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Remarks by Tony Comper, President and CEO, BMO Financial Group, at National Bank Financial Canadian Financial Services Conference 2005

Montreal, QC, March 30, 2005

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Title Slide

Thanks Rob, and good morning everyone. Bonjour tout le monde. As always, I'm very pleased to be here in Montreal to participate in this conference. I'm particularly pleased to do so at a time when Canadian banks are being acknowledged, at least in some quarters, as offering unprecedented value and opportunity for shareholders — and at a time when I have never felt more confident about BMO Financial Group's prospects for continued growth and success.

Given our limited time together, I'll focus today on two key answers to the question of why to invest in BMO: because it is a high-return low-risk bank with a good track record for profitable growth; and because we have a well-developed platform for more aggressive growth in one of the highest-opportunity markets in the United States at (and I emphasize this) relatively low reinvestment risk.

We believe we are taking the right steps to continue competing successfully in the U.S., where we intend to be a player of increasing strength regardless of what transpires on the domestic merger front.

SLIDE 1 - Forward-Looking Statements

I'll start with a quick look at our promising first-quarter performance, following closely on the heels of excellent results in 2004.

SLIDE 2 - Strong First Quarter

BMO started the year on a strong note in absolute terms, increasing first-quarter earnings per share by 16% from a year ago. All three operating groups contributed higher net income and return on equity rose to 19.4%.

Momentum was also good on a linked quarter basis. We increased net income almost 10% from the fourth quarter, growing revenue 7% while containing expense growth at less than 3%.

SLIDE 3 - Consistent Pattern of Performance

Look back over the past 16 quarters and you will see a consistent and reassuring pattern of performance.

I mentioned that I have never felt more confident about BMO's prospects, and one of the key reasons is our clear focus on a simple and straightforward strategy. Avoiding the flavour of the moment, we have been successful because we put our energy into consistent execution. Bursts of euphoria are hard to sustain, whereas focused execution is hard to beat.

SLIDE 4 - Well Positioned to Achieve Targets

While the first quarter was marked by robust performance across our peer group in what had been expected to be a slower-growth environment, BMO's solid results position us well to achieve all of our targets for the year.

You will note that we now anticipate a specific provision for credit losses of $350 million or less; that's $50 million better than the target for the year.

Also noteworthy is our cash productivity ratio, which improved 288 basis points from a year ago.

SLIDE 5 - Excellent Progress on Productivity

Since 2002, we have improved the annual expense-to-revenue ratio by approximately 420 basis points. This excellent progress reflects our ongoing, across-the-board efforts to drive revenue growth while maintaining a very disciplined and strategic approach to resource allocation.

As has been the case for the past two years, productivity remains at the top of our list of enterprise priorities for 2005. With expense discipline now ingrained in our business culture, management has a very healthy understanding of the requirement for ongoing rigor and clarity in allocating resources to maximize revenue growth while continuing to refine our cost structure. Our target of improving the cash productivity ratio by 150 to 200 basis points a year takes into account both revenue growth and cost containment. In fact, compensation is directly tied to success in achieving both revenue and expense targets.

When all banking groups, all lines of business and indeed all business units are accountable for meeting specific revenue and expense targets to contribute to the enterprise objective, it imposes a daily discipline that is felt in every corner of this enterprise.

This discipline has already made us more competitive, as we steadfastly bring our cost of doing business in line with the best anywhere in the industry. Given the fierce competition, which is getting fiercer all the time, especially with the recent changes in foreign content rules for RRSPs, we really have no choice. We must be exceptionally disciplined in spending while at the same time investing strategically to boost revenues.

SLIDE 6 - Heightened Focus on Increasing Revenues

The key to higher revenues, we believe, is a total customer orientation throughout the enterprise. We have undertaken a number of broad-based initiatives to build stronger and deeper relationships with customers, including investing hundreds of millions of dollars in leading-edge technology for our front-line sales staff and implementing incentive plans that reward a strong orientation toward sales and service.

We are also starting to do a much better job of coordinating and intensifying our efforts to meet a larger share of our customers' needs through new Sales Councils in Canada and the One Harris initiative in the U.S., both of which promote a customer-focused dedication to cross-business referrals. In addition, I am personally spearheading a major drive to create a higher-performance work environment throughout the enterprise.

