Bank of Montreal : BMO Investor Event 2020 September 30, 2020 - Presentation

Investor Event

September 30, 2020

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 may be included in this presentation, and may be included in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made pursuant to the "safe harbor" provisions of, and are intended to be forward-looking statements under, the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian securities legislation. Forward-looking statements in this presentation may include, but are not limited to, statements with respect to our objectives and priorities for fiscal 2020 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price, the regulatory environment in which we operate and the results of or outlook for our operations or for the Canadian, U.S. and international economies, our response to the COVID-19 pandemic and its expected impact on our business, operations, earnings, results and financial performance and condition, including our regulatory capital and liquidity ratios and credit ratings, as well as its impact on our customers, competitors, reputation and trading exposures, and the potential for loss from higher credit, counterparty and mark-to-market losses, and include statements of our management. Forward-looking statements are typically identified by words such as "will", "would", "should", "believe", "expect", "anticipate", "project", "intend", "estimate", "plan", "goal", "target", "may" and "could."

By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, both general and specific in nature. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that our assumptions may not be correct, and that actual results may differ materially from such predictions, forecasts, conclusions or projections. The uncertainty created by the COVID-19 pandemic has heightened this risk given the increased challenge in making assumptions, predictions, forecasts, conclusions or projections. We caution you not to place undue reliance on our forward-looking statements, as a number of factors - many of which are beyond our control and the effects of which can be difficult to predict - could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.

The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to: general economic and market conditions in the countries in which we operate; the severity, duration and spread of the COVID-19 pandemic, its impact on local, national or international economies and its heightening of certain risks that may affect our future results; the possible impact on our business and operations of outbreaks of disease or illness that affect local, national or international economies; the Canadian housing market and consumer leverage; weak, volatile or illiquid capital and/or credit markets; interest rate and currency value fluctuations; changes in monetary, fiscal, or economic policy and tax legislation and interpretation; the level of competition in the geographic and business areas in which we operate; changes in laws or in supervisory expectations or requirements, including capital, interest rate and liquidity requirements and guidance, and the effect of such changes on funding costs; judicial or regulatory proceedings; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; failure of third parties to comply with their obligations to us; our ability to execute our strategic plans and to complete and integrate acquisitions, including obtaining regulatory approvals; critical accounting estimates and the effect of changes to accounting standards, rules and interpretations on these estimates; operational and infrastructure risks, including with respect to reliance on third parties; changes to our credit ratings; political conditions, including changes relating to or affecting economic or trade matters; global capital markets activities; the possible effects on our business of war or terrorist activities; natural disasters and disruptions to public infrastructure, such as transportation, communications, power or water supply; technological changes; information, privacy and cyber security, including the threat of data breaches, hacking, identity theft and corporate espionage, as well as the possibility of denial of service resulting from efforts targeted at causing system failure and service disruption; and our ability to anticipate and effectively manage risks arising from all of the foregoing factors.

We caution that the foregoing list is not exhaustive of all possible factors. Other factors and risks could adversely affect our results. For more information, please refer to the discussion in the Risks That May Affect Future Results section, and the sections related to credit and counterparty, market, insurance, liquidity and funding, operational, legal and regulatory, business, strategic, environmental and social, and reputation risk, in the Enterprise-Wide Risk Management section that begins on page 68 of BMO's 2019 Annual Report, and the Risk Management section in BMO's Third Quarter 2020 Report to Shareholders, all of which outline certain key factors and risks that may affect our future results.

Investors and others should carefully consider these factors and risks, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. We do not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by the organization or on its behalf, except as required by law. The forward-looking information contained in this presentation is presented for the purpose of assisting you in understanding our financial position as at and for the periods ended on the dates presented, as well as our strategic priorities and objectives, and may not be appropriate for other purposes.

Material economic assumptions underlying the forward-looking statements contained in this presentation are set out in the Economic Developments and Outlook section on page 18 of BMO's 2019 Annual Report and updated in the Economic Review and Outlook and the Allowance for Credit Losses sections set forth in BMO's Third Quarter 2020 Report to Shareholders. Assumptions about the performance of the Canadian and U.S. economies, as well as overall market conditions and their combined effect on our business, are material factors we consider when determining our strategic priorities, objectives and expectations for our business. In determining our expectations for economic growth, we primarily consider historical economic data, past relationships between economic and financial variables, changes in government policies, and the risks to the domestic and global economy. Please refer to the Economic Review and Outlook and the Allowance for Credit Losses sections in BMO's Third Quarter 2020 Report to Shareholders.

