Bank of Montreal 2010 Annual Report Download - page 159

Notes
BMO Financial Group 193rd Annual Report 2010 157
Note 26: Operating and Geographic Segmentation
Operating Groups
We conduct our business through three operating groups, each of
which has a distinct mandate. We determine our operating groups based
on our management structure and therefore these groups, and results
attributed to them, may not be comparable with those of other financial
services companies. We evaluate the performance of our groups using
measures such as net income, revenue growth, return on equity, net
economic profit and non-interest expense-to-revenue (productivity)
ratio, as well as cash operating leverage.
Personal and Commercial Banking
Personal and Commercial Banking (“P&C”) is comprised of two operating
segments: Personal and Commercial Banking Canada and Personal and
Commercial Banking U.S.
Personal and Commercial Banking Canada
Personal and Commercial Banking Canada (“P&C Canada”) offers a
full range of consumer and business products and services, including
everyday banking, financing, investing and credit cards, as well as
a full suite of commercial and capital markets products and financial
advisory services, through a network of branches, telephone banking,
online banking, mortgage specialists and automated banking machines.
Effective in the year ended October 31, 2009, the results of our term
deposits business are included in P&C Canada rather than Private Client
Group, where the business is now better aligned with P&C Canada’s
retail product strategy. Prior periods have been restated to reflect
this reclassification.
Personal and Commercial Banking U.S.
Personal and Commercial Banking U.S. (“P&C U.S.”) offers a full range
of products and services to personal and business clients in select
U.S. Midwest markets through branches and direct banking channels
such as telephone banking, online banking and a network of automated
banking machines. Effective in the year ended October 31, 2010, we
identified U.S. mid-market client accounts that would be better served
by a commercial banking model and transferred their balances to
P&C U.S. from BMO Capital Markets. Prior periods have been restated
to reflect this reclassification.
Private Client Group
Private Client Group (“PCG”), our group of wealth management
businesses, serves a full range of client segments, from mainstream
to ultra-high net worth, as well as select institutional markets,
with a broad offering of wealth management products and solutions.
PCG operates in both Canada and the United States, as well as in China
and the United Kingdom. Effective in the year ended October 31, 2009,
all of our insurance operations are included within PCG, bringing
our insurance capabilities and skill sets together as part of our wealth
management offering. Prior periods have been restated to reflect
this reclassification.
BMO Capital Markets
BMO Capital Markets (“BMO CM”) combines all of our businesses
serving corporate, institutional and government clients. In Canada and
the United States, these clients span a broad range of industry sectors.
BMO CM also serves clients in the United Kingdom, Europe, Asia
and Australia. It offers clients complete financial solutions, including
equity and debt underwriting, corporate lending and project financing,
mergers and acquisitions, advisory services, merchant banking,
securitization, treasury and market risk management, debt and equity
research and institutional sales and trading. Effective in the year
ended October 31, 2010, we identified U.S. mid-market client accounts
that would be better served by a commercial banking model and
transferred the accounts to P&C U.S. from BMO CM. Prior periods have
been restated to reflect this reclassification.
Corporate Services
Corporate Services includes the corporate units that provide expertise
and governance support in areas such as Technology and Operations
(“T&O”), strategic planning, law, finance, internal audit, risk management,
corporate communications, economics, corporate marketing, human
resources and learning. Operating results include revenues and expenses
associated with certain securitization activities, the hedging of foreign-
source earnings, and activities related to the management of certain
balance sheet positions and our overall asset liability structure.
T&O manages, maintains and provides governance over our
information technology, operations services, real estate and sourcing.
T&O focuses on enterprise-wide priorities that improve quality and
efficiency to deliver an excellent customer experience.
Operating results for T&O are included with Corporate Services for
reporting purposes. However, costs of T&O services are transferred to
the three operating groups. As such, results for Corporate Services largely
reflect the activities outlined above.
Corporate Services also includes residual revenues and expenses
representing the differences between actual amounts earned or incurred
and the amounts allocated to operating groups.
Basis of Presentation
The results of these operating segments are based on our internal
financial reporting systems. The accounting policies used in these
segments are generally consistent with those followed in the prepara-
tion of our consolidated financial statements as disclosed in Note 1 and
throughout the consolidated financial statements. Notable accounting
measurement differences are the taxable equivalent basis adjustment
and the provisions for credit losses, as described below.
Taxable Equivalent Basis
We analyze net interest income on a taxable equivalent basis (“teb”)
at the operating group level. This basis includes an adjustment which
increases GAAP revenues and the GAAP provision for income taxes
by an amount that would raise revenues on certain tax-exempt securities
to a level that incurs tax at the statutory rate. The operating groups’
teb adjustments are eliminated in Corporate Services.
We now account for certain BMO CM transactions on a basis
that reflects their teb. We believe these adjustments are useful and
reflect how BMO CM manages its business, since it enhances the
comparability of taxable revenues and tax-advantaged revenues.
The change results in increases in net interest income and income
taxes in BMO CM with offsetting amounts reflected in Corporate Services.
There was no overall net income change in either of the two groups.
Prior periods have been restated to reflect this reclassification.
Provisions for Credit Losses
Provisions for credit losses are generally allocated to each group
based on expected losses for that group. Differences between expected
loss provisions and provisions required under GAAP are included in
Corporate Services.
Securitization Accounting
During the year ended October 31, 2010, we changed the manner
in which we report securitized assets in our segmented disclosure.
Previously, certain securitized mortgage assets were not reported
in P&C Canada’s balance sheet. We now report all securitized mortgage
assets in P&C Canada, with offsetting amounts in Corporate Services,
and net interest income earned on all securitized mortgage assets
is included in P&C Canada net interest income. Previously, net interest
income earned on certain securitized mortgage assets was included
in P&C Canada non-interest revenue. Prior periods have been restated
to conform to this new presentation.