Bank of Montreal 1997 Annual Report Download - page 30

Bank of Montreal 180th Annual Report 199724
Strategy:
To grow total revenues consistently
by providing valued products
and services to customers while
ensuring a reasonable risk-
return relationship.
Measure:
Percentage change in total year-
over-year revenue is our primary
measure of revenue growth.
Total revenue consists of net inter-
est income and other income.
Record Revenue Growth at 15.1%
Revenue growth in 1997 was 15.1% compared to 9.9% in
1996. This revenue growth was driven by a 12.8% increase
in net interest income largely due to volume growth, and
an 18.5% increase in other income driven by an increase in
our fee related businesses.
In 1996, the 9.9% increase in revenue was comprised
of net interest income growth of 4.1% due to business
volume growth and a 19.7% increase in other income due
to capital market fees resulting from stronger equity mar-
kets, increased new issue activity and increased secondary
trading volumes.
Net Interest Income Growth of 12.8%
Net interest income is comprised of interest and dividend revenue earned on total assets, less interest expense incurred
on total liabilities. Net interest income growth is a function of volume growth and average net interest margin. Net inter-
est margin is defined as the difference between the interest rate earned on total average assets and the interest rate paid
on total average liabilities. Our net interest income in 1997, on a taxable equivalent basis (TEB)
†
was $4,186 million, an
increase of 12.8% over $3,711 million in 1996.
The 12.8% increase in net interest income in 1997 was due to an increase in business volumes
(8.3%), an increase
in income earned from equity and bond sales from lesser developed countries (1.3%), an
increase in revenues from loan
recoveries (2.3%), as well as an increased contribution from our 16.2% equity investment in Bancomer (0.9%).
9796959493
9.4 9.0
6.9
9.9
15.1
Revenue Growth
(%)
Revenue Growth
9796959493
34.0
37.1
36.0
40.4 41.6
Other Income as a % of
Total Revenue
Total Revenue ($ millions)
For the year ended October 31 1997 1996*1995*1994*1993*
Net interest income (TEB) 4,186 3,711 3,564 3,325 3,207
Year-over-year growth
(%) 12.8 4.1 7.2 3.7 5.6
Other income 2,981 2,516 2,102 1,871 1,654
Year-over-year growth (%) 18.5 19.7 12.3 13.1 17.8
Total revenue 7,167 6,227 5,666 5,196 4,861
Year-over-year growth (%) 15.1 9.9 9.0 6.9 9.4
*Reclassified to conform with the current year’s presentation.
Note: For more information see Table 4 on page 53.
Attribution Gives a More Comprehensive View of Our Results
In 1996, we made an important advance in our North American strategy by acquiring a 16.2% equity stake in Bancomer, Mexico’s leading retail
financial institution. As we have the ability to significantly influence, but not control Bancomer, accounting principles require that the investment
be equity accounted, meaning that Bancomer’s results are not fully consolidated with our results. Rather, our proportionate share of Bancomer’s
net income is reported in our net interest income. This method of
accounting does not provide insight into the full extent of our interest
in Bancomer’s business operations and service capability.
Attribution, which reports our proportionate share of the assets, rev-
enues,
expenses and service infrastructure of equity investees such as
Bancomer, provides a greater understanding and a more comprehensive
view of our results for the year.
Illustrated at the right are a number of measures which indicate the
extent
to which our operations and service capability are enhanced by
our
investment in Bancomer.
1997 1996
As at or for the year ended October 31 Attributed Reported Attributed Reported
Total assets ($ millions) 213,382 207,838 175,301 169,832
Revenues ($ millions) 7,575 7,167 6,438 6,227
Expenses ($ millions) 4,881 4,613 4,068 3,949
Number of bank branches 1,449 1,246 1,441 1,296
Number of automated bank machines 2,359 2,035 2,322 2,017
Based upon our 16.2% proportionate share of Bancomer reported results.
Revenues include net interest income reported on a taxable equivalent basis and
other income.
†
Defined in the Glossary on page 90