Bank of Montreal 2012 Annual Report Download - page 160

Notes
Class B – Series 21 shares are redeemable at our option on May 25, 2014
and every five years thereafter for $25.00 cash per share. If the shares
are not redeemed on the redemption dates, investors have the option
to convert the shares into Class B – Series 22 Preferred shares and, if
converted, have the option to convert back to Series 21 Preferred shares
on subsequent redemption dates. The Series 21 shares carry a non-
cumulative quarterly dividend of $0.40625 per share until May 25, 2014.
Dividends payable after May 25, 2014 on the Series 21 and Series 22
Preferred shares will be set based on prevailing market rates plus a
predetermined spread.
Class B – Series 23 shares are redeemable at our option on February 25,
2015 and every five years thereafter for $25.00 cash per share. If the
shares are not redeemed on the redemption dates, investors have the
option to convert the shares into Class B – Series 24 Preferred shares
and, if converted, have the option to convert back to Series 23 Preferred
shares on subsequent redemption dates. The Series 23 shares carry a
non-cumulative quarterly dividend of $0.3375 per share until
February 25, 2015. Dividends payable after February 25, 2015 on the
Series 23 and Series 24 Preferred shares will be set based on prevailing
market rates plus a predetermined spread.
Class B – Series 25 shares are redeemable at our option on August 25,
2016 and every five years thereafter for $25.00 cash per share. If the
shares are not redeemed on the redemption dates, investors have the
option to convert the shares into Class B – Series 26 Preferred shares
and, if converted, have the option to convert back to Series 25 Preferred
shares on subsequent redemption dates. The Series 25 shares carry a
non-cumulative quarterly dividend of $0.24375 per share until
August 25, 2016. Dividends payable after August 25, 2016 on the
Series 25 and Series 26 Preferred shares will be set based on prevailing
market rates plus a predetermined spread.
Common Shares
We are authorized by our shareholders to issue an unlimited number of
our common shares, without par value, for unlimited consideration. Our
common shares are not redeemable or convertible. Dividends are
declared by our Board of Directors on a quarterly basis and the amount
can vary from quarter to quarter.
During the year ended October 31, 2012, we issued 11,730,081
common shares primarily through our dividend reinvestment and share
purchase plan and the exercise of stock options (6,011,450 in 2011).
During the year ended October 31, 2011, we also issued 66,519,673
common shares to M&I shareholders as consideration for the acquisition
of M&I. We did not issue any common shares through a public offering.
Normal Course Issuer Bid
On December 4, 2012, we announced our intention to initiate a normal
course issuer bid to repurchase for cancellation up to 15,000,000 or
2.3% of the public float of our common shares. Any such repurchase is
subject to the approval of OSFI and the Toronto Stock Exchange.
Our previous normal course issuer bid, which allowed us to
repurchase for cancellation up to 15,000,000 of our common shares,
expired on December 15, 2011.
During the years ended October 31, 2012 and 2011, we did not
repurchase any common shares.
Issuances Exchangeable into Common Shares
One of our subsidiaries, Bank of Montreal Securities Canada Limited
(“BMSCL”), had issued various classes of non-voting shares that can be
exchanged at the option of the holder for our common shares, based on
a formula. During the year ended October 31, 2012, all of these BMSCL
shares were converted into 227,850 of our common shares.
Share Redemption and Dividend Restrictions
OSFI must approve any plan to redeem any of our preferred share issues
for cash.
We are prohibited from declaring dividends on our preferred or
common shares when we would be, as a result of paying such a
dividend, in contravention of the capital adequacy, liquidity or any other
regulatory directives issued under the Bank Act. In addition, common
share dividends cannot be paid unless all dividends declared and
payable on our preferred shares have been paid or sufficient funds have
been set aside to do so.
In addition, we have agreed that if either BMO Capital Trust or BMO
Capital Trust II (the “Trusts”), two of our subsidiaries, fail to pay any
required distribution on their capital trust securities, we will not declare
dividends of any kind on any of our preferred or common shares for a
period of time following the Trusts’ failure to pay the required
distribution (as defined in the applicable prospectuses) unless the Trusts
first pay such distribution to the holders of their capital trust securities
(see Note 18).
Shareholder Dividend Reinvestment
and Share Purchase Plan
We offer a dividend reinvestment and share purchase plan for our
shareholders. Participation in the plan is optional. Under the terms of
the plan, cash dividends on common shares are reinvested to purchase
additional common shares. Shareholders also have the opportunity to
make optional cash payments to acquire additional common shares.
We may issue these common shares at an average of the closing
price of our common shares on the Toronto Stock Exchange based on
the five trading days prior to the last business day of the month or we
may purchase them on the open market at market prices. During the
year ended October 31, 2012, we issued a total of 9,738,842 common
shares (2,947,748 in 2011) under the plan.
Potential Share Issuances
As at October 31, 2012, we had reserved 11,389,669 common shares for
potential issuance in respect of our Shareholder Dividend Reinvestment
and Share Purchase Plan. We also have reserved 15,801,966 common
shares for the potential exercise of stock options, as further described
in Note 22.
Treasury Shares
When we purchase our common shares as part of our trading business,
we record the cost of those shares as a reduction in shareholders’ equity.
If those shares are resold at a price higher than their cost, the premium is
recorded as an increase in contributed surplus. If those shares are resold
at a price below their cost, the discount is recorded as a reduction first to
contributed surplus and then to retained earnings for any amounts in
excess of total contributed surplus related to treasury shares.
Note 21: Capital Management
Our objective is to maintain a strong capital position in a cost-effective
structure that: considers our target regulatory capital ratios and internal
assessment of required economic capital; is consistent with our targeted
credit ratings; underpins our operating groups’ business strategies; and
builds depositor confidence and long-term shareholder value.
Our approach includes establishing limits, goals and performance
measures for the management of balance sheet positions, risk levels
and minimum capital amounts, as well as issuing and redeeming capital
instruments to obtain a cost-effective capital structure.
Regulatory capital requirements and risk-weighted assets for the
consolidated entity are determined on a Basel II basis.
Adjusted common shareholders’ equity is the most permanent form
of capital. It is comprised of common shareholders’ equity less a
deduction for goodwill, excess intangible assets and deductions for
BMO Financial Group 195th Annual Report 2012 157