3rd Quarter Strategic Update Tony Comper Chairman & CEO

Transcription

1 3rd Quarter 2000 Strategic Update Tony Comper Chairman & CEO

2 On Target with Our Financial Objectives Strong growth in personal and commercial banking and wealth management Strong expense management On target with our financial objectives EPS growth of at least 10% per annum Increase in ROE of 1-1.5% per year 2

3 Reinvesting in High Growth Areas Exit our Bancomer Investment Reinvest in High Growth Areas 6 Point Growth Strategy including: Hispanic Banking (use of Bancomer wire transfer service in Illinois over the next 5 years) 3

4 Building on Our Leadership in Investment Banking Media Team in New York off to a strong start with the Halyard Capital Fund Ranked #1 in: Institutional equity Research Securitizations Corporate debt underwriting Ranked #2 in: Corporate underwriting 4

5 Continuing to Build the Value of Harris Bank Mortgage, Small Business & Consumer Loans Total Expenses (incl. provisions) $5.1B 8.9% $5.6B $192MM 5.3% $182MM Q Q Q Q

6 Continuing to Grow Wealth Management Private Client Group Net Income $36MM 27% Increase $45MM Q Q

7 Strong Growth in Full Service Investing Assets Under Admin. & Management $47B 25% Increase $59B Q Q

8 Strong Growth in Direct Brokerage Customers 500, , % Increase Freeman Welwood 300,000 Harris InvestorLine 200, ,000 Q Q Q Q Q BMO InvestorLine 8

9 Building our U.S. Wealth Management Franchise Freeman Welwood Seattle Bellevue Tacoma Spokane Portland San Francisco Denver Salt Lake City Phoenix Honolulu BCL Securities Chicago Milwaukee Cleveland Detroit Harris Private Bank Chicagoland (9 offices), Ft. Meyers, Phoenix, Sarasota, Tucson, Naples, Scottsdale, Vero Beach, Sun City, West Palm Beach 9

10 Capitalize on Our Strong Canadian Position In P&C Banking P&C Net Income ($MM) (excl. Bancomer & one-time items) Solid Loan Growth in Core P&C Businesses ($MM) $160 29% $206 $38 $41 $20 $22 $17 $18 Q Q Res. Mortgages Commercial Loans Credit Cards & Personal Loans Q Q

11 Rapid Progress in Re-Balancing Our Cdn. Distribution Network Number of Branches Total F1999 1,042 Announced Sales (YTD)* 64 Consolidated 28 In-stores opened 22 Purchased CT/TD branches 12 Balance Q YTD 2000* Traditional Branches In-stores * Including announced sales of 16 branches to Credit Unions which have not yet closed. 11

12 Driving e-business Opportunities BMO, Harris and Royal Bank to combine their merchant card processing epost - the world s first electronic postal system Recently signed on City of Toronto Veev - wireless round-the-clock Internet banking, stock trading and information services Capability to connect to any Internet access device Harris first bank in U.S. to provide services via digital mobile phones 12

13 Focusing on Cost, Capital and Risk Management Recent Divestitures Branch Sales (gain of $44MM*) Corporate Trust (gain of $74MM) Partners First (gain of $112MM) Global Custody (gain of $27MM) * including expected gain of $11MM on sale of 16 branches not yet closed Recent Strategic Investments Private Client BCL ($71MM) Village Banc of Naples ($19MM) Freeman Welwood ($140MM) Investment Banking Merchant Banking (US$450MM over 3-5 years) Personal & Commercial Commercial Banking ($100MM over 2 years) 13

14 Focusing on Cost, Capital and Risk Management On track with expense rate reduction of $250 MM $400MM run rate reduction by end of F2000 $182MM in cost savings to date As of July 31, BMO has repurchased 6.1MM shares at a cost of $385MM 14

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16 3rd Quarter 2000 Financial Overview Bob Wells EVP & CFO

17 Reported Earnings: 5% EPS Growth Excluding Gains From Business Dispositions Net Income ($MM) Earnings Per Share - FD ($) Return On Equity (%) Cash Return On Equity (%) Net Income ($MM) Earnings Per Share - FD ($) Return On Equity (%) Cash Return On Equity (%) Q Growth Growth Yr / Yr Q3 / Q2 Increase % Increase % ( 1.2) ( 1.5) 1 2 ( 96 ) ( 0.35) ( 4.8 ) ( 5.2) Excluding Gains From Business Dispositions * ( 0.9) ( 1.9 ) 3 5 ( 55) ( 0.20) ( 3.1) ( 3.3) 00 Q3: Gain on sale of Canadian branches of $11MM 00 Q2: Gains on sale of the U.S. corporate trust businesses and of Canadian branches of $52MM 99 Q3: Gain on sale of Global Custody of $18MM * ( 19) ( 20) ( 12) ( 13 ) 2

18 Financial Performance Highlights Continued strong performance. Year-over-year growth in Personal and Commercial and Private Client. Weaker capital markets affected Investment Banking. Lower earnings from Bancomer. Continued growth in revenues from Personal and Commercial of 9% and Private Client of 23% partly offset by lower revenues in Investment Banking and Bancomer. Excluding revenue driven compensation, expenses declined by 1.6%. Asset quality remains sound. 3

