Bank of Montreal 2004 Annual Report Download - page 22

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BMO Financial Group Annual Report 200418
MD&A
Management’s Discussion and Analysis
Net Economic Profit (NEP) Growth
•NEP, a measure of added economic value, rose 60% to a record
$1,123 million, after having increased 92% in 2003.
•Each of the operating groups generated higher NEP in 2004.
Total Shareholder Return (TSR)
•BMO’s average annual five-year TSR of 18.9% was up
substantially from 12.9% a year ago and was better than returns
from the financial services industry and the broader market.
•BMO’s 20.0% one-year TSR was just below the financial services
industry return but above the broader market returns.
Return on Equity (ROE)
•ROE of 19.4% was the highest since 1978 and was above our
2004 target of 16% to 18%.
Revenue Growth
•Revenue increased $341 million or 4% in 2004 and was higher
in each of our client operating groups.
•The lower Canadian/U.S. dollar exchange rate, net of the
incremental effect of acquired businesses, lowered revenue
growth by 1.6 percentage points.
•Higher net investment securities gains increased revenue
growth while lower net interest margins reduced growth.
Earnings per Share (EPS) Growth
•EPS rose 29% to $4.42, establishing another record high after
having grown 28% a year ago, driven by a lower provision
for credit losses and business growth in all operating groups.
•EPS growth of 29% (22% excluding a $170 million reduction
of the general allowance for credit losses) exceeded our
2004 target of 10% to 15% growth.
Expense-to-Revenue Ratio (a)
(Productivity Ratio)
•The productivity ratio improved 160 basis points to 64.1% in
2004. The cash productivity ratio improved 155 basis points to
63.0%, achieving our financial target and top priority for 2004
of a 150 to 200 basis point improvement.
•
The productivity ratio improved in each client operating group
for the second straight year.
*
Adjustments to GAAP results to derive cash and other non-GAAP results and measures,
including adjusting revenue to a taxable equivalent basis (teb),
are outlined on page 26.
(a)
For consistency with our peer groups, the non-interest expense-to-revenue ratios for BMO
and the peer groups reflected in the graphs for 2000 and 2001 include goodwill amortization.
See page 20 for further comments on peer
group
comparisons.
Our Performance*Peer Group Comparison*
BMO Financial Group
Canadian peer group average
North American peer group average
Further details are provided on page 23.
Further details are provided on page 24.
Further details are provided on page 25.
Further details are provided on page 25.
Further details are provided on page 28.
Further details are provided on page 32.
NEP Growth (%)
•NEP growth of 60% in 2004 was just
above the Canadian peer group average
of 58% and considerably above the North
American peer group average of 4%.
•
The North American peer group average
was affected by the litigation provisions
referenced above.
Five-Year TSR (%)
•BMO’s average annual five-year TSR of
18.9% was below the Canadian peer group
average of 20.1% but substantially above
the North American peer group average
of 12.0%.
•
BMO’s relative performance on this impor
-
tant measure improved significantly from a
year ago and BMO’s three-year TSR of 23%
was above the average of both peer groups.
EPS Growth (%)
•BMO’s EPS growth of 29% in 2004 was
above the Canadian peer group average
of 22% and appreciably higher than the
North American peer group average of 2%.
•The North American peer group average
was affected by multi-billion-dollar litiga-
tion provisions recorded by two of the
largest companies in the peer group.
ROE (%)
•ROE of 19.4% in 2004 was above the
Canadian peer group average of 18.3%
and the North American peer group
average of 16.1%.
•BMO is the only major North American
bank to earn an ROE of more than 13%
in each of the past 15 years.
Revenue Growth (%)
•Revenue growth of 3.7% in 2004 was
above the Canadian peer group average
of 3.3% and the North American peer
group average of 3.4%.
•BMO’s revenue growth outpaced the
industry average in both Canada and
North America in 2003 and 2004.
Expense-to-Revenue Ratio (%)
•BMO’s productivity ratio of 64.1% was
better than the Canadian peer group
average of 67.0% but above the North
American peer group average of 62.9%.
•BMO improved its advantage over the
Canadian peer group average productivity
ratio in 2004. The North American peer
group average was affected by the
litigation provisions.
20042003200220012000
18.9
12.9
7.9
14.3
22.9
20042003200220012000
28 29
1
(18)
39
20042003200220012000
19.4
16.4
13.4
13.8
18.0
20042003200220012000
60
92
(15)
(43)
90
20042003200220012000
4
5
0
2
9
20042003200220012000
64.1
65.7
68.1
64.7
61.3
Financial Performance and Condition at a Glance