TIDM32SS
RNS Number : 5497R
National Bank of Canada
01 March 2023
National Bank of Canada
March 1(st) , 2023
Regulatory Announcement (Part 1)
Q1 2023 Results
National Bank of Canada (the "Bank") announces publication of
its First Quarter 2023 Report to Shareholders. The First 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/about-us/investors/quarterly-results.html
To view the full PDF of this First Quarter 2023 Report to
Shareholders, please click on the following link:
http://www.rns-pdf.londonstockexchange.com/rns/5497R_1-2023-3-1.pdf
Report to Shareholders First Quarter 2023
National Bank reports its results for the First Quarter of
2023
The financial information reported in this document is based on
the unaudited interim condensed consolidated financial statements
for the first quarter ended January 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, March 1, 2023 - For the first quarter of 2023,
National Bank is reporting net income of $881 million, down 5% from
$930 million in the first quarter of 2022. First-quarter diluted
earnings per share stood at $2.49 compared to $2.64 in the first
quarter of 2022. Revenue growth in all of the business segments was
offset by 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.
For the first quarter of 2023, adjusted net income(1) totalled
$905 million versus $930 million in the same quarter of 2022, and
first-quarter adjusted diluted earnings per share(1) stood at $2.56
compared to $2.64 in the same quarter of 2022. These decreases were
mainly due to higher provisions for credit losses on non-impaired
loans recorded in the first quarter of 2023 to reflect a less
favourable macroeconomic environment than in the first quarter of
2022. Adjusted income before provisions for credit losses and
income taxes(1) rose 5% owing to revenue growth in all the business
segments.
"The Bank is starting the year on solid footing with robust
results across all business segments and strong margin performance.
The Bank generated superior return on equity, highlighting the
strategic diversification of our earnings stream," said Laurent
Ferreira, President and Chief Executive Officer of National Bank of
Canada.
"In a highly uncertain macroeconomic environment, we are
maintaining a defensive positioning. Our credit portfolios continue
to perform well, and we have substantial allowances for credit
losses. Our capital level is strong, giving us the flexibility to
invest in our businesses to drive future growth," added Mr.
Ferreira.
Highlights
(millions of Canadian dollars) Quarter ended January 31
------------------------------------------------------- --- --- ----------------------------------------
2023 2022(2) % Change
--------------------------- -------------------------- --- --- --------- -------- --------
Net income 881 930 (5)
Diluted earnings per share (dollars) $ 2.49 $ 2.64 (6)
Income before provisions for credit losses and
income taxes 1,179 1,186 (1)
Return on common shareholders' equity(3) 17.9 % 21.9%
Dividend payout ratio(3) 38.5 % 31.6%
------------------------------------------------------- ------- --------- -------- --------
Operating results - Adjusted (1)
Net income - Adjusted 905 930 (3)
Diluted earnings per share - Adjusted (dollars) $ 2.56 $ 2.64 (3)
Income before provisions for credit losses and
income taxes - Adjusted 1,309 1,250 5
Return on common shareholders' equity - Adjusted(4) 18.4 % 21.9%
Dividend payout ratio - Adjusted(4) 38.3 % 31.5%
------------------------------------------------------- ------- --------- -------- --------
As at As at
January October
31, 31,
2023 2022
--------------------------- -------------------------- --- --- --------- -------- --------
CET1 capital ratio under Basel III(5) 12.6 % 12.7%
Leverage ratio under Basel III(5) 4.5 % 4.5%
------------------------------------------------------- ------- --------- -------- --------
(1) See the Financial Reporting Method section on pages 4 to 8
for additional information on non-GAAP financial measures.
(2) For the quarter ended January 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 45 to 48 for details on
the composition of these measures.
(4) See the Financial Reporting Method section on pages 4 to 8
for additional information on non-GAAP ratios.
(5) See the Financial Reporting Method section on pages 4 to 8
for additional information on capital management measures.
Report to Shareholders First Quarter 2023
Personal and Commercial
- Net income totalled $331 million in the first quarter of 2023
versus $300 million in the first quarter of 2022, a 10% increase
that was driven by growth in total revenues, partly offset by
higher provisions for credit losses.
- Income before provisions for credit losses and income taxes
totalled $518 million in the first quarter of 2023, up 29% from
$403 million in the first quarter of 2022.
- At $1,124 million, first-quarter total revenues rose $166
million or 17% year over year due to an increase in net interest
income (driven by growth in loan and deposit volumes), to a higher
net interest margin, and to an increase in non-interest income.
- Compared to a year ago, personal lending grew 5% and commercial lending grew 12%.
- Net interest margin(1) stood at 2.35% in the first quarter of
2023, up from 2.05% in the first quarter of 2022.
- First-quarter non-interest expenses stood at $606 million, up
9% from the first quarter of 2022.
- First-quarter provisions for credit losses were $66 million
higher than those of first-quarter 2022, mainly because higher
allowances for credit losses on non-impaired loans were recorded to
reflect a less favourable macroeconomic outlook, whereas, in the
first quarter of 2022, a more favourable macroeconomic outlook had
led to reversals of allowances for credit losses on non-impaired
loans.
- At 53.9%, the first-quarter efficiency ratio(1) improved from
57.9% in the first quarter of 2022.
Wealth Management
- Net income totalled $198 million in the first quarter of 2023,
a 16% increase from $170 million in the first quarter of 2022.
- First-quarter total revenues amounted to $637 million compared
to $592 million in first-quarter 2022, a $45 million or 8% increase
driven by growth in net interest income.
- First-quarter non-interest expenses stood at $364 million, up
1% from $360 million in first-quarter 2022.
- At 57.1%, the first-quarter efficiency ratio(1) improved from
60.8% in the first quarter of 2022.
Financial Markets
- Net income totalled $298 million in the first quarter of 2023,
down 2% from $305 million in the first quarter of 2022.
- First-quarter total revenues on a taxable equivalent basis
amounted to $689 million, a $27 million or 4% year-over-year
increase driven by growth in corporate and investment banking
revenues.
- First-quarter non-interest expenses stood at $287 million
compared to $263 million in first-quarter 2022, an increase that
was partly attributable to compensation and employee benefits as
well as to operations support charges.
- Recoveries of credit losses of $9 million were recorded in the
first quarter of 2023 compared to credit loss recoveries of $16
million recorded in the first quarter of 2022.
- At 41.7%, the efficiency ratio(1) on a taxable equivalent
basis compares to 39.7% in the first quarter of 2022.
U.S. Specialty Finance and International
- Net income totalled $147 million in the first quarter of 2023
compared to $148 million in the first quarter of 2022, as growth in
total revenues was more than offset by higher non-interest expenses
and higher provisions for credit losses.
- First-quarter total revenues amounted to $319 million, a 12%
year-over-year increase driven by revenue growth at both the
Credigy and ABA Bank subsidiaries.
- First-quarter non-interest expenses stood at $98 million, a
23% year-over-year increase essentially attributable to business
growth at ABA Bank.
- First-quarter provisions for credit losses were up $17 million
year over year, an increase attributable to the Credigy
subsidiary.
- At 30.7%, the first-quarter efficiency ratio(1) compares to
28.1% in the first quarter of 2022.
Other
- There was a net loss of $93 million in the first quarter of
2023 compared to net income of $7 million in first-quarter 2022, a
change resulting mainly from a decrease in total revenues
(associated with a lower contribution from Treasury activities) as
well as from a $24 million tax expense related to the Canadian
government's 2022 tax measures recorded in the first quarter of
2023.
Capital Management
- As at January 31, 2023, the Common Equity Tier 1 (CET1)
capital ratio under Basel III(2) stood at 12.6%, down from 12.7% as
at October 31, 2022.
- As at January 31, 2023, the Basel III leverage ratio(2) was
4.5%, unchanged from October 31, 2022.
(1) See the Glossary section on pages 45 to 48 for details on
the composition of these measures.
(2) See the Financial Reporting Method section on pages 4 to 8
for additional information on capital management measures.
Management's Discussion
and Analysis
February 28, 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 ended January
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 ended
January 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.
Securitization and Off-Balance-Sheet
Financial Reporting Method 4 Arrangements 19
Highlights 9 Income Taxes 20
Economic Review and Outlook 10 Capital Management 20
Financial Analysis 11 Risk Management 27
Consolidated Results 11 Risk Disclosures 42
Accounting Policies and Financial
Results by Segment 13 Disclosure 43
Accounting Policies and Critical
Consolidated Balance Sheet 17 Accounting Estimates 43
Event After the Consolidated
Balance Sheet Date 19 Financial Disclosure 43
Exposure to Certain Activities 19 Quarterly Financial Information 44
Related Party Transactions 19 Glossary 45
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; 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 First
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 ended
January 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
tax-exempt income (particularly dividends) by the income tax that
would have been otherwise payable. An equivalent amount is added to
income taxes. This adjustment is necessary in order to perform a
uniform comparison of the return on different assets regardless of
their tax treatment.
The 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 page 8 and in the
Consolidated Results table on page 11. It should be noted that, for
the quarter ended January 31, 2023, a $24 million tax expense
related to the Canadian government's 2022 tax measures has been
excluded from results. This amount consists of a $32 million tax
expense 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 a 1.5% increase in the statutory tax rate, which
includes the impact related to current and deferred taxes for
fiscal 2022. No specified items had been excluded from results for
the quarter ended January 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 page 8.
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 45 to 48 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) January 31
------------------------------ --------------- ----------- --------- ------ ---------------------
2023 2022(1)
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Personal Wealth Financial
and Commercial Management Markets USSF&I Other Total Total
----------------------------- --------------- ----------- --------- ------ ----- ----- -------
Net interest income 825 208 (168) 299 (65) 1,099 1,332
Taxable equivalent - - 77 - 1 78 60
Net interest income - Adjusted 825 208 (91) 299 (64) 1,177 1,392
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Non-interest income 299 429 728 20 7 1,483 1,134
Taxable equivalent - - 52 - - 52 4
Non-interest income - Adjusted 299 429 780 20 7 1,535 1,138
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Total revenues - Adjusted 1,124 637 689 319 (57) 2,712 2,530
Non-interest expenses 606 364 287 98 48 1,403 1,280
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Income before provisions for
credit
losses and income taxes -
Adjusted 518 273 402 221 (105) 1,309 1,250
Provisions for credit losses 61 - (9) 35 (1) 86 (2)
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Income before income taxes -
Adjusted 457 273 411 186 (104) 1,223 1,252
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Income taxes 126 75 (16) 39 (12) 212 258
Taxable equivalent - - 129 - 1 130 64
Income taxes related to the
Canadian
government's 2022
tax measures(2) - - - - (24) (24) -
Income taxes - Adjusted 126 75 113 39 (35) 318 322
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income - Adjusted 331 198 298 147 (69) 905 930
Specified items after income
taxes - - - - (24) (24) -
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income 331 198 298 147 (93) 881 930
Non-controlling interests - - - - - - -
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income attributable to the
Bank ' s shareholders
and holders of other equity
instruments 331 198 298 147 (93) 881 930
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income attributable to the
Bank ' s shareholders
and holders of other equity
instruments
- Adjusted 331 198 298 147 (69) 905 930
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Dividends on preferred shares
and
distributions on
limited recourse capital
notes 35 26
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income attributable to
common
shareholders - Adjusted 870 904
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
(1) For the quarter ended January 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 January 31, 2023, the Bank recorded
a $32 million tax expense 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 20.
Presentation of Basic and Diluted Earnings Per Share -
Adjusted
Quarter ended January
(Canadian dollars) 31
---------------------------------------------------- ----------------------------
2023 2022(1)
---------------------------------------------------- --- ------- -----------
Basic earnings per share $ 2.51 $ 2.67
Income taxes related to the Canadian government's
2022 tax measures(2) 0.07 -
Basic earnings per share - Adjusted $ 2.58 $ 2.67
---------------------------------------------------- --- ------- -----------
Diluted earnings per share $ 2.49 $ 2.64
Income taxes related to the Canadian government's
2022 tax measures(2) 0.07 -
Diluted earnings per share - Adjusted $ 2.56 $ 2.64
---------------------------------------------------- --- ------- -----------
(1) For the quarter ended January 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 January 31, 2023, the Bank recorded
a $32 million tax expense 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 20.
