Bank Of Montreal · TSX:BMO
Bank Of Montreal — BMO Financial Group — Q2 2018 Earnings Presentation
39 slides from Bank Of Montreal's earnings presentation, July 2018
Slide 1: Investor Presentation July 2018
Investor Presentation July 2018 Investor Presentation July 2018 1
Slide 2: Forward looking statements & non-GAAP measures
Forward looking statements & non-GAAP measures Caution Regarding Forward-Looking Statements Bank of Montreal’s public communications often include written or oral forward-looking statements. Statements of this type are included in this document, and may be included in other filings with Canadian sec
Slide 3: BMO Financial Group
BMO Financial Group 8th largest bank in North America1 with an attractive and diversified business mix Who we are Q2’18 Results * Adjusted2 Reported Net Revenue ($B)3 5.3 5.3 • Established in 1817, Canada’s first bank Net Income ($B) 1.5 1.2 • In Canada: a full service, universal bank across EPS ($)
Slide 4: Strong financial performance and shareholder returns
Strong financial performance and shareholder returns Dividends Declared ($ per share) 1 • Quarterly dividend of $0.96 per share, up 7% 3.84 from prior year 3.56 3.24 3.40 • Dividend yield of 3.8%1 3.08 2.71 2.80 2.80 2.80 2.80 2.82 2.94 • BMO has the longest-running dividend payout record of any com
Slide 5: BMO's Strategic Footprint
BMO’s Strategic Footprint BMO’s strategic footprint spans strong regional economies. Our three operating groups (Personal and Commercial Banking, BMO Capital Markets and BMO Wealth Management) serve individuals, businesses, governments and corporate customers across Canada and the United States with
Slide 6: Diversified by businesses, customer segments and geographies
Diversified by businesses, customer segments and geographies Adjusted Net Income by Canadian P&C Operating Group – LTM1 • Full range of financial products and services to eight million customers • Here to help customers make the right financial decisions as they do business seamlessly across channel
Slide 7: Reasons to Invest
Reasons to Invest • Strong, diversified businesses that continue to • Well-capitalized with an attractive dividend yield deliver robust earnings growth and long-term value for shareholders: • Efficiency-focused, enabled by technology innovation, simplification, process enhancement – Large North Amer
Slide 8: Unified, Simplifying and Accelerating
Unified, Simplifying and Accelerating • Thinking like a customer to deliver fast, simple, intuitive banking however they choose to Customer interact with us Experience • Using advanced analytics to personalize customer experiences and strengthen relationships, while keeping their information secure
Slide 9: BMO U.S. Operations
BMO U.S. Operations Strategic focus provides strong opportunities for continued growth • The U.S. continues to be a strategically important market for BMO, representing ~27% of the bank’s earnings YTD; diversified businesses are delivering strong growth and improving efficiency – Total U.S. Segment
Slide 10: Canadian Residential-Secured Lending
Canadian Residential-Secured Lending Residential-Secured Lending by Region ($137.2B) • Underweight exposure to uninsured real-estate secured loans $60.3 representing a modest 22% of total loans, below peer average of ~30%, with strong credit quality 23% • Canadian P&C consumer lending contributes <1
Slide 11: Q2 2018 - Financial Highlights
Q2 2018 - Financial Highlights Strong performance with double digit NIAT growth in P&C businesses and Wealth Reported Adjusted1 • Reported EPS $1.86 and net income $1.2B • Adjusted1 EPS $2.20, up 15% Y/Y; adjusted1 net income ($MM) Q2 18 Q1 18 Q2 17 Q2 18 Q1 18 Q2 17 $1.5B, up 13% Net Revenue2 5,285
Slide 12: Strong Capital Position
Strong Capital Position Well capitalized with CET1 Ratio at 11.3% Common Equity Tier 1 Ratio +22 bps -3 bps -18 bps +45 bps -33 bps 11.3% 11.1% 2018 Q1 Elimination of Internal capital Other Share Higher source 2018 Q2 Basel I Floor generation1 repurchases currency RWA Basis points may not add due to
Slide 13: Operating Groups
Operating Groups Investor Presentation July 2018 13
Slide 14: Canadian Personal & Commercial Banking
Canadian Personal & Commercial Banking Strengths and Value Drivers Our Strategic Priorities • Highly engaged team of dedicated employees focused on Capture key growth and loyalty opportunities by delivering providing a personalized banking experience, anticipating a leading digital experience and pe
Slide 15: Canadian Personal & Commercial Banking
Canadian Personal & Commercial Banking Good revenue growth and positive operating leverage • Adjusted1 and reported net income up 11% Y/Y Reported Adjusted1 • Revenue up 8% Y/Y ($MM) Q2 18 Q1 183 Q2 17 Q2 18 Q1 183 Q2 17 – Average loans up 4% Y/Y. Commercial2 up 10%; personal2 up 1%, reflecting part
