Bank of Montreal 1999 Annual Report Download - page 101

Bank of Montreal Group of Companies 1999 Annual Report 95
Set out below is a comparison of the amounts which would be reported if all of our financial instrument assets and liabilities were
reported at their fair values:
1999 1998
Fair value Fair value Fair value Fair value Fair value Fair value
Book of assets and of ALM over (under) Book of assets and of ALM over (under)
value liabilities derivatives book value value liabilities derivatives book value
Assets
Cash resources $ 24,036 $ 24,036 $ (10) $ (10) $ 19,730 $ 19,730 $ (233) $ (233)
Securities (note 3) 43,273 42,733 39 (501) 43,465 43,634
– 169
Loans 138,001 136,832 (66) (1,235) 129,691 129,856 344 509
Customers’ liability under acceptances 6,753 6,753
–– 6,944 6,944 ––
Other assets 16,324 16,324 –– 20,449 20,449 ––
228,387 226,678 (37) (1,746) 220,279 220,613 111 445
Liabilities
Deposits 156,874 156,710 (97) (261) 143,983 144,365 192 574
Acceptances 6,753 6,753
–– 6,944 6,944 ––
Securities sold but not yet purchased 10,450 10,450 –– 7,843 7,843 ––
Securities sold under repurchase agreements 24,177 24,177 –– 29,758 29,758 ––
Other liabilities 16,668 16,674 – 618,663 18,678 – 15
Subordinated debt 4,712 4,851 38 177 4,791 5,170 (22) 357
$ 219,634 $ 219,615 $ (59) $ (78) $ 211,982 $ 212,758 $ 170 $ 946
Total $ (1,668) $ (501)
ALM = asset/liability management derivatives which we use to manage the interest rate and
foreign exchange exposures arising from our on-balance sheet positions.
The following sets out the valuation methods and assumptions that we have used to
estimate fair values:
Due to the short-term nature of certain assets and liabilities, we believe that the book value
is comparable to the estimated fair value. These assets and liabilities include:
■Customers’ liability under acceptances
■Other assets
■Acceptances
■Securities sold but not yet purchased
■Securities sold under repurchase agreements
■Other liabilities, excluding liabilities of subsidiaries, other than deposits.
The fair values of loans are determined using a variety of valuation methods, depending on
the nature of the loan:
■Fair value of loans to and past due interest bonds of designated countries, as defined in
note 4, is based on quoted market rates;
■Fair value of performing loans is calculated by adjusting the original value of the loan for
changes in credit risk and interest rates since the time we granted the loan; and
■Fair value of impaired loans is equal to the book value which is calculated using the basis
of valuation described in notes 4 and 5.
The fair value of our deposits is determined by discounting the cash flows to be paid on the
deposits using market interest rates currently offered for similar deposits.
The fair value of our subordinated debt and liabilities of subsidiaries is determined by
referring to current market prices for similar debt instruments.
Our estimates of fair values are calculated based on our current pricing policy, the
economic and competitive environment and the characteristics of the financial instruments.
Our calculations are subjective in nature and require us to make significant assumptions.
Tax implications, if any, are excluded from the calculations.
Premises and equipment are not financial instruments and have
been excluded from our estimate of fair value. The net amounts
excluded totalled $2,228 as at October 31, 1999 and $2,311 as at
October 31, 1998.
Note 23 Reconciliation of Canadian and United States Generally Accepted Accounting Principles
We prepare our consolidated financial statements in accordance
with generally accepted accounting principles (referred to as
“GAAP”) in Canada, including the accounting requirements
of our regulator, the Superintendent of Financial Institutions
Canada. Set out below are the more significant differences which
would result if United States generally accepted accounting
principles were applied in the preparation of our consolidated
financial statements.
Note 22 Fair Value of Financial Instruments
Asafinancialinstitutionwerecordtradingassetsatmarketval-
ues and non-trading assets and liabilities at their original amor-
tized cost less allowances or write-downs for impairment. Fair
value is subjective in nature, requiring a variety of valuation
techniques and assumptions. The values are based upon the
estimated amounts for individual assets and liabilities and do
notincludeanestimateofthefairvalueofanyofourlegal enti-
ties or underlying operations that comprise our business.
Fair value amounts generally represent our estimate of the
amounts we could exchange the financial instruments for with
third parties who would be interested in acquiring the instru-
ments. In most cases, however, the financial instruments are
not typically exchangeable or exchanged and therefore it is
difficult to determine their fair value. In those cases, we have
estimated fair value assuming that we will not sell the assets or
liabilities, taking into account only changes in interest rates
and credit risk that have occurred since we acquired them or
entered into a contract.
Interest rate changes are the main cause of change in the fair
value of our financial instruments.