Presentation of Non-Trading Net Interest Income - Adjusted
Quarter ended January
(millions of Canadian dollars) 31
------------------------------------------------------ -------------------------
2023 2022
------------------------------------------------------ ----------- ----------
Net interest income - Adjusted 1,177 1,392
Less: Net interest income (loss) related to trading
activities on a taxable equivalent basis (196) 324
------------------------------------------------------ ----------- ----------
Net interest income, non-trading - Adjusted 1,373 1,068
------------------------------------------------------ ----------- ----------
Highlights
(millions of Canadian dollars, except
per share Quarter ended January
amounts) 31
-------------------------------------- --------- ----------------------------------------------------
2023 2022(1) % Change
--------------------------------- --- --------- -------- --- --------- ------- --- --------
Operating results
Total revenues 2,582 2,466 5
Income before provisions for
credit losses and
income taxes 1,179 1,186 (1)
Net income 881 930 (5)
Return on common shareholders'
equity(2) 17.9% 21.9%
Earnings per share
Basic $ 2.51 $ 2.67 (6)
Diluted $ 2.49 $ 2.64 (6)
-------------------------------- --- --------- -------- --- --------- ------- --- --------
Operating results - Adjusted (3)
Total revenues - Adjusted(3) 2,712 2,530 7
Income before provisions for
credit losses
and income taxes - Adjusted(3) 1,309 1,250 5
Net income - Adjusted(3) 905 930 (3)
Return on common shareholders'
equity - Adjusted(4) 18.4% 21.9%
Operating leverage - Adjusted(4) (2.4)% 3.7%
Efficiency ratio - Adjusted(4) 51.7% 50.6%
Earnings per share - Adjusted (3)
Basic $ 2.58 $ 2.67 (3)
Diluted $ 2.56 $ 2.64 (3)
-------------------------------- --- --------- -------- --- --------- ------- --- --------
Common share information
Dividends declared $ 0.97 $ 0.87 11
Book value(2) $ 55.92 $ 49.71
Share price
High $ 99.95 $ 105.44
Low $ 91.02 $ 94.37
Close $ 99.95 $ 101.70
Number of common shares
(thousands) 337,318 338,367
Market capitalization 33,715 34,412
--------------------------------- --- --------- -------- --- --------- ------- --- --------
As at As at
January October
31, 31,
(millions of Canadian dollars) 2023 2022 % Change
Balance sheet and
off-balance-sheet
Total assets 418,342 403,740 4
Loans and acceptances, net of
allowances 210,379 206,744 2
Deposits 282,505 266,394 6
Equity attributable to common
shareholders 18,863 18,594 1
Assets under administration(2) 652,873 616,165 6
Assets under management(2) 119,774 112,346 7
-------------------------------- ---- --------- ------------ --- --------- ------------ --------
Regulatory ratios under Basel
III (5)
Capital ratios
Common Equity Tier 1 (CET1) 12.6 % 12.7 %
Tier 1 15.2 % 15.4 %
Total(6) 16.0 % 16.9 %
Leverage ratio 4.5 % 4.5 %
-------------------------------- ---- --------- ------------ --- --------- ------------ --------
TLAC ratio(5) 28.7 % 27.7 %
TLAC leverage ratio(5) 8.5 % 8.1 %
-------------------------------- ---- --------- ------------ --- --------- ------------ --------
Liquidity coverage ratio
(LCR)(5) 151 % 140 %
Net stable funding ratio
(NSFR)(5) 121 % 117 %
-------------------------------- ---- --------- ------------ --- --------- ------------ --------
Other information
Number of employees - Worldwide
(full-time equivalent) 27,674 27,103 2
Number of branches in Canada 378 378 -
Number of banking machines in
Canada 942 939 -
-------------------------------- ---- --------- ------------ --- --------- ------------ --------
(1) For the quarter ended January 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 45 to 48 for details on
the composition of these measures.
(3) See the Financial Reporting Method section on pages 4 to 8
for additional information on non-GAAP financial measures.
(4) See the Financial Reporting Method section on pages 4 to 8
for additional information on non-GAAP ratios.
(5) See the Financial Reporting Method section on pages 4 to 8
for additional information on capital management measures.
(6) Includes the $750 million redemption of medium-term notes on February 1, 2023.
Economic Review and Outlook
Global Economy
While the eurozone feared a quick drop in temperatures with the
onset of winter, the start of the season turned out to be one of
the warmest on record. Demand for natural gas was therefore far
below expectations, and prices continued to tumble, contributing to
lower input costs for businesses and providing some relief for
household energy bills. The global economy eked out slight growth
in the fourth quarter of 2022 to the surprise of economists, who
were forecasting a slight contraction. In light of these results,
the Monetary Union is expected to avoid a technical recession in
the first half of calendar year 2023. The outlook for emerging
markets has also improved for two reasons. First, a weaker U.S.
dollar should help reduce debt service costs for many borrowers and
bring down prices for certain imports denominated in U.S. dollars.
The second reason-which is more significant-is that China has ended
its zero-COVID policy and has quickly reopened its economy. Given
these developments, we have revised our global growth scenario for
2023 upward to 2.4%(1) -which remains relatively weak on an
historical basis.
Recently published U.S. economic data is sending contradictory
messages to say the least. Fourth quarter GDP figures pointed to
some signs of weakness, with sluggish consumption growth and a
contraction in equipment investments for the second time in three
quarters. Tempered growth was also reflected in inflation figures,
as the total consumer price index (CPI) declined, falling from a
peak of 9.1% last summer to 6.4% in January owing to a drop in
energy prices, among other things. With the exception of food and
energy costs, commodity prices have come down in recent months-a
trend that is expected to continue within the wider context of a
global manufacturing sector slowdown and lower shipping costs. Job
figures have continued to improve at an astounding rate, with
unemployment falling to 3.4%-the lowest rate in 53 years. This
impressive level of performance is simply incompatible with higher
business sales volumes, which explains why a significant slowdown
in labour market activity is still expected in the coming months.
The U.S. Federal Reserve could take a different view, however,
opting to raise the policy rate more than once based solely on the
strength of the labour market. If such a scenario were to
materialize, a recession would be almost inevitable. However, if
the central bank takes a more prudent approach, the U.S. economy
should have a roller-coaster year but avoid a major contraction. We
expect to see 0.8%(1) annual growth in 2023. With inflation
expected to drop by the end of the year, the U.S. Federal Reserve
should be able to begin reducing its policy rate later this year
such that growth can accelerate in 2024.
Canadian Economy
In January, the Bank of Canada raised its policy interest rate,
for an eighth consecutive time, to 4.50%-the highest level in 15
years. Given that it acted quickly and considering the delays in
seeing the effects of monetary policy, there is a risk that it may
have gone too far. The only consolation is that the central bank
does not expect to have to raise rates again. The central bank was
clearly encouraged by the strong employment figures. While
unemployment has essentially returned to the historically low
levels seen last summer, the labour market no longer seems as
strained if wage restraints and the smaller number of businesses
claiming that the labour shortage is limiting their production
capacity are any indication. Moreover, recent inflation numbers
provide hope that the inflationary pressures felt in 2022 will
subside in 2023. We believe that interest rates will not have to
remain at current levels for long to quell inflation and,
therefore, expect the central bank to bring them down in the fourth
quarter. There is already a marked decline in residential real
estate activity, causing house prices to plummet. Consumers now
have reduced buying power while also dealing with interest rate
shock and an unprecedented negative wealth effect. Fortunately,
Canadian consumers have amassed twice the savings compared to their
U.S. counterparts, which should allow them to hold on until the
situation improves. With the tighter monetary policy, we expect the
Canadian economy to stagnate over a few quarters, resulting in
anemic 0.7%(1) growth in 2023.
Quebec Economy
According to the most recent data, Quebec's GDP is showing
resilience in the goods and services sectors. In the third quarter
of 2022, Quebec household consumption (+1.5% annualized quarter
over quarter) was particularly resilient compared to the rest of
the country (Canada: +1.0% annualized quarter over quarter). This
reflects the province's strong labour market growth in the last
quarter of 2022. Moreover, this resilience is no surprise given
that Quebec household savings are higher than in the rest of
Canada, providing more of a buffer against inflation shock. A
recent Statistics Canada survey showed that Quebec households had
the least difficulty meeting their financial obligations. Easier
housing access, compared to the rest of the country, means that
Quebec households are carrying less debt and are not as vulnerable
to the recent interest rate hikes. In addition, the province's
affordable hydroelectricity means that Quebec and Quebecers are
less exposed to soaring electricity prices seen elsewhere in the
world. Quebec also has a highly diversified economy and a variety
of tax support measures are provided by the government. In light of
all this, we are forecasting that Quebec's economy will grow by
0.4%(1) in 2023, curbed by less favourable demographics compared to
the rest of Canada and an already tight labour market.
(1) Actual GDP growth forecasts, National Bank Financial's Economics and Strategy group
Financial Analysis
Consolidated Results
(millions of Canadian dollars) Quarter ended January 31
--------------------------------------------------- ------------------------------------
2023 2022(1) % Change
--------------------------------------------------- -------- --- ------- --------
Operating results
Net interest income 1,099 1,332 (17)
Non-interest income 1,483 1,134 31
--------------------------------------------------- -------- --- ------- --------
Total revenues 2,582 2,466 5
Non-interest expenses 1,403 1,280 10
--------------------------------------------------- -------- --- ------- --------
Income before provisions for credit losses
and income taxes 1,179 1,186 (1)
Provisions for credit losses 86 (2)
--------------------------------------------------- -------- --- ------- --------
Income before income taxes 1,093 1,188 (8)
Income taxes 212 258 (18)
--------------------------------------------------- -------- --- ------- --------
Net income 881 930 (5)
--------------------------------------------------- -------- --- ------- --------
Diluted earnings per share (dollars) 2.49 2.64 (6)
--------------------------------------------------- -------- --- ------- --------
Taxable equivalent basis (2)
Net interest income 78 60
Non-interest income 52 4
Income taxes 130 64
--------------------------------------------------- -------- --- ------- --------
Impact of taxable equivalent basis on net
income - -
--------------------------------------------------- -------- --- ------- --------
Specified items (2)
Income taxes related to the Canadian government's
2022 tax measures (24) -
--------------------------------------------------- -------- --- ------- --------
Specified items after income taxes 24 -
--------------------------------------------------- -------- --- ------- --------
Operating results - Adjusted (2)
Net interest income - Adjusted 1,177 1,392 (15)
Non-interest income - Adjusted 1,535 1,138 35
--------------------------------------------------- -------- --- ------- --------
Total revenues - Adjusted 2,712 2,530 7
Non-interest expenses - Adjusted 1,403 1,280 10
--------------------------------------------------- -------- --- ------- --------
Income before provisions for credit losses
and
income taxes - Adjusted 1,309 1,250 5
Provisions for credit losses 86 (2)
--------------------------------------------------- -------- --- ------- --------
Income before income taxes - Adjusted 1,223 1,252 (2)
Income taxes - Adjusted 318 322 (1)
--------------------------------------------------- -------- --- ------- --------
Net income - Adjusted 905 930 (3)
--------------------------------------------------- -------- --- ------- --------
Diluted earnings per share - Adjusted (dollars) 2.56 2.64 (3)
--------------------------------------------------- -------- --- ------- --------
Average assets(3) 424,946 388,672 9
Average loans and acceptances(3) 209,699 185,757 13
Average deposits(3) 281,553 254,818 10
Operating leverage(4) (4.9) % 3.7%
Operating leverage - Adjusted(5) (2.4) % 3.7%
Efficiency ratio(4) 54.3 % 51.9%
Efficiency ratio - Adjusted(5) 51.7 % 50.6%
Net interest margin, non-trading - Adjusted(5) 2.19 % 1.86%
--------------------------------------------------- -------- --- ------- --------
(1) For the quarter ended January 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 8
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 45 to 48 for details on
the composition of these measures.
