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14228ED-Z358 BMO white pages12/16/0211:45 AMPage 1Message to Fellow Shareholdersfrom the Chairman andChief Executive Officer,Tony ComperST RE NGTH IN A T IM E OF ADV ERSIT YWe passed two milestones as 2002 drew to a close, a dynamic intersection ofour past and our future. Looking into our proud history, we celebrated our185th anniversary and our track record as the longest-running dividendpaying company in Canada. Casting forward, we unified our diverse businesses under the umbrella of BMO Financial Group, our new name for anew century and a reminder that “bank,” in its past sense, describes onlyone part of the enterprise we are building in the service of our customers.A Year of AccomplishmentsLeading the list of accomplishments for the year were solid financialresults. Despite challenging market conditions, cash earnings per share were 2.91 excluding non-recurring items – an 8.6% increase from the previousyear. We met our annual profit targets, achieved top-tier performance inloan loss provisions, and continued to contain costs.After persevering over the past few years in making the changesnecessary to boost performance, our relative financial performance showedsignificant improvement as, for example, BMO moved from sixth to secondamong Canada’s major banks in earnings per share growth. This organization’s trademark prudence, focus and discipline have enabled us to demonstrate strength to shareholders in a time of adversity for our industry.Also high on the list of accomplishments in 2002 was the early successof our transnational growth strategy, which is to continue investing in ourcore Canadian operations while expanding selectively and substantially inthe United States. BMO Financial Group has established its credentials asthe original Canada-U.S. bank, doing successful business across a trulyNorth American economic space.Key Points ofBMO’s TransnationalGrowth Strategy Invest in our coreCanadian franchise. Expand selectivelyand substantially inthe United States.B M O F I N A N C I A L G ROU P A N N UA L R E P O R T 2 0 0 21

14228ED-Z358 BMO white pages12/16/0211:45 AMPage 2CHAIRMAN’S MESSAGE TO FELLOW SHAREHOLDERS23%Rise in Net IncomeA 23% rise in net income (excluding non-recurring items) to 968 million demonstrates ourstrength in personal and business banking. At the same timewe increased market share,total revenue rose 7% and theproductivity ratio improved to60% in this group.Reduction in Risk-WeightedAssets ( billions)85.175.368.5Solid Group PerformanceThe most significant contribution to performance came from our Canadianand U.S. personal and business banking operations, where earningsincreased 23%, with strong volume growth and an improved productivityratio of 60%.Under Frank Techar’s leadership as the new President and CEO ofHarris Bank in the United States, we are proceeding apace to become thenumber-one retail bank in the high-potential Chicago area. Plans are inmotion to increase our 145 branches in greater Chicago to about 200 – andwe are focusing as never before on serving a wider range of customers’ needs.This is also a priority in Canada, where Rob Pearce has taken chargeof retail banking as President and CEO of the Personal and CommercialClient Group. The rollout in 2002 of a new state-of-the-art technologyplatform, which revolutionizes our ability to provide and sell a full rangeof quality products and services, will help us increase sales to existingcustomers, as will major investments over the past few years to introducespecialized sales staff into branches and to create a stronger sales-andservice culture.In our Private Client Group, net income rose 12% excluding nonrecurring items, while assets under management and administrationincreased 14%. The highlight of the year for this group was continuedexpansion of The Harris’ wealth management platform with the announcement of four U.S. acquisitions totalling US 676 million. Having madeexcellent progress in integrating acquisitions, this group is poised for growththroughout its North American operations when market conditions improve.In our Investment Banking Group, where revenues fell substantiallymore than expenses due to net securities losses and weaker trading-relatedactivity, earnings improved due to a much lower provision for credit losses.The really encouraging story for this group was its success in reducingrisk-weighted assets by 29 billion over the past four years. With the plansnow in place, risk-weighted assets will remain relatively stable over thecoming years while our ability to increase returns will improve.55.919992200020012002Challenges for the FutureIn 2003, as we continue to implement our growth strategy with enthusiasmand energy, everyone all across this enterprise will be focused on ournumber-one priority: productivity improvement. While protecting customer-related expenses that are essential to increase sales, and protectingstrategic initiatives designed to promote future growth, we will continueto streamline functions to achieve greater operational efficiencies.B M O F I N A N C I A L G ROU P A N N UA L R E P O R T 2 0 0 2

