Bank of Montreal 2015 Annual Report Download - page 180

Notes
Indemnification Agreements
In the normal course of operations, we enter into various agreements that provide general indemnifications. These indemnifications typically occurin
connection with sales of assets, securities offerings, service contracts, membership agreements, clearing arrangements, derivative contracts and
leasing transactions. Based on historical experience, we expect the risk of loss to be remote.
Exchange and Clearinghouse Guarantees
We are a member of several securities and futures exchanges and clearinghouses. Membership in certain of these organizations may require us to
pay a pro rata share of the losses incurred by the organization in the event of default of another member. It is difficult to estimate our maximum
exposure under these membership agreements since this would require an assessment of future claims that may be made against us that have not
yet occurred. Based on historical experience, we expect the risk of loss to be remote.
Pledged Assets
In the normal course of business, we pledge assets as security for various liabilities that we incur.
The following tables summarize our pledged assets and collateral, and the activities to which they relate:
(Canadian $ in millions) 2015 2014
Bank Assets
Cash and securities (1)
Issued or guaranteed by the government of Canada 14,712 7,077
Issued or guaranteed by a Canadian province, municipality or school corporation 5,343 6,000
Other 42,625 44,509
Mortgages, securities borrowed or purchased under resale agreements and other 72,004 64,505
134,684 122,091
(Canadian $ in millions) 2015 2014
Assets pledged to:
Clearing systems, payment systems and depositories 1,626 540
Foreign governments and central banks 32
Obligations related to securities sold under repurchase agreements 25,268 25,492
Securities borrowing and lending 46,678 42,427
Derivatives transactions 12,798 8,682
Securitization 27,373 26,031
Covered bonds 12,301 7,111
Other 8,637 11,806
Total pledged assets and collateral (1) 134,684 122,091
(1) Excludes cash pledged with central banks disclosed as restricted cash in Note 2.
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Collateral
When entering into trading activities such as purchases under resale agreements, securities borrowing and lending activities or financing and for
certain derivative transactions, we require our counterparties to provide us with collateral that will protect us from losses in the event of their default.
Collateral transactions (received or pledged) are typically conducted under terms that are usual and customary in standard trading activities. If there is
no default, the securities or their equivalents must be returned to or returned by the counterparty at the end of the contract.
The fair value of counterparty collateral that we are permitted to sell or repledge (in the absence of default by the owner of the collateral) was
$111,088 million as at October 31, 2015 ($92,464 million as at October 31, 2014). The fair value of collateral that we have sold or repledged was
$58,266 million as at October 31, 2015 ($59,440 million as at October 31, 2014).
Lease Commitments
We have entered into a number of non-cancellable leases for premises and equipment. Our computer and software leases are typically fixed for one
term and our premises leases have various renewal options and rights. Our total contractual rental commitments as at October 31, 2015 were
$2,077 million. The commitments for each of the next five years and thereafter are $353 million for 2016, $328 million for 2017, $274 million
for 2018, $236 million for 2019, $211 million for 2020 and $675 million thereafter. Included in these amounts are the commitments related to
904 leased branch locations as at October 31, 2015.
Provisions and Contingent Liabilities
Provisions are recognized when we have a legal or constructive obligation as a result of past events, such as contractual commitments, legal or other
obligations where we can reliably estimate the obligation, and it is probable we will be required to settle the obligation. We recognize as a provision
the best estimate of the amount required to settle the obligations as of the balance sheet date, taking into account the risks and uncertainties
surrounding the obligations.
Changes in the provision balance during the year were as follows:
(Canadian $ in millions) 2015 2014
Balance at beginning of year 195 209
Additional provisions/increase in provisions 268 176
Provisions utilized (230) (133)
Amounts reversed (32) (59)
Exchange differences and other movements 10 2
Balance at end of year 211 195
Certain comparative figures have been reclassified to conform with the current year’s presentation.
Contingent liabilities are potential obligations arising from past events, the existence of which will only be confirmed by the occurrence or non-
occurrence of one or more future events not wholly within our control.
BMO Financial Group 198th Annual Report 2015 193