Bank of Montreal 1998 Annual Report Download - page 32

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BANK OF MONTREAL GROUP OF COMPANIES
EARNINGS GROWTH
A MORE COMPREHENSIVE VIEW USING ATTRIBUTION
A key element of our North American strategy remains our 16.2% equity stake in Bancomer, Mexico’s
leading financial institution. We also hold a 49% voting equity share in Partners First, our credit card
venture. As we have the ability to significantly influence, but not control, Bancomer and Partners First,
accounting principles require that the investments be equity accounted, meaning that their results are
not fully consolidated with our results. Rather, our proportionate share of their 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 their operations and service capability.
Attribution, which reports our proportionate share of the assets, revenue, expenses and service infra-
structure of equity investments such as Bancomer and Partners First, provides a greater understanding
and a more comprehensive view of our results for the year.
Illustrated below are a number of measures that indicate the extent to which our own operations and
service capability are enhanced by our investments in Bancomer and Partners First.
1998 (a) 1997(b)
As at or for the year ended Attributed Reported Attributed Reported
Total asse ts ($ millions) 229,784 222,590 213,382 207,838
Revenues ($ millions) 7,747 7,270 7,575 7,167
Expenses ($ millions) 5,258 4,833 4,881 4,613
Number of bank branches 1,435 1,216 1,449 1,246
Number of automated bank machines 2,416 2,069 2,359 2,035
Revenues include net interest income reported on a taxable equivalent basis (TEB†) and other income.
(a) Partners First amounts included with effect from January 29, 1998.
(b) The attributed amounts for 1997 are only in respect of our equity investment in Bancomer.
Our provision for credit losses of $130 million included a $110 million general provision
bringing the total general allowance to $885 million. The total provision was $145 million lower
than 1997 due to a $90 million lower addition to the general allowance, a reduction of approx-
imately $100 million relating to credit card portfolios which were sold or securitized, offset
by a higher level of net specific provisions. Further discussion on asset quality management
can be found in the Credit Risk section of Enterprise-wide Risk Management on page 44.
Expense growth of 4.7%, the lowest level in nine years, was driven by continued strategic
initiatives such as mbanx®and telephone banking, the foreign exchange rate impact on
U.S.-based expenses and ongoing business volume growth, net of productivity improvements.
This growth was offset in part by the impact of a $75 million charge recorded in the fourth
quarter of 1997 for accelerated depreciation related to technology changes and for costs to
improve the efficiency of the Bank’s credit process, as well as a decline in revenue- driven
compensation. Additional information on expense growth is provided on page 30.
Net income growth of 11.7% in 1997 was driven by strong business volume growth, cash
collections on impaired loans and revenues from equities and bonds of lesser-developed
countries which resulted in revenue growth of 15.1%. Expense growth of 16.8% was due to
strategic initiatives and the $75 million charge referred to above. 1997 earnings also reflected
a provision for credit losses of $275 million which included a $200 million charge to increase
the level of our general allowance for credit losses.
®mbanx is a registered trade mark of Bank of Montreal.
†Defined in the Glossary on page 92