Bank of Montreal 1999 Annual Report Download - page 96

Notes to Consolidated Financial Statements
90 Bank of Montreal Group of Companies 1999 Annual Report
Note 18 Related Party Transactions
Note 19 Risk Management
Note 20 Contingent Liabilities
We provide banking services to our subsidiary companies on the
same terms that we offer to our customers. In addition, we make
loans to current and former directors, officers and employees at
various rates and terms. The interest earned on these loans is
recorded in interest, dividend and fee income in our Consolidated
Statement of Income.
Our business necessitates the management of several categories
of risk including credit, market, liquidity and operational risks.
Certain information about our exposure to these risks such as the
allowance for credit losses, trading revenue, derivative financial
instruments and fair value of financial instruments are set out in
(a) Legal Proceedings
Nesbitt Burns Inc., an indirect subsidiary of the Bank of Montreal,
has been named as a defendant in several class and individual
actions in Canada and a class action in the United States brought
on behalf of shareholders of Bre-X Minerals Ltd. (“Bre-X”). Other
defendants named in one or more of these actions include Bre-X,
officers and directors of Bre-X, mining consulting firms retained
by Bre-X, Bre-X’s financial advisor and brokerage firms which
sold Bre-X common stock. The actions are largely based on alle-
gations of negligence, negligent or fraudulent misrepresentation
and breaches of the U.S. Securities Exchange Act of 1934, in con-
nection with the sale of Bre-X securities. All of the actions are at a
very preliminary stage. Based upon information presently avail-
able, counsel for Nesbitt Burns Inc. are not in a position to express
an opinion as to the likely outcome of any of these actions. Man-
agement is of the view that the Company has strong defences and
will vigorously defend against all such actions.
The Bank and its subsidiaries are party to other legal proceed-
ings in the ordinary course of their businesses. Management does
not expect the outcome of any of these other proceedings, individ-
ually
or in the aggregate, to have a material adverse effect on the
consolidated financial position or results of the Bank’s operations.
The amounts outstanding under these loan agreements are:
1999 1998
Mortgage loans $ 664 $ 745
Personal loans 351 344
Total $ 1,015 $ 1,089
the consolidated financial statements. A summary of our interest
rate gap position and effective interest rates on our financial
instrument assets and liabilities is set out on page 63 of our Man-
agement Analysis of Operations.
(b) Year 2000
Many computer systems process data based on storing two digits
for the year of a transaction rather than all four digits. Systems
that process year 2000 data with the year “00” may encounter
significant processing inaccuracies and even inoperability before,
on or after January 1, 2000. We have undertaken an enterprise-
wide initiative to address the year 2000 issue and have imple-
mented a comprehensive plan to prepare, as appropriate, our
date-sensitive systems to recognize the change. However, it is
not possible to be sure that all aspects of the year 2000 issue that
may affect us, including those related to the efforts of customers,
suppliers or other third parties with whom we conduct business,
will not have a material impact on our operations.
(c) Pledged Assets
In the normal course of our business, we pledge assets as secu-
rity for various liabilities that we incur. We had pledged invest-
ment and trading account securities and other assets totalling
$36,772 as at October 31, 1999 and $39,097 as at October 31, 1998
as security for call loans, securities sold but not yet purchased,
securities sold under repurchase agreements and other secured
liabilities. Additionally, we had deposited assets in the amount of
$2,699 as at October 31, 1999 and $2,013 as at October 31, 1998
to act as security for our participation in clearing and payment
systems and as security for contract settlements with derivatives
exchanges or other derivative counterparties.
1999 1998 1997
Annual Pension Expense
Net pension expense includes the following components:
Actual investment return on plan assets $ (304) $ (182) $ (453)
Excess of our actual over planned return 94 29 230
Planned return on plan assets (210) (153) (223)
Pension benefits earned by employees 76 73 61
Interest cost accrued on our projected pension benefit obligation 161 153 140
Amortization of prior service costs 13 99
Amortization of transition amount
–– (9)
Amortization of prior year actuarial (gain) loss (24) (83) 53
Annual pension expense 16 (1) 31
Canada and Quebec pension plan contribution 41 34 26
Total annual pension expense $ 57 $ 33 $ 57
Weighted Average Actuarial Assumptions
Discount rate for projected benefit obligation 8.1% 7.6% 7.9%
Rate of compensation increase 3.8 3.8 3.9
Expected long-term rate of return on pension plan assets 8.4 8.1 8.2
The cost of post-retirement life insurance, health and dental care benefits reported in employee benefits expense was $18 in 1999, $11
in 1998 and $11 in 1997.