Bank of Montreal 2014 Annual Report Download - page 125

Notes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impaired loans, including the related allowances, are as follows:
(Canadian $ in millions) Gross impaired amount Specific allowance (3) Net of specific allowance
2014 2013 2014 2013 2014 2013
Residential mortgages 532 595 86 79 446 516
Consumer instalment and other personal loans 544 455 74 71 470 384
Business and government loans 972 1,494 214 294 758 1,200
Total (1) 2,048 2,544 374 444 1,674 2,100
By geographic region (2):
Canada 742 754 191 244 551 510
United States 1,301 1,783 182 196 1,119 1,587
Other countries 571443
Total 2,048 2,544 374 444 1,674 2,100
(1) Excludes purchased credit impaired loans.
(2) Geographic region is based upon the country of ultimate risk.
(3) Excludes specific allowance of $50 million for other credit instruments ($41 million in 2013),
which is included in other liabilities.
Fully secured loans with past due amounts between 90 and 180 days that we have not
classified as impaired totalled $134 million and $256 million as at October 31, 2014 and 2013,
respectively.
Specific provisions for credit losses by geographic region are as follows:
(Canadian $ in millions) Residential mortgages
Credit card, consumer
instalment and other
personal loans
Business and
government loans (2) Total
For the year ended October 31 2014 2013 2014 2013 2014 2013 2014 2013
By geographic region (1):
Canada 12 4410 431 107 133 529 568
United States 65 125 109 187 (140) (281) 34 31
Other countries ––––(2) (2) (2) (2)
Total 77 129 519 618 (35) (150) 561 597
(1) Geographic region is based upon the country of ultimate risk.
(2) Includes provisions relating to customers’ liability under acceptances in the amount of $nil and $nil as at October 31, 2014 and 2013, respectively.
Foreclosed Assets
Property or other assets that we have received from borrowers to satisfy
their loan commitments are classified as either held for use or held for
sale according to management’s intention and are recorded at the lower
of carrying amount or fair value less costs to sell. Fair value is
determined based on market prices where available. Otherwise, fair
value is determined using other methods, such as analysis of discounted
cash flows or market prices for similar assets.
During the year ended October 31, 2014, we foreclosed on impaired
loans and received $225 million of real estate properties that we
classified as held for sale ($301 million in 2013).
As at October 31, 2014, real estate properties held for sale totalled
$199 million ($278 million in 2013). These properties are disposed of
when considered appropriate. During the year ended October 31, 2014,
we recorded an impairment loss of $34 million on real estate properties
classified as held for sale ($36 million in 2013).
Renegotiated Loans
From time to time we modify the contractual terms of loans due to the
poor financial condition of the borrower. We assess renegotiated loans
for impairment consistent with our existing policies for impairment.
When renegotiation leads to significant concessionary modifications to
the contractual terms of the loan and the concessions are for economic
or legal reasons related to the borrower’s financial difficulty that we
would not otherwise consider, the loan is classified as impaired. We
consider one or a combination of the following to be significant
concessions: (1) a reduction of the stated interest rate, (2) an extension
of the maturity date or dates at a stated interest rate lower than the
current market rate for a new loan with a similar term, or
(3) forgiveness of principal or accrued interest.
Renegotiated loans are permitted to remain in performing status if
the modifications are not considered to be significant concessions or are
returned to performing status when none of the criteria for classification
as impaired continue to apply.
The carrying value of our renegotiated loans was $728 million as
at October 31, 2014 ($388 million in 2013). Renegotiated loans of
$291 million were classified as performing during the year ended
October 31, 2014 ($155 million in 2013). Renegotiated loans of
$25 million and $59 million were written off in the years ended
October 31, 2014 and 2013, respectively.
Purchased Loans
We record all loans that we purchase at fair value on the day that we
acquire the loans. The fair value of the acquired loan portfolio includes
an estimate of the interest rate premium or discount on the loans
calculated as the difference between the contractual rate of interest on
the loans and prevailing interest rates (the “interest rate mark”). Also
included in fair value is an estimate of expected credit losses (the
“credit mark”) as of the acquisition date. The credit mark consists of two
components: an estimate of the amount of losses that exist in the
acquired loan portfolio on the acquisition date but that haven’t been
specifically identified on that date (the “incurred credit mark”) and an
amount that represents future expected losses (the “future credit
mark”). Because we record the loans at fair value, no allowance for
credit losses is recorded in our Consolidated Balance Sheet on the day
we acquire the loans. Fair value is determined by estimating the
principal and interest cash flows expected to be collected on the loans
and discounting those cash flows at a market rate of interest. We
estimate cash flows expected to be collected based on specific loan
reviews for commercial loans. For retail loans, we use models that
incorporate management’s best estimate of current key assumptions
such as default rates, loss severity and the timing of prepayments, as
well as collateral.
Acquired loans are classified into the following categories: those
that on the acquisition date we expect to continue to make timely
principal and interest payments (the “purchased performing loans”) and
those for which on the acquisition date the timely collection of interest
and principal was no longer reasonably assured (the “purchased credit
impaired loans” or “PCI loans”). Because PCI loans are recorded at fair
value at acquisition based on the amount expected to be collected, none
of the PCI loans are considered to be impaired at acquisition.
138 BMO Financial Group 197th Annual Report 2014