TIDM32SS
RNS Number : 2054B
National Bank of Canada
31 May 2023
National Bank of Canada
May 31(st) , 2023
Regulatory Announcement (Part 1)
Q2 2023 Results
National Bank of Canada (the "Bank") announces publication of
its Second Quarter 2023 Report to Shareholders. The Second Quarter
Results have been uploaded to the National Storage Mechanism and
will shortly be available at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism and is
available on the Bank's website at
https://www.nbc.ca/en/about-us/investors/investor-relations/quarterly-results.html
To view the full PDF of this Second Quarter 2023 Report to
Shareholders, please click on the following link:
http://www.rns-pdf.londonstockexchange.com/rns/2054B_1-2023-5-31.pdf
Report to Shareholders Second Quarter 2023
National Bank reports its results for the Second Quarter of 2023
and raises its quarterly dividend by 5 cents to $1.02 per share
The financial information reported in this document is based on
the unaudited interim condensed consolidated financial statements
for the quarter and six-month period ended April 30, 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, May 31, 2023 - For the second quarter of 2023,
National Bank is reporting net income of $847 million, down 5% from
$889 million in the second quarter of 2022. Second-quarter diluted
earnings per share stood at $2.38 compared to $2.53 in the second
quarter of 2022. Revenue growth across the business segments was
offset by higher non-interest expenses and higher provisions for
credit losses.
For the six month-period ended April 30, 2023, the Bank's net
income totalled $1,728 million, down 5% from $1,819 million in the
same period of 2022. First-half diluted earnings per share stood at
$4.87 compared to $5.17 in the same period of 2022. Good
performance across all of the business segments, driven by revenue
growth, was offset by higher provisions for credit losses recorded
to reflect a less favourable macroeconomic outlook as well as by an
impact on tax expense arising from the Canadian government's 2022
tax measures.
For the six-month period ended April 30, 2023, adjusted net
income(1) totalled $1,752 million (excluding a $24 million tax
expense related to the Canadian government's 2022 tax measures),
down 4% from $1,819 million in the same period of 2022, while
first-half adjusted diluted earnings per share(1) stood at $4.94
versus $5.17 in the first half of 2022.
"The Bank delivered solid second-quarter results and an
industry-leading ROE amidst a challenging environment, underscoring
its core strength, discipline and resiliency," said Laurent
Ferreira, President and Chief Executive Officer of National Bank of
Canada. He added that "Our defensive posture with strong capital
and liquidity positions and prudent levels of allowances for credit
losses will continue to support profitable growth and help us
navigate the uncertainty that may lie ahead."
Highlights
(millions of Canadian Quarter ended April Six months ended April
dollars) 30 30
------------------------- --- --- ------------------------------- -----------------------------------
2023 2022(2) % Change 2023 2022(2) % Change
-------------------------------- ---- ------- -------- ----- ------- --------
Net income 847 889 (5) 1,728 1,819 (5)
Diluted earnings per
share (dollars) $ 2.38 $ 2.53 (6) $ 4.87 $ 5.17 (6)
Return on common
shareholders'
equity(3) 17.5% 20.7% 17.7 % 21.3%
Dividend payout ratio(3) 40.2% 32.2% 40.2 % 32.2%
------------------------- ------- ---- ------- -------- ----- ------- --------
Operating results -
Adjusted (1)
Net income - Adjusted 847 889 (5) 1,752 1,819 (4)
Diluted earnings per
share - Adjusted
(dollars) $ 2.38 $ 2.53 (6) $ 4.94 $ 5.17 (4)
Return on common
shareholders'
equity - Adjusted(4) 17.5% 20.7% 17.9 % 21.3%
Dividend payout ratio -
Adjusted(4) 39.9% 32.1% 39.9 % 32.1%
------------------------- ------- ---- ------- -------- ----- ------- --------
As at
April
30, As at
October
2023 31, 2022
--- -------------------- --- --- ---- ------- -------- --------- ----------- --------
CET1 capital ratio under
Basel
III(5) 13.3 % 12.7%
Leverage ratio under
Basel III(5) 4.2 % 4.5%
------------------------- ------- ---- ------- -------- ----- ------- --------
(1) See the Financial Reporting Method section on pages 4 to 9
for additional information on non-GAAP financial measures.
(2) For the quarter and six-month period ended April 30, 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 49 to 52 for details on
the composition of these measures.
(4) See the Financial Reporting Method section on pages 4 to 9
for additional information on non-GAAP ratios.
(5) See the Financial Reporting Method section on pages 4 to 9
for additional information on capital management measures.
Report to Shareholders Second Quarter 2023
Personal and Commercial
- Net income totalled $335 million in the second quarter of 2023
versus $293 million in the second quarter of 2022, for an increase
of 14% that was driven by growth in total revenues, tempered by
higher non-interest expenses and higher provisions for credit
losses.
- Income before provisions for credit losses and income taxes
totalled $499 million in the second quarter of 2023, up 22% from
$410 million in the second quarter of 2022.
- At $1,100 million, second-quarter total revenues rose $138
million or 14% 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 4% and commercial lending grew 13%.
- The net interest margin(1) stood at 2.34% in the second
quarter of 2023, up from 2.10% in the second quarter of 2022.
- Second-quarter non-interest expenses stood at $601 million, up
9% from the second quarter of 2022.
- Second-quarter provisions for credit losses rose $26 million
from second-quarter 2022, mainly due to higher allowances for
credit losses on non-impaired loans and on impaired loans.
- At 54.6%, the second-quarter efficiency ratio(1) improved from
57.4% in the second quarter of 2022.
Wealth Management
- Net income totalled $178 million in the second quarter of
2023, a 9% increase from $163 million in the second quarter of
2022.
- Second-quarter total revenues amounted to $617 million
compared to $579 million in second-quarter 2022, a $38 million or
7% increase driven by growth in net interest income.
- Second-quarter non-interest expenses stood at $372 million, up
4% from $357 million in second-quarter 2022.
- At 60.3%, the second-quarter efficiency ratio(1) improved from
61.7% in the second quarter of 2022.
Financial Markets
- Net income totalled $268 million in the second quarter of
2023, down 7% from $287 million in the second quarter of 2022.
- Second-quarter total revenues on a taxable equivalent basis
amounted to $672 million, a $40 million or 6% year-over-year
increase driven by growth in corporate and investment banking
revenues.
- Second-quarter non-interest expenses stood at $283 million
compared to $258 million in second-quarter 2022, an increase that
was partly attributable to compensation and employee benefits as
well as to operations support charges.
- Provisions for credit losses of $19 million were recorded in
the second quarter of 2023 compared to credit loss recoveries of
$16 million recorded in the second quarter of 2022.
- At 42.1%, the second-quarter efficiency ratio(1) on a taxable
equivalent basis compares to 40.8% in the second quarter of
2022.
U.S. Specialty Finance and International
- Net income totalled $128 million in the second quarter of 2023
compared to $152 million in the second quarter of 2022, as a stable
amount of total revenues was more than offset by higher
non-interest expenses and higher provisions for credit losses.
- At $285 million, second-quarter total revenues remained stable
compared to second-quarter 2022, as lower revenues at the Credigy
subsidiary were offset by higher revenues at the ABA Bank
subsidiary.
- Second-quarter non-interest expenses stood at $98 million, an
11% year-over-year increase attributable to business growth at ABA
Bank.
- Second-quarter provisions for credit losses were up $17
million year over year, with the increase being attributable to
Credigy.
- At 34.4%, the second-quarter efficiency ratio(1) compares to
30.9% in the second quarter of 2022.
Other
- There was a net loss of $62 million in the second quarter of
2023 versus a net loss of $6 million in the second quarter of 2022,
a change arising mainly from a decrease in total revenues, as
higher gains on investments had been recorded in the second quarter
of 2022.
Capital Management
- As at April 30, 2023, the Common Equity Tier 1 (CET1) capital
ratio under Basel III(2) stood at 13.3%, up from 12.7% as at
October 31, 2022, notably due to the positive impact of
implementing the Basel III reforms.
- As at April 30, 2023, the Basel III(2) leverage ratio was
4.2%, down from 4.5% as at October 31, 2022.
(1) See the Glossary section on pages 49 to 52 for details on
the composition of these measures.
(2) See the Financial Reporting Method section on pages 4 to 9
for additional information on capital management measures.
Management's Discussion
and Analysis
May 30, 2023
The following Management's Discussion and Analysis (MD&A)
presents the financial condition and operating results of National
Bank of Canada (the Bank). This analysis was prepared in accordance
with the requirements set out in National Instrument 51-102,
Continuous Disclosure Obligations, released by the Canadian
Securities Administrators (CSA). It is based on the unaudited
interim condensed consolidated financial statements (the
consolidated financial statements) for the quarter and six-month
period ended April 30, 2023 and prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB), unless otherwise
indicated. IFRS represent Canadian generally accepted accounting
principles (GAAP). This MD&A should be read in conjunction with
the consolidated financial statements and accompanying notes for
the quarter and six-month period ended April 30, 2023 and with the
2022 Annual Report. All amounts are presented in Canadian dollars.
Additional information about the Bank, including the Annual
Information Form, can be obtained from the Bank's website at nbc.ca
and SEDAR's website at sedar.com. The information found in the
various documents and reports published by the Bank or the
information available on the Bank's website and mentioned herein is
not and should not be considered incorporated by reference into the
Report to Shareholders, the Management's Discussion and Analysis,
or the Consolidated Financial Statements, unless expressly stated
otherwise.
Financial Reporting Method 4 Income Taxes 22
Economic Review and Outlook 10 Proposed Legislation 22
Highlights 11 Capital Management 23
Financial Analysis 12 Risk Management 30
Consolidated Results 12 Risk Disclosures 46
Accounting Policies and Financial
Results by Segment 15 Disclosure 47
Accounting Policies and Critical
Consolidated Balance Sheet 20 Accounting Estimates 47
Event After the Consolidated
Balance Sheet Date 21 Financial Disclosure 47
Related Party Transactions 22 Quarterly Financial Information 48
Securitization and Off-Balance-Sheet
Arrangements 22 Glossary 49
Caution Regarding Forward-Looking Statements
Certain statements in this document are forward-looking
statements. All such statements are made in accordance with
applicable securities legislation in Canada and the United States.
