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| Name | Symbol | Market | Type |
|---|---|---|---|
| Nat Bk Canada25 | LSE:32SS | London | Medium Term Loan |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 100.625 | 0 | 00:00:00 |
From Feb 2022 to Feb 2025
TIDM32SS
RNS Number : 1182X
National Bank of Canada
24 August 2022
National Bank of Canada
August 24, 2022
Regulatory Announcement (Part 1)
Q3 2022 Results
National Bank of Canada (the "Bank") announces publication of its Third Quarter 2022 Report to Shareholders. The Third Quarter Results have been uploaded to the National Storage Mechanism and will shortly be available at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and is available on the Bank's website at https://www.nbc.ca/en/about-us/investors/investor-relations/quarterly-results.html
To view the full PDF of this Third Quarter 2022 Report to Shareholders, please click on the following link:
http://www.rns-pdf.londonstockexchange.com/rns/1182X_1-2022-8-24.pdf
Report to Shareholders Third Quarter 2022
National Bank reports its results for the Third Quarter of 2022
The financial information reported in this document is based on the unaudited interim condensed consolidated financial statements for the quarter and nine-month period ended July 31, 2022 and is prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), unless otherwise indicated. IFRS represent Canadian generally accepted accounting principles (GAAP). All amounts are presented in Canadian dollars.
MONTREAL, August 24, 2022 - For the third quarter of 2022, National Bank is reporting net income of $826 million, down 2% from $839 million in the third quarter of 2021. Third-quarter diluted earnings per share stood at $2.35 compared to $2.36 in the third quarter of 2021. Solid performance in all of the business segments was partly offset by higher provisions for credit losses recorded to reflect a less favourable macroeconomic outlook in the third quarter of 2022, whereas, in the third quarter of 2021, reversals of allowances for credit losses had been recorded to reflect a more favourable macroeconomic outlook. Income before provisions for credit losses and income taxes totalled $1,107 million in the third quarter of 2022 compared to $1,038 million in the third quarter of 2021, a 7% increase arising from total revenue growth in all of the business segments.
For the nine-month period ended July 31, 2022, the Bank's net income totalled $2,651 million, up 10% from $2,401 million in the same period of 2021, while nine-month diluted earnings per share stood at $7.55 compared to $6.77 in the same period last year. Excellent performance in all of the business segments, driven by revenue growth, contributed to these increases in nine-month net income and diluted earnings per share, even though there were higher provisions for credit losses. Also for the nine-month period, income before provisions for credit losses and income taxes totalled $3,442 million, a 10% year-over-year increase driven by the revenue growth in all of the business segments.
"The Bank's excellent results in the third quarter of fiscal 2022 were driven by strong growth in each of the business segments. Sustained loan and deposit growth contributed to the Bank's performance this quarter," said Laurent Ferreira, President and Chief Executive Officer of National Bank of Canada. " We continue to operate in an increasingly complex backdrop. Despite these challenges, the Bank is in a solid position with strong capital levels and substantial allowances for credit losses, which, along with our prudent positioning, gives us comfort in the current environment ," added Mr. Ferreira.
Highlights
Hot Features
Premium
(millions of Canadian Quarter ended July Nine months ended July
dollars) 31 31
------------------------- --- --- ------------------------------ -----------------------------------
2022 2021 % Change 2022 2021 % Change
-------------------------------- ----- ----- -------- ----- ------- --------
Net income 826 839 (2) 2,651 2,401 10
Diluted earnings per
share (dollars) $ 2.35 $ 2.36 - $ 7.55 $ 6.77 12
Income before provisions
for
credit losses and income
taxes 1,107 1,038 7 3,442 3,121 10
Return on common
shareholders'
equity(1) 17.7 % 21.3% 20.0 % 21.5%
Dividend payout ratio(1) 34.2 % 34.6% 34.2 % 34.6%
------------------------- ------- ----- ----- -------- ----- ------- --------
As at
July
31, As at
October
2022 31, 2021
--- -------------------- --- --- ----- ----- -------- ------ ----------- --------
CET1 capital ratio under
Basel
III(2) 12.8 % 12.4%
Leverage ratio under
Basel III(2) 4.4 % 4.4%
------------------------- ------- ----- ----- -------- ----- ------- --------
(1) See the Glossary section on pages 45 to 48 for details on the composition of these measures.
(2) See the Financial Reporting Method section on pages 4 to 6 for additional information on capital management measures.
Report to Shareholders Third Quarter 2022
Personal and Commercial
- Net income totalled $335 million in the third quarter of 2022 versus $303 million in the third quarter of 2021, an 11% increase that was driven by growth in total revenues, partly offset by higher provisions for credit losses.
- Income before provisions for credit losses and income taxes totalled $505 million in the third quarter of 2022, up 18% from $429 million in the third quarter of 2021.
- At $1,043 million, third-quarter total revenues were up $121 million or 13% year over year due to an increase in net interest income (driven by growth in loan and deposit volumes), to a higher net interest margin, and to an increase in non-interest income.
- Compared to a year ago, personal lending grew 8% and commercial lending grew 17%.
- The net interest margin(1) stood at 2.17% in the third quarter of 2022, up from 2.09% in the third quarter of 2021.
- Third-quarter non-interest expenses stood at $538 million, a 9% year-over-year increase.
- Third-quarter provisions for credit losses were $32 million higher than those of third-quarter 2021, mainly because higher allowances for credit losses on non-impaired loans were recorded to reflect a less favourable macroeconomic outlook, whereas, in the third quarter of 2021, a more favourable macroeconomic outlook had led to reversals of allowances for credit losses on non-impaired loans.
- At 51.6%, the third-quarter efficiency ratio(1) improved from 53.5% in third-quarter 2021.
Wealth Management
- Net income totalled $181 million in the third quarter of 2022, a 10% increase from $164 million in the third quarter of 2021.
- Third-quarter total revenues amounted to $591 million compared to $546 million in third-quarter 2021, a $45 million or 8% increase driven mainly by growth in net interest income.
- Third-quarter non-interest expenses stood at $344 million compared to $323 million in the third quarter of 2021, a 7% increase associated with revenue growth.
- At 58.2%, the third-quarter efficiency ratio(1) improved from 59.2% in the third quarter of 2021.
Financial Markets
- Net income totalled $280 million in the third quarter of 2022 versus $249 million in the third quarter of 2021, a 12% increase that was driven by higher total revenues.
- Third-quarter total revenues on a taxable equivalent basis amounted to $611 million, a $74 million or 14% year-over-year increase attributable to global markets revenues.
- Third-quarter non-interest expenses stood at $253 million compared to $224 million in third-quarter 2021, an increase that was partly attributable to compensation and employee benefits as well as to technology investment expenses.
- Recoveries of credit losses of $23 million were recorded in the third quarter of 2022, essentially recoveries on impaired loans, compared to credit loss recoveries of $25 million recorded in the third quarter of 2021, as allowances for credit losses on non-impaired loans had been reversed to reflect a more favourable macroeconomic outlook at that time.
- At 41.4%, the third-quarter efficiency ratio(1) on a taxable equivalent basis improved from 41.7% in the third quarter of 2021.
U.S. Specialty Finance and International
- Net income totalled $125 million in the third quarter of 2022 versus $161 million in the third quarter of 2021, a 22% decrease attributable mainly to higher provisions for credit losses.
- Third-quarter total revenues amounted to $273 million, a 10% year-over-year increase driven by revenue growth at the ABA Bank subsidiary.
- Third-quarter non-interest expenses stood at $86 million, a 9% year-over-year increase attributable to business growth at ABA Bank.
- At 31.5%, the third-quarter efficiency ratio(1) improved from 31.9% in the third quarter of 2021.
Other
- There was a net loss of $95 million in the third quarter of 2022 compared to a $38 million net loss in the third quarter of 2021, a change arising mainly from a decrease in total revenues associated with a lower contribution from treasury activities.
Capital Management
- As at July 31, 2022, the Common Equity Tier 1 (CET1) capital ratio under Basel III(2) stood at 12.8%, up from 12.4% as at October 31, 2021.
- As at July 31, 2022, the Basel III leverage ratio(2) was 4.4%, unchanged from October 31, 2021.
(1) See the Glossary section on pages 45 to 48 for details on the composition of these measures.
(2) See the Financial Reporting Method section on pages 4 to 6 for additional information on capital management measures.
Management's Discussion
and Analysis
August 23, 2022
The following Management's Discussion and Analysis (MD&A) presents the financial condition and operating results of National Bank of Canada (the Bank). This analysis was prepared in accordance with the requirements set out in National Instrument 51-102, Continuous Disclosure Obligations, released by the Canadian Securities Administrators (CSA). It is based on the unaudited interim condensed consolidated financial statements (the consolidated financial statements) for the quarter and nine-month period ended July 31, 2022 and prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), unless otherwise indicated. IFRS represent Canadian generally accepted accounting principles (GAAP). This MD&A should be read in conjunction with the consolidated financial statements and accompanying notes for the quarter and nine-month period ended July 31, 2022 and with the 2021 Annual Report . All amounts are presented in Canadian dollars. Additional information about the Bank, including the Annual Information Form, can be obtained from the Bank's website at nbc.ca and SEDAR's website at sedar.com. Information on the Bank's website mentioned herein is not and should not be considered incorporated by reference into the Report to Shareholders, the Management's Discussion and Analysis, or the Consolidated Financial Statements.
Financial Reporting Method 4 Capital Management 19
Highlights 7 Risk Management 26
Economic Review and Outlook 8 Risk Disclosures 41
Accounting Policies and Financial
Financial Analysis 9 Disclosure 42
Accounting Policies and Critical
Consolidated Results 9 Accounting Estimates 42
Results by Segment 12 Financial Disclosure 43
Consolidated Balance Sheet 17 Quarterly Financial Information 44
Exposure to Certain Activities 18 Glossary 45
Related Party Transactions 18
Securitization and Off-Balance-Sheet
Arrangements 19
Income Taxes 19
Caution Regarding Forward-Looking Statements
Certain statements in this document are forward-looking statements. All such statements are made in accordance with applicable securities legislation in Canada and the United States. Forward-looking statements in this document may include, but are not limited to, statements with respect to the economy-particularly the Canadian and U.S. economies-market changes, the Bank's objectives, outlook and priorities for fiscal year 2022 and beyond, the strategies or actions that will be taken to achieve them, expectations about the Bank's financial condition, the regulatory environment in which it operates, the impacts of-and the Bank's response to-the COVID-19 pandemic, and certain risks it faces. These forward-looking statements are typically identified by verbs or words such as "outlook", "believe", "foresee", "forecast", "anticipate", "estimate", "project", "expect", "intend" and "plan", in their future or conditional forms, notably verbs such as "will", "may", "should", "could" or "would" as well as similar terms and expressions. Such forward-looking statements are made for the purpose of assisting the holders of the Bank's securities in understanding the Bank's financial position and results of operations as at and for the periods ended on the dates presented, as well as the Bank's vision, strategic objectives, and financial performance targets, and may not be appropriate for other purposes. These forward-looking statements are based on current expectations, estimates, assumptions and intentions and are subject to uncertainty and inherent risks, many of which are beyond the Bank's control.
Assumptions about the performance of the Canadian and U.S. economies in 2022, including in the context of the COVID-19 pandemic, and how that will affect the Bank's business are among the main factors considered in setting the Bank's strategic priorities and objectives, including allowances for credit losses. In determining its expectations for economic conditions, both broadly and in the financial services sector in particular, the Bank primarily considers historical economic data provided by the governments of Canada, the United States, and certain other countries in which the Bank conducts business, as well as their agencies.
Statements about the economy, market changes, and the Bank's objectives, outlook and priorities for fiscal 2022 and thereafter are based on a number of assumptions and are subject to risk factors, many of which are beyond the Bank's control and the impacts of which are difficult to predict. These risk factors include, among others, the general economic environment and financial market conditions in Canada, the United States, and other countries where the Bank operates; exchange rate and interest rate fluctuations; inflation; higher funding costs and greater market volatility; changes made to fiscal, monetary, and other public policies; changes made to regulations that affect the Bank's business; geopolitical and sociopolitical uncertainty; the transition to a low-carbon economy and the Bank's ability to satisfy stakeholder expectations on environmental and social issues; significant changes in consumer behaviour; the housing situation, real estate market, and household indebtedness in Canada; the Bank's ability to achieve its long-term strategies and key short-term priorities; the timely development and launch of new products and services; the Bank's ability to recruit and retain key personnel; technological innovation and heightened competition from established companies and from competitors offering non-traditional services; changes in the performance and creditworthiness of the Bank's clients and counterparties; the Bank's exposure to significant regulatory matters or litigation; changes made to the accounting policies used by the Bank to report financial information, including the uncertainty inherent to assumptions and critical accounting estimates; changes to tax legislation in the countries where the Bank operates, i.e., primarily Canada and the United States; changes made to capital and liquidity guidelines as well as to the presentation and interpretation thereof; changes to the credit ratings assigned to the Bank; potential disruptions to key suppliers of goods and services to the Bank; potential disruptions to the Bank's information technology systems, including evolving cyberattack risk as well as identity theft and theft of personal information; the risk of fraudulent activity; and possible impacts of major events affecting the local and global economies, including international conflicts, natural disasters, and public health crises such as the COVID-19 pandemic.
There is a strong possibility that the Bank's express or implied predictions, forecasts, projections, expectations or conclusions will not prove to be accurate, that its assumptions may not be confirmed, and that its vision, strategic objectives and financial performance targets will not be achieved. The Bank recommends that readers not place undue reliance on forward-looking statements, as a number of factors, including the impacts of the COVID-19 pandemic, could cause actual results to differ significantly from the expectations, estimates or intentions expressed in these forward-looking statements. These risk factors include credit risk, market risk, liquidity and funding risks, operational risk, regulatory compliance risk, reputation risk, strategic risk, environmental and social risks, and certain emerging risks or risks deemed significant, all of which are described in greater detail in the Risk Management section beginning on page 69 of the 2021 Annual Report.
The foregoing list of risk factors is not exhaustive. Additional information about these risk factors is provided in the Risk Management section and in the COVID-19 Pandemic section of the 2021 Annual Report and in the Risk Management section of this Report to Shareholders for the Third Quarter of 2022. Investors and others who rely on the Bank's forward-looking statements should carefully consider the above factors as well as the uncertainties they represent and the risk they entail. Except as required by law, the Bank does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time, by it or on its behalf. The Bank cautions investors that these forward-looking statements are not guarantees of future performance and that actual events or results may differ significantly from these statements due to a number of factors.
Financial Reporting Method
The Bank's consolidated financial statements are prepared in accordance with IFRS, as issued by the IASB. The financial statements also comply with section 308(4) of the Bank Act (Canada), which states that, except as otherwise specified by the Office of the Superintendent of Financial Institutions (Canada) ( OSFI), the consolidated financial statements are to be prepared in accordance with IFRS, which represent Canadian GAAP. None of the OSFI accounting requirements are exceptions to IFRS.
The presentation of segment disclosures is consistent with the presentation adopted by the Bank for the fiscal year beginning November 1, 2021. This presentation reflects the fact that the loan portfolio comprising borrowers in the "Oil and gas" and "Pipelines" sectors as well as related activities, which had previously been reported in the Personal and Commercial segment, is now reported in the Financial Markets segment. The Bank made this change to better align the monitoring of its activities with its management structure.
Non-GAAP and Other Financial Measures
The Bank uses a number of financial measures when assessing its results and measuring overall performance. Some of these financial measures are not calculated in accordance with GAAP. Regulation 52-112 Respecting Non-GAAP and Other Financial Measures Disclosure (Regulation 52-112) prescribes disclosure requirements that apply to the following measures used by the Bank:
-- non-GAAP financial measures; -- non-GAAP ratios; -- supplementary financial measures; -- capital management measures.
Non-GAAP Financial Measures
The Bank uses non-GAAP financial measures that do not have standardized meanings under GAAP and that therefore may not be comparable to similar measures used by other companies. Presenting non-GAAP financial measures helps readers to better understand how management analyzes results, shows the impacts of specified items on the results of the reported periods, and allows readers to assess results without the specified items if they consider such items not to be reflective of the underlying performance of the Bank's operations. In addition, like many other financial institutions, the Bank uses the taxable equivalent basis to calculate net interest income, non-interest income, and income taxes. This calculation method consists of grossing up certain tax-exempt income (particularly dividends) by the income tax that would have been otherwise payable. An equivalent amount is added to income taxes. This adjustment is necessary in order to perform a uniform comparison of the return on different assets regardless of their tax treatment.
The non-GAAP financial measures used by the Bank are as follows: Adjusted net interest income; adjusted net interest income, non-trading; adjusted non-interest income; adjusted total revenues; adjusted non-interest expenses; adjusted income before provisions for credit losses and income taxes; adjusted income before income taxes; adjusted income taxes; adjusted net income; adjusted non-controlling interests; adjusted net income attributable to the Bank's shareholders and holders of other equity instruments; adjusted basic earnings per share; and adjusted diluted earnings per share . Quantitative reconciliations of these measures are presented in the Reconciliation of Non-GAAP Financial Measures tables on page 6 and in the Consolidated Results table on page 9.
Non-GAAP Ratios
The Bank uses non-GAAP ratios that do not have standardized meanings under GAAP and that therefore may not be comparable to similar measures used by other companies. A non-GAAP ratio is a ratio in which at least one component is a non-GAAP financial measure. The Bank uses non-GAAP ratios to present aspects of its financial performance or financial position, including adjusted efficiency ratio; adjusted operating leverage; adjusted return on common shareholders' equity; adjusted dividend payout ratio; and adjusted net interest margin, non-trading. For additional information about the composition of these ratios, see the Glossary section on pages 45 to 48 of this MD&A.
Supplementary Financial Measures
A supplementary financial measure is a financial measure that: (a) is not reported in the Bank's consolidated financial statements, and (b) is, or is intended to be, reported periodically to represent historical or expected financial performance, financial position, or cash flows. The composition of these supplementary financial measures is presented in table footnotes or in the Glossary section on pages 45 to 48 of this MD&A.
Capital Management Measures
The financial reporting framework used to prepare the financial statements requires disclosure that help readers assess the Bank's capital management objectives, policies, and processes, as set out in IFRS in IAS 1 - Presentation of Financial Statements. The Bank has its own methods for managing capital and liquidity, and IFRS does not prescribe any particular calculation method. These measures are calculated using various guidelines and advisories issued by OSFI, which are based on the standards, recommendations, and best practices of the Basel Committee on Banking Supervision (BCBS), as presented in the following table.
OSFI guideline or advisory Measure
Capital Adequacy Requirements Common Equity Tier 1 (CET1) capital
ratio
Tier 1 capital ratio
Total capital ratio
CET1 capital
Tier 1 capital
Tier 2 capital
Total capital
Risk-weighted assets
Maximum credit risk exposure under
the Basel asset classes
------------------------------------- ------------------------------------
Leverage Requirements Leverage ratio
Total exposure
------------------------------------- ------------------------------------
Liquidity Adequacy Requirements Liquid asset portfolio
Encumbered and unencumbered assets
Liquidity coverage ratio (LCR)
High-quality liquid assets (HQLA)
Cash inflows/outflows and net cash
outflows
Net stable funding ratio (NSFR)
Available stable funding items
Required stable funding items
------------------------------------- ------------------------------------
Total Loss Absorbing Capacity (TLAC) Key indicators - TLAC requirements
Available TLAC
TLAC ratio
TLAC leverage ratio
------------------------------------- ------------------------------------
Global Systemically Important Banks G-SIB indicators
(G-SIBs) -
Public Disclosure Requirements
------------------------------------- ------------------------------------
Reconciliation of Non-GAAP Financial Measures
Presentation of Results - Adjusted
Quarter ended
(millions of Canadian dollars) July 31
-------------------------------- --------------- ----------- --------- ------ -------------------
2022 2021
-------------------------------- --------------- ----------- --------- ------ ----- ----- -----
Personal Wealth Financial
and Commercial Management Markets USSF&I Other Total Total
------------------------------- --------------- ----------- --------- ------ ----- ----- -----
Net interest income 741 161 333 266 (82) 1,419 1,230
Taxable equivalent - - 59 - 1 60 46
Net interest income - Adjusted 741 161 392 266 (81) 1,479 1,276
-------------------------------- --------------- ----------- --------- ------ ----- ----- -----
Non-interest income 302 430 208 7 47 994 1,024
Taxable equivalent - - 11 - - 11 1
Non-interest income - Adjusted 302 430 219 7 47 1,005 1,025
-------------------------------- --------------- ----------- --------- ------ ----- ----- -----
Total revenues - Adjusted 1,043 591 611 273 (34) 2,484 2,301
Non-interest expenses 538 344 253 86 85 1,306 1,216
-------------------------------- --------------- ----------- --------- ------ ----- ----- -----
Income before provisions for
credit
losses and income taxes -
Adjusted 505 247 358 187 (119) 1,178 1,085
Provisions for credit losses 49 1 (23) 29 1 57 (43)
-------------------------------- --------------- ----------- --------- ------ ----- ----- -----
Income before income taxes -
Adjusted 456 246 381 158 (120) 1,121 1,128
-------------------------------- --------------- ----------- --------- ------ ----- ----- -----
Income taxes 121 65 31 33 (26) 224 242
Taxable equivalent - - 70 - 1 71 47
Income taxes - Adjusted 121 65 101 33 (25) 295 289
-------------------------------- --------------- ----------- --------- ------ ----- ----- -----
Net income 335 181 280 125 (95) 826 839
Non-controlling interests - - - - - - -
-------------------------------- --------------- ----------- --------- ------ ----- ----- -----
Net income attributable to the
Bank ' s shareholders
and holders of other equity
instruments 335 181 280 125 (95) 826 839
-------------------------------- --------------- ----------- --------- ------ ----- ----- -----
Nine months ended July
(millions of Canadian dollars) 31
------------------------------- --------------- ----------- --------- ----------------------------
2022 2021
------------------------------- --------------- ----------- --------- ------- ----- ----- -----
Personal Wealth Financial
and Commercial Management Markets USSF&I Other Total Total
------------------------------ --------------- ----------- --------- ------- ----- ----- -----
Net interest income 2,080 407 980 813 (216) 4,064 3,593
Taxable equivalent - - 165 - 4 169 142
Net interest income - Adjusted 2,080 407 1,145 813 (212) 4,233 3,735
------------------------------- --------------- ----------- --------- ------- ----- ----- -----
Non-interest income 883 1,355 742 30 244 3,254 3,123
Taxable equivalent - - 18 - - 18 6
Non-interest income - Adjusted 883 1,355 760 30 244 3,272 3,129
------------------------------- --------------- ----------- --------- ------- ----- ----- -----
Total revenues - Adjusted 2,963 1,762 1,905 843 32 7,505 6,864
Non-interest expenses 1,595 1,045 768 254 214 3,876 3,595
------------------------------- --------------- ----------- --------- ------- ----- ----- -----
Income before provisions for
credit
losses and income taxes -
Adjusted 1,368 717 1,137 589 (182) 3,629 3,269
Provisions for credit losses 55 1 (55) 56 1 58 43
------------------------------- --------------- ----------- --------- ------- ----- ----- -----
Income before income taxes -
Adjusted 1,313 716 1,192 533 (183) 3,571 3,226
------------------------------- --------------- ----------- --------- ------- ----- ----- -----
Income taxes 348 190 133 108 (46) 733 677
Taxable equivalent - - 183 - 4 187 148
Income taxes - Adjusted 348 190 316 108 (42) 920 825
------------------------------- --------------- ----------- --------- ------- ----- ----- -----
Net income 965 526 876 425 (141) 2,651 2,401
Non-controlling interests - - - - (1) (1) -
------------------------------- --------------- ----------- --------- ------- ----- ----- -----
Net income attributable to the
Bank ' s shareholders
and holders of other equity
instruments 965 526 876 425 (140) 2,652 2,401
------------------------------- --------------- ----------- --------- ------- ----- ----- -----
Presentation of Adjusted Net Interest Income, Non-Trading
Quarter ended July Nine months ended July
(millions of Canadian dollars) 31 31
----------------------------------- -------------------- --------------------------
2022 2021 2022 2021
----------------------------------- --------- --------- ----------- -----------
Net interest income - Adjusted 1,479 1,276 4,233 3,735
Net interest income related to
trading activities(1) 293 262 895 733
----------------------------------- --------- --------- ----------- -----------
Net interest income, non-trading
- Adjusted 1,186 1,014 3,338 3,002
----------------------------------- --------- --------- ----------- -----------
(1) See the Glossary section on pages 45 to 48 for details on the composition of these measures.