Non-GAAP Measures

Bank of Montreal uses both GAAP and non-GAAP measures to assess performance. You are cautioned that earnings and other measures adjusted to a basis other than GAAP do not have standardized meanings under GAAP and are unlikely to be comparable to similar measures used by other companies. Reconciliations of GAAP to non-GAAP measures, the rationale for their use, as well as the effects of changes in exchange rates on BMO's U.S. segment reported and adjusted results can be found on pages 7 and 8 of BMO's Third Quarter 2020 Report to Shareholders and on pages 17 and 23 of BMO's 2019 Annual Report, all of which are available on our website at www.bmo.com/investorrelations. Examples of non-GAAP amounts or measures include: efficiency and leverage ratios; revenue and other measures presented on a taxable equivalent basis (teb); amounts presented net of applicable taxes; results and measures that exclude the impact of Canadian/U.S. dollar exchange rate movements (i.e. constant currency basis or CCY), adjusted net income, revenues, non-interest expenses, earnings per share, effective tax rate, ROE, efficiency ratio, pre-provisionpre-tax earnings, and other adjusted measures which exclude the impact of certain items such as, acquisition integration costs, amortization of acquisition-related intangible assets, reinsurance adjustment, restructuring costs, revaluation of U.S. net deferred tax asset as a result of U.S. tax reform and the remeasurement of an employee benefit liability as a result of an amendment to the benefits plan.

Bank of Montreal provides supplemental information on combined business segments to facilitate comparisons to peers.

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Opening Comments

Darryl White | Chief Executive Officer

Strong, diversified, fully integrated North American Commercial Bank

Leader in commercial banking in Canada and the U.S.

• Top 101 commercial lender in North America

Diversified growth driven by

• Quality and reputation of the business
• Experienced bankers with deep industry expertise

Strong risk culture with clear and consistent risk appetite

Strategically important business representing ~30% of total bank revenues

• Delivering consistently strong returns over time
• Other businesses benefit from robust cross-border commercial business

Revenue ($B)

22.8

18.16.6

4.4

2015	2019
	Commercial Banking		Other businesses

1. Based on publicly available U.S. regulatory filings and internal analysis

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North American

Commercial Banking

Dave Casper | Chief Executive Officer, BMO Financial Corp. and Group Head, North American Commercial Banking Christine Cooper | Head, Canadian Commercial Banking

Nadim Hirji | Head, Canadian Commercial Banking

Dan Clark | Head, North American Transportation Finance Dan Marszalek | Head, U.S. Corporate Finance

Ray Whitacre | Head, U.S. Diversified Industries

Todd Senger | Head, Diversified Industries, Expansion Markets

Sharon Haward-Laird | Head, North American Treasury and Payment Solutions

Dawn Feenstra | Chief Operating Officer, North American Commercial Banking

Strong North American Commercial franchise

Top 10 Commercial lender in North America1 with an integrated platform and broad-based capabilities

Top tier market position in our flagship markets, #2 in Canada2, #1 in Wisconsin, #2 in Chicago

National specialty businesses, providing deep sector expertise to our middle market and mid-cap clients

Integrated North American Treasury & Payments platform, delivering cross border solutions to manage cash flows, optimize liquidity and streamline payments

Best in class customer loyalty and leading employee engagement

1. Based on publicly available U.S. regulatory filings and internal analysis
2. Canadian Bankers Association, loan market share $1-$100MM as of March 2020

Diverse North American footprint

	BMO branch footprint		Expansion market with local presence

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Leading franchise executing on a consistent strategy

	M&I acquisition	Transportation Finance
	($13B loans)	acquisition ($11B loans)
	2010	2015	2019	2020
					Q3 YTD
						CAGR1
		4.4		6.6	5.2
Revenues1 ($B)	2.8			10%
Revenue contribution to BMOFG	23%	24%	29%	30%
Deposits ($B)	$42	$86	$112	$142	13%
Loans ($B)	$50	$105	$175	$193	15%
PCL2 (as a % of Avg. Loans & Acceptances)	0.34%	0.28%	0.19%	0.78%
ROE3 (%)		17.9%	19.3%	13.1%