Forward-looking statements in this document may include, but are
not limited to, statements with respect to the economy-particularly
the Canadian and U.S. economies-market changes, the Bank's
objectives, outlook and priorities for fiscal year 2023 and beyond,
the strategies or actions that will be taken to achieve them,
expectations for the Bank's financial condition, the regulatory
environment in which it operates, the impacts of-and the Bank's
response to-the COVID-19 pandemic, and certain risks it faces.
These forward-looking statements are typically identified by verbs
or words such as "outlook", "believe", "foresee", "forecast",
"anticipate", "estimate", "project", "expect", "intend" and "plan",
in their future or conditional forms, notably verbs such as "will",
"may", "should", "could" or "would" as well as similar terms and
expressions. Such forward-looking statements are made for the
purpose of assisting the holders of the Bank's securities in
understanding the Bank's financial position and results of
operations as at and for the periods ended on the dates presented,
as well as the Bank's vision, strategic objectives, and financial
performance targets, and may not be appropriate for other purposes.
These forward-looking statements are based on current expectations,
estimates, assumptions and intentions and are subject to
uncertainty and inherent risks, many of which are beyond the Bank's
control.
Assumptions about the performance of the Canadian and U.S.
economies in 2023 and how that performance will affect the Bank's
business are among the main factors considered in setting the
Bank's strategic priorities and objectives, including provisions
for credit losses. In determining its expectations for economic
conditions, both broadly and in the financial services sector in
particular, the Bank primarily considers historical economic data
provided by the governments of Canada, the United States and
certain other countries in which the Bank conducts business, as
well as their agencies.
Statements about the economy, market changes, and the Bank's
objectives, outlook and priorities for fiscal 2023 and thereafter
are based on a number of assumptions and are subject to risk
factors, many of which are beyond the Bank's control and the
impacts of which are difficult to predict. These risk factors
include, among others, the general economic environment and
financial market conditions in Canada, the United States, and other
countries where the Bank operates; the impact of upheavals in the
U.S. banking industry; exchange rate and interest rate
fluctuations; inflation; disruptions in global supply chains;
higher funding costs and greater market volatility; changes made to
fiscal, monetary, and other public policies; changes made to
regulations that affect the Bank's business; geopolitical and
sociopolitical uncertainty; the transition to a low-carbon economy
and the Bank's ability to satisfy stakeholder expectations on
environmental and social issues; significant changes in consumer
behaviour; the housing situation, real estate market, and household
indebtedness in Canada; the Bank's ability to achieve its long-term
strategies and key short-term priorities; the timely development
and launch of new products and services; the Bank's ability to
recruit and retain key personnel; technological innovation and
heightened competition from established companies and from
competitors offering non-traditional services; changes in the
performance and creditworthiness of the Bank's clients and
counterparties; the Bank's exposure to significant regulatory
matters or litigation; changes made to the accounting policies used
by the Bank to report financial information, including the
uncertainty inherent to assumptions and critical accounting
estimates; changes to tax legislation in the countries where the
Bank operates, i.e., primarily Canada and the United States;
changes made to capital and liquidity guidelines as well as to the
presentation and interpretation thereof; changes to the credit
ratings assigned to the Bank; potential disruptions to key
suppliers of goods and services to the Bank; potential disruptions
to the Bank's information technology systems, including evolving
cyberattack risk as well as identity theft and theft of personal
information; the risk of fraudulent activity; and possible impacts
of major events affecting the local and global economies, including
international conflicts, natural disasters, and public health
crises such as the COVID-19 pandemic, the evolution of which is
difficult to predict and could continue to have repercussions on
the Bank.
There is a strong possibility that the Bank's express or implied
predictions, forecasts, projections, expectations or conclusions
will not prove to be accurate, that its assumptions may not be
confirmed and that its vision, strategic objectives and financial
performance targets will not be achieved. The Bank recommends that
readers not place undue reliance on forward-looking statements, as
a number of factors could cause actual results to differ
significantly from the expectations, estimates or intentions
expressed in these forward-looking statements. These risk factors
include credit risk, market risk, liquidity and funding risk,
operational risk, regulatory compliance risk, reputation risk,
strategic risk, environmental and social risk, and certain emerging
risks or risks deemed significant, all of which are described in
greater detail in the Risk Management section beginning on page 65
of the 2022 Annual Report.
The foregoing list of risk factors is not exhaustive. Additional
information about these risk factors is provided in the Risk
Management section of the 2022 Annual Report and the Risk
Management section of this Report to Shareholders for the Second
Quarter of 2023. Investors and others who rely on the Bank's
forward-looking statements should carefully consider the above
factors as well as the uncertainties they represent and the risk
they entail. Except as required by law, the Bank does not undertake
to update any forward-looking statements, whether written or oral,
that may be made from time to time, by it or on its behalf. The
Bank cautions investors that these forward-looking statements are
not guarantees of future performance and that actual events or
results may differ significantly from these statements due to a
number of factors.
Financial Reporting Method
The Bank's consolidated financial statements are prepared in
accordance with IFRS, as issued by the IASB. The financial
statements also comply with section 308(4) of the Bank Act
(Canada), which states that, except as otherwise specified by the
Office of the Superintendent of Financial Institutions (Canada) (
OSFI), the consolidated financial statements are to be prepared in
accordance with IFRS, which represent Canadian GAAP. None of the
OSFI accounting requirements are exceptions to IFRS.
The presentation of segment disclosures is consistent with the
presentation adopted by the Bank for the fiscal year beginning
November 1, 2022. This presentation reflects a revision to the
method used for the sectoral allocation of technology investment
expenses, which are now immediately allocated to the various
business segments, whereas certain expenses, notably costs incurred
during the research phase of projects, had previously been recorded
in the Other heading of segment results. This revision is
consistent with the accounting policy change applied in fiscal 2022
related to cloud computing arrangements. For the quarter and
six-month period ended April 30, 2023, certain amounts have been
adjusted to reflect this accounting policy change. For additional
information, see Note 1 to the audited annual consolidated
financial statements for the year ended October 31, 2022.
Non-GAAP and Other Financial Measures
The Bank uses a number of financial measures when assessing its
results and measuring overall performance. Some of these financial
measures are not calculated in accordance with GAAP. Regulation
52-112 Respecting Non-GAAP and Other Financial Measures Disclosure
(Regulation 52-112) prescribes disclosure requirements that apply
to the following measures used by the Bank:
-- non-GAAP financial measures;
-- non-GAAP ratios;
-- supplementary financial measures;
-- capital management measures.
Non-GAAP Financial Measures
The Bank uses non-GAAP financial measures that do not have
standardized meanings under GAAP and that therefore may not be
comparable to similar measures used by other companies. Presenting
non-GAAP financial measures helps readers to better understand how
management analyzes results, shows the impacts of specified items
on the results of the reported periods, and allows readers to
better assess results without the specified items if they consider
such items not to be reflective of the underlying performance of
the Bank's operations. In addition, like many other financial
institutions, the Bank uses the taxable equivalent basis to
calculate net interest income, non-interest income, and income
taxes. This calculation method consists of grossing up certain
revenues taxed at lower rates (notably dividends) by the income tax
to a level that would make it comparable to revenues from taxable
sources in Canada. An equivalent amount is added to income taxes.
This adjustment is necessary in order to perform a uniform
comparison of the return on different assets regardless of their
tax treatment.
The key non-GAAP financial measures used by the Bank to analyze
its results are described below, and a quantitative reconciliation
of these measures is presented in the tables in the Reconciliation
of Non-GAAP Financial Measures section on pages 8 and 9 and in the
Consolidated Results table on page 12. It should be noted that, for
the six-month period ended April 30, 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 and six-month period ended April 30, 2022.
Adjusted Net Interest Income
This item represents net interest income on a taxable equivalent
basis and excluding specified items, if any. A taxable equivalent
is added to net interest income so that the performance of the
various assets can be compared irrespective of their tax treatment,
and specified items, if any, are excluded so that net interest
income can be better evaluated by excluding items that management
believes do not reflect the underlying financial performance of the
Bank's operations.
Adjusted Non-Interest Income
This item represents non -interest income on a taxable
equivalent basis and excluding specified items, if any. A taxable
equivalent is added to non-interest income so that the performance
of the various assets can be compared irrespective of their tax
treatment, and specified items, if any, are excluded so that
non--interest income can be better evaluated by excluding items
that management believes do not reflect the underlying financial
performance of the Bank's operations.
Adjusted Total Revenues
This item represents total revenues on a taxable equivalent
basis and excluding specified items, if any. It consists of
adjusted net interest income and adjusted non-interest income. A
taxable equivalent is added to total revenues so that the
performance of the various assets can be compared irrespective of
their tax treatment, and specified items, if any, are excluded so
that total revenues can be better evaluated by excluding items that
management believes do not reflect the underlying financial
performance of the Bank's operations.
Adjusted Non -Interest Expenses
This item represents non-interest expenses excluding specified
items, if any. Specified items, if any, are excluded so that
non-interest expenses can be better evaluated by excluding items
that management believes do not reflect the underlying financial
performance of the Bank's operations.
Adjusted Income Before Provisions for Credit Losses and Income
Taxes
This item represents income before provisions for credit losses
and income taxes on a taxable equivalent basis and excluding
specified items, if any. It also represents the difference between
adjusted total revenues and adjusted non-interest expenses. A
taxable equivalent is added to income before provisions for credit
losses and income taxes so that the performance of the various
assets can be compared irrespective of their tax treatment, and
specified items, if any, are excluded so that income before
provisions for credit losses and income taxes can be better
evaluated by excluding items that management believes do not
reflect the underlying financial performance of the Bank's
operations.
