We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register for streaming realtime charts, analysis tools, and prices.
| 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 Jan 2023 to Jan 2025
TIDM32SS
RNS Number : 8386K
National Bank of Canada
30 August 2023
National Bank of Canada
August 30(th) , 2023
Regulatory Announcement (Part 1)
Q3 2023 Results
National Bank of Canada (the "Bank") announces publication of its Third Quarter 2023 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 2023 Report to Shareholders, please click on the following link:
http://www.rns-pdf.londonstockexchange.com/rns/8386K_1-2023-8-30.pdf
Report to Shareholders Third Quarter 2023
National Bank reports its results for the Third Quarter of 2023
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, 2023 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 30, 2023 - For the third quarter of 2023, National Bank is reporting net income of $839 million, up 2% from $826 million in the third quarter of 2022. Third-quarter diluted earnings per share stood at $2.36 compared to $2.35 in the third quarter of 2022. For the third quarter of 2023, adjusted net income(1) totalled $790 million, down 4% from $826 million in the same quarter of 2022, and third-quarter adjusted diluted earnings per share(1) stood at $2.21 compared to $2.35 in the third quarter of 2022. Revenue growth in all of the business segments, aside from the Financial Markets segment, was partly offset by higher provisions for credit losses. Adjusted income before provisions for credit losses and income taxes(1) stood at $1,184 million in the third quarter of 2023, an increase from $1,179 million in the same quarter of 2022.
For the nine-month period ended July 31, 2023, the Bank's net income totalled $2,567 million, down 3% from $2,645 million in the same period of 2022. Nine-month diluted earnings per share stood at $7.23 versus $7.53 in the same nine-month period last year. These decreases were partly due to higher non-interest expenses and higher provisions for credit losses. For the first nine months of 2023, adjusted net income(1) totalled $2,542 million, down 4% year over year, and nine-month adjusted diluted earnings per share(1) stood at $7.15 compared to $7.53 in the first nine months of 2022. Revenue growth in all of the business segments was offset by higher non-interest expenses and higher provisions for credit losses. Nine-month adjusted income before provisions for credit losses and income taxes(1) rose 3% year over year.
"The Bank reported solid third-quarter results, supported by revenue and earnings growth, in our Personal and Commercial Banking, Wealth Management, and U.S. Specialty Finance and International segments, partly offset by a less constructive backdrop in the Financial Markets segment," said Laurent Ferreira, President and Chief Executive Officer of National Bank of Canada. He added that "The Bank's performance highlights the strength of our strategic positioning in a challenging macroeconomic environment. With our high capital levels, strong earnings power, and constant discipline on managing cost and credit, the Bank is well-positioned to navigate continued uncertainty and generate long-term profitable growth."
Highlights
Hot Features
Premium
(millions of Canadian Quarter ended July Nine months ended
dollars) 31 July 31
------------------------- --- --- ------------------------------- -----------------------------------
2023 2022(2) % Change 2023 2022(2) % Change
-------------------------------- ---- ------- -------- ----- ------- --------
Net income 839 826 2 2,567 2,645 (3)
Diluted earnings per
share (dollars) $ 2.36 $ 2.35 - $ 7.23 $ 7.53 (4)
Return on common
shareholders'
equity(3) 16.2% 17.9% 17.2 % 20.1%
Dividend payout ratio(3) 41.3% 34.4% 41.3 % 34.4%
------------------------- ------- ---- ------- -------- ----- ------- --------
Operating results -
Adjusted (1)
Net income - Adjusted 790 826 (4) 2,542 2,645 (4)
Diluted earnings per
share - Adjusted
(dollars) $ 2.21 $ 2.35 (6) $ 7.15 $ 7.53 (5)
Return on common
shareholders'
equity - Adjusted(4) 15.3% 17.9% 17.0 % 20.1%
Dividend payout ratio -
Adjusted(4) 41.6% 34.3% 41.6 % 34.3%
------------------------- ------- ---- ------- -------- ----- ------- --------
As at
July
31, As at
October
2023 31, 2022
--- -------------------- --- --- ---- ------- -------- ------ ----------- --------
CET1 capital ratio under
Basel
III(5) 13.5 % 12.7%
Leverage ratio under
Basel III(5) 4.2 % 4.5%
------------------------- ------- ---- ------- -------- ----- ------- --------
(1) See the Financial Reporting Method section on pages 4 to 10 for additional information on non-GAAP financial measures.
(2) For the quarter and nine-month period ended July 31, 2022, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.
(3) See the Glossary section on pages 51 to 54 for details on the composition of these measures.
(4) See the Financial Reporting Method section on pages 4 to 10 for additional information on non-GAAP ratios.
(5) See the Financial Reporting Method section on pages 4 to 10 for additional information on capital management measures.
Report to Shareholders Third Quarter 2023
Personal and Commercial
- Net income totalled $328 million in the third quarter of 2023 versus $319 million in the third quarter of 2022, a 3% increase that was driven by growth in total revenues, tempered by higher non-interest expenses and higher provisions for credit losses.
- Income before provisions for credit losses and income taxes totalled $527 million in the third quarter of 2023, up 9% from $483 million in the third quarter of 2022.
- At $1,140 million, third-quarter total revenues rose $97 million or 9% year over year due to an increase in net interest income (driven by growth in loan and deposit volumes) and to a higher net interest margin.
- Compared to a year ago, personal lending grew 2% and commercial lending grew 9%.
- The net interest margin(1) stood at 2.34% in the third quarter of 2023, up from 2.17% in the third quarter of 2022.
- Third-quarter non-interest expenses stood at $613 million, up 9% from the third quarter of 2022.
- Third-quarter provisions for credit losses rose $26 million from third-quarter 2022, mainly due to higher allowances for credit losses on impaired loans.
- At 53.8%, the third-quarter efficiency ratio(1) compares to 53.7% in the third quarter of 2022.
Wealth Management
- Net income totalled $183 million in the third quarter of 2023, a 5% increase from $175 million in the third quarter of 2022.
- Third-quarter total revenues amounted to $629 million compared to $591 million in third-quarter 2022, a $38 million or 6% increase driven by growth in net interest income and fee-based revenues.
- Third-quarter non-interest expenses stood at $375 million, up 7% from $351 million in third-quarter 2022.
- At 59.6%, the third-quarter efficiency ratio(1) compares to 59.4% in the third quarter of 2022.
Financial Markets
- Net income totalled $205 million in the third quarter of 2023, down 27% from $279 million in the third quarter of 2022.
- Third-quarter total revenues on a taxable equivalent basis amounted to $560 million, down $51 million or 8% year over year given a decrease in global markets revenues, partly offset by growth in corporate and investment banking revenues.
- Third-quarter non-interest expenses stood at $272 million compared to $254 million in third-quarter 2022, an increase that was partly due to wages and employee benefits as well as the segment's technological investments.
- Provisions for credit losses of $5 million were recorded in the third quarter of 2023 compared to credit loss recoveries of $23 million recorded in the third quarter of 2022.
- At 48.6%, the third-quarter efficiency ratio(1) on a taxable equivalent basis compares to 41.6% in the third quarter of 2022.
U.S. Specialty Finance and International
- Net income totalled $128 million in the third quarter of 2023 compared to $125 million in the third quarter of 2022, as growth in total revenues was offset by higher non-interest expenses.
- Third-quarter total revenues amounted to $292 million, a 7% year-over-year increase driven by revenue growth at both the Credigy and ABA Bank subsidiaries.
- Third-quarter non-interest expenses stood at $100 million, a 16% year-over-year increase attributable mainly to business growth at ABA Bank.
- Provisions for credit losses remained stable compared to the third quarter of 2022.
- At 34.2%, the third-quarter efficiency ratio(1) compares to 31.5% in the third quarter of 2022.
Other
- There was a net loss of $5 million in the third quarter of 2023 compared to a net loss of $72 million in the third quarter of 2022, a change arising mainly from a higher contribution from treasury activities as well as a gain of $ 91 million ($67 million net of income taxes) recorded in the third quarter of 2023 as a result of a fair value remeasurement of an equity interest , partly offset by an expense of $25 million ($18 million net of income taxes) related to the retroactive impact of the changes to the Excise Tax Act.
Capital Management
- As at July 31, 2023, the Common Equity Tier 1 (CET1) capital ratio under Basel III(2) stood at 13.5%, up from 12.7% as at October 31, 2022, notably due to the positive impact of implementing the Basel III reforms.
- As at July 31, 2023, the Basel III(2) leverage ratio was 4.2%, down from 4.5% as at October 31, 2022.
(1) See the Glossary section on pages 51 to 54 for details on the composition of these measures.
(2) See the Financial Reporting Method section on pages 4 to 10 for additional information on capital management measures.
Management's Discussion
and Analysis
August 29, 2023
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, 2023 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, 2023 and with the 2022 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. The information found in the various documents and reports published by the Bank or the information available on the Bank's website and 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, unless expressly stated otherwise.
Financial Reporting Method 4 Capital Management 25
Highlights 11 Risk Management 32
Economic Review and Outlook 12 Risk Disclosures 48
Accounting Policies and Financial
Financial Analysis 13 Disclosure 49
Accounting Policies and Critical
Consolidated Results 13 Accounting Estimates 49
Results by Segment 16 Accounting Policy Changes 49
Consolidated Balance Sheet 22 Financial Disclosure 49
Related Party Transactions 23 Quarterly Financial Information 50
Securitization and Off-Balance-Sheet
Arrangements 23 Glossary 51
Income Taxes 24
Proposed Legislation 24
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 2023 and beyond, the strategies or actions that will be taken to achieve them, expectations for 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 2023 and how that performance will affect the Bank's business are among the main factors considered in setting the Bank's strategic priorities and objectives, including provisions 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 2023 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; the impact of upheavals in the U.S. banking industry; exchange rate and interest rate fluctuations; inflation; disruptions in global supply chains; 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, the evolution of which is difficult to predict and could continue to have repercussions on the Bank.
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 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 risk, operational risk, regulatory compliance risk, reputation risk, strategic risk, environmental and social risk, and certain emerging risks or risks deemed significant, all of which are described in greater detail in the Risk Management section beginning on page 65 of the 2022 Annual Report.
The foregoing list of risk factors is not exhaustive. Additional information about these risk factors is provided in the Risk Management section of the 2022 Annual Report and the Risk Management section of this Report to Shareholders for the Third Quarter of 2023. 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, 2022. This presentation reflects a revision to the method used for the sectoral allocation of technology investment expenses, which are now immediately allocated to the various business segments, whereas certain expenses, notably costs incurred during the research phase of projects, had previously been recorded in the Other heading of segment results. This revision is consistent with the accounting policy change applied in fiscal 2022 related to cloud computing arrangements. For the quarter and nine-month period ended July 31, 2022, certain amounts have been adjusted to reflect this accounting policy change. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.
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 better 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 revenues taxed at lower rates (notably dividends) by the income tax to a level that would make it comparable to revenues from taxable sources in Canada. 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 key non-GAAP financial measures used by the Bank to analyze its results are described below, and a quantitative reconciliation of these measures is presented in the tables in the Reconciliation of Non-GAAP Financial Measures section on pages 8 to 10 and in the Consolidated Results table on page 13. Note that, for the quarter and nine-month period ended July 31, 2023, a gain of $91 million ($67 million net of income taxes) recorded upon the fair value remeasurement of an equity interest and an expense related to the retroactive impact of the changes to the Excise Tax Act of $25 million ($18 million net of income taxes) were excluded from results. In addition, for the nine-month period ended July 31, 2023, a $24 million tax expense related to the Canadian government's 2022 tax measures was also excluded from results. No specified items had been excluded from results for the quarter and nine-month period ended July 31, 2022.
Adjusted Net Interest Income
This item represents net interest income on a taxable equivalent basis and excluding specified items, if any. A taxable equivalent is added to net interest income so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that net interest income can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Non-Interest Income
This item represents non -interest income on a taxable equivalent basis and excluding specified items, if any. A taxable equivalent is added to non-interest income so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that non--interest income can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Total Revenues
This item represents total revenues on a taxable equivalent basis and excluding specified items, if any. It consists of adjusted net interest income and adjusted non-interest income. A taxable equivalent is added to total revenues so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that total revenues can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Non -Interest Expenses
This item represents non-interest expenses excluding specified items, if any. Specified items, if any, are excluded so that non-interest expenses can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Income Before Provisions for Credit Losses and Income Taxes
This item represents income before provisions for credit losses and income taxes on a taxable equivalent basis and excluding specified items, if any. It also represents the difference between adjusted total revenues and adjusted non-interest expenses. A taxable equivalent is added to income before provisions for credit losses and income taxes so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that income before provisions for credit losses and income taxes can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Income Taxes
This item represents income taxes on a taxable equivalent basis and excluding income taxes on specified items, if any.
Adjusted Net Income
This item represents net income excluding specified items, if any. Specified items, if any, are excluded so that net income can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Net income Attributable to Common Shareholders
This item represents net income attributable to common shareholders excluding specified items, if any. Specified items, if any, are excluded so that net income attributable to common shareholders can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Basic Earnings Per Share
This item represents basic earnings per share excluding specified items, if any. Specified items, if any, are excluded so that basic earnings per share can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Diluted Earnings Per Share
This item represents diluted earnings per share excluding specified items, if any. Specified items, if any, are excluded so that diluted earnings per share can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
The Bank also uses the below-described measures to assess its results. A quantitative reconciliation of these non-GAAP financial measures is presented in the Reconciliation of Non-GAAP Financial Measures section on pages 8 to 10.
Adjusted Non-Trading Net Interest Income
This item represents non-trading net interest income on a taxable equivalent basis. It includes revenues related to financial assets and financial liabilities associated with non-trading activities, net of interest expenses and interest income related to the financing of these financial assets and liabilities, and is used to calculate adjusted non-trading net interest margin. A taxable equivalent is added to non-trading net interest income so that the performance of the various assets can be compared irrespective of their tax treatment .
Net Interest Income From Trading Activities on a Taxable Equivalent Basis
This item represents net interest income from trading activities plus a taxable equivalent. It 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. A taxable equivalent is added to net interest income from trading activities so that the performance of the various assets can be compared irrespective of their tax treatment.
Non-Interest Income Related to Trading Activities on a Taxable Equivalent Basis
This item represents non-interest income related to trading activities to which a taxable equivalent amount is added. It 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. A taxable equivalent amount is added to the non-interest income related to trading activities such that the returns of different assets can be compared regardless of their tax treatment.
Trading Activity Revenues on a Taxable Equivalent Basis
This item represents trading activity revenues plus a taxable equivalent. They comprise 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, realized and unrealized gains and losses, and 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. A taxable equivalent is added to trading activity revenues so that the performance of the various assets can be compared irrespective of their tax treatment.
Non-GAAP Ratios
The Bank uses non-GAAP ratios that do not have standardized meanings under GAAP and that may therefore 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 .
The key non-GAAP ratios used by the Bank are described below.
Adjusted Return on Common Shareholders' Equity (ROE)
This item represents ROE excluding specified items, if any. It is adjusted net income attributable to common shareholders expressed as a percentage of average equity attributable to common shareholders. It is a general measure of the Bank's efficiency in using equity. Specified items, if any, are excluded so that ROE can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Dividend Payout Ratio
This item represents the dividend payout ratio excluding specified items, if any. It is dividends on common shares (per share amount) expressed as a percentage of adjusted basic earnings per share. This ratio is a measure of the proportion of earnings that is paid out to shareholders in the form of dividends. Specified items, if any, are excluded so that the dividend payout ratio can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Operating Leverage
This item represents operating leverage on a taxable equivalent basis and excluding specified items, if any. It is the difference between the growth rate of adjusted total revenues and the growth rate of adjusted non-interest expenses, and it measures the sensitivity of the Bank's results to changes in its revenues. Adjusted operating leverage is presented on a taxable equivalent basis so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that the efficiency ratio can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Efficiency Ratio
This item represents the efficiency ratio on a taxable equivalent basis and excluding specified items, if any. The ratio represents adjusted non-interest expenses expressed as a percentage of adjusted total revenues. It measures the efficiency of the Bank's operations. The adjusted efficiency ratio is presented on a taxable equivalent basis so that the performance of the various assets can be compared irrespective of their tax treatment, and specified items, if any, are excluded so that the efficiency ratio can be better evaluated by excluding items that management believes do not reflect the underlying financial performance of the Bank's operations.
Adjusted Net Interest Margin, Non-Trading
This item represents the non-trading net interest margin on a taxable equivalent basis. It is calculated by dividing net interest income related to adjusted non-trading activities by average non-trading interest-bearing assets. This ratio is a measure of the profitability of non-trading activities. The adjusted non-trading net interest margin includes adjusted non-trading net interest income, which includes a taxable equivalent amount so that the performance of the various assets can be compared irrespective of their tax treatment.
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 51 to 54 of this MD&A.
Capital Management Measures
The financial reporting framework used to prepare the financial statements requires disclosure that helps 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
------------------------------------- ------------------------------------
Total Loss Absorbing Capacity (TLAC) Key indicators - TLAC requirements
Available TLAC
TLAC ratio
TLAC leverage ratio
------------------------------------- ------------------------------------
Liquidity Adequacy Requirements Liquid asset portfolio
Encumbered assets 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
------------------------------------- ------------------------------------
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
------------------------------ --------------- ----------- --------- ------ ---------------------
2023 2022(1)
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Personal Wealth Financial
and Commercial Management Markets USSF&I Other Total Total
----------------------------- --------------- ----------- --------- ------ ----- ----- -------
Net interest income 837 192 (397) 273 (35) 870 1,419
Taxable equivalent - - 86 - 2 88 60
Net interest income - Adjusted 837 192 (311) 273 (33) 958 1,479
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Non-interest income 303 437 807 19 79 1,645 994
Taxable equivalent - - 64 - - 64 11
Gain on the fair value
remeasurement
of an equity interest(2) - - - - (91) (91) -
Non-interest income - Adjusted 303 437 871 19 (12) 1,618 1,005
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Total revenues - Adjusted 1,140 629 560 292 (45) 2,576 2,484
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Non-interest expenses 613 375 272 100 57 1,417 1,305
Expense related to changes to
the
Excise Tax Act (3) - - - - (25) (25) -
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Non-interest expenses -
Adjusted 613 375 272 100 32 1,392 1,305
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Income before provisions for
credit
losses and income taxes -
Adjusted 527 254 288 192 (77) 1,184 1,179
Provisions for credit losses 75 1 5 29 1 111 57
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Income before income taxes -
Adjusted 452 253 283 163 (78) 1,073 1,122
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Income taxes 124 70 (72) 35 (9) 148 225
Taxable equivalent - - 150 - 2 152 71
Income taxes on the gain on
the
fair value remeasurement
of an equity interest(2) - - - - (24) (24) -
Income taxes on the expense
related
to changes to the Excise Tax
Act
(3) - - - - 7 7 -
Income taxes - Adjusted 124 70 78 35 (24) 283 296
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income - Adjusted 328 183 205 128 (54) 790 826
Specified items after income
taxes - - - - 49 49 -
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income 328 183 205 128 (5) 839 826
Non-controlling interests - - - - (1) (1) -
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income attributable to the
Bank ' s shareholders
and holders of other equity
instruments 328 183 205 128 (4) 840 826
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income attributable to the
Bank ' s shareholders
and holders of other equity
instruments
- Adjusted 328 183 205 128 (53) 791 826
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Dividends on preferred shares
and
distributions on
limited recourse capital
notes 36 26
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income attributable to
common
shareholders - Adjusted 755 800
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
(1) For the quarter ended July 31, 2022, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.