1. CAGR reflects growth from fiscal year 2010 through fiscal year Q3 YTD 2020; revenue CAGR based on Q3 YTD 2020 annualized. Financial results have been reported in accordance with IFRS since November 1, 2011. Results for 2010 have not been restated and are presented in accordance with Canadian GAAP, as defined at that time
2. Total PCL, including Impaired and Performing. BMO prospectively adopted IFRS 9 effective 2018. Under IFRS 9, we refer to the provision for credit losses on impaired and performing loans. Prior periods have not been restated
3. 2010 ROE not shown. Historical figures not comparable due to changes in the regulatory capital framework from Basel II to Basel III and capital allocation methodologies

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Canadian Commercial: Proven results, continued momentum

Local presence with leading market position1, #2 in national lending share; #1 in BC & Atlantic; #2 in Quebec & Prairies

Diversified business with 13 specialty businesses, providing deep expertise that our clients value

~18K clients with average relationship tenure >15 yrs

Sole or lead position on over 90% of client relationships

Strong risk discipline supporting our growth

1. Canadian Bankers Association, loan market share $1-$100MM as of March 2020
2. World Finance Magazine

National market and diverse sector coverage

BEST

Commercial

Bank

6th year in a row2

Specialty businesses

Agriculture	Commercial Real Estate	Sponsor Finance
Asset Based Lending	Equipment Finance	Sponsor Fund Lending
Auto Finance	Media	Technology & Innovation
BMO Capital Partners	Mid-Market M&A	Transportation Finance
	Public Sector
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Technology & Innovation: Integrated North American vertical

Launched April 2019, integrated North American Technology & Innovation vertical

Unified and dedicated coverage team across Commercial Banking, Capital Markets and Wealth Management

Strong sector growth prospects in Canada and U.S. markets. Technology sector reflects ~5% of GDP in Canada and U.S. ($94B and $1.1T respectively)1

Deep industry expertise to provide full life-cyclesolutions and advisory services to public, privately held, venture-backed and private equity sponsored companies

Delivering solutions across full life-cycle

Mature

Scale

Growth

Select completed transactions

1. Fitch, U.S. Information Technology Report, Q3 2020; 2019 Canadian ICT Sector Profile

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Transportation Finance: Sustain our market leadership

Top tier market position with a sizable coverage across North American footprint

Deep sector expertise, leading financier to commercial truck and trailer segment

45+ years in the industry, supporting generations of North America's truck dealers and users

Experienced in managing through industry cycles

Continue to strengthen competitive position by

Steady improvement in freight demand

Truck - Freight Recovery Index

200

180

160

140				100 = Full recovery to pre-pandemic volumes
120
100						Full Recovery Phase
80

optimizing core capabilities and product mix

60

40

Restart Phase

20

0

Shutdown Phase

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Source: Truckstop.com

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U.S. Commercial: Positioned to selectively grow market share

Local presence in 11 of the top 50 U.S. MSAs; #11 in WI and #21 in Chicago

13 national specialty businesses, providing deep sector expertise that our clients value

~12K clients, reflecting diverse client base across U.S. geographies and sectors

Sole or lead position on ~90% of client relationships

Diversified business with no specialty business representing more than 13% of the U.S. portfolio

Strong risk discipline supporting our growth

1. Based on lead bank market share, internal analysis

Geographic coverage

BMO branch footprint

Expansion market with local presence

National specialty businesses

Asset Based Lending	Equipment Finance	Sponsor Finance
Auto Finance	Financial Institutions	Sponsor Fund Lending
Commercial Real Estate	Food, Consumer & Ag.	Technology & Innovation
Engineering & Construction	Franchise Finance	Transportation Finance

Institutional Markets

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U.S. Commercial: Growth is driven by strategic choices

