Bank Of Montreal · TSX:BMO
Bank Of Montreal — Q2 2020 Earnings Presentation
47 slides from Bank Of Montreal's earnings presentation, August 2020
Slide 1: Investor Presentation August 2020
Investor Presentation August 2020
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: Who We Are
Who We Are Established in 1817, BMO Financial Group is a highly diversified financial services provider based in North America Mobilizing 8th largest $987 billion $400 billion bank in North America in total assets1 for sustainable finance by assets1 by 2025 Three operating groups Personal and BMO We
Slide 4: Our commitment to Sustainability
Our commitment to Sustainability Decent Work Promoting sustained growth and productive employment by creating and Economic opportunities for our employees, customers and communities, and by upholding Growth human rights across our value chain. At BMO, our Purpose to Championing equal opportunity and
Slide 5: Strong financial performance and shareholder returns
Strong financial performance and shareholder returns Medium Term Financial Objectives (Adjusted basis) Earnings per Share ($) 2-year CAGR 8% EPS Growth 7% to 10% per year 9.43 8.99 Return on 15% or more Equity 8.15 8.66 Operating 8.17 2% or more 7.90 Leverage Maintain strong capital ratios that exce
Slide 6: Proven strategy, driving strong, resilient earnings with balance sheet strength
Proven strategy, driving strong, resilient earnings with balance sheet strength • Strategy proven to deliver in all market environments • Outperforming peers with momentum across businesses • Continued progress on efficiency improvement • Long-term track record of superior credit risk management, co
Slide 7: Outperforming peers, clear operating momentum
Outperforming peers, clear operating momentum • Above average LTM1 performance on adjusted1 PPPT growth, expense growth, Adjusted PPPT growth1,2 (%) Adjusted expense growth1,2 efficiency improvement and operating 6.7 (%) leverage 6.0 4.8 • Canadian P&C performing at top of 1.6 industry; gaining mark
Slide 8: Canadian P&C - Strong flagship business
Canadian P&C - Strong flagship business Operating momentum; outperforming peers • Flagship business contributing 35% of total Peer3 leading financial performance bank net revenue1 and 44% of adjusted2 net #1 #2 Revenue Growth Operating Leverage income LTM 3.6% 7.1% 6.8% 1.9% 5.9% 1.5% • Growth in co
Slide 9: Strong balance sheet and capital
Strong balance sheet and capital • CET1 ratio of 11.0%; total capital ratio of 14.7% Q2'20 CET1 ratio LCR • LCR of 147% BMO 11.0% 147% • Prudent balance sheet management BNS 10.9% 132% • Focused deposit strategy delivering double digit CIBC 11.3% 131% balance growth NBF 11.4% 149% − Peer leading dep
Slide 10: Diversified business mix with strong, resilient profitability
Diversified business mix with strong, resilient profitability Diversified sources of revenue % of Operating Groups Net Revenue – LTM • Significant business and geographic diversification contributes to resilience and growth • Strong core profitability with YTD PPPT1 of $4.4B, up 5% − Adjusted expens
Slide 11: Leading track record in risk management
Leading track record in risk management • Long track record of outperforming peers on credit • PCL loss rates better than peer average over time • PPPT earnings would cover PCL rate of ~190bps1, higher than any time in at least 30 years, almost five times average • Prudent underwriting, consistent a
Slide 12: Proven strength in Commercial Banking with advantaged market share
Proven strength in Commercial Banking with advantaged market share • A relationship-based commercial bank; top 10 commercial lender3 in North America Commercial Banking Revenue as % of Total Bank Revenue (LTM) − In Canada: Top-tier commercial banking business, #2 market share for business loans up t
Slide 13: Allowance for performing loans (APL) - sound process, large increase
Allowance for performing loans (APL) - sound process, large increase • Significant increase in the allowance for performing loans; Q2 provision equal to 43% of the Q1 APL Q2 Provision for Performing Loans / Q1 APL • Allowance reflects: SCOTIA 28% − Robust process that relies on a combination of BMO
Slide 14: Our loans are well-diversified by geography and industry
Our loans are well-diversified by geography and industry Sectors of heightened focus represent ~5% of loans and in-range of peers Gross Loans and Acceptances by Loans by Geography3 Canada & Industry U.S. Total % of Total Other1 ($B, as at Q2 20) Residential Mortgages 114.5 11.0 125.5 25.4% 38% Canad
Slide 15: Sectors of heightened focus
Sectors of heightened focus1 Represent ~5% of total portfolio % of Total Sector Portfolio detail Portfolio Over 90% secured with real estate; further supported with specific recourse Hotels 0.9% arrangements to ownership groups >60% of exposure is with Franchises backed by strong regional and nation