(2) During the quarter ended July 31, 2023, the Bank concluded that it had lost significant influence over TMX Group Limited (TMX) and therefore ceased using the equity method to account for this investment. The Bank designated its investment in TMX as a financial asset measured at fair value through other comprehensive income in an amount of $191 million. Upon the fair value measurement, a gain of $91 million ($67 million net of income taxes) was recorded in the Other heading of segment results.
(3) During the quarter ended July 31, 2023, the Bank recorded a $25 million expense in the Other heading of segment results ($18 million net of income taxes) related to the retroactive impact of the changes to the Excise Tax Act, indicating that payment card clearing services rendered by a payment card network operator are subject to the goods and services tax (GST) and the harmonized sales tax (HST).
Nine months ended July
(millions of Canadian dollars) 31
------------------------------ --------------- ----------- --------- -----------------------------
2023 2022(1)
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Personal Wealth Financial
and Commercial Management Markets USSF&I Other Total Total
----------------------------- --------------- ----------- --------- ------ ----- ----- -------
Net interest income 2,464 590 (851) 841 (193) 2,851 4,064
Taxable equivalent - - 237 - 5 242 169
Net interest income - Adjusted 2,464 590 (614) 841 (188) 3,093 4,233
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Non-interest income 900 1,293 2,363 55 114 4,725 3,254
Taxable equivalent - - 172 - - 172 18
Gain on the fair value
remeasurement
of an equity interest(2) - - - - (91) (91) -
Non-interest income - Adjusted 900 1,293 2,535 55 23 4,806 3,272
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Total revenues - Adjusted 3,364 1,883 1,921 896 (165) 7,899 7,505
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Non-interest expenses 1,820 1,111 842 296 125 4,194 3,884
Expense related to changes to
the
Excise Tax Act (3) - - - - (25) (25) -
Non-interest expenses -
Adjusted 1,820 1,111 842 296 100 4,169 3,884
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Income before provisions for
credit
losses and income taxes -
Adjusted 1,544 772 1,079 600 (265) 3,730 3,621
Provisions for credit losses 173 1 15 90 3 282 58
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Income before income taxes -
Adjusted 1,371 771 1,064 510 (268) 3,448 3,563
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Income taxes 377 212 (116) 107 (47) 533 731 Taxable equivalent - - 409 - 5 414 187 Income taxes on the gain on the fair value remeasurement of an equity interest(2) - - - - (24) (24) - Income taxes on the expense related to changes to the Excise Tax Act (3) - - - - 7 7 - Income taxes related to the Canadian government's 2022 tax measures(4) - - - - (24) (24) - Income taxes - Adjusted 377 212 293 107 (83) 906 918 ------------------------------ --------------- ----------- --------- ------ ----- ----- ------- Net income - Adjusted 994 559 771 403 (185) 2,542 2,645 Specified items after income taxes - - - - 25 25 - ------------------------------ --------------- ----------- --------- ------ ----- ----- ------- Net income 994 559 771 403 (160) 2,567 2,645 Non-controlling interests - - - - (2) (2) (1) ------------------------------ --------------- ----------- --------- ------ ----- ----- ------- Net income attributable to the Bank ' s shareholders and holders of other equity instruments 994 559 771 403 (158) 2,569 2,646 ------------------------------ --------------- ----------- --------- ------ ----- ----- ------- Net income attributable to the Bank's shareholders and holders of other equity instruments - Adjusted 994 559 771 403 (183) 2,544 2,646 ------------------------------ --------------- ----------- --------- ------ ----- ----- ------- Dividends on preferred shares and distributions on limited recourse capital notes 106 77 ------------------------------ --------------- ----------- --------- ------ ----- ----- ------- Net income attributable to common shareholders - Adjusted 2,438 2,569 ------------------------------ --------------- ----------- --------- ------ ----- ----- -------
(1) For the nine-month period ended July 31, 2022, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.
(2) During the nine-month period ended July 31, 2023, the Bank concluded that it had lost significant influence over TMX and therefore ceased using the equity method to account for this investment. The Bank designated its investment in TMX as a financial asset measured at fair value through other comprehensive income in an amount of $191 million. Upon the fair value measurement, a gain of $91 million ($67 million net of income taxes) was recorded in the Other heading of segment results.
(3) During the nine-month period ended July 31, 2023, the Bank recorded a $25 million expense in the Other heading of segment results ($18 million net of income taxes) related to the retroactive impact of the changes to the Excise Tax Act, indicating that payment card clearing services rendered by a payment card network operator are subject to the goods and services tax (GST) and the harmonized sales tax (HST).
(4) During the nine-month period ended July 31, 2023, the Bank recorded a $32 million tax expense in the Other heading of segment results with respect to the Canada Recovery Dividend, i.e., a one-time, 15% tax on the fiscal 2021 and 2020 average taxable income above $1 billion, as well as an $8 million tax recovery related to the 1.5% increase in the statutory tax rate, which includes the impact related to current and deferred taxes for fiscal 2022. For additional information on these tax measures, see the Income Taxes section on page 24.
Presentation of Basic and Diluted Earnings Per Share - Adjusted
Quarter ended Nine months ended
(Canadian dollars) July 31 July 31
---------------------------------------------------- -------------------- -------------------
2023 2022(1) 2023 2022(1)
---------------------------------------------------- ------ ------- -------- --------
Basic earnings per share $ 2.38 $ 2.38 $ 7.30 $ 7.61
Gain on the fair value remeasurement of an
equity interest(2) (0.20) - (0.20) -
Expense related to changes to the Excise
Tax Act (3) 0.05 - 0.05 -
Income taxes related to the Canadian government's
2022 tax measures(4) - - 0.07 -
---------------------------------------------------- ------ ------- -------- --------
Basic earnings per share - Adjusted $ 2.23 $ 2.38 $ 7.22 $ 7.61
---------------------------------------------------- ------ ------- -------- --------
Diluted earnings per share $ 2.36 $ 2.35 $ 7.23 $ 7.53
Gain on the fair value remeasurement of an
equity interest(2) (0.20) - (0.20) -
Expense related to changes to the Excise
Tax Act (3) 0.05 - 0.05 -
Income taxes related to the Canadian government's
2022 tax measures(4) - - 0.07 -
Diluted earnings per share - Adjusted $ 2.21 $ 2.35 $ 7.15 $ 7.53
---------------------------------------------------- ------ ------- -------- --------
(1) For the quarter and nine-month period ended July 31, 2022, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.
(2) During the quarter and nine-month period ended July 31, 2023, the Bank concluded that it had lost significant influence over TMX and therefore ceased using the equity method to account for this investment. The Bank designated its investment in TMX as a financial asset measured at fair value through other comprehensive income in an amount of $191 million. Upon the fair value measurement, a gain of $91 million ($67 million net of income taxes) was recorded in the Other heading of segment results.
(3) During the quarter and nine-month period ended July 31, 2023, the Bank recorded a $25 million expense in the Other heading of segment results ($18 million net of income taxes) related to the retroactive impact of the changes to the Excise Tax Act, indicating that payment card clearing services rendered by a payment card network operator are subject to the goods and services tax (GST) and the harmonized sales tax (HST).
(4) During the nine-month period ended July 31, 2023, the Bank recorded a $32 million tax expense in the Other heading of segment results with respect to the Canada Recovery Dividend, i.e., a one-time, 15% tax on the fiscal 2021 and 2020 average taxable income above $1 billion, as well as an $8 million tax recovery related to the 1.5% increase in the statutory tax rate, which includes the impact related to current and deferred taxes for fiscal 2022. For additional information on these tax measures, see the Income Taxes section on page 24.
Presentation of Non-Trading Net Interest Income - Adjusted
Quarter ended Nine months ended
(millions of Canadian dollars) July 31 July 31
------------------------------------------------- --------------- ---------------------
2023 2022 2023 2022
------------------------------------------------- ------- ------ --------- --------
Net interest income - Adjusted 958 1,479 3,093 4,233
Less: Net interest income (loss) related
to trading activities on a taxable equivalent
basis (430) 293 (948) 895
------------------------------------------------- ------- ------ --------- --------
Net interest income, non-trading - Adjusted 1,388 1,186 4,041 3,338
------------------------------------------------- ------- ------ --------- --------
Highlights
(millions of Canadian
dollars, Nine months ended July
except per share amounts) Quarter ended July 31 31
----------------------------- -------------------------------- ------------------------------------------
2023 2022(1) % Change 2023 2022(1) % Change
---------------------------- ------- ------- -------- ------- ------- --------
Operating results
Total revenues 2,515 2,413 4 7,576 7,318 4
Income before provisions for
credit losses and income
taxes 1,098 1,108 (1) 3,382 3,434 (2)
Net income 839 826 2 2,567 2,645 (3)
Return on common
shareholders'
equity(2) 16.2% 17.9% 17.2 % 20.1%
Earnings per share
Basic $ 2.38 $ 2.38 - $ 7.30 $ 7.61 (4)
Diluted $ 2.36 $ 2.35 - $ 7.23 $ 7.53 (4)
---------------------------- ------- ------- -------- ------- ------- --------
Operating results - Adjusted
(3)
Total revenues - Adjusted(3) 2,576 2,484 4 7,899 7,505 5
Income before provisions for
credit losses
and income taxes -
Adjusted(3) 1,184 1,179 - 3,730 3,621 3
Net income - Adjusted(3) 790 826 (4) 2,542 2,645 (4)
Return on common
shareholders'
equity - Adjusted(4) 15.3% 17.9% 17.0 % 20.1%
Operating leverage -
Adjusted(4) (3.0)% 1.4% (2.1) % 2.4%
Efficiency ratio -
Adjusted(4) 54.0% 52.5% 52.8 % 51.8%
Earnings per share -
Adjusted
(3)
Basic $ 2.23 $ 2.38 (6) $ 7.22 $ 7.61 (5)
Diluted $ 2.21 $ 2.35 (6) $ 7.15 $ 7.53 (5)
---------------------------- ------- ------- -------- ------- ------- --------
Common share information
Dividends declared $ 1.02 $ 0.92 11 $ 2.96 $ 2.66 11
Book value(2) $ 58.75 $ 54.29 $ 58.75 $ 54.29
Share price
High $ 103.28 $ 97.87 $ 103.45 $ 105.44
Low $ 94.62 $ 83.33 $ 91.02 $ 83.33
Close $ 103.28 $ 89.85 $ 103.28 $ 89.85
Number of common shares
(thousands) 338,228 336,456 338,228 336,456
Market capitalization 34,932 30,231 34,932 30,231
---------------------------- ------- ------- -------- ------- ------- --------
As at As at
July October
31, 31,
(millions of Canadian dollars) 2023 2022 % Change
Balance sheet and off-balance-sheet
Total assets 426,015 403,740 6
Loans and acceptances, net of allowances 219,433 206,744 6
Deposits 282,323 266,394 6
Equity attributable to common shareholders 19,872 18,594 7
Assets under administration(2) 678,753 616,165 10
Assets under management(2) 125,603 112,346 12
------------------------------------------------------------------- -------- ----------- --------
Regulatory ratios under Basel III (5)
Capital ratios
Common Equity Tier 1 (CET1) 13.5 % 12.7 %
Tier 1 16.1 % 15.4 %
Total 16.9 % 16.9 %
Leverage ratio 4.2 % 4.5 %
------------------------------------------------------------------- -------- ----------- --------
TLAC ratio(5) 29.9 % 27.7 %
TLAC leverage ratio(5) 7.9 % 8.1 %
------------------------------------------------------------------- -------- ----------- --------
Liquidity coverage ratio (LCR)(5) 146 % 140 %
Net stable funding ratio (NSFR)(5) 118 % 117 %
------------------------------------------------------------------- -------- ----------- --------
Other information
Number of employees - Worldwide (full-time equivalent) 28,901 27,103 7
Number of branches in Canada 372 378 (2)
Number of banking machines in Canada 940 939 -
------------------------------------------------------------------- -------- ----------- --------
(1) For the quarter and nine-month period ended July 31, 2022, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.
(2) See the Glossary section on pages 51 to 54 for details on the composition of these measures.
(3) See the Financial Reporting Method section on pages 4 to 10 for additional information on non-GAAP financial measures.
(4) See the Financial Reporting Method section on pages 4 to 10 for additional information on non-GAAP ratios.
(5) See the Financial Reporting Method section on pages 4 to 10 for additional information on capital management measures.
Economic Review and Outlook
Global Economy
After months of increases, inflation worldwide finally appears to be improving. And although this good news seems to have restored optimism, especially on the stock markets, the battle to bring inflation back into line with the goals of central banks is far from won. Recall that the recent decline in prices is essentially due to a significant slowdown in the goods sector, and particularly a decrease in energy prices. The price of a barrel of oil has recently soared, which could limit the cooling of inflation in the next few months. The Chinese economy could counterbalance this headwind, since a vast amount of data from China indicates that it is currently experiencing a significant slowdown. The decline in Chinese producers' prices suggests an upcoming decrease in import prices in the developed nations. On the other hand, in the services sector, there is still no sign of significant progress. In this context, it is not surprising that many central banks are still in tightening mode. In many regions of the world, however, the central bankers' efforts to curb inflation are coming up against lax fiscal policy. This situation risks forcing the central banks to tighten their monetary policy more than they would otherwise have done, which increases the risk of a hard landing and, at the very least, is likely to inflict unnecessary economic suffering. We anticipate growth of 2.9%(1) this year, followed by only 2.1%(1) in 2024.
In the United States, the economy has been in good shape since the beginning of the year, but there are numerous signs of difficulties on the horizon. Household spending remains resilient for the time being, thanks to the excess savings amassed by U.S. consumers during the pandemic. Nevertheless, this resource is being eroded fast, based on the savings rate, which has been well below the pre-pandemic level for several quarters. We foresee that, at this rate, the pandemic savings will be used up in the last quarter of this year, which should tamp down consumption. Another obstacle for consumers is that this will occur at the exact same time that 40.5 million Americans resume their monthly student debt payments, which average around US$390. At the national level, these payments will reduce disposable income by 1% per month. Even assuming the labour market remains stable, this combination of factors should lead to a significant decrease in consumption. According to this scenario, and considering that financial conditions are likely to become even tighter, we believe
that the U.S. economy will slow down considerably in the coming months, and might even enter a technical recession at the start of 2024 that could last for three quarters. Thus, production should grow by 2.3%(1) through 2023 before stagnating in 2024.
Canadian Economy
The Bank of Canada has raised its policy rate twice since June, losing patience with the lack of progress in curbing inflation and with domestic demand that it considers to be overly high. In our view, this decision is a dangerous one since the economy is already demonstrating an underlying weakness, and it has not yet even absorbed the entire impact of the rate increases applied since the start of the cycle of tightening monetary policy. First of all, although real GDP per capita is continuing to grow in absolute terms, it has been contracting for 12 months, which is a situation that has never before coincided with an increase in interest rates. In addition, the labour market is starting to loosen up, according to the increase in the unemployment rate, the decline in the job vacancy rate and the softening of hiring intentions. This is hardly surprising considering that corporate earnings have been dropping for three quarters and a high proportion of SMEs say that wages are creating difficulties for them. The challenge of profitability will make businesses much more cautious in the coming months, particularly due to the economic slowdown that we are forecasting, considering that monetary policy is at its most restrictive, in real terms, since 2009 and the most restrictive of all the G7 nations. The third quarter should avoid a contraction thanks to the "grocery rebate," a federal government tax measure that is frustrating the Bank of Canada's efforts to cool the economy. Nevertheless, we doubt that excess savings can prevent a contraction of consumption thereafter in the context of a far from negligible interest payment shock. In real terms per capita, transaction and notice deposits are only 5% higher than in 2019, which is by no means the bonanza one might have expected. Therefore, we continue to forecast anemic economic growth rates of 1.4%(1) in 2023 and 0%(1) in 2024.
Quebec Economy
From an economic growth perspective, Quebec had a mixed start to the year compared with the rest of Canada. Over the past four months, the pace of provincial GDP growth has trailed or matched national growth. This underperformance resulted in particular from Quebec's record as the province with the slowest population growth. For the coming quarters, sluggish population growth and the rising impact of interest rate hikes will continue to rein in growth. However, we believe some factors will offset this source of weakness. First, Quebec households have a lower debt ratio than in the rest of Canada, which means the interest payment shock packs less of a punch than elsewhere. Also, Quebec has easier access to housing compared to the rest of the country, and Quebec's predominance of hydroelectricity means households are less exposed to soaring electricity costs. Quebec also has a highly diversified economy, and a variety of tax support measures are provided by the provincial government. In the labour market, weaker immigration is expected curb the rise in the unemployment rate in an environment that may prompt businesses to approach hiring with greater caution. What is more, we note that the Quebec labour market continued to report Canada's lowest unemployment rate in July (4.5%). In light of all these factors, we believe that a recession is still avoidable in Quebec. Our growth forecast for the province is 1.2%(1) in 2023 followed by stagnation in 2024.