Adjusted Income Taxes
This item represents income taxes on a taxable equivalent basis
and excluding income taxes on specified items, if any.
Adjusted Net Income
This item represents net income excluding specified items, if
any. Specified items, if any, are excluded so that net income can
be better evaluated by excluding items that management believes do
not reflect the underlying financial performance of the Bank's
operations.
Adjusted Net income Attributable to Common Shareholders
This item represents net income attributable to common
shareholders excluding specified items, if any. Specified items, if
any, are excluded so that net income attributable to common
shareholders can be better evaluated by excluding items that
management believes do not reflect the underlying financial
performance of the Bank's operations.
Adjusted Basic Earnings Per Share
This item represents basic earnings per share excluding
specified items, if any. Specified items, if any, are excluded so
that basic earnings per share can be better evaluated by excluding
items that management believes do not reflect the underlying
financial performance of the Bank's operations.
Adjusted Diluted Earnings Per Share
This item represents diluted earnings per share excluding
specified items, if any. Specified items, if any, are excluded so
that diluted earnings per share can be better evaluated by
excluding items that management believes do not reflect the
underlying financial performance of the Bank's operations.
The Bank also uses the below-described measures to assess its
results. A quantitative reconciliation of these non-GAAP financial
measures is presented in the Reconciliation of Non-GAAP Financial
Measures section on pages 8 and 9.
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 49 to 52 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) April 30
------------------------------ --------------- ----------- --------- ------ ---------------------
2023 2022(1)
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Personal Wealth Financial
and Commercial Management Markets USSF&I Other Total Total
----------------------------- --------------- ----------- --------- ------ ----- ----- -------
Net interest income 802 190 (286) 269 (93) 882 1,313
Taxable equivalent - - 74 - 2 76 49
Net interest income - Adjusted 802 190 (212) 269 (91) 958 1,362
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Non-interest income 298 427 828 16 28 1,597 1,126
Taxable equivalent - - 56 - - 56 3
Non-interest income - Adjusted 298 427 884 16 28 1,653 1,129
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Total revenues - Adjusted 1,100 617 672 285 (63) 2,611 2,491
Non-interest expenses 601 372 283 98 20 1,374 1,299
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Income before provisions for
credit
losses and income taxes -
Adjusted 499 245 389 187 (83) 1,237 1,192
Provisions for credit losses 37 - 19 26 3 85 3
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Income before income taxes -
Adjusted 462 245 370 161 (86) 1,152 1,189
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Income taxes 127 67 (28) 33 (26) 173 248
Taxable equivalent - - 130 - 2 132 52
Income taxes - Adjusted 127 67 102 33 (24) 305 300
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income 335 178 268 128 (62) 847 889
Non-controlling interests - - - - (1) (1) (1)
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income attributable to the
Bank ' s shareholders
and holders of other equity
instruments
- Adjusted 335 178 268 128 (61) 848 890
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Dividends on preferred shares
and
distributions on
limited recourse capital
notes 35 25
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income attributable to
common
shareholders 813 865
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
(1) For the quarter ended April 30, 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.
Six months ended April
(millions of Canadian dollars) 30
------------------------------ --------------- ----------- --------- -----------------------------
2023 2022(1)
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Personal Wealth Financial
and Commercial Management Markets USSF&I Other Total Total
----------------------------- --------------- ----------- --------- ------ ----- ----- -------
Net interest income 1,627 398 (454) 568 (158) 1,981 2,645
Taxable equivalent - - 151 - 3 154 109
Net interest income - Adjusted 1,627 398 (303) 568 (155) 2,135 2,754
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Non-interest income 597 856 1,556 36 35 3,080 2,260
Taxable equivalent - - 108 - - 108 7
Non-interest income - Adjusted 597 856 1,664 36 35 3,188 2,267
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Total revenues - Adjusted 2,224 1,254 1,361 604 (120) 5,323 5,021
Non-interest expenses 1,207 736 570 196 68 2,777 2,579
---------------
Income before provisions for
credit
losses and income taxes -
Adjusted 1,017 518 791 408 (188) 2,546 2,442
Provisions for credit losses 98 - 10 61 2 171 1
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Income before income taxes -
Adjusted 919 518 781 347 (190) 2,375 2,441
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Income taxes 253 142 (44) 72 (38) 385 506
Taxable equivalent - - 259 - 3 262 116
Income taxes related to the
Canadian
government's 2022
tax measures(2) - - - - (24) (24) -
Income taxes - Adjusted 253 142 215 72 (59) 623 622
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income - Adjusted 666 376 566 275 (131) 1,752 1,819
Specified items after income
taxes - - - - (24) (24) -
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income 666 376 566 275 (155) 1,728 1,819
Non-controlling interests - - - - (1) (1) (1)
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income attributable to the
Bank ' s shareholders
and holders of other equity
instruments 666 376 566 275 (154) 1,729 1,820
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income attributable to the
Bank's shareholders
and holders of other equity
instruments
- Adjusted 666 376 566 275 (130) 1,753 1,820
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Dividends on preferred shares
and
distributions
on limited recourse capital
notes 70 51
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
Net income attributable to
common
shareholders - Adjusted 1,683 1,769
------------------------------ --------------- ----------- --------- ------ ----- ----- -------
(1) For the six-month period ended April 30, 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 six-month period ended April 30, 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 22.
Presentation of Basic and Diluted Earnings Per Share -
Adjusted
Quarter ended Six months ended
(Canadian dollars) April 30 April 30
---------------------------------------------------- ------------------ ------------------
2023 2022(1) 2023 2022(1)
---------------------------------------------------- ---- ------- ------ ---------
Basic earnings per share $ 2.41 $ 2.56 $ 4.92 $ 5.24
Income taxes related to the Canadian government's
2022 tax measures(2) - - 0.07 -
Basic earnings per share - Adjusted $ 2.41 $ 2.56 $ 4.99 $ 5.24
---------------------------------------------------- ---- ------- ------ ---------
Diluted earnings per share $ 2.38 $ 2.53 $ 4.87 $ 5.17
Income taxes related to the Canadian government's
2022 tax measures(2) - - 0.07 -
Diluted earnings per share - Adjusted $ 2.38 $ 2.53 $ 4.94 $ 5.17
---------------------------------------------------- ---- ------- ------ ---------
(1) For the quarter and six-month period ended April 30, 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 six-month period ended April 30, 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 22.
Presentation of Non-Trading Net Interest Income - Adjusted
Quarter ended Six months ended
(millions of Canadian dollars) April 30 April 30
------------------------------------------------- --------------- --------------------
2023 2022 2023 2022
------------------------------------------------- ------- ------ -------- --------
Net interest income - Adjusted 958 1,362 2,135 2,754
Less: Net interest income (loss) related
to trading activities on a taxable equivalent
basis (322) 278 (518) 602
------------------------------------------------- ------- ------ -------- --------
Net interest income, non-trading - Adjusted 1,280 1,084 2,653 2,152
------------------------------------------------- ------- ------ -------- --------
Economic Review and Outlook
Global Economy
Once China had abandoned its zero-COVID policy, many thought
that its economy would revitalize global growth in 2023.
First-quarter data supported this notion, as Chinese GDP grew
faster than expected. However, there are a few flaws in the strong
recovery scenario: the figures were inflated by a positive base
effect related to confinements in 2022, imports have not rallied,
inflation has remained low, the manufacturing sector appears to be
losing momentum, and the financial positions of provincial
governments have deteriorated even further. And it is unlikely that
the eurozone will save the day. While a drop in gas prices has
allowed the single-currency zone to narrowly escape a recession
during the winter months, the outlook remains sobering. Household
spending appears to be losing momentum, most certainly due to the
fact that growth in household credit has slowed considerably in
recent months. Given such a reversal in credit conditions, the
European Central Bank (ECB) would normally have exercised extreme
caution, but the eurozone's unemployment rate is still at a record
low and core inflation has remained near its all-time high,
effectively forcing the ECB to maintain an aggressive response. It
appears increasingly likely that returning inflation to its target
rate will mean a recession in the eurozone in the second half of
2023. This fragility, combined with the expected weakness in the
U.S. and a slow rebound in China, supports our view that the global
economy will remain sluggish over the next few quarters. We expect
growth of 2.6%(1) this year, followed by 2.3%(1) in 2024.
In the United States, domestic demand was strong in the first
quarter, but such good performance does not alter our view that
growth will slow considerably by year-end. Several economic
indicators are already pointing in that direction, including real
consumer spending and business investment in machinery and
equipment. Moreover, there continues to be uncertainty around the
U.S. banking system, given significantly higher funding costs for
regional banks. Adding to these concerns, Janet Yellen, U.S.
Secretary of the Treasury, has warned that the U.S. could run out
of cash by June 1 if Congress fails to raise or suspend the debt
ceiling. To be clear, we still believe that the parties will reach
a last-minute agreement, but we are concerned this may come too
late to prevent some unwanted market turmoil. In addition, it is
unlikely that the U.S. Federal Reserve will lower interest rates
before the last quarter of the year. While the job market has
slowed somewhat, wage gains remain inconsistent with the central
bank's inflation target. According to our scenario, if monetary
policy remains this tight for so long, gross domestic product (GDP)
will fall short of the consensus among economists. Following a
relatively buoyant first half of the year, we expect the U.S.
economy to slip into a technical recession starting in the fourth
quarter of 2023 (we expect three quarters of negative growth).
Given this scenario, real GDP should grow by 1.4%(1) in 2023 before
contracting 0.4%(1) next year.
