Bank of Montreal 2004 Annual Report Download - page 24

2004 2003 Five-Year Average
Cdn. N.A. N.A. Cdn. N.A. N.A. Cdn. N.A. N.A.
BMO Rank bank bank bank BMO Rank bank bank bank BMO Rank bank bank bank
perf. of six avg. avg. q’tile perf. of six avg. avg. q’tile perf. of six avg. avg. q’tile
Financial Performance Measures (%)
Five-year total shareholder return (TSR) 18.9 4 20.1 12.0 1 12.9 6 16.3 9.6 2 18.9 4 20.1 12.0 1
Diluted earnings per share (EPS) growth 28.5 2 22.2 1.8 1 28.4 5 64.9 14.0 2 15.7 4 12.5 3.3 2
Return on common shareholders’ equity (ROE) 19.4 2 18.3 16.1 2 16.4 5 15.8 16.4 3 16.2 3 15.1 15.9 2
Net economic profit (NEP) growth 59.6 2 58.2 4.1 2 91.8 3 2,997.0 45.0 2 36.6 5 612.3 6.8 2
Revenue growth 3.7 3 3.3 3.4 3 4.7 3 1.2 (1.9) 3 4.0 5 5.5 4.2 3
Expense-to-revenue ratio 64.1 2 67.0 62.9 3 65.7 3 67.3 60.0 3 64.8 2 67.1 62.2 3
Provision for credit losses as a % of
average net loans and acceptances (0.07) 2 0.10 0.57 1 0.30 2 0.39 0.95 1 0.34 1 0.51 0.92 1
Financial Condition Measures (%)
Gross impaired loans and acceptances as a %
of equity and allowance for credit losses 6.7 3 6.9 4.2 4 12.2 5 11.4 7.6 4 11.7 4 11.6 7.0 4
Cash and securities-to-total assets 25.8 6 30.5 39.4 3 29.1 6 31.4 38.2 3 26.2 6 29.5 38.1 3
Tier 1 Capital Ratio 9.81 4 10.40 8.40 1 9.55 6 10.20 8.75 1 9.03 6 9.37 8.36 1
Credit rating
Standard & Poor’s AA - 1AA - A+ 1 AA - 1A+A+1 AA - 1AA - A+ 1
Moody’s Aa3 2 Aa3 Aa3 2 Aa3 2 Aa3 Aa3 2 Aa3 2 Aa3 Aa3 2
BMO Financial Group Annual Report 200420
MD&A
Management’s Discussion and Analysis
The Canadian bank peer group average is based on the performance of Canada’s six largest banks:
BMO Financial Group, Canadian Imperial Bank of Commerce, National Bank of Canada, RBC Financial
Group, Scotiabank and TD Bank Financial Group. The North American bank peer group average is
based on the performance of North America’s 15 largest banks, consisting of all banks in Canada
and the United States having shareholders’ equity that is at least 75% as large as BMO’s. It includes
the Canadian peer group except National Bank of Canada, as well as Bank of America Corporation,
Citigroup, J.P. Morgan Chase & Co., KeyCorp, National City Corporation, The PNC Financial Services
Group Inc., SunTrust Banks Inc., U.S. Bancorp, Wachovia Corporation, and Wells Fargo & Company.
Results are as at or for the years ended October 31 for Canadian banks and as at or for the years
ended September 30 for U.S. banks.
For consistency with our peer groups, the non-interest expense-to-revenue ratios include amor-
tization of goodwill for all banks for years prior to 2002 in the calculation of the five-year average.
Canadian Peer Group Comparison
BMO’s performance in 2004 improved from 2003 on 7 of our
11 key financial performance and condition measures and
was unchanged on another, our credit rating. These measures
are considered key because we monitor our performance
on these measures relative to our Canadian peer group. The
improvements follow our success in 2003 when we improved
on all 11 measures.
In 2004, our performance was better than the Canadian peer
group average on 6 of 7 financial performance measures, com-
pared with above-average performance on 4 measures in 2003.
These strong results in 2004 saw our ranking improve on 5 of the
7 performance measures and remain unchanged on the 2 others.
Improving productivity was again BMO’s top priority for 2004.
Our expense-to-revenue ratio improved by 160 bps in 2004,
after having improved 240 bps in 2003. Our ranking climbed
from third to second among our Canadian peer group, after
having improved from fourth to third in 2003. BMO’s cash
productivity ratio (see page 26) improved 155 bps to 63.0% in
2004 and remained the second best of Canada’s major banks.
In 2005, we are targeting a further 150 to 200 bps improvement
in cash productivity.
BMO’s provision for credit losses represented (7) bps of
average net loans and acceptances, the second best of our
Canadian peer group. The top-ranked bank in 2004 had a five-
year average of 53 bps on this measure, compared with BMO’s
industry-leading average of 34 bps. BMO’s performance on
this measure in 2004 benefited from a reduction of $170 million
in the general allowance for credit losses. Our specific provi-
sion for credit losses represented 4 bps of average net loans and
acceptances in 2004.
Our ranking improved on 2 of the 4 financial condition
measures and was unchanged on the other 2. We were above
average on 1 measure, average on a second and below average
on 2 measures, the Tier 1 Capital Ratio and the cash and
securities-to-total assets ratio. Both these ratios remain above
our minimum targets.
As explained on pages 16 and 24, our EPS growth target in
2005 is lower than our target for 2004 and performance in 2004
because we expect provisions for credit losses to increase from
the unusually low levels of 2004. As such, certain of our growth
performance measures and condition measures may be less
robust than the strong performance achieved in 2004.
Our 2004 performance was better than our five-year average
performance on 7 of 10 measures (this comparison excludes
the five-year TSR) and BMO’s five-year average performance
improved on 8 of 11 measures relative to our five-year average
of a year ago, while our credit rating remained unchanged.
Our five-year average performance was better than the com-
parable Canadian peer group average on 4 of 7 financial
performance measures.
North American Peer Group Comparison
Our rankings in the North American peer group were better
in 2004 than a year ago. Our quartile ranking improved on
3 of the financial performance measures and was unchanged
on the remaining 4. Our performance was better than average
on 6 of 7 financial performance measures in 2004, compared
with above-average performance on 5 measures in 2003.
BMO’s quartile ranking was unchanged on the financial con-
dition measures, as performance was better than average on
2 of 4 measures in 2004, consistent with 2003.
Our five-year average performance was better than the North
American peer group average on 5 of 7 performance measures.
North American peer group performance in 2004 was
affected by two of the largest companies recording multi-
billion-dollar provisions for litigation and other settlement
costs associated with certain high-profile insolvencies.
Canadian and North American Peer Group Comparisons