(1) Actual 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
----------------------------- ---------------------------------- ----------------------------------
2023 2022(1) % Change 2023 2022(1) % Change
----------------------------- ------- ------- -------- ------- ------- --------
Operating results
Net interest income 870 1,419 (39) 2,851 4,064 (30)
Non-interest income 1,645 994 65 4,725 3,254 45
----------------------------- ------- ------- -------- ------- ------- --------
Total revenues 2,515 2,413 4 7,576 7,318 4
Non-interest expenses 1,417 1,305 9 4,194 3,884 8
----------------------------- ------- ------- -------- ------- ------- --------
Income before provisions for
credit losses and income
taxes 1,098 1,108 (1) 3,382 3,434 (2)
Provisions for credit losses 111 57 282 58
----------------------------- ------- ------- -------- ------- ------- --------
Income before income taxes 987 1,051 (6) 3,100 3,376 (8)
Income taxes 148 225 (34) 533 731 (27)
----------------------------- ------- ------- -------- ------- ------- --------
Net income 839 826 2 2,567 2,645 (3)
----------------------------- ------- ------- -------- ------- ------- --------
Diluted earnings per share
(dollars) 2.36 2.35 - 7.23 7.53 (4)
----------------------------- ------- ------- -------- ------- ------- --------
Taxable equivalent basis (2)
Net interest income 88 60 242 169
Non-interest income 64 11 172 18
Income taxes 152 71 414 187
----------------------------- ------- ------- -------- ------- ------- --------
Impact of taxable equivalent
basis on net income - - - -
----------------------------- ------- ------- -------- ------- ------- --------
Specified items (2)
Gain on the fair value
remeasurement
of an equity interest 91 - 91 -
Expense related to changes to
the Excise Tax Act (25) - (25) -
Specified items before income
taxes 66 - 66 -
Income taxes related to the
Canadian
government's 2022
tax measures - - 24 -
Income taxes related to other
specified items 17 - 17 -
----------------------------- ------- ------- -------- ------- ------- --------
Specified items after income
taxes 49 - 25 -
----------------------------- ------- ------- -------- ------- ------- --------
Operating results - Adjusted
(2)
Net interest income -
Adjusted 958 1,479 (35) 3,093 4,233 (27)
Non-interest income -
Adjusted 1,618 1,005 61 4,806 3,272 47
----------------------------- ------- ------- -------- ------- ------- --------
Total revenues - Adjusted 2,576 2,484 4 7,899 7,505 5
Non-interest expenses -
Adjusted 1,392 1,305 7 4,169 3,884 7
----------------------------- ------- ------- -------- ------- ------- --------
Income before provisions for
credit losses and
income taxes - Adjusted 1,184 1,179 - 3,730 3,621 3
Provisions for credit losses 111 57 282 58
----------------------------- ------- ------- -------- ------- ------- --------
Income before income taxes -
Adjusted 1,073 1,122 (4) 3,448 3,563 (3)
Income taxes - Adjusted 283 296 (4) 906 918 (1)
----------------------------- ------- ------- -------- ------- ------- --------
Net income - Adjusted 790 826 (4) 2,542 2,645 (4)
----------------------------- ------- ------- -------- ------- ------- --------
Diluted earnings per share -
Adjusted (dollars) 2.21 2.35 (6) 7.15 7.53 (5)
----------------------------- ------- ------- -------- ------- ------- --------
Average assets(3) 434,121 391,966 11 426,821 388,463 10
Average loans and
acceptances(3) 218,115 197,650 10 213,823 191,092 12
Average deposits(3) 283,477 260,355 9 282,395 255,525 11
Operating leverage(4) (4.4) % 0.5% (4.5) % 2.1%
Operating leverage -
Adjusted(5) (3.0) % 1.4% (2.1) % 2.4%
Efficiency ratio(4) 56.3 % 54.1% 55.4 % 53.1% Efficiency ratio - Adjusted(5) 54.0 % 52.5% 52.8 % 51.8% Net interest margin, non-trading - Adjusted(5) 2.18 % 1.99% 2.15 % 1.93% ----------------------------- ------- ------- -------- ------- ------- --------
(1) For the quarter and nine-month period ended July 31, 2022, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.
(2) See the Financial Reporting Method section on pages 4 to 10 for additional information on non-GAAP financial measures.
(3) Represents an average of the daily balances for the period.
(4) See the Glossary section on pages 51 to 54 for details on the composition of these measures.
(5) See the Financial Reporting Method section on pages 4 to 10 for additional information on non-GAAP ratios.
Financial Results
For the third quarter of 2023, the Bank reported net income of $839 million, up 2% from $826 million in the third quarter of 2022. Third-quarter diluted earnings per share stood at $2.36 compared to $2.35 in the third quarter of 2022. Revenue growth in all of the business segments, aside from the Financial Markets segment, was partly offset by higher provisions for credit losses.
For the third quarter of 2023, adjusted net income totalled $790 million, which excludes a gain of $91 million on the fair value remeasurement of an equity interest ($67 million net of income taxes) and an expense of $25 million ($18 million net of income taxes) related to the retroactive impact of the changes to the Excise Tax Act, down 4% from $826 million in the third quarter of 2022. Third-quarter adjusted diluted earnings per share stood at $2.21 compared to $2.35 in the third quarter of 2022. Revenue growth in all of the business segments, aside from the Financial Markets segment, was partly offset by higher provisions for credit losses. Adjusted income before provisions for credit losses and income taxes stood at $1,184 million in the third quarter of 2023, an increase from $1,179 million in the same quarter of 2022.
For the nine-month period ended July 31, 2023, the Bank's net income totalled $2,567 million, down 3% from $2,645 million in the same period of 2022. Diluted earnings per share stood at $7.23 for the nine-month period ended July 31, 2023 versus $7.53 for the nine months ended July 31, 2022. These decreases were partly due to higher non-interest expenses, higher provisions for credit losses, and the impact of a tax expense arising from the Canadian government's 2022 tax measures recorded in the first quarter of 2023.
For the nine months ended July 31, 2023, adjusted net income totalled $2,542 million, which excludes a $24 million tax expense arising from the Canadian government's 2022 tax measures, a gain of $91 million on the fair value remeasurement of an equity interest ($67 million net of income taxes), and an expense of $25 million ($18 million net of income taxes) related to the retroactive impact of the changes to the Excise Tax Act, down 4% from $2,645 million in the same nine-month period of 2022. Nine-month adjusted diluted earnings per share stood at $7.15 compared to $7.53 in the nine-month period of 2022. Revenue growth in all of the business segments was offset by higher non-interest expenses and higher provisions for credit losses. Nine-month adjusted income before provisions for credit losses and income taxes rose 3% year over year.
Return on common shareholders' equity was 17.2% for the nine-month period ended July 31, 2023 compared to 20.1% in the same nine-month period of 2022.
Total Revenues
For the third quarter of 2023, the Bank's total revenues amounted to $2,515 million, rising $102 million or 4% year over year. In the Personal and Commercial segment, third-quarter total revenues rose 9% year over year owing to growth in loans and deposits, to a higher net interest margin resulting from interest rate hikes, and to increases in credit card revenues and revenues from bankers' acceptances, partly offset by a decrease in insurance revenues and revenues from foreign exchange activities. In the Wealth Management segment, third-quarter total revenues grew 6% year over year, mainly due to higher net interest income resulting from higher interest rates as well as fee-based revenues, notably revenues from mutual funds and from investment management and trust service fees. This growth was tempered by securities brokerage commissions, which decreased year over year given lower commissions on transactions. In the Financial Markets segment, third-quarter total revenues on a taxable equivalent basis decreased by 8% year over year due to a decrease in global markets revenues, partly offset by growth in corporate and investment banking revenues. In the USSF&I segment, third-quarter total revenues were up 7% year over year owing to sustained revenue growth at ABA Bank as a result of business growth as well as to an increase in Credigy's revenues. In addition, during the third quarter of 2023, a gain of $91 million was recorded in other revenues following a fair value remeasurement of an equity interest.
For the nine-month period ended July 31, 2023, the Bank's total revenues amounted to $7,576 million, up 4% or $258 million from $7,318 million in the same period of 2022. In the Personal and Commercial segment, nine-month total revenues rose $401 million or 14% year over year owing to an increase in net interest income (as both loans and deposits grew), a higher net interest margin (resulting from higher interest rates) as well as to increases in credit card revenues and revenues from bankers' acceptances. In the Wealth Management segment, nine-month total revenues grew 7%, mainly due to an increase in net interest income, partly offset by a decrease in fee-based revenues and transaction-based and other revenues given weak market performance compared to the first nine months of 2022. In the Financial Markets segment, nine-month total revenues on a taxable equivalent basis were up $16 million or 1% year over year given growth in corporate and investment banking revenues, partly offset by a decrease in global markets revenues. In the USSF&I segment, nine-month total revenues were up 6% year over year owing to revenue growth, driven by business growth, at ABA Bank. In addition, nine-month other revenues included a gain of $91 million recorded upon the fair value remeasurement of an equity interest.
Non-Interest Expenses
For the third quarter of 2023, non-interest expenses stood at $1,417 million, up 9% from the third quarter of 2022. The increase was essentially attributable to higher compensation and employee benefits, notably due to wage growth and a greater number of employees, partly offset by a decrease in variable compensation. Occupancy expense was also up, partly related to expansion of the ABA Bank network. An increase in technology expenses, including amortization, was attributable to significant investments made to support the Bank's technological evolution and business development plan. Other expenses were also up, notably due to an increase in travel and business development expenses (as activities with clients resumed) and to an increase in advertising expenses. Other expenses also included a $25 million expense related to the retroactive impact of the changes to the Excise Tax Act. Third-quarter adjusted non-interest expenses stood at $1,392 million, up 7% from $1,305 million in third-quarter 2022.
Nine-month non-interest expenses stood at $4,194 million, an 8% year-over-year increase that was due to the same reasons provided above for the third quarter. The increase was also due to a higher occupancy expense related to the Bank's new head office building as well as to a reversal of the provision for the compensatory tax on salaries paid in Quebec of $20 million in the first quarter of 2022. Nine-month adjusted non-interest expenses stood at $4,169 million, a 7% year-over-year increase from $3,884 million in the same nine-month period of 2022.
Provisions for Credit Losses
For the third quarter of 2023, the Bank recorded $111 million in provisions for credit losses compared to $57 million in the same quarter of 2022. An increase in provisions for credit losses on non-impaired loans of $5 million was due to loan origination and the migration of credit risk. Third-quarter provisions for credit losses on impaired loans, excluding purchased or originated credit-impaired (POCI) loans(1) rose $68 million year over year. This increase came from Personal Banking (including credit card receivables) reflecting a normalization of credit performance, from Commercial Banking, from the Financial Markets segment, and from Credigy (excluding POCI loans). These increases were partly offset by a decrease in provisions for credit losses on Credigy's POCI loans of $19 million compared to the third quarter of 2022 due to a favourable remeasurement of certain portfolios.
For the nine-month period ended July 31, 2023, the Bank recorded $282 million in provisions for credit losses compared to $58 million in the same period of 2022. This increase stems mainly from higher provisions for credit losses on non-impaired loans recorded to reflect new loan origination, credit risk migration, and a less favourable macroeconomic outlook (notably, rising inflation and geopolitical instability). As for provisions for credit losses on impaired loans excluding POCI loans(1) , they were also up, due to Personal Banking (including credit card receivables), Commercial Banking, the Financial Markets segment, and the Credigy subsidiary. These increases were partly offset by a decrease in provisions for credit losses on impaired loans at ABA Bank. Nine-month provisions for credit losses on Credigy's POCI loans were also down given a favourable remeasurement of certain portfolios during the first nine months of 2023.
Income Taxes
For the third quarter of 2023, income taxes stood at $148 million compared to $225 million in the same quarter of 2022. The 2023 third-quarter effective income tax rate was 15% compared to 21% in the same quarter of 2022. The year-over-year change in effective income tax rate stems mainly from a higher level and proportion of tax-exempt dividend income and from higher income in lower tax-rate jurisdictions, factors that were partly offset by the additional 1.5% tax on banks and life insurers.
For the nine-month period ended July 31, 2023, the effective income tax rate stood at 17% compared to 22% in the same period of 2022. The year-over-year change in effective income tax rate stems from the same reasons as those mentioned for the quarter, partly offset by the impact of the Canadian government's 2022 tax measures recorded in the first quarter of 2023, namely, the Canada Recovery Dividend and the additional 1.5% tax on banks and life insurers.
(1) See the Glossary section on pages 51 to 54 for details on the composition of these measures.
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, which comprises the activities of the Credigy Ltd. (Credigy) and Advanced Bank of Asia Limited (ABA Bank) subsidiaries. Other operating activities, certain specified items, Treasury activities, and the operations of the Flinks Technology Inc. (Flinks) subsidiary are grouped in the Other heading of segment results. 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
------------------------------- ------------------------------- -------------------------------
2023 2022(1) % Change 2023 2022(1) % Change
------------------------------- ------- ------- -------- ------- ------- --------
Operating results
Net interest income 837 741 13 2,464 2,080 18
Non-interest income 303 302 - 900 883 2
------------------------------- ------- ------- -------- ------- ------- --------
Total revenues 1,140 1,043 9 3,364 2,963 14
Non-interest expenses 613 560 9 1,820 1,667 9
------------------------------- ------- ------- -------- ------- ------- --------
Income before provisions for
credit losses and income taxes 527 483 9 1,544 1,296 19
Provisions for credit losses 75 49 53 173 55
------------------------------- ------- ------- -------- ------- ------- --------
Income before income taxes 452 434 4 1,371 1,241 10
Income taxes 124 115 8 377 329 15
------------------------------- ------- ------- -------- ------- ------- --------
Net income 328 319 3 994 912 9
------------------------------- ------- ------- -------- ------- ------- --------
Net interest margin(2) 2.34 % 2.17% 2.34 % 2.11%
Average interest-bearing
assets(2) 141,939 135,396 5 140,493 132,018 6
Average assets(3) 148,934 142,241 5 147,462 138,670 6
Average loans and
acceptances(3) 148,142 141,517 5 146,660 137,934 6
Net impaired loans(2) 246 168 46 246 168 46
Net impaired loans as a % of
total loans and acceptances(2) 0.2 % 0.1% 0.2 % 0.1%
Average deposits(3) 86,852 83,012 5 85,310 80,680 6
Efficiency ratio(2) 53.8 % 53.7% 54.1 % 56.3%
------------------------------- ------- ------- -------- ------- ------- --------
(1) For the quarter and nine-month period ended July 31, 2022, certain amounts have been reclassified, notably due to a revised method for the sectoral allocation of technology investment expenses. In addition, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements (for additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022).
(2) See the Glossary section on pages 51 to 54 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 $328 million in the third quarter of 2023, up 3% from $319 million in the third quarter of 2022. The segment's third-quarter income before provisions for credit losses and income taxes grew 9% year over year. Third-quarter net interest income rose 13% year over year owing to growth in personal and commercial loans and deposits as well as to a higher net interest margin, which was 2.34% in third-quarter 2023 compared to 2.17% in third-quarter 2022. This growth reflects the interest rate hikes and was mainly attributable to the deposit margin. As for third-quarter non-interest income, it remained relatively stable 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 margin on deposits, and from higher card revenues, partly offset by a decrease in insurance revenues. Commercial Banking's third-quarter total revenues grew $57 million year over year, mainly due to an increase in net interest income that was driven by loan and deposit growth and an improved deposit margin as well as to increases in revenues from bankers' acceptances, partly offset by a decrease in revenues from foreign exchange activities and derivative financial instruments.
For the third quarter of 2023, the segment's non-interest expenses stood at $613 million, a 9% year-over-year increase that was mainly due to higher compensation and employee benefits (given wage growth and a greater number of employees), greater investments made as part of the segment's technological evolution, and higher operations support charges. At 53.8%, the third-quarter efficiency ratio compares to 53.7% in the third quarter of 2022. The segment recorded $75 million in provisions for credit losses in the third quarter of 2023 compared to $49 million in the same quarter of 2022. The increase was mainly due to higher provisions for credit losses on impaired Personal Banking loans (including credit card receivables), reflecting continued normalization of credit performance, as well as on impaired Commercial Banking loans. Furthermore, provisions for credit losses on non-impaired loans were down year over year.
For the nine-month period ended July 31, 2023, Personal and Commercial's net income totalled $994 million, up from $912 million for the first nine months of last year. This increase was mainly due to 14% growth in the segment's total revenues. The segment's nine-month income before provisions for credit losses and income taxes stood at $1,544 million, rising 19% year over year. Personal Banking's nine-month total revenues were up, mainly due to growth in loans and deposits and to a higher deposit margin (partly offset by a lower margin on loans) as well as to increases in credit card revenues, partly offset by a decrease in insurance revenues. In addition, Commercial Banking's nine-month total revenues rose 23% owing to growth in loans and deposits, to a higher net interest margin, as well as to increases in revenues from bankers' acceptances, from letters of credit and guarantee, and from derivative financial instruments.
Nine-month non-interest expenses stood at $1,820 million, a 9% year-over-year increase that was due to the same reasons provided above for the third quarter. The efficiency ratio was 54.1% for the nine-month period, an improvement of 2.2 percentage points from the same period in 2022. The segment's nine-month provisions for credit losses stood at $173 million compared to $55 million in the same period of 2022. This increase came from higher provisions for credit losses on non-impaired loans recorded to reflect new loan origination and a less favourable macroeconomic outlook. In addition, nine-month provisions for credit losses on impaired loans were also up year over year.
Wealth Management
Nine months ended July
(millions of Canadian dollars) Quarter ended July 31 31
------------------------------- ------------------------------- -------------------------------
2023 2022(1) % Change 2023 2022(1) % Change
------------------------------- ------- ------- -------- ------- ------- --------
Operating results
Net interest income 192 161 19 590 407 45
Fee-based revenues 364 351 4 1,061 1,082 (2)
Transaction-based and other
revenues 73 79 (8) 232 273 (15)
------------------------------- ------- ------- -------- ------- ------- --------
Total revenues 629 591 6 1,883 1,762 7
Non-interest expenses 375 351 7 1,111 1,068 4
------------------------------- ------- ------- -------- ------- ------- --------
Income before provisions for
credit losses and income taxes 254 240 6 772 694 11
Provisions for credit losses 1 1 - 1 1 -
------------------------------- ------- ------- -------- ------- ------- --------
Income before income taxes 253 239 6 771 693 11
Income taxes 70 64 9 212 185 15
------------------------------- ------- ------- -------- ------- ------- --------
Net income 183 175 5 559 508 10
------------------------------- ------- ------- -------- ------- ------- --------
Average assets(2) 8,702 8,518 2 8,582 8,394 2
Average loans and
acceptances(2) 7,711 7,455 3 7,602 7,287 4
Net impaired loans(3) 6 12 (50) 6 12 (50)
Average deposits(2) 40,028 34,881 15 40,194 34,569 16
Assets under administration(3) 678,753 621,126 9 678,753 621,126 9
Assets under management(3) 125,603 113,904 10 125,603 113,904 10
Efficiency ratio(3) 59.6 % 59.4% 59.0 % 60.6%
------------------------------- ------- ------- -------- ------- ------- --------
(1) For the quarter and nine-month period ended July 31, 2022, certain amounts have been reclassified, notably due to a revised method for the sectoral allocation of technology investment expenses. In addition, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements (for additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022).
