Bank of Montreal 2000 Annual Report Download - page 84

Notes to Consolidated Financial Statements
60 ■Bank of Montreal Group of Companies Annual Report 2000
Note 18 Related Party Transactions
Note 19 Risk Management
Note 20 Contingent Liabilities
We provide banking services to our joint ventures and equity-
accounted investments on the same terms that we offer to our cus-
tomers. 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
(a) Legal Proceedings
BMO Nesbitt Burns Inc., an indirect subsidiary of 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 allegations of negligence,
negligent or fraudulent misrepresentation and breaches of the
U.S. Securities Exchange Act of 1934, in connection with the sale of
Bre-X securities. All of the actions are at a very preliminary stage.
Based upon information presently available, counsel for BMO
Nesbitt Burns Inc. are not in a position to express an opinion as to
the likely outcome of any of these actions. Management 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 proceedings
in the ordinary course of their businesses. Management does not
expect the outcome of any of these other proceedings, individually
or in the aggregate, to have a material adverse effect on the consoli-
dated financial position or results of the Bank’s operations.
The amounts outstanding under these loan agreements are:
2000 1999
Mortgage loans $ 525 $ 664
Personal loans 362 351
Total $ 887 $ 1,015
and fair value of financial instruments are set out in the consolidated
financial statements. A summary of our interest rate gap position and
effectiveinterestratesonourfinancialinstrumentassetsandliabilities
is set out on page 74 of our Management Analysis of Operations.
(b) Pledged Assets
In the normal course of our business, we pledge assets as security
for various liabilities that we incur. We had pledged investment and
trading account securities and other assets totalling $32,425 as at Octo-
ber 31, 2000 and $36,772 as at October 31, 1999 as security for call loans,
securities sold but not yet purchased, securities sold under repur-
chase agreements and other secured liabilities. Additionally, we had
deposited assets in the amount of $560 as at October 31, 2000 and
$2,699 as at October 31, 1999 to act as security for our participation
in clearing and payment systems and as security for contract settle-
ments with derivatives exchanges or other derivative counterparties.
The following table summarizes our assets pledged:
2000 1999
Cash $ 67 $ 364
Securities
Issued or guaranteed by Canada 3,453 1,317
Issued or guaranteed by a Canadian province,
municipality or school corporation 505 1,037
Other liquid securities 13,066 12,398
Other assets 15,894 24,355
Total assets pledged $ 32,985 $ 39,471
Note: Excludes restricted cash resources disclosed in note 2.
Stock-Based Compensation Plans
We have a number of stock-based compensation plans for employees
which are discussed below. Compensation expense related to these
plans is included in salaries and employee benefits in our Consoli-
dated Statement of Income. In addition to these plans, we provide a
stock option plan for designated officers and employees. Information
on this plan is included in note 13.
Share Purchase Plan
We offer our employees the option of contributing a portion of their
gross salary toward the purchase of our shares. For employee con-
tributions up to 6% of gross pay, we match 50% of the contribution.
We account for the Bank’s contribution as compensation expense
when it is contributed to the plan. Compensation expense related to
this plan was $17 for the year ended October 31, 2000, $4 for the year
ended October 31, 1999 and $3 for the year ended October 31, 1998.
Mid-Term Incentive Program
Beginninginfiscal2000,weintroducedamid-termincentiveprogram
for executives. Under this plan, a cash bonus is paid at the end of
each three-year period based on performance targets driven by
annualized total shareholder return compared with that of our
competitors. Compensation expense for this plan is recorded over
the three-year performance cycle for the plan. The amount of com-
pensation expense is adjusted over the three-year performance cycle
to reflect the current market prices of our common shares and those
of our competitors. There was no compensation expense related to
this plan for the year ended October 31, 2000.
Deferred Bonus Plans
Beginning in fiscal 2000, we introduced deferred bonus plans for
certain senior executives and certain key employees in our Investment
Banking Group. Under these plans, payment of annual bonuses can
be deferred as stock units of our common shares. The amount of
deferred bonus is adjusted to reflect dividends and changes in the
market value of our common shares. Deferred bonuses for senior
executives are paid when the executive retires or resigns, and may
be paid in cash, common shares or a combination of both. Deferred
bonuses for employees are paid out evenly in cash at the end of
each year over the three years following the year in which the bonus
is earned. Compensation expense for these plans is recorded in
the year the bonus is earned. Changes in the amount of the bonus
payable as a result of dividends and share price movements are
recognized as compensation expense in the period of the change.
Compensation expense related to these plans was $3 for the year
ended October 31, 2000.