Bank of Montreal 2014 Annual Report Download - page 124

Notes
Collective Allowance
We maintain a collective allowance in order to cover any impairment in
the existing portfolio for loans that have not yet been individually
identified as impaired. Our approach to establishing and maintaining the
collective allowance is based on the requirements of IFRS, considering
guidelines issued by our regulator, OSFI.
The collective allowance methodology incorporates both
quantitative and qualitative factors to determine an appropriate level for
the collective allowance. For the purpose of calculating the collective
allowance, we group loans on the basis of similarities in credit risk
characteristics. The loss factors for groups of loans are determined based
on a minimum of five years of historical data and a one-year loss
emergence period, except for credit cards, where a seven-month loss
emergence period is used. The loss factors are back-tested and
calibrated on a regular basis to ensure that they continue to reflect our
best estimate of losses that have been incurred but not yet identified,
on an individual basis, within the pools of loans. Historical loss
experience is also reviewed to determine loss factors. Qualitative factors
are based on current observable data such as current macroeconomic
and business conditions, portfolio-specific considerations, model risk
factors, and the level of impaired loans for which a specific allowance
has not yet been assessed.
Provision for Credit Losses (“PCL”)
Changes in the value of our loan portfolio due to credit-related losses or
recoveries of amounts previously provided for or written off are included
in the provision for credit losses in our Consolidated Statement of
Income.
Loans, including customers’ liability under acceptances and allowance for credit losses, by category are as follows:
(Canadian $ in millions) Residential mortgages (1)
Credit card, consumer
instalment and other
personal loans
Business and
government loans
Customers’ liability
under acceptances Total
2014 2013 2012 2014 2013 2012 2014 2013 2012 2014 2013 2012 2014 2013 2012
Gross loan balances at end of
year (3)
101,013 96,392 84,211 72,115 71,510 69,250 120,766 104,585 94,072 10,878 8,472 8,019 304,772 280,959 255,552
Impairment Allowances
(Specific ACL), beginning of
year 99 76 74 71 62 59 315 338 426 –––485 476 559
Amounts written off (87) (104) (173) (655) (750) (882) (407) (443) (538) –––(1,149) (1,297) (1,593)
Recoveries of amounts written off
in previous years 40 24 60 161 152 156 423 596 630 –––624 772 846
Charge to income statement
(Specific PCL) 77 129 132 519 618 742 (35) (150) (113) –––561 597 761
Foreign exchange and other
movements (16) (26) (17) (22) (11) (13) (59) (26) (67) ––– (97) (63) (97)
Specific ACL, end of year 113 99 76 74 71 62 237 315 338 –––424 485 476
Collective ACL, beginning of year 88 47 36 622 624 565 756 759 817 19 30 34 1,485 1,460 1,452
Charge to income statement
(Collective PCL) (8) 40 11 50 (4) 59 (50) (35) (63) 8(11) (4) –(10) 3
Foreign exchange and other
movements 31–62–48 32 5 ––– 57 35 5
Collective ACL, end of year 83 88 47 678 622 624 754 756 759 27 19 30 1,542 1,485 1,460
Total ACL 196 187 123 752 693 686 991 1,071 1,097 27 19 30 1,966 1,970 1,936
Comprised of: Loans 169 167 113 752 693 686 786 786 877 27 19 30 1,734 1,665 1,706
Other credit
instruments
(2) 27 20 10 –––205 285 220 –––232 305 230
Net loan balances at end of year 100,844 96,225 84,098 71,363 70,817 68,564 119,980 103,799 93,195 10,851 8,453 7,989 303,038 279,294 253,846
(1) Included in the residential mortgages balance are Canadian government and corporate-
insured mortgages of $58 billion as at October 31, 2014 ($52 billion in 2013).
(2) The total specific and collective allowances related to other credit instruments are included
in other liabilities.
(3) Included in loans as at October 31, 2014 are $95,269 million ($81,069 million in 2013 and
$72,904 million in 2012) of loans denominated in U.S. dollars and $1,039 million
($947 million in 2013 and $622 million in 2012) of loans denominated in other foreign
currencies.
Certain comparative figures have been reclassified to conform with the current year’s presentation and changes in accounting policies – see Note 1.
Loans, including customers’ liability under acceptances and allowance for credit losses, by geographic region are as follows:
(Canadian $ in millions) Gross amount
Specific
allowance (2)
Collective
allowance (3) Net amount
2014 2013 2014 2013 2014 2013 2014 2013
By geographic region (1):
Canada 213,490 203,496 191 244 766 726 212,533 202,526
United States 80,135 68,505 182 196 594 495 79,359 67,814
Other countries 11,147 8,958 14––11,146 8,954
Total 304,772 280,959 374 444 1,360 1,221 303,038 279,294
(1) Geographic region is based upon the country of ultimate risk.
(2) Excludes specific allowance of $50 million for other credit instruments ($41 million in 2013),
which is included in other liabilities.
(3) Excludes collective allowance of $182 million for other credit instruments ($264 million in
2013), which is included in other liabilities.
Certain comparative figures have been reclassified to conform with the current year’s presentation and changes in accounting policies – see Note 1.
BMO Financial Group 197th Annual Report 2014 137