Canadian Economy
Although Canada's labour market has been generating jobs at an
unprecedented rate since the beginning of the year and the fight
against inflation is stalling, this does not mean that the Bank of
Canada should immediately begin raising interest rates again. This
spectacular job creation is occurring against a backdrop of equally
striking population growth and has not led to a tighter labour
market. The unemployment rate, while very low in historical terms,
has been stable for several months, and other indicators suggest
that the labour shortage is less acute, since job vacancy rates and
wage inflation have been declining thanks in part to immigration.
But immigration appears to be contributing to the recovery in the
real estate sector, in an environment where some buyers have likely
been comforted by the Bank of Canada's announcement that it was
pausing interest rate hikes. However, the central bank would only
be tempting fate if it concludes that it has not done enough. The
strength we have seen in the real estate market may be only
temporary in an environment where interest rates are still high,
and the labour market is not immune to a downturn. The rate hikes
have been extremely aggressive, and they will continue to weigh on
the economy, with a certain lag. We still expect the Canadian
economy to be lethargic over the next year, leading to anemic
economic growth rates of 0.9%(1) in 2023 and 0.5%(1) in 2024. In
contrast to our neighbours to the south, Canada's stronger banking
system, greater excess savings and favourable terms of trade lead
us to believe that the country can still avoid an economic
contraction in 2024.
Quebec Economy
In the fourth quarter of 2022, Quebec household consumption
remained extremely strong (+7.3% quarter-over-quarter on an
annualized basis), reflecting the province's strong labour market.
The year began on a high note, with 41,000 jobs created, almost all
of which were in the private sector. At the time of this writing,
Quebec's unemployment rate of 4.1% was still the lowest of all
Canada's provinces. However, as in the rest of the country, growth
is expected to slow in the coming months, since some economic
sectors will be more affected by rising interest rates. Some
factors will nevertheless serve to mitigate this weakness. First,
the financial position of Quebec consumers compares favourably to
the country as a whole, due to a higher savings rate and lower
debt, both of which represent assets given the current challenges.
Moreover, the widespread use of hydroelectricity in Quebec means
that its households are less exposed to soaring electricity costs
than their counterparts in the rest of the country. In addition,
housing is more affordable in Quebec than in the rest of the
country, making the market less vulnerable to sharp drops in
prices. It is interesting to note that, since housing prices peaked
in 2022, all of Quebec's major cities have recorded corrections
that were milder than the average for Canadian urban centres. The
province also benefits from a highly diversified economy and the
Quebec government's fiscal support. However, economic growth will
be limited by more modest
demographic growth than the rest of Canada and an already tight
labour market. Considering all of these factors, we forecast
0.5%(1) growth in Quebec in both 2023 and 2024.
(1) Actual GDP growth forecasts, National Bank Financial's Economics and Strategy group
Highlights
(millions of Canadian
dollars, Quarter ended April Six months ended April
except per share amounts) 30 30
----------------------------- -------------------------------- ------------------------------------------
2023 2022(1) % Change 2023 2022(1) % Change
---------------------------- ------- ------- -------- ------- ------- --------
Operating results
Total revenues 2,479 2,439 2 5,061 4,905 3
Income before provisions for
credit losses and income
taxes 1,105 1,140 (3) 2,284 2,326 (2)
Net income 847 889 (5) 1,728 1,819 (5)
Return on common
shareholders'
equity(2) 17.5% 20.7% 17.7 % 21.3%
Earnings per share
Basic $ 2.41 $ 2.56 (6) $ 4.92 $ 5.24 (6)
Diluted $ 2.38 $ 2.53 (6) $ 4.87 $ 5.17 (6)
---------------------------- ------- ------- -------- ------- ------- --------
Operating results - Adjusted
(3)
Total revenues - Adjusted(3) 2,611 2,491 5 5,323 5,021 6
Income before provisions for
credit losses
and income taxes -
Adjusted(3) 1,237 1,192 4 2,546 2,442 4
Net income - Adjusted(3) 847 889 (5) 1,752 1,819 (4)
Return on common
shareholders'
equity - Adjusted(4) 17.5% 20.7% 17.9 % 21.3%
Operating leverage -
Adjusted(4) (1.0)% 2.5% (1.7) % 3.0%
Efficiency ratio -
Adjusted(4) 52.6% 52.1% 52.2 % 51.4%
Earnings per share -
Adjusted
(3)
Basic $ 2.41 $ 2.56 (6) $ 4.99 $ 5.24 (5)
Diluted $ 2.38 $ 2.53 (6) $ 4.94 $ 5.17 (4)
---------------------------- ------- ------- -------- ------- ------- --------
Common share information
Dividends declared $ 0.97 $ 0.87 11 $ 1.94 $ 1.74 11
Book value(2) $ 57.65 $ 52.28 $ 57.65 $ 52.28
Share price
High $ 103.45 $ 104.59 $ 103.45 $ 105.44
Low $ 92.67 $ 89.33 $ 91.02 $ 89.33
Close $ 101.03 $ 89.72 $ 101.03 $ 89.72
Number of common shares
(thousands) 337,720 336,513 337,720 336,513
Market capitalization 34,120 30,192 34,120 30,192
---------------------------- ------- ------- -------- ------- ------- --------
As at As at
April October
30, 31,
(millions of Canadian dollars) 2023 2022 % Change
Balance sheet and off-balance-sheet
Total assets 417,684 403,740 3
Loans and acceptances, net of allowances 215,764 206,744 4
Deposits 281,514 266,394 6
Equity attributable to common shareholders 19,470 18,594 5
Assets under administration(2) 673,483 616,165 9
Assets under management(2) 123,029 112,346 10
------------------------------------------------------------------- -------- ----------- --------
Regulatory ratios under Basel III (5)
Capital ratios
Common Equity Tier 1 (CET1) 13.3 % 12.7 %
Tier 1 16.0 % 15.4 %
Total 16.9 % 16.9 %
Leverage ratio 4.2 % 4.5 %
------------------------------------------------------------------- -------- ----------- --------
TLAC ratio(5) 29.3 % 27.7 %
TLAC leverage ratio(5) 7.8 % 8.1 %
------------------------------------------------------------------- -------- ----------- --------
Liquidity coverage ratio (LCR)(5) 155 % 140 %
Net stable funding ratio (NSFR)(5) 118 % 117 %
------------------------------------------------------------------- -------- ----------- --------
Other information
Number of employees - Worldwide (full-time equivalent) 28,170 27,103 4
Number of branches in Canada 374 378 (1)
Number of banking machines in Canada 940 939 -
------------------------------------------------------------------- -------- ----------- --------
(1) For the quarter and six-month period ended April 30, 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 49 to 52 for details on
the composition of these measures.
(3) See the Financial Reporting Method section on pages 4 to 9
for additional information on non-GAAP financial measures.
(4) See the Financial Reporting Method section on pages 4 to 9
for additional information on non-GAAP ratios.
(5) See the Financial Reporting Method section on pages 4 to 9
for additional information on capital management measures.
Financial Analysis
Consolidated Results
(millions of Canadian Quarter ended April Six months ended April
dollars) 30 30
----------------------------- ---------------------------------- ----------------------------------
2022
2023 2022(1) % Change 2023 (1) % Change
----------------------------- ------- ------- -------- ------- ------- --------
Operating results
Net interest income 882 1,313 (33) 1,981 2,645 (25)
Non-interest income 1,597 1,126 42 3,080 2,260 36
----------------------------- ------- ------- -------- ------- ------- --------
Total revenues 2,479 2,439 2 5,061 4,905 3
Non-interest expenses 1,374 1,299 6 2,777 2,579 8
----------------------------- ------- ------- -------- ------- ------- --------
Income before provisions for
credit losses and income
taxes 1,105 1,140 (3) 2,284 2,326 (2)
Provisions for credit losses 85 3 171 1
----------------------------- ------- ------- -------- ------- ------- --------
Income before income taxes 1,020 1,137 (10) 2,113 2,325 (9)
Income taxes 173 248 (30) 385 506 (24)
----------------------------- ------- ------- -------- ------- ------- --------
Net income 847 889 (5) 1,728 1,819 (5)
----------------------------- ------- ------- -------- ------- ------- --------
Diluted earnings per share
(dollars) 2.38 2.53 (6) 4.87 5.17 (6)
----------------------------- ------- ------- -------- ------- ------- --------
Taxable equivalent basis (2)
Net interest income 76 49 154 109
Non-interest income 56 3 108 7
Income taxes 132 52 262 116
----------------------------- ------- ------- -------- ------- ------- --------
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 958 1,362 (30) 2,135 2,754 (22)
Non-interest income -
Adjusted 1,653 1,129 46 3,188 2,267 41
----------------------------- ------- ------- -------- ------- ------- --------
Total revenues - Adjusted 2,611 2,491 5 5,323 5,021 6
Non-interest expenses -
Adjusted 1,374 1,299 6 2,777 2,579 8
----------------------------- ------- ------- -------- ------- ------- --------
Income before provisions for
credit losses and
income taxes - Adjusted 1,237 1,192 4 2,546 2,442 4
Provisions for credit losses 85 3 171 1
----------------------------- ------- ------- -------- ------- ------- --------
Income before income taxes -
Adjusted 1,152 1,189 (3) 2,375 2,441 (3)
Income taxes - Adjusted 305 300 2 623 622 -
----------------------------- ------- ------- -------- ------- ------- --------
Net income - Adjusted 847 889 (5) 1,752 1,819 (4)
----------------------------- ------- ------- -------- ------- ------- --------
Diluted earnings per share -
Adjusted (dollars) 2.38 2.53 (6) 4.94 5.17 (4)
----------------------------- ------- ------- -------- ------- ------- --------
Average assets(3) 421,215 384,626 10 423,111 386,683 9
Average loans and
acceptances(3) 213,650 189,831 13 211,642 187,760 13
Average deposits(3) 282,133 251,260 12 281,845 253,069 11
Operating leverage(4) (4.2) % 2.3% (4.5) % 2.9%
Operating leverage -
Adjusted(5) (1.0) % 2.5% (1.7) % 3.0%
Efficiency ratio(4) 55.4 % 53.3% 54.9 % 52.6%
Efficiency ratio -
Adjusted(5) 52.6 % 52.1% 52.2 % 51.4%
Net interest margin,
non-trading
- Adjusted(5) 2.09 % 1.93% 2.14 % 1.89%
----------------------------- ------- ------- -------- ------- ------- --------
(1) For the quarter and six-month period ended April 30, 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 9
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 49 to 52 for details on
the composition of these measures.