(5) See the Financial Reporting Method section on pages 4 to 8
for additional information on non-GAAP ratios.
Financial Results
For the first quarter of 2023, the Bank reported net income of
$881 million, down 5% from $930 million in the first quarter of
2022. First-quarter diluted earnings per share stood at $2.49
compared to $2.64 in the first quarter of 2022. Revenue growth in
all of the business segments was offset by 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.
Adjusted net income totalled $905 million in the first quarter
of 2023 (which excludes a $24 million tax expense arising from the
Canadian government's 2022 tax measures) compared to $930 million
in the first quarter of 2022, and first-quarter adjusted diluted
earnings per share stood at $2.56 compared to $2.64 in the same
quarter of 2022. These decreases were mainly due to higher
provisions for credit losses on non-impaired loans recorded in the
first quarter of 2023 to reflect a deterioration in macroeconomic
factors, whereas reversals of allowances for credit losses had been
recorded in the first quarter of 2022 given a more favourable
macroeconomic environment at that time. Adjusted income before
provisions for credit losses and income taxes rose 5% owing to
revenue growth in all of the business segments.
Return on common shareholders' equity was 17.9% for the quarter
ended January 31, 2023 compared to 21.9% in the same quarter of
2022.
Total Revenues
For the first quarter of 2023, the Bank's total revenues
amounted to $2,582 million, up $116 million or 5% from the first
quarter of 2022. In the Personal and Commercial segment,
first-quarter total revenues rose 17% 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 revenues
from bankers' acceptances, revenues from derivative financial
instruments, and revenues from foreign exchange activities, partly
offset by decreases in insurance revenues and in internal
commission revenues related to the distribution of Wealth
Management products. In the Wealth Management segment,
first-quarter total revenues grew 8% year over year, mainly due to
higher net interest income resulting from higher interest rates;
this growth was partly offset by a decrease in fee-based revenues,
notably revenues from mutual funds and from investment management
and trust service fees. In addition, securities brokerage
commissions decreased year over year given fewer
commission-generating transactions. In the Financial Markets
segment, first-quarter total revenues on a taxable equivalent basis
increased by 4% year over year due to an increase in corporate and
investment banking revenues, partly offset by a decrease in global
markets
revenues. In the USSF&I segment, first-quarter total
revenues were up 12% 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 the Other heading of segment
results, first-quarter total revenues were down year over year,
mainly due to a lower contribution from Treasury activities and to
a decrease in gains on investments.
Non-Interest Expenses
For the first quarter of fiscal 2023, non-interest expenses
stood at $1,403 million, a 10% year-over-year increase that was
essentially attributable to higher compensation (notably due to
wage growth and a greater number of employees) as well as to the
variable compensation associated with revenue growth. Occupancy
expense was also up, partly related to expansion of the ABA Bank
network and to expenses arising from the Bank's new head office
building. 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, given a reversal of the $20
million provision for the compensatory tax on salaries paid in
Quebec and recorded during the first quarter of 2022, an increase
in travel and business development expenses as activities with
clients resumed, and an increase in advertising expenses.
Provisions for Credit Losses
For the first quarter of 2023, the Bank recorded $86 million in
provisions for credit losses compared to $2 million in recoveries
of credit losses in the first quarter of 2022. This increase stems
mainly from higher provisions for credit losses on non-impaired
loans recorded to reflect a less favourable macroeconomic outlook
in the first quarter of 2023 (notably rising inflation and
geopolitical instability) as well as newly granted loans.
Conversely, in the first quarter of 2022, the Bank had recorded
reversals of allowances for credit losses on non-impaired loans
given a more favourable macroeconomic environment and more
favourable credit conditions at that time. As for first-quarter
provisions for credit losses on impaired loans excluding purchased
or originated credit-impaired (POCI)(1) loans, they were down $4
million year over year as a result of higher recoveries of credit
losses recorded by the Financial Markets segment in the first
quarter of 2023. At ABA Bank, provisions for credit losses on
impaired loans were also down, whereas the provisions for credit
losses on impaired loans at Personal Banking (including credit card
receivables), Commercial Banking, and the Credigy subsidiary
(excluding POCI loans) were up year over year, reflecting continued
normalization of credit performance. Lastly, the first-quarter
provisions for credit losses on Credigy's POCI loans were stable
year over year.
Income Taxes
For the first quarter of 2023, income taxes stood at $212
million compared to $258 million in the same quarter of 2022. The
2023 first-quarter effective income tax rate was 19% compared to
22% 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, partly offset by the impact of the
enacted tax measures, namely, the Canada Recovery Dividend and the
additional 1.5% tax on banks and life insurers.
(1) See the Glossary section on pages 45 to 48 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
(millions of Canadian dollars) Quarter ended January 31
---------------------------------------------- ------------------------------------
2023 2022(1) % Change
---------------------------------------------- -------- -------- --------
Operating results
Net interest income 825 669 23
Non-interest income 299 289 3
---------------------------------------------- -------- -------- --------
Total revenues 1,124 958 17
Non-interest expenses 606 555 9
---------------------------------------------- -------- -------- --------
Income before provisions for credit losses
and income taxes 518 403 29
Provisions for credit losses 61 (5)
---------------------------------------------- -------- -------- --------
Income before income taxes 457 408 12
Income taxes 126 108 17
---------------------------------------------- -------- -------- --------
Net income 331 300 10
---------------------------------------------- -------- -------- --------
Net interest margin(2) 2.35 % 2.05%
Average interest-bearing assets(2) 139,215 129,476 8
Average assets(3) 146,131 136,093 7
Average loans and acceptances(3) 145,347 135,177 8
Net impaired loans(2) 215 216 -
Net impaired loans as a % of total loans and
acceptances(2) 0.1 % 0.2%
Average deposits(3) 85,051 80,057 6
Efficiency ratio(2) 53.9 % 57.9%
---------------------------------------------- -------- -------- --------
(1) For the quarter ended January 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 45 to 48 for details on
the composition of these measures.
(3) Represents an average of the daily balances for the period.
In the Personal and Commercial segment, net income totalled $331
million in the first quarter of 2023, up 10% from $300 million in
the first quarter of 2022. The segment's first-quarter income
before provisions for credit losses and income taxes grew 29% year
over year. First-quarter net interest income rose 23% year over
year owing to growth in personal and commercial loans and deposits
as well as to a higher net interest margin, which was 2.35% in
first-quarter 2023 compared to 2.05% in first-quarter 2022. This
growth reflects the interest rate hikes and was mainly attributable
to the deposit margin. As for first--quarter non-interest income,
it grew $10 million or 3% year over year.
Personal Banking's first-quarter total revenues increased by $35
million year over year. The increase was due to higher net interest
income, driven by growth in loans and deposits and an improved
margin on deposits, and was partly offset by decreases in insurance
revenues and in internal commission revenues related to the
distribution of Wealth Management products. Commercial Banking's
first-quarter total revenues grew $131 million year over year,
mainly due to an increase in net interest income that was driven by
loan and deposit growth and an improved margin on deposits, as well
as to increases in revenues from bankers' acceptances, from
derivative financial instruments, and from foreign exchange
activities.
For the first quarter of 2023, the Personal and Commercial
segment's non-interest expenses stood at $606 million, a 9%
year-over-year increase that was mainly due higher compensation and
employee benefits (given wage growth and a greater number of
employees), to operations support charges, and to investments made
as part of the segment's technological evolution. At 53.9%, the
segment's first-quarter efficiency ratio improved by 4.0 percentage
points year over year as a result of strong revenue growth. The
segment recorded $61 million in provisions for credit losses in the
first quarter of 2023 compared to $5 million in recoveries of
credit losses in the first quarter of 2022. This increase came
mainly from higher provisions for credit losses on non-impaired
loans at Personal Banking (including credit card receivable) and at
Commercial Banking recorded to reflect a less favourable
macroeconomic outlook, whereas, in the first quarter of 2022, a
more favourable macroeconomic environment had led to reversals of
allowances for credit losses on non-impaired loans. Provisions for
credit losses on impaired Personal Banking loans (including credit
card receivables) and impaired Commercial Banking loans were also
up year over year, reflecting continued normalization of credit
performance.
Wealth Management
(millions of Canadian dollars) Quarter ended January 31
-------------------------------------------- ------------------------------------
2023 2022(1) % Change
-------------------------------------------- -------- -------- --------
Operating results
Net interest income 208 119 75
Fee-based revenues 347 372 (7)
Transaction-based and other revenues 82 101 (19)
-------------------------------------------- -------- -------- --------
Total revenues 637 592 8
Non-interest expenses 364 360 1
-------------------------------------------- -------- -------- --------
Income before provisions for credit losses
and income taxes 273 232 18
Provisions for credit losses - -
-------------------------------------------- -------- -------- --------
Income before income taxes 273 232 18
Income taxes 75 62 21
-------------------------------------------- -------- -------- --------
Net income 198 170 16
-------------------------------------------- -------- -------- --------
Average assets(2) 8,523 8,331 2
Average loans and acceptances(2) 7,548 7,147 6
Net impaired loans(3) 8 16 (50)
Average deposits(2) 40,214 34,027 18
Assets under administration(3) 652,873 654,538 -
Assets under management(3) 119,774 118,205 1
Efficiency ratio(3) 57.1 % 60.8%
-------------------------------------------- -------- -------- --------
(1) For the quarter ended January 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 45 to 48 for details on
the composition of these measures.
In the Wealth Management segment, net income totalled $198
million in the first quarter of 2023, a 16% increase from $170
million in the first quarter of 2022. The segment's first-quarter
total revenues amounted to $637 million, up $45 million or 8% from
$592 million in the first quarter of 2022. This increase in
revenues was driven by an $89 million or 75% increase in net
interest income resulting from the interest rate hikes that
occurred over the past year. First--quarter fee-based revenues
decreased by 7%, 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 were
down 19% year over year as a result of lower commission-generating
trading volume.
For the first quarter of 2023, Wealth Management's non-interest
expenses stood at $364 million, a $4 million or 1% year-over-year
increase that was mainly due to higher compensation and employee
benefits and higher operations support charges, partly offset by a
decrease in variable compensation and external management fees. At
57.1%, the segment's first-quarter efficiency ratio improved by 3.7
percentage points from 60.8% in the first quarter of 2022. The
segment's provisions for credit losses were negligible in the first
quarters of fiscal 2023 and 2022.
Financial Markets
(taxable equivalent basis)(1)
(millions of Canadian dollars) Quarter ended January 31
---------------------------------------------- ----------------------------------
2023 2022(2) % Change
---------------------------------------------- ------- ------- --------
Operating results
Global markets
Equities 192 283 (32)
Fixed-income 151 110 37
Commodities and foreign exchange 54 40 35
---------------------------------------------- ------- ------- --------
397 433 (8)
Corporate and investment banking 292 229 28
---------------------------------------------- ------- ------- --------
Total revenues(1) 689 662 4
Non-interest expenses 287 263 9
---------------------------------------------- ------- ------- --------
Income before provisions for credit losses
and income taxes 402 399 1
Provisions for credit losses (9) (16) 44
---------------------------------------------- ------- ------- --------
Income before income taxes 411 415 (1)
Income taxes(1) 113 110 3
---------------------------------------------- ------- ------- --------
Net income 298 305 (2)
---------------------------------------------- ------- ------- --------
Average assets(3) 173,262 157,761 10
Average loans and acceptances(3) (Corporate
Banking only) 27,066 20,219 34
Net impaired loans(4) 81 4
Net impaired loans as a % of total loans and
acceptances(4) 0.3 % -%
Average deposits(3) 52,820 47,452 11
Efficiency ratio (4) 41.7 % 39.7%
---------------------------------------------- ------- ------- --------
(1) The Total revenues and Income taxes items of the Financial
Markets segment are presented on a taxable equivalent basis.