We have also, of course, ramped up revenue-boosting activities on a business-by-business basis. A good case in point is our response to market share pressure in consumer and commercial lending in Canada, which I will discuss in a moment.

SLIDE 7 - Strategic Allocation of Capital

Our heightened focus on growing revenues is reflected in our strategic approach to investing our capital. Each year, we allocate capital to all our lines of business based on our evaluation of the growth potential of each business relative to all our other businesses. This makes for a lively and very healthy competition for capital resources. Then we measure business performance relative to the capital invested, and re-allocate capital based on actual performance.

Given that our personal and commercial operations in Canada and the U.S. have a good track record for profitable growth and continue to demonstrate growth potential, we are allocating a large proportion of our capital to these core businesses.

And, with our Tier 1 capital ratio growing, we now have more capital to allocate to opportunities that will drive growth.

Our priorities for capital investments are organic business growth through, for example, increased credit utilization and new branch construction in Chicago; acquisitions; dividends; and a modest share buyback program, which we primarily use to offset dilution from the exercise of stock options.

BMO's 5% quarterly dividend increase in February, following a 26% quarterly increase during fiscal 2004, ushered in our 13th consecutive year of dividend increases. The increases reflect this leadership team's confidence in our strong capital position, the quality of our earnings, and our ability to meet our targets.

SLIDE 8 - Ingrained Credit Culture & Superior Asset Quality

Leadership confidence also stems from our ingrained credit culture, a hallmark of BMO and a significant competitive advantage.

Excellence in managing credit enables us to provide more predictable and consistent returns for shareholders over time than many of our peers. Our provision for credit losses has consistently been below the Canadian industry average for the past 15 years, and the trend line continues to be favorable.

BMO's superior asset quality results from the consistency of our lending practices throughout the credit cycle, our expertise and prudence in assessing credit risk, and the disciplined capabilities of our loan workout specialists in restructuring troubled transactions to preserve value and help viable enterprises recover.

SLIDE 9 - Credit Performance Drives Earnings Power

Strong and consistent credit performance underpins BMO's ongoing earnings capability and is a key differentiator in setting us apart from the competition. Highlighting this point, this slide shows how credit performance drove our earnings power over the full economic cycle from 1990 through 2004. BMO's net interest margin averaged 2.32% over this period, just above the Canadian peer group average. However, when the provision for credit losses and non-earning assets are excluded, BMO's margin averaged 2.53% — a strong #1 ranking over 15 years. And in any individual year we never ranked lower than #3 on this revealing measure.

SLIDE 10 - Leader in Corporate Governance and Financial Disclosure

Another management strength is corporate governance and financial disclosure.

The information we provided in our latest proxy circular on executive compensation, including pension obligations, was well above minimum requirements and exceeded the voluntary disclosure guidelines. We also provided more detailed information on our U.S. businesses in our first-quarter results, furthering our leadership in providing investors with information to increase their understanding of the underlying performance of all our businesses.

I'll mention just one other governance area in which BMO is acknowledged by experts as a clear leader: performance-linked compensation. We believe BMO's leadership in aligning compensation with shareholder interests — not just in the short term but in the mid and long term as well — will have a positive influence on our relative performance for many years to come.

SLIDE 11 - BMO's Growth Strategy

We also believe we are executing the best growth strategy for this enterprise in these times. As has been the case for the past several years, our overall plan is to grow our core Canadian franchise and improve and selectively expand our U.S. franchise. Success will come from continued focus on executing this strategy in our drive to become the top-performing financial services organization in North America.

In Canada, we are building on existing strengths to grow our position in the commercial market, gain share in the rapidly growing wealth management market, and expand our share of wallet in investment banking.

In the relatively opportunity-laden United States, where industry consolidation has a long way to go, we are also building on our strengths to accelerate the growth of our Harris franchise. We are growing organically, through de novo branch expansion and through personal and commercial banking acquisitions to become a leading player in the Midwest in the personal and business banking markets, the corporate mid-market and wealth management sectors. And we are capitalizing on the fragmentation and high-growth potential in the wealth market by growing these businesses in selected areas across the U.S.

SLIDE 12 - 2005 Strategic Priorities

This slide summarizes BMO's strategic priorities for 2005.

In addition to focusing on productivity and revenue growth, as already discussed, we will also continue to focus on improving the performance of all our U.S. businesses, which succeeded in increasing net income to $156 million in the first quarter from $48 million a year ago. And we are accelerating the growth of our U.S. franchise. I will come back to these points.

