Bank of Montreal 2014 Annual Report Download - page 58

MD&A
Outstanding Shares and Securities Convertible
into Common Shares
Number of shares
or dollar amount
(in millions)
Dividends declared per share
As at November 26, 2014 2014 2013 2012
Common shares 649 $3.08 $2.94 $2.82
Class B Preferred shares
Series 5 (1) ––$0.33 $1.33
Series 13 $ 350 $1.13 $1.13 $1.13
Series 14 $ 250 $1.31 $1.31 $1.31
Series 15 $ 250 $1.45 $1.45 $1.45
Series 16 (2) $ 157 $0.85 $1.19 $1.30
Series 17 (2) $ 143 $0.64 $0.17 –
Series 18 (3) –$0.41 $1.63 $1.63
Series 21 (4) –$0.81 $1.63 $1.63
Series 23 $ 400 $1.35 $1.35 $1.35
Series 25 $ 290 $0.98 $0.98 $0.98
Series 27 $ 500 $0.59 ––
Series 29 $ 400 $0.46 ––
Series 31 $ 300 $0.31 ––
Convertible into common shares:
Class B Preferred shares (in US$)
Series 10 (US$) (5) ––– US$0.37
Medium-Term Notes
Series H (6) $1,000 na na na
Stock options
– vested 6.6
– non-vested 6.7
(1) Redeemed in February 2013.
(2) In August 2013, approximately 5.7 million Series 16 Preferred shares were converted into
Series 17 Preferred shares on a one-for-one basis.
(3) Redeemed in February 2014.
(4) Redeemed in May 2014.
(5) Redeemed in February 2012.
(6) Note 17 on page 158 of the financial statements includes details on the Series H Medium-
Term Notes, Tranche 1.
na – not applicable
Note 20 on page 161 of the financial statements includes details on share capital.
Dividends
Dividends declared per common share in fiscal 2014 totalled $3.08.
Annual dividends declared represented 47.6% of reported net income
and 46.6% of adjusted net income available to common shareholders on
a last twelve months basis. Over the long term, BMO’s dividends are
generally increased in line with trends in earnings per share growth.
Our target dividend payout range (common share dividends as a
percentage of net income available to shareholders, less preferred share
dividends, based on adjusted earnings over the last twelve months) is
40% to 50%, which is consistent with our objective of maintaining flexi-
bility to execute on our growth strategies, and takes into consideration
the higher capital expectations resulting from the Basel III rules. BMO’s
target dividend payout range seeks to provide shareholders with stable
income, while ensuring sufficient earnings are retained to support
anticipated business growth, fund strategic investments and provide
continued support for depositors.
At year end, BMO’s common shares provided a 3.8% annual divi-
dend yield based on the year-end closing share price and dividends
declared in the last four quarters. On December 2, 2014, BMO
announced that the Board of Directors had declared a quarterly dividend
on common shares of $0.80 per share, up $0.02 per share or 3% from
the prior quarter and up $0.04 per share or 5% from a year ago. The
dividend is payable on February 26, 2015 to shareholders of record on
February 2, 2015.
Common shareholders may elect to have their cash dividends
reinvested in common shares of BMO in accordance with the DRIP. In
the first two quarters of 2014, common shares to supply the DRIP were
purchased on the open market. In the third quarter of 2014, common
shares for the DRIP were issued from treasury without discount and in
the fourth quarter of 2014, common shares to supply the DRIP were
issued from treasury at a 2% discount from their then-current market
price. In the first quarter of 2015, common shares for the DRIP were
issued from treasury without discount.
Eligible Dividends Designation
For the purposes of the Income Tax Act (Canada) and any similar provin-
cial and territorial legislation, BMO designates all dividends paid or
deemed to be paid on both its common and preferred shares as
“eligible dividends”, unless indicated otherwise.
Caution
This Enterprise-Wide Capital Management section contains forward-looking statements.
Please see the Caution Regarding Forward-Looking Statements.
Adjusted results in this section are non-GAAP and are discussed in the Non-GAAP Measures section on page 32.
Select Financial Instruments
The Financial Stability Board (FSB) issued a report in 2012 encouraging
enhanced disclosure related to financial instruments that market partic-
ipants had come to regard as carrying higher risk. An index of where the
disclosures recommended by the Enhanced Disclosure Task Force of the
FSB are located is provided on page 75.
Caution
Given continued uncertainty in the capital markets environment, our
capital markets instruments could experience valuation gains and losses
due to changes in market value. This section, Select Financial Instru-
ments, contains forward-looking statements. Please see the Caution
Regarding Forward-Looking Statements on page 29.
Consumer Loans
In Canada, our Consumer Lending portfolio is comprised of three main
asset classes: residential mortgages, instalment/other personal loans,
including indirect auto loans, and credit card loans. We do not have any
subprime or Alt-A mortgage or home equity loan programs, nor do we
purchase subprime or Alt-A loans from third party lenders.
In the United States, the Consumer Lending portfolio is primarily
comprised of three asset classes: residential first mortgages, home
equity products and indirect automobile loans. We have a small portfolio
of first mortgage and home equity loans outstanding that had subprime
or Alt-A characteristics at the date of authorization (e.g., low credit score
or limited documentation). These programs have been discontinued.
Balances outstanding and amounts in arrears 90 days or more at year
end were not significant.
In both Canada and the United States, consumer lending products
are underwritten to prudent standards relative to credit scores, loan-to-
value ratios, and capacity assessment, and are generally based upon
documented and verifiable income.
Leveraged Finance
Leveraged finance loans are defined by BMO as loans to private equity
businesses and mezzanine financings where our assessment indicates a
higher level of credit risk. BMO has exposure to leveraged finance loans,
which represent 1.4% of our total assets, with $8.5 billion outstanding
at October 31, 2014, up approximately $2.0 billion from a year ago. Of
this amount, $179 million or 2.1% of leveraged finance loans were
classified as impaired ($82 million or 1.3% in 2013).
BMO-Sponsored Securitization Vehicles
BMO sponsors various vehicles that fund assets originated by either
BMO (through a bank securitization vehicle) or its customers (several
Canadian customer securitization vehicles and one U.S. customer
securitization vehicle). We earn fees for providing services related to the
customer securitization vehicles, including liquidity, distribution and
financial arrangement fees for supporting the ongoing operations of the
vehicles. These fees totalled approximately $66 million in 2014 and
$53 million in 2013.
BMO Financial Group 197th Annual Report 2014 69