(2) Represents an average of the daily balances for the period.
(3) See the Glossary section on pages 51 to 54 for details on the composition of these measures.
In the Wealth Management segment, net income totalled $183 million in the third quarter of 2023, a 5% increase from $175 million in the third quarter of 2022. The segment's third-quarter total revenues amounted to $629 million, up $38 million or 6% from $591 million in the third quarter of 2022. This increase in revenues was driven by a $31 million or 19% increase in net interest income resulting from the interest rate hikes. Third-quarter fee-based revenues increased by 4%, as there was stronger stock market performance year over year and positive net inflows into various solutions. As for transaction-based and other revenues, they decreased 8% year over year as a result of lower commissions on transactions in the third quarter of 2023.
For the third quarter of 2023, the segment's non-interest expenses stood at $375 million, a $24 million or 7% year-over-year increase that was due to higher compensation and employee benefits and higher technology expenses related to the segment's initiatives. The efficiency ratio was 59.6% in the third quarter of 2023 compared to 59.4% in the same quarter of 2022. Provisions for credit losses were $1 million, stable compared to the third quarter of 2022.
For the first nine months of 2023, Wealth Management's net income totalled $559 million, up 10% from $508 million in the same period of 2022. The segment's nine-month total revenues amounted to $1,883 million, up 7% from $1,762 million in the same period of 2022. Its nine-month net interest income grew $183 million or 45% year over year owing to higher interest rates. Nine-month fee-based revenues decreased by 2%, as there was weaker stock market performance year over year, partly offset by positive net inflows into various solutions. As for transaction-based and other revenues, they decreased 15% year over year. Nine-month non-interest expenses stood at $1,111 million compared to $1,068 million in the first nine months of 2022; this increase was due to higher compensation and employee benefits and to an increase in technology expenses related to the segment's initiatives, partly offset by a decrease in variable compensation and external management fees. The segment's nine-month efficiency ratio was 59.0%, an improvement of 1.6 percentage points from 60.6% in the same period of 2022. Nine-month provisions for credit losses stood at $1 million, stable compared to the same period in 2022.
Financial Markets
(taxable equivalent
basis)(1)
(millions of Canadian Quarter ended July Nine months ended July
dollars) 31 31
---------------------------- ---------------------------------- -----------------------------------
2023 2022(2) % Change 2023 2022(2) % Change
---------------------------- ------- ------- -------- ------- ------- ---------
Operating results
Global markets
Equities 171 202 (15) 585 772 (24)
Fixed-income 85 117 (27) 333 296 13
Commodities and foreign
exchange 21 50 (58) 141 130 8
---------------------------- ------- ------- -------- ------- ------- ---------
277 369 (25) 1,059 1,198 (12)
Corporate and investment
banking 283 242 17 862 707 22
---------------------------- ------- ------- -------- ------- ------- ---------
Total revenues(1) 560 611 (8) 1,921 1,905 1
Non-interest expenses 272 254 7 842 775 9
---------------------------- ------- ------- -------- ------- ------- ---------
Income before provisions for
credit losses and income
taxes 288 357 (19) 1,079 1,130 (5)
Provisions for credit losses 5 (23) 15 (55)
---------------------------- ------- ------- -------- ------- ------- ---------
Income before income taxes 283 380 (26) 1,064 1,185 (10)
Income taxes(1) 78 101 (23) 293 314 (7)
---------------------------- ------- ------- -------- ------- ------- ---------
Net income 205 279 (27) 771 871 (11)
---------------------------- ------- ------- -------- ------- ------- ---------
Average assets(3) 186,236 149,653 24 176,575 152,183 16
Average loans and
acceptances(3)
(Corporate Banking only) 29,974 22,991 30 28,613 21,549 33
Net impaired loans(4) 56 1 56 1
Net impaired loans as a % of
total loans and
acceptances(4) 0.2 % -% 0.2 % -%
Average deposits(3) 59,287 46,761 27 56,803 46,486 22
Efficiency ratio (4) 48.6 % 41.6% 43.8 % 40.7%
---------------------------- ------- ------- -------- ------- ------- ---------
(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 revenues taxed at lower rates by the income tax to a level that would make it comparable to revenues from taxable sources in Canada. For the quarter ended July 31, 2023, Total revenues were grossed up by $150 million ($70 million in 2022) and an equivalent amount was recognized in Income taxes. For the nine-month period ended July 31, 2023, Total revenues were grossed up by $409 million ($183 million in 2022) and an equivalent amount was recognized in Income taxes. The effect of these adjustments is reversed under the Other heading in the segment results.
(2) For the quarter and nine-month period ended July 31, 2022, certain amounts have been reclassified, notably due to a revised method for the sectoral allocation of technology investment expenses. In addition, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements (for additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022).
(3) Represents an average of the daily balances for the period.
(4) See the Glossary section on pages 51 to 54 for details on the composition of these measures.
In the Financial Markets segment, net income totalled $205 million in the third quarter of 2023, down 27% from $279 million in the third quarter of 2022. Third-quarter total revenues amounted to $560 million, down $51 million or 8% from $611 million in the third quarter of 2022. Global markets revenues were down 25% given decreases across all of its revenue categories. Third-quarter corporate and investment banking revenues grew 17% year over year given an increase in revenues from capital markets activity and banking service revenues, partly offset by a decrease in revenues from merger and acquisition activity.
For the third quarter of 2023, non-interest expenses stood at $272 million, a 7% year-over-year increase that was due to higher wages and employee benefits, technology investments made by the segment, and professional fees. This increase was partly offset by a decrease in variable compensation resulting from the decrease in the segment's third-quarter revenues. At 48.6%, the third-quarter efficiency ratio deteriorated when compared to 41.6% in the third quarter of 2022. The segment recorded $5 million in provisions for credit losses in the third quarter of 2023 compared to $23 million in recoveries of credit losses in the third quarter of 2022. This increase came from higher recoveries for credit losses on impaired loans in the third quarter of 2022 as well as from an increase in provisions for credit losses on non-impaired loans of $8 million related to loan origination and a less favourable macroeconomic environment in the third quarter of 2023.
For the nine-month period ended July 31, 2023, the Financial Markets segment's net income totalled $771 million, down 11% from the same period of 2022. As for nine-month total revenues, they amounted to $1,921 million, up $16 million or 1% from $1,905 million in the same period of 2022. Global markets revenues were down 12% due to a 24% decrease in revenues from equity securities, whereas revenues from fixed-income securities rose 13% and revenues from commodities and foreign exchange activities rose 8%. Nine-month corporate and investment banking revenues grew 22% year over year given an increase in revenues from merger and acquisition activity and in banking service revenues.
For the first nine months of 2023, non-interest expenses rose 9% year over year as a result of higher compensation and employee benefits (notably wage growth) as well as higher technology investment expenses, higher professional fees, and other expenses related to the segment's business growth. The efficiency ratio was 43.8% for the nine-month period compared to 40.7% in the same period of 2022. The segment recorded $15 million in provisions for credit losses during the first nine months of 2023 compared to $55 million in recoveries of credit losses in the same nine-month period of 2022. This increase came from higher recoveries for credit losses on impaired loans recorded in the nine-month period ended July 31, 2022 as well as from an increase in provisions for credit losses on non-impaired loans related to loan origination and a less favourable macroeconomic environment compared to the same period in 2022.
U.S. Specialty Finance and International (USSF&I)
Quarter ended July Nine months ended July
(millions of Canadian dollars) 31 31
--------------------------------- -------------------------------- --------------------------------
2023 2022 % Change 2023 2022 % Change
--------------------------------- ------ ------ -------- ------ ------ --------
Total revenues
Credigy 112 105 7 357 351 2
ABA Bank 181 168 8 539 490 10
International (1) - - 2
--------------------------------- ------ ------ -------- ------ ------ --------
292 273 7 896 843 6
-------------------------------- ------ ------ -------- ------ ------ --------
Non-interest expenses
Credigy 33 31 6 102 99 3
ABA Bank 66 55 20 192 154 25
International 1 - 2 1
--------------------------------- ------ ------ -------- ------ ------ --------
100 86 16 296 254 17
--------------------------------- ------ ------ -------- ------ ------ --------
Income before provisions for
credit losses and income taxes 192 187 3 600 589 2
--------------------------------- ------ ------ -------- ------ ------ --------
Provisions for credit losses
Credigy 20 19 5 71 37 92
ABA Bank 9 10 (10) 19 19 -
--------------------------------- ------ ------ -------- ------ ------ --------
29 29 - 90 56 61
-------------------------------- ------ ------ -------- ------ ------ --------
Income before income taxes 163 158 3 510 533 (4)
--------------------------------- ------ ------ -------- ------ ------ --------
Income taxes
Credigy 12 11 9 38 45 (16)
ABA Bank 23 22 5 69 63 10
------ ------ --------
35 33 6 107 108 (1)
-------------------------------- ------ ------ -------- ------ ------ --------
Net income
Credigy 47 44 7 146 170 (14)
ABA Bank 83 81 2 259 254 2
International (2) - (2) 1
--------------------------------- ------ ------ -------- ------ ------ --------
128 125 2 403 425 (5)
-------------------------------- ------ ------ -------- ------ ------ --------
Average assets(1) 23,589 18,941 25 22,586 18,383 23
Average loans and receivables(1) 19,103 15,438 24 18,472 14,826 25
Purchased or originated
credit-impaired
(POCI) loans 532 336 58 532 336 58
Net impaired loans excluding
POCI loans(2) 229 120 229 120
Average deposits(1) 10,966 8,722 26 10,454 8,320 26
Efficiency ratio(2) 34.2 % 31.5% 33.0 % 30.1%
--------------------------------- ------ ------ -------- ------ ------ --------
(1) Represents an average of the daily balances for the period.
(2) See the Glossary section on pages 51 to 54 for details on the composition of these measures.
In the USSF&I segment, net income totalled $128 million in the third quarter of 2023, up 2% from $125 million in the same quarter of 2022. For the first nine months of 2023, the segment recorded net income of $403 million compared to $425 million in the same nine-month period of 2022, a 5% decrease that was attributable to Credigy's business activities.
Credigy
The Credigy subsidiary's net income totalled $47 million in the third quarter of 2023, up $3 million or 7% year over year. Its third-quarter total revenues amounted to $112 million compared to $105 million in the same quarter of 2022, an increase that was due to loan volume growth as well as to growth in non-interest income given the unfavourable impact of remeasuring certain portfolios at fair value during the third quarter of 2022. These items were partly offset by a lower net interest margin related to the portfolio mix. Credigy's third-quarter non-interest expenses stood at $33 million, a $2 million year-over-year increase that was mainly due to compensation and employee benefits. Provisions for credit losses increased by $1 million compared to the same quarter of 2022, due to an increase in provisions for credit losses on non-impaired loans associated with growth in the loan portfolio and a deterioration in certain risk parameters as well as to impaired loans, with these increases being offset by a decrease
in provisions for credit losses on POCI loans.
For the first nine months of 2023, Credigy recorded net income of $146 million, a 14% year-over-year decrease that was due to an increase in provisions for credit losses. The subsidiary's nine-month income before provisions for credit losses and income taxes stood at $255 million, up 1% year over year. Its nine-month total revenues amounted to $357 million compared to $351 million in the same period of 2022. A decrease in net interest income was more than offset by growth in non-interest income, related to an unfavourable impact of remeasuring the fair value of certain portfolios during the first nine months of 2022. Nine-month non-interest expenses stood at $102 million, a 3% year-over-year increase. Nine-month provisions for credit losses rose $34 million year over year, mainly due to the same reasons provided above for the third quarter.
ABA Bank
The ABA Bank subsidiary's net income totalled $83 million in the third quarter of 2023, up $2 million or 2% year over year. The subsidiary's third-quarter total revenues rose 8%, due mainly to sustained loan growth as well as to the impact of exchange rate changes, factors that were partly offset by an increase in interest expenses on deposits. Non-interest expenses for the third quarter of 2023 stood at $66 million, an $11 million or 20% year-over-year increase attributable essentially to higher compensation and employee benefits (notably due to wage growth given a greater number of employees) and to higher occupancy expenses resulting from the subsidiary's business growth and opening of new branches. Third-quarter provisions for credit losses, which stood at $9 million in the third quarter of 2023, decreased $1 million year over year.
For the first nine months of 2023, ABA Bank recorded net income of $259 million, a 2% year-over-year increase. Growth in the subsidiary's business activities, mainly sustained growth in loans, explains a 10% year-over-year increase in its nine-month total revenues. This increase was, however, partly offset by higher interest rates on deposits and lower interest rates on loans given a competitive environment in Cambodia. The subsidiary's nine-month non-interest expenses stood at $192 million, a 25% year-over-year increase that was due to the same reasons provided above for the third quarter. Nine-month provisions for credit losses stood at $19 million, stable compared to the same period in 2022.
Other
Quarter ended Nine months ended
(millions of Canadian dollars) July 31 July 31
------------------------------------------------------ ---------------- -------------------
2023 2022(1) 2023 2022(1)
------------------------------------------------------ ------- ------- -------- ---------
Operating results
Net interest income(2) (121) (141) (430) (381)
Non-interest income(2) 15 36 (58) 226
------------------------------------------------------- ------- ------- -------- ---------
Total revenues (106) (105) (488) (155)
Non-interest expenses 57 54 125 120
------------------------------------------------------- ------- ------- -------- ---------
Income before provisions for credit losses
and income taxes (163) (159) (613) (275)
Provisions for credit losses 1 1 3 1
------------------------------------------------------- ------- ------- -------- ---------
Income before income taxes (164) (160) (616) (276)
Income taxes (recovery)(2) (159) (88) (456) (205)
------------------------------------------------------- ------- ------- -------- ---------
Net loss (5) (72) (160) (71)
Non-controlling interests (1) - (2) (1)
------------------------------------------------------- ------- ------- -------- ---------
Net income (loss) attributable to the Bank's
shareholders and holders of other equity instruments (4) (72) (158) (70)
------------------------------------------------------- ------- ------- -------- ---------
Less: Specified items after income taxes(3) 49 - 25 -
------------------------------------------------------- ------- ------- -------- ---------
Net loss - Adjusted (3) (54) (72) (185) (71)
------------------------------------------------------- ------- ------- -------- ---------
Average assets(4) 66,660 72,613 71,616 70,833
------------------------------------------------------- ------- ------- -------- ---------
(1) For the quarter and nine-month period ended July 31, 2022, certain amounts have been reclassified, notably due to a revised method for the sectoral allocation of technology investment expenses. In addition, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements (for additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022).
(2) For the quarter ended July 31, 2023, an amount of $88 million ($60 million in 2022) was deducted from Net interest income, an amount of $64 million ($11 million in 2022) was deducted from Non-interest income, and an equivalent amount was recorded in Income taxes (recovery). For the nine-month period ended July 31, 2023, Net interest income was reduced by $242 million ($169 million in 2022), Non-interest income was reduced by $172 million ($18 million in 2022), and an equivalent amount was recognized in Income taxes (recovery). 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 of grossing up certain revenues taxed at lower rates by the income tax to a level that would make it comparable to revenues from taxable sources in Canada.
(3) See the Financial Reporting Method section on pages 4 to 10 for additional information on non-GAAP financial measures.
(4) Represents an average of the daily balances for the period.
For the Other heading of segment results, there was a reduction in net loss of $67 million. This change came essentially from a $91 million gain ($67 million net of income taxes) recorded upon the fair value remeasurement of an equity interest in the third quarter of 2023 as well as from a higher contribution from treasury activities. Non-interest expenses grew year over year, notably due to a $25 million expense related to the retroactive impact of the changes to the Excise Tax Act, partly offset by a decrease in variable compensation. Adjusted net loss was $54 million for the third quarter of 2023 compared to $72 million in the same quarter of 2022.
For the first nine months of 2023, net loss stood at $160 million compared to $71 million in the same period of 2022. The change came from a decrease in total revenues, notably due to lower gains on investments during the nine months ended July 31, 2023. As for the specified items after income taxes recorded for the nine-month period, they had a favourable impact of $25 million on net loss. Adjusted net loss was $185 million for the first nine months of 2023 compared to a net loss of $71 million in the same period of 2022.
Consolidated Balance Sheet
Consolidated Balance Sheet Summary
As at July As at October
(millions of Canadian dollars) 31, 2023 31, 2022 % Change
------------------------------------------------ ---------- ------------- --------
Assets
Cash and deposits with financial institutions 39,808 31,870 25
Securities 127,705 109,719 16
Securities purchased under reverse repurchase
agreements and securities borrowed 12,368 26,486 (53)
Loans and acceptances, net of allowances 219,433 206,744 6
Other 26,701 28,921 (8)
------------------------------------------------ ---------- ------------- --------
426,015 403,740 6
----------------------------------------------- ---------- ------------- --------
Liabilities and equity
Deposits 282,323 266,394 6
Other 119,920 114,101 5
Subordinated debt 748 1,499 (50)
Equity attributable to the Bank's shareholders
and holders of other equity instruments 23,022 21,744 6
Non-controlling interests 2 2 -
------------------------------------------------ ---------- ------------- --------
426,015 403,740 6
----------------------------------------------- ---------- ------------- --------
Assets
As at July 31, 2023, the Bank had total assets of $426.0 billion, a $22.3 billion or 6% increase from $403.7 billion as at October 31, 2022. At $39.8 billion as at July 31, 2023, cash and deposits with financial institutions were up $7.9 billion, mainly due to an increase in deposits with the Bank of Canada and the U.S. Federal Reserve. The high level of cash and deposits with financial institutions was partly due to the excess liquidity related to the accommodative monetary policies that have been applied by central banks since 2020.
As at July 31, 2023, securities totalled $127.7 billion, increasing $18.0 billion since October 31, 2022. Securities at fair value through profit or loss increased by $19.2 billion or 22%, essentially due to equity securities and securities issued or guaranteed by the Canadian government, partly offset by a decrease in securities issued or guaranteed by the U.S. Treasury, other U.S. agencies and other foreign governments. Securities other than those measured at fair value through profit or loss were down, decreasing by $1.2 billion. Securities purchased under reverse repurchase agreements and securities borrowed decreased by $14.1 billion since October 31, 2022, mainly due to the activities of the Financial Markets segment and Treasury.