First, though, I'll make just a few observations about the operating group priorities that flow out of these enterprise priorities.

SLIDE 13 - Private Client Group Priorities for 2005

I'll start with the Private Client Group, which is our smallest group in terms of profit contribution today and yet in our view holds out the greatest opportunity for rapid and very substantial growth over the long term.

Retail brokerage and asset management are already very large and very successful businesses for BMO in Canada, where rapid growth in the future is constrained by the lack of properties available for acquisition. In order to make the most of growth opportunities fuelled by demographic factors, we have been using a portion of our Canadian profits in wealth management to fund the cost of building out these businesses in the United States, where wealth management is still highly fragmented. It is important to note that we are investing for the future.

We have made a lot of progress in creating a strong foundation that will enable us to participate successfully in this growing sector, which will become an increasingly important contributor to our bottom line over time.

Earlier this year, Euromoney Magazine selected BMO Harris Private Banking as the top private bank in Canada for the second consecutive year, while ranking our U.S. private bank seventh among a hyper-competitive field of 35 American and international heavyweights. Building on this sterling reputation, we are in the process of expanding our private banking sales force, beginning in the Chicago area and then fanning out to our other locations throughout the U.S.

Harrisdirect, our online brokerage, also routinely earns top marks for its unparalleled service and for having some of the best research on the Street. While it is not currently meeting our financial performance expectations, we are actively engaged in improving performance and it provides us with a wealth management distribution channel in the U.S.

Having implemented a more cost-effective and flexible business model, we are able to readily adjust operating costs as client demands fluctuate. And we believe we can improve marketing effectiveness by focusing our efforts on our key target market, the serious, long-term investor who prefers investing in an online environment.

We have announced a simplified fee schedule that will be easier for clients to understand and, starting in April, we are reducing fees for online trades. In the coming months, we will be launching web site enhancements that will reinforce the promise to our clients to deliver the best value in the industry. We will support this offer with an increased investment in promotion and advertising.

We are expecting results from the changes being made and will continue to closely monitor performance, watching for signs that this business will provide the high return on investment we expect from all our businesses. We believe Harrisdirect is a valuable component of our U.S. wealth management offering and that its contribution to our operating results will grow over time.

Slide 14 - Investment Banking Group Priorities for 2005

Let's turn now to the Investment Banking Group, BMO's second-largest profit contributor.

A key priority for this group in 2005 is to maximize revenue growth by further improving the integrated delivery of our expanded range of products and services. We believe that superior research is a core capability of our company and a key element in building a high-quality investment bank.

In Canada, where we are already recognized as a major player, we will continue to reinforce our leading position by exercising our strengths in mergers and acquisitions, debt and equity underwriting, and unparalleled equity research capability.

In the United States, where we are a mid-market firm targeting private and smaller-cap public companies, we are staying focused on what we do best: building on Harris's expertise and longstanding relationships with more than 1500 mid-market clients. Our integrated U.S. investment and corporate banking business enables us to accelerate growth by strengthening and broadening relationships with target clients, offering complete financial solutions. This includes public and private debt and equity underwriting, corporate lending, cash management and capital markets products; advisory services in mergers and acquisitions and restructurings; and research, sales and trading services for investing clients.

Our ongoing focus on increasing the proportion of fee-based income has been a major driver of the improvements we have achieved in return on equity.

Slide 15 - P & C Canada Priorities for 2005

BMO's biggest profit generator and enduring growth engine, the Personal and Commercial Client Group, contributed almost a billion dollars to our bottom line in 2004.

Most of this amount came from our core Canadian operations, as customer loyalty scores for our personal banking customers rebounded during the year while commercial client loyalty scores maintained their improved 2003 ratings. This suggests that we are on the right track in building broader and deeper relationships with customers.

A key priority, as mentioned earlier, is revenue-boosting initiatives to increase profitable market share. Our efforts to date have already produced very good sales momentum. Our balance sheet has been growing at an increasing rate in both assets and liabilities, and margins have been more stable than our peers in recent years, which has really been driving our earnings. Yet even with robust consumer loan and deposit growth, we are experiencing some market share erosion, which certainly doesn't make us happy.