14228ED-Z358 BMO white pages12/16/0211:45 AMPage 3We face this challenge from a position of real, sustainable strength.In a year that featured a succession of high-profile corporate debacles inthe United States, withering the investments and trust of many Canadiansand Americans and keeping the markets bouncing down and up, BMOFinancial Group once again cleanly emerged as a North American leaderin corporate governance. We were cited many times last year as one ofthe first and few companies to expense stock options, for example – andas a world leader in accountability and honest, transparent disclosure.Reporting is Not Just About ComplyingThe Annual Report on Annual Reports, published by a Europe-based globaltracking company, named BMO’s 2001 annual report simply the best inthe world. One of the stated reasons was that we are “one of those rarecompanies for which reporting is not just about complying and followingthe crowd or the way of the world. But also about adding value, givinginsights, reviewing and highlighting and describing and explaining.”As steward of this indeed rare company, I pledge more of the same.And I can say this with confidence because I know I speak for my fellowdirectors and all my colleagues across the organization who personallychampion the openness and accountability that have made us worthy ofrecognition and trust.This is another example of what helped this organization navigatethrough an especially unpleasant and frustrating year for our industry:In addition to the proven soundness of our North American strategy, andthe demonstration of proven strengths from credit risk management tocorporate governance, in 2002 we also had thousands of really fine peoplerising to the occasion. There is not, nor can there be, any substitute for that.Finally, let me point out that this year, for the first time, I’ve passedon the job of providing more strategic details to the leaders who oversawand created these details; their perspectives begin on the following page.And what they will affirm, above all else, is that BMO Financial Group nowhas a leadership team for its time, not merely skilfully guiding our ship,but giving it fresh momentum and purpose.TONY COMPERCHAIRMAN AND CHIEF EXECUTIVE OFFICERB M O F I N A N C I A L G ROU P A N N UA L R E P O R T 2 0 0 23

14228ED-Z358 BMO white pages12/16/0211:45 AMPage 4I N S I G H T S F RO M YO U R M A N AG E M E N T B OA R DEXECUTIVE COM MITTEEThe BMO Financial Group Management Board Executive Committee (MBEC) comprises10 members – our Chairman and Chief Executive Officer, Tony Comper and nine seniorexecutives from across our organization. Together, the members of MBEC are responsiblefor the leadership of BMO Financial Group.Just as important, through the development of robustcapabilities and product offerings in Canada and theUnited States, we have begun to actively execute our growthstrategy of building an integrated, full-service, mid-marketNorth American investment bank, capitalizing on industryspecialties and distinctive capabilities.KAREN E. MAIDMENTExecutive Vice-President and Chief Financial Officer,BMO Financial GroupBMO Financial Group is absolutely committed to financialleadership. And we are delivering on that commitment.Financial leadership is about achieving top-tier performancefor our shareholders. It means following the best practicespossible in applying accounting standards. And it meansmaking a commitment to providing full disclosure of allbusiness activities. Finally, financial leadership meansbeing open and honest in explaining results – both positiveand negative.L L O Y D F. D A R L I N G T O NPresident and Chief Executive Officer,Technology and Solutions, and Head, E-BusinessOur strong history of effectively delivering highlycompetitive technology support and processing solutionswas reinforced again this year with several implementations that support BMO Financial Group’s financial andbusiness strategies.The rollout of Pathway Connect, a state-of-the-art retailplatform, is but one example of how technology is beingleveraged to support our customer satisfaction and productivity strategies and goals. We also successfully integratedY V A N J . P. B O U R D E A UPresident and Chief Operating Officer,BMO Nesbitt Burnsa number of acquisitions this year including Joliet andCSFBdirect.With an enterprise-wide technology mandate, we areThere is no question that this period of weak capital mar-able to focus on the highest value-creating technology invest-kets has created special challenges for market-sensitivement opportunities across the company, leveraging scalebusinesses such as ours. That said, we are looking forwardpossibilities and maximizing value. Our human resourcewith confidence – and going forward from a positionpractices, our staffing and our commitment to training andof strength.development, and our IT strategy and process disciplinesOur 10-year track record shows that we are better managersgive us today an organization and cadre of professionalsof credit risk than any of our competitors. Since 2000, wewell positioned to support the company going forward.have reduced our risk-weighted assets to 56 billion fromIn 2002, we were able to decrease our expenses by 5% 85 billion through a stringent asset portfolio discipline.from the previous year while providing enhanced capabilities and handling a significant increase in customertransaction processing.4B M O F I N A N C I A L G ROU P A N N UA L R E P O R T 2 0 0 2