Totalling $219.4 billion as at July 31, 2023, loans and acceptances, net of allowances for credit losses, rose $12.7 billion or 6% since October 31, 2022. 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, 2023 31, 2022 31, 2022
-------------------------------------- ---------- ------------- ----------
Loans and acceptances
Residential mortgage and home equity
lines of credit 114,481 109,648 107,105
Personal 16,088 15,804 15,669
Credit card 2,491 2,389 2,318
Business and government 87,493 79,858 76,784
-------------------------------------- ---------- ------------- ----------
220,553 207,699 201,876
Allowances for credit losses (1,120) (955) (952)
-------------------------------------- ---------- ------------- ----------
219,433 206,744 200,924
------------------------------------- ---------- ------------- ----------
Since October 31, 2022, residential mortgages (including home equity lines of credit) rose $4.9 billion or 4% given the activities of the Personal and Commercial segment, the Financial Markets segment, and the Credigy subsidiary. Also since October 31, 2022, personal loans and credit card receivables were up, loans and acceptances to business and government rose $7.6 billion or 10%, mainly due to business growth at Commercial Banking, corporate banking financial services, Treasury activities, and ABA Bank, partly offset by Credigy's repayment of loan portfolios.
Since July 31, 2022, loans and acceptances, net of allowances for credit losses, grew $18.5 billion or 9%. Residential mortgages (including home equity lines of credit) rose $7.4 billion or 7% due to sustained demand for mortgage credit in the Personal and Commercial segment and to business growth in the Financial Markets segment and at the ABA Bank and Credigy subsidiaries. Also since July 31, 2022, personal loans and credit card receivables were up and loans and acceptances to business and government rose $10.7 billion or 14%, owing essentially to the activities of Commercial Banking, corporate financial services, Treasury, and ABA Bank.
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, 2023, gross impaired loans stood at $1,444 million compared to $1,271 million as at October 31, 2022. As for net impaired loans, they totalled $1,156 million as at July 31, 2023 compared to $1,030 million as at October 31, 2022. Net impaired loans excluding POCI loans amounted to $537 million, rising $58 million from $479 million as at October 31, 2022. This increase was due to an increase in the net impaired loans of the loan portfolios of Personal and Commercial Banking and of the Credigy (excluding POCI loans) and ABA Bank subsidiaries, partly offset by a decrease in the net impaired loans of the loan portfolios of the Wealth Management and Financial Markets segments. Net POCI loans stood at $619 million as at July 31, 2023 compared to $551 million as at October 31, 2022, an increase due to acquisitions of portfolios during the third quarter of 2023.
As at July 31, 2023, other assets totalled $26.7 billion, a $2.2 billion decrease since October 31, 2022 that was mainly due to a decrease in derivative financial instruments, which were down $4.1 billion. This decrease was partly offset by increases in other assets, notably receivables, prepaid expenses and other items, interest and dividends receivable as well as current tax assets.
Liabilities
As at July 31, 2023, the Bank had total liabilities of $403.0 billion compared to $382.0 billion as at October 31, 2022.
The Bank's total deposit liability stood at $282.3 billion as at July 31, 2023, rising $15.9 billion or 6% from $266.4 billion as at October 31, 2022. As at July 31, 2023, personal deposits stood at $86.6 billion, rising $7.8 billion since October 31, 2022. This increase came mainly from business growth at Personal Banking, in the Wealth Management segment, in the Financial Markets segment, and at ABA Bank.
Business and government deposits stood at $192.8 billion as at July 31, 2023, rising $8.6 billion since October 31, 2022. This increase came from the Financial Markets segment and Treasury funding activities, including $4.3 billion in deposits subject to bank recapitalization (bail-in) conversion regulations, partly offset by a decrease in deposits from the activities of Wealth Management. Deposits from deposit-taking institutions stood at $3.0 billion as at July 31, 2023, decreasing $0.4 billion since October 31, 2022 due to Treasury funding activities.
Other liabilities, totalling $119.9 billion as at July 31, 2023, increased by $5.8 billion since October 31, 2022, resulting essentially from a $4.9 billion increase in obligations related to securities sold under repurchase agreements and securities loaned, a $1.0 billion increase in obligations related to securities sold short, and a $0.7 billion increase in other liabilities, notably interest and dividends payable. These increases were partly offset by a $0.8 billion decrease in derivative financial instruments.
Subordinated debt decreased since October 31, 2022 as a result of the Bank's redemption, on February 1, 2023, of $750 million in medium-term notes.
Equity
As at July 31, 2023, equity attributable to the Bank's shareholders and holders of other equity instruments was $23.0 billion, rising $1.3 billion since October 31, 2022. This increase was due to net income net of dividends and to issuances of common shares under the stock option plan and to accumulated other comprehensive income, notably gains (losses) on cash flow hedges. These increases were partly offset by remeasurements of pension plans and other post-employment benefit plans as well as by the net fair value change attributable to the credit risk on financial liabilities designated at fair value through profit or loss.
Related Party Transactions
The Bank's policies and procedures regarding related party transactions have not significantly changed since October 31, 2022. For additional information, see Note 28 to the audited annual consolidated financial statements for the year ended October 31, 2022.
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 under 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 53 and 54 of the 2022 Annual Report.
For additional information on financial assets transferred but not derecognized , guarantees, commitments, and structured entities, see Notes 8, 26, and 27 to the audited annual consolidated financial statements for the year ended October 31, 2022.
Income Taxes
Notice of Assessment
In March 2023, the Bank was reassessed by the Canada Revenue Agency (CRA) for additional income tax and interest of approximately $90 million (including estimated provincial tax and interest) in respect of certain Canadian dividends received by the Bank during the 2018 taxation year.
In prior fiscal years, the Bank had been reassessed for additional income tax and interest of approximately $875 million (including provincial tax and interest) in respect of certain Canadian dividends received by the Bank during the 2012-2017 taxation years.
In the reassessments, the CRA alleges that the dividends were received as part of a "dividend rental arrangement".
The CRA may issue reassessments to the Bank for taxation years subsequent to 2018 in regard to certain activities similar to those that were the subject of the above-mentioned reassessments. The Bank remains confident that its tax position was appropriate and intends to vigorously defend its position. As a result, no amount has been recognized in the consolidated financial statements as at July 31, 2023.
Canadian Government's 2022 Tax Measures
On November 4, 2022, the Government of Canada introduced Bill C-32 - An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 3, 2022 and certain provisions of the budget tabled in Parliament on April 7, 2022 to implement tax measures applicable to certain entities of banking and life insurer groups, as presented in its April 7, 2022 budget. These tax measures include the Canada Recovery Dividend (CRD), which is a one-time, 15% tax on the fiscal 2021 and 2020 average taxable income above $1 billion, as well as a 1.5% increase in the statutory tax rate. On December 15, 2022, Bill C-32 received royal assent. Given that these tax measures were in effect at the financial reporting date, a $32 million tax expense for the CRD and an $8 million tax recovery for the tax rate increase, including the impact related to current and deferred taxes for fiscal 2022, were recognized in the consolidated financial statements as at July 31, 2023.
Proposed Legislation
In its March 28, 2023 budget, the Government of Canada proposed to introduce certain tax measures applicable to the Bank. The measures include the denial of the deduction in respect of dividends received after 2023 on shares that are mark-to-market property for tax purposes, the application of a 2% tax on the net value of equity repurchases occurring as of January 1, 2024, as well as the government's intention to implement the Pillar Two rules (global minimum tax) published by the Organization for Economic Co-operation and Development (OECD) for fiscal years beginning as of December 31, 2023. The proposed measures have not yet been included in a bill at the reporting date.
The federal budget of March 28, 2023 also included another tax measure on amendments to the Excise Tax Act, indicating that payment card clearing services rendered by a payment card network operator are subject to the goods and services tax (GST) and the harmonized sales tax (HST). On April 20, 2023, the Government of Canada tabled Bill C-47 - An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023 to implement, among other things, these amendments to the GST/HST for payment cards. On June 22, 2023, Bill C-47 received royal assent. Given that the amendment to the Excise Tax Act had been adopted at the reporting date, an expense of $25 million was recognized in the consolidated financial statements as at July 31, 2023.
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 the risks inherent to the Bank's business activities, supports its business segments, and protects its clients. The Bank's capital management policy defines the 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 maintain 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 55 to 64 of the Bank's 2022 Annual Report.
Basel Accord
The Bank and all other major Canadian banks have to maintain the following minimum capital ratios established by OSFI: a CET1 capital ratio of at least 11.0%, a Tier 1 capital ratio of at least 12.5%, and a Total capital ratio of at least 14.5%. For additional information on the ratio calculations, see page 56 of the 2022 Annual Report. All of these ratios include a capital conservation buffer of 2.5% established by the BCBS and OSFI, a 1.0% surcharge applicable solely to Domestic Systemically Important Banks (D--SIBs), and a 3.0% domestic stability buffer established by OSFI. On December 8, 2022, OSFI expanded the domestic stability buffer range, setting it at 0% to 4.0% instead of the previous range of 0% to 2.5%, and it announced that the buffer would rise from 2.5% to 3.0% effective February 1, 2023. On June 20, 2023, OSFI announced that the domestic stability buffer will rise from 3.0% to 3.5% effective November 1, 2023. The domestic stability buffer consists exclusively of CET1 capital. A D-SIB that fails to meet this buffer requirement is not subject to automatic constraints to reduce capital distributions but must provide a remediation plan to OSFI. Lastly, OSFI requires D-SIBs to maintain a Basel III leverage ratio of at least 3.5%. Effective February 1, 2023, OSFI increased the leverage ratio minimum requirement by imposing a Tier 1 capital buffer of 0.5% applicable only to D-SIBs. For additional information on the leverage ratio calculation, see page 57 of the 2022 Annual Report.
In the second quarter of 2023, the Bank implemented OSFI's finalized guidance relating to the Basel III reforms, consisting primarily of:
-- a revised Standardized Approach and Internal Ratings-Based (IRB) Approach for credit risk; -- a revised Standardized Approach for operational risk; -- a revised capital output floor; -- a revised Leverage Ratio Framework; and -- revised Pillar 3 disclosure requirements.
The Basel III reforms also affected the market risk and credit valuation adjustment (CVA) risk frameworks, which will be implemented in the first quarter of 2024.
The Basel Accord proposes a range of approaches of varying complexity, the choice of which determines the sensitivity of capital to risks. A less complex approach, such as the Standardized Approach, uses regulatory weightings, while a more complex approach uses the Bank's internal estimates of risk components to establish risk-weighted assets (RWA) and calculate regulatory capital.
As required under Basel, RWA is calculated for each credit risk, market risk, and operational risk. The Bank uses the IRB Approaches for credit risk to determine minimum regulatory capital requirements for a majority of its portfolios. The Bank must use the Foundation Internal Ratings-Based (FIRB) Approach for certain specific exposure types such as large corporates and financial institutions. For all other exposure types treated under an IRB Approach, the Bank uses the Advanced Internal Ratings-Based (AIRB) Approach. Under the FIRB Approach, the Bank can use its own estimate of probability of default (PD) but must also rely on OSFI estimates for loss given default (LGD) and exposure at default (EAD) risk parameters. Under the AIRB Approach, the Bank can use its own estimates for all risk parameters: PD, LGD, EAD. Under both IRB Approaches, risk parameters are subject to specific input floors. The credit risk of certain portfolios considered to be less significant is weighted according to the revised Standardized Approach, which uses prescribed regulatory weightings. Exposure to banking book equity securities is also weighted according to the revised Standardized Approach. With respect to the capital requirements related to securitization operations, the risk weighting methodologies remain significantly unchanged.
For operational risk, the Bank is applying the revised Standardized Approach, which now incorporates the Bank's internal operational risk loss experience in the calculation of RWA.
Market risk and CVA capital requirement weighting methodologies will remain unchanged until the first quarter of 2024. Market risk-weighted assets are primarily determined using the Internal Model-Based Approach, while the Standardized Approach is used to assess interest-rate-specific risk. CVA risk-weighted assets are determined under a prescribed Standardized Approach.
The Bank must also meet the requirements of an updated capital output floor that will ensure that its total calculated RWA is not below 72.5% of the total RWA as calculated under the Basel III Standardized Approaches. OSFI is allowing a phase-in of the floor factor over three years, starting at 65.0% in the second quarter of 2023 and rising 2.5% per year to reach 72.5% in fiscal 2026. If the capital requirement is less than the capital output floor requirement after applying the floor factor, the difference is added to the total RWA.
The implementation of the Basel III reforms in the second quarter of 2023 had a positive impact of 44 bps on the Bank's CET1 capital ratio. As at April 30, 2023 and July 31, 2023, the Bank was not impacted by the implementation of the updated capital output floor. Lastly, the implementation of the revised leverage ratio framework did not have a significant impact on the Bank.
In addition, OSFI requires that regulatory capital instruments other than common equity must have a non-viability contingent capital (NVCC) clause to ensure that investors bear losses before taxpayers should the government determine that rescuing a non-viable financial institution is in the public interest. As at July 31, 2023, all of the Bank's regulatory capital instruments, other than common shares, have an NVCC clause.
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 internal 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. OSFI requires D-SIBs to maintain a risk-based TLAC ratio of at least 24.5% (including the domestic stability buffer) of risk-weighted assets and a TLAC leverage ratio of at least 7.25%. 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, 2023, outstanding liabilities of $17.1 billion ($12.8 billion as at October 31, 2022) were subject to conversion under the bail-in regulations.
Requirements - Regulatory Capital (1) , Leverage (1) , and TLAC (2) Ratios
Requirements as at July 31, 2023
--------- ------- ------------ ------- --------------------------------------------- -----
Minimum
set by OSFI
(3) ,
Minimum including
Minimum set Domestic the Ratios
Capital set by stability domestic as at
conservation by D-SIB OSFI buffer stability July 31,
Minimum buffer BCBS surcharge (3) (4) buffer 2023
---------- ------- ------------ ------- --------- ------- --------- ----------- --------
Capital
ratios
CET1 4.5 % 2.5 % 7.0 % 1.0 % 8.0 % 3.0 %11.0 % 13.5 %
Tier 1 6.0 % 2.5 % 8.5 % 1.0 % 9.5 % 3.0 %12.5 % 16.1 %
Total 8.0 % 2.5 % 10.5 % 1.0 % 11.5 % 3.0 %14.5 % 16.9 %
--------- ------- ------------ ------- --------- ------- --------- ---- ----- -----
Leverage
ratio 3.0 % n.a. 3.0 % 0.5 % 3.5 % n.a. 3.5 % 4.2 %
---------- ------- ------------ ------- --------- ------- --------- ---- ----- -----
TLAC ratio 21.5 % n.a. 21.5 % n.a. 21.5 % 3.0 %24.5 % 29.9 %
---------- ------- ------------ ------- --------- ------- --------- ---- ----- -----
TLAC
leverage
ratio 6.75 % n.a. 6.75 % 0.5 % 7.25 % n.a. 7.25 % 7.9 %
---------- ------- ------------ ------- --------- ------- --------- ---- ----- -----
n.a. Not applicable
(1) 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 Guideline and Leverage Requirements Guideline.
(2) The TLAC ratio and the TLAC leverage ratio are calculated in accordance with OSFI's Total Loss Absorbing Capacity Guideline.
(3) The capital ratios and the TLAC ratio include the capital conservation buffer and the D-SIB surcharge. On February 1, 2023, OSFI raised the minimum leverage ratio and the TLAC leverage ratio by imposing a Tier 1 capital buffer of 0.5% (surcharge related to D-SIBs).
(4) On December 8, 2022, OSFI announced that the buffer would rise from 2.5% to 3.0%, effective February 1, 2023. On June 20, 2023, OSFI announced that the domestic stability buffer will rise from 3.0% to 3.5% effective November 1, 2023.
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. Furthermore, a complete list of capital instruments and their main features is also available on the Bank's website.
Regulatory Developments
The Bank closely monitors regulatory developments and participates actively in various consultative processes. In response to the impact of the COVID-19 pandemic, on March 27, 2020, OSFI announced a series of regulatory adjustments to support the financial and operational resilience of banks. For additional information about the regulatory context on October 31, 2022 and about COVID-19 relief measures still in effect as at October 31, 2022, see pages 58 and 59 of the Capital Management section in the 2022 Annual Report. The OSFI capital, leverage, liquidity and disclosure revised rules related to Basel III reforms took effect in the second quarter of 2023 except for the new market risk framework and the revised credit valuation adjustment (CVA) risk framework, which will take effect in the first quarter of 2024, as previously described. In addition, since November 1, 2022, the below-described regulatory development should also be considered.
On June 1, 2023, OSFI released a draft framework for public consultation: Parental Stand-alone (Solo) Total Loss-Absorbing Capacity (TLAC) for D-SIBs. This guideline focuses on the loss-absorbing capacity of the Canadian parent bank rather than its consolidated operations, allowing OSFI to assess the stand-alone financial strength of the parent bank and its ability to act as source of financial strength for its subsidiaries and branches. The draft framework complements OSFI's existing TLAC guideline for D-SIBs on a group consolidated basis, providing an additional layer of protection to safeguard the rights and interests of depositors, policyholders, and creditors. The Bank is participating actively in the consultation.
Management Activities
On December 12, 2022, the Bank began a normal course issuer bid to repurchase for cancellation up to 7,000,000 common shares (representing approximately 2.1% of its outstanding common shares) over the 12-month period ending no later than December 11, 2023. During the nine-month period ended July 31, 2023, the Bank did not repurchase any common shares.
On February 1, 2023, the Bank redeemed $750 million of medium-term notes maturing on February 1, 2028. These instruments were excluded from the capital ratio calculations as at January 31, 2023.
Dividends
On August 29, 2023, the Board of Directors declared regular dividends on the various series of first preferred shares and a dividend of $1.02 per common share, payable on November 1, 2023, to shareholders of record on September 25, 2023.
Shares, Other Equity Instruments, and Stock Options
As at July 31, 2023
-------------------------- ----------------------
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
LRCN - Series 3 500,000 500
-------------------------- ----------- ---------
1,500,000 1,500
------------------------- ----------- ---------
67,500,000 3,150
------------------------- ----------- ---------
Common shares 338,228,313 3,294
-------------------------- ----------- ---------
Stock options 11,696,319
-------------------------- ----------- ---------
(1) Limited Recourse Capital Notes (LRCN).
As at August 25, 2023, there were 338,210,962 common shares and 11,603,801 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 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 869 million Bank common shares, which would have a 72.0% dilutive effect based on the number of Bank common shares outstanding as at July 31, 2023.
