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Q3 09 Analyst Presentation - RR - Final (wth EPS comment)

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29 pages
Q309Financial ResultsDefining great customer experience.Russ RobertsonChief Financial OfficerAugust 25, 2009Forward Looking StatementsCaution Regarding Forward-Looking StatementsBank 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 securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made pursuant to the safe harbour 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 may involve, but are not limited to, comments with respect to our objectives and priorities for 2009 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price, and the results of or outlook for our operations or for the Canadian and U.S. economies.By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. 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. We caution readers of this ...
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Defining great customer experience.
QF3inanci0al Resu9lts
Russ Robertson
Chief Financial Officer
August 25, 2009
Forward Looking Statements
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 securities regulators or the U.S. Securities and Exchange Commission, or in other communications. All such statements are made pursuant to the safe harbour 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 may involve, but are not limited to, comments with respect to our objectives and priorities for 2009 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price, and the results of or outlook for our operations or for the Canadian and U.S. economies. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. 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. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors 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; interest rate and currency value fluctuations; changes in monetary policy; the degree of competition in the geographic and business areas in which we operate; changes in laws; judicial or regulatory proceedings; the accuracy and completeness of the information we obtain with respect to our customers and counterparties; our ability to execute our strategic plans and to complete and integrate acquisitions; critical accounting estimates; operational and infrastructure risks; general political conditions; global capital market activities; the possible effects on our business of war or terrorist activities; disease or illness that impacts on local, national or international economies; disruptions to public infrastructure, such as transportation, communications, power or water supply; and technological changes. We caution that the foregoing list is not exhaustive of all possible factors. Other factors could adversely affect our results. For more information, please see the discussion on pages 30 and 31 of the BMO 2008 Annual Report, which outlines in detail certain key factors that may affect our future results. When relying on forward-looking statements to make decisions with respect to Bank of Montreal, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Bank of Montreal does not undertake to update any forward-looking statement, 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 document is presented for the purpose of assisting our shareholders in understanding our financial position as at and for the periods ended on the dates presented and our strategic priorities and objectives, and may not be appropriate for other purposes. Assumptions about the level of asset sales, expected asset sale prices, net funding cost, credit quality and risk of default and losses on default of the underlying assets of the structured investment vehicles were material factors we considered when establishing our expectations regarding the structured investment vehicles discussed in this document, including the amount to be drawn under the BMO liquidity facilities and the expectation that the first-loss protection provided by the subordinate capital notes will exceed future losses. Key assumptions included that assets would continue to be sold with a view to reducing the size of the structured investment vehicles, under various asset price scenarios, and that the level of defaults and losses will be consistent with the credit quality of the underlying assets and our current expectations regarding challenging market conditions continuing. Assumptions about the level of defaults and losses on defaults were material factors we considered when establishing our expectation of the future performance of the transactions that Apex Trust has entered into. Key assumptions included that the level of defaults and losses on defaults would be consistent with historical experience. Material factors that were taken into account when establishing our expectations of the future risk of credit losses in Apex Trust included industry diversification in the portfolio, initial credit quality by portfolio and the first-loss protection incorporated into the structure. Assumptions about the performance of the Canadian and U.S. economies as well as overall market conditions and their combined effect on the bank’s business, including those described under the heading Economic Outlook in our Third Quarter 2009 Report to Shareholders, are material factors we consider when determining our strategic priorities, objectives and expectations for our business. In determining our expectations for economic growth, both broadly and in the financial services sector, we primarily consider historical economic data provided by the Canadian and U.S. governments and their agencies.
Financial Results uAgust 25, 2009
1
Non-GAAP Measures
Bank of Montreal uses both GAAP and non-GAAP measures to assess performance. Securities regulators require that companies caution readers 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 as well as the rationale for their use can be found in Bank of Montreals Third Quarter 2009 Report to Shareholders, MD&A and 2008 Annual Report to Shareholders all of which are available on our website atwww.bmo.com/investorrelations.
Non-GAAP results or measures include revenue, taxes and cash operating leverage results and measures that use taxable equivalent basis (teb) amounts, cash-based profitability and cash operating leverage measures, net economic profit and results and measures that exclude items that are not considered reflective of ongoing operations. In addition, results stated on a basis that excludes charges for certain trading and valuation adjustments, changes in the general allowance and restructuring charges are non-GAAP measures. Bank of Montreal provides supplemental information on combined business segments to facilitate comparisons to peers.