Slide 16: Oil and Gas portfolio
Oil and Gas portfolio Well-reserved; high quality portfolio with proven history of strong credit performance over time • O&G portfolio is not outsized: Q2’20 Of Business and Of Total Gross Loans & ― 5.1% of Business and Government loans, below Government Loans Acceptances Oil and Gas % three banks ―
Slide 17: Key Takeaways
Key Takeaways Proven strategy Resilient earnings power Clear momentum across businesses Superior credit risk management performance Strong balance sheet and capital Attractive shareholder opportunity Investor Presentation August 2020 17
Slide 18: Q2 F2020 Highlights
Q2 F2020 Highlights
Slide 19: Q2 F2020 - Financial Highlights
Q2 F2020 - Financial Highlights Resilient PPPT4 earnings absorbed impact of higher PCLs • Adjusted1 EPS $1.04 (reported $1.00) Reported Adjusted1 • Adjusted1 net income $715MM (reported $689MM) ($MM) Q2 20 Q1 20 Q2 19 Q2 20 Q1 20 Q2 19 • Adjusted1 PPPT4 $1,978MM, down 5% Y/Y (reported Net Revenue2 5
Slide 20: Our response to the COVID-19 crisis
Our response to the COVID-19 crisis Protecting and supporting our employees and communities Our Employees • Enabled >90% of non-branch workforce to work remotely and optimized new collaboration tools • Implemented protective health and safety practices at all work locations • Providing flexible hour
Slide 21: Our response to the COVID-19 crisis
Our response to the COVID-19 crisis Supporting the financial well-being of our customers and the economy Our Customers • Assisted customers experiencing financial hardship with flexible relief options including payment deferrals for over 200,000 retail and commercial clients, fee waivers, increases
Slide 22: Strong capital position
Strong capital position CET1 Capital Ratio 11.4% -48 bps 11.0% +7 bp 2.0% Current OSFI expectation +11 bps 9% -7 bps 1.0% Domestic Stability Buffer1 1.0% D-SIB Surcharge 2.5% Capital Conservation Buffer 4.5% Minimum CET1 Q1'20 Higher source Clearpool Acquisition ECL Provisioning Other Q2'20 currency
Slide 23: Canadian Personal & Commercial Banking
Canadian Personal & Commercial Banking Strengths and Value Drivers Q2’20 Highlights (Adjusted1) • Highly engaged team focused on providing a personalized banking Net Income $362MM experience, anticipating customers’ needs and finding new ways to help Net Income Growth (41)% • Top-tier commercial ban
Slide 24: Canadian Personal & Commercial Banking
Canadian Personal & Commercial Banking Strategic Priorities • Continue to improve customer loyalty by deepening primary relationships – In Personal Banking, deliver a leading customer experience by leveraging new digital channels and enhancing existing networks – In Commercial Banking, focus on main
Slide 25: U.S. Personal & Commercial Banking
U.S. Personal & Commercial Banking Strengths and Value Drivers Q2’20 Highlights (Adjusted1) • Rich Midwestern heritage dating back to 1847, with a long-standing Net Income US$253MM commitment to the success of our customers and communities • Large-scale, diversified national commercial business, sup
Slide 26: U.S. Personal & Commercial Banking
U.S. Personal & Commercial Banking Strategic Priorities • Continue to strengthen our competitive position by investing in key capabilities, such as digital and talent, while leveraging BMO’s full suite of products, solutions and capabilities, and our unique cross-border advantage to deliver a great
Slide 27: BMO Wealth Management
BMO Wealth Management Strengths and Value Drivers Q2’20 Highlights (Adjusted1) • Planning and advice-based approach that integrates investment, Net Income $153MM insurance, specialized wealth management and core banking Net Income Growth (51%) solutions, offered by a team of highly skilled professio
Slide 28: BMO Wealth Management
BMO Wealth Management Strategic Priorities • Deliver a differentiated client experience, providing outstanding support and working together to grow, protect and transition their wealth with confidence • Extend our advantage as a solutions provider, delivering innovative asset management and insuranc
Slide 29: BMO Capital Markets
BMO Capital Markets Strengths and Value Drivers Q2’20 Highlights (Adjusted1) Net Income ($68MM) • Unified coverage and integrated distribution across our North American platform and complementary global footprint, delivering Net Income Growth (+100%) a seamless and exceptional client experience Reve
Slide 30: BMO Capital Markets
BMO Capital Markets Strategic Priorities • Continue to earn leading market share in Canada by strengthening our client relationships and driving incremental market share growth • Continue to leverage our key strategic investment to accelerate growth from our U.S. platform, and selectively expand our
Slide 31: U.S. Operations
