Bank of Montreal 2008 Annual Report Download - page 32

MANAGEMENT’S DISCUSSION AND ANALYSIS
MD&A
28 | BMO Financial Group 191st Annual Report 2008
Our Financial Objectives
BMO’s overall governing objective and medium-term financial objectives
for selected important performance measures are set out in the adja-
cent chart. Although our success in achieving our governing objective
of delivering top-quartile total shareholder return is dependent on the
relative performance of our peer groups, we believe that we will deliver
top-quartile total shareholder return by meeting our medium-term
financial objectives of increasing earnings per share (EPS) by an average
of 10% per year over time, by earning an average annual return
on equity (ROE) of 17% to 20% over time, and by maintaining strong
regulatory capital ratios. Our operating philosophy is to increase
revenues at rates higher than general economic growth rates, while
limiting expense growth to achieve average annual cash operating
leverage (defined as the difference between the revenue and cash-based
expense growth rates) of at least two percentage points over time.
In light of our outlook for economic and market conditions, we have
adjusted our medium-term targets as they relate to ROE. In managing
our operations, we balance current profitability with the need to
invest for future growth.
In 2008, we achieved one of our five annual financial targets,
as our Tier 1 Capital Ratio was higher than 8%. We did not achieve
our other financial targets (growing EPS by 10% to 15% from a
base of $5.24; achieving ROE of 18% to 20%; a specific provision for
credit losses of $475 million or less; and cash operating leverage
of at least two percentage points) as conditions in credit markets and
capital markets were more difficult than we anticipated when the
targets were established.
BMO has a rigorous business planning process that considers many
potential economic scenarios. There is clear and direct accountability
for performance against internal benchmarks and progress against
strategic priorities which is aligned with our medium-term objectives.
However, the weak economic environment, as well as difficult credit
and capital market conditions, create added uncertainty in the
estimation of future financial performance. Therefore, we are not
disclosing annual financial targets for 2009.
Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified North American financial services provider. With total assets
of $416 billion and more than 37,000 employees, BMO provides a broad range of retail banking, wealth management and investment banking
products and solutions. We serve clients across Canada through our Canadian retail arm, BMO Bank of Montreal, and through our wealth management
businesses, BMO Nesbitt Burns, BMO InvestorLine and BMO Harris Private Banking. BMO Capital Markets, our North American investment and corporate
banking division, provides a full suite of financial products and services to our North American and international clients. In the United States, BMO serves
clients through Chicago-based Harris, an integrated financial services organization that provides banking and investment services. BMO Financial
Group comprises three operating groups: Personal and Commercial Banking, Private Client Group and BMO Capital Markets.
Why Invest in BMO?
BMO represents an attractive investment opportunity.
•Consistent and focused North American growth strategy with a strong
Canadian retail platform and an established franchise in the U.S. Midwest
•Balanced and prudent approach to capital management
•Strong senior debt ratings
•Industry-leading targeted dividend payout ratio
•Strong and disciplined credit risk management capabilities and processes
As at or for the periods ended October 31, 2008 (%) 1-year 5-year 10-year
Compound annual total shareholder return (27.9) 0.9 6.7
Compound growth in annual EPS (8.5) 1.8 5.1
Average annual ROE 13.0 17.0 16.1
Compound growth in annual
dividends declared per share 3.3 15.9 13.3
Dividend yield at October 31, 2008 6.5 na na
Price-to-earnings multiple 11.4 na na
Market value/book value (per share) 1.34 na na
Dividend payout ratio 74.0 49.9 45.2
Tier 1 Capital Ratio 9.77 na na
na –not applicable
Our Medium-Term Financial Objectives
Over time, increase EPS by an average of 10% per year, earn average
annual ROE of between 17% and 20%, achieve average annual cash
operating leverage of at least two percentage points, and maintain
a strong regulatory capital position.
Our Governing Objective
To maximize the total return to BMO shareholders and generate, over
time, top-quartile total shareholder return relative to our Canadian and
North American peer groups.
Our Vision
To be the bank that defines great customer experience.
Who We Are
The section above, Our Financial Objectives, as well as Enterprise-Wide Strategy and Economic Developments, two sections that follow, contain certain
forward-looking statements. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties.
Please refer to the Caution Regarding Forward-Looking Statements on page 30 of this Annual Report for a discussion of such risks and uncertainties and
the material factors and assumptions related to the statements set forth in such sections.