14228ED-Z358 BMO white pages12/16/0211:45 AMPage 5Our strategy of expanding selectively and strategicallyis working, allowing us to build upon our existing strengths.Expansion in recent years gives us a presence in many ofthe affluent, fast-growing markets in the United States andcomplements our national distribution in Canada. Our focusnow is on executing our strategy, leveraging our acquisitionsWILLIAM A. DOWNEDeputy Chair, BMO Financial Groupand Chief Executive Officer, BMO Nesbitt Burnsto meet our financial performance objectives and deliveringresults that reach our financial targets.In recent years, we have created an organization that isdifferentiated as much by the synergies that exist betweenits complementary businesses as by the uniqueness ofits parts.That greater alignment has enabled us to leverage our reputation as a trusted advisor. We have in place the breadth ofoffering and the organizational infrastructure to provideour clients with products and services that are tailoredto their objectives. We can meet people’s financial needswhether they want to build a business, develop a retirementplan or put their kids through school. We have the desire –R O S E M . PA T T E NExecutive Vice-President, Human Resourcesand Head, Office of Strategic Managementand the ability – to serve people exceedingly well. That’sWe have clear strategies in each of our businesses, and wealways been the secret behind companies that have suc-are dedicated to the successful execution of those strate-ceeded in creating great value over a long period of time.gies. To achieve our objectives, the vital role of peoplemust be fully considered in all our strategic decisionmaking and implementation plans.With that in mind, we have focused our people strategieson three objectives. We want to make sure that we have toptalent in our key roles and throughout our organization.We want to create a high-performance culture, one whoseeffectiveness we can measure. And we want to foster anengaged and motivated workforce.GILLES G. OUELLETTEPresident and Chief Executive Officer,Private Client Group, BMO Financial Groupand Deputy Chair, BMO Nesbitt BurnsDespite the uncertain markets of recent years, theoutlook for the wealth management business is veryfavourable. Our long-standing experience and our recentexpansion position us to benefit from the substantialgrowth we expect.The largest ever demographic group, the baby boom generation, is shifting from consumption to savings, providingsignificant opportunities for growth in financial servicesover the next two decades. More than a century of experience in full-service investing and private banking, as wellas our leading position in direct investing, give us a solidfoundation in the wealth management business.B M O F I N A N C I A L G ROU P A N N UA L R E P O R T 2 0 0 25

