Bank of Montreal 2013 Annual Report Download - page 150

Note 18: Capital Trust Securities
We issue BMO Capital Trust Securities (“BMO BOaTS”) and BMO Tier 1 depending on the terms of the BMO BOaTS. The BMO T1Ns – Series A are
Notes – Series A (“BMO T1Ns – Series A”) through our consolidated reported in our Consolidated Balance Sheet as capital trust securities.
subsidiaries BMO Capital Trust and BMO Capital Trust II, respectively Holders of the BMO BOaTS and BMO T1Ns – Series A are entitled to
(the “Trusts”). The proceeds of BMO BOaTS and BMO T1Ns – Series A are receive semi-annual non-cumulative fixed cash distributions as long as
used for general corporate purposes. We consolidate the Trusts, and the we declare dividends on our preferred shares or, if no shares are
BMO BOaTS are reported in our Consolidated Balance Sheet either as outstanding, on our common shares in accordance with our ordinary
non-controlling interest in subsidiaries or as capital trust securities, dividend practice.
Distribution Redemption date Principal amount
per BOaTS (1) /
(Canadian $ in millions, except Distribution) Distribution dates BMO T1Ns At the option of the Trust 2013 2012
Capital Trust Securities
BMO T1Ns – Series A (2) June 30, December 31 51.11 (3) December 31, 2013 450 450
450 450
Non-Controlling Interest
BMO BOaTS
Series D
Series E June 30, December 31 June 30, December 31 27.37 (4)
23.17 (5)
December 31, 2009
December 31, 2010 600 450 600 450
1,050 1,050
Total Capital Trust Securities 1,500 1,500
(1) Distribution paid on each trust security that has a par value of $1,000. (3) Starting on December 31, 2018 and on every fifth anniversary of such date thereafter until
(2) The carrying value includes issuance costs and accrued interest of $13 million as at December 31, 2103, the interest rate on the BMO T1Ns – Series A will be reset to an interest
October 31, 2013 ($12 million in 2012). rate per annum equal to the Government of Canada Yield plus 10.50%.
(4) After December 31, 2014, the distribution will be at the Bankers’ Acceptance Rate plus 1.5%.
(5) After December 31, 2015, the distribution will be at the Bankers’ Acceptance Rate plus 1.5%.
Redemption by the Trust Conversion by the Holders
On or after the redemption dates indicated above, and subject to the BMO BOaTS Series D and E and BMO T1Ns – Series A cannot be converted
prior approval of OSFI, the Trusts may redeem the securities in whole at the option of the holder.
without the consent of the holders.
During the year ended October 31, 2012, we redeemed all of our
BMO Capital Trust Securities – Series C (“BMO BOaTS – Series C”) at a
redemption amount equal to $1,000, for an aggregate redemption of
$400 million, plus unpaid distributions which had been declared.
Automatic Exchange
The BMO BOaTS Series D and E and BMO T1Ns – Series A will each be
automatically exchanged for 40 Class B non-cumulative preferred shares
of the bank, Series 11, 12 and 20, respectively, without the consent of
the holders on the occurrence of specific events, such as a wind-up of
the bank, a regulatory requirement to increase capital or violations of
regulatory capital requirements.
Note 19: Interest Rate Risk
We earn interest on interest bearing assets and we pay interest on Trading and underwriting (mark-to-market) assets and interest
interest bearing liabilities. We also have derivative instruments, such as bearing assets on which the customer interest rate changes with the
interest rate swaps and interest rate options, whose values are sensitive prime rate or other short-term market rates are reported in the zero to
to changes in interest rates. To the extent that we have assets, liabilities three months category.
and derivative instruments maturing or repricing at different points in Goodwill and intangible and fixed assets are reported as non-
time, we are exposed to interest rate risk. interest sensitive. Other fixed rate and non-interest bearing assets with
Interest Rate Gap Position
The determination of the interest rate sensitivity or gap position by
no defined maturity are reported based upon an assumed maturity
profile that considers historical and forecasted trends in balances.
necessity encompasses numerous assumptions. It is based on the earlier Liabilities
of the repricing date or maturity date of assets, liabilities and derivatives Fixed rate, fixed term liabilities, such as investment certificates, are
used to manage interest rate risk. reported at scheduled maturity with estimated redemptions that reflect
The gap position presented is as at October 31, 2013 and 2012. expected depositor behaviour.
It represents the position outstanding at the close of the business Interest bearing deposits on which the customer interest rate
day and may change significantly in subsequent periods based on changes with the prime rate or other short-term market rates are
customer behaviour and the application of our asset and liability reported in the zero to three months category.
management strategies. Fixed rate and non-interest bearing liabilities with no defined
The assumptions for the year ended October 31, 2013 were as follows: maturity are reported based upon an assumed maturity profile that
considers historical and forecasted trends in balances.
Assets
Fixed rate, fixed term assets, such as residential mortgage loans and
consumer loans, are reported based upon the scheduled repayments
Capital
Common shareholders’ equity is reported as non-interest sensitive.
and estimated prepayments that reflect expected borrower behaviour. Yields
Yields are based upon the effective interest rates for the assets or
liabilities on October 31, 2013.
Notes
BMO Financial Group 196th Annual Report 2013 161