Organic Growth

Acquisition Growth

Investment Grade

+$36.7B

+$21B

46%

of total portfolio

7.2

21.0

3.0

6.5

10.0

12.7

10.0

Institutional

Diversified

& Investment

Asset Backed

Grade

Commercial

Sponsor

Organic

Businesses2

Businesses3

Real Estate

Finance

Growth

Acquisitions4

20101

Asset Backed

Investment Grade

Commercial

Sponsor

Diversified Organic

Acquisitions

Business

Business

Real Estate

Finance

Growth

70.4

20191

1. Fiscal year average loan balance, $US Billions
2. Includes Asset-Based Lending, Auto Finance and Equipment Finance, net of M&I acquired portfolio
3. Includes investment grade business within Financial Institution Lending, Subscription Lines, Mid-Corporate and Institutional Lending

4. Acquisitions include: M&I, $13B in loans net of run-off; Transportation Finance, $8B in loans

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U.S. Commercial growth market: Dallas-Ft. Worth (DFW)

Established Commercial presence in 2016, in parallel with BMO Transportation Finance acquisition

Strong presence in North Texas with over 250 Commercial employees, and 8 specialty businesses

Organic client acquisition with sole or lead position for 85% of client opportunities

Added 140+ new clients since 2016

1. Bureau of Economic Analysis
2. Source: Connect2Canada.com

opportunity

presence Texas over 50

Texas GDP: US$1.8T

Diverse economy aligned to our specialty businesses

DFW: 6th largest U.S. MSA1

3,000 mid-market prospects & clients

~700 Canadian companies with operations in Texas2

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North

American

Commercial

Banking

Capabilities

	Local presence
	Industry expertise
	Broad product suite
	(lending, payment &
Talent	liquidity services)	Customer
Tenured bankers		Experience
Deep industry expertise	Competitive	Industry-leading loyalty
Locally connected
Customer referrals
Advice driven	advantages

Risk	Collaboration
Management	One Bank
Prudent risk management	Wealth
Capital Markets
Diversified portfolio
Cross border

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Risk

Pat Cronin | Chief Risk Officer

Mike Wood | Head, U.S. Corporate and Commercial Credit

Dean Anastas | Head, Corporate and Commercial Credit, Canada and International Jim Gallagher | Head, Special Accounts Management Unit (SAMU)

Long track record of excellence in credit risk management

Strong risk culture with clear and consistent risk appetite

• Harmonized North/South risk approach
• Robust credit monitoring and controls at all levels
• Integrated Special Accounts Management Unit (SAMU) with the business and Risk

Long history in				Proactive risk
	Stable credit quality		management during
commercial lending
			COVID times
• Cornerstone of growth for the	•	Maintained credit quality over	•	Enhanced monitoring of
past decade		3 consecutive years of growth		industries of heightened
• Well diversified portfolio with	•	Structurally sound and highly		focus
•	Offered short-term payment
attractive risk return profile		secured portfolio resulting in
		relatively low loss rates		deferrals on a select basis

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Disciplined and integrated approach to risk management

PCL on Impaired Loans as a % of Average Net Loans & Acceptances

1.80%

1.60%

1.40%

1.20%

1.00%

0.80%

0.52% Cdn Peers Historical Avg. (1990-2019)

0.60%

0.38% BMO Historical Avg. (1990-2019)

0.40%

0.39% Cdn Peers Avg.

0.20%

0.38% BMO

0.00%

'20 '20Q2'20Q3

'90

'91

'92

'93

'94

'95

'96

'97

'98

'99

'00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

'17

'18

'19

Q1

Q2

Q3

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Risk culture: A defining characteristic of BMO

Clear, consistent				Personal
and harmonized				accountability
wholesale				for credit
lending-based				decisions
risk appetite

Seasoned risk	Risk teams
managers with	embedded
business and risk	across the
expertise	footprint

*Shaded areas on map denote location of risk management personnel across the BMO footprint

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Credit origination

1st and 2nd Line establish clear policies, standards and financing guidelines

• Documents risk appetite for products, industries and sectors
• Sets underwriting parameters, including acceptable counterparties, structural elements, and credit metrics

Transaction approval subject to dual signature process based on appropriate discretionary limits

1ST LINE

Origination & pre-screening by the business

New transactions are pre- screened by qualified lenders in consultation with 2nd Line

