Bank of Montreal 2014 Annual Report Download - page 147

Notes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19: Interest Rate Risk
We earn interest on interest bearing assets and we pay interest on
interest bearing liabilities. We also hold derivative instruments, such as
interest rate swaps and interest rate options, with values that are
sensitive to changes in interest rates. To the extent that we hold assets,
liabilities and derivative instruments maturing or repricing at different
points in time, we are exposed to interest rate risk.
Interest Rate Gap Position
The determination of the interest rate sensitivity or gap position by
necessity entails numerous assumptions. It is based on the earlier of the
repricing date or maturity date of assets, liabilities and derivatives used
to manage interest rate risk.
The gap position presented is as at October 31, 2014 and 2013.
It represents the position outstanding at the close of the business
day and may change significantly in subsequent periods based on
customer behaviour and the application of our asset and liability
management strategies.
The assumptions for the years ended October 31, 2014 and 2013 were
as follows:
Assets
Fixed rate, fixed term assets, such as residential mortgage loans and
consumer loans, are reported based upon the scheduled repayments
and estimated prepayments that reflect expected borrower behaviour.
Trading and underwriting (mark-to-market) assets and interest
bearing assets on which the customer interest rate changes with the
prime rate or other short-term market rates are reported in the zero to
three months category.
Goodwill and intangible and fixed assets are reported as non-
interest sensitive. Other fixed rate and non-interest bearing assets with
no defined maturity are reported based upon an assumed maturity
profile that considers historical and forecasted trends in balances.
Liabilities
Fixed rate, fixed term liabilities, such as investment certificates, are
reported at scheduled maturity with estimated redemptions that reflect
expected depositor behaviour.
Interest bearing deposits on which the customer interest rate
changes with the prime rate or other short-term market rates are
reported in the zero to three months category.
Fixed rate and non-interest bearing liabilities with no defined
maturity are reported based upon an assumed maturity profile that
considers historical and forecasted trends in balances.
Capital
Common shareholders’ equity is reported as non-interest sensitive.
Yields
Yields are based upon the effective interest rates for the assets or
liabilities on October 31, 2014 and 2013.
Interest Rate Gap Position
(Canadian $ in millions, except as noted)
As at October 31
0to3
months
4to6
months
7to12
months
Total
within
1 year
Effective
interest
rate (%)
1to5
years
Effective
interest
rate (%)
Over 5
years
Effective
interest
rate (%)
Non-
interest
sensitive Total
Assets
Cash and cash equivalents 27,328 532 134 27,994 1.21 1,377 1.02 (27) – (958) 28,386
Interest bearing deposits with banks 6,110 – – 6,110 0.78 – – – – – 6,110
Securities 104,642 1,033 2,636 108,311 1.45 23,217 2.23 10,726 3.94 1,065 143,319
Securities borrowed or purchased under resale
agreements 49,530 2,272 1,619 53,421 1.72 134 – – – – 53,555
Loans 166,542 13,033 21,899 201,474 3.31 85,621 4.06 5,065 4.56 10,878 303,038
Other assets 33,896 468 1,021 35,385 na 8,511 na 351 na 10,004 54,251
Total assets 388,048 17,338 27,309 432,695 118,860 16,115 – 20,989 588,659
Liabilities and Equity
Deposits 215,909 21,861 20,729 258,499 0.73 119,737 1.10 14,852 2.23 – 393,088
Securities sold but not yet purchased 27,348 – – 27,348 1.48 – – – – – 27,348
Securities lent or sold under repurchase
agreements 39,695 – – 39,695 0.68 – – – – – 39,695
Other liabilities 46,873 1,899 2,175 50,947 na 15,615 na 9,603 na 12,046 88,211
Subordinated debt, capital trust securities and
preferred share liability 63 500 – 563 – 4,200 – 150 – – 4,913
Total equity 767 400 – 1,167 – 2,647 – 300 – 31,290 35,404
Total liabilities and shareholders’ equity 330,655 24,660 22,904 378,219 142,199 24,905 43,336 588,659
Asset/liability gap position 57,393 (7,322) 4,405 54,476 (23,339) (8,790) (22,347) –
Notional amounts of derivatives (51,285) (2,183) 1,687 (51,781) 44,786 6,995 – –
Total interest rate gap position - 2014
Canadian dollar 3,934 (5,433) 6,672 5,173 16,048 2,082 (23,303) –
Foreign currency 2,174 (4,072) (580) (2,478) 5,399 (3,877) 956 –
Total Gap 6,108 (9,505) 6,092 2,695 – 21,447 – (1,795) – (22,347) –
Total interest rate gap position - 2013
Canadian dollar 3,165 (3,706) 4,876 4,335 15,636 1,442 (21,413) –
Foreign currency (2,189) 940 507 (742) 15 (325) 1,052 –
Total Gap 976 (2,766) 5,383 3,593 – 15,651 – 1,117 – (20,361) –
na - not applicable
160 BMO Financial Group 197th Annual Report 2014