Remarks by Tony Comper, Chairman and CEO, BMO Financial Group, at CIBC World Markets Frontenac Institutional Investor Conference

Québec, QC. September 18, 2003

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Title Slide

Thanks Quentin, and good morning everyone.

Slide 1 - Consistent, Focused Strategy Yielding Significant Benefits

Last month, BMO Financial Group announced excellent third quarter results, including a 46 per cent increase in net income year-over-year and a return on equity of 18 per cent, up 510 basis points.

Over the past four years we have substantially changed the senior management team, and the new team has made some tough choices to position BMO for a more profitable future. Our revenue stream took some early hits as we shifted our overall business mix in favor of high return high potential businesses.

Now, financial results demonstrate that our tough choices and our consistent, focused growth strategy are starting to yield significant benefits. With rising performance across all three operating groups, we’re gaining momentum.

Slide 2 - Focused Canada-U.S. Growth Strategy

Our goal is to be a top-tier North American bank in terms of financial performance, and we will achieve this goal through continued execution of our focused Canada-U.S. growth strategy.

This means investing in our Canadian franchise — the foundation of this enterprise — to build on BMO’s strength in Canada, while at the same time growing and expanding in some of the most lucrative markets in the United States to strengthen our solid Harris franchise.

As a reminder, the U.S. franchise encompasses:

• a strong asset base of 76 billion dollars;
• a solid retail platform in the Chicago area;
• a growing commercial business in the Midwest; and
• a state-of-the-art direct brokerage platform.

Tying together and distinguishing our U.S. franchise is the excellent reputation of the Harris brand. As of this quarter, in fact, all of our U.S. businesses operate under the highly regarded Harris brand.

Today we earn almost 30 per cent of our revenue from our U.S. franchise. As we continue to expand and grow in the U.S. over the next five years, we expect this proportion to grow.

Slide 3 - Successful Repositioning for Growth

As I said, we began to reposition BMO Financial Group back in 1999. We exited businesses that were low return or lacked scale. These included corporate trust, global custody and our U.S. credit card business. We dramatically reduced risk-weighted assets in our non-relationship corporate loan book, and we sold 84 slower growth branches.

We experienced some short-term pain as a result of this repositioning, sacrificing revenues of over 600 million dollars per year. In the meantime, however, we made significant investments in such areas as direct brokerage, private banking and a new technology platform in our Canadian personal and commercial operations.

Slide 4 - Positive Results From Strategic Shift

This has set the stage for growth, and we’re starting to see results. BMO’s revenue growth is above the Canadian peer group average, and we’ve effectively managed our expenses. The result is a 28 per cent increase in earnings per share so far this year.

This makes five back-to-back quarters of rising earnings — a good indication that we’re on the right track.

Given the strong financial performance, we recently revised our guidance for the year.

We now anticipate earnings per share growth to be 15 to 20 per cent — that’s up from 10 to 15 per cent. We estimate our return on equity at 15 to 16 per cent — up from 14 to 15 per cent.

Given our favorable credit performance so far this year, we now estimate that the annual provision for credit losses will be at or below 500 million dollars, down from the previously reduced guidance of 600 million dollars.

However, this doesn’t mean we shift to automatic pilot. We still have work to do to reach our goal of top-tier performance.

Slide 5 - Steadily Improving Our Productivity Ratio

And productivity improvement remains the top priority. In the third quarter, the cash productivity ratio improved 550 basis points year-over-year.

Combine this productivity performance with rising revenues and effective cost containment, and we are confident we will reach our goal of lowering the cash productivity ratio in each of the operating groups by 150 to 200 basis points for the year.

We expect a similar rate of progress in improving the cost-to-revenue ratio in each of the operating groups in 2004 and beyond.

However, I want to be perfectly clear that this intense focus on productivity is not about cutting costs for short-term gain. It is about becoming better at managing both sides of the cost-to-revenue equation: generating revenues in a much more efficient manner through vastly improved business processes while continuing to invest in key initiatives designed to boost revenues.

