Bank of Montreal 1997 Annual Report Download - page 28

Bank of Montreal 180th Annual Report 199722
Eight Consecutive Years of Earnings Growth
In 1997, fully diluted earnings per share was $4.62, an
11.9% improvement over $4.13 in 1996. This year marks our
eighth consecutive year of EPS growth and the fourth con-
secutive year that we have achieved our 10% EPS growth
objective. Average EPS growth over the past five years was
14.5%. Income growth, a secondary measure used to
measure profitability, was 11.7% in 1997, compared to 18.4%
in 1996.
Earnings growth in 1997 was driven by strong business vol-
ume growth, cash collections on impaired loans
†
and earnings
on bonds and equities of lesser developed countries partly
offset by continued investment in the future and a $75 million charge for accelerated
depreciation and credit process efficiency improvement. We continued to benefit in 1997
from our state-of-the-art credit risk management practices. Our earnings included a
$200 million charge to increase our general allowance for credit losses†
, excluding which
ROE and EPS would have been 18.7% and $5.05, respectively.
Our strong performance results from the benefits of being diversified as economic con-
ditions change. Concurrently, we
invested to ensure continued revenue growth in the
future and we grew the level of our general reserves. This typifies our financial philosophy,
which is to “earn, grow and invest”all at the same time.
Revenue growth was 15.1% and was primarily in Investment and Corporate Banking
and Global Treasury, both of which benefited from buoyant capital markets. Cash collections
on impaired loans and earnings on bonds and equities of lesser developed countries also
contributed to Global Treasury’s revenue growth. The Canadian and U.S. retail segments enjoyed strong asset growth driven
by the North American economy, which has continued to expand. Additional detail on revenue growth is located on page 24.
Net credit losses on specific accounts amounted to $75 million, a historically low level, reflecting the continued
strength of our credit risk management practices. This performance is a result of a large level of recoveries and reversals
of previously recorded provisions which had been established on a conservative basis. An additional $200 million was
charged to current earnings to increase the level of our general allowance, bringing the total provision for credit losse s†
to $275 million, up $50 million from last year. The $200 million, together with a reclassification of $100 million from
Harris Regional Banking’s allowance, raised the total general allowance to $775 million, the maximum allowable by the
Office of the Superintendent of Financial Institutions (OSFI) for inclusion in our Tier 2 capital.
Expense growth was 16.8%. Revenue-driven expenses and costs related to strategic investments for future growth
represented the major components. Also, we recorded a $75 million charge in the fourth quarter for accelerated depre-
ciation related to technology changes and for costs associated with improving the efficiency of our credit process. Refer
to page 28 for more detail on expense growth.
Over the past few years, we have invested more than $2 billion in strategic spending. We believe that this spending is
necessary to ensure future earnings growth, especially in light of the rapidly changing financial environment. The
primary investments made over the past few years in Harris Regional Banking, Grupo Financiero Bancomer (Bancomer)
and Nesbitt Burns have contributed to an overall $100 million increase in total earnings from these areas of the Bank.
Earnings growth of 18.4% in 1996 was primarily due to diversified business volume growth and higher Investment and
Corporate Banking and Global Treasury Group revenues partly offset by lower spreads, resulting in revenue growth
of 9.9%. Expense growth in 1996 was 8.3% due to an increase in revenue-driven expenses, investments in the future
and other expenses.
9796959493
8.1
13.8
16.5
22.2
11.9
Objective (10.0%)
Actual
Fully Diluted EPS Growth (%)
Strategy:
To provide consistent earnings
growth through diversified revenue
growth strategies, productivity
improvement initiatives and pru-
dent risk management.
Measure:
Year-over-year percentage change
in fully diluted earnings per share
(EPS) is our primary measure
to analyze earnings growth. It is
calculated by dividing earnings
available to common shareholders
for the year by the daily average
number of common shares
that would have been outstanding,
assuming conversion as at the
beginning of the year or at the date
of issuance of all securities that
are convertible or redeemable
for common shares and that are
considered dilutive.
Earnings Growth
Earnings Growth
For the year ended October 31 1997 1996 1995 1994 1993
Net Income ($ millions) 1,305 1,168 986 825 709
Year-over-year growth (%) 11.7 18.4 19.5 16.4 10.9
Fully diluted earnings per share ($) 4.62 4.13 3.38 2.97 2.55
Year-over-year growth (%) 11.9 22.2 13.8 16.5 8.1
Note: For more information see Table 2 on page 52.
9796959493
10.9
19.5
16.4
18.4
11.7
Net Income Growth
(%)
9796959493
709
986
825
1,168 1,305
Net Income
($ millions)
†
Defined in the Glossary on page 90