Highlights
(millions of Canadian
dollars,
except per share Nine months ended July
amounts) Quarter ended July 31 31
------------------------ -------------------------------- ------- ---------------------------------------------------
2022 2021 % Change 2022 2021 % Change
----------------------- ------- ------- -------- ------- ------- --------- ------- -------- --------
Operating results
Total revenues 2,413 2,254 7 7,318 6,716 9
Income before
provisions for
credit losses and
income taxes 1,107 1,038 7 3,442 3,121 10
Net income 826 839 (2) 2,651 2,401 10
Net income attributable
to
the Bank's
shareholders and
holders of other
equity instruments 826 839 (2) 2,652 2,401 10
Return on common
shareholders'
equity(1) 17.7% 21.3% 20.0 % 21.5 %
Earnings per share
Basic $ 2.38 $ 2.39 - $ 7.63 $ 6.84 12
Diluted 2.35 2.36 - 7.55 6.77 12
--------------------------- ------- ------- -------- ------- ------- --------- ------- -------- --------
Operating results -
Adjusted
(2)
Total revenues -
Adjusted(2) 2,484 2,301 8 7,505 6,864 9
Income before
provisions for
credit losses
and income taxes -
Adjusted(2) 1,178 1,085 9 3,629 3,269 11
Net income -
Adjusted(2) 826 839 (2) 2,651 2,401 10
Return on common
shareholders'
equity - Adjusted(3) 17.7% 21.3% 20.0 % 21.5 %
Operating leverage -
Adjusted(3) 0.6% 0.7% 1.5 % 1.9 %
Efficiency ratio -
Adjusted(3) 52.6% 52.8% 51.6 % 52.4 %
Earnings per share -
Adjusted
(2)
Basic $ 2.38 $ 2.39 - $ 7.63 $ 6.84 12
Diluted 2.35 2.36 - 7.55 6.77 12
--------------------------- ------- ------- -------- ------- ------- --------- ------- -------- --------
Common share
information
Dividends declared $ 0.92 $ 0.71 $ 2.66 $ 2.13
Book value(1) 54.82 46.00 54.82 46.00
Share price
High 97.87 96.97 105.44 96.97
Low 83.33 89.47 83.33 65.54
Close 89.85 95.49 89.85 95.49
Number of common shares
(thousands) 336,456 337,587 336,456 337,587
Market capitalization 30,231 32,236 30,231 32,236
----------------------- ------- ------- -------- ------- ------- --------- ------- -------- --------
As at As at
July October
31, 31,
(millions of Canadian dollars) 2022 2021 % Change Balance sheet and off-balance-sheet Total assets 387,051 355,795 9 Loans and acceptances, net of allowances 200,924 182,689 10 Deposits 257,190 240,938 7 Equity attributable to common shareholders 18,445 16,203 14 Assets under administration(1) 621,126 651,530 (5) Assets under management(1) 113,904 117,186 (3) ---------------------------------------------------- -------- ------- ------- --------- ------- -------- ---------- Regulatory ratios under Basel III (4) Capital ratios Common Equity Tier 1 (CET1) 12.8 % 12.4 % Tier 1 15.2 % 15.0 % Total 16.8 % 15.9 % Leverage ratio 4.4 % 4.4 % ---------------------------------------------------- -------- ------- ------- --------- ------- -------- ---------- TLAC ratio(4) 28.3 % 26.3 % TLAC leverage ratio(4) 8.2 % 7.8 % ---------------------------------------------------- -------- ------- ------- --------- ------- -------- ---------- Liquidity coverage ratio (LCR)(4) 148 % 154 % Net stable funding ratio (NSFR)(4) 119 % 117 % ---------------------------------------------------- -------- ------- ------- --------- ------- -------- ---------- Other information Number of employees - Worldwide 28,903 26,920 7 Number of branches in Canada 384 384 - Number of banking machines in Canada 934 927 1 ---------------------------------------------------- -------- ------- ------- --------- ------- -------- ----------
(1) See the Glossary section on pages 45 to 48 for details on the composition of these measures.
(2) See the Financial Reporting Method section on pages 4 to 6 for additional information on non-GAAP financial measures.
(3) See the Financial Reporting Method section on pages 4 to 6 and see the Glossary section on pages 45 to 48 for additional information on non-GAAP ratios.
(4) See the Financial Reporting Method section on pages 4 to 6 for additional information on capital management measures.
Economic Review and Outlook
Global Economy
The global economic environment has deteriorated over the past few months. The optimism that accompanied the reopening of the Chinese economy after strict lockdowns has given way to concerns of an imminent recession triggered by high inflation and ongoing uncertainty in the geopolitical landscape. Despite difficult times expected in several European economies in the months ahead, we still believe the global economy can sidestep a worst-case scenario, so long as inflation can slow relatively quickly given the recent declines in the cost of several raw materials. This should help tame activity by central banks, for whom inflation has become enemy number one. Our growth forecast for global GDP is close to 2.5%(1) for 2022 and 2.7%(1) for 2023.
In the United States, the economic outlook has not escaped the prevailing pessimism, judging by the sudden inversion of the yield curve and deteriorating consumer expectations. The latest economic data has, for the most part, fallen short of expectations. GDP even contracted for a second straight quarter in the second quarter of 2022, which has prompted discussion as to whether the U.S. economy is already in a recession. However, these decreases were largely caused by major inventory adjustments carried out by companies that are still dealing with supply chain uncertainty rather than by a slowdown in domestic demand or a sharp decline in the labour market. Unlike previous GDP contraction cycles, employment continues to grow at a steady pace, with over 500,000 jobs added in July 2022. While the U.S. economy should return to growth in the second half, our real GDP growth forecasts are 1.6%(1) for 2022 and 1.7%(1) for 2023.
Canadian Economy
The latest economic data has convinced the Bank of Canada to accelerate interest rate normalization. Inflationary pressures have worsened, and the central bank's business and consumer surveys have revealed that inflation expectations are trending upward, an undesirable trend that it fears will not diminish. After the 100 basis-point interest rate hike announced last July, the Bank of Canada believes it still has work to do, and that is making observers nervous about the upcoming economic cycle. We do not believe the Canadian economy is about to get weak in the knees. As we were expecting, it has demonstrated greater resilience than other economies since Russia's invasion of Ukraine. Consumers still have excess savings, helping them to absorb the higher cost of living, and the labour market sits comfortably at full employment, translating into solid wage growth. Despite a recent decline in the price of certain raw materials, the natural resources sector remains a strong pillar of the Canadian economy, helping it to partially offset the sharp drop in real estate activity. As for governments, which are seeing spectacular upturns in public finances, budgetary support will prove greater than anticipated in 2022. As monetary policy becomes restrictive, we are still expecting a significant slowdown in the economy that should translate into below-potential growth over the next 12 months. Our real GDP growth forecasts are 3.5%(1) for 2022 and 1.5%(1) for 2023.
Quebec Economy
Quebec's GDP stands at 3.3%, which is above its pre-pandemic level, for a recovery that is stronger than for Canada as a whole (+2.2%). The Quebec labour market remains tight, posting an unemployment rate around 4%, which is close to its historical low. We remain optimistic about growth in 2022 given the diversified economy, the fiscal leeway available to the Quebec government, and lower household debt than elsewhere in the country. After growth of 5.6% in 2021, the Quebec economy should slow to 3.6%(1) in 2022, with growth of 1.3%(1) expected for 2023.
(1) GDP growth forecasts, National Bank Financial's Economics and Strategy group
Financial Analysis
Consolidated Results
(millions of Canadian Nine months ended July
dollars) Quarter ended July 31 31
--------------------------- ---------------------------------- ------------------------------------
2022 2021 % Change 2022 2021 % Change
--------------------------- ------- ------- -------- -------- --- ------- --------
Operating results
Net interest income 1,419 1,230 15 4,064 3,593 13
Non-interest income 994 1,024 (3) 3,254 3,123 4
--------------------------- ------- ------- -------- -------- --- ------- --------
Total revenues 2,413 2,254 7 7,318 6,716 9
Non-interest expenses 1,306 1,216 7 3,876 3,595 8
--------------------------- ------- ------- -------- -------- --- ------- --------
Income before provisions
for
credit losses and income
taxes 1,107 1,038 7 3,442 3,121 10
Provisions for credit
losses 57 (43) 233 58 43 35
--------------------------- ------- ------- -------- -------- --- ------- --------
Income before income taxes 1,050 1,081 (3) 3,384 3,078 10
Income taxes 224 242 (7) 733 677 8
--------------------------- ------- ------- -------- -------- --- ------- --------
Net income 826 839 (2) 2,651 2,401 10
--------------------------- ------- ------- -------- -------- --- ------- --------
Diluted earnings per share
(dollars) 2.35 2.36 - 7.55 6.77 12
--------------------------- ------- ------- -------- -------- --- ------- --------
Taxable equivalent basis
(1)
Net interest income 60 46 169 142
Non-interest income 11 1 18 6
Income taxes 71 47 187 148
--------------------------- ------- ------- -------- -------- --- ------- --------
Impact of taxable
equivalent
basis on net income - - - -
--------------------------- ------- ------- -------- -------- --- ------- --------
Operating results -
Adjusted (1) Net interest income - Adjusted 1,479 1,276 16 4,233 3,735 13 Non-interest income - Adjusted 1,005 1,025 (2) 3,272 3,129 5 --------------------------- ------- ------- -------- -------- --- ------- -------- Total revenues - Adjusted 2,484 2,301 8 7,505 6,864 9 Non-interest expenses - Adjusted 1,306 1,216 7 3,876 3,595 8 --------------------------- ------- ------- -------- -------- --- ------- -------- Income before provisions for credit losses and income taxes - Adjusted 1,178 1,085 9 3,629 3,269 11 Provisions for credit losses 57 (43) 233 58 43 35 --------------------------- ------- ------- -------- -------- --- ------- -------- Income before income taxes - Adjusted 1,121 1,128 (1) 3,571 3,226 11 Income taxes - Adjusted 295 289 2 920 825 12 --------------------------- ------- ------- -------- -------- --- ------- -------- Net income - Adjusted 826 839 (2) 2,651 2,401 10 --------------------------- ------- ------- -------- -------- --- ------- -------- Diluted earnings per share - Adjusted (dollars) 2.35 2.36 - 7.55 6.77 12 --------------------------- ------- ------- -------- -------- --- ------- -------- Average assets(2) 392,183 363,746 8 388,668 360,935 8 Average loans and acceptances(2) 197,650 174,252 13 191,092 169,522 13 Average deposits(2) 260,355 237,162 10 255,525 232,867 10 Operating leverage - Adjusted(3) 0.6 % 0.7% 1.5 % 1.9% Efficiency ratio - Adjusted(3) 52.6 % 52.8% 51.6 % 52.4% --------------------------- ------- ------- -------- -------- --- ------- --------
(1) See the Financial Reporting Method section on pages 4 to 6 for additional information on non-GAAP financial measures.
(2) Represents an average of the daily balances for the period.
(3) See the Financial Reporting Method section on pages 4 to 6 and see the Glossary section on pages 45 to 48 for additional information on non-GAAP ratios.
Financial Results
For the third quarter of 2022, the Bank reported net income of $826 million, down 2% from $839 million in the third quarter of 2021. Third-quarter diluted earnings per share stood at $2.35 compared to $2.36 in the third quarter of 2021. Solid performance in all of the business segments was partly offset by higher provisions for credit losses recorded to reflect a less favourable macroeconomic outlook in the third quarter of 2022, whereas, in the third quarter of 2021, reversals of allowances for credit losses had been recorded to reflect a more favourable macroeconomic outlook. Income before provisions for credit losses and income taxes totalled $1,107 million in the third quarter of 2022 compared to $1,038 million in the third quarter of 2021, a 7% increase arising from total revenue growth in all of the business segments.
For the nine-month period ended July 31, 2022, the Bank's net income totalled $2,651 million, up 10% from $2,401 million in the same period of 2021, while nine-month diluted earnings per share stood at $7.55 compared to $6.77 in the first nine months of 2021. Excellent performance in all of the business segments, driven by revenue growth, contributed to these increases in nine-month net income and diluted earnings per share, even though there were higher provisions for credit losses. Also for the nine-month period, income before provisions for credit losses and income taxes totalled $3,442 million, a 10% year-over-year increase driven by the revenue growth in all of the business segments.
Return on common shareholders' equity was 20.0% for the nine-month period ended July 31, 2022 compared to 21.5% in the same period of 2021.
Total Revenues
For the third quarter of 2022, the Bank's total revenues amounted to $2,413 million, rising $159 million or 7% year over year. In the Personal and Commercial segment, third-quarter total revenues rose 13% year over year owing to loan and deposit growth, to a higher net interest margin resulting from recent interest rate hikes, and to increases in credit card revenues, insurance revenues, revenues from bankers' acceptances, and revenues from foreign exchange activities. In the Wealth Management segment, third-quarter total revenues grew 8% year over year, mainly due to higher net interest income resulting from higher interest rates as well as to an increase in fee-based revenues, notably revenues from investment management and trust service fees. However, securities brokerage commissions decreased year over year given fewer commission-generating transactions. In the Financial Markets segment, third-quarter total revenues on a taxable equivalent basis increased by 14% year over year due to an increase in global markets revenues, partly offset by lower corporate and investment banking revenues. In the USSF&I segment, third-quarter total revenues were up 10% year over year owing to a sustained increase in ABA Bank's revenues as a result of business growth, partly offset by a decrease in Credigy's revenues, notably due to stronger performance by certain loan portfolios during the third quarter of 2021. For the Other heading of segment results, third-quarter total revenues reflect a lower contribution from treasury activities compared to the third quarter of 2021.
For the first nine months of fiscal 2022, the Bank's total revenues amounted to $7,318 million, up $602 million or 9% from $6,716 million in the same period of 2021. In the Personal and Commercial segment, nine-month total revenues rose $278 million or 10% year over year owing to an increase in net interest income, as both loans and deposits grew (partly offset by a lower net interest margin), as well as to increases in credit card revenues, insurance revenues, internal commission revenues related to the distribution of Wealth Management products, revenues from bankers' acceptances, revenues from derivative financial instruments, and revenues from foreign exchange activities. In the Wealth Management segment, nine-month total revenues grew 10% year over year, mainly due to higher net interest income as well as to an increase in fee-based revenues given growth in average assets under administration and assets under management and given greater market performance compared to the same nine-month period last year. In the Financial Markets segment, nine-month total revenues on a taxable equivalent basis were up $183 million or 11% year over year given growth in global markets revenues, partly offset by a decrease in corporate and investment banking revenues. In the USSF&I segment, nine-month total revenues rose 11% year over year owing to revenue growth at ABA Bank, which was driven by higher loans and deposits, partly offset by a decrease in Credigy's revenues, notably due to a gain that had been realized in the first nine months of fiscal 2021 upon a disposal of loan portfolios and to a more favourable impact of remeasuring certain loan portfolios during the first nine months of 2021. For the Other heading of segment results, nine-month total revenues were down year over year due to a lower contribution from treasury activities, partly offset by higher gains on investments.
Non-Interest Expenses
For the third quarter of 2022, non-interest expenses stood at $1,306 million, a 7% year-over-year increase that was essentially attributable to higher compensation, notably from wage growth and a greater number of employees as well as from the variable compensation associated with revenue growth. In addition, technology expenses, including amortization, increased as a result of significant investments made to support the Bank's technological evolution. Third-quarter other expenses were up as travel and business development costs increased, notably due to a resumption of activities with clients and to higher advertising expenses.
For the nine-month period ended July 31, 2022, the Bank's non-interest expenses stood at $3,876 million, an 8% year-over-year increase that was attributable to higher compensation and employee benefits, notably from wage growth and a greater number of employees as well as from the variable compensation associated with revenue growth. Nine-month technology expenses and professional fees were also up year over year, as significant investments were made to support the Bank's technological evolution and business development plan. In addition, travel and business development costs grew as activities with clients gradually resumed. These increases were tempered by decreases in certain expenses, notably a $20 million reversal of the provision for the compensatory tax on salaries paid in Quebec during the first quarter of 2022 as well as a decrease in COVID-19 response expenses, which were higher during the same period of 2021.
Provisions for Credit Losses
For the third quarter of 2022, the Bank recorded $57 million in provisions for credit losses compared to $43 million in recoveries of credit losses in the third quarter of 2021. This increase stems mainly from higher provisions for credit losses on non-impaired loans attributable to less favourable macroeconomic conditions in the third quarter of 2022, notably including greater inflationary pressures, as well as from newly granted loans. In the third quarter of 2021, the Bank had recorded reversals of provisions for credit losses on non-impaired loans given an improved macroeconomic outlook at that time. Third-quarter provisions for credit losses on impaired purchased or originated credit-impaired (POCI) loans of the Credigy subsidiary were also up given a favourable remeasurement of certain portfolios in the third quarter of 2021. Provisions for credit losses on impaired loans were down $17 million compared to the third quarter of 2021, as a recovery on impaired loans from a borrower in the "Oil and gas" sector recorded in the Financial Markets segment in the third quarter of 2022 more than offset higher year-over-year provisions for credit losses on impaired loans recorded in Personal Banking (including credit card receivables), in Commercial Banking, and at ABA Bank.
For the nine-month period ended July 31, 2022, the Bank recorded $58 million in provisions for credit losses compared to $43 million in the same nine-month period last year. The increase stems mainly from lower year-over-year reversals of allowances for credit losses on non-impaired loans. Over the first nine months of 2022, the macroeconomic outlook has weakened, notably due to high inflationary pressure, geopolitical instability, and global supply chain disruptions compared to the more favourable macroeconomic outlook that was prevailing during the same nine-month period in 2021. Nine-month provisions for credit losses on Credigy's POCI loans were also up given a favourable remeasurement of certain portfolios in the third quarter of 2021. Furthermore, the nine-month provisions for credit losses on impaired loans posted a year-over-year decrease that stems from Commercial Banking and the Financial Markets segment, partly offset by higher provisions for credit losses on impaired ABA Bank loans resulting from the end of relief measures granted to the subsidiary's clients.
Income Taxes
For the third quarter of 2022, income taxes stood at $224 million compared to $242 million in the same quarter of 2021. The 2022 third-quarter effective tax rate was 21% compared to 22% in the same quarter of 2021. The change in effective income tax rate stems mainly from a higher level of tax-exempt dividend income compared to the same quarter of 2021.
For the nine-month period ended July 31, 2022, the effective tax rate was 22%, unchanged from the first nine months of 2021.
Results by Segment
The Bank carries out its activities in four business segments: Personal and Commercial, Wealth Management, Financial Markets, and U.S. Specialty Finance and International. Other operating activities, certain specified items, Treasury activities, and the activities of the Flinks Technology Inc. (Flinks) subsidiary are grouped in the Other heading. Each reportable segment is distinguished by services offered, type of clientele, and marketing strategy.
Personal and Commercial
Quarter ended July Nine months ended July
(millions of Canadian dollars) 31 31
------------------------------- ------------------------------- -------------------------------
2022 2021(1) % Change 2022 2021(1) % Change
------------------------------- ------- ------- -------- ------- ------- --------
Operating results
Net interest income 741 647 15 2,080 1,893 10
Non-interest income 302 275 10 883 792 11
------------------------------- ------- ------- -------- ------- ------- --------
Total revenues 1,043 922 13 2,963 2,685 10
Non-interest expenses 538 493 9 1,595 1,473 8
------------------------------- ------- ------- -------- ------- ------- --------
Income before provisions for
credit losses and income taxes 505 429 18 1,368 1,212 13
Provisions for credit losses 49 17 188 55 45 22
------------------------------- ------- ------- -------- ------- ------- --------
Income before income taxes 456 412 11 1,313 1,167 13
Income taxes 121 109 11 348 309 13
------------------------------- ------- ------- -------- ------- ------- --------
Net income 335 303 11 965 858 12
------------------------------- ------- ------- -------- ------- ------- --------
Net interest margin(2) 2.17 % 2.09% 2.10 % 2.13%
Average interest-bearing
assets(2) 135,615 122,788 10 132,222 118,980 11
Average assets(3) 142,462 128,691 11 138,874 124,359 12
Average loans and
acceptances(3) 141,736 127,966 11 138,139 123,759 12
Net impaired loans(2) 168 224 (25) 168 224 (25)
Net impaired loans as a % of
loans and acceptances(2) 0.1 % 0.2% 0.1 % 0.2%
Average deposits(3) 83,023 77,345 7 80,689 75,300 7
Efficiency ratio(2) 51.6 % 53.5% 53.8 % 54.9%
------------------------------- ------- ------- -------- ------- ------- --------
(1) For the quarter and nine-month period ended July 31, 2021, certain amounts have been reclassified, in particular amounts of the loan portfolio of borrowers in the Oil and gas and Pipelines sectors as well as related activities, which were transferred from the Personal and Commercial segment to the Financial Markets segment.
(2) See the Glossary section on pages 45 to 48 for details on the composition of these measures.
(3) Represents an average of the daily balances for the period.
In the Personal and Commercial segment, net income totalled $335 million compared to $303 million in the third quarter of 2021, an 11% increase resulting from growth in total revenues, partly offset by higher provisions for credit losses. The segment's third-quarter income before provisions for credit losses and income taxes grew 18% year over year. Third-quarter net interest income rose 15% year over year owing to growth in personal and commercial loans and deposits as well as to a higher net interest margin, which, as a result of recent interest rate hikes, was 2.17% in third-quarter 2022 compared to 2.09% in third-quarter 2021. As for the segment's third-quarter non-interest income, it grew $27 million or 10% year over year.