Slide 6 - Three Operating Groups

Let’s move now from the big picture to look more closely at the performance of our three operating groups. I’ll start with our personal and commercial operations, looking separately at Canada and the U.S., followed by wealth management and investment banking.

Slide 7 - Personal & Commercial: Improving Financial Performance

Altogether, our personal and commercial operations in Canada and the U.S. have contributed 52 per cent of BMO’s earnings so far this year. We are seeing strong results from this group with year-to-date revenue up six per cent over the previous year. Add in expense improvements and this group posted a net income increase of 15 per cent.

Slide 8 - P&C Canada: Enhancing the Capability of Our Distribution Network

In Canada, we began a concerted effort about two years ago to become the only financial services provider our customers would ever need. We are enhancing our distribution system to make it easy for customers to bank with us. We want to provide them with a consistent experience no matter what channel they choose — from on-line banking to dropping in at an in-store location while shopping for groceries.

Last July, we announced plans to add BMO-branded in-store locations at Sobey’s stores in Quebec, Ontario and Atlantic Canada. We find the convenience and the extended hours of the in-store locations help solidify relationship with existing customers. The in-stores also attract new customers: over 50 per cent of customers using an in-store location are new to BMO.

In addition, we replaced our entire frontline customer-facing technology platform. Through the new Pathway Connect platform, our salespeople now have an integrated view of each customer and can tailor offerings to specific needs. The technology also makes our salespeople more efficient by reducing the amount of time spent on administrative work. Employees can focus on helping customers and ultimately on improving sales.

I want to make a key point here: We have made these investments in our distribution system and technology platform while, at the same time, posting superior earnings and improving profitability.

Slide 9 - P&C Canada: Maintaining Market Share

In terms of Canadian market share, we’re holding our own in a very competitive market. Although we’ve shown good revenue growth relative to the other major banks, we are really focused on growing profitable market share.

Some competitors have grown market share through price-advantage while others have moved aggressively in mortgage brokering. Our approach is to build sales by deepening customer relationships. We provide our customers with tailored solutions across a number of channels.

We believe the significant advantages of this model include higher customer retention, improved pricing and increased cross selling.

Slide 10 - P&C Canada: Leadership in Small Business

On the commercial lending side, we are the leader in growing market share. To see why, let’s look at small business banking, which is one of our biggest successes to date.

For over ten years we have been consistent in our commitment to this business through good times and bad. Our customers appreciate our consistency and the dedication we have shown to small business banking. This has led to customer loyalty — and to a doubling of our market share for loans up to five million dollars over the past decade.

In the last year alone, we have increased our market share by 54 basis points to 19.8 per cent. We are closing in on our goal of being #1 in small business lending, and I am confident we will soon be there.

Slide 11 - P&C U.S.: Strong Platform for Growth

Let’s turn now to our retail and business banking operations in the U.S. Harris Bank already has one of the largest community bank networks in Illinois, and our goal, quite simply, is to be the best and biggest retail and business bank in Chicago.

We have 9.1 per cent of retail deposits in the Chicago market. This makes us one of three banks that together have a 30 per cent market share, with the remainder dispersed among hundreds of very small competitors.

Given its excellent reputation in the local market, Harris enjoys a well-entrenched and well-located distribution network. It is a source of pride that Harris Bank receives high scores in customer satisfaction, and this remains a top priority.

Slide 12 - P&C U.S.: Continuing Strong Results

Retail and business banking in the U.S. continues to produce encouraging results. So far this year, earnings are up five per cent (or 15 per cent in U.S. dollar terms), on the heels of 74 per cent growth in earnings in 2002.

These results are driven by three factors: volume growth in both loans and deposits; disciplined pricing decisions; and improvement in our loan-to-deposit ratio, currently at 78 per cent.

