Bank of Montreal 2010 Annual Report Download - page 126

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes
124 BMO Financial Group 193rd Annual Report 2010
The following table analyzes net loans and acceptances by interest rate
sensitivity:
(Canadian $ in millions) 2010 2009
Fixed rate 72,168 55,954
Floating rate 95,877 102,096
Non-interest sensitive (1) 8,598 9,779
Total 176,643 167,829
(1) Non-interest sensitive loans and acceptances include customers’ liability under acceptances.
Market Risk
Market risk is the potential for a negative impact on the balance sheet
and/or statement of income resulting from adverse changes in the
value of financial instruments as a result of changes in certain market
variables. These variables include interest rates, foreign exchange rates,
equity and commodity prices and their implied volatilities, as well as
credit spreads, credit migration and default. We incur market risk in our
trading and underwriting activities and structural banking activities.
Loan Maturities and Rate Sensitivity
The following table provides gross loans and acceptances by contractual maturity and by country of ultimate risk:
Contractual maturity 2010 2009
1 year Over 1 year Over
(Canadian $ in millions) or less to 5 years 5 years Total Total
Canada
Consumer 24,419 53,644 7,675 85,738 74,870
Commercial and corporate (excluding real estate) 26,950 10,610 1,546 39,106 36,971
Commercial real estate 5,016 3,223 1,486 9,725 9,248
United States 9,796 12,986 11,882 34,664 38,491
Other countries 2,529 6,759 – 9,288 10,151
Total 68,710 87,222 22,589 178,521 169,731
Our market risk management practices and key measures are
outlined in the text and tables presented in a blue-tinted font in the
Enterprise-Wide Risk Management section of Management’s Discussion
and Analysis on pages 82 to 85 of this report.
Liquidity and Funding Risk
Liquidity and funding risk is the potential for loss if we are unable
to meet financial commitments in a timely manner at reasonable prices
as they fall due. It is our policy to ensure that sufficient liquid assets
and funding capacity are available to meet financial commitments,
including liabilities to depositors and suppliers, and lending, investment
and pledging commitments, even in times of stress. Managing liquidity
and funding risk is essential to maintaining both depositor confidence
and stability in earnings.
Our liquidity and funding risk management practices and key
measures are outlined in the text presented in a blue-tinted font in the
Enterprise-Wide Risk Management section of Management’s Discussion
and Analysis on pages 85 to 86 of this report.
(1) A large majority of these commitments expire without being drawn upon. As a result,
the total contractual amounts may not be representative of the funding likely to be required
for these commitments.
(2) We have five significant outsourcing contracts. In 2010, we entered into a seven-year contract
with an external service provider for various credit card account portfolios processing and
other services. In 2009, we entered into a seven-year contract with an external service provider
to provide brokerage transactional processing and reporting of client information. In 2008,
we entered into a 15-year contract with optional five-year renewals with an external service
Contractual Maturities of Financial Liabilities
Financial liabilities are comprised of trading and non-trading liabilities. As liabilities in trading portfolios are typically held for short periods of time,
they are not included in the following table.
Contractual maturities of on-balance sheet non-trading financial liabilities as at October 31, 2010 were as follows:
Less than 1 to 3 3 to 5 Over 5 No fixed
(Canadian $ in millions) 1 year years years years maturity 2010 Total 2009 Total
On-Balance Sheet Financial Liabilities
Deposits (1) 101,218 23,181 6,907 4,850 109,119 245,275 233,083
Subordinated debt 200 411 390 4,566 – 5,567 6,463
Capital trust securities 440 413 – – – 853 1,281
Other financial liabilities 54,715 23 41 2,517 332 57,628 59,749
provider which grants us the right to issue Air Miles in Canada to our customers. In 2007,
we entered into a seven-year contract with an external service provider for wholesale lockbox
processing. In 2003, we entered into a 10-year contract with an external service provider to
provide human resource transactional business processing. In 2000, we entered into a 15-year
contract with two optional five-year renewals with an external service provider to manage
our cheque and bill payment processing, including associated statement and report printing
activities. All outsourcing contracts are cancellable with notice.
(1) Excludes interest payments and structured notes designated under the fair value option.
Certain comparative figures have been reclassified to conform with the current year’s presentation.
The balances for on-balance sheet financial liabilities in the table above will not agree with those
in our consolidated financial statements as this table incorporates all cash flows, on an undiscounted
basis, including both principal and interest.
Contractual maturities of off-balance sheet financial liabilities as at October 31, 2010 were as follows:
Less than 1 to 3 3 to 5 Over 5 No fixed
(Canadian $ in millions) 1 year years years years maturity 2010 Total 2009 Total
Off-Balance Sheet Financial Liabilities
Commitments to extend credit (1) 22,393 22,102 4,694 2,282 – 51,471 60,064
Operating leases 249 410 268 593 – 1,520 1,542
Financial guarantee contracts (1) 41,336 – – – – 41,336 51,857
Purchase obligations (2) 225 438 279 77 – 1,019 1,298