14228ED-Z358 BMO white pages12/16/0211:45 AMPage 6INSIGHTS F ROM YOUR MANAGEMENT BOARD EXECUTIVE COMM ITTEEconsistent risk appetite. Sophisticated tools enhance ourability to mitigate risk. But tools are aids, not a replacementfor management’s disciplined, enterprise-wide approachto the application of our risk philosophy.Superior risk management also means helping ourcustomers understand risk. We want our customers –R O B E R T W. P E A R C Eindividual, small business and corporate clients – to bePresident and Chief Executive Officer,Personal & Commercial Client Groupcomfortable that when they deal with us, we will evaluaterisk in a consistent fashion and be there to deliver financialBMO Bank of Montreal has long been recognized assolutions – whether in good times or bad.the heart – and the everyday face – of BMO FinancialGroup. It is therefore not surprising that our responseto recent economic storms has been to continue to investsignificantly in our Personal & Commercial business.In 2002, we continued to develop our workforce and implement a more effective managerial structure across ourbranch network. We also introduced Pathway Connect, astate-of-the-art technology platform that enhances ourability to identify and meet the individual needs of our customers. We remain committed to providing our customerswith high-quality, consistent, multi-channel service.Judging by the results, our strategy is spot on. In 2002,F R A N K J. T E C H A RPresident andChief Executive Officer, Harris Bankwe sold more products, improved our service levels, gainedHarris Bank is the cornerstone of our U.S. presence.market share and experienced the highest market shareWith outstanding capabilities and brand awareness, wegrowth among small business banks in Canada. Our goal ishave an advantaged position that differentiates BMOto provide financial solutions “for the world you live in.”Financial Group from our competitors and provides aTMfirm foundation for future growth in Chicago and beyond.In 2002, Harris achieved strong double-digit earnings growthdespite poor economic conditions in the United States. OurChicagoland base is rich in opportunity for acceleratedgrowth, with eight million people and a gross domesticproduct that is 40 percent of Canada’s. Our goal is nothingless than to be the best and biggest bank in the region.To achieve this, we will build distribution, maintain a sharpfocus on marketing and customer satisfaction, and leverageRONALD G. ROG ER SDeputy Chair, Enterprise Risk andPortfolio Management, BMO Financial GroupOur goal is to maintain our leadership position in risk andportfolio management, and to continue to serve our shareholders and our customers by delivering high-quality riskmanagement – regardless of market conditions.Achieving our objective means continuing to understandcredit, market and operational risks before we makedecisions. It means putting together a portfolio of assetsthat has a diversity of risk. And it means maintaining a6B M O F I N A N C I A L G ROU P A N N UA L R E P O R T 2 0 0 2our business model of a “local” community banking networkcombined with world-class centralized support.

14228ED-Z358 BMO white pages12/16/0211:45 AMPage 7C O R P O R AT E G OV E R N A N C E A N D B OA R D O F D I R E C T O R SIn a year marred by unprecedented corporate scandal and malfeasance, corporategovernance has become an area of heightened concern for investors. BMO FinancialGroup has always taken the lead in corporate governance and continues to do so.Providing high-quality financial disclosure is not a newSarbanes-Oxley, and for adjusting our governance practicespractice for our organization. Indeed, BMO Financial Groupto ensure they remain at the forefront. BMO’s standards ofpossesses a strong and well-established reputation forcorporate governance are consistent with the objectives ofconsistent leadership in disclosure practices – and inthe governance guidelines of the Toronto Stock Exchangecorporate governance generally. Our achievements wereand the proposed amendments published in April 2002. Inrecognized again this year when The Globe and Mail’scertain instances, such as in the recommended number ofsurvey of corporate governance practices ranked BMO“unrelated” directors on the Board and “financial experts” onFinancial Group first among the country’s banks.the Audit Committee, our standards exceed these guidelines.We became one of the first companies on the continentEqually important, the Board of Directors serves asto announce our intention to expense stock options. Asan example to our entire organization. By establishing thewell, Chairman and CEO Tony Comper and Chief Finan-tone – affirming that corporate governance means not justcial Officer Karen Maidment signed a statement as part ofabiding by the rules but also embracing the spirit of thoseBMO’s third-quarter results affirming their accountabilityrules – the Board helps to make the tenets of sound cor-for BMO’s financial information. In addition, Tony Comperporate governance, transparency, disclosure and honesty,and Karen Maidment signed a certification of BMO Finan-a reality throughout our organization.cial Group’s annual results under the new United StatesSarbanes-Oxley Act.Charter of Expectations for DirectorsOur Board of Directors bears the main responsibilityThe Charter of Expectations for Directors, along with thefor maintaining our continued high standards and encour-Approval/Oversight Guidelines, represents the backboneaging the evolution of our corporate governance program.of our governance program. These p

with its subsidiaries, is now known as BMO Financial Group. As a result, in this report, the names BMO and BMO Financial Group mean Bank of Montreal. With more than 33,000 employees, we offer our clients a broad range of retail banking, wealth management and investment banking products and solutions. 14228 EACover BMO 12/16/02 12:02 PM Page f