Bank of Montreal 2004 Annual Report Download - page 29

BMO Financial Group Annual Report 2004 25
MD&A
Return on equity (ROE) is another key value measure.
We achieved an ROE of 19.4% in 2004, up from 16.4% in 2003.
BMO has now generated an ROE of more than 13% in each of
the past 15 years, and is the only major North American bank
to meet this test of earnings consistency. The 19.4% return was
above our annual target of 16% to 18% because of higher net
income earned in the year. The return in 2004 was also higher
than our medium-term financial objective of 18% to 19%
ROE, over time.
Table 3 on page 71 contains ROE statistics for the past
10 years. Pages 18 and 20 provide further comment on ROE
and include peer group comparisons.
Return on common share-
holders’ equity (ROE) is
calculated as net income,
less preferred dividends, as a
percentage of average common
shareholders’ equity. Common
shareholders’ equity is com-
prised of common share capital,
contributed surplus, net unreal-
ized foreign exchange gain
(loss) and retained earnings.
Net economic profit (NEP)
represents cash net income
available to common share-
holders, less a charge for capital.
NEP is an effective measure of
economic value added. NEP is a
non-GAAP measure. See page 26.
Return on Equity
The last of our four key value measures is net economic profit
(NEP) growth. NEP increased 60% to $1,123 million, as cash
net income was substantially higher in 2004 than in the previous
year. The solid growth of NEP in 2004 follows growth of 92%
in 2003. All three client operating groups contributed to the
growth. Slightly more than half of BMO’s NEP was attributable
to Personal and Commercial Client Group. Investment Banking
Group’s NEP almost doubled from 2003 and Private Client
Group contributed more than $100 million of NEP, compared
with $7 million in 2003.
Pages 18 and 20 provide further comment on NEP growth and
include peer group comparisons.
Net Economic Profit Growth
ROE (%)
18.0
13.8 13.4
16.4
19.4
20042003200220012000
NEP ($ millions)
763
433 368
703
1,123
20042003200220012000
Net Economic Profit ($ millions, except as noted)
For the year ended October 31 2004 2003 2002 2001 2000
Net income available to common shareholders 2,275 1,743 1,338 1,391 1,756
After-tax impact of the amortization of goodwill
and other valuation intangibles 78 79 75 101 74
Cash net income available to common shareholders 2,353 1,822 1,413 1,492 1,830
Charge for capital*(1,230) (1,119) (1,045) (1,059) (1,067)
Net economic profit 1,123 703 368 433 763
Net economic profit growth (%) 60 92 (15) (43) 90
*Charge for capital
Average common shareholders’ equity 11,720 10,646 9,973 10,100 9,745
Cost of capital (%) 10.5 10.5 10.5 10.5 11.0
Charge for capital (1,230) (1,119) (1,045) (1,059) (1,067)
Our ROE in 2004 was the highest
since 1978.
Our NEP in 2004 was our highest ever.