Keynote message to Shareholders by Tony Comper, Chairman and CEO, BMO Financial Group at 2003 Annual Meeting.

Ottawa, ON, February 25, 2003

I would like to turn now to our vision of the future for BMO Financial Group, but before doing so I want to pay tribute to one of our own, who died this past January at the remarkable age of 106.

His name was Henry Botterell and he was born right here in Ottawa in 1896, graduating from Lisgar Collegiate and joining The Bank of British North America in 1912 in an entry-level clerk's job at a local branch.

A few years later history intervened, and by 1916 young Henry Botterell was in the thick of The Great War, flying fighter missions in a Sopwith Camel over France and, before the fighting was through, becoming part of a legend.

You know the scene in the movie when the pilot is hit by enemy gunfire and loses consciousness and goes into a dive that will surely be fatal but then, at the very last second, regains both consciousness and control? That's exactly what happened to Flight Lieutenant Botterell in a rain of bullets that also shattered his goggles and took off part of one ear.

We've all grown up with the image of the chivalrous World War I flyer who, having reduced an enemy aircraft to flames, banks and salutes the enemy pilot as he safely parachutes to Earth. Well you know what? It really happened, and Henry Botterell was le chevalier who did both the shooting - 400 rounds into a German observation balloon - and the saluting. This moment has been vividly preserved in the painting Balloon Buster by war artist Robert Taylor.

Mr. Botterell returned home in 1919 having also earned the distinction of being the last fighter pilot in the sky when the armistice was signed - the last man aloft, in other words, in a conflict where war in the air came of age.

And he picked up where he left off at the bank branch he'd left to go to war, the only difference being it was now a Bank of Montreal branch, thanks to our merger with The Bank of British North America in 1918.

Mr. Botterell stayed with us for close to 42 more years, eventually moving to head office and retiring in 1960 as Assistant Chief Accountant. He served with great distinction and with the trademark modesty of so many Canadian heroes of war. "I was just a bank clerk," he told an interviewer a few years ago. "I wasn't one of the very best but I had my share of action."

My thoughts turned to Henry Botterell firstly because of his death and the sheaf of glowing obituaries and secondly because as we at BMO celebrated our 185th anniversary in 2002, we reflected on how well we have maintained and built upon our traditions and our strengths; and on how well suited we have made ourselves to the next stage in our evolution.

Henry Botterell helped shape the past on which we are now creating our future. How fortunate we are today to have had him among us.

When I spoke of the future last December, in remarks I made before the Mid-America Club in Chicago, the 'hometown' if you will of Harris Bank, the jewel of our U.S. investments, I talked at length about what is long since the closest and most extensive bilateral trade relationship in the world.

I was referring, of course, to the trade relationship Canada shares with the United States, which is reflected in the staggering volume of trade - the equivalent of $2 billion per day in goods, services and investment income.

I also talked about how balanced this relationship has become. In sharp contrast to the mid-1960s, when U.S. direct investment in Canada was seven times Canadian direct investment in the U.S., today we are very close to achieving equilibrium - despite a nine-times population difference and a ten-and-a-half-times difference in gross domestic product.

And here's the proof: In 2001, the book value of U.S. investment in Canada was $215 billion while the book value of Canadian investment in the United States was more than $198 billion.

These insights come from an in-depth study of the complex linkages between the Canadian and U.S. economies by our own economics department, which concludes that future success for an increasing number of Canadian companies and industries lies not only in Canada but also throughout the new North American economic space that is opening up before us.

Based on this study and a large body of other credible research, we project that future living standards for Canadians will be highly dependent on the ability of companies in all sectors of our economy to compete and grow transnationally, just as we are doing.

As a leading, Canadian-headquartered, Canada-U.S. bank, our growth strategy is to invest in our core Canadian franchise - which is our enduring primary strength - while expanding selectively and substantially in high-growth U.S. markets.

At BMO Financial Group, we believe that when it comes to trade and investment, Canadians and Americans have embarked on a new era that will be characterized as "the North American Century" - and we have staked out a pioneer role as a century builder.

Already, we are at the forefront of the drive by Canada's banks to operate successfully in the United States. Last year 33 per cent of our revenues came from the U.S., and, with more than $75 billion in average U.S. assets, BMO is the #1 Canadian bank in the U.S. based on assets.

