Bank of Montreal 1998 Annual Report Download - page 39

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BANK OF MONTREAL GROUP OF COMPANIES
NET INCOME GROWTH DRIVEN BY PERSONAL AND COMMERCIAL FINANCIAL SERVICES
AND HARRIS REGIONAL BANKING
During 1998 our Global Treasury Group was reorganized, with the sales and trading lines of
business transferred to Investment and Corporate Banking. The move brings the groups critical
to providing integrated solutions for capital markets and treasury clients under common man-
agement. The remaining lines of business, primarily Asset Portfolio Management and our Risk
Management Group, were placed in a new group called Portfolio and Risk Management Group.
The businesses and customers served by each of our operating groups during the past year are
described in the accompanying group sections. All financial information included in these sections
has been restated to reflect organizational changes in 1998.
Net income earned and the average assets held by each operating group are presented in the
table below by geographic area.
■Personal and Commercial Financial Services net income increased 19.7% in 1998,
driven by
good volume growth and active expense management, partially offset by a decline in net
interest margin.
■
Electronic Financial Services net income decreased 59.5% in 1998, comprised of a 50.6%
decline in income from technology-related businesses and a 68.8% decline in income from
our equity investment in Bancomer. The lower income from technology-related businesses
reflects continued strategic investments which resulted in expense growth that more than
offset revenue growth from increased volumes. In addition, revenue growth was negatively
impacted by foregone revenues following the sale of our U.S. card business to Partners First
and the associated start-up losses from our equity position in this venture.
■Harris Regional Banking net income growth in 1998 was 23.4%, resulting from continued
business momentum in corporate, private and community banking, augmented by the impact
of the lower Canadian dollar relative to the U.S. dollar in 1998 compared to 1997.
■Investment and Corporate Banking net income was down 33.0% from 1997, as a result of a
decline in revenues stemming from the negative impact of abnormal market conditions in the
fourth quarter. Expense growth resulted primarily from costs incurred to support business
growth in various markets.
■
Portfolio and Risk Management Group net income decreased 18.9% from last year, with lower
cash collections on impaired loans and lower earnings from equities and bonds of lesser-
developed countries causing a decline in revenues.
Additional information is provided in the group sections that follow.
OPERATING GROUP REVIEW
NET INCOME AND AVERAGE ASSETS BY OPERATING GROUP ($ millions)
Personal & Commercial Electronic Harris Regional Investment & Portfolio & Risk Corporate Total
For the year
Financial Services Financial Services Banking (a) Corporate Banking Management Group Support (b) Consolidated
ended October 31 1998 19 97*1998 1997 *1998 1997 *1998 1997*1998 1997*1998 1997*1998 1997*
Net Income
Canada 603 495 18 32 0088 194 89 73 (35) (259) 763 535
United States 0015 39 229 186 68 57 131 138 17 103 460 523
Mexico 0021 74 0000110 0022 84
Other Countries 46 47 10 12 0031 29 17 72 13105 163
Tot al 649 542 64 157 229 186 187 280 238 293 (17) (153) 1,350 1,305
Average Assets
Canada 63,379 58,711 7,081 4,509 0040,304 36,098 12,353 9,685 (4,090) 496 119,027 109,499
United States 002,322 2,436 31,104 25,849 26,725 25,408 13,562 9,852 918 733 74,631 64,278
Mexico 00724 668 0000830 749 001,554 1,417
Other Countries 68 550 39 0028,353 19,109 3,747 2,372 20 232,238 21,527
Tot al 63,447 58,716 10,177 7,652 31,104 25,849 95,382 80,615 30,492 22,658 (3,152) 1,231 227,450 196,721
*Restated to give effect to the current year’s organization structure
(a) Harris in Canadian dollars based on Canadian GAAP including Harris Bankcorp, Inc., Harris Bankmont, Inc. (formerly Suburban Bancorp, Inc.), and the branches purchased
from Household Bank in 1996. This represents Harris Regional Banking which excludes card services, operating services and Harris Bank International Corporation, included
in Electronic Financial Services, and Harris Investment Management Corporation, included in Investment & Corporate Banking.
(b) Corporate Support includes any residual revenues and expenses representing the difference between actual amounts incurred and the amounts allocated to operating groups.
Corporate Support also includes the impact of asset securitization, as described in more detail in the Capital Management section on page 50.
Basis of presentation of results of operating groups:
Expenses are matched against the revenues to which they relate. Indirect expenses, such as overhead expenses and any revenue that may be associated thereto, are allocated
to the operating groups using appropriate allocation formulas applied on a consistent basis. For each currency, funds are transferred from any group with a surplus to any group
with a shortfall at market rates for the currency and appropriate term. Segmentation of assets by geographic region is based upon the ultimate risk of the underlying assets.
Segmentation of net income is based upon the geographic location of the unit responsible for managing the related assets, liabilities, revenues and expenses.