Bank of Montreal 2007 Annual Report Download - page 144

140 BMO Financial Group 190th Annual Report 2007
Glossary of Financial Terms
Other Definitions Page
Cash Productivity Ratio 40
Earnings per Share (EPS) 32
Expense-to-Revenue Ratio
(or Productivity Ratio) 40
Forwards and Futures 108
General Allowance 101
Net Economic Profit (NEP) 33
Net Interest Income 36
Net Interest Margin 36
Off-Balance Sheet
Arrangements 59
Operating Leverage 23
Options 108
Productivity Ratio
(see Expense-to-
Revenue Ratio) 40
Return on Equity (ROE) 33
Specific Allowances 101
Swaps 108
Taxable Equivalent
Basis (teb) 36
Tier 1 Capital Ratio
(see Regulatory
Capital Review) 57
Total Capital Ratio
(see Regulatory
Capital Review) 57
Total Shareholder
Return (TSR) 31
Trading-Related Revenues 38
Variable Interest
Entities (VIEs) 59
Risk-Related Definitions
Business Risk Due to
Earnings Volatility 72
Credit and Counterparty Risk 67
Earnings Volatility (EV) 68
Economic Capital 66
Environmental Risk 73
Issuer Risk 68
Liquidity and Funding Risk 71
Market Risk 68
Market Value Exposure (MVE) 68
Operational Risk 72
Reputation Risk 73
Value at Risk (VaR) 68
Allowance for Credit Losses
Represents an amount deemed
adequate by management to absorb
credit-related losses on loans and
acceptances and other credit instru-
ments. Allowances for credit losses
can be specific or general and are
recorded on the balance sheet as a
deduction from loans and accept-
ances or, as it relates to credit
instruments, as other liabilities.
Assets under Administration
and under Management
Assets administered or managed
by a financial institution that
are beneficially owned by clients
and therefore not reported
on the balance sheet of the
administering or managing
financial institution.
Asset-backed Commercial Paper
A short-term investment with a
maturity that is typically less than
180 days. The commercial paper
is backed by physical assets such
as trade receivables, and is
generally used for short-term
financing needs.
Average Earning Assets
Represents the daily or monthly
average balance of deposits
with other banks and loans and
securities, over a one-year period.
Bankers’ Acceptances (BAs)
Bills of exchange or negotiable
instruments drawn by a borrower
for payment at maturity and
accepted by a bank. BAs constitute
a guarantee of payment by the
bank and can be traded in the
money market. The bank earns
a “stamping fee” for providing
this guarantee.
Basis Point
One one-hundredth of a percent-
age point.
Derivatives
Contracts whose value is “derived”
from movements in interest or for-
eign exchange rates, or equity or
commodity prices. Derivatives allow
for the transfer, modification or
reduction of current or expected risks
from changes in rates and prices.
Hedging
A risk management technique used
to neutralize or manage interest
rate, foreign currency, equity, com-
modity or credit exposures arising
from normal banking activities.
Impaired Loans
Loans for which there is no longer
reasonable assurance of the timely
collection of principal or interest.
Innovative Tier 1 Capital
OSFI allows banks to issue instru-
ments that qualify as “Innovative”
Tier 1 capital. In order to qualify,
these instruments have to be issued
indirectly through a special purpose
vehicle, be permanent in nature
and receive acceptable accounting
treatment. Innovative Tier 1 capital
cannot comprise more than 20%
of net Tier 1 capital, at time of issue,
with 15% qualifying as Tier 1 capital
and the additional 5% included
in total capital.
Mark-to-Market
Represents valuation of securities
and derivatives held for trading
purposes at market rates as of the
balance sheet date, where required
by accounting rules.
Notional Amount
The principal used to calculate
interest and other payments under
derivative contracts. The principal
amount does not change hands
under the terms of a derivative
contract, except in the case
of cross-currency swaps.
Provision for Credit Losses
A charge to income that represents
an amount deemed adequate by
management to fully provide for
impairment in loans and acceptances
and other credit instruments, given
the composition of the portfolios, the
probability of default, the economic
environment and the allowance
for credit losses already established.
Regulatory Capital Ratios
The percentage of risk-weighted
assets supported by capital, as
defined by OSFI under the framework
of risk-based capital standards
agreed upon in 1988 at the Bank
for International Settlements.
These ratios are labeled Tier 1 and
Total. Tier 1 capital is considered
to be more permanent, consisting
of common shareholders’ equity
together with any qualifying non-
cumulative preferred shares and
innovative instruments, less unamor -
tized goodwill. Tier 2 capital consists
of other preferred shares, subor-
dinated debentures and the general
allowance, within prescribed limits.
The assets-to-capital multiple is
defined as assets plus guarantees
and letters of credit, net of specified
deductions (or adjusted assets),
divided by total capital.
Securities Borrowed or Purchased
under Resale Agreements
Low-cost, low-risk loans, often
supported by the pledge of cash
collateral, which arise from trans-
actions that involve the borrowing
or purchase of securities.
Securities Lent or Sold under
Repurchase Agreements
Low-cost, low-risk liabilities, often
supported by cash collateral, which
arise from transactions that involve
the lending or sale of securities.
Corporate Governance
Our web site at www.bmo.com contains information on our corporate
governance practices, including our code of conduct, FirstPrinciples,
our Code of Ethics for the CEO and Senior Financial Officers, our Director
Independence Standards and the Board and Committee Charters.
Proxy Circular
Our proxy circular contains information on each of the directors, Board
Committee reports and a complete discussion of our corporate gover-
nance practices. It is published in January 2008 and is available online
at www.bmo.com/investorrelations.
New York Stock Exchange Governance Requirements
A summary of the significant ways in which our corporate governance
practices differ from the corporate governance practices required
to be followed by U.S. domestic companies under New York Stock
Exchange Listing Standards is posted on our web site.
Corporate Responsibility
The BMO Corporate Responsibility Report, to be released in February 2008,
documents our corporate citizenship activities throughout the year. You can
find more information about our corporate responsibility activities online
at www.bmo.com/community.
BMO reports on the economic, social and environmental components of
our corporate responsibility performance and activities according to guide-
lines set out by the Global Reporting Initiative. To learn more about the
Global Reporting Initiative and its Sustainability Reporting Guidelines, visit
www.globalreporting.org.