Financial Results uAugts 25, 2009
2
Q3 2009 Financial Highlights
Cash Tier 1 O IncNoemt eEPSYG/rYo EwtPhSCEaPsSh ROELepveerrataigneg SpPeCciLfic AlGloewnaernacl e(CBRaaspaeitlit oIaI )l
$557MM $0.97 (1.0)% $0.98 12.1% 3.2% $357MM $60MM 11.71%
Adjusted cash EPS of $1.05 after excluding an increase in the general allowance of $39MM after tax ($0.07 per share) Strengths Record revenues P&C Canada momentum continues with strong net income growth of 13% and very strong commercial revenue growth of 17% Good performance from BMO CM, capitalizing on business opportunities with strong returns results reflect insurance results and improving equity marketsPCG focus with strong loyalty scores and deposit retentionP&C U.S. results reflect continued customer Tier 1 capital ratio remains strong Challenges Loan portfolio continues to be impacted by negative credit risk migration as expected, but at a slowing pace in a number of areas Continued market environment pressures
Financial Results uAugts2 5, 2009
3
Record Revenue and Strong Growth Total Revenue($MM)2,978 2,746 2,813 2,442 2,655
K Q/Q $323MM or 12.2% + Improved margins and higher activity fees in P&C Canada + Higher trading revenues and lower investment securities losses in BMO CM, partially offset by lower M&A and equity underwriting fees + Capital markets environment charges of $117MM in Q2 09 + Three additional calendar days in Q3 09 + Higher net interest income in Corporate Services due to actions to lower the negative carry on certain asset-liability interest rate and liquidity positions, as well as more stable market conditions + BMO Life Assurance acquisition ($17MM) - Weaker U.S. dollar decreased revenue by $101MM - Lower securitization revenue and mark-to-market losses on hedging activities versus gains in Q2 in Corporate Services
Y/Y $232MM or 8.4% K + Improved margins across all operating groups, except PCG + Volume growth across most products in P&C Canada + Higher trading and corporate banking revenue as well as reduced securities losses in BMO CM + Stronger U.S. dollar increased revenue by $75MM + Capital markets environment charges of $134MM in Q3 08 + BMO Life Assurance acquisition ($27MM) - Higher levels of impaired loans in P&C U.S. more than offset gains on mortgage sales and deposit growth - Lower fee-based and commission revenue in PCG
Q3 Q4 Q1 Q2 Q3 08 09 P&C Canada P&C U.S. PCG BMO CM Corporate Revenue Mix Q3 Q2 Q3 Q/Q Y/Y ($MM) 2008 2009 2009 B/(W) B/(W) NII1,282 1,3351,466131 184 NIR1,464 1,3201,512192 48 TRoetvael nue2,746 2,6552,978323 232 NIM (%)1.58 1.551.740.19 0.16
Financial ResultsAugust 25, 20094
Non-Interest Revenue Analysis
($MM) Securities Commissions Trading Revenues Card Fees Mutual Fund Revenue Securitization Revenue Underwriting and Advisory Fees Securities Gains (other than trading) Insurance Income Other NIR TOTAL NON-INTEREST REVENUE
Q3 08 294 220 88 151 133 97 (75) 60 496 1,464
Q2 09 235 63 33 106 262 103 (42) 64 496 1,320
Q3 09 240Y/Y:Lower securities commissions due to difficult market environment Excluding capital markets environment charges: 273Q3 08:$296MMQ2 09:$180MM Q/Qbenefited from higher interest-rate trading revenue 35Y/Y:Lower fees due to the impact of securitizations 119Y/Y:Lower asset levels Q/Q:Mortgage securitization gains recorded in Q2 09 202Y/Y:revenue due to higher card andHigher securitization mortgage balances 101 Excluding capital markets environment charges:Q3 08:($14MM) (12)Q/Q:Securities gains in P&C Canada and lower securities losses in BMO CM 85BMO Life Assurance added $10MM inQ2 09and $27MM inQ3 09 469Q/Q:Lower overall FX revenue 1,512
Financial ResultsAugust 25, 20095
Non-Interest Expense
As Reported ($MM) P&C Canada P&C U.S. Total P&C PCG BMO Capital Markets Corporate Services Total Bank
Cash Productivity Ratio(%) P&C Canada P&C U.S. Total P&C PCG BMO Capital Markets Total Bank
Cash Operating Leverage (%)
