Bank of Montreal 1997 Annual Report Download - page 33

Bank of Montreal 180th Annual Report 1997 27
Where Bank Revenue Comes From…
and Where It Goes To
More than half of our revenue is generated from net interest income
with a small proportion from service charges.
Within the context of the economy at large, we act as a financial
intermediary or conduit, with revenues from customers flowing
to employees, suppliers, and to the government and shareholders,
with a portion of the shareholder share retained by us to fuel
future growth and investment.
Government Levies and Taxes Represented 46.7%
of Our Pre-tax Earnings
Total government levies and taxes of $1,226 million in 1997 repre-
sented just less than half of our net income before taxes and
government levies.
The provision for taxes in the Income Statement as a percentage
of pre-tax income was 38.7% versus 38.9% in 1996 as shown in
note 13 to the consolidated financial statements on page 80. The
effective tax rate of 38.7% was below the Canadian combined
statutory tax rate of 41.9% due largely to our investment in foreign
subsidiaries, whose earnings were taxed at lower rates.
Investment Spending
We define investment spending as (i) strategic acquisition spending and (ii) other capital spending
which is primarily technology-related. The illustration at the left reflects our spending relative to
these categories.
Spending in technological development continued in 1997, representing our commitment to a
modern banking environment. However, due to the purchase of Household Bank’s retail business and
the purchase of a 16.2% equity stake in Bancomer in 1996, the relative spending level has decreased.
As mentioned on page 22, the primary investments made over the past few years in Harris Regional
Banking, Bancomer and Nesbitt Burns have contributed to an overall $100 million increase in total
earnings from these areas of the Bank in 1997 alone.
Where Bank Revenue Comes From...*
...and Where It Goes To*
Suppliers 24%
Employees 34%
Loan Losses 4%
Government 48%
Shareholders 52%
Net Income Before
Government Taxes and Levies 38%
Other Revenue 20%
Canadian Retail Service Charges 3%
Investment Revenue 19%
Net Interest Income 58%
Dividends
Increased Capital in the Bank
* Note: Investment Revenue represents capital market fees, investment management and custodial
fees and mutual fund revenues; Canadian Retail Service Charges represent deposit and payment
service charges; Employees segment represents employee salaries and benefits expenses;
Suppliers segment represents total expenses less employee expenses and government-related
expenses; Government segment represents income taxes and other government levies; Share-
holders segment represents net income and minority interest; Increased Capital in the Bank segment
represents net income less dividends.
Government Levies and Taxes ($ millions except as noted)
For the year ended October 31 1997 1996 1995 1994 1993
Government levies other
than income taxes 478 460 429 375 346
Provision for taxes –
Income Statement 840 757 662 560 487
Provision for taxes –
Retained Earnings (92) 10 9 (23) (46)
Total government levies and taxes 1,226 1,227 1,100 912 787
Net income 1,305 1,168 986 825 709
Government levies and taxes as
a % of net income before
government levies and taxes 46.7 51.4 53.0 51.8 51.1
Note: For more information see Table 8 on page 57.
Strategic Acquisition and Other
Capital Spending
($ millions)
Other Capital Spending
Strategic Acquisitions
Note: Capital Investment represents capital assets
acquired or internally developed including salaries
and other amounts for technology development
reported in non-interest expense. Strategic
Acquisitions represent investment spending in
respect of an equity position or assets of another
institution acquired for strategic purposes.
9796959493
370 401
1,010
1,486
636