• On strategy, on market
• Acceptable credit risk
• Appropriate returns

Transaction declined

by 1st Line

Continues to Commercial Lending Process

2ND LINE

The BMO Commercial

Lending Process

1st Line must recommend

2nd Line provides independent oversight of transaction risk, confirming alignment with strategy, market, risk appetite, limits

Transaction declined

by 2nd Line

Transaction approved

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Ongoing credit monitoring

Robust controls and monitoring
in place at the enterprise,
portfolio/segment, and	Enterprise
transaction levels

Portfolio/Segment

Transaction

People

• Enterprise framework for managing diversification, by single name, industry, product, portfolio and geography
• Enterprise wide stress testing
• Underwriting parameters set by portfolio, product, segment, and/or industry
• Monitoring against portfolio and segment limits and adherence to underwriting parameters
• Ongoing portfolio analysis and ad hoc portfolio reviews
• Portfolio-levelstress testing
• Transaction level adherence to diversification limits and adherence to underwriting parameters
• Quarterly trigger monitoring and annual reviews
• Transaction level stress testing
• Transaction approval qualification requirements reviewed annually for 1st and 2nd line
• Individual approval limits incorporate experience level, proactive credit management, and review of decision outcomes

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Special Accounts Management Unit (SAMU)

SAMU is a specialized group within risk management that manages underperforming commercial & corporate loans >$1MM

Proactive and early management leads to higher repatriations and lower loss rates

Mandate

Help underperforming commercial clients return to profitability, or where that is not viable, minimize loan losses

How it's done

Dedicated, experienced commercial lenders with industry and restructuring expertise

Work with Front Line to early identify problem accounts and any material portfolio trends

COVID response

Clearly articulated SAMU Game Plan to deal with any sudden and unexpected deterioration in the loan portfolio

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Long history of commitment in commercial lending

Commercial lending is an important growth engine for

BMO

• U.S. Commercial (53% of loans)
• Canadian Commercial (47% of loans)

Gross Loans and Acceptances as of Q3 F2020

Consumer	Business and	Commercial
72%
43%	Government
	57%	Capital Markets
		25%
		Other
		3%

While Business & Government PCL tends to increase more quickly in times of stress, long-term loss rates are lower than consumer

Business lending consistently produces lower loss rates

	Business & Government	Consumer
	PCL bps	PCL bps
1.0	Avg. PCL bps: 15	Avg. PCL bps: 38

0.8

0.5

0.3

0.0

-0.3

-0.5

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

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Business and Government overview

Focused growth over last 5 years relatively consistent with peer average

Diversification is a key ingredient to portfolio growth

Year-to-date growth in F2020 has moderated in line with economic environment

1. Business and Government loans include Capital Markets, Commercial and other. Balances as at period end
2. CAGR calculated for BMO and peers based on a 5 year period from Q3 F2015 to Q3 F2020
3. Industry Diversification represents percentage of Business and Government portfolio. Transportation industry growth between F2015 and F2020 primarily a result of acquisition of Transportation Finance portfolio

Business & Government Loan Growth1

300 $CAD Billions

250							5-year
200							CAGR2
					11.6%
150
100							Peer
50							5-year CAGR
0							10.8%
	Q4 F2015	Q4 F2016	Q4 F2017	Q4 F2018	Q4 F2019	Q3 F2020

Business & Government Industry Diversification3

Q4 F2015	Q3 F2020			ServiceServiceIndustriesIndustries	Q4 F2015	Q3 F2020
						18%	19%
	2%					Financial
4%6%	5%5%				Financial	20%	17%
18%	19%			CommercialCommercialRealRealEstateEstate	14%	16%
5%
7%		6%				ManufacturingManufacturing	11%	11%
					RetailRetailTradeTrade	9%	8%
9%		8%
20%		17%		OtherWholesale Trade	9%	8%
9%	8%			WholesaleOil & GasTrade	7%	6%
				OilAgriculture& Gas	4%	5%
11%	14%	11%	16%			AgricultureTransportation	6%	5%
						TransportationOther	2%	5%

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Commercial portfolio overview

Well diversified between Canada and U.S. and within the two countries

Diversified by industry sector, product type and without any significant single name concentrations

Long-term, focused growth strategy comprised of

• Leveraging localized sector and product expertise across geographies
• Diversifying outside of the bank's core U.S. footprint

