192 ND ANNUAL REPORT 2009 Table of Contents Our Strategic Agenda At a Glance Our Strategic Agenda .................................IFC Reasons to Invest in BMO ............................ 2 Numbers That Matter ...................................4 Chairman’s Message ................................... 6 Our Vision Our Guiding President and Principle Chief Executive Officer’s Message ............ 7 We aim to maximize 2009 Highlights To be the total shareholder Financial Stability and Strength .................10 return and balance bank that our commitments to Customer Experience ...................................11 financial performance, Corporate Areas .......................................... 15 defi nes great our customers, our Governance ................................................. 17 employees, the Corporate Responsibility ............................. 18 customer environment and the communities where Corporate Directory experience. we live and work. Our Governance Structure and Board of Directors .......................................22 Our Management Process and Management Committee ...........................24 Performance Committee ............................26 Financial Review Management’s Discussion and Analysis................................................ 27 Established in 1817 and based in Canada, BMO Financial Group serves more Financial Performance and than 10 million personal, commercial, corporate and institutional customers in Condition at a Glance ................................. 28 North America and internationally. Our operating groups – Personal and Commercial Supplemental Information .........................96 Banking, BMO Bank of Montreal in Canada and Harris in the United States; Private Consolidated Financial Statements ...........110 Client Group, our wealth management business; and BMO Capital Markets – share one vision: to be the bank that defines great customer experience. Notes to Consolidated Financial Statements .................................114 Resources Principal Subsidiaries ................................ 165 Glossary ..................................................... 166 Shareholder Information ..........................168 Where to Find More Information ..............IBC Bank of Montreal uses a unifi ed 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 A summary of our enterprise-wide strategy in context P 31 mean Bank of Montreal together with its subsidiaries. and our progress in 2009 appears in our MD&A. b BMO Financial Group 192nd Annual Report 2009 Our Strategic Priorities Maximize earnings growth across all North P 31, 48, 51 American personal and commercial banking 1 businesses, focusing on industry-leading customer experience and sales force productivity. Accelerate the growth of our wealth management P 31, 54 business by providing our clients with exceptional 2 advice, emphasizing retirement and financial planning. Deliver strong, stable returns in our capital markets P 31, 57 business by providing highly targeted solutions to 3 our core clients, everywhere we compete, from a single integrated platform. Grow our business in select global markets P 31 4 to meet our customers’ expanding needs. Sustain a culture that focuses on customers, P 18, 31 5 high performance and our people. “ We’ve defined the type of company we want to be and we’re achieving it.” In our annual survey, 96% of BMO employees highly agreed with the Dorothy Abreu statement, “I understand how my role contributes to achieving our Commercial Relationship Manager, vision of being the bank that defi nes great customer experience.” Harris, Chicago That compares with 84% last year. BMO Financial Group 192nd Annual Report 2009 1 Reasons to Invest in BMO Clear growth strategy P 31 • Consistent and focused North American growth strategy • Strong Canadian and U.S. customer base • Growing global presence to support our customers • Commitment to our medium-term financial objectives Strong financial position P 10, 28, 62 • Balanced approach to capital management • Tier 1 Capital Ratio of 12.24% at October 31, 2009 • Tangible common equity to risk-weighted assets ratio of 9.21% at October 31, 2009 • Strong senior debt ratings Proactive risk management P 75 • Independent risk oversight across the enterprise • Disciplined credit risk management capabilities and processes • Group and individual performance assessments that reflect risk-adjusted returns and align with shareholder interests Commitment to stakeholders P 4, 18, 35 • Clear brand promise that delivers real benefit for customers • Engaged employees committed to exceeding customers’ expectations • Financial performance and consistent dividend payment track record • Strategic approach to corporate responsibility and sustainability In this year’s Annual Employee Survey, 97% of BMO employees responded with high agreement to the statement, “I believe that keeping the customer a priority will contribute to the fi nancial success of BMO Financial Group.” 