Bank of Montreal 1997 Annual Report Download - page 34

Download and view the complete annual report

Please find page 34 of the 1997 Bank of Montreal annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 104

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104

Total expenses in 1996 increased 8.3% over 1995.Variable
compensation contributed $190 million or 5.2%, and strate-
gic development spending contributed $84 million or
2.3%. The 1996 results include a non-recurring $23 million
charge resulting from legislation to assess premiums on
deposits insured by the Savings Association Insurance Fund
(SAIF). This charge related to Harris Bank’s acquisition of
Household and contributed 0.7% to overall expense growth.
Bank of Montreal 180th Annual Report 1997
28
Productivity Ratio Remains in Mid-60s as
We Continue to Invest for the Future
Our expense-to-revenue ratio increased 100 basis points
in 1997 to 64.4%. This increase was due to strong revenue
growth of 15.1% offset by expense growth of 16.8%.
Im
provements in productivity were offset by investments
for future growth such
as the development of alternate
delivery channels.
Our internal target is to improve productivity by 2% per
annum. In 1997, the primary reason for the increase in the
productivity ratio was our
strategic development and expenditures as outlined below.
Expense Growth Driven by Revenue-Generating Activities and Investment
for Future Growth
As a secondary measure of productivity, we analyze year-over-year expense growth, which
was 16.8% in 1997, versus 8.3% in 1996. Expenses increased by $664 million in 1997. The
primary driver of the increase was revenue-driven expenses, largely variable compensation,
which amounted to $210 million of the increase. Strategic development spending, which
is highlighted below, contributed an incremental $192 million to expense growth. Another
item contributing to expense growth was a $75 million charge that we realized in the
fourth quarter, representing accelerated depreciation related to technology changes and costs associated with improving
the efficiency of our credit process.
Other expenses contributed 5.3%, representing costs related to inflation and volume
growth, reduced by the benefits
from productivity initiatives.
Strategy:
To achieve above-average pro-
ductivity through a combination of
strong cost management and
above-average growth in revenues.
Measure:
Non-interest expense divided by
total revenues is our primary
measure of productivity. The ratio
is calculated on a taxable equiv-
alent basis.
Productivity
Expense Growth
(%)
9796959493
5.5
13.1
10.5
8.3
16.8
9796959493
60.0
64.3
62.0
63.4
64.4
Total Bank Productivity
(%)
Strategic development spending increased by $192 million in 1997 and
was comprised of strategic initiatives to generate future revenue growth
and productivity-related initiatives to realize efficiency opportunities.
Strategic Initiatives Description
mbanx Development of
virtual reality banking
Telephone Banking Development of
new delivery channel
Cebra Development of integrated
digital commerce products
Pathways Financial Growth Centres
Development of educational
delivery channel
Wealth Management Development and coordination
of personal and commercial
wealth creation products and
services
Productivity Initiatives Description
Symcor Co-sourcing of document
processing
Strategic Sourcing Negotiated contracts
with suppliers
PCFS Transformation Realignment of resources
Contribution to Expense Growth
(%)
For the year ended October 31
1997 1996
Revenue driven expenses 5.3 5.2
Strategic development spending 4.9 2.3
Charge and non-recurring items 1.3 (1.0)
Other 5.3 1.8
Total expense growth 16.8 8.3
Note: For more information see Table 8 on page 57.