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MarketScreener Homepage  >  Equities  >  Toronto Stock Exchange  >  Bank of Montreal    BMO   CA0636711016

BANK OF MONTREAL

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

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10/01/2020 | 09:35am EDT

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.

BMO Investor Event 2020 | September 30, 2020

2

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

BMO Investor Event 2020 | September 30, 2020

4

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

BMO Investor Event 2020 | September 30, 2020

6

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

BMO Investor Event 2020 | September 30, 2020

7

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

BMO Investor Event 2020

| September 30, 2020

8

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

BMO Investor Event 2020 | September 30, 2020

9

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

BMO Investor Event 2020 | September 30, 2020

10

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

BMO Investor Event 2020 | September 30, 2020

11

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

BMO Investor Event 2020 | September 30, 2020

12

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

BMO Investor Event 2020 | September 30, 2020

13

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

BMO Investor Event 2020 | September 30, 2020

14

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

BMO Investor Event 2020 | September 30, 2020

16

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

BMO Investor Event 2020 | September 30, 2020

17

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

BMO Investor Event 2020 | September 30, 2020

18

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

BMO Investor Event 2020 | September 30, 2020

19

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

BMO Investor Event 2020 | September 30, 2020

20

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

BMO Investor Event 2020 | September 30, 2020

21

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

BMO Investor Event 2020 | September 30, 2020

22

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%

BMO Investor Event 2020 | September 30, 2020

23

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%

BMO Investor Event 2020 | September 30, 2020

24

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%

BMO Investor Event 2020 | September 30, 2020

27

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

BMO Investor Event 2020 | September 30, 2020

28

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

BMO Investor Event 2020 | September 30, 2020

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

BMO Investor Event 2020 | September 30, 2020

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: investor.relations@bmo.com

Disclaimer

BMO - Bank of Montreal published this content on 01 October 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 01 October 2020 13:34:04 UTC


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Sales 2020 23 434 M 17 803 M 17 803 M
Net income 2020 4 528 M 3 440 M 3 440 M
Net Debt 2020 - - -
P/E ratio 2020 11,7x
Yield 2020 5,24%
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Capi. / Sales 2020 2,25x
Capi. / Sales 2021 2,23x
Nbr of Employees 45 513
Free-Float 100,0%
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Technical analysis trends BANK OF MONTREAL
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Mean consensus HOLD
Number of Analysts 15
Average target price 85,11 CAD
Last Close Price 82,73 CAD
Spread / Highest target 20,9%
Spread / Average Target 2,88%
Spread / Lowest Target -21,4%
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Managers
NameTitle
Darryl White Chief Executive Officer & Director
George Alexander Cope Chairman
Cameron Fowler Chief Operations & Strategy Officer
Steven Tennyson Chief Operations & Technology Officer
Thomas E. Flynn Chief Financial Officer
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