Taxable equivalent basis is a calculation method that consists in
grossing up certain tax-exempt income by the amount of income tax
that would have been otherwise payable. For the quarter ended
January 31, 2023, Total revenues were grossed up by $129 million
($63 million in 2022) and an equivalent amount was recognized in
Income taxes . The effect of these adjustments is reversed under
the Other heading of segment results.
(2) For the quarter ended January 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 45 to 48 for details on
the composition of these measures.
In the Financial Markets segment, net income totalled $298
million in the first quarter of 2023, down 2% from $305 million in
the first quarter of 2022. The segment's income before provisions
for credit losses and income taxes totalled $402 million in the
first quarter of 2023, up 1% from the first quarter of 2022.
First-quarter total revenues amounted to $689 million, up $27
million or 4% from $662 million in the first quarter of 2022.
Global markets revenues were down 8% given a 32% decrease in
revenues from equity securities, tempered by a 37% increase in
revenues from fixed-income securities and a 35% increase in
revenues from commodities and foreign exchange activities.
First-quarter corporate and investment banking revenues grew 28%
year over year given an increase in revenues from merger and
acquisition activity, in revenues from capital markets activity,
and in banking service revenues driven by loan growth and a higher
deposit margin.
The segment's first-quarter non-interest expenses stood at $287
million, a 9% year-over-year increase that was due to higher
compensation and employee benefits (notably wage growth and the
variable compensation associated with the segment's revenue
growth), as well as to higher technology investment expenses and
higher operations support charges. At 41.7%, the first-quarter
efficiency ratio deteriorated when compared to 39.7% in the first
quarter of 2022. The segment recorded $9 million in recoveries of
credit losses in the first quarter of 2023 compared to $16 million
in recoveries in the first quarter of 2022. The change was due to a
$24 million increase in provisions for credit losses on
non-impaired loans, which stood at $9 million in the first quarter
of 2023, whereas reversals of allowances for credit losses on
non-impaired loans had been recorded in the first quarter of 2022
given a more favourable macroeconomic outlook and more favourable
credit conditions at that time. With respect to impaired loans,
higher recoveries of credit
losses were recorded during the first quarter of 2023 than in
the first quarter of 2022.
U.S. Specialty Finance and International (USSF&I)
(millions of Canadian dollars) Quarter ended January 31
------------------------------------------------ ---------------------------------
2023 2022 % Change
------------------------------------------------ ------- ------ --------
Total revenues
Credigy 137 126 9
ABA Bank 180 158 14
International 2 1
------------------------------------------------ ------- ------ --------
319 285 12
----------------------------------------------- ------- ------ --------
Non-interest expenses
Credigy 36 33 9
ABA Bank 61 47 30
International 1 -
----------------------------------------------- ------- ------ --------
98 80 23
------------------------------------------------ ------- ------ --------
Income before provisions for credit losses
and income taxes 221 205 8
------------------------------------------------ ------- ------ --------
Provisions for credit losses
Credigy 31 14 121
ABA Bank 4 4 -
------------------------------------------------ ------- ------ --------
35 18
----------------------------------------------- ------- ------ --------
Income before income taxes 186 187 (1)
------------------------------------------------ ------- ------ --------
Income taxes
Credigy 15 17 (12)
ABA Bank 24 22 9
39 39 -
----------------------------------------------- ------- ------ --------
Net income
Credigy 55 62 (11)
ABA Bank 91 85 7
International 1 1
------------------------------------------------ ------- ------ --------
147 148 (1)
----------------------------------------------- ------- ------ --------
Average assets(1) 21,606 17,974 20
Average loans and receivables(1) 17,941 14,387 25
Purchased or originated credit-impaired (POCI)
loans 414 422 (2)
Net impaired loans excluding POCI loans(2) 172 51
Average deposits(1) 9,813 7,896 24
Efficiency ratio(2) 30.7 % 28.1%
------------------------------------------------ ------- ------ --------
(1) Represents an average of the daily balances for the period.
(2) See the Glossary section on pages 45 to 48 for details on
the composition of these measures.
In the USSF&I segment, net income totalled $147 million in
the first quarter of 2023 compared to $148 million in the same
quarter of 2022, as growth in total revenues was more than offset
by higher non-interest expenses and higher provisions for credit
losses. The segment's first-quarter total revenues amounted to $319
million, up $34 million or 12% from $285 million in the first
quarter of 2022.
Credigy
For the first quarter of 2023, the Credigy subsidiary's net
income totalled $55 million, a $7 million or 11% year-over-year
decrease due to higher provisions for credit losses. Income before
provisions for credit losses and income taxes totalled $101 million
in the first quarter of 2023, up 9% from the first quarter of 2022.
The increase in the subsidiary's total revenues, which amounted to
$137 million in the first quarter of 2023 versus $126 million in
the same quarter of 2022, was mainly due to revenue that was
recorded following prepayment of a credit facility. Credigy's
first-quarter non-interest expenses stood at $36 million, a $3
million year-over-year increase that was mainly due to compensation
and employee benefits. Provisions for credit losses increased by
$17 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
risk parameters as well as to an increase in provisions for credit
losses on impaired loans.
ABA Bank
The ABA Bank subsidiary's net income totalled $91 million in the
first quarter of 2023, up $6 million or 7% year over year. The
subsidiary's total revenues were up 14% due to sustained loan and
deposit growth, partly offset by a decrease in interest rates on
loans and by a migration towards higher-rate term deposits.
Non-interest expenses for the first quarter of 2023 stood at $61
million, a $14 million or 30% year-over-year increase attributable
to higher compensation and employee benefits (notably due to higher
salaries given a greater number of employees) and to higher
occupancy expenses resulting from the subsidiary's business growth
and opening of new branches. ABA Bank recorded $4 million in
provisions for credit losses in the first quarter of 2023, stable
compared to the first quarter of 2022.
Other
Quarter ended January
(millions of Canadian dollars) 31
---------------------------------------------------------- ------------------------
2023 2022(1)
---------------------------------------------------------- ----------- -----------
Operating results
Net interest income(2) (142) (124)
Non-interest income(2) (45) 93
----------------------------------------------------------- ----------- -----------
Total revenues (187) (31)
Non-interest expenses 48 22
----------------------------------------------------------- ----------- -----------
Income before provisions for credit losses and income
taxes (235) (53)
Provisions for credit losses (1) 1
----------------------------------------------------------- ----------- -----------
Income before income taxes (234) (54)
Income taxes (recovery)(2) (141) (61)
----------------------------------------------------------- ----------- -----------
Net income (loss) (93) 7
Non-controlling interests - -
---------------------------------------------------------- ----------- -----------
Net income (loss) attributable to the Bank's shareholders
and holders of other equity instruments (93) 7
----------------------------------------------------------- ----------- -----------
Specified items after income taxes(3) 24 -
----------------------------------------------------------- ----------- -----------
Net income (loss) - Adjusted (3) (69) 7
----------------------------------------------------------- ----------- -----------
Average assets(4) 75,424 68,513
----------------------------------------------------------- ----------- -----------
(1) For the quarter ended January 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 January 31, 2023, an amount of $78
million ($60 million in 2022) was deducted from Net interest
income, an amount of $52 million ($4 million in 2022) was deducted
from Non-interest income, and an equivalent amount was recorded 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 in grossing up certain tax-exempt income by the
amount of income tax that would have otherwise been payable.
(3) See the Financial Reporting Method section on pages 4 to 8
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 net loss
of $93 million in the first quarter of 2023 compared to net income
of $7 million in the same quarter of 2022. This change stems
essentially from a decrease in total revenues arising from a lower
contribution from Treasury activities and is also due to higher
gains on investments recorded in the first quarter of 2022.
Furthermore, non-interest expenses rose $26 million, notably due to
a reversal of the provision for the compensatory tax on salaries
paid in Quebec that had been recorded during the first quarter of
2022.
For the first quarter of 2023, the specified items are related
to the Canadian government's 2022 tax measures and include a $32
million tax expense for 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 a 1.5% increase in the statutory tax rate, which
includes the impact related to current and deferred taxes for
fiscal 2022. Adjusted net loss was $69 million in the first quarter
of 2023 compared to net income of $7 million in the same quarter of
2022.
Consolidated Balance Sheet
Consolidated Balance Sheet Summary
As at January As at October
(millions of Canadian dollars) 31, 2023 31, 2022 % Change
------------------------------------------------ ------------- ------------- --------
Assets
Cash and deposits with financial institutions 42,286 31,870 33
Securities 113,939 109,719 4
Securities purchased under reverse repurchase
agreements and securities borrowed 26,430 26,486 -
Loans and acceptances, net of allowances 210,379 206,744 2
Other 25,308 28,921 (12)
------------------------------------------------ ------------- ------------- --------
418,342 403,740 4
----------------------------------------------- ------------- ------------- --------
Liabilities and equity
Deposits 282,505 266,394 6
Other 112,325 114,101 (2)
Subordinated debt 1,497 1,499 -
Equity attributable to the Bank's shareholders
and holders of other equity instruments 22,013 21,744 1
Non-controlling interests 2 2 -
------------------------------------------------ ------------- ------------- --------
418,342 403,740 4
----------------------------------------------- ------------- ------------- --------
Assets
As at January 31, 2023, the Bank had total assets of $418.3
billion, a $14.6 billion or 4% increase from $403.7 billion as at
October 31, 2022. At $42.3 billion as at January 31, 2023, cash and
deposits with financial institutions were up $10.4 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 January 31, 2023, securities totalled $113.9 billion,
increasing $4.2 billion since October 31, 2022. Securities at fair
value through profit or loss increased by $2.4 billion or 3%,
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 U.S. Treasury, other U.S.
agencies and other foreign governments. Securities other than those
measured at fair value through profit or loss were also up, rising
$1.8 billion. Securities purchased under reverse repurchase
agreements and securities borrowed remained relatively stable
compared to October 31, 2022.
Totalling $210.4 billion as at January 31, 2023, loans and
acceptances, net of allowances for credit losses, rose $3.7 billion
or 2% since October 31, 2022. The following table provides a
breakdown of the main loan and acceptance portfolios.
As at January As at October As at January
(millions of Canadian dollars) 31, 2023 31, 2022 31, 2022
-------------------------------------- ------------- ------------- -------------
Loans and acceptances
Residential mortgage and home equity
lines of credit 111,634 109,648 101,483
Personal 15,537 15,804 14,855
Credit card 2,296 2,389 2,039
Business and government 81,919 79,858 70,631
-------------------------------------- ------------- ------------- -------------
211,386 207,699 189,008
Allowances for credit losses (1,007) (955) (928)
-------------------------------------- ------------- ------------- -------------
210,379 206,744 188,080
------------------------------------- ------------- ------------- -------------
Since October 31, 2022, residential mortgages (including home
equity lines of credit) rose $2.0 billion or 2% given the
activities of the Financial Markets segment and the Credigy
subsidiary. Also since October 31, 2022, personal loans and credit
card receivables decreased, while loans and acceptances to business
and government rose $2.1 billion or 3%, mainly due to business
growth at Commercial Banking, corporate banking financial services
and Treasury activities.
