Bank of Montreal 1998 Annual Report Download - page 85

77
BANK OF MONTREAL GROUP OF COMPANIES
The following table sets out our allocation of the allowance for credit losses:
Specific allowances General allowance Country risk allowance Total
1998 19 97 19 9 6 1998 19 97 199 6 1998 1997 19 96 19 98 19 97 19 9 6
Residential mortgages $ 4 $ 9 $ 9 $ – $ – $ – $ – $ – $ – $ 4 $ 9 $ 9
Consumer instalment and other personal loans 911 15 ––––––911 15
Credit card loans ––––––––––––
Loans to businesses and governments 262 345 526 –––658268 350 534
Securities purchased under resale agreements ––––––––––––
Unallocated –––885 775 475 –––885 775 475
275 365 550 885 775 475 6581,166 1,145 1,033
Securities of designated countries ––––––98 93 108 98 93 108
Loan substitute securities ––––––––––––
Acceptances ––––––––––––
275 365 550 885 775 475 104 98 116 1,264 1,238 1,141
Off-balance sheet items 812––––––812
To t a l $ 283 $ 366 $ 552 $ 885 $ 775 $ 475 $ 104 $ 98 $ 116 $ 1,272 $ 1,239 $ 1,143
Changes in the allowance for credit losses are:
Specific allowances General allowance Country risk allowance Total
1998 19 97 19 9 6 1998 19 97 199 6 1998 1997 19 96 19 98 19 97 19 9 6
Balance at beginning of year $ 366 $ 552 $ 563 $ 775 $ 475 $ 325 $ 98 $ 116 $ 367 $ 1,239 $ 1,143 $ 1,255
Provision for credit losses 20 75 225 110 200 – –––130 275 225
Transfer of allowance –(100) – –100 150 –– (150) –––
Recoveries 64 158 103 ––––––64 158 103
Write-offs (192) (334) (344) –––(3) (23) (105) (195) (357) (449)
Other, including foreign exchange rate changes 25 15 5 –––95434 20 9
Balance at end of year $ 283 $ 366 $ 552 $ 885 $ 775 $ 475 $ 104 $ 98 $ 116 $ 1,272 $ 1,239 $ 1,143
Periodically we securitize portions of our assets by selling loans to
special-purpose vehicles or trusts of which we are not the beneficiary.
We account for these transactions as sales when the significant risks
and rewards of the ownership of the loans have been transferred and
we can estimate the amount of cash to be received.
We record these sales based upon the market value of the loans sold.
The purchase and sale contracts provide for the payment to us of
the proceeds of sale when the sum of interest and fees collected from
customers exceeds the yield paid to investors on the assets, credit
losses and other costs. We record our entitlement to such proceeds
in income when the amount is legally payable by the special-purpose
vehicle or trust. The fees which we receive for continuing to service
the loans sold are recorded in income using the accrual method.
The outstanding amounts of loans sold to special-purpose vehicles or
trusts are:
1998 19 97
Securitized credit card receivables $ 2,500 $ 2,000
Securitized mortgage loans 5,061 –
Securitized corporate loans 4,089 –
The impact of securitization on our Consolidated Statement of
Income is:
1998 19 97 199 6
Net interest income $ (128) $ (17) $ –
Other income – card services (79) (14) –
– securitization revenues 158 32 –
– other fees and commissions (11) (2) –
Provision for credit losses 50 ––
Income before provision for income taxes $ (10) $ (1) $ –
NOTE 7 ASSET SECURITIZATION
General Allowance
This allowance is recorded for loans, including those of associated
corporations, joint ventures and securitization vehicles, recognizing
that not all of the impairment in the loan portfolio can be specifically
identified on a loan by loan basis. The general allowance is based
upon statistical analysis of past performance, the level of allowance
already in place and management’s judgement. The general allowance
would normally increase in a strong business/economic cycle and would
be drawn down during a weak business/economic cycle when specific
allowances would normally increase in relation to our exposures.
The value of loans covered by the general allowance totalled
$149,710 as at October 31, 1998 and $123,931 as at October 31, 1997.
Country Risk Allowance
This allowance is recorded for loans to and securities of countries
identified by the Superintendent of Financial Institutions Canada that
have restructured or experienced difficulties in servicing all or part of
their external debt to commercial banks. These loans and securities
are reviewed regularly by management within the Portfolio and Risk
Management Group to assess the adequacy of the allowance based
on the current and expected political and economic conditions in the
respective countries.