Bank of Montreal 1999 Annual Report Download - page 86

Notes to Consolidated Financial Statements
80 Bank of Montreal Group of Companies 1999 Annual Report
Unrealized Gains and Losses 1999 1998
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 $ 2,151 $ 13 $ 3 $ 2,161 $ 1,848 $ 27 $
– $ 1,875
Canadian provincial and
municipal governments 205 11
– 216 302 22 – 324
U.S. federal government 4,575 1 58 4,518 2,988 87
– 3,075
U.S. states, municipalities and agencies 6,175 4 39 6,140 5,629 47
– 5,676
Designated countries 29 16
– 45 42 22 – 64
Other governments 246 11 1 256 177
– 2 175
Mortgage-backed securities and
collateralized mortgage obligations 3,523
– 175 3,348 2,852 50 – 2,902
Corporate debt 6,367 50 153 6,264 8,201 160 97 8,264
Corporate equity
Associated corporations 856
– 226 630 709 – 190 519
Other 1,900 54 45 1,909 1,565 33 12 1,586
Total $ 26,027 $ 160 $ 700 $ 25,487 $ 24,313 $ 448 $ 301 $ 24,460
Note 4 Loans
Loans
All loans are recorded at cost net of any unearned interest, unamortized
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 restruc-
tured 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, renegotia-
tion and commitment fees are recognized as interest income over the
term of the loan unless we believe that the loan commitment we pro-
vide to our customer will not be used. In this case, we recognize 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.
The interest income that we would have recognized over the
past three years if we had not classified loans as impaired is:
1999 1998 1997
Interest income that would have been
accrued at original contract rates $ 50 $ 51 $ 68
Less: amount recognized as interest income (5) (8) (43)
Total $ 45 $ 43 $ 25
Any payments received on a loan that has been classified as impaired
are recorded first to recover any previous write-offs or allowances
before income is recognized. Any payments that we receive on impaired
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 which cause us to believe that our principal and interest
will be recovered in a timely manner from the borrower.
We restructured $3 of loans classified as performing in the year
ended October 31, 1999. No such restructurings occurred in the
year ended October 31, 1998.
No restructured loans were written off in the years ended
October 31, 1999 and 1998.
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.