Since January 31, 2022, loans and acceptances, net of allowances
for credit losses, grew $22.3 billion or 12%. Residential mortgages
(including home equity lines of credit) were up $10.1 billion or
10% 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 compared
to a year ago, personal loans grew $0.6 billion owing to the
activities of Personal Banking and ABA Bank, credit card
receivables grew $0.3 billion as consumer spending resumed, and
loans and acceptances to business and government rose $11.3 billion
or 16%, owing essentially to the activities of Commercial Banking,
corporate financial services, 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
January 31, 2023, gross impaired loans stood at $1,207 million
compared to $1,271 million as at October 31, 2022. As for net
impaired loans, they totalled $972 million as at January 31, 2023
compared to $1,030 million as at October 31, 2022. Net impaired
loans excluding POCI loans amounted to $476 million, decreasing $3
million from $479 million as at October 31, 2022. This decrease was
due to decreases in the net impaired loans of the Wealth
Management, Financial Markets, and ABA Bank loan portfolios, partly
offset by an increase in net impaired loans of the Personal and
Commercial Banking and Credigy (excluding POCI loans) loan
portfolios. Net POCI loans stood at $496 million as at January 31,
2023, whereas they had totalled $551 million as at October 31,
2022, down as a result of repayments and maturities of certain loan
portfolios.
As at January 31, 2023, other assets totalled $25.3 billion, a
$3.6 billion decrease since October 31, 2022 that was mainly due to
a decrease in derivative financial instruments, which were down
$4.4 billion. This decrease was partly offset by increases in other
assets, notably receivables, prepaid expenses and other items as
well as interest and dividends receivable.
Liabilities
As at January 31, 2023, the Bank had total liabilities of $396.3
billion compared to $382.0 billion as at October 31, 2022.
The Bank's total deposit liability stood at $282.5 billion as at
January 31, 2023, rising $16.1 billion or 6% from $266.4 billion as
at October 31, 2022. As at January 31, 2023, personal deposits
stood at $83.6 billion, rising $4.8 billion since October 31, 2022.
This increase came mainly from business growth at Personal Banking,
in the Wealth Management segment, and at ABA Bank.
Business and government deposits stood at $195.0 billion as at
January 31, 2023, rising $10.8 billion since October 31, 2022. This
increase came from Treasury funding activities, including $3.0
billion in deposits subject to bank recapitalization (bail-in)
conversion regulations as well as business and government deposits
from Commercial Banking activities and corporate financial
services. Deposits from deposit-taking institutions stood at $3.8
billion as at January 31, 2023, rising $0.4 billion since October
31, 2022 due to Treasury funding activities.
Other liabilities, totalling $112.3 billion as at January 31,
2023, decreased $1.8 billion since October 31, 2022, resulting
essentially from a $2.0 billion decrease in obligations related to
securities sold short, a $2.4 billion decrease in derivative
financial instruments and a $1.5 billion decrease in liabilities
related to transferred receivables, partly offset by a $4.1 billion
increase in obligations related to securities sold under repurchase
agreements and securities loaned.
Equity
As at January 31, 2023, equity attributable to the Bank's
shareholders and holders of other equity instruments was $22.0
billion, rising $0.3 billion since October 31, 2022. This increase
was due to net income net of dividends and to the issuance of
common shares under the Stock Option Plan. These increases were
partly offset by remeasurements of pension plans and other
post-employment benefit plans, by the net fair value change
attributable to the credit risk on financial liabilities designated
at fair value through profit or loss, and by accumulated other
comprehensive income, notably net unrealized foreign currency
translation losses on investments in foreign operations.
Event After the Consolidated Balance Sheet Date
Redemption of Subordinated Debt
On February 1, 2023, the Bank redeemed $750 million of
medium-term notes maturing on February 1, 2028 at a price equal to
their nominal value plus accrued interest.
Exposure to Certain Activities
The recommendations made by the Financial Stability Board's
Enhanced Disclosure Task Force (EDTF) seek to enhance the
transparency and measurement of certain exposures, in particular
structured entities, subprime and Alt-A exposures, collateralized
debt obligations, residential and commercial mortgage-backed
securities, and leveraged financing structures . The Bank does not
market any specific mortgage financing program to subprime or Alt-A
clients. The Bank does not have any significant direct position in
residential and commercial mortgage--backed securities that are not
insured by the Canada Mortgage and Housing Corporation (CMHC).
Credit derivative positions are presented in the Supplementary
Regulatory Capital and Pillar 3 Disclosure report, which is
available on the Bank's website at nbc.ca.
Leveraged finance is commonly used to achieve a specific
objective, for example, to make an acquisition, complete a buy-out,
or repurchase shares. Leveraged finance risk exposure takes the
form of both funded and unfunded commitments. As at January 31,
2023, total commitments for this type of loan stood at $5,826
million ($5,285 million as at October 31, 2022). Details about
other exposures are provided in the table concerning structured
entities in Note 27 to the audited annual consolidated financial
statements for the year ended October 31, 2022.
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
Proposed Legislation
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 January
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 10.5%, a Tier 1 capital ratio of at least
12.0%, and a Total capital ratio of at least 14.0%. For additional
information on the ratio calculations, see page 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 2.5% domestic stability buffer established by
OSFI. On December 8, 2022, OSFI expanded the 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. 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.
Banks also have to meet a capital floor that sets the regulatory
capital level according to the Basel II Standardized Approach. If
the capital requirement under Basel III is less than 70% of the
capital requirement as calculated under Basel II, the difference is
added to risk-weighted assets. OSFI requires Canadian banks to meet
a Basel III leverage ratio of at least 3.0%. The leverage ratio is
a measure independent of risk that is calculated by dividing the
amount of Tier 1 capital by total exposure. Total exposure is
defined as the sum of on-balance-sheet assets (including derivative
financial instrument exposures and securities financing transaction
exposures) and off-balance-sheet items. The assets deducted from
Tier 1 capital are also deducted from total exposure.
In addition to those measures, OSFI requires that recognized
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 January 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 24.0% (including the domestic stability buffer) of
risk-weighted assets and a TLAC leverage ratio of at least 6.75%.
The TLAC ratio is calculated by dividing available TLAC by
risk--weighted assets, and the TLAC leverage ratio is calculated by
dividing available TLAC by total exposure. As at January 31, 2023,
outstanding liabilities of $15.8 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 January 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 January
Minimum buffer BCBS surcharge (3) (4) buffer 31, 2023
---------- ------- ------------ ------- --------- ------- --------- ----------- -----------
Capital
ratios
CET1 4.5 % 2.5 % 7.0 % 1.0 % 8.0 % 2.5 %10.5 % 12.6 %
Tier 1 6.0 % 2.5 % 8.5 % 1.0 % 9.5 % 2.5 %12.0 % 15.2 %
Total(5) 8.0 % 2.5 % 10.5 % 1.0 % 11.5 % 2.5 %14.0 % 16.0 %
--------- ------- ------------ ------- --------- ------- --------- ---- ----- -----
Leverage
ratio 3.0 % n.a. 3.0 % n.a. 3.0 % n.a. 3.0 % 4.5 %
---------- ------- ------------ ------- --------- ------- --------- ---- ----- -----
TLAC ratio 21.5 % n.a. 21.5 % n.a. 21.5 % 2.5 %24.0 % 28.7 %
---------- ------- ------------ ------- --------- ------- --------- ---- ----- -----
TLAC
leverage
ratio 6.75 % n.a. 6.75 % n.a. 6.75 % n.a. 6.75 % 8.5 %
---------- ------- ------------ ------- --------- ------- --------- ---- ----- -----
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.
(4) On December 8, 2022, OSFI announced that the buffer would
rise from 2.5% to 3.0% effective February 1, 2023.
(5) Includes the $750 million redemption of medium-term notes on February 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 will come
into 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. Since November 1, 2022, there have been no new regulatory
developments to be considered.
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 quarter ended January 31, 2023, the Bank did not
repurchase any common shares.
On February 1, 2023, after the quarter-end date, 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 February 28, 2023, the Board of Directors declared regular
dividends on the various series of first preferred shares and a
dividend of 97 cents per common share, payable on May 1, 2023, to
shareholders of record on March 27, 2023.
Shares, Other Equity Instruments, and Stock Options
As at January 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 337,317,760 3,236
-------------------------- ------------- ---------
Stock options 12,604,649
-------------------------- ------------- ---------
(1) Limited Recourse Capital Notes (LRCN).
As at February 24, 2023, there were 337,272,205 common shares
and 12,581,333 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 January 31,
2023. The medium-term notes of $750 million redeemed on February 1,
2023 were excluded from the calculation.
Movement in Regulatory Capital (1)
Quarter ended
January 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) 30
Impact of shares purchased or sold for trading 6
Repurchase of common shares -
Other contributed surplus 3
Dividends on preferred and common shares and distributions
on other equity instruments (367)
Net income attributable to the Bank's shareholders and
holders of other equity instruments 881
Common share capital issued by subsidiaries and held
by third parties -
Removal of own credit spread (net of income taxes) 228
Other (184)
Movements in accumulated other comprehensive income
Translation adjustments (100)
Debt securities at fair value through other comprehensive
income 15
Other 1
Change in goodwill and intangible assets (net of related
tax liability) 16
Other, including regulatory adjustments and transitional
arrangements
Change in defined benefit pension plan asset (net of
related tax liability) 40
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) (2)
Other deductions or regulatory adjustments to CET1
implemented by OSFI (55)
Change in other regulatory adjustments -
----------------------------------------------------------- -------------
Balance at end 15,330
------------------------------------------------------------- -------------
Additional Tier 1 capital
Balance at beginning 3,143
New Tier 1 eligible capital issuances -
Redeemed capital -
Change in non-qualifying Additional Tier 1 subject to
phase-out -
Other, including regulatory adjustments and transitional
arrangements 5
------------------------------------------------------------ -------------
Balance at end 3,148
------------------------------------------------------------- -------------
Total Tier 1 capital 18,478
------------------------------------------------------------- -------------
Tier 2 capital
Balance at beginning 1,766
New Tier 2 eligible capital issuances -
Redeemed capital(2) (750)
Change in non-qualifying Tier 2 subject to phase-out -
Tier 2 instruments issued by subsidiaries and held by
third parties -
Change in certain allowances for credit losses 76
Other, including regulatory adjustments and transitional
arrangements (86)
------------------------------------------------------------ -------------
Balance at end 1,006
------------------------------------------------------------- -------------
Total regulatory capital 19,484
------------------------------------------------------------- -------------
(1) See the Financial Reporting Method section on pages 4 to 8
for additional information on capital management measures.
(2) Includes the $750 million redemption of medium-term notes on February 1, 2023.
Risk-Weighted Assets by Key Risk Drivers
Risk-weighted assets (RWA) amounted to $121.8 billion as at
January 31, 2023 compared to $116.8 billion as at October 31, 2022,
a $5.0 billion increase resulting mainly from organic growth in RWA
and a deterioration in the credit quality of the loan portfolio,
partly offset by foreign exchange movements. 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
-------------------------------------------------- ---------------- ----------------------------------
October
January 31, 31,
2023 2022
-------------------------------------------------- --------------------------------------- -------
Non-counterparty Counterparty
credit credit
risk risk Total Total
------------------------------------------------ ---------------- ------------ ------- -------
Credit risk - Risk-weighted assets at beginning 87,654 8,487 96,141 91,229
Book size 5,492 (1,053) 4,439 2,405
Book quality 1,525 (828) 697 93
Model updates 159 13 172 300
Methodology and policy 93 13 106 339
Acquisitions and disposals - - - -
Foreign exchange movements (662) (73) (735) 1,775
------------------------------------------------- ---------------- ------------ ------- -------
Credit risk - Risk-weighted assets at end 94,261 6,559 100,820 96,141
-------------------------------------------------- ---------------- ------------ ------- -------
Market risk - Risk-weighted assets at beginning 6,025 5,696
Movement in risk levels (2) (65) 329
Model updates - -
Methodology and policy - -
Acquisitions and disposals - -
------------------------------------------------- ---------------- ------------ ------- -------
Market risk - Risk-weighted assets at end 5,960 6,025
-------------------------------------------------- ---------------- ------------ ------- -------
Operational risk - Risk-weighted assets
at beginning 14,674 14,452
Movement in risk levels 359 222
Acquisitions and disposals - -
------------------------------------------------- ---------------- ------------ ------- -------
Operational risk - Risk-weighted assets
at end 15,033 14,674
-------------------------------------------------- ---------------- ------------ ------- -------
Risk-weighted assets at end 121,813 116,840
-------------------------------------------------- ---------------- ------------ ------- -------
(1) See the Financial Reporting Method section on pages 4 to 8
for additional information on capital management measures.
