Bank of Montreal 2003 Annual Report Download - page 100

BMO Financial Group 186th Annual Report 200396
Notes to Consolidated Financial Statements
Basic Earnings per Share
Our basic earnings per share is calculated by dividing our net
income, after deducting total preferred share dividends, by the
daily average number of fully paid common shares outstanding
throughout the year.
Basic earnings per share
(Canadian $ in millions, except as noted) 2003 2002 2001
Net income before goodwill amortization $ 1,825 $ 1,417 $ 1,527
Dividends on preferred shares (82) (79) (80)
Net income before goodwill amortization
available to common shareholders 1,743 1,338 1,447
Amortization of goodwill –– (56)
Net income available to common shareholders $ 1,743 $ 1,338 $ 1,391
Average number of common
shares outstanding (in thousands) 496,208 490,816 511,286
(Canadian $)
Basic earnings per share
before goodwill amortization $ 3.51 $ 2.73 $ 2.83
Basic earnings per share 3.51 2.73 2.72
Diluted Earnings per Share
Diluted earnings per share represents what our earnings per share
would have been if any instruments convertible into common
shares had been converted into common shares during the year.
Convertible Shares
We increase net income before goodwill amortization by dividends
paid on convertible shares as these dividends would not have been
paid if the shares had been converted at the beginning of the year.
Similarly, we increase the average number of common shares out-
standing by the number of shares that would have been issued had
the conversion taken place at the beginning of the year.
Our Series 3, 4, 6 and 10 Class B Preferred shares, in certain cir-
cumstances, are convertible into common shares. These conversions
are not included in the calculation of diluted earnings per share as
we have the option to settle in cash instead of common shares.
Employee Stock Options
We increase the average number of common shares outstanding by
the number of shares that would have been issued if all stock options
with a strike price below the average share price for the year had
been exercised. We also decrease the average number of common
shares outstanding by the number of our common shares that we
could have repurchased if we had used the proceeds from the exer-
cise of stock options to repurchase them on the open market at the
average share price for the year. We do not adjust for stock options
with a strike price above the average share price for the year because
including them would increase our earnings per share, not dilute it.
Diluted earnings per share
(Canadian $ in millions, except as noted) 2003 2002 2001
Net income before goodwill amortization
available to common shareholders $ 1,743 $ 1,338 $ 1,447
Dividends on convertible shares 112
Net income before goodwill amortization
adjusted for dilution effect 1,744 1,339 1,449
Amortization of goodwill –– (56)
Net income adjusted for dilution effect $ 1,744 $ 1,339 $ 1,393
Average number of common
shares outstanding (in thousands) 496,208 490,816 511,286
Convertible shares 996 1,278 2,213
Stock options potentially exercisable (1) 36,608 30,575 31,742
Shares potentially repurchased (2) (26,803) (23,205) (21,680)
Average diluted number of common
shares outstanding (in thousands) 507,009 499,464 523,561
(Canadian $)
Diluted earnings per share
before goodwill amortization $ 3.44 $ 2.68 $ 2.77
Diluted earnings per share 3.44 2.68 2.66
(1) In computing diluted earnings per share, we excluded average stock options outstanding of
455,282, 7,884,526 and 1,763,506 with weighted-average exercise prices of $41.21, $38.11 and
$38.70 for the years ended October 31, 2003, 2002 and 2001, respectively.
(2) The number of shares potentially repurchased is determined by computing a weighted average of
the number of shares potentially repurchased in each quarter.
Note 21 Earnings Per Share
We conduct our business through operating segments, each of which
has a distinct market and product mandate. Our Personal and Com-
mercial Client Group provides financial services to personal and
commercial customers; our Private Client Group provides wealth
management services; and our Investment Banking Group offers
corporate, institutional and government clients comprehensive finan-
cial services including advisory, investment and operating services.
In addition, Corporate Support, including Technology and
Solutions, provides enterprise-wide services including overall
technology support and risk management.
Information concerning these operating segments, including
disclosure of their revenues, expenses, net income, average assets,
loans and deposits, is presented in the tables on pages 27, 31, 35, 39
and 40 of our Management’s Discussion and Analysis.
Note 22 Operating and Geographic Segmentation
We provide banking services to our joint ventures and equity-
accounted investments on the same terms that we offer to our
customers.
Effective September 1, 1999, new loans and mortgages to executive
officers were no longer available at preferred rates, other than mort-
gages for Bank-initiated transfers and credit card loans to employees;
a select suite of customer loan and mortgage products is now offered
to employees at rates normally accorded to preferred customers.
Existing loans and mortgages at preferred rates will be phased out
by September 1, 2004.
Prior to September 1, 1999, loans to executive officers for personal
purposes, principally for consumer purchases, home improvements
and sundry investments, were made available at an interest rate of
one-half of the Bank’s prime rate to a maximum of $25,000. Loans
in excess of this amount were available at prime rate.
The interest earned on these loans is recorded in interest, divi-
dend and fee income in our Consolidated Statement of Income.
The amounts outstanding under these preferred rate loan agree-
ments are:
(Canadian $ in millions) 2003 2002
Mortgage loans $ 155 $ 223
Personal loans 73 106
Total $ 228 $ 329
Beginning in fiscal 2002, we introduced a stock option plan for
non-officer directors, the terms of which are the same as the plans
for designated officers and employees described in Note 19. During
the fiscal year 2003, we granted 42,000 stock options at an exercise
price of $43.25 per share. During 2002, we issued 105,000 stock
options at an exercise price of $36.01 per share.
The Bank’s Board of Directors have a plan which requires direc-
tors to be paid at least 50% of their annual retainer in the form of
either common shares of the Bank (purchased on the open market)
or deferred share units. Directors may elect to take 100% of their
Note 23 Related Party Transactions