Movement in Regulatory Capital (1)
Nine months
ended
July 31,
(millions of Canadian dollars) 2023
------------------------------------------------------------- -----------
Common Equity Tier 1 (CET1) capital
Balance at beginning 14,818
Issuance of common shares (including Stock Option Plan) 77
Impact of shares purchased or sold for trading 12
Repurchase of common shares -
Other contributed surplus 9
Dividends on preferred and common shares and distributions
on other equity instruments (1,121)
Net income attributable to the Bank's shareholders and
holders of other equity instruments 2,569
Removal of own credit spread (net of income taxes) 321
Other (303)
Movements in accumulated other comprehensive income
Translation adjustments (149)
Debt securities at fair value through other comprehensive
income 26
Other 1
Change in goodwill and intangible assets (net of related
tax liability) 8
Other, including regulatory adjustments
Change in defined benefit pension plan asset (net of
related tax liability) 67
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) (15)
Other deductions or regulatory adjustments to CET1
implemented by OSFI (61)
Change in other regulatory adjustments -
----------------------------------------------------------- -----------
Balance at end 16,259
------------------------------------------------------------- -----------
Additional Tier 1 capital
Balance at beginning 3,143
New Tier 1 eligible capital issuances -
Redeemed capital -
Other, including regulatory adjustments 6
------------------------------------------------------------ -----------
Balance at end 3,149
------------------------------------------------------------- -----------
Total Tier 1 capital 19,408
------------------------------------------------------------- -----------
Tier 2 capital
Balance at beginning 1,766
New Tier 2 eligible capital issuances -
Redeemed capital (750)
Tier 2 instruments issued by subsidiaries and held by
third parties -
Change in certain allowances for credit losses (54)
Other, including regulatory adjustments 39
------------------------------------------------------------ -----------
Balance at end 1,001
------------------------------------------------------------- -----------
Total regulatory capital 20,409
------------------------------------------------------------- -----------
(1) See the Financial Reporting Method section on pages 4 to 10 for additional information on capital management measures.
Risk-Weighted Assets by Key Risk Drivers
Risk-weighted assets (RWA) amounted to $120.6 billion as at July 31, 2023 compared to $116.8 billion as at October 31, 2022, a $3.8 billion increase resulting mainly from organic growth in RWA and a deterioration in the credit quality of the loan portfolio, offset by foreign exchange movements and by methodology changes related to the implementation of the Basel III reforms, notably for operational risk and credit risk. 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
2023 2023 31, 2023 2022
------------------------- --------------------------------------- ------- --------- -------
Non-counterparty Counterparty
credit credit
risk risk Total Total Total Total
----------------------- ---------------- ------------ ------- ------- --------- -------
Credit risk -
Risk-weighted
assets at beginning 95,176 6,810 101,986 100,820 96,141 91,229
Book size 119 459 578 572 4,439 2,405
Book quality 465 2 467 951 697 93
Model updates - - - 116 172 300
Methodology and policy - - - (1,051) 106 339
Acquisitions and
disposals - - - - - -
Foreign exchange
movements (853) (91) (944) 578 (735) 1,775
------------------------ ---------------- ------------ ------- ------- --------- -------
Credit risk -
Risk-weighted
assets at end 94,907 7,180 102,087 101,986 100,820 96,141
------------------------- ---------------- ------------ ------- ------- --------- -------
Market risk -
Risk-weighted
assets at beginning 5,060 5,960 6,025 5,696
Movement in risk levels
(2) 925 (900) (65) 329
Model updates - - - -
Methodology and policy - - - -
Acquisitions and
disposals - - - -
------------------------ ---------------- ------------ ------- ------- --------- -------
Market risk -
Risk-weighted
assets at end 5,985 5,060 5,960 6,025
------------------------- ---------------- ------------ ------- ------- --------- -------
Operational risk -
Risk-weighted
assets at beginning 12,065 15,033 14,674 14,452
Movement in risk levels 425 93 359 222
Methodology and policy - (3,061) - -
Acquisitions and
disposals - - - -
------------------------ ---------------- ------------ ------- ------- --------- -------
Operational risk -
Risk-weighted
assets at end 12,490 12,065 15,033 14,674
------------------------- ---------------- ------------ ------- ------- --------- -------
Risk-weighted assets at
end 120,562 119,111 121,813 116,840
------------------------- ---------------- ------------ ------- ------- --------- -------
(1) See the Financial Reporting Method section on pages 4 to 10 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 nine-month period ended July 31, 2023, the Bank updated the models used for certain retail exposures, mortgages, and certain non-retail exposures.
The Methodology and policy item presents the impact of changes in calculation methods resulting from changes in regulatory policies or from new regulations. During the quarter ended April 30, 2023, the Bank finalized the implementation of the Basel III reforms requirements related to credit risk, operational risk, and capital output floor.
Regulatory Capital Ratios, Leverage Ratio, and TLAC Ratios
As at July 31, 2023, the Bank's CET1, Tier 1, and Total capital ratios were, respectively, 13.5%, 16.1%, and 16.9% compared to ratios of, respectively, 12.7%, 15.4% and 16.9% as at October 31, 2022. The CET1 and Tier 1 capital ratios increased since October 31, 2022, essentially due to the contribution from net income, net of dividends, to common share issuances under the Stock Option Plan and to the positive impact from the implementation of the Basel III reforms related to credit and operational risks frameworks. These factors were partly offset by growth in RWA and by the end of the transitional measures applicable to ECL provisioning implemented by OSFI at the beginning of the COVID-19 pandemic. The Total capital ratio remained unchanged. The net positive contribution from factors impacting the CET1 and Tier 1 capital ratios was offset by the $750 million redemption of medium-term notes on February 1, 2023.
As at July 31, 2023, the leverage ratio was 4.2% compared to 4.5% as at October 31, 2022. The decrease in the leverage ratio is essentially due to the growth in total exposure and to the end of the temporary measure permitted by OSFI with respect to the exclusion of central bank reserves from the leverage exposure calculation. These factors were partly offset by the growth in Tier 1 capital.
As at July 31, 2023, the Bank's TLAC ratio and TLAC leverage ratio were, respectively, 29.9% and 7.9%, compared to 27.7% and 8.1%, respectively, as at October 31, 2022. The increase in the TLAC ratio was due to the same factors described for the Total capital ratio as well as to the net instrument issuances that meet the TLAC eligibility criteria during the period. The decrease in the TLAC leverage ratio was due to the same factors as those provided for the leverage ratio, partly offset by the net TLAC instrument issuances.
During the quarter and nine-month period ended July 31, 2023, the Bank was compliant with all of OSFI's regulatory capital, leverage, and TLAC requirements.
Regulatory Capital (1) , Leverage Ratio(1) and TLAC(2)
As at July As at October
(millions of Canadian dollars) 31, 2023 31, 2022
-------------------------------- ---------- -------------
Capital
CET1 16,259 14,818
Tier 1 19,408 17,961
Total 20,409 19,727
-------------------------------- ---------- -------------
Risk-weighted assets 120,562 116,840
Total exposure 458,293 401,780
-------------------------------- ---------- -------------
Capital ratios
CET1 13.5 % 12.7%
Tier 1 16.1 % 15.4%
Total 16.9 % 16.9%
-------------------------------- ---------- -------------
Leverage ratio 4.2 % 4.5%
-------------------------------- ---------- -------------
Available TLAC 36,015 32,351
TLAC ratio 29.9 % 27.7%
TLAC leverage ratio 7.9 % 8.1%
-------------------------------- ---------- -------------
(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 Guideline and Leverage Requirements Guideline. The calculation of the figures as at October 31, 2022 had included the transitional measure applicable to expected credit loss provisioning and the temporary measure regarding the exclusion of central bank reserves implemented by OSFI in response to the COVID-19 pandemic. These provisions ceased to apply on November 1, 2022 and April 1, 2023, respectively.
(2) Available TLAC, the TLAC ratio, and the TLAC leverage ratio are calculated in accordance with OSFI's Total Loss Absorbing Capacity Guideline.
Public Disclosure Requirements for Global Systemically Important Banks
The BCBS developed an assessment methodology and additional loss absorbency requirements as well as indicators to be used by the BCBS and the Financial Stability Board to evaluate Global Systemically Important Banks (G-SIBs). The annual public disclosure requirements apply to large, globally active banks.
The most recent version of OSFI's advisory entitled Global Systemically Important Banks - Public Disclosure Requirements regarding implementation of public disclosure requirements for G-SIBs in Canada took effect in the first quarter of 2022. Canadian banks, including the Bank, that have not been designated as G--SIBs and that have total exposure (as calculated using the Basel III leverage ratio) greater than 200 billion euros at fiscal year-end must publish the indicators annually. The indicators are calculated and presented in accordance with specific BCBS guidance, which is updated annually. Consequently, the values obtained may not be comparable to the other measures presented in this report. The following table presents the indicators used in the 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 2022 2021
--------------------------------- ----------------------------------------- ---------- ----------
Cross-jurisdictional activity(2) Cross-jurisdictional claims 97,929 87,661
Cross-jurisdictional liabilities(3) 75,961 65,214
------------------------------------------ -------------------------------- ---------- ----------
Total exposures as defined for
use in the Basel III leverage
Size(4) ratio(5) 429,692 387,725
--------------------------------- ------------------------------------------ ---------- ----------
Interconnectedness(6) Intra-financial system assets(5) 66,590 50,614
Intra-financial system liabilities(3)(5) 42,806 40,301
Securities outstanding(5) 105,572 105,213
------------------------------------------ -------------------------------- ---------- ----------
Substitutability / financial
institutions infrastructure(7) Payment activity(8) 17,366,801 14,059,326
Assets under custody 615,973 651,345
Underwritten transactions in debt
and equity markets 26,017 35,658
Trading volume(9)
Fixed-income securities(9) 829,877 740,927
Equities and other securities(9) 1,335,166 1,289,087
------------------------------------------ -------------------------------- ---------- ----------
Notional amount of over-the-counter
Complexity(10) derivative financial instruments(5) 1,816,770 1,481,260
Trading and investment securities 49,493 52,936
Level 3 financial assets(5) 1,128 1,077
------------------------------------------ -------------------------------- ---------- ----------
(1) For the years ended October 31, 2022 and 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 2023 and January 2022, respectively.
(2) Represents the Bank's level of interaction outside Canada. (3) The amount as at October 31, 2022 has been revised compared to that previously presented.
(4) Represents the Bank's total on-and-off balance sheet exposures, as determined by OSFI's Basel III leverage ratio rules before regulatory adjustments.
(5) Includes insurance activities. (6) Represents transactions with other financial institutions.
(7) Represents the extent to which the Bank's services could be substituted by other institutions.
(8) For the fiscal years ended October 31, 2022 and 2021.
(9) This indicator consists of two sub-indicators: fixed-income securities as well as equities and other securities.
(10) 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.
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 that is 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 also 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.
Despite the exercise of stringent risk management and existing mitigation measures, 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 65 to 105 of the 2022 Annual Report. Risk management information is also provided in Note 6 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.
Since March 2, 2022, the Bank of Canada raised its policy rate ten times; the rate has thus risen from 0.25% to 5.00%. During the third quarter of 2023, the Bank of Canada twice raised its policy rate by 0.25%. This rapid increase in rates, undertaken primarily to counter inflation in Canada, is putting pressure on the ability of borrowers to make payments, notably borrowers who have variable-rate mortgages or for whom the mortgage term is up for renewal.
Regulatory Developments
The Bank closely monitors regulatory developments and participates actively in various consultative processes. For additional information about the regulatory context on October 31, 2022, see pages 77 and 78 of the Risk Management section of the 2022 Annual Report. In addition, since November 1, 2022, the below-described regulatory developments should also be considered.
On December 15, 2022, 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 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 January 1, 2023, the Prohibition on the Purchase of Residential Property by Non-Canadians Act came into effect. This purpose of this law, which will be in effect until January 1, 2025, is to help Canadians access the property market and to reduce speculative purchasing that risks raising the prices of properties in some already overheated markets. On March 27, 2023, the Act was amended to relax rules and conditions permitting non-Canadians who want to live in Canada to purchase a residential property.
In January 2023, OSFI launched a public consultation on Guideline B-20 entitled Residential Mortgage Underwriting Practices and Procedures Guideline, starting with an initial consultation on debt servicing measures in order to mitigate the risk arising from the high debt levels of consumers. In follow-up to the public consultation, an industry response coordinated by the Canadian Bankers Association was provided to OSFI in April 2023.
On July 5, 2023, the Financial Consumer Agency of Canada (FCAC) published a new guideline on existing consumer mortgage loans in exceptional circumstances. The FCAC is concerned about the severe financial stress being experienced by certain vulnerable mortgage borrowers, notably due to the combined impacts of high household debt, a rapid increase in interest rates, and the rising cost of living. The guideline is designed to protect consumers of financial products and services and explains how the FCAC expects federally regulated financial institutions (FRFI) to provide tailored support to mortgage borrowers who are at risk of mortgage default. The FCAC expects FRFIs to consider all available mortgage relief measures and to adopt an approach that considers the personal situation of consumers and their financial needs.
The amounts in the following tables represent the Bank's maximum exposure to credit risk as at the financial reporting date without considering any collateral held or any other credit enhancements. These amounts do not include allowances for credit losses nor amounts pledged as collateral. The tables also exclude equity securities.
Maximum Credit Risk Exposure Under the Basel Asset Categories (1)
(millions of
Canadian dollars) As at July 31, 2023
----------------- --- ------------------------------------------------------------------------------------------------------------------
Other
off-balance-
Repo-style Derivative sheet Standardized
Drawn Undrawn transactions financial items Approach IRB
(2) commitments (3) instruments (4) Total (5) Approach
---------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Retail
Residential
mortgages 75,485 9,154 - - - 84,639 11 % 89 %
Qualifying
revolving
retail 3,083 11,963 - - - 15,046 - % 100 %
Other retail 15,217 2,744 - - 32 17,993 14 % 86 %
---------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
93,785 23,861 - - 32 117,678
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Non-retail
Corporate 88,507 26,731 39,150 354 5,878 160,620 17 % 83 %
Sovereign 65,942 5,961 68,787 - 353 141,043 3 % 97 %
Financial
institutions 7,145 1,013 93,790 1,260 1,390 104,598 20 % 80 %
---------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
161,594 33,705 201,727 1,614 7,621 406,261
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Trading portfolio - - - 12,437 - 12,437 1 % 99 %
Securitization 4,471 - - - 4,733 9,204 91 % 9 %
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Total - Gross
credit risk 259,850 57,566 201,727 14,051 12,386 545,580 13 % 87 %
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Standardized
Approach (5) 30,495 1,068 32,246 1,255 4,749 69,813
IRB Approach 229,355 56,498 169,481 12,796 7,637 475,767
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Total - Gross
credit risk 259,850 57,566 201,727 14,051 12,386 545,580 13 % 87 %
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
(millions of
Canadian
dollars) As at October 31, 2022
---------------- --- -------------------------------------------------------------------------------------------------------------------
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 73,324 8,616 - - - 81,940 12 % 88 %
Qualifying
revolving retail 2,483 6,920 - - - 9,403 - % 100 %
Other retail 17,526 2,688 - - 35 20,249 25 % 75 %
-------------------- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
93,333 18,224 - - 35 111,592
---------------- --- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
Non-retail
Corporate 81,763 29,811 36,194 322 5,538 153,628 13 % 87 %
Sovereign 56,253 5,821 68,906 - 326 131,306 2 % 98 %
Financial
institutions 7,200 166 76,856 1,150 754 86,126 19 % 81 %
-------------------- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
145,216 35,798 181,956 1,472 6,618 371,060
---------------- --- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
Trading
portfolio - - - 13,662 - 13,662 2 % 98 %
Securitization 4,409 - - - 4,373 8,782 80 % 20 %
---------------- --- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
Total - Gross
credit risk 242,958 54,022 181,956 15,134 11,026 505,096 12 % 88 %
---------------- --- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
Standardized
Approach (5) 30,704 311 24,783 1,308 4,610 61,716
AIRB Approach 212,254 53,711 157,173 13,826 6,416 443,380
---------------- --- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
Total - Gross
credit risk 242,958 54,022 181,956 15,134 11,026 505,096 12 % 88 %
---------------- --- --------- ------------ ---------------- ------------ ------------- -------- ------------- ---------
(1) See the Financial Reporting Method section on pages 4 to 10 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 an obligor 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 2023 and in Supplementary Regulatory Capital and Pillar 3 Disclosure - Third Quarter 2023, 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 . In recent years, as a result of the COVID-19 pandemic and its impact on global and local economies, the Bank has been operating in a volatile environment. Adding to this uncertainty is the Russia-Ukraine war, which is affecting global financial and economic markets and exacerbating economic conditions as well as such issues as rising inflation, higher interest rates, and a disrupted global supply chain.