Personal Banking's third-quarter total revenues increased by $40 million year over year. This increase came from an increase in net interest income driven by loan and deposit growth, from an improved net interest margin on deposits, from an increase in credit card revenues given a notable increase in purchasing volume, and from insurance revenues (reflecting a revision to actuarial reserves). Commercial Banking's third-quarter total revenues grew $81 million year over year, mainly due to an increase in net interest income, driven by loan and deposit growth, to an improved net interest margin on deposits, as well as to increases in revenues from foreign exchange activities and from bankers' acceptances.
For the third quarter of 2022, the Personal and Commercial segment's non-interest expenses stood at $538 million, a 9% year-over-year increase that was mainly due to compensation and employee benefits (given wage growth and a greater number of employees), to operations support charges, and to investments made as part of the segment's technological evolution. At 51.6%, the segment's third-quarter efficiency ratio improved by 1.9 percentage points year over year as a result of strong revenue growth. The segment recorded $49 million in provisions for credit losses in the third quarter of 2022 compared to $17 million in the same quarter of 2021. This increase came from higher provisions for credit losses on impaired loans and on impaired credit card receivables and from higher provisions for credit losses on non-impaired Personal Banking loans (including credit card receivables) recorded to reflect a less favourable macroeconomic outlook, whereas, in the third quarter of 2021, a more favourable macroeconomic outlook had led to reversals of allowances for credit losses on non-impaired loans.
For the nine-month period ended July 31, 2022, the Personal and Commercial segment's net income totalled $965 million compared to $858 million in the same period of 2021, a year-over-year increase driven mainly by 10% growth in the segment's nine-month total revenues. The segment's nine-month income before provisions for credit losses and income taxes totalled $1,368 million, up 13% year over year. Personal Banking's nine-month total revenues were up, mainly due to growth in loans and deposits (partly offset by a lower net interest margin) as well as to increases in credit card revenues, insurance revenues (reflecting a revision to actuarial reserves), and internal commission revenues related to the distribution of Wealth Management products. Commercial Banking's nine-month total revenues grew 17% due to loan and deposit growth as well as to increases in revenues from bankers' acceptances, revenues from derivative financial instruments, and revenues from foreign exchange activities.
For the nine-month period ended July 31, 2022, the Personal and Commercial segment's non-interest expenses stood at $1,595 million, an 8% year-over-year increase that was mainly due to higher compensation and employee benefits, higher operations support charges, and expenses incurred for the segment's technological evolution. At 53.8%, the nine-month efficiency ratio improved by 1.1 percentage points from the same period in 2021. The segment's nine-month provisions for credit losses stood at $55 million compared to $45 million in the same period of 2021. This increase came mainly from higher provisions for credit losses on non-impaired Personal Banking loans (including credit card receivable) recorded to reflect less favourable macroeconomic conditions, whereas, in the first nine months of 2021, a more favourable macroeconomic environment had led to higher reversals of allowances for credit losses on non-impaired loans. These increases were partly offset by lower provisions for credit losses on impaired Commercial Banking loans as well as by higher reversals of allowances for credit losses on non-impaired Commercial Banking loans resulting from more favourable risk parameters during the nine months ended July 31, 2022.
Wealth Management
Nine months ended July
(millions of Canadian dollars) Quarter ended July 31 31
------------------------------- ------------------------------- -------------------------------
2022 2021(1) % Change 2022 2021(1) % Change
------------------------------- ------- ------- -------- ------- ------- --------
Operating results
Net interest income 161 112 44 407 332 23
Fee-based revenues 351 341 3 1,082 963 12
Transaction-based and other
revenues 79 93 (15) 273 310 (12)
------------------------------- ------- ------- -------- ------- ------- --------
Total revenues 591 546 8 1,762 1,605 10
Non-interest expenses 344 323 7 1,045 944 11
------------------------------- ------- ------- -------- ------- ------- --------
Income before provisions for
credit losses and income taxes 247 223 11 717 661 8
Provisions for credit losses 1 - 1 -
------------------------------- ------- ------- -------- ------- ------- --------
Income before income taxes 246 223 10 716 661 8
Income taxes 65 59 10 190 175 9
------------------------------- ------- ------- -------- ------- ------- --------
Net income 181 164 10 526 486 8
------------------------------- ------- ------- -------- ------- ------- --------
Average assets(2) 8,297 7,367 13 8,187 6,960 18
Average loans and
acceptances(2) 7,236 6,230 16 7,082 5,811 22
Net impaired loans(3) 12 7 12 7
Average deposits(2) 34,870 33,246 5 34,560 34,026 2
Assets under administration(3) 621,126 630,019 (1) 621,126 630,019 (1)
Assets under management(3) 113,904 112,886 1 113,904 112,886 1
Efficiency ratio(3) 58.2 % 59.2% 59.3 % 58.8%
------------------------------- ------- ------- -------- ------- ------- --------
(1) For the quarter and nine-month period ended July 31, 2021, certain amounts have been reclassified.
(2) Represents an average of the daily balances for the period.
(3) See the Glossary section on pages 45 to 48 for details on the composition of these measures.
In the Wealth Management segment, net income totalled $181 million in the third quarter of 2022, a 10% increase from $164 million in the same quarter of 2021. The segment's third-quarter total revenues amounted to $591 million, up $45 million or 8% from $546 million in the third quarter of 2021. This revenue growth was mainly driven by a $49 million or 44% increase in net interest income owing to higher interest rates and to growth in loan and deposit volumes in the third quarter of 2022. Third-quarter fee-based revenues rose 3% year over year due to growth in average assets under management as a result of net inflows into various solutions compared to the third quarter of 2021. As for third-quarter transaction-based and other revenues, they were down 15% year over year given lower commissions on transactions in third-quarter 2022 attributable to a less favourable market.
For the third quarter of 2022, Wealth Management's non-interest expenses stood at $344 million, a $21 million or 7% year-over-year increase that stems from higher compensation and employee benefits, notably the variable compensation associated with the segment's revenue growth, as well as from higher operations support charges. At 58.2%, the segment's third-quarter efficiency ratio improved by 1.0 percentage point from 59.2% in the third quarter of 2021. The segment recorded $1 million in provisions for credit losses in the third quarter of 2022, whereas negligible provisions for credit losses had been recorded for the third quarter of 2021.
For the first nine months of fiscal 2022, the Wealth Management segment's net income totalled $526 million, up 8% from $486 million in the same nine-month period of 2021. The segment's nine-month total revenues amounted to $1,762 million, up 10% from $1,605 million in the same period of 2021. Nine-month net interest income grew $75 million or 23% year over year owing to higher interest rates, to growth in loan and deposit volumes, and to the deposit margin. Nine-month fee-based revenues rose 12% year over year due to growth in average assets under administration and under management as a result of net inflows into various solutions and to stronger stock market performance compared to the same period in 2021. As for nine-month transaction-based and other revenues, they decreased 12% year over year as a result of lower commission-generating trading volume during the nine months ended July 31, 2022. The segment's nine-month non-interest expenses stood at $1,045 million compared to $944 million in the first nine months of 2021. This increase was due to higher compensation and employee benefits, notably the variable compensation associated with revenue growth, and to an increase in external management fees and operations support charges related to business growth and the segment's initiatives. At 59.3%, the nine-month efficiency ratio compares to 58.8% in the same period of 2021. For the nine-month period ended July 31, 2022, the segment recorded $1 million in provisions for credit losses compared to a negligible amount recorded in the same period of 2021.
Financial Markets
(taxable equivalent
basis)(1)
(millions of Canadian Quarter ended July Nine months ended July
dollars) 31 31
---------------------------- ---------------------------------- -----------------------------------
2022 2021(2) % Change 2022 2021(2) % Change
---------------------------- ------- ------- -------- ------- ------- ---------
Operating results
Global markets
Equities 202 171 18 772 510 51
Fixed-income 117 84 39 296 299 (1)
Commodities and foreign
exchange 50 24 108 130 94 38
---------------------------- ------- ------- -------- ------- ------- ---------
369 279 32 1,198 903 33
Corporate and investment
banking 242 258 (6) 707 819 (14)
---------------------------- ------- ------- -------- ------- ------- ---------
Total revenues(1) 611 537 14 1,905 1,722 11
Non-interest expenses 253 224 13 768 684 12
---------------------------- ------- ------- -------- ------- ------- --------- Income before provisions for credit losses and income taxes 358 313 14 1,137 1,038 10 Provisions for credit losses (23) (25) 8 (55) 16 ---------------------------- ------- ------- -------- ------- ------- --------- Income before income taxes 381 338 13 1,192 1,022 17 Income taxes(1) 101 89 13 316 270 17 ---------------------------- ------- ------- -------- ------- ------- --------- Net income 280 249 12 876 752 16 ---------------------------- ------- ------- -------- ------- ------- --------- Average assets(3) 149,653 152,275 (2) 152,183 150,983 1 Average loans and acceptances(3) (Corporate Banking only) 22,991 19,392 19 21,549 19,564 10 Net impaired loans(4) 1 47 (98) 1 47 (98) Average deposits(3) 46,761 45,235 3 46,486 42,863 8 Efficiency ratio (4) 41.4 % 41.7% 40.3 % 39.7% ---------------------------- ------- ------- -------- ------- ------- ---------
(1) The Total revenues and Income taxes items of the Financial Markets segment are presented on a taxable equivalent basis. Taxable equivalent basis is a calculation method that consists in grossing up certain tax-exempt income by the amount of income tax that would have been otherwise payable. For the quarter ended July 31, 2022, Total revenues were grossed up by $70 million ($46 million in 2021) and an equivalent amount was recognized in Income taxes. For the nine-month period ended July 31, 2022, Total revenues were grossed up by $183 million ($143 million in 2021) and an equivalent amount was recognized in Income taxes. The effect of these adjustments is reversed under the Other heading.
(2) For the quarter and nine-month period ended July 31, 2021, certain amounts have been reclassified, in particular amounts of the loan portfolio of borrowers in the Oil and gas and Pipelines sectors as well as related activities, which were transferred from the Personal and Commercial segment to the Financial Markets segment.
(3) Represents an average of the daily balances for the period.
(4) See the Glossary section on pages 45 to 48 for details on the composition of these measures.
In the Financial Markets segment, net income totalled $280 million in the third quarter of 2022, up 12% from $249 million in the third quarter of 2021. The segment's third-quarter total revenues amounted to $611 million, up $74 million or 14% from $537 million in the third quarter of 2021. The third-quarter global markets revenues rose 32% year over year given growth in all revenue types. Third-quarter corporate and investment banking revenues fell 6% year over year given a decrease in revenues from capital markets activity, tempered by higher revenues from merger and acquisition activity and by an increase in banking service revenues driven by growth in loan and deposit volumes.
For the third quarter of 2022, non-interest expenses stood at $253 million, a 13% year-over-year increase that was due to higher compensation and employee benefits, notably the variable compensation associated with the segment's revenue growth, as well as to higher technology investment expenses and higher operations support charges. At 41.4%, the segment's third-quarter efficiency ratio improved by 0.3 percentage points from 41.7% in the third quarter of 2021. For the quarter ended July 31, 2022, the segment recorded $23 million in recoveries of credit losses, mainly due to a recovery on impaired loans from a borrower in the "Oil and gas" sector. In the third quarter of 2021, recoveries of credit losses of $25 million had been recorded, owing essentially to reversals of allowances for credit losses on non-impaired loans recorded to reflect a more favourable macroeconomic outlook during that period.
For the first nine months of fiscal 2022, the Financial Markets segment's net income totalled $876 million, a 16% year-over-year increase driven by revenue growth combined with lower provisions for credit losses. The segment's nine-month income before provisions for credit losses and income taxes totalled $1,137 million, up 10% year over year. Nine-month total revenues amounted to $1,905 million, up $183 million or 11% from $1,722 million in the same period of 2021. Nine-month global markets revenues rose 33% due to higher revenues from equities and from commodities and foreign exchange activities, as market conditions favoured greater client activity. As for nine-month corporate and investment banking revenues, they were down 14% year over year given decreases in revenues related to capital markets activity and in revenues related to merger and acquisition activity.
The segment's nine-month non-interest expenses increased 12% year over year. This increase was attributable to higher compensation and employee benefits, in particular the variable compensation associated with revenue growth, as well as to increases in technology investments and in operations support charges. At 40.3%, the nine-month efficiency ratio compares to 39.7% in the same period of 2021. The segment recorded $55 million in recoveries of credit losses during the nine-month period ended July 31, 2022 compared to $16 million in provisions for credit losses in the same period of 2021. This decrease came mainly from a $102 million year-over-year decrease in provisions for credit losses on impaired loans, partly offset by higher provisions for credit losses on non-impaired loans in the first nine months of fiscal 2022 arising from a less favourable macroeconomic outlook than in the same nine-month period of 2021.
U.S. Specialty Finance and International (USSF&I)
Quarter ended July Nine months ended July
(millions of Canadian dollars) 31 31
--------------------------------- -------------------------------- --------------------------------
2022 2021 % Change 2022 2021 % Change
--------------------------------- ------ ------ -------- ------ ------ --------
Total revenues
Credigy 105 116 (9) 351 386 (9)
ABA Bank 168 131 28 490 371 32
International - 1 2 2
--------------------------------- ------ ------ -------- ------ ------ --------
273 248 10 843 759 11
-------------------------------- ------ ------ -------- ------ ------ --------
Non-interest expenses
Credigy 31 36 (14) 99 109 (9)
ABA Bank 55 42 31 154 128 20
International - 1 1 2
--------------------------------- ------ ------ -------- ------ ------ --------
86 79 9 254 239 6
--------------------------------- ------ ------ -------- ------ ------ --------
Income before provisions for
credit losses and income taxes 187 169 11 589 520 13
--------------------------------- ------ ------ -------- ------ ------ --------
Provisions for credit losses
Credigy 19 (45) 142 37 (41) 190
ABA Bank 10 10 - 19 23 (17)
--------------------------------- ------ ------ -------- ------ ------ --------
29 (35) 56 (18)
-------------------------------- ------ ------ -------- ------ ------ --------
Income before income taxes 158 204 (23) 533 538 (1)
--------------------------------- ------ ------ -------- ------ ------ --------
Income taxes
Credigy 11 26 (58) 45 71 (37)
ABA Bank 22 17 29 63 41 54
------ ------ --------
33 43 (23) 108 112 (4)
-------------------------------- ------ ------ -------- ------ ------ --------
Net income
Credigy 44 99 (56) 170 247 (31)
ABA Bank 81 62 31 254 179 42
International - - 1 -
-------------------------------- ------ ------ -------- ------ ------ --------
125 161 (22) 425 426 -
-------------------------------- ------ ------ -------- ------ ------ -------- Average assets(1) 18,941 16,011 18 18,383 15,816 16 Average loans and receivables(1) 15,438 12,539 23 14,826 12,247 21 Purchased or originated credit-impaired (POCI) loans 336 534 (37) 336 534 (37) Net impaired loans excluding POCI loans(2) 120 34 120 34 Average deposits(1) 8,722 6,773 29 8,320 6,480 28 Efficiency ratio(2) 31.5 % 31.9% 30.1 % 31.5% --------------------------------- ------ ------ -------- ------ ------ -------- (1) Represents an average of the daily balances for the period.
(2) See the Glossary section on pages 45 to 48 for details on the composition of these measures.
In the USSF&I segment, net income totalled $125 million in the third quarter of 2022 compared to $161 million in the same quarter of 2021, a 22% year-over-year decrease attributable to a decrease in the Credigy subsidiary's total revenues combined with its higher provisions for credit losses. The segment's third-quarter total revenues amounted to $273 million, up $25 million or 10% from $248 million in the third quarter of 2021. This growth in total revenues was driven by a $37 million increase in ABA Bank's revenues, whereas Credigy's third-quarter revenues declined $11 million year over year. For the first nine months of fiscal 2022, the segment generated net income of $425 million, stable compared to $426 million in the same period of 2021.
Credigy
For the third quarter of 2022, the Credigy subsidiary's net income totalled $44 million, a $55 million or 56% year-over-year decrease that was essentially due to lower total revenues and higher provisions for credit losses, whereas reversals of allowances for credit losses on non-impaired loans and on POCI loans had been recorded in the third quarter of 2021. The subsidiary's third-quarter income before provisions for credit losses and income taxes amounted to $74 million, an 8% year-over-year decrease attributable to the lower revenues, which totalled $105 million in third-quarter 2022 versus $116 million in third-quarter 2021, as certain portfolios had delivered stronger perfomance in the third quarter of 2021. Third-quarter non-interest expenses stood at $31 million, a $5 million year-over-year decrease that was essentially due to lower variable compensation associated with the lower revenues experienced in the third quarter of 2022. Third-quarter provisions for credit losses were $64 million higher than those of third-quarter 2021, mainly because, in the third quarter of 2021, reversals of allowances for credit losses on non-impaired loans had been recorded to reflect improved macroeconomic conditions and also due to a favourable remeasurement of POCI loan portfolios in the third quarter of 2021.
For the nine-month period ended July 31, 2022, the Credigy subsidiary's net income totalled $170 million, a $77 million year-over-year decrease that was notably due to a significant increase in provisions for credit losses. The subsidiary's nine-month income before provisions for credit losses and income taxes totalled $252 million, down 9%. Its nine-month total revenues amounted to $351 million, down from $386 million in the same period of 2021. While there was growth in net interest income, it was more than offset by a decrease in non-interest income, as a $26 million gain had been realized in the first quarter of 2021 upon a disposal of loan portfolios and given a favourable impact of remeasuring the fair value of certain portfolios in the same period of 2021. Nine-month non-interest expenses were down $10 million due to a decrease in variable compensation. Provisions for credit losses rose $78 million year over year, whereas in the first nine months of 2021, higher reversals of allowances for credit losses on non-impaired loans had been recorded to reflect more favourable macroeconomic conditions at that time and more favourable remeasurements of POCI loan portfolios were also carried out in 2021.
ABA Bank
For the third quarter of 2022, the ABA Bank subsidiary's net income totalled $81 million, up $19 million or 31% from the third quarter of 2021. The subsidiary's third-quarter total revenues grew 28% year over year owing to sustained loan growth, partly offset by lower interest rates on loans given a competitive environment in Cambodia. Third-quarter non-interest expenses stood at $55 million, a $13 million year-over-year increase that was attributable to higher variable compensation associated with revenue growth, higher compensation and employee benefits given growth in ABA Bank's business activity, and higher occupancy expenses. ABA Bank recorded $10 million in provisions for credit losses in the third quarter of 2022, stable compared to the third quarter of 2021.
For the nine-month period ended July 31, 2022, ABA Bank's net income totalled $254 million, up 42% from the same nine-month period of 2021. The subsidiary's nine-month total revenues grew 32% year over year, mainly driven by the subsidiary's business growth, notably its sustained loan and deposit growth, partly offset by lower interest rates on loans. Nine-month non-interest expenses stood at $154 million, a 20% year-over-year increase that was due to the same reasons provided above for the third quarter. ABA Bank recorded $19 million in provisions for credit losses for the first nine months of 2022, a $4 million year-over-year decrease that stems from lower provisions for credit losses on non-impaired loans.
Other
Quarter ended Nine months ended
(millions of Canadian dollars) July 31 July 31
------------------------------------------------- ---------------- -------------------
2022 2021(1) 2022 2021(1)
------------------------------------------------- ------- ------- -------- ---------
Operating results
Net interest income(2) (141) (98) (381) (273)
Non-interest income(2) 36 99 226 218
-------------------------------------------------- ------- ------- -------- ---------
Total revenues (105) 1 (155) (55)
Non-interest expenses 85 97 214 255
-------------------------------------------------- ------- ------- -------- ---------
Income before provisions for credit losses
and income taxes (190) (96) (369) (310)
Provisions for credit losses 1 - 1 -
------------------------------------------------- ------- ------- -------- ---------
Income before income taxes (191) (96) (370) (310)
Income taxes (recovery)(2) (96) (58) (229) (189)
-------------------------------------------------- ------- ------- -------- ---------
Net loss (95) (38) (141) (121)
Non-controlling interests - - (1) -
-------------------------------------------------- ------- ------- -------- ---------
Net loss attributable to the Bank's shareholders
and holders of other equity instruments (95) (38) (140) (121)
-------------------------------------------------- ------- ------- -------- ---------
Average assets(3) 72,830 59,402 71,041 62,817
-------------------------------------------------- ------- ------- -------- ---------
(1) For the quarter and nine-month period ended July 31, 2021, certain amounts have been reclassified.
(2) For the quarter ended July 31, 2022, Net interest income was reduced by $60 million ($46 million in 2021), Non-interest income was reduced by $11 million ($1 million in 2021), and an equivalent amount was recorded in Income taxes. For the nine-month period ended July 31, 2022, Net interest income was reduced by $ 169 million ($ 142 million in 2021 ), Non-interest income was reduced by $ 18 million ($6 million in 2021) , and an equivalent amount was recorded in Income taxes. These adjustments include a reversal of the taxable equivalent of the Financial Markets segment and the Other heading. Taxable equivalent basis is a calculation method that consists in grossing up certain tax-exempt income by the amount of income tax that would have otherwise been payable.
(3) Represents an average of the daily balances for the period.
For the Other heading of segment results, there was a net loss of $95 million in the third quarter of 2022 compared to a net loss of $38 million in the same quarter of 2021. This change in net loss stems essentially from a decrease in total revenues arising from a lower contribution from treasury activities, notably higher gains on investments in the third quarter of 2021 due to more favourable market conditions. This decrease was tempered, however, by a reduction in non-interest expenses, mainly due to the pension plan expense.
For the nine-month period ended July 31, 2022, net loss stood at $141 million compared to a net loss of $121 million in the same period of 2021. This change in net loss stems from a decrease in total revenues arising from a lower contribution from treasury activities. This decrease was partly offset by a reduction in non-interest expenses, notably variable compensation, the pension plan expense, and a $20 million reversal of the provision for the compensatory tax on salaries paid in Quebec.
Consolidated Balance Sheet
Consolidated Balance Sheet Summary
As at July As at October
(millions of Canadian dollars) 31, 2022 31, 2021 % Change
------------------------------------------------ ---------- ------------- --------
Assets
Cash and deposits with financial institutions 37,968 33,879 12
Securities 106,188 106,304 -
Securities purchased under reverse repurchase
agreements and securities borrowed 16,823 7,516 124
Loans and acceptances, net of allowances 200,924 182,689 10
Other 25,148 25,407 (1)
------------------------------------------------ ---------- ------------- --------
387,051 355,795 9
----------------------------------------------- ---------- ------------- --------
Liabilities and equity
Deposits 257,190 240,938 7
Other 107,254 95,233 13
Subordinated debt 1,510 768 97
Equity attributable to the Bank's shareholders
and holders of other equity instruments 21,095 18,853 12
Non-controlling interests 2 3 (33)
------------------------------------------------ ---------- ------------- --------
387,051 355,795 9
----------------------------------------------- ---------- ------------- --------
Assets
As at July 31, 2022, the Bank had total assets of $387.1 billion, rising $31.3 billion or 9% from $355.8 billion as at October 31, 2021. Cash and deposits with financial institutions, totalling $38.0 billion as at July 31, 2022, increased by $4.1 billion, mainly due to deposits with the U.S. Federal Reserve. Cash and deposits with financial institutions remained high given the liquidity obtained from the financing initiatives deployed by the Canadian government in 2020, through the Bank of Canada, to support the Canadian financial system in response to COVID-19.