(2) Also includes foreign exchange rate movements that are not considered material.
The table above provides risk-weighted asset movements by the
key drivers underlying the different risk categories.
The Book size item reflects organic changes in book size and
composition (including new loans and maturing loans). RWA movements
attributable to book size include increases or decreases in
exposures, measured by exposure at default, assuming a stable risk
profile.
The Book quality item is the Bank's best estimate of changes in
book quality related to experience, such as underlying customer
behaviour or demographics, including changes resulting from model
recalibrations or realignments and also including risk mitigation
factors.
The Model updates item is used to reflect implementations of new
models, changes in model scope, and any other change applied to
address model malfunctions. During the quarter ended January 31,
2023, the Bank updated the model used for 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 January
31, 2023, the Bank continued early adopting the Basel III reform
requirements related to risk parameter floors for certain exposures
calculated using the Internal Ratings-Based Approach for credit
risk.
Regulatory Capital Ratios, Leverage Ratio, and TLAC Ratios
As at January 31, 2023, the Bank's CET1, Tier 1, and Total
capital ratios were, respectively, 12.6%, 15.2% and 16.0% compared
to ratios of, respectively, 12.7%, 15.4% and 16.9% as at October
31, 2022. All of the ratios decreased since October 31, 2022,
essentially due to growth in RWA and to the end of the transitional
measures applicable to ECL provisioning implemented by OSFI at the
beginning of the COVID-19 pandemic. These factors were partly
offset by the contribution from net income, net of dividends, and
by common share issuances under the Stock Option Plan. The decrease
in the Total capital ratio was due to the same factors as well as
to the $750 million redemption of medium-term notes on February 1,
2023. As at January 31, 2023, the leverage ratio was 4.5%, stable
compared to October 31, 2022. The growth in Tier 1 capital was
offset by growth in total exposure, which continues to benefit,
until April 1, 2023, from the temporary measure permitted by OSFI
with respect to the exclusion of exposures from central bank
reserves.
As at January 31, 2023, the Bank's TLAC ratio and TLAC leverage
ratio were, respectively, 28.7% and 8.5%, compared to 27.7% and
8.1%, respectively, as at October 31, 2022. The increase in the
TLAC ratio was due to the net TLAC instrument issuances that meet
the eligibility criteria during the period, partly offset by the
factors described for the Total capital ratio. The increase in the
TLAC leverage ratio was due to the same factors as those provided
for the leverage ratio and to the net TLAC instrument
issuances.
During the quarter ended January 31, 2023, the Bank was in
compliance with all of OSFI's regulatory capital, leverage, and
TLAC requirements.
Regulatory Capital (1) , Leverage Ratio(1) and TLAC(2)
As at January As at October
(millions of Canadian dollars) 31, 2023 31, 2022
-------------------------------- ------------- -------------
Capital
CET1 15,330 14,818
Tier 1 18,478 17,961
Total(3) 19,484 19,727
-------------------------------- ------------- -------------
Risk-weighted assets 121,813 116,840
Total exposure 411,149 401,780
-------------------------------- ------------- -------------
Capital ratios
CET1 12.6 % 12.7%
Tier 1 15.2 % 15.4%
Total(3) 16.0 % 16.9%
-------------------------------- ------------- -------------
Leverage ratio 4.5 % 4.5%
-------------------------------- ------------- -------------
Available TLAC 34,902 32,351
TLAC ratio 28.7 % 27.7%
TLAC leverage ratio 8.5 % 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 implemented
by OSFI in response to the COVID-19 pandemic. This provision ceased
to apply on November 1, 2022.
(2) Available TLAC, the TLAC ratio, and the TLAC leverage ratio
are calculated in accordance with OSFI's Total Loss Absorbing
Capacity Guideline.
(3) Includes the $750 million redemption of medium-term notes on February 1, 2023.
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 54,414 65,214
--------------------------------------- -------------------------------- ---------- ----------
Total exposures as defined for
use in the Basel III leverage
Size(3) ratio(4) 429,692 387,725
--------------------------------- --------------------------------------- ---------- ----------
Interconnectedness(5) Intra-financial system assets(4) 66,590 50,614
Intra-financial system liabilities(4) 42,789 40,301
Securities outstanding(4) 105,572 105,213
--------------------------------------- -------------------------------- ---------- ----------
Substitutability / financial
institutions infrastructure(6) Payment activity(7) 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(8)
Fixed-income securities(8) 829,877 740,927
Equities and other securities(8) 1,335,166 1,289,087
--------------------------------------- -------------------------------- ---------- ----------
Notional amount of over-the-counter
Complexity(9) derivative financial instruments(4) 1,816,770 1,481,260
Trading and investment securities 49,493 52,936
Level 3 financial assets(4) 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) Represents the Bank's total on-and-off balance sheet
exposures, as determined by OSFI's Basel III leverage ratio rules
before regulatory adjustments.
(4) Includes insurance activities.
(5) Represents transactions with other financial institutions.
(6) Represents the extent to which the Bank's services could be
substituted by other institutions.
(7) For the fiscal years ended October 31, 2022 and 2021.
(8) This indicator consists of two sub-indicators: fixed-income
securities as well as equities and other securities.
(9) Includes the level of complexity and volume of the Bank's
trading activities represented through derivative financial
instruments, trading securities, investment securities, and Level 3
financial assets.
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 5 to
these consolidated financial statements, which covers loans.
Credit Risk
Credit risk is the risk of incurring a financial loss if an
obligor does not fully honour its contractual commitments to the
Bank. Obligors may be debtors, issuers, counterparties, or
guarantors. Credit risk is the most significant risk facing the
Bank in the normal course of business.
Since March 2, 2022, the Bank of Canada raised its policy rate
eight times; the rate has thus risen from 0.25% to 4.50% in less
than a year. 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. The law contains several
categories of exceptions and is limited to certain regions.
Financial institutions may not deliberately help a non-Canadian
identified in the law, subject to penalty, but buyers themselves
are responsible for ensuring that the transaction is permitted by
law.
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. OSFI is seeking stakeholder
comments on the following debt servicing measures, including the
repercussions they may have on borrowers and lenders: restrictions
of the loan-to-income (LTI) ratio, restrictions of the
debt-to-income (DTI) ratio, restrictions related to debt servicing,
and stress tests on interest rate affordability.
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 January 31, 2023
----------------- --- ------------------------------------------------------------------------------------------------------------------
Other
off-balance-
Repo-style Derivative sheet Standardized
Drawn Undrawn transactions financial items Approach AIRB
(2) commitments (3) instruments (4) Total (5) Approach
---------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Retail
Residential
mortgages 74,105 8,827 - - - 82,932 13 % 87 %
Qualifying
revolving
retail 2,349 6,893 - - - 9,242 - % 100 %
Other retail 17,583 2,767 - - 33 20,383 26 % 74 %
---------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
94,037 18,487 - - 33 112,557
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Non-retail
Corporate 83,377 32,945 40,810 352 5,998 163,482 14 % 86 %
Sovereign 68,263 5,537 63,697 - 339 137,836 2 % 98 %
Financial
institutions 8,139 166 93,534 1,177 820 103,836 21 % 79 %
---------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
159,779 38,648 198,041 1,529 7,157 405,154
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Trading portfolio - - - 10,640 - 10,640 2 % 98 %
Securitization 4,927 - - - 4,233 9,160 86 % 14 %
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Total - Gross
credit risk 258,743 57,135 198,041 12,169 11,423 537,511 13 % 87 %
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Standardized
Approach (5) 33,095 302 32,921 1,271 4,630 72,219
AIRB Approach 225,648 56,833 165,120 10,898 6,793 465,292
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Total - Gross
credit risk 258,743 57,135 198,041 12,169 11,423 537,511 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 8
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 - First Quarter 2023 and in Supplementary Regulatory
Capital and Pillar 3 Disclosure - First 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 . 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 in recent years. 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 January 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 42,286 1,373 22,472 18,441 Interest rate (3)
Securities
At fair value through profit Interest rate (3)
or loss 89,835 88,389 1,446 - and equity
At fair value through other Interest rate (3)
comprehensive income 10,079 - 10,079 - and equity (4)
At amortized cost 14,025 - 14,025 - Interest rate (3)
Securities purchased under
reverse repurchase
agreements and securities
borrowed 26,430 - 26,430 - Interest rate (3)(5)
Loans and acceptances, net
of allowances 210,379 10,822 199,557 - Interest rate (3)
Interest rate and
Derivative financial instruments 14,060 12,764 1,296 - exchange rate
Defined benefit asset 452 - 452 - Other
Other 10,796 - - 10,796
-------------------------------- ------- ------- ----------- ----------- -------------------------
418,342 113,348 275,757 29,237
------------------------------- ------- ------- ----------- ----------- -------------------------
Liabilities
Deposits 282,505 17,781 264,724 - Interest rate (3)
Acceptances 6,765 - 6,765 - Interest rate (3)
Obligations related to
securities
sold short 19,778 19,778 - -
Obligations related to
securities
sold under repurchase
agreements and securities
loaned 37,635 - 37,635 - Interest rate (3)(5)
Interest rate and
Derivative financial instruments 17,170 16,691 479 - exchange rate
Liabilities related to
transferred
receivables 24,832 9,147 15,685 - Interest rate (3)
Defined benefit liability 116 - 116 - Other
Other 6,029 - 77 5,952 Interest rate (3)
Subordinated debt 1,497 - 1,497 - Interest rate (3)
-------------------------------- ------- ------- ----------- ----------- -------------------------
396,327 63,397 326,978 5,952
-------------------------------- ------- ------- ----------- ----------- -------------------------
(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 2 and 4 to
the consolidated financial statements.
(5) These instruments are recorded at amortized cost and are
subject to credit risk for capital management purposes. For
trading-related transactions with maturities of more than one day,
interest rate risk is included in the VaR and SVaR measures.
(millions of Canadian dollars) As at October 31, 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 - - 9,876
------------------------------ ------- ---------- -------------- ----------- ---------------------
403,740 113,524 269,576 20,640
----------------------------- ------- ---------- -------------- ----------- ---------------------
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 2 and 4 to
these consolidated financial statements.
(6) These instruments are recorded at amortized cost and are
subject to credit risk for capital management purposes. For
trading-related transactions with maturities of more than one day,
interest rate risk is included in the VaR and SVaR measures.
(7) For additional information, see Notes 16 and 17 to the
audited annual consolidated financial statements for the year ended
October 31, 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 dollars) Quarter ended
------------------------------- ------------------------------- --------------------------------
October 31, January 31,
January 31, 2023 2022 2022
------------------------------- ------------------------------- --------------- ---------------
Period Period Period
Low High Average end Average end Average end
------------------------------- ------ ------ ------- ------ ------- ------ ------- ------
Interest rate (5.2) (7.9) (6.7) (6.3) (6.0) (5.2) (7.2) (11.3)
Exchange rate (1.3) (4.1) (2.3) (2.0) (3.0) (2.1) (1.6) (0.9)
Equity (5.8) (8.8) (7.1) (5.8) (8.0) (7.1) (6.2) (6.6)
Commodity (0.6) (1.4) (1.0) (0.9) (1.0) (1.2) (0.8) (0.6)
Diversification effect(3) n.m. n.m. 8.5 7.4 9.0 7.3 9.1 12.3
-------------------------------- ------ ------ ------- ------ ------- ------ ------- ------
Total trading VaR (6.9) (10.5) (8.6) (7.6) (9.0) (8.3) (6.7) (7.1)
-------------------------------- ------ ------ ------- ------ ------- ------ ------- ------
Total trading SVaR (10.8) (24.7) (18.3) (11.6) (18.2) (18.8) (9.1) (8.1)
-------------------------------- ------ ------ ------- ------ ------- ------ ------- ------
n.m. Computation of a diversification effect for the high and
low is not meaningful, as highs and lows may occur on different
days and be attributable to different types of risk.
