193 RD ANNUAL REPORT 2010 Financial Snapshot 2010 Performance For the year ended October 31 (Canadian $ in millions, except as noted) 2010 2009 2008 billion Revenue (p 37) 12,210 11,064 10,205 $ Total provision for credit losses (p 40) 1,049 1,603 1,330 2.8 BMO Financial Group Net Income Non-interest expense (p 41) 7,590 7,381 6,894 Net income rose by 57%, or more than $1 billion, driven by reduced provisions Net income (p 33) 2,810 1,787 1,978 for credit losses and stronger results in P&C Canada. P 33 Earnings per share – diluted ($) (p 33) 4.75 3.08 3.76 Return on equity (ROE) (p 34) 14.9% 9.9% 13.0% Cash operating leverage1 (p 41) 7.5% 1.3% 4.7% % Tier 1 Capital Ratio (p 60) 13.45% 12.24% 9.77% 10.4 Revenue Growth Net Income by Segment Revenue rose by more than $1.1 billion, or 10.4%, after having grown 8.4% P&C Canada (p 47) 1,644 1,415 1,153 and 9.2% in the past two years, demonstrating the benefits of our P&C U.S. (p 50) 175 286 242 diversified business mix. Private Client Group (p 53) 470 359 426 P 37 BMO Capital Markets (p 56) 820 873 568 Corporate Services, including % Technology and Operations (T&O) (p 57) (299) (1,146) (411) 13.45 Net Income (p 33) 2,810 1,787 1,978 Tier 1 Capital Ratio The Tier 1 Capital Ratio increased from 12.24% in 2009, providing greater 1 This is a non-GAAP measure. Please see the Non-GAAP Measures section on page 91. operational and strategic flexibility. P 60 Total Shareholder Our Share Price ($) (%) BMO shareholders were rewarded with strong returns on their investment. Return (TSR) 24.1 25.1 26.4 65 5.9% 5-Year TSR 60 (5.8) 55 (27.9) 20102009200820072006 50 BMO’s one-year TSR was 26.4%, providing an annual shareholder return Oct 31 Jan 31 Apr 30 Jul 31 Oct 31 in the top tier of our Canadian peer 2009 2010 2010 2010 2010 group – for the second consecutive year. P 32 P 32 “ There is a sea change Our relationship with underway with consumers – money is changing. P 8 their preferences have We’re rethinking what shifted and their value really means. relationship with money P 10 has changed.” We want the freedom Bill Downe to make financial President and Chief Executive Officer decisions everywhere. P 12 A company’s first responsibility is to be well managed. P 14 A company’s vision is only as strong as its people. P 16 Making money make sense Table of Contents Business Review Corporate Directory Financial Review Resources 2 Our Strategic Agenda 19 Corporate Governance 24 Financial Performance and Condition 169 Principal Subsidiaries 4 Chairman’s Message 20 Our Board of Directors at a Glance 170 Glossary 5 President and Chief Executive 21 Our Governance Structure 26 Management’s Discussion and Analysis 172 Shareholder Information Officer’s Message 22 Management Committee 96 Supplemental Information IBC Where to Find More Information 8 Our relationship with money is changing and Performance Committee 110 Consolidated Financial Statements 10 We’re rethinking what value really means 114 Notes to Consolidated Financial 12 We want the freedom to make Statements financial decisions everywhere 14 A company’s first responsibility is to be well managed Bank of Montreal uses a unified branding approach that links all of the organization’s 16 A company’s vision is only as strong member companies. Bank of Montreal, together with its subsidiaries, is known as as its people BMO Financial Group. As such, in this document, the names BMO and BMO Financial 18 Leadership in China Group mean Bank of Montreal together with its subsidiaries. Our Strategic Agenda Our Vision Our Guiding Principle We aim to maximize total shareholder To be the bank return and balance our commitments that defines to financial performance, our customers, our employees, the great customer environment and the communities experience. where we live and work. Established in 1817 and based in Canada, BMO Financial Group serves 11 million personal, commercial, corporate and institutional customers in North America and internationally. Our operating groups – Personal and Commercial Banking, BMO Bank of Montreal in Canada and Harris in the United States; Private Client Group, our wealth management business; and BMO Capital Markets – share one vision: to be the bank that defines great customer experience. “ The progress we’ve made with our customers makes us proud – and it’s reflected in our results.” Nancy Cyr Personal Banking Area Manager Montreal, Quebec A summary of our enterprise-wide strategy in context and our progress in 2010 appears in our Management’s Discussion and Analysis. P 28 2 BMO Financial Group 193rd Annual Report 2010 “It was my privilege this year to introduce new customers, employees and communities to Harris. They welcomed us in return, because at BMO, they not