Bank of Montreal 2015 Annual Report Download - page 137

Notes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impaired loans, including the related allowances, are as follows:
(Canadian $ in millions) Gross impaired amount Specific allowance (3) Net of specific allowance
2015 2014 2015 2014 2015 2014
Residential mortgages 370 532 38 61 332 471
Consumer instalment and other personal loans 546 544 113 99 433 445
Business and government loans 1,043 972 206 214 837 758
Total (1) 1,959 2,048 357 374 1,602 1,674
By geographic region (2):
Canada 641 742 145 191 496 551
United States 1,314 1,301 212 182 1,102 1,119
Other countries 45–144
Total 1,959 2,048 357 374 1,602 1,674
(1) Excludes purchased credit impaired loans.
(2) Geographic region is based upon the country of ultimate risk.
(3) Excludes specific allowance of $35 million for other credit instruments ($50 million in 2014), which is included in other liabilities.
Fully secured loans with past due amounts between 90 and 180 days that we have not classified as impaired totalled $83 million and $134 million as at October 31, 2015 and 2014, respectively.
Specific provisions for credit losses by geographic region are as follows:
(Canadian $ in millions) Residential mortgages
Credit card, consumer
instalment and other
personal loans
Business and
government loans (2) Total
2015 2014 2015 2014 2015 2014 2015 2014
By geographic region (1):
Canada 912 393 410 97 107 499 529
United States 265 104 109 8(140) 114 34
Other countries ––––(1) (2) (1) (2)
Total 11 77 497 519 104 (35) 612 561
(1) Geographic region is based upon the country of ultimate risk.
(2) There were no provisions relating to customers’ liability under acceptances as at October 31, 2015 and 2014.
Foreclosed Assets
Property or other assets that we receive from borrowers to satisfy their loan commitments are classified as either held for use or held for sale
according to management’s intention and are recorded at the lower of carrying amount or fair value less costs to sell. Fair value is determined based
on market prices where available. Otherwise, fair value is determined using methods such as analysis of discounted cash flows or market prices for
similar assets.
During the year ended October 31, 2015, we foreclosed on impaired loans and received $102 million of real estate properties that we classified
as held for sale ($145 million in 2014).
As at October 31, 2015, real estate properties held for sale totalled $109 million ($158 million in 2014). These properties are disposed of when
considered appropriate. During the year ended October 31, 2015, we recorded an impairment loss of $22 million on real estate properties classified as
held for sale ($34 million in 2014).
Renegotiated Loans
From time to time we modify the contractual terms of loans due to the poor financial condition of the borrower. We assess renegotiated loans for
impairment consistent with our existing policies for impairment. When renegotiation leads to significant concessions being granted, and the
concessions are for economic or legal reasons related to the borrower’s financial difficulty that we would not otherwise consider, the loan is classified
as impaired. We consider one or a combination of the following to be significant concessions: (1) a reduction of the stated interest rate, (2) an
extension of the maturity date or dates at a stated interest rate lower than the current market rate for a new loan with similar terms, or
(3) forgiveness of principal or accrued interest.
Renegotiated loans are permitted to remain in performing status if the modifications are not considered to be significant, or are returned to
performing status when none of the criteria for classification as impaired continue to apply.
The carrying value of our renegotiated loans was $730 million as at October 31, 2015 ($728 million in 2014). Renegotiated loans of $361 million
were classified as performing during the year ended October 31, 2015 ($291 million in 2014). Renegotiated loans of $42 million and $25 million were
written off in the years ended October 31, 2015 and 2014, respectively.
Purchased Loans
We record all loans that we purchase at fair value on the day that we acquire the loans. The fair value of the acquired loan portfolio includes an
estimate of the interest rate premium or discount on the loans, calculated as the difference between the contractual rate of interest on the loans and
prevailing interest rates (the “interest rate mark”). Also included in fair value is an estimate of expected credit losses (the “credit mark”) as of the
acquisition date. The credit mark consists of two components: an estimate of the amount of losses that exist in the acquired loan portfolio on the
acquisition date but that haven’t been specifically identified on that date (the “incurred credit mark”) and an amount that represents future expected
losses (the “future credit mark”). Because we record the loans at fair value, no allowance for credit losses is recorded in our Consolidated Balance
Sheet on the day we acquire the loans. Fair value is determined by estimating the principal and interest cash flows expected to be collected on the
loans and discounting those cash flows at a market rate of interest. We estimate cash flows expected to be collected based on specific loan reviews
for commercial loans. For retail loans, we use models that incorporate management’s best estimate of current key assumptions, such as default rates,
loss severity and the timing of prepayments, as well as collateral.
Acquired loans are classified into the following categories: those for which on the acquisition date we expect to continue to receive timely
principal and interest payments (the “purchased performing loans”) and those for which on the acquisition date the timely collection of interest and
150 BMO Financial Group 198th Annual Report 2015