Bank of Montreal 2000 Annual Report Download - page 35

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Profitability
Eleven years of ROE above 14.0%
Performance Review
The Bank achieved an 18.0% return on common shareholders’ equity (ROE1) in 2000, compared
with 14.1% in 1999; this marks the eleventh consecutive year that our ROE exceeded 14.0%. At
18.0%, ROE increased 2.6 percentage points over the 1999 adjusted base of 15.4%, which met our
target (see adjacent target section) to increase ROE by 1.0 to 1.5 percentage points. Excluding
non-recurring items, our ROE was 16.1% in 2000, compared with 15.1% in 1999.
Additional information on earnings growth and our enterprise-wide capital management
process can be found on pages 10 and 28, respectively.
Return on Common Shareholders’ Equity (%)
For the year ended October 31 2000 1999 1998 1997 1996
Return on common shareholders’ equity, as reported
18.0 14.1 15.2 17.1 17.0
Return on common shareholders’ equity, excluding non-recurring items
16.1 15.1 15.2 17.7 17.2
Cash Basis Reporting
Our secondary measure of profitability is cash-based ROE. It adjusts net income by adding back
amortization of goodwill and intangible assets. Equity is not adjusted to exclude goodwill and
intangible assets. On a cash basis, ROE increased 4.0 percentage points to 18.8% from 14.8% in
1999. Excluding non-recurring items, cash-based ROE increased 1.0 percentage point to 16.9%
from 15.9% in 1999.
1999 Compared with 1998
In 1999, our ROE was 14.1%, compared with 15.2% in 1998, reflecting lower growth in earnings,
which was negatively affected by non-recurring items, relative to the increase in common share-
holders’ equity. Excluding non-recurring items, our ROE was 15.1% in 1999, compared with
15.2% in 1998.
Net Economic Profit Growth
Net Economic Profit Growth of 90.0%
Performance Review
Net economic profit (NEP
1
) earned in 2000 increased 90.0% from $401 million in 1999 to
$763 million in 2000. The increase in NEP reflected a higher earnings growth rate, relative to the
increase in average common shareholders’ equity, partially offset by the effect of the increase
in the 10-year Government of Canada Bond rate on cost of capital.
Net Economic Profit ($ millions unless otherwise stated)
For the year ended October 31 2000 1999 1998 1997 1996
Net income available to common shareholders 1,756 1,265 1,238 1,222 1,099
After-tax impact of non-cash goodwill
and other valuation intangible expenses 74 67 69 71 60
Cash net income available to common shareholders 1,830 1,332 1,307 1,293 1,159
Less: charge for capital 1,067 931 843 806 802
Net economic profit, as reported 763 401 464 487 357
Net economic profit growth (%) 90.0 (13.5) (4.7) 36.5 102.7
Charge for capital
Average common shareholders’ equity 9,745 8,976 8,128 7,165 6,457
Cost of capital (%) 11.0 10.4 10.4 11.3 12.4
Charge for capital 1,067 931 843 806 802
1999 Compared with 1998
NEP decreased $63 million or 13.5% from $464 million in 1998 to $401 million in 1999. The
decline reflected a lower earnings growth rate relative to the increase in average common share-
holders’ equity in 1999. The earnings growth rate was adversely affected by non-recurring items.
Bank of Montreal Group of Companies Annual Report 2000 ■11
Net Economic Profit Growth (%)
(As reported)
102.7
36.5
(4.7) (13.5)
90.0
96 97 98 99 00
Measure
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
and retained earnings.
Target
Our 2000 target was to increase
ROE by 1.0 to 1.5 percentage points
above 1999 adjusted base ROE
of 15.4% (adjusted for the one-
time charges incurred in 1999).
Measure
Net economic profit (NEP)
growth is defined as the
percentage change in total year-
over-year NEP. NEP is cash
net income available to common
shareholders, less a charge
for capital, subject to certain
adjustments. NEP is an
effective measure of cash-based
economic value added.
1Defined in the glossary on page 88.
Return on Common 
Shareholders’ Equity (%)
17.0 17.1
15.2
14.1
18.0
96 97 98 99 00
As reported
Target (minimum target of 14% in 1996 and 
1997, 15% in 1998 and 1999, 16.4% in 2000)