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, 2023
--------------------------------- ---------------------------------------------------------------------
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 39,808 1,249 20,020 18,539 Interest rate (3)
Securities
At fair value through profit Interest rate (3)
or loss 106,569 105,152 1,417 - and equity
At fair value through other Interest rate (3)
comprehensive income 9,117 - 9,117 - and equity (4)
At amortized cost 12,019 - 12,019 - Interest rate (3)
Securities purchased under
reverse repurchase
agreements and securities
borrowed 12,368 - 12,368 - Interest rate (3)(5)
Loans and acceptances, net
of allowances 219,433 12,486 206,947 - Interest rate (3)
Interest rate and
Derivative financial instruments 14,362 13,019 1,343 - exchange rate
Defined benefit asset 420 - 420 - Other
Other 11,919 498 - 11,421
-------------------------------- ------- ------- ----------- ----------- -------------------------
426,015 132,404 263,651 29,960
------------------------------- ------- ------- ----------- ----------- -------------------------
Liabilities
Deposits 282,323 18,843 263,480 - Interest rate (3)
Acceptances 6,709 - 6,709 - Interest rate (3)
Obligations related to
securities
sold short 22,825 22,825 - -
Obligations related to
securities
sold under repurchase
agreements and securities
loaned 38,433 - 38,433 - Interest rate (3)(5)
Interest rate and
Derivative financial instruments 18,768 18,245 523 - exchange rate
Liabilities related to
transferred
receivables 26,130 9,626 16,504 - Interest rate (3)
Defined benefit liability 113 - 113 - Other
Other 6,942 - 48 6,894 Interest rate (3)
Subordinated debt 748 - 748 - Interest rate (3)
-------------------------------- ------- ------- ----------- ----------- -------------------------
402,991 69,539 326,558 6,894
-------------------------------- ------- ------- ----------- ----------- -------------------------
(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 2022 Annual Report that shows the VaR distribution of the trading portfolios by risk category and their diversification effect as well as total trading 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 2022 Annual Report that shows the VaR distribution of the trading portfolios by risk category and their diversification effect as well as total trading 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 3 and 5 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, 2022
------------------------------- -----------------------------------------------------------------------
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 31,870 837 20,269 10,764 Interest rate(3)
Securities
At fair value through profit Interest rate(3)
or loss 87,375 85,805 1,570 - and equity(4)
At fair value through other Interest rate(3)
comprehensive income 8,828 - 8,828 - and equity(5)
Amortized cost 13,516 - 13,516 - Interest rate(3)
Securities purchased under
reverse repurchase
agreements and securities
borrowed 26,486 - 26,486 - Interest rate(3)(6)
Loans and acceptances, net
of allowances 206,744 9,914 196,830 - Interest rate(3)
Derivative financial Interest rate(7)
instruments 18,547 16,968 1,579 - and exchange rate(7)
Defined benefit asset 498 - 498 - Other(8)
Other 9,876 405 - 9,471
------------------------------ ------- ---------- -------------- ----------- ---------------------
403,740 113,929 269,576 20,235
----------------------------- ------- ---------- -------------- ----------- ---------------------
Liabilities
Deposits 266,394 15,422 250,972 - Interest rate(3)
Acceptances 6,541 - 6,541 - Interest rate(3)
Obligations related to
securities
sold short 21,817 21,817 - -
Obligations related to
securities
sold under repurchase
agreements and securities
loaned 33,473 - 33,473 - Interest rate(3)(6)
Derivative financial Interest rate(7)
instruments 19,632 18,909 723 - and exchange rate(7)
Liabilities related to
transferred
receivables 26,277 9,927 16,350 - Interest rate(3)
Defined benefit liability 111 - 111 - Other(8)
Other 6,250 - 77 6,173 Interest rate(3)
Subordinated debt 1,499 - 1,499 - Interest rate(3)
------------------------------ ------- ---------- -------------- ----------- ---------------------
381,994 66,075 309,746 6,173
------------------------------ ------- ---------- -------------- ----------- ---------------------
(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 2022 Annual Report that shows the VaR distribution of the trading portfolios by risk category and their diversification effect as well as total trading 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 2022 Annual Report that shows the VaR distribution of the trading portfolios by risk category and their diversification effect as well as total trading 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, 2022.
(5) The fair value of equity securities designated at fair value through other comprehensive income is presented in Notes 3 and 5 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, 2022.
(8) For additional information, see Note 23 to the audited annual consolidated financial statements for the year ended October 31, 2022.
Trading Activities
The table below shows the VaR distribution of trading portfolios by risk category and their diversification effect as well as total trading SVaR, i.e., the VaR of the Bank's current portfolios obtained following a 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, 2023 2023 July 31, 2022 2023 2022
---------------- ------------------------------- --------------- --------------- ------- -------
Period Period Period
Low High Average end Average end Average end Average Average
---------------- ------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Interest rate (5.8) (9.3) (7.5) (7.0) (6.5) (6.3) (5.4) (5.9) (6.9) (5.8)
Exchange rate (1.6) (5.9) (2.9) (3.3) (2.2) (3.3) (2.5) (1.7) (2.4) (1.9)
Equity (5.1) (10.8) (7.8) (5.8) (7.7) (6.5) (7.9) (6.4) (7.5) (7.0)
Commodity (1.2) (1.6) (1.3) (1.5) (1.1) (1.4) (0.9) (0.8) (1.2) (0.9)
Diversification
effect(3) n.m. n.m. 9.5 7.8 8.8 9.1 8.1 7.6 8.9 8.0
----------------- ------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Total trading
VaR (7.6) (12.1) (10.0) (9.8) (8.7) (8.4) (8.6) (7.2) (9.1) (7.6)
----------------- ------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Total trading
SVaR (12.9) (25.1) (18.7) (15.4) (14.2) (11.3) (18.5) (14.4) (17.1) (13.4)
----------------- ------ ------ ------- ------ ------- ------ ------- ------ -------
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 51 to 54 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.
The average total trading VaR rose to $10.0 million in the third quarter of 2023 from $8.7 million in the second quarter of 2023. The average total trading SVaR was also up, rising from $14.2 million in the second quarter of 2023 to $18.7 million in the third quarter of 2023, as a result of higher interest rate risk and equity risk.
Daily Trading and Underwriting Revenues
The following chart shows daily trading and underwriting revenues and VaR. During the quarter ended July 31, 2023, daily trading and underwriting revenues were positive 92% of the days. In addition, 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, 2023
(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, 2023 31, 2022
-------------------------------- -------- ------------------
Canadian Other Canadian Other
dollar currencies Total dollar currencies Total
-------- ----------- ----- -------- ----------- -----
Impact on equity
100-basis-point increase in the
interest rate (304) 1 (303) (191) (24) (215)
100-basis-point decrease in the
interest rate 280 (2) 278 179 27 206
--------------------------------- -------- ----------- ----- -------- ----------- -----
Impact on net interest income
100-basis-point increase in the
interest rate 87 6 93 128 2 130
100-basis-point decrease in the
interest rate (101) (6) (107) (141) (2) (143)
--------------------------------- -------- ----------- ----- -------- ----------- -----
Liquidity and Funding Risk
Liquidity and funding risk is the risk that the Bank will be unable to honour daily cash and financial obligations without resorting to costly and untimely measures. Liquidity and funding risk arises 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. This brings optimal stability to the funding and reduces vulnerability to unpredictable events.
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, 2022, refer to page 91 of the Risk Management section in the 2022 Annual Report. Since November 1, 2022, the below-described regulatory developments should also be considered.
On November 7, 2022, OSFI published a new 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 April 1, 2023, revisions to OSFI's Liquidity Adequacy Requirements Guideline came into effect. OSFI made changes that will improve the sensitivity to risk and ensure that financial institutions hold sufficient cash or other liquid investments to meet potential liquidity needs and to support the continued lending of credit, in particular during periods of financial stress.
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. The majority 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) 2023 2022
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 39,808 - 39,808 8,151 31,657 24,180
Securities
Issued or guaranteed by the
Canadian government, U.S.
Treasury, other U.S. agencies
and other foreign governments 34,030 38,403 72,433 46,567 25,866 25,894
Issued or guaranteed by Canadian
provincial and
municipal governments 12,981 7,847 20,828 15,608 5,220 8,421
Other debt securities 9,360 3,726 13,086 2,953 10,133 9,809
Equity securities 71,334 43,322 114,656 88,294 26,362 27,291
Loans
Securities backed by insured
residential mortgages 12,486 - 12,486 6,994 5,492 5,582
---------- -------- ----------
As at July 31, 2023 179,999 93,298 273,297 168,567 104,730
---------- -------- ----------
As at October 31, 2022 153,384 92,257 245,641 144,464 101,177
---------- -------- ------- ---------- ------------
As at July As at October
(millions of Canadian dollars) 31, 2023 31, 2022
Unencumbered liquid assets by entity
National Bank (parent) 55,314 52,544
Domestic subsidiaries 9,583 14,576
Foreign subsidiaries and branches 39,833 34,057
----------
104,730 101,177
------------------------------------- ----------
As at July As at October
(millions of Canadian dollars) 31, 2023 31, 2022
Unencumbered liquid assets by currency
Canadian dollar 51,543 49,466
U.S. dollar 32,744 24,871
Other currencies 20,443 26,840
----------
104,730 101,177
--------------------------------------- ----------
Liquid Asset Portfolio (1) - Average (5)
(millions of Canadian
dollars) Quarter ended
---------- --------- -------
October
July 31, 2023 31, 2022
---------- --------- ------- ------------------------
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 41,313 - 41,313 7,757 33,556 29,994
Securities
Issued or guaranteed by
the
Canadian government, U.S.
Treasury, other U.S.
agencies
and other foreign
governments 35,023 36,579 71,602 51,132 20,470 25,487
Issued or guaranteed by
Canadian
provincial and
municipal governments 14,108 7,452 21,560 15,808 5,752 7,749
Other debt securities 10,254 3,794 14,048 3,164 10,884 10,316
Equity securities 69,464 46,784 116,248 86,386 29,862 24,386
Loans
Securities backed by
insured
residential mortgages 12,658 - 12,658 7,450 5,208 4,639
---------- --------- ------- ---------- ------------
182,820 94,609 277,429 171,697 105,732 102,571
---------- --------- ------- ---------- ------------
(1) See the Financial Reporting Method section on pages 4 to 10 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) 2023
----------------------------------
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 423 7,728 31,657 - 39,808 1.9
Securities 60,124 - 67,581 - 127,705 14.1
Securities purchased under
reverse repurchase
agreements and securities
borrowed - 12,368 - - 12,368 2.9
Loans and acceptances, net
of allowances 38,971 - 5,492 174,970 219,433 9.2
Derivative financial instruments - - - 14,362 14,362 -
Investments in associates
and joint ventures - - - 45 45 -
Premises and equipment - - - 1,553 1,553 -
Goodwill - - - 1,514 1,514 -
Intangible assets - - - 1,330 1,330 -
Other assets - - - 7,897 7,897 -
----------- -------- ----------- -------- ------- ----------
99,518 20,096 104,730 201,671 426,015 28.1
----------- -------- ----------- -------- ------- ----------
As at October
(millions of Canadian dollars) 31, 2022
---------------------------------- ----------- -------- ----------- -------- -------------------
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 295 7,395 24,180 - 31,870 1.9
Securities 42,972 - 66,747 - 109,719 10.6
Securities purchased under
reverse repurchase
agreements and securities
borrowed - 21,818 4,668 - 26,486 5.4
Loans and acceptances, net
of allowances 37,426 - 5,582 163,736 206,744 9.3
Derivative financial instruments - - - 18,547 18,547 -
Investments in associates
and joint ventures - - - 140 140 -
Premises and equipment - - - 1,397 1,397 -
Goodwill - - - 1,519 1,519 -
Intangible assets - - - 1,360 1,360 -
Other assets - - - 5,958 5,958 -
----------- -------- ----------- -------- ------- ----------
80,693 29,213 101,177 192,657 403,740 27.2
----------- -------- ----------- -------- ------- ----------
(1) See the Financial Reporting Method section on pages 4 to 10 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 requires 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 are established by the BCBS and OSFI's Liquidity Adequacy Requirements Guideline.
The table on the following page provides average LCR data calculated using the daily figures in the quarter. For the quarter ended July 31, 2023, the Bank's average LCR was 146%, 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, 2023 2023
Total unweighted Total weighted Total weighted
value (3) value (4) value(4)
(average) (average) (average)
High-quality liquid assets (HQLA)
Total HQLA n.a. 73,834 77,354
Cash outflows
Retail deposits and deposits from small
business
customers, of which: 74,241 10,515 10,080
Stable deposits 27,980 839 835
Less stable deposits 46,261 9,676 9,245
Unsecured wholesale funding, of which: 99,172 53,485 54,145
Operational deposits (all counterparties)
and deposits in networks of cooperative
banks 30,033 7,314 7,202
Non-operational deposits (all
counterparties) 58,608 35,640 35,563
Unsecured debt 10,531 10,531 11,380
Secured wholesale funding n.a. 22,390 20,652
Additional requirements, of which: 62,032 16,327 14,784
Outflows related to derivative exposures
and other collateral requirements 19,833 8,510 7,577
Outflows related to loss of funding on
secured
debt securities 1,805 1,805 1,289
Backstop liquidity and credit enhancement
facilities and commitments to extend
credit 40,394 6,012 5,918
Other contractual commitments to extend
credit 2,483 769 763
Other contingent commitments to extend
credit 122,032 1,941 1,848
Total cash outflows n.a. 105,427 102,272
Cash inflows
Secured lending (e.g., reverse repos) 111,321 26,779 27,060
Inflows from fully performing exposures 10,233 6,634 6,598
Other cash inflows 21,324 21,324 18,229
Total cash inflows 142,878 54,737 51,887
Total adjusted Total adjusted
value (5) value(5)
Total HQLA 73,834 77,354
Total net cash outflows 50,690 50,385
Liquidity coverage ratio (%) (6) 146 % 155 %
n.a. Not applicable
(1) See the Financial Reporting Method section on pages 4 to 10 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, 2023, 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, 2023 and the preceding quarter was 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 would 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, 2023, the Bank's NSFR was 118%, 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) 2023 2023
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: 23,024 - - 748 23,772 23,369
Regulatory capital 23,024 - - 748 23,772 23,369
Other capital instruments - - - - - -
Retail deposits and deposits from
small business customers: 66,221 18,336 7,368 21,894 101,196 100,027
Stable deposits 25,666 5,685 3,567 6,860 40,032 39,615
Less stable deposits 40,555 12,651 3,801 15,034 61,164 60,412
Wholesale funding: 61,071 87,794 11,485 44,898 101,485 100,371
Operational deposits 30,514 - - - 15,257 14,664
Other wholesale funding 30,557 87,794 11,485 44,898 86,228 85,707
Liabilities with matching
interdependent
assets(4) - 4,177 2,720 19,233 - -
------ ------- -------
Other liabilities(5) : 26,499 8,936 674 650
-------
NSFR derivative liabilities(5) n.a. 5,616 n.a. n.a.
-------
All other liabilities and equity
not included in the above
categories 26,499 2,571 150 599 674 650
-------- ------ ------- -------
Total ASF n.a. n.a. n.a. n.a. 227,127 224,417
-------- ------ ------- -------
Required Stable Funding (RSF)
Items
Total NSFR high-quality liquid
assets (HQLA) n.a. n.a. n.a. n.a. 10,714 9,407
Deposits held at other financial
institutions for operational
purposes - - - - - -
Performing loans and securities: 61,341 67,205 24,540 100,960 154,770 155,439
Performing loans to financial
institutions secured by Level
1 HQLA 120 592 - - 36 100
Performing loans to financial
institutions secured by
non-Level-1
HQLA and unsecured performing
loans to financial institutions 5,127 37,039 1,705 1,002 6,295 5,975
Performing loans to
non-financial
corporate clients, loans to
retail
and small business customers,
and loans to sovereigns,
central
banks and PSEs, of which: 30,451 23,387 15,977 36,525 76,011 76,138
With a risk weight of less than
or equal to 35% under the
Basel
II
Standardized Approach for
credit
risk 186 2,030 402 753 1,826 2,243
Performing residential
mortgages,
of which: 9,174 5,698 5,490 58,892 53,591 53,027
With a risk weight of less than
or equal to 35% under the
Basel
II
Standardized Approach for
credit
risk 9,174 5,698 5,490 58,892 53,533 53,027
Securities that are not in
default
and do not qualify as HQLA,
including
exchange-traded equities 16,469 489 1,368 4,541 18,837 20,199
Assets with matching
interdependent
liabilities(4) - 4,177 2,720 19,233 - -
------ ------- -------
Other assets(5) : 4,241 34,919 23,089 21,160
-------
Physical traded commodities,
including
gold 423 n.a. n.a. n.a. 423 416
------ ------- -------
Assets posted as initial margin
for derivative contracts and
contributions to default funds
of CCPs(5) n.a. 11,873 10,092 9,034
-------
NSFR derivative assets(5) n.a. 1,666 - -
-------
NSFR derivative liabilities
before
deduction of the variation
margin posted(5) n.a. 12,616 631 539
-------
All other assets not included
in the above categories 3,818 5,409 1,757 1,598 11,943 11,171
------ ------- -------
Off-balance-sheet items(5) n.a. 111,108 4,175 4,098
-------- -------
Total RSF n.a. n.a. n.a. n.a. 192,748 190,104
-------- ------ ------- -------
Net Stable Funding Ratio (%) n.a. n.a. n.a. n.a. 118% 118%
-------- ------ ------- -------
n.a. Not applicable
(1) See the Financial Reporting Method section on pages 4 to 10 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 ASF and RSF 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 market trends as well as possibilities for accessing less expensive and more flexible funding, considering both the risks and opportunities observed. The deposit strategy remains a priority for the Bank, which continues to prefer deposits to institutional funding.
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, 2023
------- -------- ------- --------
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) 243 - 8 - 251 - - 251
Certificates of deposit
and commercial
paper(3) 2,802 4,346 4,337 2,015 13,500 - - 13,500
Senior unsecured
medium-term
notes(4)(5) 869 205 303 3,478 4,855 7,401 5,644 17,900
Senior unsecured
structured
notes - - - - - 38 2,521 2,559
Covered bonds and
asset-backed
securities
Mortgage securitization - 2,484 1,529 2,831 6,844 4,009 15,277 26,130
Covered bonds - 1,087 1,087 - 2,174 1,767 7,851 11,792
Securitization of
credit
card receivables - - - - - 48 - 48
Subordinated
liabilities(6) - - - - - - 748 748
3,914 8,122 7,264 8,324 27,624 13,263 32,041 72,928
-------- ------- -------- ------- -------- -------- ------ ------
Secured funding - 3,571 2,616 2,831 9,018 5,824 23,128 37,970
Unsecured funding 3,914 4,551 4,648 5,493 18,606 7,439 8,913 34,958
-------- ------- -------- ------- -------- -------- ------ ------
3,914 8,122 7,264 8,324 27,624 13,263 32,041 72,928
-------- ------- -------- ------- -------- -------- ------ ------
As at October 31, 2022 6,122 8,390 8,393 7,113 30,018 9,338 32,752 72,108
-------- ------- -------- ------- -------- -------- ------ ------
(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-, two-, or three-notch credit rating downgrade.
(millions of Canadian dollars) As at July 31, 2023
One-notch Two-notch Three-notch
downgrade downgrade downgrade
---------- ---------- -----------
Derivatives(1) 30 87 93
---------- ---------- -----------
(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, 2023 with comparative figures as at October 31, 2022. 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) 2023
------ ------ ------ ------ ------ ------ -------
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 31,152 156 345 215 47 20 - - 7,873 39,808
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Securities
At fair value through
profit or loss 1,356 516 1,507 2,057 2,156 4,289 12,466 11,460 70,762 106,569
At fair value through
other comprehensive
income 2 28 31 187 228 994 4,280 2,795 572 9,117
At amortized cost 4 753 210 265 284 4,223 4,932 1,348 - 12,019
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
1,362 1,297 1,748 2,509 2,668 9,506 21,678 15,603 71,334 127,705
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Securities purchased
under
reverse repurchase
agreements and
securities borrowed 3,225 2,139 334 340 408 659 - - 5,263 12,368
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Loans (1)
Residential mortgage 1,846 1,576 2,110 1,951 3,091 13,493 51,902 8,275 532 84,776
Personal 656 723 994 1,029 1,278 5,695 16,421 5,180 13,817 45,793
Credit card 2,491 2,491
Business and government 19,393 3,786 4,096 3,590 3,009 5,817 11,978 5,076 24,039 80,784
Customers' liability
under
acceptances 6,115 581 - 13 - - - - - 6,709
Allowances for
credit losses (1,120) (1,120)
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
28,010 6,666 7,200 6,583 7,378 25,005 80,301 18,531 39,759 219,433
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Other
Derivative financial
instruments 1,576 1,222 1,521 538 576 1,337 2,058 5,534 - 14,362
Investments in
associates and
joint ventures 45 45
Premises and equipment 1,553 1,553
Goodwill 1,514 1,514
Intangible assets 1,330 1,330
Other assets(1) 2,777 126 691 260 1,497 613 124 618 1,191 7,897
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
4,353 1,348 2,212 798 2,073 1,950 2,182 6,152 5,633 26,701
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
68,102 11,606 11,839 10,445 12,574 37,140 104,161 40,286 129,862 426,015
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
(1) Amounts collectible on demand are considered to have no specified maturity.