U.S. Operations U.S. segment continuing to deliver strong results Figures that follow are on a U.S. dollar basis • U.S. P&C Q2’20 adjusted1 PPPT up 11% • U.S. segment targeting 1/3 total bank earnings ‒ Delivered positive operating leverage of 4.0% and efficiency ratio of 55.6% ‒ Top 102 commercial
Slide 32: Risk Overview
Risk Overview
Slide 33: Provision for Credit Losses (PCL)
Provision for Credit Losses (PCL) PCL By Operating Group Q2 20 Q1 20 Q2 19 ($MM) $ bps $ bps $ bps PCL in bps Total Canadian P&C 212 34 138 23 122 21 94 Total U.S. P&C 124 38 132 44 18 6 BMO Wealth Management 3 4 1 1 (1) (1) 28 31 16 23 BMO Capital Markets 73 41 53 34 12 8 14 22 21 29 35 Corporate S
Slide 34: Gross Impaired Loans (GIL) and Formations
Gross Impaired Loans (GIL) and Formations Formations Gross Impaired Loans • GIL ratio 74 bps, up 12 bps Q/Q By Industry ($MM, as at Q2 20) Formations ($MM) Canada & Canada & U.S. Total U.S. Total Other Other1 Consumer 203 42 245 463 383 846 1,396 Service Industries 61 115 176 127 372 499 799 831 741
Slide 35: Loan portfolio growth
Loan portfolio growth Business & Government Loan Growth Consumer Loan Growth Q1’20 vs Q2’20 ($B) Q1’20 vs Q2’20 ($B) 291.2 5.9 201.8 203.0 18.4 1.2 4.2 255.3 7.4 Business & Impact of New Existing Loans Under Business & Consumer QoQ Change Consumer 1 Government Foreign Borrower Borrower Government 2
Slide 36: Canadian Residential-Secured Lending
Canadian Residential-Secured Lending Residential-Secured Lending by Region ($149.2B) • Canadian residential-secured lending portfolio at $149.2B as at Q2’20, representing 30% of HELOC total loans, lower than peer2 average of 44% Uninsured Mortgages $67.3 Insured Mortgages − LTV1 on uninsured of 51%
Slide 37: Economic and Housing Market Overview
Economic and Housing Market Overview
Slide 38: Economic outlook and indicators
Economic outlook and indicators1 Canada United States Eurozone Economic Indicators (%)1, 2 2019 2020E2 2021E2 2019 2020E2 2021E2 2019 2020E2 2021E2 GDP Growth 1.7 (6.0) 6.0 2.2 (5.0) 4.0 1.3 (7.0) 6.0 Inflation 1.9 0.8 1.5 1.8 0.9 1.5 1.2 0.5 1.2 Interest Rate (3mth Tbills) 1.65 0.45 0.20 2.10 0.35
Slide 39: Canada's housing market is stable
Canada’s housing market is stable • National existing home sales plunged 57% m/m in April to record lows as a result of the distancing measures to contain COVID-19 • Benchmark prices fell 0.6% m/m, reducing the yearly rate to 6.4%. The decline was tempered by a sharp drop in new listings • While dem
Slide 40: Structure of the Canadian residential mortgage market with comparisons to the United States
Structure of the Canadian residential mortgage market with comparisons to the United States • Conservative lending practices, strong underwriting and documentation discipline have led to low delinquency rates — Over the last 30 years, Canada’s 90-day residential mortgage delinquency rate has never e
Slide 41: Liquidity & Wholesale Funding Mix
Liquidity & Wholesale Funding Mix
Slide 42: Liquidity and Funding Strategy
Liquidity and Funding Strategy Cash and Securities to Total Assets Ratio (%) • BMO's Cash and Securities to Total Assets Ratio reflects a strong and stable liquidity position Customer Deposits1 ($B) • BMO’s large base of customer deposits, along with our strong 449.1 capital base, reduces reliance o
Slide 43: Canadian Bail-in Regime
Canadian Bail-in Regime • Canadian bail-in regime effective since September 23, 2018 (implementation date) Canadian Approach • Bail-in eligible senior unsecured debt that is issued after the implementation date will be subject to conversion in a resolution scenario Statutory / Contractual Subordinat
Slide 44: Manageable TLAC Requirements and no incremental funding
Manageable TLAC Requirements and no incremental funding • Canadian D-SIBs will be required to meet a Supervisory Target ratio by November 1, 2021 Funding Profile as at April 30, 2020 — Risk-based TLAC ratio of 22.5% (Minimum 21.5% 37.5% of RWA TLAC ratio plus a Domestic Stability Buffer 35.0% 34.5%
Slide 45: Diversified Wholesale Term Funding Program
Diversified Wholesale Term Funding Program • BMO's wholesale funding principles seek to match the term of assets with the term of funding. Loans for example are funded with customer deposits and capital, with any difference funded with longer-term wholesale funding • BMO has a well diversified whole
Slide 46: Diversified Wholesale Funding Platform
Diversified Wholesale Funding Platform • Programs provide BMO with diversification and cost effective funding Canada1 U.S.1 Europe, Australia & Asia1 • Canadian MTN Shelf (C$8B) • SEC Registered U.S. Shelf (US$25B) • Note Issuance Programme (US$20B) • Fortified Trust (C$5B) • Global Registered Cover
Slide 47: Investor Relations
Investor Relations Contact Information http://www.bmo.com/investorrelations E-mail: investor.relations@bmo.com JILL HOMENUK BILL ANDERSON Head, Investor Relations Director, Investor Relations 416.867.4770 416.867.7834 jill.homenuk@bmo.com bill2.Anderson@bmo.com