(5) See the Financial Reporting Method section on pages 4 to 9
for additional information on non-GAAP ratios.
Financial Results
For the second quarter of 2023, National Bank reported net
income of $847 million, down 5% from $889 million in the second
quarter of 2022. Second-quarter diluted earnings per share stood at
$2.38 compared to $2.53 in the second quarter of 2022. Revenue
growth across the business segments was offset by higher
non-interest expenses and higher provisions for credit losses.
For the six month-period ended April 30, 2023, the Bank's net
income totalled $1,728 million, down 5% from $1,819 million in the
same period of 2022. First-half diluted earnings per share stood at
$4.87 compared to $5.17 in the same period of 2022. Good
performance across all of the business segments, driven by revenue
growth, was offset by higher provisions for credit losses recorded
to reflect a less favourable macroeconomic outlook as well as by an
impact on tax expense arising from the Canadian government's 2022
tax measures.
Also for the six-month period ended April 30, 2023, adjusted net
income totalled $1,752 million (excluding a $24 million tax expense
related to the Canadian government's 2022 tax measures), down 4%
from $1,819 million in the same period of 2022, while the
first-half adjusted diluted earnings per share stood at $4.94
versus $5.17 in the first half of 2022. These decreases were mainly
due to higher provisions for credit losses on non-impaired loans
recorded in the first half of 2023, whereas the macroeconomic
conditions had been more favourable in the same period of 2022. The
Bank's first-half adjusted income before provisions for credit
losses and income taxes totalled $2,546 million, a 4%
year-over-year increase driven by revenue growth across all of the
business segments.
Return on common shareholders' equity was 17.7% for the
six-month period ended April 30, 2023 compared to 21.3% in the same
six-month period of 2022.
Total Revenues
For the second quarter of 2023, the Bank's total revenues
amounted to $2,479 million, rising $40 million or 2% year over
year. In the Personal and Commercial segment, second-quarter total
revenues rose 14% year over year owing to growth in loans and
deposits, to a higher net interest margin resulting from interest
rate hikes, and to increases in credit card revenues, insurance
revenues, revenues from bankers' acceptances, and revenues from
derivative financial instruments, partly offset by a decrease in
revenues from foreign exchange activities. In the Wealth Management
segment, second-quarter total revenues grew 7% 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, second-quarter total revenues on a taxable equivalent
basis increased by 6% 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,
second-quarter total revenues amounted to $285 million, stable
compared to the second quarter of 2022, as sustained revenue growth
at ABA Bank was offset by a decrease in Credigy's revenues. In the
Other heading of segment results, second-quarter total revenues
were down year over year, mainly due to a decrease in gains on
investments.
For the six-month period ended April 30, 2023, total revenues
amounted to $5,061 million, up $156 million or 3% from $4,905
million in the same six-month period of 2022. In the Personal and
Commercial segment, first-half total revenues rose $304 million or
16% year over year owing to an increase in net interest income (as
both loans and deposits grew), a higher net interest margin
(resulting from higher interest rates) as well as to increases in
credit card revenues, revenues from bankers' acceptances, revenues
from derivative financial instruments, and revenues from foreign
exchange activities. In the Wealth Management segment, first-half
total revenues grew 7%, mainly due to an increase in net interest
income, partly offset by a decrease in fee-based revenues and
transaction-based and other revenues given weak market performance
compared to the first half of 2022. In the Financial Markets
segment, first-half total revenues on a taxable equivalent basis
were up $67 million or 5% year over year given growth in corporate
and investment banking revenues, partly offset by a decrease in
global markets revenues. In the USSF&I segment, first-half
total revenues were up 6% year over year owing to revenue growth at
ABA Bank, which was driven by higher loans and deposits. Lastly,
for the Other heading of segment results, first-half total revenues
reflect a lower contribution from Treasury activities and lower
gains on investment than those of first-half 2022.
Non-Interest Expenses
For the second quarter of 2023, non-interest expenses stood at
$1,374 million, up 6% from the second quarter of 2022. The increase
was essentially attributable to higher compensation and employee
benefits, notably due to wage growth and a greater number of
employees, partly offset by a decrease in variable compensation.
Occupancy expense was also up, partly related to expansion of the
ABA Bank network 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, notably given an increase in
travel and business development expenses, as activities with
clients resumed, and also given an increase in advertising
expenses.
First-half non-interest expenses stood at $2,777 million, an 8%
year-over-year increase that was due to the same reasons provided
above for the second quarter. Also explaining the increase in other
expenses was the reversal of the provision for the compensatory tax
on salaries paid in Quebec of $20 million that had been recorded
during the first quarter of 2022.
Provisions for Credit Losses
For the second quarter of 2023, the Bank recorded $85 million in
provisions for credit losses compared to $3 million in the same
quarter of 2022. This increase stems mainly from higher provisions
for credit losses on non-impaired loans recorded to reflect new
loan origination as well as a less favourable macroeconomic outlook
compared to the second quarter of 2022 (notably rising inflation
and geopolitical instability). Also, in the second 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.
Second-quarter provisions for credit losses on impaired loans,
excluding purchased or originated credit-impaired (POCI) loans(1)
rose $24 million year over year. This increase stems from Personal
Banking (including credit card receivables), reflecting a
normalization of credit performance, from the Financial Markets
segment, and from Credigy (excluding POCI loans). These increases
were tempered by a decrease in provisions for credit losses on
impaired loans at ABA Bank. The second-quarter provisions for
credit losses on Credigy's POCI loans increased $4 million year
over year given remeasurements of certain portfolios.
For the six-month period ended April 30, 2023, the Bank recorded
$171 million in provisions for credit losses compared to $1 million
in the same period of 2022. This increase stems mainly from higher
provisions for credit losses on non-impaired loans recorded to
reflect a less favourable macroeconomic outlook compared to the
first half of 2022 caused by the same reasons provided for the
quarter. As for provisions for credit losses on impaired loans
excluding POCI loans(1) , they were also up, mainly due to Personal
Banking (including credit card receivables), Commercial Banking,
and the Credigy subsidiary. First-half provisions for credit losses
on Credigy's POCI loans were also up given a favourable
remeasurement of certain portfolios in the same period of 2022.
These increases were tempered by higher recoveries for credit
losses recorded by the Financial Markets segment in the first half
of 2023 as well as by a decrease in provisions for credit losses on
impaired loans at ABA Bank.
Income Taxes
For the second quarter of 2023, income taxes stood at $173
million compared to $248 million in the same quarter of 2022. The
2023 second-quarter effective income tax rate was 17% 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, factors that were partly offset by
the additional 1.5% tax on banks and life insurers.
For the six-month period ended April 30, 2023, the effective
income tax rate stood at 18% compared to 22% in the same six-month
period of 2022. The year-over-year change in effective income tax
rate stems from the same reasons as those mentioned for the
quarter, partly offset by the impact of the Canadian government's
2022 tax measures recorded in the first quarter of 2023, namely,
the Canada Recovery Dividend and the additional 1.5% tax on banks
and life insurers.
(1) See the Glossary section on pages 49 to 52 for details on
the composition of these measures.
Results by Segment
The Bank carries out its activities in four business segments:
Personal and Commercial, Wealth Management, Financial Markets, and
U.S. Specialty Finance and International, which comprises the
activities of the Credigy Ltd. (Credigy) and Advanced Bank of Asia
Limited (ABA Bank) subsidiaries. Other operating activities,
certain specified items, Treasury activities, and the operations of
the Flinks Technology Inc. (Flinks) subsidiary are grouped in the
Other heading of segment results. Each reportable segment is
distinguished by services offered, type of clientele, and marketing
strategy.
Personal and Commercial
Quarter ended April Six months ended April
(millions of Canadian dollars) 30 30
------------------------------- ------------------------------- -------------------------------
2023 2022(1) % Change 2023 2022(1) % Change
------------------------------- ------- ------- -------- ------- ------- --------
Operating results
Net interest income 802 670 20 1,627 1,339 22
Non-interest income 298 292 2 597 581 3
------------------------------- ------- ------- -------- ------- ------- --------
Total revenues 1,100 962 14 2,224 1,920 16
Non-interest expenses 601 552 9 1,207 1,107 9
------------------------------- ------- ------- -------- ------- ------- --------
Income before provisions for
credit losses and income taxes 499 410 22 1,017 813 25
Provisions for credit losses 37 11 98 6
------------------------------- ------- ------- -------- ------- ------- --------
Income before income taxes 462 399 16 919 807 14
Income taxes 127 106 20 253 214 18
------------------------------- ------- ------- -------- ------- ------- --------
Net income 335 293 14 666 593 12
------------------------------- ------- ------- -------- ------- ------- --------
Net interest margin(2) 2.34 % 2.10% 2.35 % 2.07%
Average interest-bearing
assets(2) 140,319 131,153 7 139,758 130,301 7
Average assets(3) 147,316 137,636 7 146,714 136,852 7
Average loans and
acceptances(3) 146,489 137,079 7 145,909 136,113 7
Net impaired loans(2) 217 191 14 217 191 14
Net impaired loans as a % of
total loans and acceptances(2) 0.1 % 0.1% 0.1 % 0.1%
Average deposits(3) 83,983 78,912 6 84,526 79,494 6
Efficiency ratio(2) 54.6 % 57.4% 54.3 % 57.7%
------------------------------- ------- ------- -------- ------- ------- --------
(1) For the quarter and six-month period ended April 30, 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 49 to 52 for details on
the composition of these measures.