As at July 31, 2022, securities totalled $106.2 billion, decreasing $0.1 billion since October 31, 2021. Securities at fair value through profit or loss decreased by $1.1 billion or 1%, essentially due to a decrease in equity securities, tempered by increases in securities issued or guaranteed by the Canadian government, by Canadian municipal and provincial governments, and by U.S. Treasury, other U.S. agencies and other foreign governments. Securities other than those measured at fair value through profit or loss rose $1.0 billion, essentially due to an increase in securities at amortized cost. Securities purchased under reverse repurchase agreements and securities borrowed increased by $9.3 billion, relating mainly to the activities of the Financial Markets segment.
Totalling $200.9 billion as at July 31, 2022, loans and acceptances, net of allowances for credit losses, rose $18.2 billion or 10% since October 31, 2021. The following table provides a breakdown of the main loan and acceptance portfolios.
As at July As at October As at July
(millions of Canadian dollars) 31, 2022 31, 2021 31, 2021
-------------------------------------- ---------- ------------- ----------
Loans and acceptances
Residential mortgage and home equity
lines of credit 107,105 99,146 97,056
Personal 15,669 14,449 13,900
Credit card 2,318 2,150 2,035
Business and government 76,784 67,942 67,009
-------------------------------------- ---------- ------------- ----------
201,876 183,687 180,000
Allowances for credit losses (952) (998) (1,054)
-------------------------------------- ---------- ------------- ----------
200,924 182,689 178,946
------------------------------------- ---------- ------------- ----------
Since October 31, 2021, residential mortgages (including home equity lines of credit) rose $8.0 billion or 8% given sustained demand for mortgage credit in the Personal and Commercial segment and at the ABA Bank subsidiary, personal loans grew owing to the business activities of Personal Banking and ABA Bank, and credit card receivables also increased, as the consumer spending habits of clients gradually resumed and resulted in notable purchasing growth in the third quarter of 2022. Also since October 31, 2021, loans and acceptances to business and government rose $8.8 billion or 13%, mainly due to business growth at Commercial Banking and in corporate financial services.
When compared to July 31, 2021, loans and acceptances, net of allowances for credit losses, grew $22.0 billion or 12%, residential mortgages (including home equity lines of credit) were up $10.0 billion or 10% due to sustained demand for mortgage credit and to business growth at ABA Bank, and personal loans rose $1.8 billion due to the business activities of Personal Banking and ABA Bank. Also since July 31, 2021, credit card receivables grew $0.3 billion as consumer spending resumed, and loans and acceptances to business and government rose $9.8 billion or 15%, owing essentially to the activities of Commercial Banking and corporate financial services.
Impaired loans include loans classified in Stage 3 of the expected credit loss model and the purchased or originated credit-impaired (POCI) loans of the Credigy subsidiary. As at July 31, 2022, gross impaired loans stood at $951 million compared to $1,126 million as at October 31, 2021. Net impaired loans stood at $712 million as at July 31, 2022 compared to $836 million as at October 31, 2021, a $124 million decrease related essentially to POCI loans, which were $411 million as at July 31, 2022 versus $553 million as at October 31, 2021, due to maturities and repayments of certain portfolios. However, net impaired loans excluding POCI loans were up due to ABA Bank's loan portfolios given the end of relief measures granted to the subsidiary's clients, partly offset by a decrease in the net impaired loans of the Personal and Commercial Banking, Wealth Management, Financial Markets, and Credigy loan portfolios.
As at July 31, 2022, other assets totalled $25.1 billion, a $0.3 billion decrease since October 31, 2021 that was mainly due to a decrease in derivative financial instruments, which were down $2.5 billion. This decrease was partly offset by increases in certain other assets, notably receivables, prepaid expenses and other items as well as amounts due from clients, dealers and brokers.
Liabilities
As at July 31, 2022, the Bank had total liabilities of $366.0 billion compared to $336.9 billion as at October 31, 2021.
The Bank's total deposit liability stood at $257.2 billion as at July 31, 2022, rising $16.3 billion or 7% from $240.9 billion as at October 31, 2021. At $74.8 billion as at July 31, 2022, personal deposits grew $4.7 billion since October 31, 2021. This increase came mainly from business growth at Personal Banking, in the Wealth Management segment, and at ABA Bank.
Business and government deposits totalled $178.3 billion as at July 31, 2022, rising $10.4 billion since October 31, 2021. This increase came from treasury funding activities, including $3.1 billion in deposits subject to bank recapitalization (bail-in) conversion regulations as well as business and government deposits from Commercial Banking activities. Deposits from deposit-taking institutions stood at $4.1 billion as at July 31, 2022, rising $1.1 billion since October 31, 2021 due to treasury funding activities.
Other liabilities, totalling $107.3 billion as at July 31, 2022, increased $12.1 billion since October 31, 2021, resulting essentially from a $12.8 billion increase in obligations related to securities sold under repurchase agreements and securities loaned and from a $3.0 billion increase in obligations related to securities sold short, partly offset by a $3.4 billion decrease in derivative financial instruments.
In addition, the increase in subordinated debt since October 31, 2021 stems from the issuance, on July 25, 2022, of medium-term notes for an amount of $750 million.
Equity
As at July 31, 2022, equity attributable to the Bank's shareholders and holders of other equity instruments was $21.1 billion, rising $2.2 billion since October 31,2021. This increase was due to net income net of dividends, to issuances of common shares under the Stock Option Plan, to remeasurements of pension plans and other post-employment benefit plans, to the net fair value change attributable to the credit risk on financial liabilities designated at fair value through profit or loss, and to accumulated other comprehensive income, notably net unrealized foreign currency translation gains on investments in foreign operations. These increases were partly offset by repurchases of common shares for cancellation.
Exposure to Certain Activities
The recommendations made by the Financial Stability Board's Enhanced Disclosure Task Force (EDTF) seek to enhance the transparency and measurement of certain exposures, in particular structured entities, subprime and Alt-A exposures, collateralized debt obligations, residential and commercial mortgage-backed securities, and leveraged financing structures . The Bank does not market any specific mortgage financing program to subprime or Alt-A clients. The Bank does not have any significant direct position in residential and commercial mortgage--backed securities that are not insured by the Canada Mortgage and Housing Corporation (CMHC). Credit derivative positions are presented in the Supplementary Regulatory Capital and Pillar 3 Disclosure report, which is available on the Bank's website at nbc.ca.
Leveraged finance is commonly used to achieve a specific objective, for example, to make an acquisition, complete a buy-out, or repurchase shares. Leveraged finance risk exposure takes the form of both funded and unfunded commitments. As at July 31, 2022, total commitments for this type of loan stood at $5,225 million ($4,048 million as at October 31, 2021). Details about other exposures are provided in the table on structured entities in Note 27 to the audited annual consolidated financial statements for the year ended October 31, 2021.
Related Party Transactions
The Bank's policies and procedures regarding related party transactions have not significantly changed since October 31, 2021. For additional information, see Note 28 to the audited annual consolidated financial statements for the year ended October 31, 2021.
Securitization and Off-Balance-Sheet Arrangements
In the normal course of business, the Bank is party to various financial arrangements that, under IFRS, are not required to be recorded on the Consolidated Balance Sheet or are recorded at amounts other than their notional or contractual values. These arrangements include, among others, transactions with structured entities, derivative financial instruments, issuances of guarantees, credit instruments, and financial assets received as collateral. A complete analysis of these types of arrangements, including their nature, business purpose, and importance, is provided on pages 57 and 58 of the 2021 Annual Report.
For additional information on guarantees, commitments, and structured entities, see Notes 26 and 27 to the audited annual consolidated financial statements for the year ended October 31, 2021. For additional information about financial assets transferred but not derecognized, see Note 6 to these consolidated financial statements.
Income Taxes
On August 9, 2022, the Government of Canada released for public comment draft legislative proposals to implement tax measures applicable to certain entities of banking and life insurer groups, as presented in its budget of April 7, 2022. These measures include the Canada Recovery Dividend (a one-time, 15% tax on the fiscal 2021 and 2020 average taxable income) and a 1.5% increase in the statutory tax rate. Since these proposed tax measures were not substantively enacted at the reporting date, no amount has been recognized in the Bank's consolidated financial statements as at July 31, 2022.
Capital Management
Capital management has a dual role of ensuring a competitive return to the Bank's shareholders while maintaining a solid capital foundation that covers risks inherent to the Bank's business, supports its business segments, and protects its clients. The Bank's capital management policy defines guiding principles as well as the roles and responsibilities of its internal capital adequacy assessment process. This process aims to determine the capital that the Bank needs to pursue its business activities and accommodate unexpected losses arising from extremely adverse economic and operational conditions. For additional information on the capital management framework, see the Capital Management section on pages 59 to 68 of the Bank's 2021 Annual Report.
Basel Accord
The Bank and all other major Canadian banks have to maintain minimum capital ratios established by OSFI: a CET1 capital ratio of at least 10.5%, a Tier 1 capital ratio of at least 12.0%, and a Total capital ratio of at least 14.0%. For additional information on the ratio calculations, see page 60 of the 2021 Annual Report. All of these ratios include a capital conservation buffer of 2.5% established by the BCBS and OSFI as well as a 1.0% surcharge applicable solely to Domestic Systemically Important Banks (D--SIBs) and a 2.5% domestic stability buffer established by OSFI. The domestic stability buffer, which can vary from 0% to 2.5% of risk-weighted assets, consists exclusively of CET1 capital. A D-SIB that fails to meet this buffer requirement will not be subject to automatic constraints to reduce capital distributions but will have to provide a remediation plan to OSFI. Banks also have to meet the capital floor that sets the regulatory capital level according to the Basel II standardized approach. If the capital requirement under Basel III is less than 70% of the capital requirement calculated under Basel II, the difference is added to risk-weighted assets. Lastly, OSFI requires Canadian banks to meet a Basel III leverage ratio of at least 3.0%. The leverage ratio is a measure independent of risk that is calculated by dividing the amount of Tier 1 capital by total exposure. Total exposure is defined as the sum of on-balance-sheet assets (including derivative exposures and securities financing transaction exposures) and off-balance-sheet items. The assets deducted from Tier 1 capital are also deducted from total exposure.
In addition to those measures, OSFI is requiring that regulatory capital instruments other than common equity have a non-viability contingent capital (NVCC) clause to ensure that investors bear losses before taxpayers should the government determine that it is in the public interest to rescue a non-viable financial institution. Instruments issued before January 1, 2013 that would be Basel-III-compliant if not for the absence of the NVCC clause were grandfathered and phased out over a ten-year period. As at July 31, 2022, t he Bank has one remaining non-NVCC Tier 2 subordinated debt capital instrument, which has now been completely phased out of regulatory capital.
OSFI's Total Loss Absorbing Capacity (TLAC) guideline, which applies to all D-SIBs under the federal government's bail-in regulations, is to ensure that a D-SIB has sufficient loss-absorbing capacity to support its recapitalization in the unlikely event it becomes non-viable. Available TLAC includes total capital as well as certain senior unsecured debts that satisfy all of the eligibility criteria of OSFI's TLAC guideline. Since November 1, 2021, OSFI has been requiring D-SIBs to maintain a risk-based TLAC ratio of at least 24.0% (including the domestic stability buffer) of risk-weighted assets and a TLAC leverage ratio of at least 6.75%. The TLAC ratio is calculated by dividing available TLAC by risk--weighted assets, and the TLAC leverage ratio is calculated by dividing available TLAC by total exposure. As at July 31, 2022, outstanding liabilities of $15.0 billion ($11.9 billion as at October 31, 2021) were subject to conversion regulations for bail-in purposes.
Requirements - Regulatory Capital, Leverage, and TLAC Ratios
As at July 31, 2022
--------- ------- ------------ ------- --------- ---------------------------------
Minimum
set by OSFI
(1) ,
including
Minimum Domestic the
Capital Minimum set by stability domestic
conservation set by D-SIB OSFI buffer stability
Minimum buffer BCBS surcharge (1) (2) buffer
---------- ------- ------------ ------- --------- ------- --------- -----------
Capital
ratios
CET1 4.5 % 2.5 % 7.0 % 1.0 % 8.0 % 2.5 % 10.5 %
Tier 1 6.0 % 2.5 % 8.5 % 1.0 % 9.5 % 2.5 % 12.0 %
Total 8.0 % 2.5 % 10.5 % 1.0 % 11.5 % 2.5 % 14.0 %
--------- ------- ------------ ------- --------- ------- --------- ----- ----
Leverage
ratio 3.0 % n.a. 3.0 % n.a. 3.0 % n.a. 3.0 %
---------- ------- ------------ ------- --------- ------- --------- ----- ----
TLAC ratio 18.0 % 2.5 % 20.5 % 1.0 % 21.5 % 2.5 % 24.0 %
---------- ------- ------------ ------- --------- ------- --------- ----- ----
TLAC
leverage
ratio 6.75 % n.a. 6.75 % n.a. 6.75 % n.a. 6.75 %
---------- ------- ------------ ------- --------- ------- --------- ----- ----
n.a. Not applicable
(1) The capital ratios and the TLAC ratio include the capital conservation buffer and the D-SIB surcharge.
(2) On June 22, 2022, OSFI confirmed that the domestic stability buffer was being maintained at 2.5%.
The Bank ensures that its capital levels are always above the minimum capital requirements set by OSFI, including the domestic stability buffer. By maintaining a strong capital structure, the Bank can cover the risks inherent to its business activities, support its business segments, and protect its clients.
Other disclosure requirements pursuant to Pillar 3 of the Basel Accord and a set of recommendations defined by the EDTF are presented in the Supplementary Regulatory Capital and Pillar 3 Disclosure report published quarterly and available on the Bank's website at nbc.ca. Also available on the Bank's website is a complete list of capital instruments and their main features.
Regulatory Developments
The Bank closely monitors regulatory developments and participates actively in various consultative processes. On March 27, 2020, in response to the impact of the COVID-19 pandemic, OSFI announced a series of regulatory adjustments to support the financial and operational resilience of banks. For additional information, see the section entitled COVID-19 Pandemic - Key Measures Introduced by the Regulatory Authorities on page 17 of the 2021 Annual Report. For additional information about the regulatory context on October 31, 2021, see pages 62 and 63 of the Capital Management section in the 2021 Annual Report. In addition, since November 1, 2021, the below-described regulatory developments should also be considered.
On November 29, 2021, OSFI postponed the implementation of the final Basel III reforms to the second quarter of 2023. The implementation date of the revised market risk framework and the credit valuation adjustment (CVA) risk framework remains the first quarter of 2024. OSFI also announced the details of its final policy positions on a series of key topics associated with guidelines that were the subject of extensive consultations in the spring of 2021.
On January 31, 2022, OSFI released its final capital and liquidity rules that incorporate the final Basel III reforms, and o n February 7, 2022, OSFI published corresponding changes to the regulatory returns, i.e., the Basel Capital Adequacy Return (BCAR) and the Leverage Requirements Return (LRR).
On March 31, 2022, OSFI published, for consultation purposes, a draft guideline entitled Assurance on Capital, Leverage and Liquidity Returns. OSFI relies largely on the regulatory returns produced by financial institutions when assessing their safety and soundness. The purpose of this draft guideline is to better inform auditors and institutions on the work to be performed on regulatory returns in order to clarify and align OSFI's assurance expectations across all financial institutions. In particular, the draft guideline addresses the assurance that must be provided by an external audit, attestation by senior management, the assurance that must be provided by an internal audit, and the proposed effective dates. The Bank is actively participating in this consultation.
On June 30, 2022, the BCBS published its second public consultation on the prudential treatment of the cryptoasset risk exposures faced by banks. This consultation builds on preliminary proposals from the first consultation published in June 2021 and the responses received. The BCBS plans to finalize the standards by the end of 2022. The Bank is actively participating in this consultation. On August 18, 2022, OSFI released an advisory on interim arrangements for dealing with cryptoassets held by federally regulated financial institutions, which outlines its prudential expectations on cryptoasset holdings and sets exposure limits. OSFI also provided guidance on the regulatory capital and liquidity treatment of cryptoasset exposures. These interim arrangements will be effective in the second quarter of 2023.
Management Activities
On November 4, 2021, OSFI amended its capital distribution expectations, namely, by permitting financial institutions to increase regular dividends and, subject to OSFI approval, to buy back shares.
On November 30, 2021, the Bank's Board of Directors approved a normal course issuer bid, which began on December 10, 2021, to repurchase for cancellation up to 7,000,000 common shares (representing approximately 2% of its common shares outstanding) over a 12-month period ending no later than December 9, 2022. This normal course issuer bid was approved by OSFI and the Toronto Stock Exchange (TSX) on December 8, 2021. During the nine-month period ended July 31, 2022, the Bank repurchased 2,500,000 common shares under this program for $245 million, which reduced Common share capital by $24 million and Retained earnings by $221 million.
On July 25, 2022, the Bank issued medium-term notes for an amount of $750 million, bearing interest at 5.426% and maturing on August 16, 2032. As these medium-term notes satisfy the NVCC requirements, they qualify for the purposes of calculating regulatory capital under Basel III.
Dividends
On August 23, 2022, the Board of Directors declared regular dividends on the various series of first preferred shares and a dividend of 92 cents per common share, payable on November 1, 2022 to shareholders of record on September 26, 2022.
Shares, Other Equity Instruments, and Stock Options
As at July 31, 2022
-------------------------- ----------------------
Number of
shares or
LRCN (1) $ million
-------------------------- ----------- ---------
First preferred shares
Series 30 14,000,000 350
Series 32 12,000,000 300
Series 38 16,000,000 400
Series 40 12,000,000 300
Series 42 12,000,000 300
-------------------------- ----------- ---------
66,000,000 1,650
------------------------- ----------- ---------
Other equity instruments
LRCN - Series 1 500,000 500
LRCN - Series 2 500,000 500
-------------------------- ----------- ---------
1,000,000 1,000
------------------------- ----------- ---------
67,000,000 2,650
------------------------- ----------- ---------
Common shares 336,455,568 3,189
-------------------------- ----------- ---------
Stock options 11,992,580
-------------------------- ----------- ---------
(1) Limited Recourse Capital Notes (LRCN).
As at August 19, 2022, there were 336,457,021 common shares and 11,991,490 stock options outstanding. NVCC provisions require the conversion of capital instruments into a variable number of common shares should OSFI deem a bank to be non-viable or should the government publicly announce that a bank has accepted or agreed to accept a capital injection. If an NVCC trigger event were to occur, all of the Bank's preferred shares, LRCNs, and medium-term notes maturing on February 1, 2028 and August 16, 2032, which are NVCC capital instruments, would be converted into common shares of the Bank according to an automatic conversion formula at a conversion price corresponding to the greater of the following amounts: (i) a $5.00 contractual floor price; or (ii) the market price of the Bank's common shares on the date of the trigger event (10-day weighted average price). Based on a $5.00 floor price and including an estimate for accrued dividends and interest, these NVCC capital instruments would be converted into a maximum of 990 million Bank common shares, which would have a 74.6% dilutive effect based on the number of Bank common shares outstanding as at July 31, 2022.
Movement in Regulatory Capital (1)
Nine months
ended
July 31,
(millions of Canadian dollars) 2022
------------------------------------------------------------- -----------
Common Equity Tier 1 (CET1) capital
Balance at beginning 12,973
Issuance of common shares (including Stock Option Plan) 48
Impact of shares purchased or sold for trading (1)
Repurchase of common shares (245)
Other contributed surplus 14
Dividends on preferred and common shares and distributions
on other equity instruments (982)
Net income attributable to the Bank's shareholders and
holders of other equity instruments 2,652
Removal of own credit spread (net of income taxes) (673)
Other 697
Movements in accumulated other comprehensive income
Translation adjustments 108
Debt securities at fair value through other comprehensive
income (95)
Other (2)
Change in goodwill and intangible assets (net of related
tax liability) (60)
Other, including regulatory adjustments and transitional
arrangements
Change in defined benefit pension plan asset (net of
related tax liability) (102)
Change in amount exceeding 15% threshold
Deferred tax assets -
Significant investment in common shares of financial
institutions -
Deferred tax assets, unless they result from temporary
differences (net of related tax liability) (4)
Other deductions or regulatory adjustments to CET1
implemented by OSFI(2) (58)
Change in other regulatory adjustments -
----------------------------------------------------------- ----------- Balance at end 14,270 ------------------------------------------------------------- ----------- Additional Tier 1 capital Balance at beginning 2,649 New Tier 1 eligible capital issuances - Redeemed capital - Change in non-qualifying Additional Tier 1 subject to phase-out - Other, including regulatory adjustments and transitional arrangements (1) ------------------------------------------------------------ ----------- Balance at end 2,648 ------------------------------------------------------------- ----------- Total Tier 1 capital 16,918 ------------------------------------------------------------- ----------- Tier 2 capital Balance at beginning 1,021 New Tier 2 eligible capital issuances 750 Redeemed capital - Change in non-qualifying Tier 2 subject to phase-out - Tier 2 instruments issued by subsidiaries and held by third parties - Change in certain allowances for credit losses 2 Other, including regulatory adjustments and transitional arrangements 43 ------------------------------------------------------------ ----------- Balance at end 1,816 ------------------------------------------------------------- ----------- Total regulatory capital 18,734 ------------------------------------------------------------- -----------
(1) See the Financial Reporting Method section on pages 4 to 6 for additional information on capital management measures.
(2) This item includes the transitional measure applicable to expected credit loss provisioning . For additional information, see the section entitled COVID-19 Pandemic - Key Measures Introduced by the Regulatory Authorities on page 17 of the 2021 Annual Report.
Risk-Weighted Assets by Key Risk Drivers
Risk-weighted assets (RWA) amounted to $111.4 billion as at July 31, 2022 compared to $104.4 billion as at October 31, 2021, a $7.0 billion increase resulting mainly from organic growth in RWA and from foreign exchange movements, partly offset by improvement in the credit quality of the loan portfolio and of exposures to derivative financial instruments and by model updates. The changes in the Bank's RWA by risk type are presented in the following table.
