Bank of Montreal 1997 Annual Report Download - page 80

Fully secured loans with past due amounts between 90 and
180 days that we have not classified as impaired totalled $54 as
at October 31, 1997 and $31 as at October 31, 1996.
During the current year we restructured $1 of loans classified
as performing. In the prior year, we restructured $27 of loans
of which $26 were classified as impaired as at October 31, 1996.
We wrote off $2 of restructured loans in the current year
(1996 – $ nil).
Bank of Montreal 180th Annual Report 1997
74
Any property or other assets that we receive from our borrowers to satisfy
their loan commitments to us are classified as impaired and recorded at
the lower of the amount we expect to recover and the outstanding balance
of the loan at the time the customer transfers the asset to us.
A loan will be reclassified back to performing status if new circum-
stances arise that cause us to believe that our principal and interest will
be recovered in a timely manner from the borrower.
The following table sets out the outstanding amounts that we have classified as impaired:
Canada U.S.A. Mexico Other countries Total
1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
Residential mortgages $103 $ 131 $ – $ – $ – $ – $ – $ – $103 $ 131
Consumer instalment and other personal loans 24 31 66––––30 37
Credit card loans 35––––––35
Loans to businesses and governments 388 572 248 583 ––58641 1,163
Securities purchased under resale agreements ––––––––––
Securities of designated countries ––––––––––
Loan substitute securities –3–––––––3
Acceptances 10 58 ––––––10 58
Total impaired loans and acceptances 528 800 254 589 ––58787 1,397
Allowance for credit losses (894) (735) (246) (290) ––(5) (8) (1,145) (1,033)
Total net impaired loans and acceptances $ (366) $ 65 $ 8 $ 299 $ – $ – $ – $ – $ (358) $ 364
Average net impaired loans and acceptances $ (129) $ 184 $ 143 $ 419 $ – $ – $ – $ – $14 $ 603
Canada U.S.A. Mexico Other countries Total
1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1996 1995
Gross interest income received on
impaired loans and acceptances $ 54 $ 42 $ 32 $ 90 $ 20 $ 8 $ – $ – $ – $ 60 $ 35 $ 35 $ 204 $ 97 $ 75
Interest income received on
impaired loans and acceptances,
net of interest reversals $ 39 $ 25 $ 20 $ 90 $ 19 $ 2 $ – $ – $ – $ 60 $ 35 $ 35 $ 189 $ 79 $ 57
The provision for credit losses is recorded in the Consolidated Statement
of Income. It is based on statistical analysis and management judgement
and represents the appropriate expense given the composition of our credit
portfolios, their probability of default, the economic environment and the
allowance for credit losses already established.
The allowance for credit losses recorded in the Consolidated Balance
Sheet is maintained at a level which we consider to be adequate to
absorb
potential credit losses in our on- and off-balance sheet portfolios.
We maintain the following allowances:
Specific Allowances
These allowances are recorded for specific loans to reduce their book value
to the amount we expect to recover from the loans. We review our loans and
acceptances, other than consumer instalment and credit card loans, on a
quarterly basis to assess whether the loan should be classified as impaired
and an allowance or write-off recorded. Our quarterly review process is
conducted by our account managers who assess the ultimate collectibility
and estimated recoveries on a specific loan based on all events and
conditions that the manager believes are relevant to the condition of the
loan. This assessment is then reviewed and approved by an independent
credit
officer. Significant specific allowances and the aggregate
allowance
for credit losses are reviewed by the Risk Management Policy
unit at Head Office, which is independent from the credit function.
An independent corporate audit group also reviews loans on a sample
basis throughout the year to assess the need for specific allowances.
We use a variety of methods to determine the amount we expect to
recover from impaired loans including the discounted value of estimated
future cash flows, observable market values or the fair value of the
underlying security discounted to what we expect to receive if we were
to sell the security. The value of any collateral is also considered in
establishing an allowance. Collateral can vary by type of loan and may
include cash, securities, real property, accounts receivable, guaran-
tees, inventory or other capital assets.
Note 5 Allowance for Credit Losses
banks. We did not have any net impaired loans to designated countries as at October 31,
1997 or October 31, 1996.
Approximately 2% of the gross exposure to designated countries was classified as
impaired as at October 31, 1997 and October 31, 1996.
The allowance for credit losses as at October 31, 1997 is net of $93 (1996 – $108)
of
country risk allowance that is in excess of gross impaired loans to designated countries.
The interest income that we would have recognized over the
last three years if we had not classified loans as impaired is:
1997 1996 1995
Interest income that would have been
accrued at original contract rates $ 68 $ 128 $ 174
Less: amount recognized as interest income (43) (8) (18)
Total $ 25 $ 120 $ 156
Included in impaired loans is other real estate owned and securities received from
customers in satisfaction of their loans totalling $55 as at October 31, 1997 and $133
as at October 31, 1996.
Designated countries are determined by the Superintendent of Financial Institutions
Canada as having difficulty in servicing all or part of their external debt to commercial