Bank of Montreal 2008 Annual Report Download - page 148

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 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) 2008 2007 2006
Net income available to
common shareholders $ 1,905 $ 2,088 $ 2,633
Average number of common shares
outstanding (in thousands) 502,062 499,950 501,257
Convertible shares 263 271 328
Stock options potentially exercisable (1) 14,150 18,492 21,629
Common shares potentially repurchased (9,778) (10,099) (12,041)
Average diluted number of common
shares outstanding (in thousands) 506,697 508,614 511,173
Diluted earnings per share (Canadian $) $ 3.76 $ 4.11 $ 5.15
(1) In computing diluted earnings per share we excluded average stock options outstanding
of 2,818,599, 317,266 and 174,485 with weighted-average exercise prices of $60.68, $67.89
and $63.14 for the years ended October 31, 2008, 2007 and 2006, respectively.
Notes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
144 | BMO Financial Group 191st Annual Report 2008
Note 27: Operating and Geographic Segmentation
Operating Groups
We conduct our business through 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: every-
day banking, financing, investing, credit cards and insurance, 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.
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.
Private Client Group
Private Client Group (“PCG”) brings together all of our wealth
manage ment businesses. 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 solutions, including full-service and online
brokerage in Canada and private banking and investment products
in Canada, the United States, United Kingdom and China.
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 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.
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 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 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”)
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 would incur tax at the statutory rate. The operating
groups’ teb adjustments are eliminated in Corporate Services.
Analysis on a teb basis neutralizes the impact of investing in tax-
exempt or tax-advantaged securities rather than fully taxable securities
with higher yields. It reduces distortions in net interest income related
to the choice of tax-advantaged and taxable investments.