"Results you can count on"
Karen Maidment, Senior Executive Vice-President and Chief Financial Officer, BMO Financial Group, at the Annual Meeting of Shareholder
s

Toronto, ON, February 24, 2004


SLIDE 1 -
Introduction

Thank you, Tony. Good morning.

This is the fourth year in which I've had the privilege to deliver BMO's Annual and First Quarter results to you. In past years, I reported on the tough decisions we made to reposition BMO and improve our balance sheet.

SLIDE 2

I am pleased to report that those decisions continue to pay off. BMO Financial Group achieved all of its financial targets for 2003.

SLIDE 3 - Fiscal 2003 Financial Results

In spite of the challenging economic climate of 2003, BMO delivered a one-year total shareholder return, or TSR, of 33.4%. This is more than double the one-year TSR of 2002, and brings BMO's five-year TSR to 12.9%, up from 7.9% a year earlier. We measure TSR by comparing our share price at different points in time and adding dividends.

Both measures outperformed their respective S&P 500 and TSX Composite Indexes, but our results remained slightly below the TSX Financial Services Index. However, during the first quarter of 2004, we were the top performing Canadian bank stock with a 17.9% total shareholder return.

SLIDE 4

Net income for 2003 was $1.8 billion, an increase of 29% over 2002. That equates to $3.44 per share, up from $2.68 per share a year earlier. Return on equity was 16.4%, up 3 full percentage points over 2002.

SLIDE 5

Our improvements over 2002 were driven by lower provisions for credit losses, higher business growth in our operating groups and lower net losses on investment securities. These improvements were partially offset by higher income taxes.

As you can see from the chart, provision for credit losses fell significantly and resulted in industry-leading credit performance. We have earned our enviable reputation in strong credit risk management through our disciplined approach to portfolio management and diversification, with no undue sector or industry concentrations.

SLIDE 6

One of our major objectives for 2003 was to improve our efficiency, which we measure through the cash productivity ratio, or cash expense-to-revenue ratio. This ratio is simply calculated by dividing total expenses by total revenues. It fell to 64.5%, which means that our productivity improved 260 basis points over 2002. To look at it another way: to earn a dollar of revenue, BMO must spend 65 cents. The falling ratio means it costs us less to earn every dollar of our revenue and that's one way to build shareholder value! The improvement in this ratio was well above our targeted improvement of 150 to 200 basis points.

Our revenue rose to $9.3 billion, an increase of 5% and expenses grew only 1%. Revenue growth was driven by strong performance from our three operating groups:

  • Personal and Commercial Client Group;
  • Private Client Group; and
  • Investment Banking Group.

SLIDE 7

In the Personal and Commercial Client Group, revenues rose as a result of higher volumes, particularly in the personal banking segment. This revenue growth was evident in both our Canadian and in our U.S. Harris franchises.

In the Private Client Group, revenue growth was driven by improved market fundamentals, which led to increased client trading activity, and an increase in the market value of the assets we manage on behalf of our clients.

The Investment Banking Group revenues benefited from higher equity origination fees and trading revenue as well as fewer securities losses than in the prior year.

In addition to strong performances from our operating groups, we effectively managed capital and foreign currency exposure. Our capital remains strong with a Tier 1 capital ratio of 9.55% on October 31st. This is well above the 7% minimum required by regulators.

We managed foreign exchange exposures so that, when the Canadian dollar strengthened so significantly, we lost only about 6 cents per share, which was much less than many other Canadian companies.

SLIDE 8

We focus on growing our businesses and profitability in absolute terms, but we also want to perform well relative to the rest of our industry. On the screen you can see the Canadian Bank Scorecard, which shows BMO's relative performance to our Canadian Peer Group. We've colour-coded the scorecard to clearly show in green those measures where BMO ranks better than our peers, and in red where we have fallen short.

BMO's absolute performance in 2003 was much better than in 2002. Notably, our cash productivity ratio improved from 5th to 2nd place. In addition, our 2003 performance relative to our North American Peer Group also improved.

SLIDE 9 - First Quarter 2004 Results

I'd like to move on now to the current quarter's results, which we released this morning. Our First Quarter's numbers continue to build on our accomplishments in 2003.

SLIDE 10

I am pleased to announce net income of $532 million, or $1.00 per share. Excluding the effect of certain items totaling $18 million, net income would have been $514 million or $0.97 per share.

Return on equity for the quarter was 18.3%.

SLIDE 11

Highlights for the quarter include revenue growth of 3.6% compared to the same quarter last year. We reduced expenses by about 1%, and improved the cash productivity ratio over last year by 270 basis points to 63.9%. We remained focused on improving our productivity - our top priority for 2004.