Slide 13 - P&C U.S.: Proactive Response to New Entrants

With eight million people and a GDP over a third that of Canada, it is true that Chicago has been attracting the attention of several large U.S. competitors. But we are well positioned to compete aggressively to increase our share of this market, and we are doing just that.

Our growth plans call for expanding our existing 145-branch distribution network by an additional 50 branches or more. We will open new branches and we are pursuing some small one- and two-unit banks. So far we’re on target to open seven new branches this year and another 10 next year. We’re also looking at the potential for slightly larger retail banking acquisitions in Chicago and through the Midwest.

I would add that we have a firm policy on acquisitions. All must meet an internal rate of return requirement of 15 per cent and be cash accretive to earnings within two to three years.

With these new locations, together with our sales discipline, we expect to continue generating double-digit growth in consumer loans. As the economy improves, we also expect revenues in business banking to increase. And, with our strong deposit base of 14 billion U.S. dollars and our relatively low loan-to-deposit ratio, we are well positioned to fund loan growth.

Slide 14 - Wealth Management: Growth Strategy

Now let’s turn to the second of our operating groups: wealth management.

In Canada, we are focusing on the productivity of our distribution network and on leveraging existing customer relationships across the enterprise through an extensive cross-sell program.

In the U.S., we are expanding the franchise in existing, high-growth, affluent markets through a combination of acquisitions and organic growth. We are primarily concentrating on markets where we have significant momentum, including Chicago, Seattle and Arizona. As in Canada, we are leveraging existing customer relationships through our U.S. cross-sell program.

The cross-selling program is progressing well in Canada with nearly four billion dollars in referral business across the enterprise so far this year. We’re building on this success in the U.S by introducing a similar discipline. Given that about 30 per cent of referrals lead to new business, we’re providing incentives for employees at all levels to refer clients to other products and services, and will include referral success in the incentive compensation programs for both individuals and lines of business.

Slide 15 - Wealth Management: Improving in Spite of Challenging Environment

In spite of the challenging equity markets, we have accomplished much over the last couple of years.

We set out to improve productivity across all of the wealth management businesses, and to realign our business units to ensure consistently successful results in all market conditions. We reengineered our business models, renegotiated external contracts, and reduced non-client-facing positions. We increased market share.

But the real success of our efforts over the past year is reflected in earnings growth. Wealth management income has increased 46 per cent year to date.

Slide 16 - Wealth Management: Committed to U.S. Direct Brokerage

We remain committed to Harrisdirect, our U.S. direct brokerage business, but we are being smart in the way we run it.

Through the uncertain markets of the last couple of years we have maintained a high level of customer service. We are very encouraged that we received a top quartile ranking by Gomez in its discount broker survey last May. (As an aside, Gomez ranked InvestorLine #1 in Canada, as did the Globe and Mail in its survey released earlier this month.)

While maintaining high service levels, we have implemented important cost containment initiatives. We charge a premium commission rate to reflect our high level of service and high-quality research offerings. And we have increased customer profitability by introducing a non-activity fee.

All this positions us well for what we believe is the beginning of a market turnaround.

In the third quarter we were encouraged to see the improvement in earnings from our U.S. direct brokerage business with the recent uptick in the market and the increase in the volume of daily trades. Regardless of how markets behave down the road, however, we will remain focused on managing the expense line.

Slide 17 - Investment Banking: Strategic Direction

Now let’s take a look at the third operating group: investment banking. Our tagline is “Innovative Thinking. Integrated Solutions.” The strategy behind the motto is to build a full service, integrated North American investment and corporate bank — one that will capitalize on industry specialties and distinctive capabilities. Our aim is to provide Canadian large corporate and U.S. mid-market clients with a coordinated approach to raising the capital they need.

The approach in Canada is quite different than in the U.S. In Canada we are already recognized as a major player. We will continue to reinforce our leading position through our strengths — mergers and acquisitions, debt and equity underwriting, and unparalleled research capabilities. We are very proud that Brendan Woods recently named us #1 in research for the 23^rd year in a row.