Slide 16: U.S. Personal & Commercial Banking
U.S. Personal & Commercial Banking Strengths and Value Drivers Our Strategic Priorities • Rich heritage of 170 years in the U.S. Midwest, with a We aim to grow our business and be a leader in our markets deep commitment to our communities and helping our by creating a differentiated and intuitive pa
Slide 17: U.S. Personal & Commercial Banking
U.S. Personal & Commercial Banking Continued momentum with strong revenue growth and positive operating leverage • Reported net income of $348MM, up 46% Y/Y Reported Adjusted1 • Adjusted1 net income of $359MM, up 43% Y/Y (US$MM) Q2 18 Q1 18 Q2 17 Q2 18 Q1 18 Q2 17 Figures that follow are in U.S. dol
Slide 18: BMO Wealth Management
BMO Wealth Management Strengths and Value Drivers Our Strategic Priorities • Planning and advice-based approach that integrates investment, Deliver on our clients’ current and evolving personal wealth, insurance, specialized wealth management and core banking insurance and institutional asset manage
Slide 19: BMO Wealth Management
BMO Wealth Management Good growth in Traditional Wealth businesses Reported Adjusted1 • Reported net income $296MM • Adjusted1 net income $307MM, up 12% Y/Y ($MM) Q2 18 Q1 18 Q2 17 Q2 18 Q1 18 Q2 17 – Traditional Wealth up 18% Y/Y (reported up 26%) Net Revenue2 1,250 1,244 1,162 1,250 1,244 1,162 –
Slide 20: BMO Capital Markets
BMO Capital Markets Strengths and Value Drivers Our Strategic Priorities • Unified coverage and integrated distribution across our BMO Capital Markets vision is to be the lead North American North American platform and complementary global investment bank enabling clients to achieve their goals. We
Slide 21: BMO Capital Markets
BMO Capital Markets Net income down Y/Y • Adjusted1 and reported net income down from Reported Adjusted1 prior year reflecting market conditions ($MM) Q2 18 Q1 18 Q2 17 Q2 18 Q1 18 Q2 17 • Revenue down 12% Y/Y Trading Products 622 650 675 622 650 675 • Expenses down 2% Y/Y I&CB 419 432 511 419 432 5
Slide 22: Risk Overview
Risk Overview Investor Presentation July 2018 22
Slide 23: Risk Management
Risk Management We have a disciplined and integrated approach to risk Our Approach to Risk Management Diversified Sources of Revenue1 • Understand and manage BMO Capital • Protect our reputation Markets • Diversify. Limit tail risk Canadian P&C Investment • Maintain strong capital and liquidity & Co
Slide 24: Provision for Credit Losses (PCL) on Impaired Loans
Provision for Credit Losses (PCL) on Impaired Loans Strong credit performance reflective of our consistent approach to effective risk management PCL on Impaired Loans as a % of Average Net Loans & Acceptances 0.31% 0.18% 1) BMO F2016 and F2017 PCL on impaired loans and average net loans & acceptance
Slide 25: Our loans are well diversified by geography and industry
Our loans are well diversified by geography and industry Loans by Geography3 Gross Loans & Acceptances Canada & By Industry U.S. Total % of Total Other1 ($B, as at Q2 18) Residential Mortgages 106.4 11.4 117.8 31% 31% Canada Consumer Instalment and Other 66% U.S. 52.1 9.6 61.7 16% Personal Other Car
Slide 26: Provision for Credit Losses (PCL)
Provision for Credit Losses (PCL) PCL By Operating Group Q2 18 Q1 18 Q2 171 • Q2’18 PCL ratio on Impaired Loans at 18 bps, ($MM) down 1 bp Q/Q Consumer – Canadian P&C 118 91 99 • Allowance for Credit Losses on Performing Loans Commercial – Canadian P&C 13 6 22 reduced PCL by $12 million, primarily d
Slide 27: Gross Impaired Loans (GIL) and Formations
Gross Impaired Loans (GIL) and Formations Formations Gross Impaired Loans • GIL ratio 56 bps, down 1 bp Q/Q By Industry ($MM, as at Q2 18) Canada & Canada & U.S. Total U.S. Total Other Other1 Consumer 218 62 280 470 478 948 Service Industries 4 11 15 49 214 263 Agriculture 37 38 75 79 177 256 Oil &
Slide 28: Appendix
Appendix Investor Presentation July 2018 28
Slide 29: Economic Outlook and Indicators
Economic Outlook and Indicators1 Canada United States Eurozone Economic Indicators (%)1, 2 2017 2018E2 2019E2 2017 2018E2 2019E2 2017 2018E2 2019E2 GDP Growth 3.0 1.9 1.8 2.3 2.8 2.5 2.4 2.2 1.8 Inflation 1.6 2.2 2.1 2.1 2.5 2.2 1.5 1.7 1.9 Interest Rate (3mth Tbills) 0.69 1.40 2.00 0.95 1.95 2.65 (
Slide 30: Canada's housing market has slowed
Canada’s housing market has slowed • Rising interest rates, tougher mortgage rules and provincial policy measures have slowed the housing market • The high-priced detached property markets in Toronto and Vancouver have taken the brunt of the impact, though the condo market remains strong due to stea
Slide 31: Structure of the Canadian residential mortgage market with comparisons to the U.S.