only matter – they’re our priority.” Daniela O’Leary-Gill Senior Vice-President, North District Executive, Harris N.A. Chicago, Illinois Our Strategic Priorities Maximize earnings growth across all North American personal and commercial banking 1 businesses, focusing on industry-leading customer experience and sales force productivity. P 28, 45, 48 Accelerate the growth of our wealth management business through client-focused financial planning 2 and by investing for future growth. P 28, 51 Deliver strong, stable returns in our capital markets business by providing highly targeted 3 solutions to our core clients from a single integrated platform. P 28, 54 Develop our business in select global markets to grow with our clients, expand our capabilities 4 and reach new customers. P 18, 28 Sustain a culture that focuses on customers, high performance and our people. 5 P 16, 28 BMO Financial Group 193rd Annual Report 2010 3 CHAIRMAN’S MESSAGE Good Governance Represents a Competitive Advantage Our practices continue to evolve Recent events have caused financial institutions everywhere to reconsider the way they operate. Our customers and their relationships with money have changed also – as they, too, adjust to the current reality. As directors of Bank of Montreal, responsible for the oversight of a large, complex organization, we are keenly aware that good governance represents a competitive advantage. The banks that emerged from the financial crisis in good shape were those with the best controls in place, and the discipline to adhere to them. Canadian banks fared better than most. It is not a coincidence that Canadian banks are recognized for the quality of their governance, and we are proud that BMO ranks among the top companies in Canada for governance. Achieving good governance, however, is not a fixed target. It is forever moving, steadily The right improving. At BMO, we strive constantly for board renewal – new ideas, new approaches, blend of new points of view. Since I was named Chairman of the Board in 2004, more than one-third of the faces on the board have changed. This is in line with our desire to have the right blend of experience experience and knowledge, tempered with fresh perspective. This year, in the spirit of renewal, we have introduced term limits for board membership. Once phased in, BMO and directors will be limited to 15 years of service, or until their 70th birthday, whichever knowledge comes first. After 24 years of service, Jeremy Reitman leaves the board this year, as does Nancy Southern, who has served shareholders for 15 years. On behalf of shareholders, I thank them for their invaluable contributions to the company over their years of service. We will miss their insight and guidance. We were pleased to announce the appointment of Christine Edwards of Chicago to the board in August 2010. Finally, I want to offer our thanks to management and all employees for delivering strong financial results in the past year. The bank has grown, both within our traditional David A. Galloway Chairman of the Board markets as well as in markets that will be of increasing importance to us. The incorporation of BMO ChinaCo (see page 18), for example, was an important strategic milestone for the company. I also want to recognize our employees’ contribution to important initiatives – the kind that are never reflected adequately in the bottom line. Under Bill Downe’s leadership, bank employees, enterprise-wide, supported their communities in record manner, donating time and money to the United Way. They also embraced the bank’s environmental goals and helped us, during the course of the year, achieve carbon neutrality relative to energy consumption and transportation emissions. 4 BMO Financial Group 193rd Annual Report 2010 PRESIDENT AND CHIEF EXECUTIVE OFFICER’S MESSAGE Our Customers’ Success Defines Our Success Setting higher standards The financial services industry has changed for the better. The establishment of new rules under which financial institutions will operate has not only been necessary, it is right – both for the overall stability of financial markets and for the customers we serve. At BMO, we’re positioned for success in this environment. It’s not just a matter of meeting new regulations. Customers are changing the rules of the game as well. People’s relationship with money has evolved, so too has their relationship with their financial institution. This is why the theme running through our annual report is: competing in a changing world. It’s changing because people are reassessing their idea of value. They want the freedom to do their banking everywhere. They expect a higher standard of social responsibility from companies than ever before.