Everyone has plans. Bank of Montreal 184th Annual Report 2001 Book One The year in review Amid adversity, Bank of Montreal remains strong, confident and committed to pursuing a strategy of growth. 2001 was a difficult year for the world. Politically and spiri- from 2000. Cash earnings per share were $2.86, a decrease tually, the events of September 11th had a profound effect. of $0.53 or 16% from the previous year. The act of terror also impacted the globe’s financial markets, Yet, we remain strong and confident. further weakening already slowing economies in the United Excluding non-recurring items and the increased States, Canada and internationally. charges, cash earnings per share actually increased 7% from The Bank of Montreal Group of Companies was not fiscal 2000. Cash return on equity was 16.9%, excluding immune to the troubled times. In the fourth quarter of 2001, non-recurring items and the increased charges. Indeed, Bank the slowing of the North American economies prompted the of Montreal is the only bank in North America that can Bank to announce higher provisions for credit losses and claim a reported return on equity of more than 13% every write-downs totalling $682 million or $414 million after-tax. year for the last 12 years. These increased charges, along with a less robust econ- This is good news. It’s a testament to our consistent omy, significantly affected our business. For the fiscal year performance and a reflection of our resiliency and the sound- ending October 31, 2001, our net income was $1,471 million, ness of our business strategy. And it’s a source of inspiration down $386 million from fiscal 2000. Cash return on equity as we move forward into what we believe will be a more for the year was 14.8%, a decrease of four percentage points prosperous, peaceful future. Financial Highlights Oct. 31 Oct. 31 Oct. 31 Oct. 31 Oct. 31 (Canadian $ in millions, except as noted) 2001 2000 1999 1998 1997 Income Statement Highlights Total revenue (teb) (a) 8,863 8,664 7,928 7,270 7,167 Provision for credit losses 980 358 320 130 275 Non-interest expense 5,671 5,258 5,288 4,785 4,567 Net income 1,471 1,857 1,382 1,350 1,305 Common Share Data ($) Diluted earnings per share 2.66 3.25 2.34 2.29 2.28 Excluding non-recurring items 2.48 2.91 2.51 2.29 2.36 Diluted cash earnings per share 2.86 3.39 2.46 2.42 2.42 Excluding non-recurring items 2.68 3.05 2.64 2.42 2.50 Primary Financial Measures (%) (b) Average annual five-year total shareholder return 14.3 22.9 22.0 23.3 26.1 Diluted cash earnings per share growth (c) (12.1) 15.5 9.1 (3.2) 14.2 Cash return on equity (c) 13.9 16.9 15.9 16.1 18.6 Revenue growth (c) 3.2 6.1 9.4 1.4 15.1 Provision for credit losses as a % of average loans and acceptances (c) 0.60 0.28 0.22 0.09 0.23 Tier 1 Capital Ratio 8.15 8.83 7.72 7.26 6.80 All ratios in this report are based on unrounded numbers. (a) Reported on a taxable equivalent basis (teb). (b) For the period ended or as at, as appropriate. (c) Reported excluding non-recurring items. Bank of Montreal Group of Companies at a Glance Ini Personal and Commercial Client Group The Personal and Commercial Client • G Group (P&C) is committed to providing Total Revenue li integrated, seamless, high-quality (excluding non-recurring items) ($ millions) • L service to seven million personal and S commercial customers across Canada and • G 4,161 4,306 in the United States. P&C offers a full 3,902 range of products and services through • In 16,500 highly skilled financial service p providers in more than 1,100 Bank of • E Montreal and Harris Bank branches, th as well as directly through bmo.com, • M 3 harrisbank.com, BMO mbanx® Direct c 99 00 01 and a network of more than 2,200 • In automated banking machines. U U Private Client Group The Private Client Group (PCG) is com- • In mitted to helping clients accumulate, Assets under Management o and Administration protect and grow their financial assets. (including term deposits) ($ billions) • L ®1 Operating under The Harris in the in % United States and BMO Private Client 234 237 40 s Group in Canada, PCG, through more 197 30 • E than 5,100 employees, offers a full suite 20 2 a of wealth management products and 10 services. The group has total assets 0 • E under management and administration, -10 w including term deposits, of $237 billion. -20 H -30 • L 1 99 00 01 S&P 500 (% growth) R TSE 300 (% growth) d Investment Banking Group Operating under the BMO Nesbitt Burns • L and Harris Nesbitt brands, the Investment Total Revenue fe (excluding non-recurring items) Banking Group (IBG) offers corporate, re ($ millions) institutional and government clients • S complete financial services, including 2,558 th 2,309 advisory, capital-raising, investment 2,255 s and operating services. Supported by • F top-ranked research, BMO Nesbitt Burns b is a leader in mergers and acquisitions T advisory, debt and equity underwriting, in institutional equity, securitization 1 and trade finance. 