Bank of Montreal 1998 Annual Report Download - page 31

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23
BANK OF MONTREAL GROUP OF COMPANIES
NINE CONSECUTIVE YEARS OF EARNINGS GROWTH
In 1998, our fully diluted earnings per share (EPS) were $4.66, an increase of 0.9% from
$4.62 in
1997. The impact of abnormal market conditions prevented us from achieving our
mini
mum 10% EPS growth objective; however, we continue to maintain this as our target
going forward. Average EPS growth over the past five years was 13.0%, a decrease from the
five-year average growth of 14.5% in 1997. Year-over-year income growth was 3.5% this year,
compared to 11.7% in 1997.
EARNINGS GROWTH
For the year ended October 31 1998 1997 1996 1995 1994
Net income ($ millions) 1,350 1,305 1,168 986 825
Year-over-year growth (%) 3.5 11.7 18.4 19.5 16.4
Fully diluted earnings per share ($) 4.66 4.62 4.13 3.38 2.97
Year-over-year growth (%) 0.9 11.9 22.2 13.8 16.5
Note: For more information see Table 2 on page 54.
Net income growth of 3.5% in 1998 reflected continued business volume growth and strong
asset quality, which were partially offset by the effects of unusual market conditions in the
fourth quarter. These abnormal markets drove net trading losses of $90 million after tax in
the quarter and contributed to the year-over-year decline in other institutional businesses
and a lower contribution from Grupo Financiero Bancomer (Bancomer).
Revenues for 1998 of $7,270 million were up 1.4% from $7,167 million a year ago due to
strong business volume growth, primarily in our retail and commercial businesses, offset in
part by lower contributions from several institutional lines of business (including trading),
Bancomer, and foregone revenue due to the sale of the U.S. credit card business to Partners
FirstTM
, as well as the associated start-up losses in this venture. Business volume growth
includes the foreign exchange rate impact on U.S.-based revenues. For additional information
on revenue growth please refer to page 26.
EARNINGS GROWTH
STRATEGY:
To provide consistent and
above-average earnings per
share growth through diversified
revenue growth strategies,
productivity initiatives and
prudent risk management.
MEASURE:
Year-over-year percentage
change in fully diluted earnings
per share (EPS) is our primary
measure for analyzing earnings
growth, with 10% EPS growth
setasourminimumobjective.
It is calculated by dividing
earnings available to common
shareholders for the year by
the daily average number of fully
diluted common shares. Fully
diluted common shares represent
the common shares that would
have been outstanding assuming
conversion as at the beginning
of the year or at the date of
issuance of all securities that are
convertible into or redeemable
for common shares and that are
considered dilutive.
9897969594
FULLY DILUTED EPS
AND ANNUAL GROWTH
Fully diluted EPS ($)
Year-over-year growth (%)
Objective (minimum of 10%)
4.66
4.62
4.13
3.38
2.97
0.9
11.9
22.2
13.8
16.5
9897969594
NET INCOME
AND ANNUAL GROWTH
3.5
11.7
18.4
19.5
16.4
1,350
1,305
1,168
986
825
Net income ($ millions)
Year-over-year growth (%)
TM Partners First is a trade mark of Partners First Holdings LLC.
RETAIL AND COMMERCIAL SEGMENT INCOME GROWTH
While we manage our operations within different operating groups, as described on page 31, we also
analyze performance by aggregating operating groups into segments according to the primary client
type they serve. The retail and commercial segment includes those operating groups that primarily
serve our retail and commercial clients, namely: Personal and Commercial Financial Services, Electronic
Financial Services, Harris Regional Banking, and the Private Client Division and Asset Management
Services within Investment and Corporate Banking. The institutional segment comprises the remainder
of Investment and Corporate Banking and Portfolio and Risk Management Group. Our objective is
to generate long-term earnings growth in both of our primary market segments while recognizing that
institutional businesses are generally more market-sensitive in the short term.
Our 16.2% equity investment in Bancomer is reviewed separately in the table below as it serves both
retail and institutional clients.
Corporate Support includes any residual revenues and expenses representing the difference between
actual amounts incurred at the consolidated Bank level and the amounts allocated to operating
groups. Corporate Support also includes the impact of asset securitizations as described in the Capital
Management section on page 50.
In 1998 our retail and commercial segment had a strong year while the results of our institutional
segment were negatively impacted by unusual capital market conditions.
NET INCOME ($ millions)
For the year ended October 31 1998 % mix 1997*% mix 199 6*% mix
Retail and Commercial 965 71.4 870 66.6 895 76.7
Institutional 378 28.0 511 39.2 394 33.7
Bancomer 24 1.8 77 5.9 46 3.9
Corporate Support (17) (1.2) (153) (11.7) (167) (14.3)
Total Bank 1,350 100.0 1,305 100.0 1,168 100.0
*Reclassified to conform with the current year’s presentation