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Bank of Montreal Group of Companies 180Th Annual Report 1997 Shareholder Value Bank of Montreal Group of Companies

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Bank of Montreal Group of Companies 180Th Annual Report 1997 Shareholder Value Bank of Montreal Group of Companies BuildingBank of Montreal Group of Companies 180th Annual Report 1997 Shareholder Value Bank of Montreal Group of Companies Bank of Montreal, Canada’s first bank, is a highly diversified financial services institution offering a full range of services in all three NAFTA countries. These are the companies that serve you: Bank of Montreal, through its Canadian operations, is a leading and innovative provider of a complete range of financial products and services to individuals, Bank of Montreal Capital Corporation, working closely small businesses, corporations, governments and with its parent bank, provides seamless links to equity institutional clients. The Bank’s telephone banking and and quasi-equity financing options for Canadian Internet banking services and its automatic banking growth companies. It has committed $200 million to machines, together with its nationwide network of four separate programs: Bank of Montreal Small community-based banking locations, offer round-the- Business Capital Program, Bank of Montreal Technology clock service to more than six million Canadians Investment Program, Bank of Montreal Early Stage wherever they live, work or do business. Capital Program and Bank of Montreal Strategic Investment Program. Nesbitt Burns Inc. is one of Canada’s leading full- service investment firms, serving the financial needs Bank of Montreal Nesbitt Burns Equity Partners Inc. of individual, corporate, institutional and govern- is a merchant bank created by Bank of Montreal and ment clients through more than 125 branches across Nesbitt Burns to make direct equity investments in Canada and 14 international locations. growing North American companies, both public and private. It manages a $300 million capital program Harris Bank provides banking, trust and investment through offices in Toronto and Chicago. services to individuals, small and mid-market busi- nesses and not-for-profit and government entities First Canadian® Mutual Funds is one of Canada’s within Chicago and surrounding communities – and is leading families of mutual funds. With more than a leading provider of corporate banking services, $9 billion of assets under management, it is also primarily in the Midwest, and trust, cash management, one of Canada’s largest. investment management and private banking services throughout the United States. InvestorLine® Discount Brokerage serves Canada’s self-directed investors. Clients can mbanxTM, our direct banking division, provides clients access their accounts and trade equities with full-service banking by Internet, computer, and options through an agent, automated telephone telephone, ABM, fax and mail, allowing customers to service, or web site around the clock for low conduct their banking anytime, anywhere, anyhow. discounted commissions. Cebra® Inc. is a full-service provider of electronic Jones Heward Investment Inc. has been managing commerce solutions. Cebra helps businesses throughout investment portfolios for high net worth individuals North America improve the way they communicate since 1925. In addition to private client portfolios, electronically with customers, suppliers and other Jones Heward manages investments on behalf trading partners. of pension funds, mutual funds, endowments, trusts, corporate operations and insurance companies. Assets under management are approaching $13 billion. The Trust Company of Bank of Montreal is dedicated Index to the growth, administration and protection of the Chairman’s Message .............. 2 financial assets of its individual and corporate clients. Partnered with traditional banking and investment Building Shareholder Value .......... 4 management services, it provides professional, inte- President’s Message .............. 14 grated solutions to clients through advisory, agency Performance at a Glance ........... 17 and trust relationships. Management Analysis of Operations .... 20 Consolidated Financial Statements .... 66 Glossary ...................... 90 Corporate Governance ............. 91 Shareholder Information ...........IBC Performance Sustained earnings growth in 1997 continues to build shareholder value. Net Income Fully Diluted Earnings Per Share ($ millions) ($) 1,305 4.62 Net Income 1,168 4.13 up 986 3.38 11.7% 825 2.97 709 2.55 640 2.31 2.36 595 2.10 522 EPS up $0.49 90 91 92 93 94 95 96 97 90 91 92 93 94 95 96 97 As Reported Return on Common Return on Common Shareholders’ Equity Shareholders’ Investment (%) (%) 55.0 17.0 17.1 Consistent 15.4 47.4 14.6 15.0 14.9 ROE at 14.1 14.1 42.4 17.1% 32.4 24.1 19.4 55% one-year (14.4) (2.3) ROI 90 91 92 93 94 95 96 97 90 91 92 93 94 95 96 97 ROE Objective (14–15%) ROI Chairman’s Message shareholders of $14.6 billion. This result is hearten- ing by almost any standard. This performance has been achieved, in part, through our strategic commitment to