BMO brand, agents are finding enhanced receptivity with customers and the opportunity to build and extend relationships.

Harris likewise has a strong and stable brand, particularly vital in the past two years, when we have effectively managed customer relationships to support deposit and mortgage growth. And we’re extending customer relationships there, by successfully importing our ‘Making Money make Sense’ strategy through an offering called ‘Harris Helpful Steps,’ in turn based on our successful program in the Canadian market.

And fourth, we are sustaining a culture that supports our strategic agenda and is deeply rooted across the organization. Our employees are motivated by the extent to which we focus on customers and their experience with us. 95% of our employees have said they personally recommend BMO products and services and 98% said they believe in the strategy.

Slide 11 – Looking Ahead…

Before I invite your questions, I’d like to conclude with a brief summary:

  • Changes are rapid and ongoing: to the economy, the regulatory environment and the North American banking industry;
  • BMO has emerged as a bank with excellent core businesses and a strong capital position … on both an absolute and relative basis;
  • We’re well-positioned for the future:
    • Our brand promise stands out and gains relevance in the new environment;
    • P&C Canada and the Private Client Group are already producing excellent financial results and demonstrating good market momentum;
    • P&C U.S. and BMO Capital Markets are positioned well for the recovery; and
    • In the U.S., we are well-positioned for what will likely be an increased pace of consolidation through acquisition.

We have the business platform, the balance sheet and the expertise to generate sustainable growth.

Thank you for your attention. I’ll now be pleased to answer any questions that you may have.

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