Bank of Montreal 2007 Annual Report Download - page 134

Employee Stock Options
In determining diluted earnings per share, 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. When per-
formance targets have not been met, affected options are excluded
from the calculation. 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 exercise
of stock options to repurchase them on the open market at the aver-
age 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) 2007 2006 2005 (1)
Net income available to
common shareholders $ 2,088 $ 2,633 $ 2,366
Average number of common shares
outstanding (in thousands) 499,950 501,257 500,060
Convertible shares 271 328 361
Stock options potentially exercisable (2) 18,492 21,629 25,424
Common shares potentially repurchased (10,099) (12,041) (15,000)
Average diluted number of common
shares outstanding (in thousands) 508,614 511,173 510,845
Diluted earnings per share (Canadian $) $ 4.11 $ 5.15 $ 4.63
(1) Amounts have been restated to reflect the change in accounting policy described in Note 22.
(2) In computing diluted earnings per share we excluded average stock options outstanding of
317,266, 174,485 and 410,265 with weighted-average exercise prices of $67.89, $63.14 and
$56.60 for the years ended October 31, 2007, 2006 and 2005, respectively.
130 BMO Financial Group 190th Annual Report 2007
Notes to Consolidated Financial Statements
Notes
Note 26: Operating and Geographic Segmentation
Operating Groups
We conduct our business through operating groups, each of which
has a distinct mandate. We determine operating groups based on our
management structure and therefore our 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.
Beginning in the year ended October 31, 2006, we amended
our operating group segmentation to include both Personal and
Commercial Banking Canada and Personal and Commercial Banking U.S.
as reporting units. Prior period information has been restated to reflect
this new reporting basis.
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 loan and deposit products, including
deposit and investment services, mortgages, consumer credit, business
lending, cash management and other banking services.
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 the United
States, primarily in the Chicago area and Indiana, through branches and
direct banking channels such as telephone banking, online banking
and a network of automated banking machines.
Private Client Group
Private Client Group (“PCG”) brings together all of our wealth manage-
ment businesses. Operating under the BMO brand in Canada and
Harris in the United States, PCG serves a full range of client segments,
from mainstream to ultra-high net worth, as well as select institutional
market segments. We offer our clients a broad range of wealth
management products and services, including full-service and online
brokerage in Canada and private banking and investment products
in Canada and the United States.
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, its 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.
Corporate Services
Corporate Services includes the corporate units that provide expertise
and governance support in areas such as 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 securiti-
zation activities, the hedging of foreign-source earnings, and activities
related to the management of certain balance sheet positions and
our overall asset liability structure.
Technology and Operations (“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 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 seg-
ments are generally consistent with those followed in the preparation
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 provision for credit losses, as described below.
Taxable Equivalent Basis
We analyze net interest income on a taxable equivalent basis (“teb”).
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 would incur
tax at the statutory rate.