Bank of Montreal 2002 Annual Report Download - page 79

BMO FINANCIAL GROUP ANNUAL REPORT 2002 75
We use other off-balance sheet credit instruments as a method of
meeting the financial needs of our customers. Summarized below
are the types of instruments that we use:
▪Guarantees and standby letters of credit represent our obligation
to make payments to third parties on behalf of our customers if
our customers are unable to make the required payments or meet
other contractual requirements;
▪ Securities lending represents our credit exposure when we lend
our securities, or our customers’ securities, to third parties should
the securities borrower default on their redelivery obligation;
▪ Documentary and commercial letters of credit represent our
agreement to honour drafts presented by a third party upon com-
pletion of specific activities; and
▪ Commitments to extend credit represents our commitment to
our customers to grant them credit in the form of loans or other
financings for specific amounts and maturities, subject to meeting
certain conditions.
The contractual amount of our other credit instruments represents
the maximum undiscounted potential credit risk if the counter-
party does not perform according to the terms of the contract before
any amounts that could possibly be recovered under recourse or
collateralization provisions. A large majority of these commitments
expire without being drawn upon. As a result, the total contractual
amounts are not representative of the Bank’s likely credit exposure
or liquidity requirements for these commitments.
The risk-weighted equivalent values of our other credit instruments
are based on the rules for capital adequacy of the Superintendent of
Financial Institutions Canada. The risk-weighted equivalent value is
used in the ongoing assessment of our capital adequacy ratios.
The following table sets out the outstanding amounts that we have classified as impaired and the related allowances:
Impaired loans,
Gross impaired Specific net of specific
amount allowance allowance
2002 2001 2002 2001 2002 2001
Residential mortgages $ 124 $ 132 $ 5 $ 6 $ 119 $ 126
Consumer instalment and other personal loans 53 64 48 49 56
Business and government loans 2,160 1,818 760 755 1,400 1,063
Total $ 2,337 $ 2,014 $ 769 $ 769 $ 1,568 $ 1,245
The following table sets out the continuity of our allowance for credit losses:
Country risk
Specific allowance General allowance allowance (1) Total
2002 2001 2000 2002 2001 2000 2002 2001 2000 2002 2001 2000
Balance at beginning of year $ 769 $ 517 $ 372 $ 1,180 $ 1,080 $ 970 $ – $ – $85$ 1,949 $ 1,597 $ 1,427
Provision for credit losses 820 880 290 – 100 110 –– (42) 820 980 358
Recoveries 68 40 44 –––––– 68 40 44
Write-offs (884) (698) (206) ––––– (45) (884) (698) (251)
Other, including foreign exchange rate changes (4) 30 17 ––––– 2(4) 30 19
Balance at end of year $ 769 $ 769 $ 517 $ 1,180 $ 1,180 $ 1,080 $ – $ – $ – $ 1,949 $ 1,949 $ 1,597
Summarized below is information related to various commitments.
2002 2001
Contract Risk-weighted Contract Risk-weighted
amount equivalent amount equivalent
Credit Instruments
Guarantees and standby letters of credit $ 11,902 $ 8,251 $ 10,216 $ 6,841
Securities lending 580 38 584 319
Documentary and commercial letters of credit 642 84 588 63
Commitments to extend credit
Original maturity of one year and under 72,723
– 69,428 –
Original maturity of over one year 21,765 9,787 25,001 10,155
Total $ 107,612 $ 18,160 $ 105,817 $ 17,378
Commitments to extend credit in respect of consumer instalment and credit card loans are excluded as the lines are revocable at our discretion.
During the years ended October 31, 2002, 2001 and 2000, we would have recorded interest income of $172, $126 and $103, respectively, if
we had not classified any loans as impaired.
NOTE 5 Other Credit Instruments
Included in impaired loans are other real estate owned and securities received from customers in
satisfaction of their loans totalling $13 as at October 31, 2002 ($13 in 2001).
Fully secured loans with past due amounts between 90 and 180 days that we have not classified
as impaired totalled $49 as at October 31, 2002 ($36 in 2001).
(1) We did not have any impaired loans to designated countries as at October 31, 2002 and 2001.
Our average gross impaired loans and acceptances were $2,150 for the year ended October 31, 2002
($1,657 in 2001). Our average impaired loans, net of the specific allowance, were $1,351 for the year
ended October 31, 2002 ($1,198 in 2001).