(1) See the Glossary section on pages 45 to 48 for details on
the composition of these measures.
(2) Amounts are presented on a pre-tax basis and represent
one-day VaR and SVaR using a 99% confidence level.
(3) The total trading VaR is less than the sum of the individual
risk factor VaR results due to the diversification effect.
B etween the fourth quarter of 2022 and the first quarter of
2023, the average total trading VaR and the average total trading
SVaR remained relatively stable.
Daily Trading and Underwriting Revenues
The following chart shows daily trading and underwriting
revenues and VaR. During the quarter ended January 31, 2023, daily
trading and underwriting revenues were positive 94% of the days.
One trading day was marked by daily trading and underwriting net
losses of more than $1 million. None of these losses exceeded the
VaR.
Quarter Ended January 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 January 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 (246) 13 (233) (191) (24) (215)
100-basis-point decrease in the
interest rate 234 (13) 221 179 27 206
--------------------------------- -------- ----------- ----- -------- ----------- -----
Impact on net interest income
100-basis-point increase in the
interest rate 114 4 118 128 2 130
100-basis-point decrease in the
interest rate (130) (4) (134) (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.
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 January As at October
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 42,286 - 42,286 8,985 33,301 24,180
Securities
Issued or guaranteed by the
Canadian government, U.S.
Treasury, other U.S. agencies
and other foreign governments 36,489 39,539 76,028 46,083 29,945 25,894
Issued or guaranteed by Canadian
provincial and
municipal governments 13,785 6,887 20,672 12,076 8,596 8,421
Other debt securities 11,348 3,696 15,044 3,023 12,021 9,809
Equity securities 52,317 46,465 98,782 75,584 23,198 27,291
Loans
Securities backed by insured
residential mortgages 12,182 - 12,182 6,483 5,699 5,582
-------------------------------- ---------- -------- ------- ---------- ------------ -------------
As at January 31, 2023 168,407 96,587 264,994 152,234 112,760
--------------------------------- ---------- -------- ------- ---------- ------------ -------------
As at October 31, 2022 153,384 92,257 245,641 144,464 101,177
--------------------------------- ---------- -------- ------- ---------- ------------ -------------
As at January As at October
(millions of Canadian dollars) 31, 2023 31, 2022
--------------------------------------- ------------- -------------
Unencumbered liquid assets by entity
National Bank (parent) 63,886 52,544
Domestic subsidiaries 13,229 14,576
Foreign subsidiaries and branches 35,645 34,057
-------------------------------------- ------------- -------------
112,760 101,177
------------------------------------- ------------- -------------
As at January As at October
(millions of Canadian dollars) 31, 2023 31, 2022
----------------------------------------- ------------- -------------
Unencumbered liquid assets by currency
Canadian dollar 54,077 49,466
U.S. dollar 35,032 24,871
Other currencies 23,651 26,840
---------------------------------------- ------------- -------------
112,760 101,177
--------------------------------------- ------------- -------------
Liquid Asset Portfolio (1) - Average (5)
(millions of Canadian
dollars) Quarter ended
--------------------------- ---------- --------- ------- --------------------------------------
January 31, October
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 42,743 - 42,743 8,259 34,484 29,994
Securities
Issued or guaranteed by
the
Canadian government, U.S.
Treasury, other U.S.
agencies
and other foreign
governments 40,109 39,340 79,449 52,658 26,791 25,487
Issued or guaranteed by
Canadian
provincial and
municipal governments 14,295 8,329 22,624 14,174 8,450 7,749
Other debt securities 11,472 3,431 14,903 3,224 11,679 10,316
Equity securities 54,763 47,456 102,219 76,799 25,420 24,386
Loans
Securities backed by
insured
residential mortgages 11,859 - 11,859 6,208 5,651 4,639
-------------------------- ---------- --------- ------- ---------- ------------ ------------
175,241 98,556 273,797 161,322 112,475 102,571
--------------------------- ---------- --------- ------- ---------- ------------ ------------
(1) See the Financial Reporting Method section on pages 4 to 8
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 January
(millions of Canadian dollars) 31, 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 416 8,569 33,301 - 42,286 2.2
Securities 46,831 - 67,108 - 113,939 11.2
Securities purchased under
reverse repurchase
agreements and securities
borrowed - 19,778 6,652 - 26,430 4.7
Loans and acceptances, net
of allowances 37,274 - 5,699 167,406 210,379 8.9
Derivative financial instruments - - - 14,060 14,060 -
Investments in associates
and joint ventures - - - 142 142 -
Premises and equipment - - - 1,451 1,451 -
Goodwill - - - 1,515 1,515 -
Intangible assets - - - 1,341 1,341 -
Other assets - - - 6,799 6,799 -
---------------------------------- ----------- -------- ----------- -------- ------- ----------
84,521 28,347 112,760 192,714 418,342 27.0
---------------------------------- ----------- -------- ----------- -------- ------- ----------
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 8
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 January 31, 2023, the Bank's average LCR was 151%, 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
--------------------------------------------- ---------------- -------------- ------------------
October
January 31, 2023 31, 2022
--------------------------------------------- -------------------------------- --------------
Total unweighted Total weighted Total weighted
value (3) value (4) value(4)
(average) (average) (average)
-------------------------------------------- ---------------- -------------- --------------
High-quality liquid assets (HQLA)
Total HQLA n.a. 80,159 76,469
Cash outflows
Retail deposits and deposits from small
business
customers, of which: 71,551 8,829 6,953
Stable deposits 28,342 850 861
Less stable deposits 43,209 7,979 6,092
Unsecured wholesale funding, of which: 101,834 55,111 55,770
Operational deposits (all counterparties)
and deposits in networks of cooperative
banks 30,303 7,387 6,738
Non-operational deposits (all
counterparties) 59,768 35,961 36,966
Unsecured debt 11,763 11,763 12,066
Secured wholesale funding n.a. 24,610 20,465
Additional requirements, of which: 55,849 14,746 14,231
Outflows related to derivative exposures
and other collateral requirements 16,375 7,514 7,381
Outflows related to loss of funding on
secured
debt securities 1,662 1,662 1,580
Backstop liquidity and credit enhancement
facilities and commitments to extend
credit 37,812 5,570 5,270
Other contractual commitments to extend
credit 1,644 790 1,040
Other contingent commitments to extend
credit 123,576 1,809 1,788
-------------------------------------------- ---------------- -------------- --------------
Total cash outflows n.a. 105,895 100,247
-------------------------------------------- ---------------- -------------- --------------
Cash inflows
Secured lending (e.g., reverse repos) 111,745 27,683 22,562
Inflows from fully performing exposures 9,671 6,148 6,673
Other cash inflows 18,504 18,504 15,966
-------------------------------------------- ---------------- -------------- --------------
Total cash inflows 139,920 52,335 45,201
-------------------------------------------- ---------------- -------------- --------------
Total adjusted Total adjusted
value (5) value(5)
------------------------------------------ ---------------- -------------- --------------
Total HQLA 80,159 76,469
Total net cash outflows 53,560 55,046
Liquidity coverage ratio (%) (6) 151 % 140 %
--------------------------------------------- ---------------- -------------- --------------
n.a. Not applicable
(1) See the Financial Reporting Method section on pages 4 to 8
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 January 31, 2023, Level 1 liquid assets represented 84% 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 January 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 January 31, 2023, the
Bank's NSFR was 121%, 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
January October
31, 31,
(millions of Canadian dollars) 2023 2022
--------------------------------- -------- ------ ------- ------- -------- --------
Unweighted value by residual
maturity
------------------------------- ------------------------------------- --------
Over
6 6
months months Weighted
No or to 1 Over value Weighted
maturity less year 1 year (3) value(3)
------------------------------- -------- ------ ------- ------- -------- --------
Available Stable Funding (ASF)
Items
Capital: 22,015 750 - 747 22,762 23,245
Regulatory capital 22,015 750 - 747 22,762 23,245
Other capital instruments - - - - - -
Retail deposits and deposits from
small business customers: 64,631 14,526 9,763 19,506 97,081 90,866
Stable deposits 26,234 4,258 4,138 5,988 38,887 37,850
Less stable deposits 38,397 10,268 5,625 13,518 58,194 53,016
Wholesale funding: 59,283 94,650 11,050 43,043 98,104 91,959
Operational deposits 29,555 - - - 14,778 15,538
Other wholesale funding 29,728 94,650 11,050 43,043 83,326 76,421
Liabilities with matching
interdependent
assets(4) - 1,927 3,687 19,218 - -
------ ------- -------
Other liabilities(5) : 23,386 7,306 674 710
------ ------- -------
NSFR derivative liabilities(5) n.a. 4,108 n.a. n.a.
------ ------- -------
All other liabilities and equity
not included in the above
categories 23,386 2,470 109 619 674 710
-------------------------------- -------- ------ ------- ------- -------- --------
Total ASF n.a. n.a. n.a. n.a. 218,621 206,780
--------------------------------- -------- ------ ------- ------- -------- --------
Required Stable Funding (RSF)
Items
Total NSFR high-quality liquid
assets (HQLA) n.a. n.a. n.a. n.a. 8,610 8,845
Deposits held at other financial
institutions for operational
purposes - - - - - -
Performing loans and securities: 59,696 63,709 21,878 100,337 148,482 145,555
Performing loans to financial
institutions secured by Level
1 HQLA 2,004 6,441 - 9 474 343
Performing loans to financial
institutions secured by
non-Level-1
HQLA and unsecured performing
loans to financial institutions 8,275 23,646 2,200 368 5,828 5,426
Performing loans to
non-financial
corporate clients, loans to
retail
and small business customers,
and loans to sovereigns,
central
banks and PSEs, of which: 25,825 25,943 13,643 36,676 71,676 70,494
With a risk weight of less than
or equal to 35% under the
Basel
II
Standardized Approach for
credit
risk 209 2,282 653 718 2,070 2,360
Performing residential
mortgages,
of which: 9,479 5,948 5,386 57,411 52,327 52,743
With a risk weight of less than
or equal to 35% under the
Basel
II
Standardized Approach for
credit
risk 9,479 5,948 5,386 57,411 52,327 52,743
Securities that are not in
default
and do not qualify as HQLA,
including
exchange-traded equities 14,113 1,731 649 5,873 18,177 16,549
Assets with matching
interdependent
liabilities(4) - 1,927 3,687 19,218 - -
------ ------- -------
Other assets(5) : 3,976 30,033 19,847 18,455
------ ------- -------
Physical traded commodities,
including
gold 416 n.a. n.a. n.a. 416 294
------ ------- -------
Assets posted as initial margin
for derivative contracts and
contributions to default funds
of CCPs(5) n.a. 9,610 8,168 7,151
------ ------- -------
NSFR derivative assets(5) n.a. 1,529 - -
------ ------- -------
NSFR derivative liabilities
before
deduction of the variation
margin posted(5) n.a. 11,016 551 1,284
------ ------- -------
All other assets not included
in the above categories 3,560 6,737 255 886 10,712 9,726
------ ------- -------
Off-balance-sheet items(5) n.a. 104,788 3,937 3,787
--------------------------------- -------- ------ ------- ------- -------- --------
Total RSF n.a. n.a. n.a. n.a. 180,876 176,642
--------------------------------- -------- ------ ------- ------- -------- --------
Net Stable Funding Ratio (%) n.a. n.a. n.a. n.a. 121% 117%
--------------------------------- -------- ------ ------- ------- -------- --------
n.a. Not applicable
(1) See the Financial Reporting Method section on pages 4 to 8
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 January
dollars) 31, 2023
----------------------- ------- ------- ------- --------
Over Over Over
1 3 6 Over
month months months 1
to to to Subtotal year Over
1 month 3 6 12 1 year to 2
or less months months months or less 2 years years Total
------
Deposits from banks(2) 410 399 - 8 817 - - 817
Certificates of deposit
and commercial
paper(3) 4,867 8,164 4,631 685 18,347 - - 18,347
Senior unsecured
medium-term
notes(4)(5) 2,835 764 1,576 196 5,371 5,786 7,110 18,267
Senior unsecured
structured
notes - 179 69 - 248 32 2,638 2,918
Covered bonds and
asset-backed
securities
Mortgage securitization 69 418 752 3,239 4,478 3,799 16,555 24,832
Covered bonds - - 1,084 2,168 3,252 339 7,794 11,385
Securitization of
credit
card receivables - - 29 - 29 49 - 78
Subordinated
liabilities(6) 750 - - - 750 - 747 1,497
8,931 9,924 8,141 6,296 33,292 10,005 34,844 78,141
------- ------- ------- --------
Secured funding 69 418 1,865 5,407 7,759 4,187 24,349 36,295
Unsecured funding 8,862 9,506 6,276 889 25,533 5,818 10,495 41,846
-------- ------- ------- ------- -------- -------- ------- ------
8,931 9,924 8,141 6,296 33,292 10,005 34,844 78,141
-------- ------- ------- ------- -------- -------- ------- ------
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-notch or three-notch credit rating
downgrade.