(3) Represents an average of the daily balances for the period.
In the Personal and Commercial segment, net income totalled $335
million in the second quarter of 2023, up 14% from $293 million in
the second quarter of 2022. The segment's second-quarter income
before provisions for credit losses and income taxes grew 22% year
over year. Second-quarter net interest income rose 20% year over
year owing to growth in personal and commercial loans and deposits
as well as to a higher net interest margin, which was 2.34% in
second-quarter 2023 compared to 2.10% in second-quarter 2022. This
growth reflects the interest rate hikes and was mainly attributable
to the deposit margin. As for second-quarter non-interest income,
it grew $6 million or 2% year over year.
Personal Banking's second-quarter total revenues increased by
$53 million year over year. This increase came from an increase in
net interest income driven by loan and deposit growth, from an
improved margin on deposits, and from higher insurance and card
revenues. Commercial Banking's second-quarter total revenues grew
$85 million year over year, mainly due to an increase in net
interest income that was driven by loan and deposit growth and an
improved deposit margin as well as to increases in revenues from
bankers' acceptances and from derivative financial instruments,
partly offset by a decrease in revenues from foreign exchange
activities.
For the second quarter of 2023, the Personal and Commercial
segment's non-interest expenses stood at $601 million, a 9%
year-over-year increase that was mainly due to higher compensation
and employee benefits (given wage growth and a greater number of
employees), to investments made as part of the segment's
technological evolution, and to operations support charges. At
54.6%, the segment's second-quarter efficiency ratio improved by
2.8 percentage points year over year as a result of strong revenue
growth. The segment recorded $37 million in provisions for credit
losses in the second quarter of 2023 compared to $11 million in the
same quarter of 2022. This increase came mainly from higher
provisions for credit losses on non-impaired loans recorded to
reflect a less favourable macroeconomic outlook. Furthermore,
provisions for credit losses on impaired loans were also up year
over year, reflecting a normalization of credit performance.
For the six-month period ended April 30, 2023, Personal and
Commercial's net income totalled $666 million versus $593 million
in the same period of 2022, an increase that was mainly due to 16%
growth in the segment's total revenues. First-half income before
provisions for credit losses and income taxes totalled $1,017
million, a 25% year-over-year increase. Personal Banking's
first-half total revenues were up, mainly due to growth in loans
and deposits and to a higher deposit margin (partly offset by a
lower margin on loans) as well as to increases in credit card
revenues. In addition, Commercial Banking's first-half total
revenues rose 28% owing to growth in loans and deposits, to a
higher net interest margin, as well as to increases in revenues
from bankers' acceptances, from derivative financial instruments,
and from foreign exchange activities.
First-half non-interest expenses stood at $1,207 million, a 9%
year-over-year increase that was due to the same reasons provided
above for the second quarter. At 54.3%, the first-half efficiency
ratio improved by 3.4 percentage points from the same period in
2022. The segment recorded $98 million in provisions for credit
losses in the first half of 2023 compared to $6 million in the same
period of 2022. This increase came mainly from higher provisions
for credit losses on non-impaired loans recorded to reflect new
loan origination and a less favourable macroeconomic outlook. In
addition, first-half provisions for credit losses on impaired loans
were also up year over year.
Wealth Management
Quarter ended April Six months ended April
(millions of Canadian dollars) 30 30
------------------------------- ------------------------------- -------------------------------
2023 2022(1) % Change 2023 2022(1) % Change
------------------------------- ------- ------- -------- ------- ------- --------
Operating results
Net interest income 190 127 50 398 246 62
Fee-based revenues 350 359 (3) 697 731 (5)
Transaction-based and other
revenues 77 93 (17) 159 194 (18)
------------------------------- ------- ------- -------- ------- ------- --------
Total revenues 617 579 7 1,254 1,171 7
Non-interest expenses 372 357 4 736 717 3
------------------------------- ------- ------- -------- ------- ------- --------
Income before provisions for
credit losses and income taxes 245 222 10 518 454 14
Provisions for credit losses - - - -
------------------------------- ------- ------- -------- ------- ------- --------
Income before income taxes 245 222 10 518 454 14
Income taxes 67 59 14 142 121 17
------------------------------- ------- ------- -------- ------- ------- --------
Net income 178 163 9 376 333 13
------------------------------- ------- ------- -------- ------- ------- --------
Average assets(2) 8,518 8,327 2 8,521 8,329 2
Average loans and
acceptances(2) 7,542 7,256 4 7,546 7,201 5
Net impaired loans(3) 5 19 (74) 5 19 (74)
Average deposits(2) 40,344 34,810 16 40,278 34,412 17
Assets under administration(3) 673,483 627,739 7 673,483 627,739 7
Assets under management(3) 123,029 114,932 7 123,029 114,932 7
Efficiency ratio(3) 60.3 % 61.7% 58.7 % 61.2%
------------------------------- ------- ------- -------- ------- ------- --------
(1) For the quarter and six-month period ended April 30, 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 49 to 52 for details on
the composition of these measures.
In the Wealth Management segment, net income totalled $178
million in the second quarter of 2023, a 9% increase from $163
million in the second quarter of 2022. The segment's second-quarter
total revenues amounted to $617 million, up $38 million or 7% from
$579 million in the second quarter of 2022. This increase in
revenues was driven by a $63 million or 50% increase in net
interest income resulting from the interest rate hikes that
occurred over the past year. Second-quarter fee-based revenues
decreased by 3%, 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 17% year over year as a result of lower commission-generating
trading volume.
For the second quarter of 2023, the Wealth Management segment's
non-interest expenses stood at $372 million, a $15 million or 4%
year-over-year increase that was due to higher compensation and
employee benefits and higher technology expenses related to the
segment's initiatives, partly offset by a decrease in variable
compensation and external management fees. At 60.3%, the segment's
second-quarter efficiency ratio improved by 1.4 percentage points
from 61.7% in the second quarter of 2022. The provisions for credit
losses were negligible in the second quarters of fiscal 2023 and
2022.
For the first half of 2023, Wealth Management's net income
totalled $376 million, up 13% from $333 million in the same period
of 2022. The segment's first-half total revenues amounted to $1,254
million, up 7% from $1,171 million in the same period of 2022. Its
first-half net interest income grew $152 million or 62% year over
year owing to higher interest rates. First-half fee-based revenues
decreased by 5%, as there was weaker stock market performance year
over year, partly offset by positive net inflows into various
solutions. As for transaction and other revenues, they decreased
18% year over year as a result of lower commission-generating
trading volume. First-half non-interest expenses stood at $736
million compared to $717 million in the first half of 2022; this
increase was due to higher compensation and employee benefits and
to an increase in technology expenses related to the segment's
initiatives, partly offset by a decrease in variable compensation
and external management fees. At 58.7%, the first-half efficiency
ratio improved by 2.5 percentage points compared to 61.2% in the
same period of 2022. The segment's provisions for credit losses
were negligible in the first-half periods of fiscal 2023 and
2022.
Financial Markets
(taxable equivalent
basis)(1)
(millions of Canadian Quarter ended April Six months ended April
dollars) 30 30
---------------------------- ---------------------------------- -----------------------------------
2023 2022(2) % Change 2023 2022(2) % Change
---------------------------- ------- ------- -------- ------- ------- ---------
Operating results
Global markets
Equities 222 287 (23) 414 570 (27)
Fixed-income 97 69 41 248 179 39
Commodities and foreign
exchange 66 40 65 120 80 50
---------------------------- ------- ------- -------- ------- ------- ---------
385 396 (3) 782 829 (6)
Corporate and investment
banking 287 236 22 579 465 25
---------------------------- ------- ------- -------- ------- ------- ---------
Total revenues(1) 672 632 6 1,361 1,294 5
Non-interest expenses 283 258 10 570 521 9
---------------------------- ------- ------- -------- ------- ------- ---------
Income before provisions for
credit losses and income
taxes 389 374 4 791 773 2
Provisions for credit losses 19 (16) 10 (32)
---------------------------- ------- ------- -------- ------- ------- ---------
Income before income taxes 370 390 (5) 781 805 (3)
Income taxes(1) 102 103 (1) 215 213 1
---------------------------- ------- ------- -------- ------- ------- ---------
Net income 268 287 (7) 566 592 (4)
---------------------------- ------- ------- -------- ------- ------- ---------
Average assets(3) 172,361 149,029 16 172,819 153,467 13
Average loans and
acceptances(3)
(Corporate Banking only) 28,804 21,431 34 27,921 20,815 34
Net impaired loans(4) 76 3 76 3
Net impaired loans as a % of
total loans and
acceptances(4) 0.3 % -% 0.3 % -%
Average deposits(3) 58,339 45,203 29 55,540 46,346 20
Efficiency ratio (4) 42.1 % 40.8% 41.9 % 40.3%
---------------------------- ------- ------- -------- ------- ------- ---------
(1) The Total revenues and Income taxes items of the Financial
Markets segment are presented on a taxable equivalent basis.
Taxable equivalent basis is a calculation method that consists in
grossing up certain revenues taxed at lower rates by the income tax
to a level that would make it comparable to revenues from taxable
sources in Canada. For the quarter ended April 30, 2023, Total
revenues were grossed up by $130 million ($50 million in 2022) and
an equivalent amount was recognized in Income taxes. For the
six-month period ended April 30, 2023, Total revenues were grossed
up by $259 million ($113 million in 2022) and an equivalent amount
was recognized in Income taxes. The effect of these adjustments is
reversed under the Other heading in the segment results.
(2) For the quarter and six-month period ended April 30, 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 49 to 52 for details on
the composition of these measures.
