191ST ANNUAL REPORT 2008 Defining great customer experience I value a clear plan for the retirement I want. I appreciate a bank that can help my company in good times and bad. Who will explain all my mortgage options so that I actually understand? Thanks for giving me the advice that makes sense for me. Defining great customer experience begins with making sense of it all. BMO’s vision – to be the bank that defines great customer experience – galvanizes our organization and encourages every one of our 37,000 employees to help us succeed. In everything we do, we define great customer experience. We do so by helping our customers make sense of their financial lives, and by bringing clarity to the complexities of money. BMO gratefully acknowledges our customers who so generously gave their time and portraits to this annual report. Adolphe A. Tinling Linda Knight Scott Saxberg Maria Monreal-Cameron President and Principal Designer CEO, President and CEO, President and CEO, Adolphe Anthony T. Design CarePartners Crescent Point Energy Trust Hispanic Chamber of Commerce International and Associates Waterloo, Ontario Calgary, Alberta of Wisconsin Montreal, Quebec Milwaukee, Wisconsin Who We Are A Canadian-based North American bank, established in 1817, BMO® Financial Group is highly diversified. We work with millions of personal, commercial, corporate and institutional customers through our operating groups: Personal and Commercial Banking Canada, Personal and Commercial Banking U.S., Private Client Group and BMO Capital Markets. Our 37,000 employees are dedicated to making BMO the bank that defines great customer experience. Our approach is relationship-driven. In every business, our focus is on customers – and on always improving our overall performance. We are proud of what we do and where we work. And we believe in giving back. This is who we are. Our Operating Groups Personal and Commercial Banking Canada Personal and Commercial Banking U.S. Private Client Group (PCG) Operating BMO Capital Markets® (BMO CM) (P&C Canada) Serving more than seven (P&C U.S.) Serving more than 1.2 million under the BMO brand in Canada and Harris From offices on five continents, we serve million personal and commercial customers, customers, together with other Harris and in the United States, we deliver a broad corporate, institutional and government we partner with other BMO businesses to BMO businesses, we deliver a full range range of wealth management products clients in North America and internationally, deliver a full range of products and services. of products and services. We do this through and solutions to client segments ranging drawing on our expertise in investment and We do this through our integrated network our integrated network of branches, auto- from mainstream to ultra-high net worth corporate banking, debt and equity research, of branches, automated banking machines mated banking machines, and direct individuals, as well as institutions. treasury and market risk management. and specialized sales forces, and through banking by phone and online. Our distri - direct banking by phone and online. bution capabilities, combined with our local knowledge, allow us to effectively deliver the highest level of i P 46 service to our customers. i P 49 i P 52 i P 55 Dividends Declared Our Dividend Record ($ per share) 2.80 BMO has a strong dividend growth record and our 2.71 target payout ratio is at 45% to 55% of earnings. Compound annual growth rate: 2.26 2.51 We have a long-standing commitment to enhancing 11.3% 1.85 2.30 BMO 15-year shareholder value while maintaining a strong 1.59 1.95 capital position that allows us to execute our 1.34 1.72 1.20 1.12 1.45 growth strategies. 1.00 0.94 0.88 1.15 0.74 0.82 1.06 0.66 0.96 BMO 0.60 0.84 0.71 0.74 Canadian peer group average 0.59 0.63 0.49 0.53 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Contents Business Review Governance Review Financial Review Who We Are . .IFC Chairman’s Message . .16 Management’s Discussion and Analysis . .25 Numbers That Matter . .IFC Corporate Governance . .17 Financial Performance and Condition at a Glance . .26 2008 Highlights . .4 Board of Directors . .19 Supplemental Information . .90 President and Chief Executive Officer’s Message . .5 Consolidated Financial Statements . .104 Our Strategy at a Glance . .6 Corporate Responsibility Review Notes to Consolidated Financial Statements . .108 The Vision Driving our Strategy . .7 Corporate Responsibility Management Process . .8 Embracing our Responsibilities . .20 