Keynote Address to Shareholders by Tony Comper, Chairman and CEO, BMO Financial Group, at 2004 Annual Meeting

Toronto, ON, February 24, 2004

Five years ago, in my first address to this Annual Meeting as Chief Executive Officer, I promised stakeholders a "new era" for this venerable enterprise - an era marked by a more profitable mix of businesses, a more focused growth strategy, superior strategy execution, and higher returns for investors.

Now, with the quality of our 2003 results and seven straight quarters of earnings growth, it is fair to say that we are delivering on our promise.

We have made a lot of tough choices since launching this brave new era of ours, starting with an ordered exit from various low-return or low-potential businesses including corporate trust, global custody and our U.S. credit card operation.

We have also dramatically reduced risk-weighted assets in our non-relationship corporate loan portfolio; and sold 84 slower-growth branches through innovative deals that safeguarded jobs for employees and branches for customers.

It was not a painless transition, as many here in this room are aware. We calculate that to get where we are today, we were temporarily sacrificing annual revenue of more than $600 million.

On the other hand, look at where we are today, coming off a year featuring 28 per cent earnings-per-share growth and a total shareholder return of 33 per cent - followed by a total shareholder return of 18 per cent in the first quarter of 2004 alone, the highest return of Canada's major banks.

Last year we announced two dividend increases during the year for the first time since 1981, raising dividends by a total of 17 per cent. And with the announcement this morning of a 14 per cent increase in the quarterly dividend, returns for shareholders continued to climb.

We also made good progress in 2003 on improving productivity, our #1 priority last year and again this year. While making strategic investments that are essential for future growth, we improved cash productivity (the ratio of cash expenses to revenue) by 260 basis points. And we did so by reining in non-sales-related costs and by achieving revenue growth above the Canadian peer group average for the first time since 1995.

As a result, we moved from fifth to second in our Canadian peer group in cash productivity.

Even more important, I would like to emphasize, is what these numbers represent: our success in meeting the challenges of repositioning our business mix for a more profitable future; and solid progress toward our goal of transforming BMO Financial Group into a top-performing financial services company operating broadly in Canada and through significant, focused franchises in the United States.

This bodes well for continued effective execution of the Canada-U.S. transnational growth strategy that has made us a leader among our peers in successful U.S. expansion.

As a reminder, our strategy is to invest in and strengthen our Canadian franchise - the foundation, after all, of this great enterprise - while growing and expanding our enviable Harris franchise in some of the most lucrative markets in the United States.

Let's look first at some strategic highlights in Canada.

Since 1999, we have invested hundreds of millions of dollars in our Canadian operations, replacing for example our entire sales and service technology platform to make it easier for personal and commercial banking customers to do business with us, and easier for employees to help customers and increase sales.

This is part of a wide-ranging, multi-year drive to create a stronger, more customer-friendly sales and service culture at BMO in order to increase revenue through stronger customer loyalty, a particular priority in our personal and commercial operations.

And, as we announced last July, we are further strengthening our Canadian franchise with the addition of 80 BMO-branded in-store locations in the Sobeys supermarket chain. Based on experience to date, the convenience and extended hours at these locations will also help us build loyalty with existing customers, and attract new ones.

A considerable advantage in this ongoing priority is our excellent reputation in personal investing. BMO InvestorLine has earned no fewer than eight #1 rankings from ratings services over the past few years; and in January, BMO Harris Private Banking was named the best private bank in Canada by Euromoney Magazine, one of Europe's leading sources on international banking.

Turning now to the U.S., I'd say that what sets us apart most is our well-established U.S. franchise, which is tied together and distinguished by our highly regarded Harris brand.

This is the 20^th anniversary year of the purchase of Harris Bank, when we first established our much-coveted foothold in the United States, well ahead of the other Canadian banks.

In addition to the Harris retail bank network in the Chicago area, our U.S. franchise now encompasses Harris Nesbitt, our investment and corporate bank with a growing mid-market commercial business in the Midwest, and Harrisdirect, a state-of-the-art direct brokerage platform. This solid franchise now has an asset base of $77 billion and, despite the exchange rate, generated 30 per cent of revenue in 2003.

A notable accomplishment in 2003 was the acquisition of New York-based Gerard Klauer Mattison, which now operates as Harris Nesbitt Gerard. With its mid-market U.S. equity research, sales and trading capabilities, this property rounds out our mid-market commercial offering and improves our ability to serve both Canadian and U.S. investors. Previously, we covered about 100 U.S. issuers; now we cover 300.

This added research depth also complements our Canadian research powerhouse at BMO Nesbitt Burns, ranked #1 in research by Brendan Wood for the 23rd year in a row.

We continued the expansion of our retail distribution network in the U.S. earlier this month when we announced an agreement to acquire Chicago-based New Lenox State Bank - a high-performing community bank with eight prime suburban branches and the last large independent bank in fast-growing Will County.

This marked our 13^th acquisition in the United States since we ushered in our new era in 1999.