In order to stabilize market share while maintaining margins for both consumer and commercial lending, we are revving up the sales engine even further, undertaking a wide range of initiatives including: sales force expansion; increased marketing; and the introduction of innovative products such as the Homeowner ReadiLine, a mortgage and line of credit rolled into one. We are also undertaking selected pricing initiatives. In making pricing decisions, we constantly balance profitability and market share considerations.

In our view, managing margins is as important as increasing market share in the short run. Our focus on mix and re-packaging the product to increase client value will allow us to continue growing net income without sacrificing margin for share. But there is no doubt in our minds that, over the longer term, we must and will stabilize market share in personal lending, and grow market share in commercial lending, which has long been a differentiating strength at BMO.

Slide 16 - Ongoing Investment in Quebec

Since I am here in Montreal, I would like to highlight the success BMO is experiencing in this province under the leadership of Jacques Ménard. In fiscal 2004, the Quebec Division of the Personal and Commercial Client Group posted the highest profit growth of all P&C divisions in Canada.

With its integrated approach to meeting customer needs, strong sales culture and ability to contain costs while maintaining good asset quality, this division also improved its productivity ratio in 2004 by nearly twice as much as the Canadian group as a whole.

BMO remains committed to investing in this province, where we are continuing to add in-store locations following the agreement with Sobeys in 2003. We now have 19 in-stores in Quebec and are looking at adding additional locations in coming years.

Slide 17 - P&C U.S. Priorities for 2005

Turning now to our U.S. personal and business banking operations, I would draw your attention to the fact that Harris is already an established and significant player in the high-opportunity greater Chicago area, where Harris is one of the top three banks that together have about 30% retail deposit market share in a still largely fragmented market characterized by hundreds of small banks serving a population of more than 9 million.

Strong volumes plus high customer satisfaction and market share results show that Harris is, in fact, competing very successfully against the large and determined new competitors in this affluent market where, as Rob Wessel points out in his report on BMO published last week, Harris has grown to become the 29th-largest bank by total deposits in the 7800-bank universe that comprises the massive U.S. market.

We are confident that, when the dust clears, Harris will emerge as the #1 personal and business bank in the Midwest and a leading player in the Midwest in the commercial and corporate mid-market and wealth management sectors. We are also capitalizing on the fragmentation and high-growth potential in the wealth market by growing these businesses in selected areas across the U.S.

In keeping with our priority to continue improving U.S. business performance, we are integrating some of Harris's back-office functions into our Canadian operations. Another initiative, which we expect to complete by June, is to provide more seamless customer service and achieve cost efficiencies through the consolidation of the Harris bank charter structure.

We are continuing to expand our 189-branch network, opening another three branches in prime locations in the Chicago area during the remainder of the year. And we are positioned to step up the pace of retail banking acquisitions in the Midwest.

Slide 18 - Exceptional U.S. Platform for Growth

As you know, consolidation is now moving along smartly in the United States, and BMO is very much in the thick of it, as evidenced by our acquisition of three more banks in the U.S. Midwest over the past year or so — an investment of more than $560 million.

And the reason we're in the thick of it speaks to our great and abiding strength when it comes to U.S. expansion — our existing Harris franchise and all of its abiding strengths, including our established presence in the greater Chicago area, one of the most affluent and highest-growth-potential regions in the United States; the superb Harris brand; high customer loyalty scores, and our success in achieving the #2 position in retail deposit market share. While new market entrants must make numerous acquisitions to build share in this fragmented market — a significant barrier to entry — we are already competing successfully against old and new competitors.

With 20 years of experience in operating this franchise, we have acquired invaluable on-the-ground management expertise. The same core team has developed a broad range of experience in successfully bringing new acquisitions into our operations. We believe we can achieve significant cost savings with future acquisitions.

While we have made 22 U.S. acquisitions since 1984 — 13 of them in the past five years — our overriding priority has been to build a strong and integrated foundation for successful expansion, an expensive and time-consuming task for competitors to replicate.

We needed to consolidate back-office functions into our Canadian operations to achieve economies of scale and set the stage for greater efficiencies and profitable growth.

We needed to put the right technology platform in place so that all branches could operate on one customer service system similar to the Pathway platform we introduced in Canada.

And we needed to further improve the profitability profile of the franchise through a wide range of initiatives, including the Harris charter consolidation I mentioned earlier in which 26 separate bank charters will be combined into one national charter by June.