As the U.S. banking industry undergoes a wave of consolidation similar to what took place in Canada many decades ago, we are exceptionally well placed to improve our existing transnational advantage.

One of our greatest strengths in this regard is also the most obvious - we were the first in the Canadian banking industry to break serious transnational ground when Bill Mulholland, who was our Chairman and Chief executive Officer before my immediate predecessor Matt Barrett, reached down to Chicago and bought Harris Bank back in 1984.

I am delighted to be able to say that Mr. Mulholland is here with us today, allowing us to thank him directly for both his prescience and his daring.

Another of our greatest strengths, growing out of the first, is that we are now in an ideal position to smartly accelerate U.S. growth. Having transformed Harris Bank from a wholesale and private bank into the full-service, multi-channel bank it is today, we are now focused on making it the premier bank in greater Chicago - with 13 of 50 planned new branches slated to open this calendar year.

To underline our commitment to expand to at least 200 branches over the next few years, both in Chicago and in the surrounding Midwest, the Harris's new President and CEO, Frank Techar, has made this a personal priority; he has put together a six-person team that is aggressively scouting for retail banking properties.

Furthermore, while all major Canadian banks are widely praised for their ability to operate national banking networks over vast, U.S.-like distances, BMO Financial Group alone combines that expertise with close to two decades of on-the-ground experience in making the adaptations, many of them subtle, that it takes to build and grow a successful retail banking system in the United States today.

This expertise is also a decided advantage in the wealth management arena, where we are leveraging Harris's superb reputation as a pre-eminent private banker to become a significant North American player.

Over the past four years, we have bought and integrated nine U.S. wealth management properties worth $1.4 billion. We are now the sixth-largest direct investing firm in North America, and our plan in the U.S. is to offer a full range of wealth management products and services to serious investors in the high-growth locations we have targeted.

In these early days of the North American Century, awaiting the turnaround in the U.S. that we all know is coming, your bank is currently poised to serve this market in 20 key locations around the U.S., all with large concentrations of people with significant investments to manage.

In the meantime, our corporate and investment banking team, known in the U.S. as Harris Nesbitt, is also further extending its reach into the Midwest, coming to market with a rare combination of advantages - Harris Bank's many warm, often multigenerational relationships with mid-market clients who appreciate their longstanding expertise, and BMO Nesbitt Burns' acknowledged leadership in the field.

As you may have noted, I have just highlighted an additional strength that BMO brings to the transnational economic space, the fact we have already integrated the expertise, experience and best practices acquired on both sides of the border; and that our North American management team is already firmly in place and well advanced in executing our transnational strategy.

While extending our North American footprint over the past four years, we have also made a lot of quiet strategic progress in transforming our business mix in order to build a stronger future. We have exited unprofitable, low-profit or low-potential businesses and re-deployed the capital and other resources to businesses with greater possibilities for high returns.

We knew that we would experience short-term pain as we lost the revenues associated with the divestitures, and indeed this strategic repositioning resulted in a shortfall of $284 million in annual revenues, putting considerable downward pressure on earnings. Since 1999, we have also reduced lower-return risk-weighted assets by $29 billion.

In the midst of transforming our business mix, we also rolled out a major new technology platform for retail banking in Canada that revolutionizes our ability to serve customers, and increased both the quality and reach of our sales-and-service culture.

Now, as a result of all these strategic initiatives, we are starting to see the intended results.

As the Chief Financial Officer spelled out for us in numbers a few moments ago, BMO vaulted up several positions in key performance measures in 2002 - to second from sixth in cash earnings-per-share growth, for example.

We have significantly improved our relative performance in all but one primary measure and are now showing well again within our world-class Canadian peer group.

The one area where we slightly lag the peer average is the expense-to-revenue ratio. That is why the #1 priority for 2003 is to improve operational efficiency.

In a carefully plotted course of action, we have launched major performance enhancement initiatives to increase revenues, rein in discretionary spending, reduce non-sales positions, and improve our capacity to maximize customer service.

I would like you to note, however, that because we took up this challenge of accomplishing more for less with an eye on the long-term as well as the short, there have not been across-the-board reductions.

When economic and market conditions worsened in recent times, what we did was ring-fence the investments we considered to be critical to future profitability. A good for-instance is the one I just mentioned - the investments we made in sales staff and new technology with the intention of significantly boosting revenues in our Canadian retail bank, which always has been and always will be our primary engine of growth.

