Bank of Montreal 1998 Annual Report Download - page 82

All of our investment securities, other than our investment in our
associated corporations, are available for sale.
Interest income and gains and losses from securities are:
1998 19 97 199 6
Reported in:
Interest, dividend and fee income
Investment securities $ 1,255 $ 1,118 $ 1,165
Associated corporations 389 55
Trading securities 1,337 937 904
$ 2,595 $ 2,144 $ 2,124
Other Income
Investment securities
Gross realized gains $ 121 $ 68 $ 85
Gross realized losses (24) (16) (14)
Net realized gains $ 97 $ 52 $ 71
Trading securities, net realized
and unrealized gains (losses) $ (93) $ 169 $ 121
Interest expense is not included in the amounts shown above.
Securities are divided into three components, each with a different
purpose and accounting treatment. The three types of securities we
hold are as follows:
■Investment securities are comprised of equity and debt securities
that we purchase with the intention of holding until maturity or
until market conditions, such as a change in interest rates, provide
us with a better investment opportunity. Equity securities are
recorded at cost and debt securities at amortized cost. Securities
are written down to their fair value when we identify a long-term
permanent decline in value. Any write-downs or gains and losses
on disposal of our investment securities are recorded in the year
they occur and are included in our Consolidated Statement of
Income as either an increase or decrease in other income. Gains
and losses on disposal are calculated using the average cost of the
securities sold. Investment securities of designated countries are
accounted for in accordance with our accounting policy for loans
which is described in note 5.
■Trading securities are securities that we purchase for resale over a
short period of time. We report these securities at their market value
and record the mark-to-market adjustments and any gains and
losses on the sale of these securities in our Consolidated Statement
of Income in other income.
■Loan substitute securities are customer financings, such as dis-
tressed preferred shares, that we structure as after-tax investments
to provide our customers with an interest rate advantage over what
would otherwise be applicable on a conventional loan. We record
these securities on the same basis as a loan as described in note 5.
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BANK OF MONTREAL GROUP OF COMPANIES
Ter m t o m a t ur i t y 1998 19 97
Within 1 to 3 3 to 5 5 to 10 Over 10 Total book Total book
1 year years years years years value value
Investment Securities Yield Yield Yield Yield Yield Yield
Issued or guaranteed by: %%%%%%
Canadian federal government $ 1,536 4.83 $ 192 4.88 $ 24 4.85 $ 96 4.88 $ – – $ 1,848 4.84 $ 2,897
Canadian provincial and
municipal governments 120 5.59 150 5.21 32 5.09 – – – – 302 5.35 304
U.S. federal government 1,015 5.20 1,373 5.69 6 6.37 594 5.82 – – 2,988 5.55 2,814
U.S. states, municipalities
and agencies 3,154 5.75 658 6.86 1,013 6.34 502 7.03 302 7.51 5,629 6.19 3,711
Designated countries – – – – – – – – 42 22.95 42 22.95 49
Other governments 6 3.66 12 5.88 9 6.05 3 6.15 147 8.33 177 7.85 149
Mortgage-backed securities and
collateralized mortgage obligations – – 250 6.64 – – – – 2,602 6.68 2,852 6.68 2,276
Corporate debt 738 5.64 718 5.97 918 7.14 4,363 6.95 1,464 8.63 8,201 7.07 4,674
Corporate equity
Associated corporations –– –– –– –– 709– 709– 537
Other 128 10.33 282 9.34 510 9.25 276 7.99 369 1.56 1,565 7.32 1,158
Total investment securities 6,697 5.53 3,635 6.24 2,512 7.19 5,834 6.86 5,635 6.22 24,313 6.29 18,569
Trading Securities
Issued or guaranteed by:
Canadian federal government 1,113 740 586 1,012 840 4,291 11,599
Canadian provincial and
municipal governments 274 378 122 267 504 1,545 1,427
U.S. federal government 945 951 1,712 275 465 4,348 3,651
U.S. states, municipalities
and agencies –––97–97208
All other 6,108 479 234 647 1,042 8,510 5,972
Total trading securities 8,440 2,548 2,654 2,298 2,851 18,791 22,857
Loan Substitute Securities 251110–––361363
Total Securities $ 15,388 $ 6,293 $ 5,166 $ 8,132 $ 8,486 $ 43,465 $ 41,789
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 SECURITIES
Yields in the table above are calculated using the book value of the security and the
contractual interest or stated dividend rates associated with each security adjusted for
any amortization of premiums and discounts and any country risk provision associated
with a particular security. Tax effects are not taken into consideration.
Securities of designated countries include any securities that we receive as part
of a debt restructuring by a foreign country. They are recorded net of any country risk
allowance (note 6) that we have allocated to these securities.
The term to maturity included in the table above is based on the contractual
maturity date of the security. Securities with no maturity date are included in the
over 10 years category.
We did not own any securities issued by a single non-government entity where the
book value, as at year end or the prior year end, was greater than 10% of our share-
holders’ equity.