earn, grow and invest at the same time. We do not delay critically important investments in favour of short-term boosts to earnings, nor do we accept the old adage “short-term pain for long-term gain.” That phrase is often used to excuse poor tac- tical results and when that is the case, short-term pain often leads to long-term pain! Instead, we consciously strive to strike a bal- ance between short-term and long-term earnings. Building Shareholder Value Over Time Long-term investments are funded with offset- ting improvements in our existing businesses or by discontinuing activities with low or no poten- tial for strong shareholder wealth creation. So far, we have managed to strike this balance well. We have made more than $2 billion of new strategic investments over the past several years without interrupting our stream of record earnings and ROE. As these investments mature, we expect them to contribute strongly to the earnings momentum we have created. Matthew W. Barrett The end of each year is a time to look forward and Another major ingredient of our strategy back. It is a time to take stock, to reflect on lessons that augurs well for sustained, consistent earnings F. Anthony Comper learned and to plan for the years ahead. For the growth is the focus we place on diversification: management of the Bank, year-end brings with it diversified geographic markets, diversified lines-of- the obligation to give the fullest possible account- business and diversified customer segments. ing of the initiatives and events that produced growth The individual and small- to medium-size in shareholder value, as well as the opportunity to enterprise segment is, of course, an inherently report on plans for sustaining the creation of share- diversified customer base. We have seven million holder wealth in the future. The pages that follow individual customers across all socio-economic in this Annual Report and the extensive disclosure sectors and 475,000 individually operated small- to contained in the Management Analysis of Opera- medium-size businesses. This segment contributes tions section combine to assure that shareholders 74% of our net income. The size and stability of are well informed. our retail businesses are a source of comfort, given Fiscal 1997 saw the Bank of Montreal Group the more cyclical nature of the wholesale business. of Companies report record earnings for the eighth Throughout the past year, we have revised our consecutive year, 11.7% above the level in 1996. product and service offerings, tailoring them more Return on equity (ROE) was 17.1%. Your Bank is closely to our customers’ needs, and we have the only major bank in Canada and the United retooled our distribution system, creating a more States to have produced ROE exceeding 14% for flexible and accessible retail banking network. the last eight years. As a result, the market value Geographic diversification has centred mostly of your Bank at year-end rose to $15.9 billion = in the United States, followed by Mexico and, to a gain of $5.4 billion for the year. a much lesser extent, selective markets in East Asia. Since 1990, the year a strategic plan for the In each new market we enter, we take a long-term decade was unveiled by the new management team, approach, building our business on a solid foun- market capitalization has grown from $3.8 billion dation of knowledge, judgement and experience, to $15.9 billion. Dividends paid out for the same and we have reaped substantial benefits from this period totalled $2.5 billion for a total return to prudent approach. In 1997, more than 50% of our 2 Bank of Montreal 180th Annual Report 1997 earnings came from outside Canada. That was our creation of economies of scale or economies goal for the year 2002, and reaching it has enabled of skill. In the past year, we have formed a number us to advance more quickly to our next target = to of strategic partnerships to secure the scale and achieve 60% of earnings from outside Canada. skill necessary to be an industry leader in every A third major component of the strategy for field in which we compete. These partnerships will consistent earnings is our drive to advance the man- play an increasingly important role in the “earn, agement sciences throughout the Bank. Here, no grow and invest” component of our strategy as function is more important than risk management. they mature. You will find a more detailed discus- Our objective has been to avoid the traditional sion of these initiatives in the pages that follow. “boom-bust” cycles caused by assuming excessive Beyond foreseeable risks and identifiable levels of risk through over-concentration in dif- opportunities, there are exogenous variables in ferent sectors and/or inadequate information about the environment with which we must contend. investment quality. While our investments in risk A major example is regulatory change. In response management do not grab headlines, they will to shifts in the regulatory regimes in Canada, Gary S. Dibb continue to be an important factor in generating Bank of Montreal has published a discussion consistent earnings.
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