It is encouraging to know that whatever the North American Century may bring our way in terms of opportunities and challenges, we are still driven by the personal and commercial businesses that have propelled us for 185 years - and still guided by the high standards of corporate governance that have been and continue to be a model for our industry.

The cumulative effect of all these strengths is that our shareholders are benefiting. BMO was the top-performing bank stock on the TSX for the 12 months ending January 31, 2003, with a total shareholder return of 18.4 per cent. By way of comparison, the average return for our Canadian peer group during this time frame was 1.6 per cent and the TSX Composite Total Return was negative 12.5 per cent.

In January, we signaled our own confidence in BMO's longer-term earning power and our ongoing devotion to increasing returns to shareholders when we announced a 10 per cent increase in the quarterly common share dividend, marking the eleventh consecutive year of dividend increases. And we underscored our confidence by increasing the dividend payout goal to between 35 and 45 per cent of net income.

We are, as they say, dealing from strength (there's that word again!), and this is why I can be so bold as to claim BMO's place in the new economic space, starting with our existing role as the original and still-largest Canadian-based transnational bank.

I stand before you today as the proud leader of a venerable enterprise that has just emerged from a run of industry-rattling tough times with a relatively strong performance, a strategy that is demonstrably working, a team that knows how to focus and execute, and a clear-eyed view of the future toward which we are building.

But if the road ahead is looking so good the way it is, why are we helping to clear the way for domestic bank mergers in Canada? Under the present circumstances with BMO on its own roll, what, to be purely parochial, could possibly be in it for us?

Well, as I told the House of Commons finance committee a few weeks ago, we at BMO Financial Group look upon a merger only as one way of increasing capital strength, allowing us to execute our proven strategy more quickly and effectively.

Any new partnership, in other words, would have to support our existing goals. It would also have to be consistent with our vision and our corporate values.

In preparing to represent BMO stakeholders on mergers and the public interest, it was repeatedly driven home to me how historically compatible the business interests of Montreal Bank (as we were known in 1817) have always been with the broader interests - and aspirations - of Canada and Canadians. And of just how mutual the benefits have been.

Thus, when I represented BMO before the finance committee earlier this month and the Senate banking committee last November, I was able to usefully respond to each and every public interest concern raised by the Finance Minister, from how to ensure continuing access and choice to how to best manage the transition. And was only too happy to do so.

On the question of divestitures, for example, I could point to the relatively seamless transition that followed BMO's acquisition of 12 former TD/Canada Trust branches mostly in Southwestern Ontario, and how well it has worked out for employees, customers and the larger community.

I also told the similar success story of the 84 branches we ourselves sold to quality competitors over 2000/2001, where once again employees kept their jobs, customers kept their branches, complete with familiar relationships, and communities kept valued employers and good corporate citizens.

On the pivotal question of serving small business we had the best answer of all - that this is a market we have been openly and avidly pursuing for years for the best of business reasons, and that if we were involved in a merger, the new bank would most definitely continue to pursue this market, also for the best of business reasons.

I asked our political leaders to take note of the fact that keeping the credit tap flowing for small business customers through good times and bad since the recession of the early 1990s has helped us more than double our market share - putting BMO second in this market and pushing us closer to our avowed goal of becoming the industry leader.

I also argued before the committees, on your behalf and that of our millions of other stakeholders, that once all of the pressing matters of public interest are properly addressed, a carefully constructed and well-executed merger of Canada's banks should prove to be in the enduring public interest.

In a single stroke the industry would become significantly more competitive internationally, thus much more capable of keeping corporate head offices and all their attendant benefits right here in Canada; and would play an expanded role in what makes this country successful.

That said, I also made it very clear that as far as BMO Financial Group is concerned, we don't need a merger to secure our future. We are forging ahead and building that future with a transnational growth strategy that is gaining real and abiding traction.

While access to new capital would certainly allow us to act more quickly and decisively, it is the strategy that matters, along with our ability to follow through effectively.

Success in the North American Century is not going to come easily for any enterprise, even a respected veteran like BMO, with our head start and our proven store of transnational banking strengths and skills.

It is going to take prudence. It is going to take discipline. And it is going to take focus. Fortunately at this point in our history, we at BMO Financial Group are blessed with and empowered by all three.

We look back on our past with pride, and we face our future with confidence.