99* 00 01 • D *Excludes impact of additional month of BMO Nesbitt Burns revenues in 1999. tr Emfisys® Emfisys, the technology and e-business • D group, provides information technology Banking Transactions C planning, strategy and development ser- (millions) d vices, together with transaction-processing, • D North American cash management, 350 c and real estate operations for the Bank 300 c of Montreal Group of Companies and 250 • D its customers. The group is also responsi- 200 150 to SM ble for the creation, development and 100 m support of the Bank’s e-business services. 50 • In 0 97 98 99 00 01 s Branch Telebanking b ABM PC Banking Debit Card Initiatives for 2001 Focus for 2002 • Grew direct banking volume (telephone and online) by 41% to 193 mil- • Increase market share in the personal banking segment, relative to our lion transactions. full-service competitors. • Launched several new consumer lending products and the Premium Rate • Increase market share in both small business banking and commercial Savings account. banking businesses, relative to our full-service competitors. • Grew market share in the automotive lending and leasing sectors. • Increase our customer loyalty scores in both personal and commercial • Introduced Direct Bank for Business and our AIR MILES®4 for Business banking segments. program. Small business loan market share increased to 18.9%. • Continue replacement of our sales and marketing technology platform. • Expanded our corporate finance unit with volume growth above 20% for • Achieve asset growth while maintaining existing high asset quality the fourth consecutive year. standards through continuing development of technology, state-of-the-art • Maintained credit quality standards at high levels while asset growth risk management techniques and strict internal discipline. continued. • Continue to target a $1 billion annual increase in retail and small • Increased retail and small business lending in the United States by business loans for the next several years, and assess strategic mergers Bank of a Glance at Companies of Group Montreal US$1 billion. The acquisition of First National Bank of Joliet added another and acquisitions opportunities in the United States. US$562 million. • Increased the number of Canadian investment sales professionals in Bank • Expand our distribution network on both sides of the border by continuing of Montreal branches to just under 700. to grow the total number of investment sales professionals. • Launched Harris AdvantEdge InvestingTM1, which offers full-service invest- • Leverage relationships with seven million North American customers ing, enabling us to provide a complete range of wealth management (six million at Bank of Montreal and one million at Harris Bank) with services in the United States. further deployment of highly trained investment professionals in • Expanded access to mutual fund distribution channels in Canada with the key branches. acquisition of the Guardian Group of Funds. • Continue to expand U.S. wealth management business through both • Established an integrated wealth management offer in the United States acquisition and organic growth, leveraging Harris’ long-standing reputation with the opening of The Harris offices. These offices put Harris Private Bank, in major U.S. markets while expanding into selective new markets Harris InvestorLine and Harris AdvantEdge Investing under one roof. across the country. • Launched the first online retirement planner in Canada – BMO InvestorLine® Retirement Planner – allowing investors to build their asset allocation and determine if their retirement plan is on track. • Leveraged lending relationships to cross-sell investment banking and other • Continue to maintain emphasis on disciplined client coverage within fee-based products in the U.S. Midwest mid-market through Harris NesbittTM1, Harris Nesbitt, adding profitable new multi-product relationships and resulting in a 50% increase in investment banking revenue year-over-year. building revenue. • Sustained deal flow in a very difficult market and economic environment • Reinforce commitment to the media and communications sector by through focus on U.S. Midwest mid-market and expertise in specialty sectors continuing to support existing client relationships and actively seeking such as food and agribusiness, equity sponsors and asset-based lending. high-quality management teams with proven business models requiring • Focused on providing media and communications sector clients with full growth capital to expand their business. balance sheet solutions through our U.S.