In the U.S., our strategy is different. We are a mid-market firm targeting private and underserved public companies. It is not our intention to go head-to-head against the bulge bracket firms. Nor will we try to be all things to all clients in every sector. Instead, we are staying focused on what we do best. That means building on the expertise that we have developed in the mid-market through Harris Bank. This really sets us apart from our Canada-based competitors.

Slide 18 - Investment Banking: Progress in the Midwest

We have a highly focused approach to targeting clients in the Midwest. Our client base is companies with revenue between 50 million and 1 billion U.S. dollars per year. In the region, there are at least 10,000 potential clients that meet our criteria, and collectively they spend about eight billion dollars a year on banking-related services. So far, we have some form of relationship with more than 1500 of them, with many of these relationships spanning decades.

We offer a full suite of products targeted to these companies, most of which are privately held. Demographics suggest that 80 per cent of them will change ownership within the next 10 years, meaning that financing mergers and acquisitions will be very important to them. We are well positioned to take advantage of this opportunity.

Slide 19 - Investment Banking: Gerard Klauer Mattison Rounding Out Our Offering

A notable accomplishment for our Investment Banking Group was the acquisition this past July 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 acquisition rounds out our U.S. offering and improves our ability to serve both Canadian and U.S. investors. We now have broader research coverage of U.S. equities: Prior to the acquisition, we covered about 100 U.S. issuers; now we cover 300.

Slide 20 - Investment Banking: Strong Financial Performance

This group also substantially reduced both costs and risk-weighted assets. Together, the cost savings and the reduction in the non-relationship portfolio contributed significantly to a 14.9 per cent cash return on equity.

We are confident that the Investment Banking Group will contribute significantly to future earnings. As the economy improves, our corporate clients will use their bank lines more often, and this too will improve profitability.

I have been speaking about our three operating groups. Before addressing questions, let me return to the discussion of BMO Financial Group as a whole and two areas that are of particular interest to the investor community: credit risk management and dividend growth.

Slide 21 - Relative Credit Advantage Continues in F2003

Credit risk management is a hallmark of BMO Financial Group — a longtime and ingrained competitive advantage. Our performance through the full economic cycle has been top tier. As you can see, our provision for credit losses has consistently been below the Canadian industry average for the past 13 years, and BMO continues to trend favorably in the most recent quarter.

Slide 22 - Strong Dividend Growth

On the important subject of dividend growth, we recently increased the target range for our dividend payout ratio to 35 to 45 per cent of income. As you can see, we have increased dividends every year for the past 11 years. Last month, we extended this record with our second dividend increase this year. This brings BMO’s dividend increase for the year to 17 per cent, and reflects our confidence in the sustainability of our earnings.

We also recently announced the intention to repurchase up to 15 million shares — or about three per cent of the public float. Our tier 1 ratio continues to be a solid 9.2 per cent, well above our 8 per cent target.

Slide 23 - Why Buy BMO?

I’d like to conclude my strategic overview by addressing what I suspect is the fundamental question in the minds of most of this audience: Why should you buy or continue to hold BMO shares?

My short answer is that we are consistent and we are focused on a Canada-U.S. growth strategy that is clearly working, as demonstrated by recent results.

Each of the major banks has its own strategy for North America. Ours is built on improved productivity, continued investment in our core Canadian franchise, and growth and expansion in some of the most lucrative markets in the United States.

What differentiates us in terms of U.S. growth potential is our capacity to achieve targeted growth from our strong Harris retail, business banking and wealth platform; our mid-market business in the Midwest; our unparalleled research in Canadian equity markets; and, of course, our leadership in credit risk management.

We are very confident in the talent and dedication of our people. We are very excited about the opportunities we have to grow and deepen customer relationships in both Canada and the U.S. And we will reach our goal to be a top-tier North American bank.

Thank you. I’d be happy to answer your questions.