As at January
(millions of Canadian dollars) 31, 2023
One-notch Three-notch
downgrade downgrade
----------
Derivatives(1) 30 72
(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 January 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 January 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 15,120 151 77 709 402 - - - 25,827 42,286
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Securities
At fair value through
profit or loss 2,743 4,301 2,536 2,313 1,148 2,746 11,301 11,003 51,744 89,835
At fair value through
other comprehensive
income - 10 19 48 32 1,092 5,521 2,784 573 10,079
At amortized cost 237 329 1,494 449 230 3,603 6,367 1,316 - 14,025
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
2,980 4,640 4,049 2,810 1,410 7,441 23,189 15,103 52,317 113,939
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Securities purchased
under
reverse repurchase
agreements and
securities borrowed 11,952 1,913 1,621 41 401 1,023 - - 9,479 26,430
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Loans (1)
Residential mortgage 1,585 1,354 2,740 2,737 2,248 10,278 53,601 7,001 560 82,104
Personal 393 613 1,197 1,032 843 4,199 17,333 5,070 14,387 45,067
Credit card 2,296 2,296
Business and government 18,394 5,272 3,980 3,383 3,034 6,386 11,899 2,680 20,126 75,154
Customers' liability
under
acceptances 5,572 1,177 16 - - - - - - 6,765
Allowances for
credit losses (1,007) (1,007)
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
25,944 8,416 7,933 7,152 6,125 20,863 82,833 14,751 36,362 210,379
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Other
Derivative financial
instruments 1,290 1,561 1,250 729 847 1,241 4,470 2,672 - 14,060
Investments in
associates and
joint ventures 142 142
Premises and equipment 1,451 1,451
Goodwill 1,515 1,515
Intangible assets 1,341 1,341
Other assets(1) 3,105 714 103 313 620 571 132 45 1,196 6,799
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
4,395 2,275 1,353 1,042 1,467 1,812 4,602 2,717 5,645 25,308
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
60,391 17,395 15,033 11,754 9,805 31,139 110,624 32,571 129,630 418,342
(1) Amounts collectible on demand are considered to have no specified maturity.
(millions of Canadian As at January 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 1,833 2,244 5,828 6,544 5,513 6,512 9,281 4,893 40,999 83,647
Business and government 41,543 14,075 12,619 4,678 3,960 7,261 14,997 5,041 90,864 195,038
Deposit-taking
institutions 559 459 588 565 19 5 11 35 1,579 3,820
43,935 16,778 19,035 11,787 9,492 13,778 24,289 9,969 133,442 282,505
Other
Acceptances 5,572 1,177 16 - - - - - - 6,765
Obligations related
to securities
sold short(3) 61 328 336 708 95 1,811 2,516 5,914 8,009 19,778
Obligations related
to
securities sold
under
repurchase agreements
and
securities loaned 21,608 2,531 1,530 3,326 - 31 - - 8,609 37,635
Derivative financial
instruments 2,154 1,725 1,070 733 1,246 1,775 5,029 3,438 - 17,170
Liabilities related
to transferred
receivables(4) 69 418 752 2,169 1,070 3,799 8,307 8,248 - 24,832
Securitization
- Credit card(5) - - 29 - - 49 - - - 78
Lease liabilities(5) 7 15 22 24 23 91 221 140 - 543
Other liabilities
- Other items(1)(5) 1,318 121 36 37 50 29 43 59 3,831 5,524
30,789 6,315 3,791 6,997 2,484 7,585 16,116 17,799 20,449 112,325
Subordinated debt 750 - - - - - - 747 - 1,497
Equity 22,015 22,015
75,474 23,093 22,826 18,784 11,976 21,363 40,405 28,515 175,906 418,342
Off-balance-sheet
commitments
Letters of guarantee
and
documentary letters
of credit 72 456 1,496 1,503 2,810 765 171 5 - 7,278
Credit card
receivables(6) 9,521 9,521
Backstop liquidity
and credit
enhancement
facilities(7) - - 15 - 15 5,552 - - 3,205 8,787
Commitments to
extend credit(8) 2,766 10,534 8,161 5,144 4,557 3,858 3,110 49 47,459 85,638
Obligations related
to:
Lease commitments(9) 1 1 2 2 1 6 10 7 - 30
Other contracts(10) 27 40 40 40 41 27 44 14 91 364
(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 $44.2 billion that is unconditionally
revocable at the Bank's discretion at any time.
(9) These amounts include leases for which the underlying asset
is of low value and leases other than for real estate of less than
one year.
(10) These amounts include $0.2 billion in contractual
commitments related to the head office building under
construction.
(millions of Canadian As at October 31,
dollars) 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 13,084 142 311 18 685 - - - 17,630 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) 2,633 527 472 161 94 502 107 86 1,376 5,958
------ ------ ------ ------ ------ ------ ------- ------ -------
4,679 3,331 2,325 1,351 792 2,244 5,289 3,118 5,792 28,921
------ ------ ------ ------ ------ ------ ------- ------ -------
59,911 16,998 17,588 12,198 10,368 29,227 107,214 33,277 116,959 403,740
(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 reform of interest rate benchmarks is a global initiative
that is being coordinated and led by central banks, industries, and
governments around the world, including Canada. The objective is to
improve benchmarks by ensuring that they meet robust international
standards. LIBOR (London Interbank Offered Rates) in particular is
in the process of being discontinued, and risk-free rates such as
SOFR (Secured Overnight Financing Rate), ESTR (Euro Short-Term
Rate), SONIA (Sterling Overnight Index Average), SARON (Swiss
Average Rate Overnight), and TONAR (Tokyo Overnight Average Rate)
are recommended as replacements for LIBOR. On December 31, 2021,
all LIBOR 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 will be
discontinued after June 30, 2023. In Canada, publication of the
CDOR (Canadian Dollar Offered Rate) will be discontinued on June
28, 2024 and be replaced by the risk-free rate CORRA (Canadian
Overnight Repo Rate Average). On January 11, 2023, the Canadian
Alternative Reference Rate Working Group (the CARR Working Group)
published a notice to the markets announcing some key developments
surrounding the arrival of a term CORRA rate, which should be
available by September 30, 2023. For additional information, see
Note 1 to the audited annual consolidated financial statements for
the year ended October 31, 2022.
Risk Disclosures
One of the purposes of the 2022 Annual Report, the Report to
Shareholders - First 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 42
Management's Discussion and 55 to 105, 117
Analysis and 119 to 121 20 to 41
Notes 1, 7, 16, Notes 5 and
Consolidated Financial Statements 20, 23 and 29 10
Supplementary Financial Information 19 to 29(2)
Supplementary Regulatory Capital
and Pillar 3 Disclosure 5 to 48
2 Risk terminology and risk measures 65 to 105
3 Top and emerging risks 26 and 70 to 75 10, 27 and 41
56 to 59, 91 and 20, 21, 32 and
4 New key regulatory ratios 95 to 98 34 to 37
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 20 to 22
Reconciliation of the accounting
10 balance sheet to
7 to 13, 16 and
the regulatory balance sheet 17
11 Movements in regulatory capital 62 23
12 Capital planning 55 to 64
RWA by business segment and
13 by risk type 64 6
Capital requirements by risk
14 and the RWA calculation method 75 to 79 6
15 Banking book credit risk 6
16 Movements in RWA by risk type 63 24 6
Assessment of credit risk model 69, 76 to 79 and
17 performance 84 31
Liquidity
Liquidity management and components
18 of the liquidity buffer 91 to 98 32 to 37
Funding
Summary of encumbered and unencumbered
19 assets 94 and 95 34
Residual contractual maturities
20 of balance sheet items and
off-balance-sheet commitments 222 to 226 38 to 41
Funding strategy and funding
21 sources 98 to 100 37
Market risk
Linkage of market risk measures
22 to balance sheet 86 and 87 29 and 30
84 to 90, 210
23 Market risk factors and 211 29 to 32
VaR: Assumptions, limitations
24 and validation procedures 88
Stress tests, stressed VaR
25 and backtesting 84 to 90
Credit risk
83 and 171 to 28 and 64 to 18 to 40 and
26 Credit risk exposures 182 72 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 64 to 72 24 to 27(2)
Counterparty credit risk relating 80 to 82 and 190 33 to 40, 28(2)
29 to derivative transactions to 193 and 29(2)
20, 24 and 38
30 Credit risk mitigation 78 to 81 and 168 to 48
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 10, 27 and 41
(1) First quarter 2023.
(2) These pages are included in the document entitled
Supplementary Financial Information - First 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 ended
January 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.
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, interest rate
hikes and the Russia-Ukraine war, are persisting and 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 5 to
these unaudited interim condensed consolidated financial
statements.
Financial Disclosure
During the first 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)
-------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Total Total
Total revenues 2,582 2,334 2,413 2,439 2,466 2,211 2,254 2,238 9,652 8,927
Net income 881 738 826 889 930 769 833 788 3,383 3,140
Earnings per share ($)
Basic 2.51 2.10 2.38 2.56 2.67 2.20 2.38 2.24 9.72 8.95
Diluted 2.49 2.08 2.35 2.53 2.64 2.17 2.35 2.21 9.61 8.85
Dividends per common
share ($) 0.97 0.92 0.92 0.87 0.87 0.71 0.71 0.71 3.58 2.84
Return on common
shareholders' equity
(%)(2) 17.9 15.3 17.9 20.7 21.9 18.7 21.4 21.8 18.8 20.7
Total assets 418,342 403,740 386,833 369,570 366,680 355,621 353,873 350,581
Net impaired loans
excluding
POCI loans (2) 476 479 301 293 287 283 312 349
Per common share ($)
Book value(2) 55.92 55.24 54.29 52.28 49.71 47.44 45.51 43.11
Share price
High 99.95 94.37 97.87 104.59 105.44 104.32 96.97 89.42
Low 91.02 83.12 83.33 89.33 94.37 95.00 89.47 72.30
(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 45 to 48 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 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. 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
in grossing up certain tax-exempt income (particularly dividends)
by the amount of income tax that would have otherwise been payable.
The Bank uses the taxable equivalent basis to calculate net
interest income, non-interest income and income taxes.
Tier 1 capital ratio
Tier 1 capital 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.
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END
QRFEAADFELEDEFA
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March 01, 2023 08:37 ET (13:37 GMT)
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