1. Represents portion of Business & Government loans managed within the Commercial business only. Balances as at period end
2. Industry Diversification represents percentage of Commercial portfolio. Transportation industry growth between F2015 and F2020 primarily a result of acquisition of Transportation Finance portfolio

Commercial Loan Growth1

200 $CAD Billions

Canadian Commercial

U.S. Commercial

150					47%	47%
		45%	47%	47%
100
50%
50		55%	53%	53%	53%	53%
50%
0
Q4 F2015	Q4 F2016	Q4 F2017	Q4 F2018	Q4 F2019	Q3 F2020

Commercial Industry Diversification2

Q4 F2015	Q3 F2020
							Q4 F2015	Q3 F2020
8%	3%	7%	6%			Service Industries	20%	22%
20%		22%		Commercial Real Estate	15%	16%
9%		7%				Financial	14%	12%
7%		8%				Manufacturing	12%	12%
				Retail Trade	12%	10%
		15%		16%
				Wholesale Trade	7%	8%
12%		10%
				Agriculture	9%	7%
12% 14%	12%	12%		Other	8%	7%
						Transportation	3%	6%

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Commercial risk metrics

New borrowers risk profile is stronger than the existing total portfolio

Consistent credit quality over time, including consistent watch and impaired balances throughout the period

Recent portfolio migration started in Q1 F2020 due to COVID pandemic

Migration is most pronounced, as expected, in the high COVID impacted industries, which represent a relatively small portion of the overall portfolio

1. WAPD = Weighted Average Probability of Default based on exposures, excluding defaulted loans and securitizations. New is defined as new borrower for trailing twelve months

No Change in Risk Appetite: WAPD1 (Portfolio vs. New)

0.89%	0.88%						0.85%
		0.83%
			0.79%		0.79%	Portfolio
			0.77%	0.78%
	0.78%		0.76%				New
0.72%
	0.69%
			0.66%	0.66%		0.66%
				0.64%
F2015	F2016	F2017	F2018	F2019	Q1 F2020	Q2 F2020	Q3 F2020

Commercial Risk Rating Distribution

		1%				1%						1%						1%					1%			1%
8%		3%				3%						3%	7%			2%		7%		2%			3%
	4%	9%		4%	8%				4%		3%			3%	9%		5%
16%			17%			17%				17%					16%			16%
19%			19%			20%				22%					22%			21%
49%			47%			47%				48%					49%			45%
Q4 F2015			Q4 F2016		Q4 F2017			Q4 F2018			Q4 F2019		Q3 F2020
				Investment Grade		S-1		S-2		S-3		S-4		Watchlist		Impaired
												BMO Investor Event 2020	|		September 30, 2020	25

Commercial loan growth has not impacted credit quality

New borrowers from F2018 and F2019 have not		Commercial Impaired Balances - New vs. Existing
materially contributed to the increase in impaired
balances or PCL
		96%				92%
		4%		8%
					Q4 F2019	Q3 F2020
PCL has grown in recent quarters, with stress in			Commercial PCL on Impaired Loans - New vs. Existing
particular segments (e.g. Transportation) and COVID
impacted businesses
		88%				87%
		12%	13%
					F2019	YTD F2020
							New		Existing
			New borrowers represent any new borrower originated in 2018 and 2019 and performance of that borrower through Q3 2020
							BMO Investor Event 2020 | September 30, 2020	26

Stress testing is fundamental to our risk management approach

Portfolio Stress Testing

Run individual portfolios through broad range of tail and more likely scenarios to:

• Ensure Risk-Return is appropriate
• Assess appropriateness of current risk appetite based on magnitude of losses and capital demand capacity

Commercial Real Estate 3 Year Loss Rates

Scenario	Probability
1	Q3 F2020 COVID-related	~ 10%	1.61%
(lockdown measures persist to mid 2021)
2	Q3 F2020 COVID-related	~ 25%	1.19%
(restrictions lifted by end of 2020)

3	Q1	F2020 hypothetical severely adverse	~ 1%		4.75%
4	Q1	F2020 hypothetical adverse	~ 15%		1.81%
5	Great Financial Crisis	Realized		2.50%

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Commercial lending has low loss rate on formations

Well structured and highly secured portfolio contributing to a manageable loss rate of ~30% over the last three years