Structure of the Canadian residential mortgage market with comparisons to the U.S. • Conservative lending practices, strong underwriting and documentation discipline have led to low delinquency rates — Over the last 30 years, Canada’s 90-day residential mortgage delinquency rate has never exceeded 0
Slide 32: Recent mortgage policy developments in Canada
Recent mortgage policy developments in Canada October 2017 – Revisions to OSFI Guideline B-20 - Residential Mortgage Underwriting Practices and Procedures (effective January 1, 2018) • Strengthens expectations in a number of key areas in the residential mortgage underwriting process including: — Req
Slide 33: Canadian Personal & Commercial Banking - Balances
Canadian Personal & Commercial Banking - Balances Average Gross Loans & Acceptances ($B) Average Deposits ($B) 214.3 220.2 222.2 157.6 158.0 151.4 100.3 99.8 98.3 98.4 98.4 96.7 45.4 45.1 44.9 8.8 8.6 8.4 62.7 65.7 68.7 54.7 59.2 59.6 Q2'17 Q1'18 Q2'18 Q2'17 Q1'18 Q2'18 Commercial Loans & Acceptance
Slide 34: U.S. Personal & Commercial Banking – Balances
U.S. Personal & Commercial Banking – Balances Average Gross Loans & Acceptances (US$B) Average Deposits (US$B) 80.11 82.11 75.31 5.2 5.2 5.3 11.5 70.0 11.2 Personal Loans 65.4 67.6 9.6 5.6 5.7 5.3 3.2 3.3 3.3 1.6 1.5 23.3 24.9 1.9 23.0 54.9 Commercial 49.9 53.2 Loans 42.4 44.3 45.1 Q2'17 Q1'18 Q2'18
Slide 35: Trading-related Net Revenues and Value at Risk
Trading-related Net Revenues and Value at Risk February 1, 2018 to April 30, 2018 (pre-tax basis and in millions of Canadian dollars) 30 25 20 15 10 5 0 (5) (10) (15) Daily Revenue Total Trading VaR Investor Presentation July 2018 35
Slide 36: Our priorities are clear
Our priorities are clear Our strategic framework outlines the basic principles that sustain our growth Our Strategic Priorities Sustainability Principles The clearly defined statements of purpose that guide the The guidelines we follow as a responsibly managed bank consider bank’s long-term decision
Slide 37: Environmental, Social and Governance (ESG) at BMO
Environmental, Social and Governance (ESG) at BMO Operating our business responsibly and considering the ESG impacts of our activities • BMO has two impact investing funds – the BMO Women in Leadership Fund, which focuses on gender Responsible investment diversity, and the BMO Fossil Fuel Free Fund
Slide 38: Corporate Governance
Corporate Governance • Code of Conduct based on BMO’s values, provides ethical guidance and expectations of behaviour for all directors, officers and employees • Governance practices reflect emerging best practices and BMO meets or exceeds legal, regulatory, TSX, NYSE and Nasdaq requirements • Direc
Slide 39: Investor Relations
Investor Relations Contact Information bmo.com/investorrelations E-mail: investor.relations@bmo.com Jill Homenuk Christine Viau Head of Investor Relations Director, Investor Relations 416.867.4770 416.867.6956 jill.homenuk@bmo.com christine.viau@bmo.com Investor Presentation July 2018 39