Q3 08 697 194 891 394 477 20 1,782
Q3 08 55.6 74.5 58.7 69.5 63.4 64.5
0.0
Q4 08 714 243 957 394 451 16 1,818
Q4 08 55.6 86.2 60.9 77.8 62.4 64.2
18.0
Q1 09 704 231 935 385 473 48 1,841
Q1 09 56.2 74.3 59.7 80.2 65.0 75.0
6.4
Q2 09 693 234 927 363 451 147 1,888
Q2 09 54.4 76.9 58.6 77.4 55.6 70.7
(11.0)
Q3 09 737 215 952 392 516 13 1,873
Q3 09 54.3 76.0 57.9 75.0 49.9 62.5
3.2
Q/Q B/(W) (6)% 8% (3)% (8)% (14)% 91% 1%
Y/Y B/(W) (6)% (11)% (7)% -% (8)% 37% (5)%
Financial ResultsAugust 25, 2009
6
Non-Interest Expense Analysis
($MM)
Salaries Performance-based Compensation
Benefits
Premises & Equipment/Rental
Computer Costs Other TOTAL NON-INTEREST EXPENSE
Q3 08
561
353
130
142
170 426 1,782
Q2 09
673
278
178
162
177 420 1,888
Q3 09
570Q2 09:$555MM, excluding severance costs of $118MM
397Q/Q & Y/Y:results in line with higher revenues primarily BMO CM
155
148Q/Q:lower due to FX impact and continuing expense management
165Q/Q:lower due to timing of spend Q/Q & Y/Y:Higher U.S. FDIC premiums (Q3 09: $32MM, Q2 09: 438Q3 08: $1MM) and inclusion of BMO Life$19MM, Assurance 1,873
Financial ResultsAugust 25, 20097
Capital & Risk Weighted Assets Capital ratios remain strong
Basel II
Tier 1 Capital Ratio (%) Excess Capital Over 8% Total Capital Ratio (%) Assets-to-Capital Multiple (x) RWA ($B)
Total As At Assets ($B) Tangible Common Equity-to-RWA (%)
Q3 08 Q4 08 Q1 09 Q2 09
9.90 9.77 10.21 10.70 $3.5B $3.4B $4.3B $5.0B 12.29 12.17 12.87 13.20 15.9 16.4 15.8 15.4 182.3 191.6 193.0 184.6
375.0 416.1 443.2 432.2
7.44 7.47 7.77 8.24
Q3 09
11.71 $6.4B 14.32 14.9 171.6
415.4
8.71
Basel II Tier 1 Capital & Common Shareholders Equity(C$B) 19.7 19.7 20.1 18.0 18.7 .9 16.7 15.116.016.916 8.71 8.24 7.47 7.77 7.44
Q3 Q4 Q1 Q2 Q3 0809 Tier 1 Capital Common Shareholders' Equity TCE/RWA Ratio (%)
Financial ResultsAugust 25, 20098
Diversified Wholesale Term Funding Mix  Loans for example are largelyWholesale funding principles seek to match the term of assets with the term of funding. funded with customer deposits and capital, with the difference provided by longer-term wholesale funding. wholesale funding platform across markets, products, terms, currencies and maturities.BMO has a well diversified met as has a good portion of 2010.All fiscal 2009 term-funding requirements have now been ratio and level of core deposits.Liquidity position remains sound as reflected by cash and securities to total asset
C$ Seni Debt 16%
Wholesale Capital Market Term Funding Composition (Total $70.6) As at July 31, 2009 Euro Senior Debt US $ Senior Debt 5% in Euro & Markets) 21%
C$ Mortgage & Credit Card Securitization 41%
Euro Covered Bond 2%
Tier 1 Capital 8% Tier 2 Capital 7%
Wholesale Capital Market Term Funding Maturity Profile (Total $70.6B) As at July 31, 2009
16 14 12 10 8 6 4 2 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 >2018 Q4 Term Debt Tier 1 Capital Tier 2 Capital Securitization
Financial ResultsAugust 25, 20099
Balance Sheet
Average Net Loans & Acceptances (È$10.5B Q/Q) Over half of decrease due to weaker U.S. dollar Business and governments (È$8.4B) Residential mortgages (È$0.7B) Customers liability under acceptances & allowance for credit losses (È$0.7B) Consumer instalment and other personal (È$0.4B) Non-residentiaÇl mortgages (È$0.5B)  $0.2B)Credit cards (
Average Deposits (È$17.7B Q/Q) Over half of decrease due to weaker U.S. dollar Businesses and governments (È$11.6B) Banks, used in trading activities (È$3.9B) Individuals, used to fund growth in loans and reduce short-term deposits from business and government (È$2.2B)
Average Net Loans & Acceptances (C$B) 176185191187177
87%85%82%
13% 15% 18%
Average Deposits (C$B) 249 251 265 48% 49% 49%
82%
18%
261 53%
86%
14%
243 56%
52% 51% 51% 47% 44% Q3 Q4 Q1 Q2 Q3 08 09 Wholesale Banking* Retail Banking * Wholesale Banking includes BMO Capital Markets & Corporate Services Financial ResultsAugust 25, 200910