Movement of Risk-Weighted Assets by Key Drivers (1)
(millions of Canadian
dollars) Quarter ended
------------------------- ---------------- -----------------------------------------------------------
April October
July 31, 30, 31,
January
2022 2022 31, 2022 2021
------------------------- --------------------------------------- ------- --------- -------
Non-counterparty Counterparty
credit credit
risk risk Total Total Total Total
----------------------- ---------------- ------------ ------- ------- --------- -------
Credit risk -
Risk-weighted
assets at beginning 79,537 9,341 88,878 88,889 87,213 85,914
Book size 3,450 (950) 2,500 1,780 1,002 1,944
Book quality 226 (285) (59) (1,397) (22) (430)
Model updates (74) 87 13 (666) 29 (7)
Methodology and policy - - - - - -
Acquisitions and
disposals - - - - - -
Foreign exchange
movements (90) (13) (103) 272 667 (208)
------------------------ ---------------- ------------ ------- ------- --------- -------
Credit risk -
Risk-weighted
assets at end 83,049 8,180 91,229 88,878 88,889 87,213
------------------------- ---------------- ------------ ------- ------- --------- -------
Market risk -
Risk-weighted
assets at beginning 4,453 3,498 3,770 4,072
Movement in risk levels
(2) 1,243 542 (272) (302)
Model updates - 413 - -
Methodology and policy - - - -
Acquisitions and
disposals - - - -
------------------------ ---------------- ------------ ------- ------- --------- -------
Market risk -
Risk-weighted
assets at end 5,696 4,453 3,498 3,770
------------------------- ---------------- ------------ ------- ------- --------- -------
Operational risk -
Risk-weighted
assets at beginning 14,147 13,781 13,375 13,153
Movement in risk levels 305 366 406 222
Acquisitions and
disposals - - - -
------------------------ ---------------- ------------ ------- ------- --------- -------
Operational risk -
Risk-weighted
assets at end 14,452 14,147 13,781 13,375
------------------------- ---------------- ------------ ------- ------- --------- -------
Risk-weighted assets at
end 111,377 107,478 106,168 104,358
------------------------- ---------------- ------------ ------- ------- --------- -------
(1) See the Financial Reporting Method section on pages 4 to 6 for additional information on capital management measures.
(2) Also includes foreign exchange rate movements that are not considered material.
The table above provides risk-weighted asset movements by the key drivers underlying the different risk categories.
The Book size item reflects organic changes in book size and composition (including new loans and maturing loans). RWA movements attributable to book size include increases or decreases in exposures, measured by exposure at default, assuming a stable risk profile.
The Book quality item is the Bank's best estimate of changes in book quality related to experience, such as underlying customer behaviour or demographics, including changes resulting from model recalibrations or realignments and also including risk mitigation factors.
The Model updates item is used to reflect implementations of new models, changes in model scope, and any other change applied to address model malfunctions. During the quarter ended January 31, 2022, the Bank updated the model used for retail lines of credit. During the quarter ended April 30, 2022, the Bank transitioned a retail loan portfolio from the standardized approach to the Advanced Internal Ratings-Based (AIRB) approach for measuring credit risk. It also changed the SVaR period of the 2008 Global Financial Crisis (GFC) to the 2020 COVID-19 period at the start of the second quarter of 2022 and then returned to the 2008 GFC period towards the end of the quarter. During the quarter ended July 31, 2022, the Bank updated the model used for home equity line of credit.
The Methodology and policy item presents the impact of changes in calculation methods resulting from changes in regulatory policies as a result, for example, of new regulations.
Regulatory Capital and TLAC Ratios
As at July 31, 2022, the Bank's CET1, Tier 1, and Total capital ratios were, respectively, 12.8%, 15.2% and 16.8%, compared to ratios of, respectively, 12.4%, 15.0% and 15.9% as at October 31, 2021. All of the capital ratios have therefore increased since October 31, 2021, essentially due to net income net of dividends and common share issuances under the Stock Option Plan. These factors were partly offset by growth in RWA, common share repurchases, and the impact of the transitional measures applicable to ECL provisioning, of which the scaling factor decreased from 50% to 25%. The increase in the Total capital ratio was also due to the $750 million issuance of medium-term notes on July 25, 2022. As at July 31, 2022, the leverage ratio was 4.4%, stable compared to October 31, 2021. The growth in Tier 1 capital was partly offset by growth in total exposure, which continues to benefit from the temporary measures provided by OSFI with respect to the exclusion of exposures from central bank reserves.
As at July 31, 2022, the Bank's TLAC ratio and TLAC leverage ratio were, respectively, 28.3% and 8.2%, compared with 26.3% and 7.8%, respectively, as at October 31, 2021. The increase in the TLAC ratio was due to the same factors as those provided for the Total capital ratio and the net TLAC instrument issuances during the period. The increase in the TLAC leverage ratio was due to the same factors as those provided for the leverage ratio and to the net TLAC instrument issuances.
During the quarter and nine-month period ended July 31, 2022, the Bank was in compliance with all of OSFI's regulatory capital, leverage, and TLAC requirements.
Regulatory Capital (1) and TLAC (2)
(millions of Canadian dollars) As at July 31, 2022 As at October 31, 2021
-------------------------------- ----------------------- --------------------------
Adjusted
(3) Adjusted(3)
------------------------------- --------- --- ------- ------------- -------
Capital
CET1 14,221 14,270 12,866 12,973
Tier 1 16,869 16,918 15,515 15,622
Total 18,734 18,734 16,643 16,643
-------------------------------- --------- --- ------- ------------- -------
Risk-weighted assets 111,377 111,377 104,358 104,358
Total exposure 383,360 383,360 351,160 351,160
-------------------------------- --------- --- ------- ------------- -------
Capital ratios
CET1 12.8 % 12.8 % 12.3% 12.4%
Tier 1 15.1 % 15.2 % 14.9% 15.0%
Total 16.8 % 16.8 % 15.9% 15.9%
-------------------------------- --------- --- ------- ------------- -------
Leverage ratio 4.4 % 4.4 % 4.4% 4.4%
-------------------------------- --------- --- ------- ------------- -------
Available TLAC (2) 31,549 31,549 27,492 27,492
TLAC ratio (2) 28.3 % 28.3 % 26.3% 26.3%
TLAC leverage ratio (2) 8.2 % 8.2 % 7.8% 7.8%
-------------------------------- --------- --- ------- ------------- -------
(1) Capital, risk-weighted assets, total exposure, the capital ratios, and the leverage ratio are calculated in accordance with the Basel III rules, as set out in OSFI's Capital Adequacy Requirements and Leverage Requirements guidelines.
(2) Available TLAC, the TLAC ratio, and the TLAC leverage ratio are calculated in accordance with OSFI's Total Loss Absorbing Capacity guideline.
(3) Adjusted amounts are calculated in accordance with the Basel III rules, as set out in OSFI's Capital Adequacy Requirements guideline, and exclude the transitional measure for provisioning expected credit losses. For additional information, see the section entitled COVID-19 Pandemic - Key Measures Introduced by the Regulatory Authorities on page 17 of the 2021 Annual Report.
Global Systemically Important Banks - Public Disclosure Requirements
On July 3, 2013, the BCBS published Global Systemically Important Banks: Assessment Methodology and the Additional Loss Absorbency Requirement, which describes the annual assessment methodology and indicators used by the BCBS and the Financial Stability Board to evaluate global systemically important banks (G-SIBs). On July 5, 2018, the BCBS published a revised version that provides an update to the assessment methodology. The document also sets out the annual public disclosure requirements applicable to large globally active banks.
In September 2015, OSFI published an advisory entitled Global Systemically Important Banks - Public Disclosure Requirements addressing the implementation of G--SIB public disclosure requirements in Canada. On August 13, 2021, OSFI published a revised version of its advisory that incorporates the updated assessment methodology used to identify global systemically important banks published by the BCBS on July 5, 2018. The new disclosure requirements, which took effect as of first-quarter 2022, consist of a new trading volume indicator and the inclusion of insurance activities for certain existing indicators. Canadian banks, including the Bank, which have not been identified as G-SIBs and whose total exposure (as calculated using the Basel III leverage ratio) is greater than the equivalent of 200 billion euros at year-end, are required to publish the indicators annually. The indicators, updated annually, are calculated and presented based on specific instructions issued by the BCBS. As a result, values may not be directly comparable to other measures disclosed in this report. The following table provides the indicators used in BCBS's assessment methodology for evaluating G-SIBs.
Indicators - Global Systemically Important Banks (G-SIBs) (1)
(millions of Canadian dollars) As at October 31
------------------------------------------------------------------------- ----------------------
Category Indicators 2021 2020
--------------------------------- -------------------------------------- ---------- ----------
Cross-jurisdictional activity(2) Cross-jurisdictional claims 87,661 82,516
Cross-jurisdictional liabilities 65,214 62,282
--------------------------------------- -------------------------------- ---------- ----------
Total exposures as defined for
use in the Basel III leverage
Size(3) ratio(4) 387,725 359,980
--------------------------------- --------------------------------------- ---------- ----------
Interconnectedness(5) Intra-financial system assets(4) 50,614 40,412
Intra-financial system liabilities(4) 40,301 28,938
Securities outstanding(4) 105,213 82,474
--------------------------------------- -------------------------------- ---------- ----------
Substitutability / financial
institutions infrastructure(6) Payment activity(7) 14,059,326 14,045,497
Assets under custody 651,345 596,656
Underwritten transactions in debt
and equity markets 35,658 35,095
Trading volume(8)
Fixed-income securities(8) 740,927
Equities and other securities(8) 1,289,087
--------------------------------------- -------------------------------- ---------- ----------
Notional amount of over-the-counter
Complexity(9) derivative financial instruments(4) 1,481,260 1,177,539
Trading and investment securities(10) 52,936 45,988
Level 3 financial assets(4) 1,077 1,232
--------------------------------------- -------------------------------- ---------- ----------
(1) As at October 31, 2021, the G-SIB indicators were prepared using the methodology prescribed in the BCBS guidelines published in July 2018 and in the guidance provided by the BCBS in January 2022. As at October 31, 2020, the G-SIB indicators had been prepared using the methodology prescribed in the BCBS guidelines published in July 2013 and in the guidance provided by the BCBS in January 2021. The indicators are based on the scope of regulatory consolidation unless indicated otherwise.
(2) Represents the Bank's level of interaction outside Canada.
(3) Represents the Bank's total on-and-off balance sheet exposures, as determined by OSFI's Basel III leverage ratio rules before regulatory adjustments.
(4) Includes insurance activities. The comparative figures have not been restated to reflect this change.
(5) Represents transactions with other financial institutions.
(6) Represents the extent to which the Bank's services could be substituted by other institutions.
(7) For the fiscal years ended October 31, 2021 and 2020.
(8) Trading volume is a new indicator in effect for the fiscal year ended October 31, 2021, as per OSFI's revised advisory entitled Global Systemically Important Bank - Public Disclosure Requirements. This new indicator consists of two sub-indicators: fixed-income securities as well as equities and other securities. OSFI is not requiring comparative figures to be reported for this new indicator.
(9) Includes the level of complexity and volume of the Bank's trading activities represented through derivative financial instruments, trading securities, investment securities, and Level 3 financial assets.
(10) The amount as at October 31, 2021 has been revised from the previously reported amount.
Risk Management
Risk-taking is intrinsic to a financial institution's business. The Bank views risk as an integral part of its development and the diversification of its activities . It advocates a risk management approach consistent with its business strategy. The Bank voluntarily exposes itself to certain risk categories, particularly credit and market risk, in order to generate revenue. It assumes certain risks that are inherent to its activities-to which it does not choose to expose itself-and that do not generate revenue, i.e., mainly operational risks.
COVID-19 Pandemic
The Bank is continuing to monitor the impacts and potential
consequences of the COVID-19 pandemic. From its onset, the
pandemic has had disruptive and adverse effects in the countries
where the Bank does business and, more broadly, on the global
economy. COVID-19 has also shed light, and could continue
to shed light, on several top and emerging risks to which
the Bank is exposed. Despite the exceptional nature of this
situation, the risks are being rigorously managed. For additional
information, see the section entitled COVID-19 Pandemic -
Impact of the COVID-19 Risk Factor on page 16 of the 2021
Annual Report.
------------------ ------------------------------------------------------------------------
Emerging risks
- Geopolitical On February 24, 2022, the geopolitical situation in Eastern
risks Europe intensified with the invasion of Ukraine by Russia.
The war between both countries continues to evolve as military
action unfolds and additional sanctions are imposed. The war
is increasingly affecting global financial and economic markets
and exacerbating current economic conditions, including such
issues as rising inflation and a disrupted global supply chain.
Given the conflict's broader impact on macroeconomic conditions,
the Bank is closely monitoring the impacts and potential consequences
on its financial position and that of its clients. The extent
to which entities are or will be affected depends largely
on the nature and duration of uncertain and unpredictable
events, such as new military action, additional sanctions,
and reactions to ongoing changes by global financial markets.
------------------ ------------------------------------------------------------------------
Despite the exercise of stringent risk management and the mitigation measures in place, risk cannot be eliminated entirely, and residual risks may occasionally cause significant losses. Certain risks are discussed hereafter. For additional information, see the Risk Management section on pages 69 to 107 of the 2021 Annual Report. Risk management information is also provided in Note 5 to these consolidated financial statements, which covers loans.
Credit Risk
Credit risk is the risk of incurring a financial loss if an obligor does not fully honour its contractual commitments to the Bank. Obligors may be debtors, issuers, counterparties, or guarantors. Credit risk is the most significant risk facing the Bank in the normal course of business. Obligors have been affected by the economic environment resulting from COVID-19 and its impact on global and local economies. This exceptional situation has led to significant changes in the overall market environment, including business closures and temporary layoffs. However, certain government measures have been implemented to assist retail and business clients affected by COVID-19.
Regulatory Developments
On December 17, 2021, OSFI confirmed the qualifying rate for uninsured mortgages (i.e., residential mortgages with a down payment of 20% or more) will remain as the greater of the mortgage contract interest rate plus 2% and a minimum floor of 5.25%. OSFI is well aware that the country's post-pandemic economic recovery must be backed by a strong financial system capable of supporting the Canadian population in the current environment and that real estate market conditions in Canada could heighten the financial risk weighing on lenders. The minimum qualifying interest rate provides an additional level of safety to ensure that borrowers would have the ability to make mortgage payments should circumstances change, e.g., in the case of reduced income or a rise in interest rates.
On June 28, 2022, OSFI published an Advisory entitled Clarification on the Treatment of Innovative Real Estate Secured Lending Products Under Guideline B-20. The Advisory complements the existing expectations set out in Guideline B-20 - Residential Mortgage Underwriting Practices and Procedures. The Advisory specifies OSFI's expectations concerning underwriting practices and procedures for reverse residential mortgages, residential mortgages with shared equity features, and combined loan plans (CLPs), notably for CLPs and the re-advanceability of credit above the 65% loan-to-value (LTV) limit. For loans that exceed the 65% LTV limit, there will be a transition period where a portion of the principal payments will go towards repaying the overall mortgage amount until it is below 65% of the original LTV ratio and not re-advanceable. The implementation date for this change is October 31, 2023.
The amounts shown in the following tables represent the Bank's maximum exposure to credit risk as at the financial reporting date, without taking into account any collateral held or any other credit enhancements. These amounts do not include allowances for credit losses nor amounts pledged as collateral. The table also excludes equity securities.
Maximum Credit Risk Exposure Under the Basel Asset Categories (1)
(millions of
Canadian dollars) As at July 31, 2022
----------------- --- ------------------------------------------------------------------------------------------------------------------
Other
off-balance-
Repo-style Derivative sheet Standardized
Drawn Undrawn transactions financial items approach AIRB
(2) commitments (3) instruments (4) Total (5) approach
---------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Retail
Residential
mortgages 71,654 8,550 - - - 80,204 10 % 90 %
Qualifying
revolving
retail 2,387 6,850 - - - 9,237 - % 100 %
Other retail 17,589 2,648 - - 34 20,271 23 % 77 %
---------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
91,630 18,048 - - 34 109,712
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Non-retail
Corporate 78,962 28,464 39,420 267 5,244 152,357 13 % 87 %
Sovereign 62,997 6,180 68,359 1 124 137,661 2 % 98 %
Financial
institutions 6,529 126 78,179 1,814 758 87,406 26 % 74 %
---------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
148,488 34,770 185,958 2,082 6,126 377,424
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Trading portfolio - - - 13,097 - 13,097 1 % 99 %
Securitization 4,530 - - - 3,848 8,378 85 % 15 %
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Total - Gross
credit risk 244,648 52,818 185,958 15,179 10,008 508,611 13 % 87 %
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Standardized
approach (5) 28,813 332 29,933 1,849 4,220 65,147
AIRB approach 215,835 52,486 156,025 13,330 5,788 443,464
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Total - Gross
credit risk 244,648 52,818 185,958 15,179 10,008 508,611 13 % 87 %
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
(millions of
Canadian
dollars) As at October 31, 2021
---------------- --- -------------------------------------------------------------------------------------------------------------------
Other
Derivative off-balance-
Undrawn Repo-style financial sheet Standardized AIRB
Drawn(2) commitments transactions(3) instruments items(4) Total approach(5) approach
--------------- --- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
Retail
Residential
mortgages 66,791 10,578 - - - 77,369 9 % 91 %
Qualifying
revolving retail 2,270 6,282 - - - 8,552 - % 100 %
Other retail 15,519 2,481 - - 31 18,031 29 % 71 %
-------------------- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
84,580 19,341 - - 31 103,952
---------------- --- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
Non-retail
Corporate 70,589 27,783 26,190 161 5,415 130,138 11 % 89 %
Sovereign 55,323 6,217 58,452 294 83 120,369 2 % 98 %
Financial
institutions 7,228 126 72,122 2,248 619 82,343 28 % 72 %
-------------------- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
133,140 34,126 156,764 2,703 6,117 332,850
---------------- --- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
Trading
portfolio - - - 17,010 - 17,010 - % 100 %
Securitization 3,269 - - - 4,206 7,475 68 % 32 %
---------------- --- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
Total - Gross
credit risk 220,989 53,467 156,764 19,713 10,354 461,287 13 % 87 %
---------------- --- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
Standardized
approach (5) 25,009 258 26,385 2,203 3,955 57,810
AIRB approach 195,980 53,209 130,379 17,510 6,399 403,477
---------------- --- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
Total - Gross
credit risk 220,989 53,467 156,764 19,713 10,354 461,287 13 % 87 %
---------------- --- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
(1) See the Financial Reporting Method section on pages 4 to 6 for additional information on capital management measures.
(2) Excludes equity securities and certain other assets such as investments in deconsolidated subsidiaries and joint ventures, right-of-use properties and assets, goodwill, deferred tax assets, and intangible assets.
(3) Securities purchased under reverse repurchase agreements and sold under repurchase agreements as well as securities loaned and borrowed.
(4) Letters of guarantee, documentary letters of credit, and securitized assets that represent the Bank's commitment to make payments in the event that a client cannot meet its financial obligations to third parties.
(5) Includes exposures to qualifying central counterparties (QCCP).
To meet OSFI's mortgage loan disclosure requirements, additional information has been provided in Supplementary Financial Information - Third Quarter 2022 and in Supplementary Regulatory Capital and Pillar 3 Disclosure - Third Quarter 2022, which are available on the Bank's website at nbc.ca.
Market Risk
Market risk is the risk of losses arising from movements in market prices. The Bank is exposed to market risk through its participation in trading, investment, and asset/liability management activities . As a result of the COVID-19 pandemic and its impact on global and local economies, the Bank faces a volatile environment. At its onset, the pandemic sent stock markets into sharp decline and rendered them more volatile, pushed interest rates downwards, triggered a rapid and sudden rise in unemployment, and prompted an economic slowdown. Governments, monetary authorities, and regulators intervened to support the economy and the financial system, notably by deploying fiscal and monetary measures designed to increase liquidity and support incomes. Although the global economy recovered during fiscal 2021, if the COVID-19 pandemic persists, in particular through subsequent waves, its impacts on the global economy could worsen, and the measures in place might not be sufficient over the long term to completely avoid recessionary conditions. Adding to this uncertainty is the Russian-Ukrainian war, which is increasingly affecting global financial and economic markets and exacerbating current economic conditions, including such issues as rising inflation, a disrupted global supply chain and higher interest rates.
The following tables provide a breakdown of the Bank's Consolidated Balance Sheet into assets and liabilities by those that carry market risk and those that do not carry market risk, distinguishing between trading positions whose main risk measures are Value-at-Risk (VaR) and stressed VaR (SVaR) and non-trading positions that use other risk measures.
Reconciliation of Market Risk With Consolidated Balance Sheet Items
(millions of Canadian dollars) As at July 31, 2022
--------------------------------- ---------------------------------------------------------------------
Market risk
measures
-------------------------------- ------- -------------------- ----------- -------------------------
Not subject
Balance Trading Non-trading to market Non-traded risk
sheet (1) (2) risk primary risk sensitivity
------------------------------- ------- ------- ----------- ----------- -------------------------
Assets
Cash and deposits with financial
institutions 37,968 1,195 20,251 16,522 Interest rate (3)
Securities
At fair value through profit Interest rate (3)
or loss 83,651 82,067 1,584 - and equity
At fair value through other Interest rate (3)
comprehensive income 9,247 - 9,247 - and equity (4)
At amortized cost 13,290 - 13,290 - Interest rate (3)
Securities purchased under
reverse repurchase
agreements and securities
borrowed 16,823 - 16,823 - Interest rate (3)(5)
Loans and acceptances, net
of allowances 200,924 9,279 191,645 - Interest rate (3)
Interest rate and
Derivative financial instruments 13,956 13,019 937 - exchange rate
Defined benefit asset 855 - 855 - Other
Other 10,337 - - 10,337
-------------------------------- ------- ------- ----------- ----------- -------------------------
387,051 105,560 254,632 26,859
------------------------------- ------- ------- ----------- ----------- -------------------------
Liabilities
Deposits 257,190 15,003 242,187 - Interest rate (3)
Acceptances 6,287 - 6,287 - Interest rate (3)
Obligations related to
securities
sold short 23,331 23,331 - -
Obligations related to
securities
sold under repurchase
agreements and securities
loaned 30,138 - 30,138 - Interest rate (3)(5)
Interest rate and
Derivative financial instruments 16,044 15,550 494 - exchange rate
Liabilities related to
transferred
receivables 25,110 9,055 16,055 - Interest rate (3)
Defined benefit liability 119 - 119 - Other
Other 6,225 - 77 6,148 Interest rate (3)
Subordinated debt 1,510 - 1,510 - Interest rate (3)
-------------------------------- ------- ------- ----------- ----------- -------------------------
365,954 62,939 296,867 6,148
-------------------------------- ------- ------- ----------- ----------- -------------------------
(1) Trading positions whose risk measures are VaR as well as total SVaR. For additional information, see the table in the pages ahead and in the Market Risk section of the 2021 Annual Report that shows the VaR distribution of the trading portfolios by risk category and their diversification effect as well as total SVaR.
(2) Non-trading positions that use other risk measures.
(3) For additional information, see the table in the pages ahead and in the Market Risk section of the 2021 Annual Report that shows the VaR distribution of the trading portfolios by risk category and their diversification effect as well as total SVaR and the interest rate sensitivity table.
(4) The fair value of equity securities designated at fair value through other comprehensive income is presented in Notes 2 and 4 to the consolidated financial statements.