(millions of Canadian As at July 31,
dollars) 2023
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 4,457 3,878 6,088 4,395 5,356 7,363 10,656 4,718 39,679 86,590
Business and government 35,706 12,576 10,275 5,634 3,546 9,879 14,491 4,306 96,355 192,768
Deposit-taking
institutions 769 591 32 29 92 7 14 31 1,400 2,965
40,932 17,045 16,395 10,058 8,994 17,249 25,161 9,055 137,434 282,323
Other
Acceptances 6,115 581 - 13 - - - - - 6,709
Obligations related
to securities
sold short(3) 356 56 267 1,036 118 1,441 4,433 6,623 8,495 22,825
Obligations related
to
securities sold
under
repurchase agreements
and
securities loaned 21,615 3,874 989 3,297 - - - - 8,658 38,433
Derivative financial
instruments 2,028 2,013 1,859 653 724 2,273 5,158 4,060 - 18,768
Liabilities related
to transferred
receivables(4) - 2,484 1,529 736 2,095 4,009 8,566 6,711 - 26,130
Securitization
- Credit card(5) - - - - - 48 - - - 48
Lease liabilities(5) 8 16 23 23 22 86 214 127 - 519
Other liabilities
- Other items(1)(5) 1,337 206 210 53 52 41 62 69 4,458 6,488
31,459 9,230 4,877 5,811 3,011 7,898 18,433 17,590 21,611 119,920
Subordinated debt - - - - - - - 748 - 748
Equity 23,024 23,024
72,391 26,275 21,272 15,869 12,005 25,147 43,594 27,393 182,069 426,015
Off-balance-sheet
commitments
Letters of guarantee
and
documentary letters
of credit 160 513 3,349 1,750 1,046 1,272 198 38 - 8,326
Credit card
receivables(6) 9,712 9,712
Backstop liquidity
and credit
enhancement
facilities(7) - - 15 5,552 15 - - - 3,656 9,238
Commitments to
extend credit(8) 4,139 10,909 7,152 6,794 4,855 4,071 3,238 62 47,666 88,886
Obligations related
to:
Lease commitments(9) 1 1 1 1 2 5 7 2 - 20
Other contracts(10) 16 31 47 43 1 2 78 13 124 355
(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 $47.0 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 $0.1 billion in contractual commitments related to the head office building under construction.
(millions of Canadian As at October 31,
dollars) 2022
------ ------ ------ ------ ------ ------ -------
Over Over Over Over
1 1 3 6 9 Over Over
month month months months months 1 year 2 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 23,141 142 311 18 685 - - - 7,573 31,870
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Securities
At fair value through
profit or loss 1,527 6,450 5,405 2,267 2,337 3,369 8,634 10,661 46,725 87,375
At fair value through
other comprehensive
income 5 30 13 20 46 952 4,910 2,296 556 8,828
At amortized cost 602 196 1,876 1,032 95 2,840 5,802 1,073 - 13,516
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
2,134 6,676 7,294 3,319 2,478 7,161 19,346 14,030 47,281 109,719
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Securities purchased
under
reverse repurchase
agreements and
securities borrowed 12,489 1,231 890 - 409 1,044 - - 10,423 26,486
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Loans (1)
Residential mortgage 1,155 1,124 1,899 2,716 2,364 8,910 53,335 8,059 567 80,129
Personal 423 449 878 1,208 1,036 3,701 17,792 5,085 14,751 45,323
Credit card 2,389 2,389
Business and government 19,980 3,491 3,971 3,586 2,604 6,167 11,452 2,985 19,081 73,317
Customers' liability
under
acceptances 5,967 554 20 - - - - - - 6,541
Allowances for
credit losses (955) (955)
--------- -------
27,525 5,618 6,768 7,510 6,004 18,778 82,579 16,129 35,833 206,744
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Other
Derivative financial
instruments 2,046 2,804 1,853 1,190 698 1,742 5,182 3,032 - 18,547
Investments in
associates and
joint ventures 140 140
Premises and equipment 1,397 1,397
Goodwill 1,519 1,519
Intangible assets 1,360 1,360
Other assets(1) 2,228 527 472 161 94 502 107 491 1,376 5,958
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
4,274 3,331 2,325 1,351 792 2,244 5,289 3,523 5,792 28,921
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
69,563 16,998 17,588 12,198 10,368 29,227 107,214 33,682 106,902 403,740
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
(1) Amounts collectible on demand are considered to have no specified maturity.
(millions of Canadian As at October 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 1,482 1,493 2,955 6,013 6,141 6,418 7,942 4,252 42,115 78,811
Business and government 36,864 11,605 10,644 4,875 3,728 5,988 13,659 4,227 92,640 184,230
Deposit-taking
institutions 724 624 54 122 30 - 7 36 1,756 3,353
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
39,070 13,722 13,653 11,010 9,899 12,406 21,608 8,515 136,511 266,394
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
Other
Acceptances 5,967 554 20 - - - - - - 6,541
Obligations related
to securities sold
short(3) 428 394 634 74 920 1,493 3,948 6,386 7,540 21,817
Obligations related
to
securities sold
under
repurchase agreements
and
securities loaned 16,233 5,445 1,567 3,406 - 22 - - 6,800 33,473
Derivative financial
instruments 2,584 2,302 1,640 1,009 595 2,047 3,570 5,885 - 19,632
Liabilities related
to transferred
receivables(4) - 2,672 422 1,329 2,288 4,558 9,612 5,396 - 26,277
Securitization
- Credit card(5) - - - 29 - - 49 - - 78
Lease liabilities(5) 8 16 23 23 24 87 219 152 - 552
Other liabilities
- Other items(1)(5) 1,076 46 99 23 39 27 42 92 4,287 5,731
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
26,296 11,429 4,405 5,893 3,866 8,234 17,440 17,911 18,627 114,101
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
Subordinated debt - - - - - - - 1,499 - 1,499
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
Equity 21,746 21,746
65,366 25,151 18,058 16,903 13,765 20,640 39,048 27,925 176,884 403,740
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
Off-balance-sheet
commitments
Letters of guarantee
and
documentary letters
of credit 180 1,451 1,338 982 1,398 1,292 138 - - 6,779
Credit card
receivables(6) 9,337 9,337
Backstop liquidity
and credit
enhancement
facilities(7) - 15 5,552 15 - - - - 3,125 8,707
Commitments to
extend credit(8) 3,126 9,205 6,179 6,678 3,270 4,066 3,186 39 46,368 82,117
Obligations related
to:
Lease commitments(9) 1 1 2 2 2 6 9 8 - 31
Other contracts(10) 38 42 47 46 47 21 34 - 102 377
------ ------ ------ ------ ------ ------ ------ ------ --------- -------
(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 $44.8 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.
Regulatory Compliance Risk
The transition related to the interest rate benchmark reform continues in many countries, including in Canada. On December 31, 2021, all LIBOR (London Interbank Offered Rates) rates in European, British, Swiss, and Japanese currency as well as the one-week and two-month USD LIBOR rates were discontinued, whereas the other USD LIBOR rates were discontinued as of June 30, 2023. In Canada, publication of the CDOR (Canadian Dollar Offered Rate) will be discontinued on June 28, 2024 and will be replaced by the risk-free rate CORRA (Canadian Overnight Repo Rate Average) and a term CORRA rate, which will be available as of September 5, 2023. On July 27, 2023, the Canadian Alternative Reference Rate (CARR) Working Group published its recommendations and set a milestone stipulating that no new CDOR or bankers' acceptance loan contracts can be entered into after November 1, 2023. However, this milestone will have no impact on the ability to draw on existing credit facilities that have not yet matured, that have been extended, or that have been subject to material amendments before this deadline. As at July 31, 2023, the transition project was progressing according to schedule. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.
Social and Environmental Risk
Regulatory Developments
On March 7, 2023, OSFI published guideline B-15 Climate Risk Management , which sets out OSFI's expectations regarding climate risk. The guideline is OSFI's first supervisory framework dedicated to climate change and that addresses the impacts of climate change on managing the risks existing in the country's financial system. It covers two main topics: Governance and financial disclosures. The guideline will take effect for D-SIBs at the end of fiscal 2024. OSFI plans on revising this guideline to incorporate changes in practices and standards, in particular, to reflect the requirements of IFRS S2 - Climate-related Disclosures published by the International Sustainability Standards Board (ISSB).
On June 26, 2023, the ISSB published IFRS S1 - General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 - Climate-related Disclosures. IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short-, medium- and long-term. IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1. These standards will be applicable for fiscal years beginning on or after January 1, 2024, and certain relief measures will be available.
Risk Disclosures
One of the purposes of the 2022 Annual Report, the Report to Shareholders - Third Quarter 2023, 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
2022 Shareholders and Pillar 3
Annual Report (1) Disclosure (1)
General
1 Location of risk disclosures 13 48
Management's Discussion and 55 to 105, 117
Analysis and 119 to 121 25 to 47
Notes 1, 7, 16, Notes 6 and
Consolidated Financial Statements 20, 23 and 29 12
Supplementary Financial Information 20 to 34(2)
Supplementary Regulatory Capital
and Pillar 3 Disclosure 5 to 58
2 Risk terminology and risk measures 65 to 105
3 Top and emerging risks 26 and 70 to 75 12, 32 to 47
56 to 59, 91 and 25, 26, 37 and
4 New key regulatory ratios 95 to 98 39 to 42
-------------------
Risk governance and risk management
Risk management organization, 65 to 85, 91 to
5 processes and key functions 93 and 98
6 Risk management culture 65 and 66
7 Key risks by business segment,
risk management
and risk appetite 64 to 66 and 70
55, 66, 79, 89,
8 Stress testing 90 and 93
-------------------
Capital adequacy and risk-weighted
assets (RWA)
9 Minimum Pillar 1 capital requirements 56 to 59 25 and 26
Reconciliation of the accounting
10 balance sheet to
8 to 14, 17 and
the regulatory balance sheet 18
11 Movements in regulatory capital 62 28
12 Capital planning 55 to 64
RWA by business segment and
13 by risk type 64 6 and 7
Capital requirements by risk
14 and the RWA calculation method 75 to 79 6 and 7
15 Banking book credit risk 6 and 7
16 Movements in RWA by risk type 63 29 6 and 7
Assessment of credit risk model 69, 76 to 79 and
17 performance 84 39
-------------------
Liquidity
Liquidity management and components
18 of the liquidity buffer 91 to 99 37 to 42
-------------------
Funding
Summary of encumbered and unencumbered
19 assets 94 and 95 39
Residual contractual maturities
20 of balance sheet items and
off-balance-sheet commitments 222 to 226 43 to 46
Funding strategy and funding
21 sources 98 to 100 42
-------------------
Market risk
Linkage of market risk measures
22 to balance sheet 86 and 87 34 and 35
84 to 90, 210
23 Market risk factors and 211 34 to 37
VaR: Assumptions, limitations
24 and validation procedures 88
Stress tests, stressed VaR
25 and backtesting 84 to 90
-------------------
Credit risk
83 and 171 to 33 and 70 to 19 to 50 and
26 Credit risk exposures 182 81 19 to 27(2)
Policies for identifying impaired 80, 81, 145 and
27 loans 146
Movements in impaired loans 117, 120, 121
28 and allowances for credit losses and 171 to 182 70 to 81 24 to 27(2)
Counterparty credit risk relating 80 to 82 and 190 40 to 50, 28
29 to derivative transactions to 193 and 29(2)
21, 25, 26 and
30 Credit risk mitigation 78 to 81 and 168 48 to 58
-------------------
Other risks
Other risks: Governance, measurement 73 to 75, 78 and
31 and management 100 to 105
32 Publicly known risk events 26, 100 and 101 12, 32 and 47
(1) Third quarter 2023.
(2) These pages are included in the document entitled Supplementary Financial Information - Third Quarter 2023 .
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 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, 2023 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, 2022, except for the changes described in Note 2 to the unaudited interim condensed consolidated financial statements, which have been applied since May 23, 2023.
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 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 106 to 111 of the 2022 Annual Report.
The geopolitical landscape, rising inflation, higher interest rates, and the Russia-Ukraine war continue to create uncertainty. As a result, establishing reliable estimates and applying judgment continue to be substantially complex. Some of the Bank's accounting policies, such as measurement of expected credit losses (ECLs), require particularly complex judgments and estimates. See Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022 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 6 to these unaudited interim condensed consolidated financial statements.
Accounting Policy Changes
Amendments to IAS 12 - Income Taxes
On May 23, 2023, the IASB issued International Tax Reform - Pillar Two Model Rules, which amends IAS 12 - Income Taxes. These amendments apply to income taxes arising from tax law enacted or substantively enacted to implement the OECD Pillar Two model rules. The amendments also introduce a temporary exception to the accounting of deferred tax assets and liabilities arising from the implementation of these rules as well as related disclosures. These amendments apply immediately upon issuance and retrospectively in accordance with IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors. Additional disclosures of current tax expense (recovery) and other information related to income tax exposures will be provided for annual periods beginning on or after November 1, 2023. These amendments have no current impact on the Bank's consolidated results.
Financial Disclosure
During the third quarter of 2023, 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) 2023 2022(1) 2021(1) 2022 2021(1)
------- ------- ------- ------- ------- ------- ------- ----- -------
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Total Total
------- ------- ------- ------- ------- ------- ----- -------
Total revenues 2,515 2,479 2,582 2,334 2,413 2,439 2,466 2,211 9,652 8,927
Net income 839 847 881 738 826 889 930 769 3,383 3,140
Earnings per share ($)
Basic 2.38 2.41 2.51 2.10 2.38 2.56 2.67 2.20 9.72 8.95
Diluted 2.36 2.38 2.49 2.08 2.35 2.53 2.64 2.17 9.61 8.85
Dividends per common
share ($) 1.02 0.97 0.97 0.92 0.92 0.87 0.87 0.71 3.58 2.84
Return on common
shareholders' equity
(%)(2) 16.2 17.5 17.9 15.3 17.9 20.7 21.9 18.7 18.8 20.7
Total assets 426,015 417,684 418,342 403,740 386,833 369,570 366,680 355,621
Net impaired loans
excluding
POCI loans (2) 537 477 476 479 301 293 287 283
Per common share ($)
Book value(2) 58.75 57.65 55.92 55.24 54.29 52.28 49.71 47.44
Share price
High 103.28 103.45 99.95 94.37 97.87 104.59 105.44 104.32
Low 94.62 92.67 91.02 83.12 83.33 89.33 94.37 95.00
----- -------
(1) For the fiscal 2022 and 2021 comparatives figures, certain amounts have been adjusted to reflect a change in accounting policy related to cloud computing arrangements. For additional information, see Note 1 to the audited annual consolidated financial statements for the year ended October 31, 2022.
(2) See the Glossary section on pages 51 to 54 for details on the composition of these measures.
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 administered by the financial institution, 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 is calculated by dividing net income attributable to common shareholders by the weighted average basic number of common shares outstanding.
Basis point (bps)
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 total CET1 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 or equity, commodity price 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 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.
Dividend payout ratio
The dividend payout ratio represents the dividends of common shares (per share amount) expressed as a percentage of 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
The efficiency ratio represents non-interest expenses expressed as a percentage of total revenues. It measures the efficiency of the Bank's operations.
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.
Gross impaired loans excluding POCI loans
Gross impaired loans excluding POCI loans are all loans classified in Stage 3 of the expected credit loss model excluding POCI loans.
Gross impaired loans excluding POCI loans as a percentage of total loans and acceptances
This measure represents gross impaired loans excluding POCI 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 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 as a percentage of the balance of loans and acceptances.
Net impaired loans excluding 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 from trading activities
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.
Net interest income, non-trading
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.
Net interest margin
Net interest margin is calculated by dividing net interest income by average interest-bearing assets.
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.
Non-interest income related to trading activities
Non-interest income related to trading activities 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.
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 minimize undue losses to depositors and policyholders and, thereby, to contribute to public confidence in the Canadian financial system.
Operating leverage
Operating leverage is the difference between the growth rate for total revenues and the growth rate for non-interest expenses.
Provisioning rate
This measure represents the allowances for credit losses on impaired loans expressed as a percentage of gross impaired loans.
Provisioning rate excluding POCI loans
This measure represents the allowances for credit losses on impaired loans excluding POCI loans expressed as a percentage of gross impaired loans excluding POCI 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 is 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.
Provisions for credit losses on impaired loans excluding POCI loans as a percentage of average loans and acceptances or provisions for credit losses on impaired loans excluding POCI loans ratio
This measure represents the provisions for credit losses on impaired loans excluding POCI 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)
ROE represents net income attributable to common shareholders expressed as a percentage of average equity attributable to common shareholders. It is a general measure of the Bank's efficiency in using equity.
Risk-weighted assets
Assets are risk weighted according to the guidelines established by OSFI. In the Standardized calculation approach, risk factors are applied directly to the face value of certain assets in order to reflect comparable risk levels. In 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 incurs. In the Foundation Internal Ratings-Based (FIRB) Approach the Bank can use its own estimate of probability of default but must rely on OSFI estimates for loss given default and exposure at default risk parameters. 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 any voting rights relate solely to administrative tasks and the relevant activities are directed by means of contractual arrangements.
Taxable equivalent
Taxable equivalent basis is a calculation method that consists of grossing up certain revenues taxed at lower rates (notably dividends) by the income tax to a level that would make it comparable to revenues from taxable sources in Canada. 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 ratio 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. 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 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.
Value-at-Risk (VaR)
VaR is a statistical measure of risk that is used to quantify market risks across products, per 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
END
QRTEAFPEDLNDEFA
(END) Dow Jones Newswires
August 30, 2023 08:13 ET (12:13 GMT)
1 Year Nat Bk Canada25 Chart |
1 Month Nat Bk Canada25 Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