19 Income Statement ($MM) Q Q Q Yr / Yr Growth Net Interest Income - TEB Other Income Total Revenues Provision For Credit Losses Non-Interest Expense Income Before Taxes Taxes, MI & Amort. Of G/W 1,090 1,005 2, , ,084 1,200 2, , , , , ( 0.2% ) Net Income Net Economic Profit Total Bank Average Assets ($B) ( 15.7) 5.3% 4

20 Net Income Continued Strong Performance. Year Over Year Growth In Personal And Commercial And Private Client. Weaker Capital Markets Affected Investment Banking. Lower Earnings From Bancomer Personal & Commercial (P&C) Private Client Group (PCG) Investment Banking Group (IBG) Corporate Support Sub-total Bancomer Total Bank Ex. Gains Q3 00 $MM ( 9 ) Growth Yr / Yr Excluding Gains From Business Dispositions * $MM % $MM % 46 9 ( 31 ) ( 16 ) ( 86 ) ( 18 ) nm 3 Growth Q3 / Q2 ( 3 ) ( 16 ) ( 30 ) 12 nm ( 37) ( 8) ( 18 ) ( 87) ( 55) ( 1) ( 26) ( 17) ( 12) * 00 Q3: Gain on sale of Canadian branches of $11MM 00 Q2: Gain on sale of the U.S. corporate trust businesses and of Canadian branches of $52MM 99 Q3: Gain on sale of Global Custody of $18MM 5

21 $MM Third Quarter Compared To Second Lower Due To Weaker Markets Net Income (Excluding Gains) Q1 99 Q2 99 Q3 99 Q4 00 Q1 00 Q2 00 Q3 P&C EX Bancomer PCG IBG 6

22 Total Revenues Q3 00 $MM Excluding Gains From Business Dispositions * Personal & Commercial (P&C) Private Client Group (PCG) Investment Banking Group (IBG) Corporate Support Sub-total Bancomer Total Bank Ex. Gains Continued Growth In Revenues From Personal And Commercial Of 9% And Private Client of 23% Partially Offset By Lower Revenues In Investment Banking And Bancomer 1, ( 26 ) 2, ,076 Growth Yr / Yr Growth Q3 / Q2 $MM % $MM % ( 61) 4 ( 14 ) ( 76 ) ( 12 ) ( 100 ) ( 15 ) ( 1 ) 95 ( 17 ) nm 5 ( 78 ) 20 ( 101) ( 19 ) nm ( 5) ( 80) 78 4 ( 120) ( 5) * 00 Q3: Gain on sale of Canadian branches of $19MM 00 Q2: Gain on sale of the U.S. corporate trust businesses and of Canadian branches of $88MM 99 Q3: Gain on sale of Global Custody of $27MM 7

23 Net Interest Income Driven By Volume Increases In Most LOB's Offset By Lower Capital Market Spreads And Bancomer Net Interest Income Growth Yr / Yr Growth Q3 / Q2 NII Avg Bal. Margin NII Avg Bal. Margin $MM $B bps $MM $B bps Personal & Commercial (P&C) Private Client Group (PCG) Investment Banking Group (IBG) Corporate Support Sub-total Bancomer Total Bank ( 68) ( 14) 16 ( 18 ) ( 2) ( 4) ( 25) nm ( 6 ) nm ( 9) ( 31) 7 26 ( 20) ( 2) ( 15) nm ( 4) nm ( 7) 8

24 Other Income Other Income Excluding Gains Up 9% Year Over Year. Down 11% From Q2 Due To Capital Markets And Trading Excluding Gains From Business Dispositions Personal And Commercial (P&C) Private Client Group (PCG) Investment Banking Group (IBG) Corporate Support Total Ex. Bancomer Bancomer Total Bank Ex. Gains * Q3 00 $MM Growth Yr / Yr Growth Q3 / Q2 $MM % $MM % ( 8) ( 3) * 11 nm 9 nm 9 1 ( 72) ( 69) 13 nm ( 127) ( 11) 1 ( 126) 00 Q3: Gain on sale of Canadian branches of $19MM 00 Q2: Gain on sale of the U.S. corporate trust businesses and of Canadian branches of $88MM 99 Q3: Gain on sale of Global Custody of $27MM - ( 23) ( 20) nm ( 11) 9

25 Expenses Expenses Q3 00 $MM Growth Yr / Yr Growth Q3 / Q2 $MM % $MM % Personal And Commercial (P&C) 754 Private Client Group (PCG) 295 Investment Banking Group (IBG) 283 Corporate Support ( 8 ) Sub-total 1,324 Bancomer 2 Total Bank 1,326 * ( 14 ) ( 15 ) ( 4 ) nm 3 ( 17 ) ( 31 ) ( 10) ( 39 ) ( 12) 4 nm ( 22) ( 2) - ( 9 ) ( 22) ( 2) * Excludes amortization of goodwill 10