(5) These instruments are recorded at amortized cost and are subject to credit risk for capital management purposes. For trading-related transactions with maturities of more than one day, interest rate risk is included in the VaR and SVaR measures.
(millions of Canadian dollars) As at October 31, 2021
------------------------------- -----------------------------------------------------------------------
Market risk measures
------------------------------ ------- -------------------------- ----------- ---------------------
Not subject Non-traded risk
Balance to market primary
sheet Trading(1) Non-trading(2) risk risk sensitivity
----------------------------- ------- ---------- -------------- ----------- ---------------------
Assets
Cash and deposits with
financial
institutions 33,879 401 16,518 16,960 Interest rate(3)
Securities
At fair value through profit Interest rate(3)
or loss 84,811 82,995 1,816 - and equity(4)
At fair value through other Interest rate(3)
comprehensive income 9,583 - 9,583 - and equity(5)
Amortized cost 11,910 - 11,910 - Interest rate(3)
Securities purchased under
reverse repurchase
agreements and securities
borrowed 7,516 - 7,516 - Interest rate(3)(6)
Loans and acceptances, net
of allowances 182,689 7,827 174,862 - Interest rate(3)
Derivative financial Interest rate(7)
instruments 16,484 16,033 451 - and exchange rate(7)
Defined benefit asset 691 - 691 - Other(8)
Other 8,232 - - 8,232
------------------------------ ------- ---------- -------------- ----------- ---------------------
355,795 107,256 223,347 25,192
----------------------------- ------- ---------- -------------- ----------- ---------------------
Liabilities
Deposits 240,938 14,215 226,723 - Interest rate(3)
Acceptances 6,836 - 6,836 - Interest rate(3)
Obligations related to
securities
sold short 20,266 20,266 - -
Obligations related to
securities
sold under repurchase
agreements and securities
loaned 17,293 - 17,293 - Interest rate(3)(6)
Derivative financial Interest rate(7)
instruments 19,367 18,999 368 - and exchange rate(7)
Liabilities related to
transferred
receivables 25,170 9,058 16,112 - Interest rate(3)
Defined benefit liability 143 - 143 - Other(8)
Other 6,158 - 113 6,045 Interest rate(3)
Subordinated debt 768 - 768 - Interest rate(3)
------------------------------ ------- ---------- -------------- ----------- ---------------------
336,939 62,538 268,356 6,045
------------------------------ ------- ---------- -------------- ----------- ---------------------
(1) Trading positions whose risk measures are VaR as well as total SVaR. For additional information, see the table on the following page and in the Market Risk section of the 2021 Annual Report that shows the VaR distribution of the trading portfolios by risk category and their diversification effect as well as total SVaR.
(2) Non-trading positions that use other risk measures.
(3) For additional information, see the table in the pages ahead and in the Market Risk section of the 2021 Annual Report that shows the VaR distribution of the trading portfolios by risk category and their diversification effect as well as total SVaR and the interest rate sensitivity table.
(4) For additional information, see Note 6 to the audited annual consolidated financial statements for the year ended October 31, 2021.
(5) The fair value of equity securities designated at fair value through other comprehensive income is presented in Notes 2 and 4 to these consolidated financial statements.
(6) These instruments are recorded at amortized cost and are subject to credit risk for capital management purposes. For trading-related transactions with maturities of more than one day, interest rate risk is included in the VaR and SVaR measures.
(7) For additional information, see Notes 16 and 17 to the audited annual consolidated financial statements for the year ended October 31, 2021.
(8) For additional information, see Note 23 to the audited annual consolidated financial statements for the year ended October 31, 2021.
Trading Activities
The table below shows the VaR distribution of trading portfolios by risk category and their diversification effect as well as the total SVaR, i.e., the VaR of the Bank's current portfolios obtained following the calibration of risk factors over a 12-month stress period.
VaR and SVaR of Trading Portfolios (1)(2)
(millions of
Canadian Nine months
dollars) Quarter ended ended
---------------- ------------------------------- -------------------------------- ----------------
July July
April 30, 31, 31,
July 31, 2022 2022 July 31, 2021 2022 2021
---------------- ------------------------------- --------------- --------------- ------- -------
Period Period Period
Low High Average end Average end Average end Average Average
---------------- ------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Interest rate (4.0) (6.5) (5.4) (5.9) (4.8) (4.6) (7.3) (6.6) (5.8) (7.4)
Exchange rate (1.1) (4.5) (2.5) (1.7) (1.5) (1.5) (0.6) (0.9) (1.9) (0.8)
Equity (5.8) (10.3) (7.9) (6.4) (6.9) (8.5) (6.6) (6.7) (7.0) (6.1)
Commodity (0.6) (1.1) (0.9) (0.8) (0.9) (0.8) (1.0) (0.9) (0.9) (0.8)
Diversification
effect(3) n.m. n.m. 8.1 7.6 6.6 6.7 7.7 7.3 8.0 7.5
----------------- ------ ------ ------- ------ ------- ------ ------- ------ ------- ------- Total trading VaR (5.4) (11.1) (8.6) (7.2) (7.5) (8.7) (7.8) (7.8) (7.6) (7.6) ----------------- ------ ------ ------- ------ ------- ------ ------- ------ ------- ------- Total trading SVaR (13.9) (23.6) (18.5) (14.4) (12.7) (18.5) (12.2) (9.3) (13.4) (14.7) ----------------- ------ ------ ------- ------ ------- ------ ------- ------ ------- -------
n.m. Computation of a diversification effect for the high and low is not meaningful, as highs and lows may occur on different days and be attributable to different types of risk.
(1) See the Glossary section on pages 45 to 48 for details on the composition of these measures.
(2) Amounts are presented on a pre-tax basis and represent one-day VaR and SVaR using a 99% confidence level.
(3) The total trading VaR is less than the sum of the individual risk factor VaR results due to the diversification effect.
B etween the second quarter and the third quarter of 2022, the average total trading VaR increased from $7.5 million to $8.6 million, and the average total trading SVaR increased from $12.7 million to $18.5 million. These increases were mainly driven by higher market volatility and partly offset by an increase in the diversification effect.
Daily Trading and Underwriting Revenues
The following table shows daily trading and underwriting revenues as well as VaR. During the quarter ended July 31, 2022, daily trading and underwriting revenues were positive 89% of the days. Four trading days were marked by daily trading and underwriting net losses of more than $1 million. None of these losses exceeded the VaR.
Quarter Ended July 31, 2022
(millions of Canadian dollars)
Interest Rate Sensitivity - Non-Trading Activities (Before Tax)
The following table presents the potential before-tax impact of an immediate and sustained 100-basis-point increase or of an immediate and sustained 100--basis-point decrease in interest rates on the economic value of equity and on the net interest income of the Bank's non-trading portfolios for the next 12 months, assuming no further hedging is undertaken.
As at October
(millions of Canadian dollars) As at July 31, 2022 31, 2021
-------------------------------- ---------------------------- -------- ------------------
Canadian Other Canadian Other
dollar currencies Total dollar currencies Total
-------------------------------- -------- ----------- ----- -------- ----------- -----
Impact on equity
100-basis-point increase in the
interest rate (201) 3 (198) (277) 39 (238)
100-basis-point decrease in the
interest rate 201 (6) 195 253 (34) 219
--------------------------------- -------- ----------- ----- -------- ----------- -----
Impact on net interest income
100-basis-point increase in the
interest rate 146 5 151 91 17 108
100-basis-point decrease in the
interest rate (156) (7) (163) (67) (17) (84)
--------------------------------- -------- ----------- ----- -------- ----------- -----
Liquidity and Funding Risks
Liquidity and funding risks are the risks that the Bank will be unable to honour daily cash and financial obligations without resorting to costly and untimely measures. Liquidity and funding risks arise when sources of funds become insufficient to meet scheduled payments under the Bank's commitments.
Liquidity risk stems from mismatched cash flows related to assets and liabilities as well as the characteristics of certain products such as credit commitments and non-fixed-term deposits.
Funding risk is defined as the risk to the Bank's ongoing ability to raise sufficient funds to finance actual or proposed business activities on an unsecured or secured basis at an acceptable price. The funding management priority is to achieve an optimal balance between deposits, securitization, secured funding, and unsecured funding, which brings optimal stability to the funding and reduces vulnerability to unpredictable events.
COVID-19 has affected overall economic and market conditions, but the Bank's sound management of the liquidity and funding risks is helping it to maintain an optimal balance between its sources of cash and anticipated payments.
Regulatory Developments
The Bank continues to closely monitor regulatory developments and participates actively in various consultative processes. For additional information about the regulatory context as at October 31, 2021, refer to page 94 of the Risk Management section in the 2021 Annual Report as well as to the section entitled COVID-19 Pandemic - Key Measures Introduced by the Regulatory Authorities on pages 17 and 18 of the 2021 Annual Report. Since November 1, 2021, the below-described regulatory developments should also be considered.
On January 31, 2022, OSFI published a final version of the liquidity rules, which reflects the most recent Basel III reforms and, on February 16, 2022, OSFI published the corresponding changes to the regulatory return, i.e., the Net Cumulative Cash Flow (NCCF) return.
On March 31, 2022, OSFI published, for consultation purposes, a draft guideline entitled Assurance on Capital, Leverage and Liquidity Returns. OSFI relies largely on the regulatory returns produced by financial institutions when assessing their safety and soundness. The purpose of this draft guideline is to better inform auditors and institutions on the work to be performed on regulatory returns in order to clarify and align OSFI's assurance expectations across all financial institutions. In particular, the draft guideline addresses the assurance that must be provided by an external audit, attestation by senior management, the assurance that must be provided by an internal audit, and the proposed effective dates. The Bank is actively participating in this consultation.
Liquidity Management
Liquid Assets
To protect depositors and creditors from unexpected crisis situations, the Bank holds a portfolio of unencumbered liquid assets that can be readily liquidated to meet financial obligations. Most of the unencumbered liquid assets are held in Canadian or U.S. dollars. Moreover, all assets that can be quickly monetized are considered liquid assets. The Bank's liquidity reserves do not factor in the availability of the emergency liquidity facilities of central banks. The following tables provide information on the Bank's encumbered and unencumbered assets.
Liquid Asset Portfolio (1)
As at October
As at July 31, 31,
(millions of Canadian dollars) 2022 2021
--------------------------------- ---------- -------- ------- ------------------------ -------------
Bank-owned Liquid Encumbered
liquid assets Total liquid Unencumbered Unencumbered
assets received liquid assets liquid liquid
(2) (3) assets (4) assets assets
------------------------------- ---------- -------- ------- ---------- ------------ -------------
Cash and deposits with financial
institutions 37,968 - 37,968 7,179 30,789 27,098
Securities
Issued or guaranteed by the
Canadian government, U.S.
Treasury, other U.S. agencies
and other foreign governments 34,017 30,391 64,408 41,640 22,768 29,002
Issued or guaranteed by Canadian
provincial and
municipal governments 13,742 6,660 20,402 14,456 5,946 4,678
Other debt securities 9,737 2,393 12,130 2,216 9,914 7,201
Equity securities 48,692 47,444 96,136 73,825 22,311 26,824
Loans
Securities backed by insured
residential mortgages 11,452 - 11,452 7,604 3,848 3,545
-------------------------------- ---------- -------- ------- ---------- ------------ -------------
As at July 31, 2022 155,608 86,888 242,496 146,920 95,576
--------------------------------- ---------- -------- ------- ---------- ------------ -------------
As at October 31, 2021 149,431 74,070 223,501 125,153 98,348
--------------------------------- ---------- -------- ------- ---------- ------------ -------------
As at July As at October
(millions of Canadian dollars) 31, 2022 31, 2021
--------------------------------------- ---------- -------------
Unencumbered liquid assets by entity
National Bank (parent) 47,537 62,438
Domestic subsidiaries 15,240 12,471
Foreign subsidiaries and branches 32,799 23,439
-------------------------------------- ---------- -------------
95,576 98,348
------------------------------------- ---------- -------------
As at July As at October
(millions of Canadian dollars) 31, 2022 31, 2021
----------------------------------------- ---------- -------------
Unencumbered liquid assets by currency
Canadian dollar 47,917 47,293
U.S. dollar 26,648 40,999
Other currencies 21,011 10,056
---------------------------------------- ---------- -------------
95,576 98,348
--------------------------------------- ---------- -------------
Liquid Asset Portfolio (1) - Average (5)
(millions of Canadian
dollars) Quarter ended
--------------------------- ---------- --------- ------- --------------------------------------
October
July 31, 2022 31, 2021
------------------------- ---------- --------- ------- ------------------------ ------------
Bank-owned Liquid Encumbered
liquid assets Total liquid Unencumbered Unencumbered
assets received liquid assets liquid liquid
(2) (3) assets (4) assets assets
------------------------- ---------- --------- ------- ---------- ------------ ------------
Cash and deposits with
financial
institutions 37,481 - 37,481 7,681 29,800 30,479
Securities
Issued or guaranteed by
the
Canadian government, U.S.
Treasury, other U.S.
agencies
and other foreign
governments 34,086 30,710 64,796 42,317 22,479 24,298
Issued or guaranteed by
Canadian
provincial and
municipal governments 13,455 8,611 22,066 15,489 6,577 5,758
Other debt securities 10,219 2,457 12,676 2,248 10,428 7,170
Equity securities 50,332 45,070 95,402 73,616 21,786 31,242
Loans
Securities backed by
insured
residential mortgages 11,135 - 11,135 7,155 3,980 4,008
-------------------------- ---------- --------- ------- ---------- ------------ ------------
156,708 86,848 243,556 148,506 95,050 102,955
--------------------------- ---------- --------- ------- ---------- ------------ ------------
(1) See the Financial Reporting Method section on pages 4 to 6 for additional information on capital management measures.
(2) Bank-owned liquid assets include assets for which there are no legal or geographic restrictions.
(3) Securities received as collateral with respect to securities financing and derivative transactions and securities purchased under reverse repurchase agreements and securities borrowed.
(4) In the normal course of its funding activities, the Bank pledges assets as collateral in accordance with standard terms. Encumbered liquid assets include assets used to cover short sales, obligations related to securities sold under repurchase agreements and securities loaned, guarantees related to security-backed loans and borrowings, collateral related to derivative financial instrument transactions, asset-backed securities, and liquid assets legally restricted from transfers.
(5) The average is based on the sum of the end-of-period balances of the three months of the quarter divided by three.
Summary of Encumbered and Unencumbered Assets (1)
As at July 31,
(millions of Canadian dollars) 2022
---------------------------------- ----------- -------- ----------- -------- -------------------
Encumbered
assets
as a %
Encumbered Unencumbered of total
assets (2) assets Total assets
--------------------------------- --------------------- ---------------------
Pledged Available
as Other as Other
collateral (3) collateral (4)
----------- -------- ----------- -------- ------- ----------
Cash and deposits with financial
institutions 292 6,887 30,789 - 37,968 1.9
Securities 45,249 - 60,939 - 106,188 11.7
Securities purchased under
reverse repurchase
agreements and securities
borrowed - 16,823 - - 16,823 4.3
Loans and acceptances, net
of allowances 38,013 - 3,848 159,063 200,924 9.8
Derivative financial instruments - - - 13,956 13,956 -
Investments in associates
and joint ventures - - - 138 138 -
Premises and equipment - - - 1,355 1,355 -
Goodwill - - - 1,509 1,509 -
Intangible assets - - - 1,579 1,579 -
Other assets - - - 6,611 6,611 -
----------- -------- ----------- -------- ------- ----------
83,554 23,710 95,576 184,211 387,051 27.7
----------- -------- ----------- -------- ------- ----------
As at October
(millions of Canadian dollars) 31, 2021
---------------------------------- ----------- -------- ----------- -------- -------------------
Encumbered
assets
as a %
Encumbered Unencumbered of total
assets(2) assets Total assets
--------------------------------- ------- ----------
Pledged Available
as as
collateral Other(3) collateral Other(4)
----------- -------- ----------- -------- ------- ----------
Cash and deposits with financial
institutions 275 6,506 27,098 - 33,879 1.9
Securities 38,599 - 67,705 - 106,304 10.9
Securities purchased under
reverse repurchase
agreements and securities
borrowed - 7,516 - - 7,516 2.1
Loans and acceptances, net
of allowances 37,307 - 3,545 141,837 182,689 10.5
Derivative financial instruments - - - 16,484 16,484 -
Investments in associates
and joint ventures - - - 225 225 -
Premises and equipment - - - 1,216 1,216 -
Goodwill - - - 1,504 1,504 -
Intangible assets - - - 1,510 1,510 -
Other assets - - - 4,468 4,468 -
----------- -------- ----------- -------- ------- ----------
76,181 14,022 98,348 167,244 355,795 25.4
----------- -------- ----------- -------- ------- ----------
(1) See the Financial Reporting Method section on pages 4 to 6 for additional information on capital management measures.
(2) In the normal course of its funding activities, the Bank pledges assets as collateral in accordance with standard terms. Encumbered assets include assets used to cover short sales, obligations related to securities sold under repurchase agreements and securities loaned, guarantees related to security-backed loans and borrowings, collateral related to derivative financial instrument transactions, asset-backed securities, residential mortgage loans securitized and transferred under the Canada Mortgage Bond program, assets held in consolidated trusts supporting the Bank's funding activities, and mortgage loans transferred under the covered bond program.
(3) Other encumbered assets include assets for which there are restrictions and that cannot therefore be used for collateral or funding purposes as well as assets used to cover short sales.
(4) Other unencumbered assets are assets that cannot be used for collateral or funding purposes in their current form. This category includes assets that are potentially eligible as funding program collateral (e.g., mortgages insured by the Canada Mortgage and Housing Corporation that can be securitized into mortgage-backed securities under the National Housing Act (Canada)).
Liquidity Coverage Ratio
The liquidity coverage ratio (LCR) was introduced primarily to ensure that banks could withstand periods of severe short-term stress. LCR is calculated by dividing the total amount of high-quality liquid assets (HQLA) by the total amount of net cash outflows. OSFI has been requiring Canadian banks to maintain a minimum LCR of 100%. An LCR above 100% ensures that banks are holding sufficient high-quality liquid assets to cover net cash outflows given a severe, 30--day liquidity crisis. The assumptions underlying the LCR scenario were established by the BCBS and OSFI's Liquidity Adequacy Requirements guideline.
The following table provides average LCR data calculated using the daily figures in the quarter. For the quarter ended July 31, 2022, the Bank's average LCR was 148%, well above the 100% regulatory requirement and demonstrating the Bank's solid short-term liquidity position.
LCR Disclosure Requirements (1)(2)
(millions of Canadian dollars) Quarter ended
April 30,
July 31, 2022 2022
Total unweighted Total weighted Total weighted
value (3) value (4) value(4)
(average) (average) (average)
High-quality liquid assets (HQLA)
Total HQLA n.a. 71,388 72,197
Cash outflows
Retail deposits and deposits from small
business
customers, of which: 63,929 5,281 5,190
Stable deposits 29,189 876 878
Less stable deposits 34,740 4,405 4,312
Unsecured wholesale funding, of which: 103,141 56,563 57,418
Operational deposits (all counterparties)
and deposits in networks of cooperative
banks 23,532 5,715 5,207
Non-operational deposits (all
counterparties) 68,381 39,620 41,384
Unsecured debt 11,228 11,228 10,827
Secured wholesale funding n.a. 15,955 16,004
Additional requirements, of which: 49,492 12,559 11,653
Outflows related to derivative exposures
and other collateral requirements 13,640 5,718 5,347
Outflows related to loss of funding on
secured
debt securities 1,864 1,864 1,141
Backstop liquidity and credit enhancement
facilities and commitments to extend
credit 33,988 4,977 5,165
Other contractual commitments to extend
credit 1,773 758 1,093
Other contingent commitments to extend
credit 117,807 1,771 1,710
Total cash outflows n.a. 92,887 93,068
Cash inflows
Secured lending (e.g., reverse repos) 106,531 20,976 18,042
Inflows from fully performing exposures 9,309 5,910 5,970
Other cash inflows 17,496 17,496 19,125
Total cash inflows 133,336 44,382 43,137
Total adjusted Total adjusted
value (5) value(5)
Total HQLA 71,388 72,197
Total net cash outflows 48,505 49,931
Liquidity coverage ratio (%) (6) 148 % 145 %
n.a. Not applicable
(1) See the Financial Reporting Method section on pages 4 to 6 for additional information on capital management measures.
(2) OSFI prescribed a table format in order to standardize disclosure throughout the banking industry.
(3) Unweighted values are calculated as outstanding balances maturing or callable within 30 days (for inflows and outflows).
(4) Weighted values are calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates.
(5) Total adjusted values are calculated after the application of both haircuts and inflow and outflow rates and any applicable caps.
(6) The data in this table is calculated using averages of the daily figures in the quarter.
As at July 31, 2022, Level 1 liquid assets represented 85% of the Bank's HQLA, which includes cash, central bank deposits, and bonds issued or guaranteed by the Canadian government and Canadian provincial governments.
Cash outflows arise from the application of OSFI-prescribed assumptions on deposits, debt, secured funding, commitments and additional collateral requirements. The cash outflows are partly offset by cash inflows, which come mainly from secured loans and performing loans. The Bank expects some quarter-over-quarter variation between reported LCRs without such variation being necessarily indicative of a trend. The variation between the quarter ended July 31, 2022 and the preceding quarter were a result of normal business operations. The Bank's liquid asset buffer is well in excess of its total net cash outflows.
The LCR assumptions differ from the assumptions used for the liquidity disclosures presented in the tables on the previous pages or those used for internal liquidity management rules. While the liquidity disclosure framework is prescribed by the EDTF, the Bank's internal liquidity metrics use assumptions that are calibrated according to its business model and experience.
Net Stable Funding Ratio
The BCBS has developed the net stable funding ratio (NSFR) to promote a more resilient banking sector. The NSFR requires institutions to maintain a stable funding profile in relation to the composition of their assets and off-balance-sheet activities. A viable funding structure is intended to reduce the likelihood that disruptions to an institution's regular sources of funding will erode its liquidity position in a way that would increase the risk of its failure and potentially lead to broader systemic stress. The NSFR is calculated by dividing available stable funding by required stable funding. OSFI has been requiring Canadian banks to maintain a minimum NSFR of 100%.
The following table provides the available stable funding and required stable funding in accordance with OSFI's Liquidity Adequacy Requirements guideline . As at July 31, 2022, the Bank's NSFR was 119%, well above the 100% regulatory requirement and demonstrating the Bank's solid long-term liquidity position.