2 BMO Financial Group 192nd Annual Report 2009 Our Dividend Record Dividends Declared ($ per share) BMO Financial Group has the longest-running Compound annual growth rate: 2.80 2.80 dividendividend paymentpayment record ofof anyany companycompany in 10.8% 12.0% 2.71 Canada,anada, at 181 years. BMO common shares had BMO 15-year BMO 5-year a dividend yieldyield ofof 5.59% at October 31, 2009. 2.26 1.85 1.59 1.20 1.34 1.12 0.94 1.00 0.82 0.88 0.66 0.74 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Our Share Price ** ($) *% BMO shareholders were )* rewarded with strong returns on their investment in 2009. )% (* (% '* DXi(&!É%-DXi(&!É%- ? ?Vc(&!É%. 6eg(%!É%. ?ja(&!É%. DXi(&!É%. “ I know that keeping the customer a priority will contribute to our financial success.” Mark Rossignoli Vice-President and Senior Investment Counsellor, Private Client Group, Toronto BMO Financial Group 192nd Annual Report 2009 3 Numbers That Matter Financial Performance Total Revenue P 40 Non-Interest Expense P 44 Net Income P 36 ($ billions) ($ billions) ($ billions) &&#& ,#) '#, '#) &%#% &%#' +#. .#- +#+ '#& +#) '#% .#( +#( &#- '%%* '%%+ '%%, '%%- '%%. '%%* '%%+ '%%, '%%- '%%. '%%* '%%+ '%%, '%%- '%%. 2009 marked a second consecutive Expense increase largely reflected Net income reflected strong year of strong revenue growth the stronger U.S. dollar, acquisitions performance in our major operating at 8.4%. and severance costs. groups but was impacted by increased credit losses. Provision for %#-- P 43 Return on Equity (ROE) P 37 Tier 1 Capital Ratio (%) P 62 (%) Credit Losses %#,+ Basel l * Basel ll * as a % of Average &'#') Net Loans and &-#- &.#' Acceptances &)#) &%#(% &%#'' &(#% .#*& .#,, .#. %#'& %#&( %#&& '%%* '%%+ '%%, '%%- '%%. '%%* '%%+ '%%, '%%- '%%. '%%* '%%+ '%%, '%%- '%%. Elevated provisions reflected difficult ROE was good in the context of the eco- Our Tier 1 Capital Ratio was strong. economic conditions, primarily nomic environment, having been reduced in the United States, over the past primarily by our stronger capital position two years. as well as lower earnings. * Basel l and Basel ll measures are not comparable. Shareholder Return Earnings per Share (EPS) P 36 One-Year Total Shareholder P 35 Dividends Declared P 64 ($) Return (TSR) (%) ($ per share) ')#& '*#& *#&* '#-% '#-% )#+( &#- '#,& )#&& *"NZVgIHG '#'+ (#,+ (#, (#%- &#-* *#- ',#. '%%* '%%+ '%%, '%%- '%%. '%%* '%%+ '%%, '%%- '%%. '%%* '%%+ '%%, '%%- '%%. Lower EPS was due to reduced net The one-year TSR rebounded to 25%, We maintained our common share income and more shares outstanding. top tier among our Canadian peers. dividend, extending our payment All earnings per share (EPS) measures in this report refer record to 181 years. to diluted EPS, unless specified otherwise. 4 BMO Financial Group 192nd Annual Report 2009 Customer Service Full-Time Employees P 98 Branches P 98 (thousands) 8VcVYV DeZgVi^c\\gdjeh Jc^iZYHiViZhVcY>ciZgcVi^dcVa 8dgedgViZVcYID (*#- (,#& (+#' &!'-% ((#- ()#. &!&-% &!&-' &!'') &!&.* '*#) '*#- ',#% ',#, '+#, .+- .+( .,, .-( .%% -#) .#& -#- .#) .#* '&' '&. '), '., '.* '%%* '%%+ '%%, '%%- '%%. '%%* '%%+ '%%, '%%- '%%. We lowered staffing levels as part In Canada, we closed our Instore of our cross-enterprise cost manage- branches in response to customer ment efforts, while improving preference for full-service branches customer service and acquiring offering accessible advice and businesses. relationship management capabilities. Employees Our Communities Average Training Days Donations: Where the Money Goes (2009) P 20 per Employee Federated Appeals 11.7% (includes United Way) ,#% +#* +#( +#% Health Care 34.8% )#, Education 28.9% Arts and Culture 12.9% Civic and Community Initiatives 7.4% '%%* '%%+ '%%, '%%- '%%. Other 4.3% Training remains a priority with a In 2009, BMO contributed $55 million in corporate donations, sponsorships more streamlined course offering and events to support our communities and thousands of charities and emphasizing leadership development, not-for-profit organizations in Canada and the United States. risk and sales and service programs. BMO Financial Group 192nd Annual Report 2009 5 CHAIRMAN’S MESSAGE Solid results lay foundation for future growth David A. Galloway Chairman of the Board Turning a corner In a year when a general sense of uncertainty was pervasive, the management team at BMO continued to lay down