Another significant factor was the reduction in provision for credit losses year-over-year of $135 million. We provided a net amount of $15 million for credit losses for the quarter, made up of $55 million in specific provisions and a $40 million reduction in our general allowance.

SLIDE 12

Net income of $246 million in the Personal and Commercial Client Group was up 11 per cent over last year, driven by revenue growth in Canada and lower expenses in both Canada and the U.S. Net income dropped $7 million or 3% from the fourth quarter last year due to the effect of lower interest rates.

In the Private Client Group, net income was $55 million in the first quarter, up $20 million or 55% from a year ago. This improvement came from revenue growth in all our major lines of business, driven by stronger market fundamentals combined with revenue generating initiatives.

The Investment Banking Group's net income for the quarter set a record at $212 million. This was up $31 million or 17 per cent over the first quarter last year and up $24 million or 14 per cent over the fourth quarter. The improvements came from revenue growth in fee-based businesses and reduced provision for credit losses, which I referred to previously.

SLIDE 13 - The New Climate for Financial Governance

I am confident that, under Tony's leadership, we will continue to sharpen our focus on improving productivity, improving the bottom line, and improving our return to shareholders. But, as Tony mentioned, I would also like to take a few moments to talk about the current climate for financial reporting.

Across North America, the dishonesty of some has undermined investor confidence. Legislators, regulators and the accounting profession have reacted quickly to strengthen processes surrounding the preparation of financial statements and the related accounting rules. They mean well, but the solutions are costly and do not adequately recognize that many companies already have their own processes that work very well.

Unfortunately, the newly-imposed solutions may not be enough to restore investor confidence. Shareholder trust must ultimately come down to a question of personal integrity - integrity that does not rely on laws, regulations or standards. It comes from the character of our people and the quality of our processes.

I welcome the new principles which underlie the new environment of transparency and disclosure, even if I question the need for more rules and regulations when guiding principles should suffice. The bottom line is this: shareholders deserve to know the true financial condition of the company.

In every industry, the role of the Chief Financial Officer has come under intense scrutiny. The financial governance issues that affect a CFO's work are now at the top of the corporate agenda, and we have a greater opportunity than ever before to influence a corporate culture, the hallmarks of which are honesty, integrity, and transparency.

Protecting the Interests of Shareholders

The Chief Financial Officer of any company has a leadership role in protecting the interests of shareholders. As CFO, I Chair the Bank's committee that sets the overall policy on disclosure. The basic principle of our disclosure policy is that no one will profit from early knowledge of material information that is not yet available to the public. The Disclosure Committee has the responsibility to decide whether information relating to the affairs of the bank could reasonably be expected to result in a material change in our share price. We have very strict policies and practices on how to handle this information. Wherever possible, we exceed the regulatory requirements.

And as CFO, I have always felt that my personal reputation is linked to the integrity of our financial reporting. I know Tony feels the same way. It didn't take legislation like the Sarbanes-Oxley Act to tell us that we were personally signing off on the financial statements. Sarbanes-Oxley compels CEOs and CFOs of all public companies operating in the U.S. to certify the accuracy of their financial statements. But as far back as ten years ago, the Bank of Montreal put in place a comprehensive process to hold our senior management personally accountable for the results we achieve and the manner in which we achieve them.

Each quarter, ninety senior executives, on behalf of the entire bank, attest in writing to Tony and I personally that the reported results for their areas of responsibility are true and accurate.

In addition to high accountability standards, BMO is routinely cited for the volume, depth, transparency and overall quality of the financial details we supply to our shareholders and the public. Our annual report has received no less than 17 awards since 1992.

We believe that when we are open and honest in explaining our results - both good news and bad - we earn the trust of investors over the long-term. We believe in using plain language. Investors should be able to readily understand our financial report. Even knowledgeable investors can get lost in the complexity of the financial reports of some large companies like ours. This is not their problem; it is the company's problem. While there is still room for improvement, I am determined to report our results in a way that all investors can understand.

Finally, I want to emphasize that, in today's business climate, financial management means more than simply following Generally Accepted Accounting Principles or GAAP. A CFO must do much more than manage the company's accounting practices. We have a key responsibility to help the company make the right choices. The raw numbers that we work with day-by-day become tools to steer the strategic objectives of the company year-by-year.

And we will use the numbers to assess our performance.

SLIDE 14

Here are our Financial Targets for 2004:

  • earnings per share growth of 10 to 15 percent;
  • return on equity of 16 to 18 percent;
  • provision for credit losses of $500 million or less;
  • Tier 1 Capital Ratio of at least 8 percent; and
  • cash productivity ratio improvement of 150 to 200 bps.

SLIDE 15

Those are our targets. Those are the results we are committed to achieving and I am pleased to tell you that we are on track based on our first quarter performance.

SLIDE 16

Above all, you can always count on the integrity of our results.

Thank you.