The $306-million acquisition will substantially strengthen Harris Bank's #1 market share position in Will County. It is a perfect strategic and cultural fit as we pursue our plans to become the leading and most successful bank in our chosen markets - a goal that is well within our grasp in greater Chicago.

When the New Lenox deal and the smaller acquisition last December of Lakeland Community Bank close, Harris will have a 9.9 per cent share of retail and small business deposits in greater Chicago, only half a per cent behind the market leader.

Significantly, the New Lenox deal also enhances our reputation as the acquirer of choice in what is the most fragmented - and therefore most opportunity-laden - banking marketplace in the United States.

The reason I am taking time on this relatively small acquisition is because of how well it illustrates one of our seven enterprise priorities for 2004: the pursuit of U.S. acquisitions in high-growth areas to extend the reach and profitability of our U.S. franchise. This year our main emphasis is on retail banks with up to
$2 billion in average assets in Chicago, Illinois and surrounding states.

As for our other enterprise priorities, I have already made it clear that improvement in the cash expense-to-revenue ratio is right at the top of the list. This management team is committed to improving cash productivity by 150 to 200 basis points in 2004 and beyond.

Also on the list is improving the overall performance of our U.S. operations; increasing customer loyalty in our Canadian personal and commercial operations; increasing business referrals to earn a larger share of our customers' business; maintaining our status as an employer of choice; and developing a work environment that is conducive to sustainable high performance.

When I made my commitment to create a new era for BMO back in 1999, I did so in full understanding that banking is a people-driven business deeply dependent on building relationships and lasting trust. And I did so in full confidence that my colleagues throughout this enterprise were dedicated to delivering the goods (not to mention the services) with integrity and the utmost concern for customers and the communities we serve.

In the five years since - pretty demanding years for our industry - those colleagues have more than lived up to expectations.

And while the quality and capability of our people is the prime source of success in all areas, it is especially relevant to corporate governance, currently a topic of considerable shareholder interest. According to a recent McKinsey & Company Investor Opinion Survey, 80 per cent of investors say they would pay a premium for the shares of a well-governed company. This, I believe, is very good news for our organization.

For well over a decade, BMO's pace-setting corporate governance has been highly praised by experts on a number of fronts, most pointedly for the quality of our financial disclosure.

Chief Financial Officer Karen Maidment will be picking up on this theme a few moments from now, so I will turn my attention to what I consider the heart of the matter: what it really takes to succeed in a business that lives or dies by its reputation.

What it takes is ethical people who understand and appreciate that no business decision is value-free, even when the values are not overtly stated; people who understand and appreciate that we will only achieve our goals over the long term if we are able to continue to earn the trust and loyalty of customers, shareholders, the communities we serve and, yes, the public at large.

Let me remind you how we became a pacesetter in establishing high standards of corporate governance way back when it wasn't an issue - as far back, in fact, as 1991 with the precedent-setting report, Shaping the Board of Directors of the Future, commissioned by our own Board of Directors.

Thirteen years ago, for example, we established Approval/Oversight Guidelines that precisely define the roles and responsibilities of the Board and management, and delineate internal lines of accountability for about 400 separate corporate activities. We are told that, to this day, few large companies in North America have achieved this level of clarity and transparency of accountabilities.

More than 10 years ago - long before U.S. legislation compelled CEOs and CFOs of all public companies operating in the U.S. to certify the accuracy of their financial statements - we put in place a comprehensive process to hold BMO senior management personally accountable for the results we achieve and the manner in which we achieve them.

In 1993, we introduced an Annual Survey of Board Governance policies and practices, an innovation that was much admired by governance experts. Today, this comprehensive survey continues to provide an impetus and framework for regular improvements.

We took another important step in 1997 with the introduction of a rigorous and unambiguous Charter of Expectations for Directors, setting out the specific responsibilities our directors must discharge and describing the personal and professional qualities all are expected to possess.

That same year, we introduced an annual peer review survey to provide feedback to directors on their effectiveness in meeting the standards set out in the Charter. As with our corporate governance survey, an outside firm compiles and presents the annual results to ensure both confidentiality and accountability.

Also back in 1997 - long before the separation of Board and management responsibilities became the issue it is today - BMO took action to ensure that our Board would operate independently of management. We became the first Canadian bank to appoint a Lead Director.

For the past seven years, our Lead Director has conducted a portion of each and every meeting of the Board without management present, and has taken leadership whenever the joint roles of Chairman and Chief Executive Officer might be in conflict. All Board committees have also met regularly without management present.

Earlier today, we went one step further, announcing the impending appointment of a non-executive chairman.

After 33 years of dedicated service as a director of Bank of Montreal, the past seven as Lead Director, Blair MacAulay is scheduled to retire at next year's annual meeting.

In light of his upcoming retirement, Blair and the Board of Directors have determined that the time is appropriate to split the roles of Chairman and Chief Executive Officer - an initiative I am already on the record as supporting. This will provide ample time for a smooth transition period.

A selection committee of the Board is currently considering candidates among our existing independent directors, and the Board will elect a non-executive chairman in the near future.