Directories and Resources Management Committee . .9 Developing our People . .20 Principal Subsidiaries . .152 Progress Report Helping our Communities . .22 Performance Committee . .153 Defining Great Customer Experience . .10 Environment . .24 Glossary . .154 Momentum Across the Enterprise . .12 Shareholder Information . .156 Refining Risk Management for the Global Market . .14 Where to Find More Information . .IBC Bank of Montreal uses a unified branding approach that links all of the organization’s member companies. Bank of Montreal, together with its subsidiaries, is known as BMO Financial Group. As such, in this document, the names BMO and BMO Financial Group mean Bank of Montreal together with its subsidiaries. Numbers That Matter Financial Performance Customer Service Total Revenue i P 38 Non-Interest Expense i P 42 Net Income i P 34 Full-Time Employees i P 20 ($ billions) ($ billions) ($ billions) (thousands) 2.6% 2.5% 2.1% Operating groups 5-year compound annual growth rate (CAGR) 5-year CAGR 5-year CAGR Corporate and T&O 2.7 10.2 6.9 10.0 34.9 35.8 37.1 9.8 6.6 2.4 33.6 33.8 6.4 2.3 9.3 9.3 6.2 6.3 2.1 2.0 25.0 25.4 25.8 27.0 27.7 8.6 8.4 9.1 8.8 9.4 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 Provision for Credit Losses i P 41 Return on Equity i P 35 Tier 1 Capital Ratio i P 60 Branches as a % of Average Net Loans (%) (%) and Acceptances BMO has generated a return on common Basel I and Basel II measures are not comparable. Canada Provision for credit losses includes shareholders’ equity of 13% or more in each of The Tier 1 capital ratio under Basel I would United States and International changes in the general allowance. the past 19 years, the only major North American be 9.41% for 2008. bank in our peer group to do so. Basel I Basel II 0.60 19.4 19.2 10.30 10.22 1,224 1,280 18.8 9.84 9.77 1,174 1,180 1,182 9.51 14.4 13.0 988 968 963 977 983 0.17 0.11 0.09 297 (0.07) 186 212 219 247 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 Shareholder Return Product/Service Excellence • BMO Bank of Montreal received Earnings per Share i P 34 Five-Year Average i P 33 Dividends Declared i P 62 a gold medal from the Canadian ($) Annual Total ($ per share) Public Relations Society (Toronto) All earnings per share (EPS) 1.8% Shareholder Return (%) 15.9% for the best use of communications measures in this report refer tools for the Business Coach to diluted EPS, unless 5-year CAGR 5-year CAGR specified otherwise. podcast series. 5.15 18.9 19.1 2.80 • For the second year in a row, BMO 4.63 2.71 4.40 ® 4.11 2.26 Mutual Funds was awarded the 3.76 13.8 14.2 1.85 Dalbar Mutual Fund Service Award 1.59 for best overall customer service. • BMO InvestorLine® was recognized as Canada’s fastest online brokerage 0.9 web site by Gómez Canada, and 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 rated number one bank-owned online brokerage in The Globe and Mail’s 10th annual online Employees Our Communities brokerage ranking. • BMO Capital Markets was named Best Investment Bank in Canada Average Training Days i P 20 In 2008, BMO contributed $55.9 million in corporate donations, i P 22 by Global Finance magazine. per Employee sponsorships and events to support our communities and thousands • BMO Capital Markets ranked as the (2004-2005 averages based on employee of charities and not-for-profit organizations in Canada and the top Equity Research Group in Canada headcount, 2006-2008 averages based on United States. for the 28th consecutive year full-time employee equivalent) Donations: Where the Money Goes (2008) in the Brendan Wood International Survey of Institutional Investors. 7.0 6.5 6.5 Federated Appeals 10% • Four funds managed by Private 6.3 6.0 (includes United Way) Client Group received a 2008 Health Care 33% Lipper Award for excellence in fund Education 31% performance: BMO Resource Fund, Arts and Culture 12% BMO Dividend Fund, BMO Guardian Global Technology Fund and Civic and Community Initiatives 9% Phoenix Insight Value Equity Fund. 2004 2005 2006 2007 2008 Other 5% 2008 HIGHLIGHTS 2008 Highlights BMO’s annual report provides our shareholders with the information they need to make sense of our business. The following chart presents a snapshot of our financial performance and business growth, customer satisfaction and risk management, as well as corporate governance and responsibility. It also refers readers to more detailed information within the annual report. FINANCIAL PERFORMANCE i P 26, 34 • Net income of $1,978 million compared with $2,131 million a year ago.