• >80% of the total portfolio secured or government guaranteed1
• ~95% of the total non-investment grade portfolio secured or guaranteed

Impaired balances have been increasing given the current market stress; however PCL has not grown at the same rate

• ~20% of impaired balances are comprised of low loss rate businesses such as Asset Based Lending

Commercial Impaired PCL / Impaired Formations

60%			30%
50%			manageable
		loss rate
40%
30%			PCL/Formation % Avg.
			PCL/Formation %
20%
10%
0%
2017	2018	2019	2020
			to Q3

1. Government guaranteed includes COVID government support programs

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Payment deferrals

13% of commercial portfolio has received payment relief since the start of the pandemic with only 5% still on deferral

~90% of active relief is set to expire by October 2020

Less than 10% of expired relief have been granted extensions

~2% of expired relief is showing defaults and/or delinquency since expiration

1. Payment relief in Canadian Business Banking was generally granted for a six month period. Payment relief in the U.S. was granted for a three month period
2. Scheduled relief remaining column represents the expected active relief remaining assuming that all relief set to expire through October 31 does not get extended

Canadian Commercial Payment Deferrals1

% of portfolio outstandings

19.2%

10.8%

		0.9%
Cumulative Relief Granted	Active Relief Remaining as of	Scheduled Relief Remaining as of
	September 11	October 31	2

U.S. Commercial Payment Deferrals1

% of portfolio outstandings

8.1%
	0.9%	0.4%
Cumulative Relief Granted	Active Relief Remaining as of	Scheduled Relief Remaining as of
	September 11	October 31 2
	BMO Investor Event 2020 | September 30, 2020	29

Industries of heightened focus

Industries of heightened focus represent 10% of the commercial portfolio

1. Industries of heightened focus also include Airlines, Retail REITs and Lodging REITs. These sub-segments are not displayed as loans are less than 1% of total commercial portfolio.

Watchlist and Impaired percentage as of Q3 F2020; all other metrics are Q2 and Q3 F2020 combined

Commercial Lending Portfolio: Industries of heightened focus

$19B of $190B Commercial lending portfolio

			3%	- Retail trade (excl. Food & Bev and Auto)
Other	Industries of	2%	- Hotels
Industries,
Heightened Focus,	2%	- Restaurants
90%
10%
		2%	- Amusement and recreational
		1%	- CRE Retail property types

	Net Migration	Watchlist	Impaired	Formations ($MM CAD)	PCL ($MM CAD)	Reviewed
Industries of heightened focus1	-31%	6%	2%	309	74	81%

Retail	CRE	Hotels	Restaurants
(excl. Food & Bev and Auto)	Retail property types
Higher impaired loan formations	Credit profile remains strong,	~90% secured with real estate;	~60% with franchises backed
but modest PCL largely based on	with no impaired loan	further supported with specific	by strong regional and national
Asset Based Lending structures	formations or PCL since the start	recourse arrangements to	brands
	of the pandemic	ownership groups. Formations
		since Q1 very low with no PCL

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30

Key takeaways

1 Commercial credit risk	2 Recent loan growth has
profile within risk	not disproportionately
appetite and consistent	impacted credit quality,
with expectations	impairments, or PCL

This is a result of:

Strong risk culture Robust credit process SAMU team excellence Portfolio diversification

Appropriate lending structures

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31

Closing Remarks

Tom Flynn | Chief Financial Officer

Key takeaways

North American

Commercial Banking

strength

• Unparalleled expertise and industry knowledge
• Good profitability, representing ~30% of bank revenues
• Diversified earnings source with attractive risk-return profile
• Strategic value, driving benefits to other businesses through One Bank approach

Strong risk culture

and consistent

risk appetite

• Disciplined and integrated risk management
• Robust credit monitoring and controls at all levels
• Harmonized North/South approach
• Better than peer loss rates over time

Proven

strategy

over time

• Resilient earnings power
• Strong balance sheet and capital position; flexibility to invest and grow in areas of strategic importance
• Well-positionedfor current uncertain environment and eventual economic recovery

BMO Investor Event 2020 | September 30, 2020

33

BMO Financial Group

Investor Relations

Contact Information

bmo.com/investorrelations

Email: [e-mail]