NSFR Disclosure Requirements (1)(2)
As at
As at April
July 31, 30,
(millions of Canadian dollars) 2022 2022
Unweighted value by residual
maturity
Over
6 6
months months Weighted
No or to 1 Over value Weighted
maturity less year 1 year (3) value(3)
Available Stable Funding (ASF)
Items
Capital: 21,097 - - 1,510 22,607 21,188
Regulatory capital 21,097 - - 1,510 22,607 21,188
Other capital instruments - - - - - -
Retail deposits and deposits from
small business customers: 57,167 8,640 6,627 17,540 83,433 80,440
Stable deposits 27,140 2,976 2,634 6,638 37,750 37,311
Less stable deposits 30,027 5,664 3,993 10,902 45,683 43,129
Wholesale funding: 66,235 80,501 10,666 42,216 96,027 89,286
Operational deposits 21,201 - - - 10,600 11,947
Other wholesale funding 45,034 80,501 10,666 42,216 85,427 77,339
Liabilities with matching
interdependent
assets(4) - 2,919 1,647 20,544 - -
Other liabilities(5) : 25,617 19,126 704 764
NSFR derivative liabilities(5) n.a. 14,463 n.a. n.a.
All other liabilities and equity
not included in the above
categories 25,617 3,210 141 1,312 704 764
Total ASF n.a. n.a. n.a. n.a. 202,771 191,678
Required Stable Funding (RSF)
Items
Total NSFR high-quality liquid
assets (HQLA) n.a. n.a. n.a. n.a. 7,235 6,584
Deposits held at other financial
institutions for operational
purposes - - - - - -
Performing loans and securities: 52,471 61,434 22,237 97,177 140,975 135,981
Performing loans to financial
institutions secured by Level
1 HQLA 1,118 305 - 12 83 41
Performing loans to financial
institutions secured by
non-Level-1
HQLA and unsecured performing
loans to financial institutions 6,380 27,826 731 1,176 5,383 5,052
Performing loans to
non-financial
corporate clients, loans to
retail
and small business customers,
and loans to sovereigns,
central
banks and PSEs, of which: 23,342 26,511 14,231 34,160 67,324 65,338
With a risk weight of less than
or equal to 35% under the
Basel
II
standardized approach for
credit
risk 44 2,196 378 999 1,965 1,769
Performing residential
mortgages,
of which: 9,436 5,162 5,474 57,280 52,236 50,448
With a risk weight of less than
or equal to 35% under the
Basel
II
standardized approach for
credit
risk 9,436 5,162 5,474 57,280 52,236 50,448
Securities that are not in
default
and do not qualify as HQLA,
including
exchange-traded equities 12,195 1,630 1,801 4,549 15,949 15,102
Assets with matching
interdependent
liabilities(4) - 2,919 1,647 20,544 - -
Other assets(5) : 2,111 50,098 18,428 21,383
Physical traded commodities,
including
gold 292 n.a. n.a. n.a. 292 338
Assets posted as initial margin
for derivative contracts and
contributions to default funds
of CCPs(5) n.a. 8,918 7,581 8,078
NSFR derivative assets(5) n.a. 12,714 - 2,778
NSFR derivative liabilities
before
deduction of the variation
margin posted(5) n.a. 18,980 949 977
All other assets not included
in the above categories 1,819 7,910 1,030 546 9,606 9,212
Off-balance-sheet items(5) n.a. 98,802 3,677 3,575
Total RSF n.a. n.a. n.a. n.a. 170,315 167,523
Net Stable Funding Ratio (%) n.a. n.a. n.a. n.a. 119% 114%
-------- ------ ------ ------
n.a. Not applicable
(1) See the Financial Reporting Method section on pages 4 to 6 for additional information on capital management measures.
(2) OSFI prescribed a table format in order to standardize disclosure throughout the banking industry.
(3) Weighted values are calculated after application of the weightings set out in OSFI's Liquidity Adequacy Requirements guideline.
(4) As per OSFI's specifications, liabilities arising from transactions involving the Canada Mortgage Bond program and their corresponding encumbered mortgages are given ASF and RSF weights of 0%, respectively.
(5) As per OSFI's specifications, there is no need to differentiate by maturities.
The NSFR represents the amount of ASF relative to the amount of RSF. ASF is defined as the portion of capital and liabilities expected to be reliable over the time horizon considered by the NSFR, which extends to one year. The amount of RSF of a specific institution is a function of the liquidity characteristics and residual maturities of the various assets held by that institution as well as those of its off-balance-sheet exposures. The amounts of available and required stable funding are calibrated to reflect the degree of stability of liabilities and liquidity of assets. The Bank expects some quarter-over-quarter variation between reported NSFRs without such variation being necessarily indicative of a long-term trend.
The NSFR assumptions differ from the assumptions used for the liquidity disclosures provided in the tables on the preceding pages or those used for internal liquidity management rules. While the liquidity disclosure framework is prescribed by the EDTF, the Bank's internal liquidity metrics use assumptions that are calibrated according to its business model and experience.
Funding
The Bank continuously monitors and analyzes the possibilities for accessing less expensive and more flexible funding. The deposit strategy remains a priority for the Bank, which continues to prefer deposits to institutional funding. On April 29, 2022, DBRS Limited (DBRS) raised the ratings of the Bank and its related entities, including the rating for long-term deposits and for long-term non-bail-inable senior debt to AA from AA(low), and it raised the rating for short-term senior debt to R-1(high) from R-1(mid). DBRS also changed the trends of all the ratings to "Stable" from "Positive." This change reflects DBRS's recognition of the Bank's solid performance in recent years, notably its expanded footprint into targeted markets and niches throughout Canada, in particular in the Wealth Management and Financial Markets segments, as well as the greater contribution by the Personal and Commercial segment to the Bank's net income.
The table below presents the residual contractual maturities of the Bank's wholesale funding. The information has been presented in accordance with the categories recommended by the EDTF for comparison purposes with other banks.
Residual Contractual Maturities of Wholesale Funding (1)
(millions of Canadian As at July
dollars) 31, 2022
-----------------------
Over Over
1 Over 6 Over
month 3 months 1
to months to Subtotal year Over
1 month 3 to 12 1 year to 2
or less months 6 months months or less 2 years years Total
Deposits from banks(2) 481 6 8 - 495 - - 495
Certificates of deposit
and commercial
paper(3) 4,607 6,218 6,490 989 18,304 - - 18,304
Senior unsecured
medium-term
notes(4)(5) 150 1,027 921 2,657 4,755 3,309 7,321 15,385
Senior unsecured
structured
notes - - 131 238 369 - 2,725 3,094
Covered bonds and
asset-backed
securities
Mortgage securitization - 426 2,379 1,641 4,446 6,100 14,564 25,110
Covered bonds - - - 981 981 1,960 7,288 10,229
Securitization of
credit
card receivables - - - 28 28 - 48 76
Subordinated
liabilities(6) - - - - - - 1,510 1,510
5,238 7,677 9,929 6,534 29,378 11,369 33,456 74,203
------- -------- ------- --------
Secured funding - 426 2,379 2,650 5,455 8,060 21,900 35,415
Unsecured funding 5,238 7,251 7,550 3,884 23,923 3,309 11,556 38,788
5,238 7,677 9,929 6,534 29,378 11,369 33,456 74,203
As at October 31, 2021 2,643 8,872 9,802 7,390 28,707 10,400 29,331 68,438
----------------------- -------- ------- -------- ------- -------- -------- ------ ------ (1) Bankers' acceptances are not included in this table. (2) Deposits from banks include all non-negotiable term deposits from banks. (3) Includes bearer deposit notes.
(4) Certificates of deposit denominated in euros are included in senior unsecured medium-term notes.
(5) Includes deposits subject to bank recapitalization (bail-in) conversion regulations.
(6) Subordinated debt is presented in this table, but the Bank does not consider it as part of its wholesale funding.
As part of a comprehensive liquidity management framework, the Bank regularly reviews its contracts that stipulate that additional collateral could be required in the event of a downgrade of the Bank's credit rating . The Bank's liquidity position management approach already incorporates additional collateral requirements in the event of a one-notch to three-notch downgrade in credit rating. The table below presents the additional collateral requirements in the event of a one-notch or three-notch credit rating downgrade.
As at July
(millions of Canadian dollars) 31, 2022
One-notch Three-notch
downgrade downgrade
Derivatives(1) 4 41
(1) Contractual requirements related to agreements known as Credit Support Annexes.
Residual Contractual Maturities of Balance Sheet Items and Off-Balance-Sheet Commitments
The following tables present balance sheet items and off-balance-sheet commitments by residual contractual maturity as at July 31, 2022 with comparative figures as at October 31, 2021. The information gathered from this maturity analysis is a component of liquidity and funding management. However, this maturity profile does not represent how the Bank manages its interest rate risk or its liquidity risk and funding needs. The Bank considers factors other than contractual maturity when assessing liquid assets or determining expected future cash flows.
In the normal course of business, the Bank enters into various off-balance-sheet commitments. The credit instruments used to meet the financing needs of its clients represent the maximum amount of additional credit the Bank could be obligated to extend if the commitments were fully drawn.
The Bank also has future minimum commitments under leases for premises as well as under other contracts, mainly commitments to purchase loans and contracts for outsourced information technology services. Most of the lease commitments are related to operating leases.
(millions of Canadian As at July 31,
dollars) 2022
Over Over Over Over Over
1 3 6 9 1 Over
1 month months months months year 2
month to to to to to years Over No
or 3 6 9 12 2 to 5 specified
less months months months months years 5 years years maturity Total
Assets
Cash and deposits
with financial
institutions 14,555 292 273 225 18 - - - 22,605 37,968
------ ------ ------ ------ ------ ------ ------- ------ -------
Securities
At fair value through
profit or loss 993 3,146 2,015 3,862 2,501 4,033 8,301 10,654 48,146 83,651
At fair value through
other comprehensive
income 3 47 69 14 21 558 5,456 2,533 546 9,247
At amortized cost 27 664 248 1,774 1,011 1,089 7,525 952 - 13,290
------ ------ ------ ------ ------ ------ ------- ------ -------
1,023 3,857 2,332 5,650 3,533 5,680 21,282 14,139 48,692 106,188
------ ------ ------ ------ ------ ------ ------- ------ -------
Securities purchased
under
reverse repurchase
agreements and
securities borrowed 5,641 1,204 649 - 384 960 - - 7,985 16,823
------ ------ ------ ------ ------ ------ ------- ------ -------
Loans (1)
Residential mortgage 1,142 1,190 1,777 1,865 2,760 8,320 53,443 7,091 548 78,136
Personal 372 460 710 839 1,214 3,397 18,014 5,044 14,588 44,638
Credit card 2,318 2,318
Business and government 19,343 4,356 3,627 3,807 2,683 6,083 9,572 4,608 16,418 70,497
Customers' liability
under
acceptances 5,778 500 9 - - - - - - 6,287
Allowances for
credit losses (952) (952)
------ ------ ------ ------ ------ ------ ------- ------ -------
26,635 6,506 6,123 6,511 6,657 17,800 81,029 16,743 32,920 200,924
------ ------ ------ ------ ------ ------ ------- ------ -------
Other
Derivative financial
instruments 1,565 1,538 2,423 961 639 1,340 3,000 2,490 - 13,956
Investments in
associates and
joint ventures 138 138
Premises and equipment 1,355 1,355
Goodwill 1,509 1,509
Intangible assets 1,579 1,579
Other assets(1) 2,667 129 520 554 91 467 14 - 2,169 6,611
------ ------ ------ ------ ------ ------ ------- ------ -------
4,232 1,667 2,943 1,515 730 1,807 3,014 2,490 6,750 25,148
------ ------ ------ ------ ------ ------ ------- ------ -------
52,086 13,526 12,320 13,901 11,322 26,247 105,325 33,372 118,952 387,051
(1) Amounts collectible on demand are considered to have no specified maturity.
(millions of Canadian As at July 31,
dollars) 2022
Over Over Over Over Over
1 1 3 6 9 Over 2
month month months months months 1 year years Over No
or to 3 to 6 to 9 to 12 to 2 to 5 5 specified
less months months months months years years years maturity Total
---------------------- ------ ------ ------ ------ ------ ------ ------ ------ -------
Liabilities and
equity
Deposits (1)(2)
Personal 1,211 1,218 2,057 2,833 5,797 7,475 7,289 4,199 42,755 74,834
Business and government 29,336 11,745 10,948 4,278 3,903 6,397 14,115 4,914 92,632 178,268
Deposit-taking
institutions 1,328 40 495 38 118 - 6 34 2,029 4,088
------ ------ ------ ------ ------ ------ ------ ------ -------
31,875 13,003 13,500 7,149 9,818 13,872 21,410 9,147 137,416 257,190
---------------------- ------ ------ ------ ------ ------ ------ ------ ------ -------
Other
Acceptances 5,778 500 9 - - - - - - 6,287
Obligations related
to securities
sold short(3) 608 1,430 124 62 88 3,822 3,444 6,760 6,993 23,331
Obligations related
to
securities sold
under
repurchase agreements
and
securities loaned 16,072 2,695 1,808 3,202 - - - - 6,361 30,138
Derivative financial
instruments 1,819 2,169 1,578 1,046 535 1,615 4,786 2,496 - 16,044
Liabilities related
to transferred
receivables(4) - 426 2,379 416 1,225 6,100 9,808 4,756 - 25,110
Securitization
- Credit card(5) - - - - 28 - 48 - - 76
Lease liabilities(5) 7 15 24 23 23 91 217 162 - 562
Other liabilities
- Other items(1)(5) 941 48 39 37 170 35 23 55 4,358 5,706
------ ------ ------ ------ ------ ------ ------ ------ -------
25,225 7,283 5,961 4,786 2,069 11,663 18,326 14,229 17,712 107,254
---------------------- ------ ------ ------ ------ ------ ------ ------ ------ -------
Subordinated debt - - - - - - - 1,510 - 1,510
------ ------ ------ ------ ------ ------ ------ ------ -------
Equity 21,097 21,097
------ ------ ------ ------ ------ ------ ------ ------ -------
57,100 20,286 19,461 11,935 11,887 25,535 39,736 24,886 176,225 387,051
----------------------
Off-balance-sheet
commitments
Letters of guarantee
and
documentary letters
of credit 125 429 2,470 1,193 821 698 107 - - 5,843
Credit card
receivables(6) 9,238 9,238
Backstop liquidity
and credit
enhancement
facilities(7) - - 15 5,552 15 - - - 2,837 8,419
Commitments to
extend credit(8) 3,822 9,560 6,690 4,317 3,910 4,364 2,664 50 45,288 80,665
Obligations related
to:
Lease commitments(9) 1 1 1 1 2 5 10 6 - 27
Other contracts(10) 38 44 56 50 69 24 23 - 112 416
(1) Amounts payable upon demand or notice are considered to have no specified maturity.
(2) The Deposits item is presented in greater detail than it is on the Consolidated Balance Sheet.
(3) Amounts are disclosed according to the remaining contractual maturity of the underlying security.
(4) These amounts mainly include liabilities related to the securitization of mortgage loans.
(5) The Other liabilities item is presented in greater detail than it is on the Consolidated Balance Sheet.
(6) These amounts are unconditionally revocable at the Bank's discretion at any time.
(7) In the event of payment on one of the backstop liquidity facilities , the Bank will receive as collateral government bonds in an amount up to $5.6 billion.
(8) These amounts include $43.8 billion that is unconditionally revocable at the Bank's discretion at any time.
(9) These amounts include leases for which the underlying asset is of low value and leases other than for real estate of less than one year.
(10) These amounts include $0.2 billion in contractual commitments related to the head office building under construction.
(millions of Canadian As at October 31,
dollars) 2021
------ ------ ------ ------ ------ ------ ------
Over Over Over Over Over
1 1 3 6 9 Over 2
month month months months months 1 year years Over No
or to 3 to 6 to 9 to 12 to 2 to 5 5 specified
less months months months months years years years maturity Total
Assets
Cash and deposits
with financial
institutions 7,510 334 374 146 368 - - - 25,147 33,879
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
Securities
At fair value through
profit or loss 1,946 1,929 1,061 702 792 3,037 6,454 9,410 59,480 84,811
At fair value through
other comprehensive
income 1 - 1 624 63 227 4,867 3,183 617 9,583
At amortized cost 1 181 213 425 804 3,589 5,865 832 - 11,910
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
1,948 2,110 1,275 1,751 1,659 6,853 17,186 13,425 60,097 106,304
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
Securities purchased
under
reverse repurchase
agreements and
securities borrowed 1,113 1,199 59 - 371 619 - - 4,155 7,516
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
Loans (1)
Residential mortgage 702 965 1,581 2,587 2,320 8,850 48,455 6,504 578 72,542
Personal 214 315 512 877 843 3,527 16,056 4,308 14,401 41,053
Credit card 2,150 2,150
Business and government 16,842 3,986 2,614 3,508 3,253 6,290 10,180 3,605 10,828 61,106
Customers' liability
under
acceptances 6,200 618 18 - - - - - - 6,836
Allowances for
credit losses (998) (998)
--------- -------
23,958 5,884 4,725 6,972 6,416 18,667 74,691 14,417 26,959 182,689
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
Other
Derivative financial
instruments 1,868 3,678 1,019 2,190 823 1,865 2,491 2,550 - 16,484
Investments in
associates and
joint ventures 225 225
Premises and equipment 1,216 1,216
Goodwill 1,504 1,504
Intangible assets 1,510 1,510
Other assets(1) 1,829 137 148 129 56 727 88 17 1,337 4,468
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
3,697 3,815 1,167 2,319 879 2,592 2,579 2,567 5,792 25,407
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
38,226 13,342 7,600 11,188 9,693 28,731 94,456 30,409 122,150 355,795
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
(1) Amounts collectible on demand are considered to have no specified maturity.
(millions of Canadian As at October 31,
dollars) 2021
------ ------ ------ ------ ------ ------ ------
Over Over Over Over Over
1 1 3 6 9 Over 2
month month months months months 1 year years Over No
or to 3 to 6 to 9 to 12 to 2 to 5 5 specified
less months months months months years years years maturity Total
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
Liabilities and
equity
Deposits (1)(2)
Personal 1,396 3,433 4,596 2,194 1,945 4,157 6,468 4,914 40,973 70,076
Business and government 24,814 12,796 10,782 5,785 2,691 5,453 10,054 4,765 90,730 167,870
Deposit-taking
institutions 1,011 128 38 66 23 1 - 36 1,689 2,992
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
27,221 16,357 15,416 8,045 4,659 9,611 16,522 9,715 133,392 240,938
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
Other
Acceptances 6,200 618 18 - - - - - - 6,836
Obligations related
to securities sold
short(3) 186 123 182 175 22 3,099 3,743 4,797 7,939 20,266
Obligations related
to
securities sold
under
repurchase agreements
and
securities loaned 7,330 2,668 3,633 246 - - - - 3,416 17,293
Derivative financial
instruments 3,048 3,061 1,171 1,921 880 1,485 3,273 4,528 - 19,367
Liabilities related
to transferred
receivables(4) - 1,688 1,523 1,054 411 5,501 10,771 4,222 - 25,170
Securitization
- Credit card(5) 36 - - - - 28 48 - - 112
Lease liabilities(5) 7 15 21 22 22 88 214 186 - 575
Other liabilities
- Other items(1)(5) 640 477 117 125 100 41 25 75 4,014 5,614
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
17,447 8,650 6,665 3,543 1,435 10,242 18,074 13,808 15,369 95,233
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
Subordinated debt - - - - - - - 768 - 768
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
Equity 18,856 18,856
44,668 25,007 22,081 11,588 6,094 19,853 34,596 24,291 167,617 355,795
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
Off-balance-sheet
commitments
Letters of guarantee
and
documentary letters
of credit 320 1,561 828 2,092 793 575 74 - - 6,243
Credit card
receivables(6) 9,081 9,081
Backstop liquidity
and credit
enhancement
facilities(7) 15 - 4,502 15 - - - - 2,732 7,264
Commitments to
extend credit(8) 2,848 9,139 6,195 6,737 3,872 3,105 3,667 48 42,372 77,983
Obligations related
to:
Lease commitments(9) 1 1 1 1 1 1 3 3 - 12
Other contracts(10) 54 58 50 48 46 152 19 - 124 551
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
(1) Amounts payable upon demand or notice are considered to have no specified maturity.
(2) The Deposits item is presented in greater detail than it is on the Consolidated Balance Sheet.
(3) Amounts are disclosed according to the remaining contractual maturity of the underlying security.
(4) These amounts mainly include liabilities related to the securitization of mortgage loans.
(5) The Other liabilities item is presented in greater detail than it is on the Consolidated Balance Sheet.
(6) These amounts are unconditionally revocable at the Bank's discretion at any time.
(7) In the event of payment on one of the backstop liquidity facilities, the Bank will receive as collateral government bonds in an amount up to $4.5 billion.
(8) These amounts include $40.8 billion that is unconditionally revocable at the Bank's discretion at any time.
(9) These amounts include leases for which the underlying asset is of low value and leases other than for real estate of less than one year.
(10) These amounts include $0.3 billion in contractual commitments related to the head office building under construction.
Environmental and Social Risk
The risks related to environmental, social and governance (ESG) principles and disclosure requirements continue to be priorities for regulatory and standard-setting bodies. With climate change at the forefront of ESG-related issues, new proposed regulations and disclosure standards were published recently to address climate-related and sustainability-related risks. Specifically, on October 18, 2021, the CSA issued the proposed National Instrument 51-107 - Disclosure of Climate-related Matters requiring reporting issuers in Canada to make certain climate-related disclosures. On March 31, 2022, the International Sustainability Standards Board issued two proposed standards on climate-related and sustainability-related disclosures. And on May 26, 2022, OSFI issued draft Guideline B-15: Climate Risk Management which outlines OSFI's risk management expectations for climate-related risks and disclosures. As these proposed regulations and standards have yet to be finalized, the Bank continues to closely monitor regulatory developments in this area.
For additional information on the management of ESG-related risks and regulatory developments, refer to the Environmental and Social Risk section on page 107 of the 2021 Annual Report.
Risk Disclosures
One of the purposes of the 2021 Annual Report, the Report to Shareholders - Third Quarter 2022, and the related supplementary information documents is to provide transparent, high-quality risk disclosures in accordance with the recommendations made by the Financial Stability Board's EDTF group. The following table lists the references where users can find information that responds to the EDTF's 32 recommendations.
