Bank of Montreal 1998 Annual Report Download - page 83

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Loans
All loans are recorded at cost net of any unearned interest, unamor-
tized discounts and allowance for credit losses. Interest income is
recorded on an accrual basis except for impaired loans, the treatment
of which is described below. From time to time we will restructure a
loan due to the poor financial condition of the borrower. Interest on
these restructured loans is recorded on an accrual basis unless we
consider the loan to be impaired.
Securities purchased under resale agreements represent the amounts
we will receive as a result of our commitment to resell securities that
we have purchased, back to the original sellers, on a specified date at
a specified price. We account for these instruments as loans.
Loan Fees
Loan fees are received for a variety of reasons. The accounting treatment
for these fees varies depending on the transaction. The unrecognized
portion of all loan fees is included in other liabilities in our Consolidated
Balance Sheet. Loan syndication fees are included in other income
when we complete the syndication. Loan origination, restructuring,
renegotiation and commitment fees are recognized as interest income
over the term of the loan unless we believe that the loan commitment
we provide to our customer will not be used. In this case, we recog-
nize the loan commitment fee over the commitment period.
Impaired Loans
We classify loans, except credit card and consumer instalment loans,
as impaired when:
■we are unlikely to collect the principal or interest owed to us on a
timely basis; or
■the principal or interest payments are 90 days past due unless we
are actively trying to collect the loan and it is fully secured; or
■fully secured loans become 180 days past due; or
■we consider it prudent or appropriate to cease accruing interest on
the loan.
Credit card loans are immediately classified as impaired and written
off when principal or interest payments become 180 days past due.
Consumer instalment loans are immediately classified as impaired
when the principal or interest payments are 90 days past due and are
written off when they are past due by one year.
We do not accrue interest when we classify a loan as impaired
and any interest income that is accrued and unpaid is reversed to
interest
income.
Any payments received on a loan that has been classified as im-
paired are recorded first to recover any previous write-offs or allow-
ances before income is recognized. Any payments which we receive
on impaired credit card loans, consumer instalment loans and loans
to designated countries are applied first to the outstanding interest
and then to the remaining principal amount.
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 out-
standing 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.
75
BANK OF MONTREAL GROUP OF COMPANIES
Unrealized Gains and Losses 1998 19 97
Gross Gross Gross Gross
Book unrealized unrealized Market Book unrealized unrealized Market
value gains losses value value gains losses value
Investment Securities
Issued or guaranteed by:
Canadian federal government $ 1,848 $ 27 $ – $ 1,875 $ 2,897 $ 42 $ 1 $ 2,938
Canadian provincial and
municipal governments 302 22 – 324 304 30 – 334
U.S. federal government 2,988 87 – 3,075 2,814 3 14 2,803
U.S. states, municipalities and agencies 5,629 47 – 5,676 3,711 31 1 3,741
Designated countries 42 22 – 64 49 43 – 92
Other governments 177 – 2 175 149 18 – 167
Mortgage-backed securities and
collateralized mortgage obligations 2,852 50 – 2,902 2,276 34 1 2,309
Corporate debt 8,201 160 97 8,264 4,674 96 6 4,764
Corporate equity
Associated corporations 709 – 190 519 537 118 – 655
Other 1,565 33 12 1,586 1,158 64 2 1,220
Tot a l $ 24,313 $ 448 $ 301 $ 24,460 $ 18,569 $ 479 $ 25 $ 19,023
NOTE 5 LOANS
The market value of a security is based on the quoted market price at each year end. This price may not necessarily be what we would receive if we were to sell the security.
We use a variety of valuation techniques to estimate the market value when there is no readily available quoted market price for a particular security.