Bank of Montreal 2010 Annual Report Download - page 145

Notes
BMO Financial Group 193rd Annual Report 2010 143
Redemption date Conversion date
Distribution
Principal amount
per BOaTS(1)/ At the option At the option
(Canadian $ in millions, except Distribution) Distribution dates BMO T1Ns of the Trust of the holder 2010 2009
Capital Trust Securities
Series A June 30, December 31 34.52 Redeemed na – 350
Series B June 30, December 31 33.24 June 30, 2006 June 30, 2011 400 400
Series C June 30, December 31 33.43 December 31, 2006 June 30, 2012 400 400
800 1,150
Non-Controlling Interest
Series D June 30, December 31 27.37 (2) December 31, 2009 600 600
Series E June 30, December 31 23.17 (3) December 31, 2010 450 450
1,050 1,050
Total Capital Trust Securities 1,850 2,200
BMO T1Ns – Series A June 30, December 31 51.11 (4) December 31, 2013 450 450
(1) Distribution is paid on each trust security which has a par value of $1,000.
(2) After December 31, 2014, the distribution will be at the Bankers’ Acceptance Rate plus 1.5%.
(3) After December 31, 2015, the distribution will be at the Bankers’ Acceptance Rate plus 1.5%.
We earn interest on interest bearing assets and we pay interest on
interest bearing liabilities. We also have derivative instruments, such
as interest rate swaps and interest rate options, whose values are
sensitive to changes in interest rates. To the extent that we have assets,
liabilities and derivative instruments maturing or repricing at different
points in time, we are exposed to interest rate risk.
Interest Rate Gap Position
The determination of the interest rate sensitivity or gap position by
necessity encompasses numerous assumptions. It is based on the earlier
of the repricing date or maturity date of assets, liabilities and derivatives
used to manage interest rate risk.
The gap position presented is as at October 31 of each year.
It represents the position outstanding at the close of the business
day and may change significantly in subsequent periods based
on customer behaviour and the application of our asset and liability
management policies.
The assumptions for the year ended October 31, 2010 were as follows:
Assets
Fixed rate, fixed term assets, such as residential mortgage loans and
consumer loans, are reported based upon the scheduled repayments and
estimated prepayments that reflect expected borrower behaviour.
Conversion by the Holders
On or after the conversion dates indicated above, the BMO BOaTS Series B
and C may be exchanged for our Class B Preferred shares, Series 8
and 9, respectively, at the option of the holders. BMO BOaTS Series D, E
and BMO T1Ns cannot be converted at the option of the holder.
Automatic Exchange
The BMO BOaTS Series B, C, D, E and BMO T1Ns will each be automatically
exchanged for 40 of our Class B Preferred shares, Series 8, 9, 11, 12 and
20, respectively, without the consent of the holders on the occurrence
of specific events, such as a wind-up of Bank of Montreal, a regulatory
requirement to increase capital or violations of regulatory capital
requirements.
Note 19: Interest Rate Risk
Trading and underwriting (mark-to-market) assets and interest
bearing assets on which the customer interest rate changes with the
prime rate or other short-term market rates are reported in the zero to
three months category.
Goodwill and intangible and fixed assets are reported as non-interest
sensitive. Other fixed rate and non-interest bearing assets with no
defined maturity are reported based on an assumed maturity profile
that considers historical and forecasted trends in balances.
Liabilities
Fixed rate, fixed term liabilities, such as investment certificates, are
reported at scheduled maturity with estimated redemptions that reflect
expected depositor behaviour.
Interest bearing deposits on which the customer interest rate
changes with the prime rate or other short-term market rates are
reported in the zero to three months category.
Fixed rate and non-interest bearing liabilities with no defined
maturity are reported based on an assumed maturity profile that
considers historical and forecasted trends in balances.
Capital
Common shareholders’ equity is reported as non-interest sensitive.
Yields
Yields are based upon the effective interest rates for the assets or
liabilities on October 31, 2010.
(4) Starting on December 31, 2018 and on every fifth anniversary of such date thereafter until
December 31, 2103, the interest rate on the BMO Tier 1 Notes – Series A will be reset to an
interest rate per annum equal to the Government of Canada Yield plus 10.50%.
na – not applicable
Redemption by the Trust
On or after the redemption dates indicated above, and subject to the prior
approval of OSFI, the Trusts may redeem the securities in whole without
the consent of the holders.
During the year ended October 31, 2010, we redeemed all of our
BMO Capital Trust Securities – Series A (“BMO BOaTS – Series A”) at a
redemption amount equal to $1,000, representing an aggregate redemp -
tion of $350 million, plus unpaid indicated distributions.
On November 23, 2010, we also announced our intention to redeem
all of our BMO Capital Trust Securities – Series B (“BMO BOaTS – Series B”)
at a redemption amount equal to $1,000 , representing an aggregate
redemption of $400 million,
plus unpaid indicated distributions .