Pages
Supplementary
Report to Regulatory Capital
2021 Shareholders and Pillar 3
Annual Report (1) Disclosure (1)
General
1 Location of risk disclosures 13 41
Management's Discussion and 59 to 107, 119,
Analysis 121 and 122 19 to 40
Notes 1, 7, Notes 5 and
Consolidated Financial Statements 16, 23 and 29 12
Supplementary Financial Information 19 to 29(2)
Supplementary Regulatory Capital
and Pillar 3 Disclosure 5 to 48
2 Risk terminology and risk measures 69 to 107
16 to 18, 26
3 Top and emerging risks and 73 to 78 8, 26 and 40
60 to 63, 94 20, 21, 31 and
4 New key regulatory ratios and 98 to 101 33 to 36
Risk governance and risk management
Risk management organization, 69 to 88, 94
5 processes and key functions to 96 and 101
6 Risk management culture 69 and 70
7 Key risks by business segment,
risk management 68 to 70, 73
and risk appetite and 74
59, 70, 82,
8 Stress testing 92, 93 and 96
Capital adequacy and risk-weighted
assets (RWA)
9 Minimum Pillar 1 capital requirements 60 to 63 19 to 21
Reconciliation of the accounting
10 balance sheet to
7 to 13, 16 and
the regulatory balance sheet 17
11 Movements in regulatory capital 66 22
12 Capital planning 59 to 68
RWA by business segment and
13 by risk type 68 6
Capital requirements by risk
14 and the RWA calculation method 78 to 82 6
15 Banking book credit risk 6
16 Movements in RWA by risk type 67 23 6
Assessment of credit risk model 73, 79 to 82
17 performance and 87 31
Liquidity
Liquidity management and components
18 of the liquidity buffer 94 to 101 31 to 36
Funding
Summary of encumbered and unencumbered
19 assets 97 and 98 33
Residual contractual maturities
20 of balance sheet items and
off-balance-sheet commitments 221 to 225 37 to 40
Funding strategy and funding
21 sources 101 to 103 36
Market risk
Linkage of market risk measures
22 to balance sheet 89 and 90 28 and 29
87 to 93, 210
23 Market risk factors and 211 28 to 31
VaR: Assumptions, limitations
24 and validation procedures 91
Stress tests, stressed VaR and
25 backtesting 87 to 93
Credit risk
86 and 172 to 27 and 65 to 18 to 40 and
26 Credit risk exposures 183 76 19 to 27(2)
Policies for identifying impaired 83, 84, 146
27 loans and 147
Movements in impaired loans 119, 121, 122
28 and allowances for credit losses and 172 to 183 65 to 76 24 to 26(2)
Counterparty credit risk relating 83 to 85 and 33 to 40, 28(2)
29 to derivatives transactions 190 to 193 and 29(2)
81 to 84 and 20, 24 and 38
30 Credit risk mitigation 169 to 48
Other risks
Other risks: Governance, measurement 77, 78 and 103
31 and management to 107
16 to 18, 26,
32 Publicly known risk events 103 and 104 8, 26 and 40 (1) Third quarter 2022.
(2) These pages are included in the document entitled Supplementary Financial Information - Third Quarter 2022 .
Accounting Policies and Financial Disclosure
Accounting Policies and Critical Accounting Estimates
The Bank's consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). The financial statements also comply with section 308(4) of the Bank Act (Canada), which states that, except as otherwise specified by the OSFI , the consolidated financial statements are to be prepared in accordance with IFRS. IFRS represent Canadian generally accepted accounting principles (GAAP). None of the OSFI accounting requirements are exceptions to IFRS. The unaudited interim condensed consolidated financial statements for the quarter and nine-month period ended July 31, 2022 were prepared in accordance with IAS 34 - Interim Financial Reporting using the same accounting policies as those described in Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2021.
In preparing consolidated financial statements in accordance with IFRS, management must exercise judgment and make estimates and assumptions that affect the reporting date carrying amounts of assets and liabilities, net income, and related information. Some accounting policies are considered critical given their importance to the presentation of the Bank's financial position and operating results and require difficult, subjective, and complex judgments and estimates on matters that are inherently uncertain. Any change in these judgments and estimates could have a significant impact on the Bank's consolidated financial statements. The critical accounting estimates are the same as those described on pages 108 to 113 of the 2021 Annual Report.
Given the uncertainty surrounding the unprecedented nature of the COVID-19 pandemic, developing reliable estimates and applying judgment continue to be substantially complex. Some of the Bank's accounting policies, such as the measurement of expected credit losses (ECLs), require particularly complex judgment and estimates. See Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2021 for a summary of the most significant estimation processes used to prepare the consolidated financial statements in accordance with IFRS and for the valuation techniques used to determine the carrying values and fair values of assets and liabilities. The uncertainty regarding certain key inputs used in measuring ECLs is described in Note 5 to these unaudited interim condensed consolidated financial statements.
Interest Rate Benchmark Reform
The interest rate benchmark reform is a global initiative that is being coordinated and led by central banks and governments around the world, including those in Canada. In August 2020, the IASB finalized its response to the ongoing reform of interbank offered rates (IBOR) and other interest rate benchmarks by issuing amendments to its new and former financial instrument standards, IFRS 9 - Financial Instruments (IFRS 9) and IAS 39 - Financial Instruments: Recognition and Measurement (IAS 39) as well as to related standard IFRS 7 - Financial Instruments: Disclosures (IFRS 7), to IFRS 4 - Insurance Contracts (IFRS 4), and to IFRS 16 - Leases (IFRS 16). These amendments address how financial statements will be affected once current interest rate benchmarks are replaced with alternative interest rate benchmarks and notably cover amendments to contractual cash flows, hedge accounting, and disclosures. On November 1, 2020, the Bank early adopted the amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16. For additional information, see Note 17 and the Accounting Policy Changes section in Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2021.
The Bank has transitioned its LIBOR-related (London Interbank Offered Rates) contracts that involve pound sterling (GBP), the euro (EUR), the Japanese yen (JPY), and the Swiss franc (CHF), for which the cessation or loss of representativeness was December 31, 2021. As for USD LIBOR, the Bank included rate replacement clauses in contracts negotiated during 2021 and, since January 1, 2022, the Bank has no longer been using USD LIBOR in new contracts except in circumstances compliant with regulatory guidance.
The Bank is continuing to monitor all of the developments of this initiative, as it is exposed to several risks, including interest rate risk and operational risk, which arise from non-derivative financial assets, non-derivative financial liabilities, and derivative financial instruments. The project team ensures that risks are mitigated while ensuring a positive experience for its clients. The Bank is taking all necessary steps to identify, measure, and control all risks to ensure a smooth transition to the interest rate benchmark reform. As at July 31, 2022, the project was progressing according to schedule.
Recent Developments
On December 16, 2021, the Bank of Canada announced that a white paper published by the Canadian Alternative Reference Rate (CARR) Working Group was recommending that CDOR ( Canadian Dollar Offered Rate ) be declared unrepresentative by its administrator, namely, Refinitiv Benchmark Services (UK) Limited (Refinitiv) and also that CDOR cease to exist as of June 30, 2024 (including a recommendation to cease using CDOR on the derivative financial instrument market as of June 30, 2023).
On January 31, 2022, Refinitiv launched a public consultation on the future of CDOR. The consultation ended on March 2, 2022, after which Refinitiv published an update to the consultation on April 14, 2022 . On May 16, 2022, Refinitiv published the consultation conclusions and announced that the publication of CDOR would cease as of June 28, 2024.
Following this announcement, the CARR Working Group welcomed Refinitiv's decision and, at the same time, OSFI published its prudential expectations regarding the cessation of CDOR. First, OSFI expects all new derivative contracts (bilateral, cleared, and exchange-traded) and securities (assets and debt liabilities) to transition to alternative reference rates by June 30, 2023, with no new CDOR exposure being recorded after that date, with limited exceptions for risk mitigation requirements. Thereafter, by June 28, 2024, OSFI expects federally regulated financial institutions to have transitioned all loan agreements referencing CDOR to alternative reference rates.
The following table discloses the non-derivative financial assets, non-derivative financial liabilities, and derivative financial instruments subject to the interest rate benchmark reform as at July 31, 2022 that will mature after June 28, 2024 and that have not yet transitioned to alternative benchmark rates from the CDOR rate.
As at July
(millions of Canadian dollars) 31, 2022
Non-derivative financial assets(1) 13,695
Non-derivative financial liabilities(2) 9,628
Notional amount of derivative financial instruments 340,485
(1) Non-derivative financial assets include the carrying value of securities as well as the outstanding balances on loans and the customers' liability under acceptances.
(2) Non-derivative financial liabilities include the nominal amounts of deposits and subordinated debt as well as the carrying value of acceptances.
Financial Disclosure
On February 1, 2022, the Bank deployed a new integrated accounting software package, and certain processes that affect internal control over financial reporting were modified. The Bank has assessed the impact of this deployment and has made sure that the key controls impacted and the newly implemented controls are well designed.
During the third quarter of 2022, no changes were made to the policies, procedures, and other processes that comprise the Bank's internal control over financial reporting that had or could reasonably have a significant impact on the internal control over financial reporting.
Quarterly Financial Information
(millions of Canadian
dollars,
except per share
amounts) 2022 2021 2020 2021 2020
------- ------- ----- -----
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Total Total
------- ------- ------- ------- ------- ------- ----- -----
Total revenues 2,413 2,439 2,466 2,211 2,254 2,238 2,224 2,000 8,927 7,927
Net income 826 893 932 776 839 801 761 492 3,177 2,083
Earnings per share ($)
Basic 2.38 2.58 2.68 2.22 2.39 2.28 2.16 1.37 9.06 5.73
Diluted 2.35 2.55 2.65 2.19 2.36 2.25 2.15 1.36 8.96 5.70
Dividends per common
share ($) 0.92 0.87 0.87 0.71 0.71 0.71 0.71 0.71 2.84 2.84
Return on common
shareholders' equity
(%)(1) 17.7 20.6 21.7 18.7 21.3 22.0 21.2 13.7 20.7 14.9
Total assets 387,051 369,785 366,888 355,795 354,040 350,742 343,637 331,625
----- -----
Net impaired loans
excluding
POCI loans (1)(2) 301 293 287 283 312 349 400 465
Per common share ($)
Book value(1) 54.82 52.81 50.23 47.95 46.00 43.59 41.48 39.97 Share price High 97.87 104.59 105.44 104.32 96.97 89.42 73.81 72.85 Low 83.33 89.33 94.37 95.00 89.47 72.30 65.54 62.99
(1) See the Glossary section on pages 45 to 48 for details on the composition of these measures.
(2) All loans classified in Stage 3 of the expected credit loss model are impaired loans; the net impaired loans presented in this table exclude POCI loans.
Glossary
Acceptances
Acceptances and the customers' liability under acceptances constitute a guarantee of payment by a bank and can be traded in the money market. The Bank earns a "stamping fee" for providing this guarantee.
Allowances for credit losses
Allowances for credit losses represent management's unbiased estimate of expected credit losses as at the balance sheet date. These allowances are primarily related to loans and off-balance-sheet items such as loan commitments and financial guarantees.
Assets under administration
Assets in respect of which a financial institution provides administrative services on behalf of the clients who own the assets. Such services include custodial services, collection of investment income, settlement of purchase and sale transactions, and record-keeping. Assets under administration are not reported on the balance sheet of the institution offering such services.
Assets under management
Assets managed by a financial institution and that are beneficially owned by clients. Management services are more comprehensive than administrative services and include selecting investments or offering investment advice. Assets under management, which may also be assets under administration, are not reported on the balance sheet of the institution offering such services.
Available TLAC
Available TLAC includes total capital as well as certain senior unsecured debt subject to the federal government's bail-in regulations that satisfy all of the eligibility criteria in OSFI's Total Loss Absorbing Capacity (TLAC ) guideline.
Average interest-bearing assets
Average interest-bearing assets include interest-bearing deposits with financial institutions and certain cash items, securities, securities purchased under reverse repurchase agreements and securities borrowed, and loans, while excluding customers' liability under acceptances and other assets. The average is calculated based on the daily balances for the period.
Average interest-bearing assets, non-trading
Average interest-bearing assets, non-trading, include interest-bearing deposits with financial institutions and certain cash items, securities purchased under reverse repurchase agreements and securities borrowed, and loans, while excluding other assets and assets related to trading activities. The average is calculated based on the daily balances for the period.
Average volumes
Average volumes represent the average of the daily balances for the period of the consolidated balance sheet items.
Basic earnings per share
Basic earnings per share - Adjusted
Basic earnings per share is calculated by dividing net income attributable to common shareholders by the weighted average basic number of common shares outstanding. Adjusted basic earnings per share is calculated by dividing adjusted net income attributable to common shareholders by the weighted average basic number of common shares outstanding.
Basis point
Unit of measure equal to one one-hundredth of a percentage point (0.01%).
Book value of a common share
The book value of a common share is calculated by dividing common shareholders' equity by the number of common shares on a given date.
Common Equity Tier 1 (CET1) capital ratio
CET1 capital consists of common shareholders' equity less goodwill, intangible assets, and other capital deductions. The CET1 capital ratio is calculated by dividing Common Equity Tier 1 capital by the corresponding risk-weighted assets.
Compound annual growth rate (CAGR)
CAGR is a rate of growth that shows, for a period exceeding one year, the annual change as though the growth had been constant throughout the period.
Derivative financial instruments
Derivative financial instruments are financial contracts whose value is derived from an underlying interest rate, exchange rate, equity, commodity, or credit instrument or index. Examples of derivatives include swaps, options, forward rate agreements, and futures. The notional amount of the derivative is the contract amount used as a reference point to calculate the payments to be exchanged between the two parties, and the notional amount itself is generally not exchanged by the parties.
Diluted earnings per share
Diluted earnings per share - Adjusted
Diluted earnings per share is calculated by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding after taking into account the dilution effect of stock options using the treasury stock method and any gain (loss) on the redemption of preferred shares. Adjusted diluted earnings per share is calculated by dividing adjusted net income attributable to common shareholders by the weighted average number of common shares outstanding after taking into account the dilution effect of stock options using the treasury stock method and any gain (loss) on the redemption of preferred shares.
Dividend payout ratio
Dividend payout ratio - Adjusted
The dividend payout ratio represents the dividends on common shares (per share amount) expressed as a percentage of basic earnings per share. The adjusted dividend payout ratio represents the dividends on common shares (per share amount) expressed as a percentage of adjusted basic earnings per share.
Economic capital
Economic capital is the internal measure used by the Bank to determine the capital required for its solvency and to pursue its business operations. Economic capital takes into consideration the credit, market, operational, business and other risks to which the Bank is exposed as well as the risk diversification effect among them and among the business segments. Economic capital thus helps the Bank to determine the capital required to protect itself against such risks and ensure its long-term viability.
Efficiency ratio
Efficiency ratio - Adjusted
The efficiency ratio represents non-interest expenses expressed as a percentage of total revenues. It measures the efficiency of the Bank's operations. The adjusted efficiency ratio represents adjusted non-interest expenses expressed as a percentage of adjusted total revenues.
Fair value
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal market at the measurement date under current market conditions (i.e., an exit price).
Gross impaired loans as a percentage of total loans and acceptances
This measure represents gross impaired loans expressed as a percentage of the balance of loans and acceptances.
Hedging
The purpose of a hedging transaction is to modify the Bank's exposure to one or more risks by creating an offset between changes in the fair value of, or the cash flows attributable to, the hedged item and the hedging instrument.
Impaired loans
The Bank considers a financial asset, other than a credit card receivable, to be credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred or when contractual payments are 90 days past due. Credit card receivables are considered credit-impaired and are fully written off at the earlier of the following dates: when a notice of bankruptcy is received, a settlement proposal is made, or contractual payments are 180 days past due.
Leverage ratio
The leverage ratio is calculated by dividing Tier 1 capital by total exposure. Total exposure is defined as the sum of on-balance-sheet assets (including derivative financial instrument exposures and securities financing transaction exposures) and off-balance-sheet items.
Liquidity coverage ratio (LCR)
The LCR is a measure designed to ensure that the Bank has sufficient high-quality liquid assets to cover net cash outflows given a severe, 30--day liquidity crisis.
Loans and acceptances
Loans and acceptances represent the sum of loans and of the customers' liability under acceptances.
Loan-to-value ratio
The loan-to-value ratio is calculated according to the total facility amount for residential mortgages and home equity lines of credit divided by the value of the related residential property.
Master netting agreement
Legal agreement between two parties that have multiple derivative contracts with each other and that provides for the net settlement of all contracts through a single payment in the event of default, insolvency, or bankruptcy.
Net impaired loans
Net impaired loans are gross impaired loans presented net of allowances for credit losses on Stage 3 loan amounts drawn.
Net impaired loans as a percentage of total loans and acceptances
This measure represents net impaired loans expressed as a percentage of the balance of loans and acceptances.
Net impaired loans excluding purchased or originated credit-impaired (POCI) loans
Net impaired loans excluding POCI loans are gross impaired loans excluding POCI loans presented net of allowances for credit losses on amounts drawn on Stage 3 loans granted by the Bank.
Net interest income, non-trading
Net interest income, non-trading - Adjusted
Net interest income, non-trading, comprises revenues related to financial assets and liabilities associated with non-trading activities, net of interest expenses and interest income related to the financing of these financial assets and liabilities. Adjusted net interest income, non-trading, comprises revenues related to financial assets and liabilities associated with non-trading activities on a taxable equivalent basis, net of interest expenses and interest income related to the financing of these financial assets and liabilities.
Net interest income from trading activities
Net interest income from trading activities - Adjusted
Net interest income from trading activities comprises dividends related to financial assets and liabilities associated with trading activities, net of interest expenses and interest income related to the financing of these financial assets and liabilities. Adjusted net interest income from trading activities comprises dividends related to financial assets and liabilities associated with trading activities on a taxable equivalent basis, net of interest expenses and interest income related to the financing of these financial assets and liabilities.
Net interest margin
Net interest margin is calculated by dividing net interest income by average interest-bearing assets.
Net interest margin, non-trading - Adjusted
Adjusted net interest margin, non-trading, is calculated by dividing adjusted net interest income related to non-trading activities by average interest-bearing assets excluding the average interest-bearing assets related to trading activities.
Net stable funding ratio (NSFR)
The NSFR ratio is a measure that helps guarantee that the Bank is maintaining a stable funding profile to reduce the risk of funding stress.
Net write-offs as a percentage of average loans and acceptances
This measure represents the net write-offs (net of recoveries) expressed as a percentage of average loans and acceptances.
Office of the Superintendent of Financial Institutions (Canada) (OSFI)
The mandate of OSFI is to regulate and supervise financial institutions and private pension plans subject to federal oversight, to help prevent undue losses to depositors and policyholders and, thereby, to contribute to public confidence in the Canadian financial system.
Operating leverage
Operating leverage - Adjusted
Operating leverage is the difference between the growth rate for total revenues and the growth rate for non-interest expenses. Adjusted operating leverage is the difference between the growth rate for adjusted total revenues and the growth rate for adjusted non-interest expenses.
Provisioning rate
This measure represents the allowances for credit losses on impaired loans expressed as a percentage of gross impaired loans.
Provisions for credit losses
Amount charged to income necessary to bring the allowances for credit losses to a level deemed appropriate by management and comprised of provisions for credit losses on impaired and non-impaired financial assets.
Provisions for credit losses as a percentage of average loans
and acceptances
This measure represents the provisions for credit losses expressed as a percentage of average loans and acceptances.
Provisions for credit losses on impaired loans as a percentage of average loans and acceptances
This measure represents the provisions for credit losses on impaired loans expressed as a percentage of average loans and acceptances.
Return on average assets
Return on average assets represents net income expressed as a percentage of average assets.
Return on common shareholders' equity (ROE)
Return on common shareholders' equity (ROE) - Adjusted
ROE represents net income attributable to common shareholders expressed as a percentage of average equity attributable to common shareholders. It's a general measure of the Bank's efficiency in using equity. Adjusted ROE represents adjusted net income attributable to common shareholders as a percentage of adjusted average equity attributable to common shareholders.
Risk-weighted assets
Assets are risk-weighted according to the guidelines established by OSFI. Using the standardized approach, risk factors are applied to the face value of certain assets in order to reflect comparable risk levels. Using the advanced internal ratings-based (AIRB) approach, risk-weighted assets are derived from the Bank's internal models, which represent the Bank's own assessment of the risks it faces. Off-balance-sheet instruments are converted to balance sheet (or credit) equivalents by adjusting the notional values before applying the appropriate risk-weighting factors.
Securities purchased under reverse repurchase agreements
Securities purchased by the Bank from a client pursuant to an agreement under which the securities will be resold to the same client on a specified date and at a specified price. Such an agreement is a form of short-term collateralized lending.
Securities sold under repurchase agreements
Financial obligations related to securities sold pursuant to an agreement under which the securities will be repurchased on a specified date and at a specified price. Such an agreement is a form of short-term funding.
Stressed VaR (SVaR)
SVaR is a statistical measure of risk that replicates the VaR calculation method but uses, instead of a two-year history of risk factor changes, a 12--month data period corresponding to a continuous period of significant financial stress that is relevant in terms of the Bank's portfolios.
Structured entity
A structured entity is an entity created to accomplish a narrow and well--defined objective and is designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when voting rights relate solely to administrative tasks and the relevant activities are directed by means of contractual arrangements.
Taxable equivalent basis
Taxable equivalent basis is a calculation method that consists in grossing up certain tax-exempt income (particularly dividends) by the amount of income tax that would have otherwise been payable. The Bank uses the taxable equivalent basis to calculate net interest income, non-interest income, and income taxes.
Tier 1 capital ratio
Tier 1 capital consists of Common Equity Tier 1 capital and Additional Tier 1 instruments, namely, qualifying non-cumulative preferred shares and the eligible amount of innovative instruments. The Tier 1 capital ratio is calculated by dividing Tier 1 capital, less regulatory adjustments, by the corresponding risk-weighted assets.
TLAC leverage ratio
The TLAC leverage ratio is an independent risk measure that is calculated by dividing available TLAC by total exposure, as set out in OSFI's Total Loss Absorbing Capacity (TLAC) guideline.
TLAC ratio
The TLAC ratio is a measure used to assess whether a non-viable domestic systemically important bank (D-SIB) has sufficient loss-absorbing capacity to support its recapitalization. It is calculated by dividing available TLAC by risk-weighted assets, as set out in OSFI's Total Loss Absorbing Capacity (TLAC) guideline.
Total capital ratio
Total capital is the sum of Tier 1 and Tier 2 capital. Tier 2 capital consists of the eligible portion of subordinated debt and certain allowances for credit losses. The Total capital ratio is calculated by dividing total capital, less regulatory adjustments, by the corresponding risk-weighted assets.
Total shareholder return (TSR)
TSR represents the average total return on an investment in the Bank's common shares. The return includes changes in share price and assumes that the dividends received were reinvested in additional common shares of the Bank.
Trading activity revenues
Trading activity revenues - Adjusted
Trading activity revenues consist of the net interest income and the non-interest income related to trading activities. Net interest income comprises dividends related to financial assets and liabilities associated with trading activities, net of interest expenses and interest income related to the financing of these financial assets and liabilities. Non-interest income consists of realized and unrealized gains and losses as well as interest income on securities measured at fair value through profit or loss, income from held-for-trading derivative financial instruments, changes in the fair value of loans at fair value through profit or loss, changes in the fair value of financial instruments designated at fair value through profit or loss, certain commission income, other trading activity revenues, and any applicable transaction costs. T rading activity revenues on a taxable equivalent basis includes adjusted net interest income and adjusted non-interest income related to trading activities.
Value-at-Risk (VaR)
VaR is a statistical measure of risk that is used to quantify market risks across products, types of risks, and aggregate risk on a portfolio basis. VaR is defined as the maximum loss at a specific confidence level over a certain horizon under normal market conditions. The VaR method has the advantage of providing a uniform measurement of financial instrument-related market risks based on a single statistical confidence level and time horizon.
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August 24, 2022 10:41 ET (14:41 GMT)
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