This foundational work will be completed within the year, greatly reducing integration risk for future acquisitions.

Slide 19 - Superior Business Model

We have also developed a superior business model that is uniquely suited to a large Canadian bank looking to succeed in the vastly larger U.S. environment. It retains the best of the Harris community banking heritage while positioning us for higher growth and profits in the future.

We are using BMO's Canadian experience in operating a large and diverse banking network to blend the best of two banking models — network banking and community banking — to create a powerful, growth-generating bank, which (to put it simply) combines a community-focused front office with a high-efficiency back office.

Our efforts to date have produced a very productive branch network. We rank #18 among the top 100 banks in the U.S. based on deposits per branch, far ahead of our Canadian peers in the U.S.

Slide 20 - Faster Pace of U.S. Acquisitions

We are well positioned to absorb acquisitions profitably and at a faster pace as we expand our distribution network in the Midwest where, importantly, we already have brand recognition through our existing commercial banking presence.

As we close in on our goal to increase our distribution network to 200 branches, the next step in our expansion is to use our infrastructure and integration capabilities to grow to 350 to 400 branches over the next couple of years.

We are seeking acquisitions in three categories: small banks with a purchase price of less than US$500 million (alternatives to our ongoing expansion through new branch construction); medium, in the range of US$500 million to US$2 billion; and large, above US$2 billion. A US$2-billion acquisition would represent less than 10% of our market capitalization.

Because our superior business model benefits from back-office consolidation, we are most interested in acquisitions involving a very significant level of ownership, preferably 100%.

As previously, future acquisitions will be driven by opportunity and must pass the rigorous filters of being first and foremost a good strategic and cultural fit, and then a good financial fit. They must add to cash earnings per share within three years. This time horizon takes into consideration one-time acquisition and integration costs and the premiums that are being paid in the current environment.

I would also note that the stronger Canadian dollar makes U.S. properties more affordable, although if it continues to strengthen, it may adversely affect the profitability of the acquisition in Canadian dollars.

Slide 21 - Why Buy/Hold BMO?

I said at the outset that investors should buy or hold BMO shares because BMO is a high-return low-risk bank with a good track record for profitable growth; and because we have a well-developed U.S. platform for more aggressive growth at relatively low reinvestment risk.

This slide summarizes some of the other key points I have made, and I'd like to add one more to the list: the demonstrated willingness and capacity of our people to embrace change. Our people have adapted well to all the changes we have implemented to strengthen BMO. And they have taken up the challenge to achieve higher levels of performance. They understand that when the next wave of domestic consolidation begins in earnest, our efforts will have put us in fighting form and in charge of our own destiny.

Slide 22 - Strong Returns to Shareholders

To a person, we are focused on executing our strategy and continuing to deliver strong returns to shareholders.

By the end of fiscal 2004, BMO's average annual shareholder return over five years was 18.9%. That's way up from 12.9% at the end of 2003. Our one-year and three-year returns, at 20% and 22% respectively, are even more encouraging.

Slide 23 - 20 Years of Superior Returns

Over the past 20 years, in fact, BMO shareholders have earned an average annual return of 17.5%. That's almost twice the TSX average. Only one bank in our Canadian peer group has done better in 20-year TSR; and BMO is the leader over this time frame in dividend contributions to Total Shareholder Return.

Slide 24 - BMO Is a High-Return, Low-Risk Bank

I'll close with a compelling slide from a third-party study — a personal favourite, I must admit — which provides pretty solid support for our contention that we have identified the right business mix, the right growth strategy and the right priorities to appeal to shareholders with an appetite for high returns at relatively low risk.

Boston Consulting Group assesses financial services companies worldwide based on total shareholder returns adjusted for two effects: the influence of national stock markets and the risk to which shareholders have been exposed. This measure is called Risk-Adjusted Relative Total Shareholder Return.

As you can see from the global comparison, BMO fares very well on this measure, ranking as one of the leading six financial services companies in the world over the five-year period measured.

As we step up the pace of progress toward our long-term goal of becoming the top-performing financial services organization in North America, we will continue to build on BMO's track record as a high-return, low-risk bank.

At a time when Canadian banks offer unprecedented value and opportunity for shareholders, I have never felt more confident about BMO's prospects for continued growth and success.

Slide 25 - BMO Financial Group

Thank you for your attention. I'd be happy to answer any questions.

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