Bank of Montreal 1998 Annual Report Download - page 84

Fully secured loans with past due amounts between 90 and 180
days that we have not classified as impaired totalled $44 as at
October 31, 1998 and $54 as at October 31, 1997.
During the current year, we did not restructure any loans classi-
fied as performing. In the prior year, we restructured $1 of loans
classified as performing. We did not write off any restructured
loans in the current year, and we wrote off $2 of restructured loans
in the prior year.
The interest income that we would have recognized over the past
three years if we had not classified loans as impaired is:
1998 19 97 199 6
Interest income that would have been
accrued at original contract rates $ 51 $ 68 $ 128
Less: amount recognized
as interest income (8) (43) (8)
To t a l $ 43 $ 25 $ 120
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BANK OF MONTREAL GROUP OF COMPANIES
The following table sets out the outstanding amounts that we have classified as impaired:
Canada United States Mexico Other countries Total
1998 19 97 1998 19 97 19 98 19 97 19 98 19 97 19 98 19 97
Residential mortgages $ 109 $ 103 $ – $ – $– $ – $– $ – $ 109 $ 103
Consumer instalment
and other personal loans 33 24 56––––38 30
Credit card loans 53––––––53
Loans to businesses and governments 361 388 221 248 ––90 5672 641
Securities purchased
under resale agreements ––––––––––
Securities of designated countries ––––––––––
Loan substitute securities ––––––––––
Acceptances –10 –––––––10
Total impaired loans and acceptances 508 528 226 254 ––90 5824 787
Allowance for credit losses (868) (894) (268) (246) ––(30) (5) (1,166) (1,145)
Total net impaired loans
and acceptances $ (360) $ (366) $ (42) $ 8 $– $ – $60 $ – $ (342) $ (358)
Average net impaired loans
and acceptances $ (350) $ (129) $ (45) $ 143 $– $ – $20 $ – $ (375) $ 14
Average gross impaired loans
and acceptances $ 543 $ 688 $ 200 $ 414 $– $ – $34 $ 6 $ 777 $ 1,108
Canada United States Mexico Other countries Total
1998 19 97 19 9 6 1998 19 97 19 9 6 1998 1997 19 96 19 98 19 97 199 6 1998 1997 199 6
Gross interest income
received on impaired loans
and acceptances $ 23 $ 54 $ 42 $ 41 $ 90 $ 20 $ – $ – $ – $ 15 $ 60 $ 35 $ 79 $ 204 $ 97
Interest income received
on impaired loans and
acceptances, net of
interest reversals $ 5 $ 39 $ 25 $ 40 $ 90 $ 19 $ – $ – $ – $ 15 $ 60 $ 35 $ 60 $ 189 $ 79
The provision for credit losses is recorded in our Consolidated State-
ment of Income. It is based on statistical analysis and management
judgement and represents the appropriate expense given the compo-
sition of our credit portfolios, their probability of default, the economic
environment and the allowance for credit losses already established.
The allowance for credit losses recorded in our Consolidated
Balance Sheet is maintained at a level which we consider to be ade-
quate to absorb potential credit losses in our on- and off-balance
sheet portfolios.
We maintain the following allowances:
Specific Allowances
These allowances are recorded for specific loans to reduce their book
value to the amount we expect to recover from the loans. We review
our loans and acceptances, other than consumer instalment and credit
card loans, at least quarterly, to assess whether the loan should be
classified as impaired and an allowance or write-off recorded. Our
review process of problem loans is conducted by our account managers
who assess the ultimate collectibility and estimated recoveries on a
specific loan based on all events and conditions that the manager
believes are relevant to the condition of the loan. This assessment is
then reviewed and approved by an independent credit officer. Signifi-
cant specific allowances and the aggregate allowance for credit losses
are reviewed by officers in the Risk Management Group.
We use a variety of methods to determine the amount we expect
to recover from impaired loans including the discounted value of esti-
mated future cash flows, observable market values or the fair value of
the underlying security discounted to reflect when we expect to sell the
security. The value of any collateral is also considered in establishing
an allowance. Collateral can vary by type of loan and may include cash,
securities, real property, accounts receivable, guarantees, inventory or
other capital assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 ALLOWANCE FOR CREDIT LOSSES
Included in impaired loans is other real estate owned and securities received from
customers in satisfaction of their loans totalling $48 as at October 31, 1998 and
$55 as at October 31, 1997.
Designated countries are determined by the Superintendent of Financial Institu-
tions Canada as having difficulty in servicing all or part of their external debt to
commercial banks. We did not have any net impaired loans to designated countries
as at October 31, 1998 or October 31, 1997.
Approximately 4% of the gross exposure to designated countries was classified as
impaired as at October 31, 1998 and 2% as at October 31, 1997.
The allowance for credit losses does not include $98 as at October 31, 1998 and
$93 as at October 31, 1997 of country risk allowance that is in excess of gross
impaired loans to designated countries.