Bank of Montreal 2013 Annual Report Download - page 170

Fair Value Hierarchy
We use a fair value hierarchy to categorize the inputs we use in market information as inputs (Level 3) in the valuation of securities, fair
valuation techniques to measure fair value. The extent of our use of value liabilities, derivative assets and derivative liabilities was as
quoted market prices (Level 1), internal models using observable market follows:
information as inputs (Level 2) and internal models without observable
(Canadian $ in millions) 2013 2012
Valued using Valued using Valued using Valued using
Valued using models (with models (without Valued using models (with models (without
quoted market observable observable quoted market observable observable
prices inputs) inputs) prices inputs) inputs)
Trading Securities
Issued or guaranteed by:
Canadian federal government 9,913 911 – 9,675 1,232 –
Canadian provincial and municipal governments 1,988 3,723 – 2,615 2,827 73
U.S. federal government 5,903 – – 7,052 – –
U.S. states, municipalities and agencies – 681 78 204 165 78
Other governments 132 4 – 521 – –
Mortgage-backed securities and collateralized mortgage obligations 165 487 – 361 777 372
Corporate debt 2,800 7,465 822 3,871 9,117 1,331
Corporate equity 28,073 12,014 – 19,822 10,016 –
48,974 25,285 900 44,121 24,134 1,854
Available-for-Sale Securities
Issued or guaranteed by:
Canadian federal government 13,111 4 – 17,277 – –
Canadian provincial and municipal governments 1,941 1,757 – 2,080 600 –
U.S. federal government 4,660 – – 10,099 – –
U.S. states, municipalities and agencies 3 5,388 1 85 4,368 9
Other governments 3,992 2,171 – 5,388 1,208 –
Mortgage-backed securities and collateralized mortgage obligations 1,901 6,904 – 3,140 3,068 –
Corporate debt 5,340 4,306 30 5,214 2,619 42
Corporate equity 460 149 949 106 137 942
31,408 20,679 980 43,389 12,000 993
Other Securities – – 488 128 – 526
Fair Value Liabilities
Securities sold but not yet purchased 20,024 2,422 – 22,729 710 –
Structured note liabilities and other note liabilities – 6,439 – – 5,896 –
Annuity liabilities – 329 – – 317 –
20,024 9,190 – 22,729 6,923 –
Derivative Assets
Interest rate contracts 7 22,215 – 7 38,180 3
Foreign exchange contracts 9 6,663 – 35 8,010 –
Commodity contracts 673 66 – 1,132 100 –
Equity contracts 16 520 – 20 342 5
Credit default swaps – 62 28 – 200 37
705 29,526 28 1,194 46,832 45
Derivative Liabilities
Interest rate contracts 8 21,516 – 7 37,037 20
Foreign exchange contracts 5 6,443 – 9 7,496 2
Commodity contracts 695 138 – 1,463 278 –
Equity contracts 70 2,997 – 78 2,146 44
Credit default swaps – 83 19 – 154 2
778 31,177 19 1,557 47,111 68
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Valuation Techniques and Significant Inputs
We determine the fair value of publicly traded fixed maturity and equity
securities using quoted market prices in active markets (Level 1) when
these are available. When quoted prices in active markets are not
available, we determine the fair value of financial instruments using
models such as discounted cash flows, with observable market data for
inputs such as yields and prepayment rates or broker quotes and other
third-party vendor quotes (Level 2). Fair value may also be determined
using models where significant market inputs are not observable due to
inactive or minimal market activity (Level 3). We maximize the use of
market inputs to the extent possible.
Our Level 2 trading securities are primarily valued using discounted
cash flow models with observable spreads or based on broker quotes.
The fair value of Level 2 available-for-sale securities is determined using
discounted cash flow models with observable spreads or third-party
vendor quotes. Level 2 structured note liabilities are valued using
models with observable market information. Level 2 derivative assets
and liabilities are valued using industry-standard models and observable
market information.
Sensitivity analysis at October 31, 2013 for the most significant
Level 3 instruments, that is securities which represent greater than 10%
of Level 3 instruments, is provided below.
We have no mortgage-backed securities or collateralized mortgage
obligations within Level 3 trading securities at October 31, 2013. The fair
value of these securities is determined by using benchmarking to similar
Notes
BMO Financial Group 196th Annual Report 2013 181