In the Financial Markets segment, net income totalled $268
million in the second quarter of 2023, down 7% from $287 million in
the second quarter of 2022. Income before provisions for credit
losses and income taxes totalled $389 million in the second quarter
of 2023, up 4% from the second quarter of 2022. Second-quarter
total revenues amounted to $672 million, up $40 million or 6% from
$632 million in the second quarter of 2022. Global markets revenues
were down 3% given a 23% decrease in revenues from equity
securities, tempered by a 41% increase in revenues from
fixed-income securities and a 65% increase in revenues from
commodities and foreign exchange activities. Second-quarter
corporate and investment banking revenues grew 22% year over year
given an increase in revenues from merger and acquisition activity
and in banking services revenues, reflecting growth in loan volumes
and a higher margin on deposits, with these increases being partly
offset by lower revenues from capital markets activity.
Second-quarter non-interest expenses stood at $283 million, a
10% 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, higher operations
support charges, and expenses related to the segment's business
growth. At 42.1%, the second-quarter efficiency ratio deteriorated
when compared to 40.8% in the second quarter of 2022. The segment
recorded $19 million in provisions for credit losses in the second
quarter of 2023 compared to $16 million in recoveries of credit
losses in the second quarter of 2022. This increase came from
higher provisions for credit losses on impaired loans of $9 million
and on non-impaired loans of $26 million recorded to reflect new
loan origination and less favourable macroeconomic conditions in
the second quarter of 2023.
For the six months ended April 30, 2023, the segment's net
income totalled $566 million, down 4% from the same six-month
period in 2022. First-half income before provisions for credit
losses and income taxes totalled $791 million, up 2% from the first
half of 2022. As for first-half total revenues, they amounted to
$1,361 million, up $67 million or 5% from $1,294 million in the
same period of 2022. Global markets revenues were down $47 million
given a 27% decrease in revenues from equity securities, whereas
revenues from fixed-income securities rose 39% and revenues from
commodities and foreign exchange activities rose 50%. First-half
corporate and investment banking revenues grew 25% year over year
due to the same reasons provided above for the quarter.
First-half non-interest expenses rose 9% year over year, mainly
due to the same reasons provided above for the second quarter. At
41.9%, the first-half efficiency ratio compares to 40.3% in the
same period of 2022. The segment recorded $10 million in provisions
for credit losses during the first half of 2023 compared to $32
million in recoveries of credit losses in the same first-half
period of 2022. The increase in credit losses on non-impaired loans
was partly offset by higher recoveries of credit losses on impaired
loans recorded in the first half of 2023.
U.S. Specialty Finance and International (USSF&I)
Quarter ended April Six months ended April
(millions of Canadian dollars) 30 30
--------------------------------- -------------------------------- --------------------------------
2023 2022 % Change 2023 2022 % Change
--------------------------------- ------ ------ -------- ------ ------ --------
Total revenues
Credigy 108 120 (10) 245 246 -
ABA Bank 178 164 9 358 322 11
International (1) 1 1 2
--------------------------------- ------ ------ -------- ------ ------ --------
285 285 - 604 570 6
-------------------------------- ------ ------ -------- ------ ------ --------
Non-interest expenses
Credigy 33 35 (6) 69 68 1
ABA Bank 65 52 25 126 99 27
International - 1 1 1
--------------------------------- ------ ------ -------- ------ ------ --------
98 88 11 196 168 17
--------------------------------- ------ ------ -------- ------ ------ --------
Income before provisions for
credit losses and income taxes 187 197 (5) 408 402 1
--------------------------------- ------ ------ -------- ------ ------ --------
Provisions for credit losses
Credigy 20 4 51 18
ABA Bank 6 5 20 10 9 11
--------------------------------- ------ ------ -------- ------ ------ --------
26 9 61 27
-------------------------------- ------ ------ -------- ------ ------ --------
Income before income taxes 161 188 (14) 347 375 (7)
--------------------------------- ------ ------ -------- ------ ------ --------
Income taxes
Credigy 11 17 (35) 26 34 (24)
ABA Bank 22 19 16 46 41 12
------ ------ --------
33 36 (8) 72 75 (4)
-------------------------------- ------ ------ -------- ------ ------ --------
Net income
Credigy 44 64 (31) 99 126 (21)
ABA Bank 85 88 (3) 176 173 2
International (1) - - 1
--------------------------------- ------ ------ -------- ------ ------ --------
128 152 (16) 275 300 (8)
-------------------------------- ------ ------ -------- ------ ------ --------
Average assets(1) 22,562 18,230 24 22,076 18,100 22
Average loans and receivables(1) 18,369 14,647 25 18,151 14,515 25
Purchased or originated
credit-impaired
(POCI) loans 390 376 4 390 376 4
Net impaired loans excluding
POCI loans(2) 179 80 179 80
Average deposits(1) 10,586 8,342 27 10,193 8,115 26
Efficiency ratio(2) 34.4 % 30.9% 32.5 % 29.5%
--------------------------------- ------ ------ -------- ------ ------ --------
(1) Represents an average of the daily balances for the period.
(2) See the Glossary section on pages 49 to 52 for details on
the composition of these measures.
In the USSF&I segment, net income totalled $128 million in
the second quarter of 2023 compared to $152 million in the same
quarter of 2022, as stability in total revenues was offset by
higher non-interest expenses and higher provisions for credit
losses. The segment's second-quarter total revenues amounted to
$285 million, stable compared to the second quarter of 2022. For
the six-month period ended April 30, 2023, the segment recorded net
income of $275 million compared to $300 million in the same
six-month period of 2022, an 8% decrease that was attributable to
Credigy's business activities.
Credigy
For the second quarter of 2023, the Credigy subsidiary's net
income totalled $44 million, a $20 million or 31% year-over-year
decrease that was due to lower revenues and higher provisions for
credit losses. Total revenues, which amounted to $108 million in
the second quarter of 2023 compared to $120 million in the same
quarter of 2022, were down, mainly due to a lower margin related to
the portfolio mix as well as to greater performance in certain
portfolios in the second quarter of 2022, partly offset by the
impact of exchange rate changes. Credigy's second-quarter
non-interest expenses stood at $33 million, a $2 million
year-over-year decrease that was mainly due to compensation and
employee benefits. Provisions for credit losses increased by $16
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 and POCI loans.
For the six-month period ended April 30, 2023, the Credigy
subsidiary's net income totalled $99 million, a 21% year-over-year
decrease that was due to higher provisions for credit losses. The
subsidiary's first-half income before provisions for credit losses
and income taxes totalled $176 million, down 1%. Its first-half
total revenues amounted to $245 million compared to $246 million in
the same period of 2022. A decrease in net interest income was
partly offset by revenue recorded upon the prepayment of a credit
facility recognized in the first quarter of 2023 as well as by
growth in non-interest income to reflect an unfavourable impact of
remeasuring the fair value of certain portfolios during the first
half of 2022. Credigy's first-half non-interest expenses stood at
$69 million, relatively stable compared to the first half of 2022.
First-half provisions for credit losses rose $33 million year over
year, mainly due to the same reasons provided above for the second
quarter.
ABA Bank
For the second quarter of 2023, the ABA Bank subsidiary's net
income totalled $85 million, down $3 million or 3% from the same
quarter in 2022. The subsidiary's second-quarter total revenues
were up 9% due to sustained loan and deposit growth as well as by
the impact of exchange rate changes, partly offset by an increase
in interest rates on deposits and by lower interest rates on loans
in a competitive environment in Cambodia. Non-interest expenses for
the second quarter of 2023 stood at $65 million, a $13 million or
25% year-over-year increase attributable to higher compensation and
employee benefits (notably due to wage growth given a greater
number of employees) and to higher occupancy expenses resulting
from the subsidiary's business growth and opening of new branches.
Provisions for credit losses, which stood at $6 million in the
second quarter of 2023, rose $1 million year over year.
For the six-month period ended April 30, 2023, the ABA Bank
subsidiary's net income totalled $176 million, up 2% year over
year. Growth in the subsidiary's business activities, mainly
sustained growth in loans and deposits, explains an 11%
year-over-year increase in its first-half total revenues. This
increase was, however, partly offset by higher interest rates on
deposits and lower interest rates on loans given a competitive
environment in Cambodia. First-half non-interest expenses stood at
$126 million, a 27% year-over-year increase that was due to the
same reasons provided above for the second quarter. The
subsidiary's first-half provisions for credit losses stood at $10
million, a $1 million year-over-year increase that stems from
higher provisions for credit losses on non-impaired loans, partly
offset by lower provisions for credit losses on impaired loans.
Other
Quarter ended Six months ended
(millions of Canadian dollars) April 30 April 30
------------------------------------------------------ ---------------- ------------------
2023 2022(1) 2023 2022(1)
------------------------------------------------------ ------- ------- -------- --------
Operating results
Net interest income(2) (167) (116) (309) (240)
Non-interest income(2) (28) 97 (73) 190
------------------------------------------------------- ------- ------- -------- --------
Total revenues (195) (19) (382) (50)
Non-interest expenses 20 44 68 66
------------------------------------------------------- ------- ------- -------- --------
Income before provisions for credit losses
and income taxes (215) (63) (450) (116)
Provisions for credit losses 3 (1) 2 -
------------------------------------------------------- ------- ------- -------- --------
Income before income taxes (218) (62) (452) (116)
Income taxes (recovery)(2) (156) (56) (297) (117)
------------------------------------------------------- ------- ------- -------- --------
Net income (loss) (62) (6) (155) 1
Non-controlling interests (1) (1) (1) (1)
------------------------------------------------------- ------- ------- -------- --------
Net income (loss) attributable to the Bank's
shareholders and holders of other equity instruments (61) (5) (154) 2
------------------------------------------------------- ------- ------- -------- --------
Specified items after income taxes(3) - - 24 -
------------------------------------------------------- ------- ------- -------- --------
Net income (loss) - Adjusted (3) (62) (6) (131) 1
------------------------------------------------------- ------- ------- -------- --------
Average assets(4) 70,458 71,404 72,981 69,935
------------------------------------------------------- ------- ------- -------- --------
(1) For the quarter and six-month period ended April 30, 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 April 30, 2023, an amount of $76
million ($49 million in 2022) was deducted from Net interest
income, an amount of $56 million ($3 million in 2022) was deducted
from Non-interest income, and an equivalent amount was recorded in
Income taxes (recovery). For the six-month period ended April 30,
2023, Net interest income was reduced by $154 million ($109 million
in 2022), Non-interest income was reduced by $108 million ($7
million in 2022), and an equivalent amount was recognized in Income
taxes (recovery). These adjustments include a reversal of the
taxable equivalent of the Financial Markets segment and the Other
heading. Taxable equivalent basis is a calculation method that
consists of grossing up certain revenues taxed at lower rates by
the income tax to a level that would make it comparable to revenues
from taxable sources in Canada.
