Bank of Montreal 2004 Annual Report Download - page 93

BMO Financial Group Annual Report 2004 89
Notes
Included in corporate equity are investments where we exert significant influence, but not control, of $546 million and $124 million as at
October 31, 2004 and 2003, respectively.
Yields in the table above are calculated using the book value of the security and the contractual
interest or stated dividend rates associated with each security adjusted for any amortization of
premiums and discounts. Tax effects are not taken into consideration.
The term to maturity included in the table above is based on the contractual maturity date of the
security. The term to maturity of mortgage-backed securities and collateralized mortgage obligations
is based on average expected maturities. Actual maturities could differ as issuers may have the right
to call or prepay obligations. Securities with no maturity date are included in the over 10 years category.
(Canadian $ in millions, except as noted) Term to maturity 2004 2003
Within 1 to 3 3 to 5 5 to 10 Over 10 Total book Total book
1 year years years years years value value
Investment Securities Yield Yield Yield Yield Yield Yield
Issued or guaranteed by: %%%%% %
Canadian federal government $ 185 2.91 $ 25 2.71 $ –– $ –– $ 1 4.96 $ 211 2.90 $ 1,826
U.S. federal government 3,012 1.62 10 1.73 44 3.08
– – – – 3,066 1.64 5,627
U.S. states, municipalities
and agencies 3,024 1.82 1,833 2.55 178 5.48 105 6.24 51 7.24 5,191 2.35 5,470
Other governments 240 2.53 37 3.98 35 4.69 3 4.58
– – 315 2.96 352
Mortgage-backed securities and
collateralized mortgage obligations 582 1.59 212 3.12 165 3.86 108 3.78 298 4.59 1,365 2.93 1,568
Corporate debt 491 2.93 1,182 4.21 1,002 2.47 20 2.78 190 3.13 2,885 3.31 3,055
Corporate equity 152 6.17 308 5.39 140 5.12 132 5.17 1,252 1.23 1,984 2.79 1,762
Total investment securities 7,686 1.93 3,607 3.38 1,564 3.26 368 4.93 1,792 2.16 15,017 2.52 19,660
Trading Securities
Issued or guaranteed by:
Canadian federal government 1,298 994 1,081 1,413 1,384 6,170 6,356
Canadian provincial and
municipal governments 297 124 452 454 961 2,288 1,662
U.S. federal government 164 159 432 117 38 910 306
U.S. states, municipalities
and agencies
– – – – 97 97 30
Other governments 1 1
– 9 – 11 51
Corporate debt 1,365 1,184 1,067 1,369 4,533 9,518 7,770
Corporate equity – – – – 16,450 16,450 18,944
Total trading securities 3,125 2,462 3,032 3,362 23,463 35,444 35,119
Loan Substitute Securities – 11 – – – 11 11
Total securities $ 10,811 $ 6,080 $ 4,596 $ 3,730 $ 25,255 $ 50,472 $ 54,790
Total by Currency (in Canadian $ equivalent)
Canadian dollar 2,790 2,423 2,241 2,214 16,338 26,006 28,790
U.S. dollar 7,456 2,763 2,211 1,284 8,822 22,536 24,166
Other currencies 565 894 144 232 95 1,930 1,834
Total securities $ 10,811 $ 6,080 $ 4,596 $ 3,730 $ 25,255 $ 50,472 $ 54,790
When the fair value of any of our investment securities has
declined below its carrying value, we assess whether the decline
is other than temporary. Impairment is evaluated taking into con-
sideration a number of factors, and their relative significance
varies from case to case. Factors considered include the length of
time and extent to which fair value has been below carrying value,
the financial condition and near-term prospects of the issuer,
and our ability and intent to hold the investment for a period
of time sufficient to allow for any anticipated recovery. If the
decline is considered to be other than temporary, a write-down
is recorded in our Consolidated Statement of Income in invest-
ment securities gains (losses).
We had total investments of $8,612 million where fair value was
below book value as at October 31, 2004 ($3,168 million in 2003) by
$43 million ($24 million in 2003). The majority of unrealized losses
in our investment portfolio resulted from increases in market
interest rates and not from deterioration in the creditworthiness
of the issuers. Management has determined that the unrealized
losses are temporary in nature.
Trading securities are securities that we purchase for resale over
a short period of time. We report these securities at their market
value and record the mark-to-market adjustments and any gains
and losses on the sale of these securities in our Consolidated State-
ment of Income in trading revenues.
Loan substitute securities are customer financings, such as dis-
tressed preferred shares, that we structure as after-tax investments
to provide our customers with an interest rate advantage over
what would be applicable on a conventional loan. These securities
are accounted for in accordance with our accounting policy for
loans, which is described in Note 4.
We did not own any securities issued by a single non-government
entity where the book value, as at October 31, 2004 or 2003, was
greater than 10% of our shareholders’ equity.
Future Change in Accounting Policy
Our merchant banking subsidiaries account for their investments
at cost. Effective November 1, 2004, these investments will be
accounted for at fair value, with the initial adjustment to fair value
and subsequent changes recorded in net income. The ultimate
impact of this change depends on future changes in fair value
and cannot be determined at this time. The carrying amount
of investments subject to this accounting change was approximately
$550 million as at October 31, 2004.