26 Excluding Revenue Driven Compensation, Expenses Declined By 1.6% (2.4 % YTD) Expenses Contribution To Growth Q3 00 Growth Yr / Yr Growth Q3 / Q2 $MM $MM % $MM % Revenue Driven Compensation Spending On New Strategic Initiatives Currency Translation Effect Normal Operating Expense Incl. Cost Reduction Initiatives Of $67MM in Q3 and $182MM YTD Total 1,326 * , ( 69) ( 5.6) ( 46) ( 3.4) ( 1.6 ) ( 22) ( 1.7) * Excludes amortization of goodwill 11

27 Excluding Revenue Driven Compensation, Expenses Declined By 1.6% (2.4 % YTD) 10 NIX Growth % Q1 99 Q2 99 Q3 99 Q4 00 Q1 00 Q2 00 Q Total Bank 12

28 Financial Measures Measures (%) Total Shareholder Return (5 year) Performance EPS Growth (fully diluted) Return On Equity Revenue Growth Expense To Revenue Ratio * * PCL / (Loans + Acceptances) Ratio Net Economic Profit Growth Condition Gross Impaired Loans / (Equity + ACL) Ratio Capital Ratio (Tier 1) Liquidity Ratio Credit Rating (Senior Debt) Expense excludes amortization of goodwill Q3 YTD AA - Q3 YTD ( 1.0 ) ( 12.3) AA - Total Yr ( 13.4) AA - 13

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30 3rd Quarter 2000 Risk Review Mike Maila EVP Risk Management

31 Highlights Asset quality remains sound Loan portfolio remains well-diversified Likewise, there is no sectoral concentration in impaired loans and the Allowance for Credit Losses provides 121% coverage of Gross Impaired Loans Forecast provision remains at $400MM for F2000 Market Risk exposures are trending lower 2

32 The Bank Benefits From A Well Diversified Portfolio Composition of Total Portfolio ($146.7B as at July 31, 2000) Repos 14% Designated Countries 0.2% Corporate & Commercial 48% Consumer 38% Canada 61% Geographic Distribution Other 3% US 36% See Page 22 of Supplementary Financial Information for further information 3

33 The Corporate & Commercial Portfolio is Well-Diversified Industry Distribution Of Corporate & Commercial Portfolio % Other - 6 Sectors Financial Institutions Service Sectors Mining & Energy Manufacturing Sectors Commercial Mortgages Construction Real Estate See Page 22 of Supplementary Financial Information for further information 4

34 Portfolio ($MM) Gross Impaired Loans Increase, But Covered By Allowance Oct 1998 Oct 1999 Q Q Q Individual Corporate & Commercial ,081 Commercial Real Estate Gross Impaired Loans (GIL) 824 1,092 1,164 1,189 1,334 % ACLs as a % of GILs Q % Q See Pages of Supplementary Financial Information for further information 5

35 No Single Portfolio Segment Represents A Significant Problem Net Impaired Loans, Excluding General Allowance Agriculture Real Estate Financial Institutions Manufacturing Mining/Energy Service Sectors Others - 7 Sectors Individuals Basis Points of Total Loans See Page 29 of Supplementary Financial Information for further information 6

36 Cdn. Consumer Credit Quality Remains Strong 90 Day Delinquency Ratio - Personal Installment Loans` 85 Bps of Total Portfolio Industry Average BMO 15 Oct-94 Oct-95 Oct-96 Oct-97 Oct-98 Oct-99 Jan-00 Apr-00 7

37 Forecast Provision Remains Unchanged Provisions By Portfolio ($MM) F2000 A1999 A1998 Individuals TBD Commercial & Corporate TBD 154 (43) General Provision TBD PCL Provision as a % of Average Loans & Acceptances See Page 26 of Supplementary Financial Information for further information 8

38 Market Risk Exposures Are Trending Lower Aggregate Market Value Exposure (potential impact on balance sheet values) equates to approximately 3% of Total Capital Market Value Exposure $373MM Earnings at Risk $98MM 0 Q2-99 Q3-99 Q4-99 Q1-00 Q2-00 Q3-00 Expressed in terms of the potential impact on earnings over the next 12 months, the exposure represents approximately 7% of F1999 net income See Page 10 of Supplementary Financial Information for further information 9

39 Forward-Looking Statements This presentation includes forward-looking statements. These forward-looking statements include but are not limited to comments with respect to our objectives and strategies, financial condition, the results of our operations and our businesses, our outlook for the North American economies and our risk management. However, by their nature these forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, and the risk that predictions and other forward-looking statements will not be achieved. We caution readers of this presentation not to place undue reliance on these forward-looking statements as a number of important factors could cause actual future results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. Forward-looking statements may be influenced by the following factors: fluctuations in market prices, interest rates and currency values; regulatory developments; the effects of competition in the geographic and business areas in which we operate, including continued pricing pressure on loan and deposit products; and changes in political and economic conditions including, among other things, inflation and technological changes. We caution that the foregoing list of important factors is not exhaustive and that when relying on forward-looking statements to make decisions with respect to Bank of Montreal, investors and others should carefully consider the foregoing factors as well as other uncertainties and events. 10

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