Here's a sampling of other recent initiatives in corporate governance: centralized management at the Deputy Chair level of all credit, risk and portfolio management functions enterprise-wide to ensure BMO's ongoing leadership in these core competencies; new independence standards for directors; a special code of ethics for the CEO and chief financial officers; guidelines for director share ownership; revamped charters for Board committees; and the appointment of a governance officer to oversee all issues relating to governance and ethical behaviour.

Let me repeat that we started raising the bar on governance standards long before it became fashionable. And, I assure you, the improvements will continue.

The one thing I know for sure, both through direct experience and my ongoing observations of the successes and failures at other companies, is that the best corporate governance starts at the top, predicated on the fundamental values, principles and behaviour of the leadership. That's why we have set the bar extremely high at BMO, with an ever-critical eye to setting it even higher.

And that's why it is so important for us to foster a corporate culture built on truly good values universally shared.

As we approach the 10^th anniversary of the Institute for Learning, our corporate university, it is well worth noting that all our professional development and training programs emphasize ethical business conduct and BMO's clearly stated corporate values as integral components of courses on sales and service, managerial leadership, information technology, and so on. That's integral, not optional.

Colleagues are also guided by our code of conduct, FirstPrinciples, which we first published in 1993, setting out in one document our standards of business practice. This code has been updated several times to address new issues as they arose.

My own favourite passage, which has endured through all the revisions, goes like this: "Before embarking on any course of action, we need to be able to answer 'yes' to the following three questions: Is it fair? Is it right? Is it legal?"

In other words, if a course of action is fair, right and legal, then and only then will we proceed. If one of the three is not there, we stand down, no matter how lucrative the potential transaction.

Recent additions to keep the code current include a strong new policy to protect so-called 'whistleblowers' from retaliation and a confidential and anonymous process for employees to raise concerns regarding accounting, internal controls or auditing matters.

In our organization, every director and every employee is required to read through FirstPrinciples each year - and sign a declaration attesting that she or he has done so.

Now I'm not suggesting that reading and signing a document like this automatically equates with honesty, integrity and ethical behaviour. What I am saying is that the document itself is tangible evidence of just how seriously we take our business conduct at BMO; and a very explicit reference guide to the lines that can never be crossed.

Speaking personally, my own approach to corporate governance and risk management can be summarized in two simple rules, which are as pertinent today as they were when I first heard them, back when I was starting out in the business. One is a 'do,' the other a 'don't.' And both, let us say, are easier to invoke than observe.

My first rule-of-thumb is Know Your Customer. No deal is ever all about the financials; every deal involves judgments and choices, some of them involving the character of the prospective business partner. There simply are people with whom we don't care to do business, people who are known to cut too many corners; and there are deals that just don't smell right.

While we have superb risk management controls to guide us (and they get better all the time), "guide" is the operative word. State-of-the-art processes, software and mathematical equations do not make our decisions for us, and they never will. Human judgment drives decisions, and ethics drive human judgment.

The combination of science and judgment makes for a very potent force, one (for example) that has enabled BMO to achieve top-tier credit loss performance for the past 14 years; and earned us the distinction of being the only major bank in North America - the only major bank - to have achieved 14 consecutive years of return on equity above 13 per cent.

My second rule-of-thumb when it comes to corporate governance is Don't Risk Your Reputation. In a business such as ours, based as it is on pure trust, we cannot ever afford to adversely expose the company's reputation - no matter how attractive the deal or how heavy the pressure to participate. I'm not saying the call is easy - in many cases it isn't - but if there's even a whiff of possible negative repercussions for BMO's reputation, that's reason enough to walk away.

No organization can protect itself completely from errors of judgment or crooks, of course, or from the fact that, as human beings, we all make honest mistakes. And the proverbial bad apple will always turn up, even in the very best of companies. But if an ethical business climate prevails, most of the bad apples will quickly be seeking other employment.

We can and do mitigate the risks of poor judgment and rogue behaviour through leading-edge policies and controls, and when something does go wrong, we move quickly and resolutely to make it right again; and then put new measures in place to makes sure there's no recurrence.

But the truth remains that in our world, a milligram of prevention is worth a megatonne of cure. As our latest preventative measure, we are launching a Reputational Risk Committee charged with assessing potential business transactions exclusively from the perspective of preserving BMO's good name.

Of course, the greatest source of prevention is an ingrained and all-pervasive ethical business culture. This, as all can appreciate, is not something that can be produced on demand, nor is it something that can be achieved just by writing some rules and regulations.

It is incremental and it is evolutionary. And, with new people always coming on board, including large groups arriving through acquisitions, such an ethical business culture requires constant tending. We keep this top-of-mind at BMO, and we always will.

In closing this year's report to shareholders, I find myself thinking back to the wrap-up of my inaugural address as Chief Executive Officer in 1999. I said we were entering our new era "fit and strong, and rich in ideas, and confident. And filled with the kind of energy that only flows at moments like this."

Another such moment is now upon us. And, as I hope I have affirmed for you today, we are now fitter, stronger, more confident, and more energized than even I thought possible. Thank you very much.