Bank of Montreal 1998 Annual Report Download - page 34

26
BANK OF MONTREAL GROUP OF COMPANIES
STRONG BUSINESS VOLUME GROWTH OFFSET BY ABNORMAL MARKET CONDITIONS
Total revenues increased 1.4% in 1998, compared to 15.1% in 1997. Strong business volume
growth, primarily in our retail and commercial businesses, increased revenue by 9.1%. This
was offset by lower contributions from several institutional lines of business (including
trading) (5.2%), Bancomer (0.7%), and foregone revenue due to the sale of the U.S.
card
business to Partners First as well as associated start-up losses in this venture (1.8%).
Business volume growth included the foreign exchange rate impact of a lower Canadian dollar
on U.S.-based revenues (1.4%).
Revenue growth of 15.1% in 1997 resulted from a 12.8% increase in net interest income,
largely due to volume growth, and an 18.5% increase in other income, primarily in our fee-
related businesses. 1997 also saw unusually high revenues of $250 million from cash collections
on impaired loans and from equities and bonds of lesser-developed countries.
TOTAL REVENUE ($ millions)
For the year ended October 31 1998 1997 1996 1995 1994
Net interest income (TEB) 4,152 4,186 3,711 3,564 3,325
Year-over-year growth (%) (0.8) 12.8 4.1 7.2 3.7
Other income 3,118 2,981 2,516 2,102 1,871
Year-over-year growth (%) 4.6 18.5 19.7 12.3 13.1
Total revenue 7,270 7,167 6,227 5,666 5,196
Year-over-year growth (%) 1.4 15.1 9.9 9.0 6.9
Net Interest Income Declined 0.8%
Net interest income comprises interest and dividend revenue earned on total assets, less
interest expense paid on total liabilities. Net interest income growth is a function of volume
growth and average net interest margin. Net interest margin
†
is defined as the difference
between the interest rate earned on total average assets and the interest rate paid on total
average liabilities. Average net interest margin is the ratio of net interest income to average
assets. Our net interest income in 1998 on a taxable equivalent basis (TEB
†
) was $4,152 million.
This represented a decrease of 0.8% from 1997 as the effect of continued strong business
volume growth was more than offset by several distinct factors. These factors, which are dis-
cussed on page 27, were also the primary drivers of a decline in average net interest margin of
30 basis points.
CHANGE IN NET INTEREST INCOME AND AVERAGE ASSETS
Net interest income ($ millions) Average assets ($ billions)
For the year ended October 31 1998 1997 % change 1998 1997 % change
Personal and Commercial Financial Services 2,242 2,123 5.6 63 59 8.1
Electronic Financial Services 428 574 (25.4) 10 8 33.0
Harris Regional Banking 823 703 17.2 31 26 20.3
Investment and Corporate Banking 365 285 27.8 95 80 18.3
Portfolio and Risk Management Group 469 572 (18.0) 31 23 34.6
Corporate Support (175) (71) (3) 1
Total Bank 4,152 4,186 (0.8) 227 197 15.6
Total Bank margin (basis points) 183 213 (30)
Continued Volume Growth
Average total assets increased 15.6% in 1998 to $227 billion. The increase in assets in Personal
and Commercial Financial Services reflected an increase in residential mortgages of 9.1%
and in commercial loans, including loans to small and medium-sized businesses, of 12.1%.
Asset growth in Electronic Financial Services was largely the result of continued growth in
our mbanx division and in Corporate Electronic Financial Services, which includes North
American Cash Management. Asset growth in Harris Regional Banking was the result of
increased average loans of 22.1%, primarily in personal and commercial lending. Asset
growth in Harris Regional Banking also includes the effect of a lower Canadian dollar.
Growth in Investment and Corporate Banking was primarily due to increased volumes in
securities and reverse repos.†The asset growth in Portfolio and Risk Management Group
reflected increased corporate lending in 1998.
REVENUE GROWTH
STRATEGY:
To grow total revenues consis-
tently by providing valued
prod ucts and services to cus-
tomers while ensuring continued
strong risk management.
MEASURE:
Percentage change in total
year-over-year revenue is our
primary measure of revenue
growth. Total revenue consists
of net interest income and
other income.
9897969594
REVENUE AND
ANNUAL GROWTH
Other income ($ millions)
Net interest income (TEB) ($ millions)
7, 2 7 0
7, 1 6 7
6,227
5,666
5,196
1.4
15.1
9.9
9.0
6.9
Year-over-year growth (%)
†Defined in the Glossary on page 92