(3) See the Financial Reporting Method section on pages 4 to 9
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 $62 million in the second quarter of 2023 compared to a net loss
of $6 million in the second quarter of 2022. This change stems
essentially from a decrease in total revenues arising from higher
gains on investments recorded in the second quarter of 2022.
Second-quarter non-interest expenses were down year over year,
notably due to a decrease in variable compensation.
For the six-month period ended April 30, 2023, net loss stood at
$155 million compared to $1 million in net income for the six-month
period ended April 30, 2022. This change was due to a decrease in
total revenues arising mainly from a lower contribution from
Treasury activities and from lower gains on investments in the
first half of 2023. In addition, the specified items recorded for
the first half of 2023 and related to the Canadian government's
2022 tax measures contributed to a higher net loss. These specified
items 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. For the six-month period ended April 30, 2023,
adjusted net loss stood at $131 million compared to $1 million in
net income for the six-month period ended April 30, 2022.
Consolidated Balance Sheet
Consolidated Balance Sheet Summary
As at April As at October
(millions of Canadian dollars) 30, 2023 31, 2022 % Change
------------------------------------------------ ----------- ------------- --------
Assets
Cash and deposits with financial institutions 42,501 31,870 33
Securities 116,922 109,719 7
Securities purchased under reverse repurchase
agreements and securities borrowed 16,827 26,486 (36)
Loans and acceptances, net of allowances 215,764 206,744 4
Other 25,670 28,921 (11)
------------------------------------------------ ----------- ------------- --------
417,684 403,740 3
----------------------------------------------- ----------- ------------- --------
Liabilities and equity
Deposits 281,514 266,394 6
Other 112,801 114,101 (1)
Subordinated debt 748 1,499 (50)
Equity attributable to the Bank's shareholders
and holders of other equity instruments 22,620 21,744 4
Non-controlling interests 1 2 (50)
------------------------------------------------ ----------- ------------- --------
417,684 403,740 3
----------------------------------------------- ----------- ------------- --------
Assets
As at April 30, 2023, the Bank had total assets of $417.7
billion, a $14.0 billion or 3% increase from $403.7 billion as at
October 31, 2022. At $42.5 billion as at April 30, 2023, cash and
deposits with financial institutions were up $10.6 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 April 30, 2023, securities totalled $116.9 billion,
increasing $7.2 billion since October 31, 2022. Securities at fair
value through profit or loss increased by $5.7 billion or 7%,
essentially due to equity securities and securities issued or
guaranteed by the Canadian government, partly offset by a decrease
in securities issued or guaranteed by the U.S. Treasury, other U.S.
agencies and other foreign governments. Securities other than those
measured at fair value through profit or loss were also up, rising
$1.5 billion. Securities purchased under reverse repurchase
agreements and securities borrowed decreased by $9.7 billion since
October 31, 2022, mainly due to the activities of the Financial
Markets segment and Treasury.
Totalling $215.8 billion as at April 30, 2023, loans and
acceptances, net of allowances for credit losses, rose $9.1 billion
or 4% since October 31, 2022. The following table provides a
breakdown of the main loan and acceptance portfolios.
As at April As at October As at April
(millions of Canadian dollars) 30, 2023 31, 2022 30, 2022
-------------------------------------- ----------- ------------- -----------
Loans and acceptances
Residential mortgage and home equity
lines of credit 113,069 109,648 103,987
Personal 15,627 15,804 15,463
Credit card 2,433 2,389 2,252
Business and government 85,705 79,858 73,242
-------------------------------------- ----------- ------------- -----------
216,834 207,699 194,944
Allowances for credit losses (1,070) (955) (915)
-------------------------------------- ----------- ------------- -----------
215,764 206,744 194,029
------------------------------------- ----------- ------------- -----------
Since October 31, 2022, residential mortgages (including home
equity lines of credit) rose $3.5 billion or 3% given the
activities of the Financial Markets segment and the Credigy
subsidiary. Compared to October 31, 2022, personal loans were down
while credit card receivables increased. Loans and acceptances to
business and government rose $5.8 billion or 7% compared to October
31, 2022, mainly due to business growth at Commercial Banking,
corporate banking financial services, Treasury activities, and the
ABA Bank subsidiary, partly offset by Credigy's repayment of loan
portfolios.
Since April 30, 2022, loans and acceptances, net of allowances
for credit losses, grew $21.8 billion or 11%. Residential mortgages
(including home equity lines of credit) were up $9.1 billion or 9%
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 and credit card receivables were up
slightly and loans and acceptances to business and government rose
$12.5 billion or 17%, owing essentially to the activities of
Commercial Banking, corporate financial services, Treasury, and ABA
Bank.
Impaired loans include loans classified in Stage 3 of the
expected credit loss model and the purchased or originated
credit-impaired (POCI) loans of the Credigy subsidiary. As at April
30, 2023, gross impaired loans stood at $1,204 million compared to
$1,271 million as at October 31, 2022. As for net impaired loans,
they totalled $944 million as at April 30, 2023 compared to $1,030
million as at October 31, 2022. Net impaired loans excluding POCI
loans amounted to $477 million, decreasing $2 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 $467 million as at April 30, 2023 compared to $551 million
as at October 31, 2022, down as a result of repayments and
maturities of certain loan portfolios.
As at April 30, 2023, other assets totalled $25.7 billion, a
$3.2 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 April 30, 2023, the Bank had total liabilities of $395.1
billion compared to $382.0 billion as at October 31, 2022.
The Bank's total deposit liability stood at $281.5 billion as at
April 30, 2023, rising $15.1 billion or 6% from $266.4 billion as
at October 31, 2022. As at April 30, 2023, personal deposits stood
at $85.6 billion, rising $6.8 billion since October 31, 2022. This
increase came mainly from business growth at Personal Banking, in
the Wealth Management segment, in the Financial Markets segment,
and at ABA Bank.
Business and government deposits stood at $191.8 billion as at
April 30, 2023, rising $7.6 billion since October 31, 2022. This
increase came from the Financial Markets segment and Treasury
funding activities, including $2.6 billion in deposits subject to
bank recapitalization (bail-in) conversion regulations, partly
offset by a decrease in deposits from the activities of Commercial
Banking and Wealth Management. Deposits from deposit-taking
institutions stood at $4.2 billion as at April 30, 2023, rising
$0.8 billion since October 31, 2022 due to Treasury funding
activities.
Other liabilities, totalling $112.8 billion as at April 30,
2023, decreased $1.3 billion since October 31, 2022, resulting
essentially from a $3.1 billion decrease in obligations related to
securities sold short and a $2.7 billion decrease in derivative
financial instruments, partly offset by a $4.6 billion increase in
obligations related to securities sold under repurchase agreements
and securities loaned.
Subordinated debt decreased since October 31, 2022 as a result
of the Bank's redemption, on February 1, 2023, of $750 million in
medium-term notes.
Equity
As at April 30, 2023, equity attributable to the Bank's
shareholders and holders of other equity instruments was $22.6
billion, rising $0.9 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 and by the net fair value change
attributable to the credit risk on financial liabilities designated
at fair value through profit or loss.
Event After the Consolidated Balance Sheet Date
On May 2, 2023, the Bank concluded that it had lost significant
influence over TMX Group Limited (TMX) and therefore, as of this
date, ceased using the equity method to account for this
investment. The Bank designated its investment in TMX as a
financial asset measured at fair value through other comprehensive
income in an amount of $191 million. Following the fair value
measurement, a $91 million gain will be recorded in the
Non-interest income - Other item of the Consolidated Statement of
Income and will be reported in the Other heading of segment results
during the third quarter of 2023. As at April 30, 2023, the Bank's
ownership interest in TMX was 2.5%.
Related Party Transactions
The Bank's policies and procedures regarding related party
transactions have not significantly changed since October 31, 2022.
For additional information, see Note 28 to the audited annual
consolidated financial statements for the year ended October 31,
2022.
Securitization and Off-Balance-Sheet Arrangements
In the normal course of business, the Bank is party to various
financial arrangements that, under IFRS, are not required to be
recorded on the Consolidated Balance Sheet or are recorded under
amounts other than their notional or contractual values. These
arrangements include, among others, transactions with structured
entities, derivative financial instruments, issuances of
guarantees, credit instruments, and financial assets received as
collateral. A complete analysis of these types of arrangements,
including their nature, business purpose, and importance, is
provided on pages 53 and 54 of the 2022 Annual Report.
For additional information on financial assets transferred but
not derecognized , guarantees, commitments, and structured
entities, see Notes 8, 26, and 27 to the audited annual
consolidated financial statements for the year ended October 31,
2022.
Income Taxes
Notice of Assessment
In March 2023, the Bank was reassessed by the Canada Revenue
Agency (CRA) for additional income tax and interest of
approximately $90 million (including estimated provincial tax and
interest) in respect of certain Canadian dividends received by the
Bank during the 2018 taxation year.
In prior fiscal years, the Bank had been reassessed for
additional income tax and interest of approximately $875 million
(including provincial tax and interest) in respect of certain
Canadian dividends received by the Bank during the 2012-2017
taxation years.
In the reassessments, the CRA alleges that the dividends were
received as part of a "dividend rental arrangement".
The CRA may issue reassessments to the Bank for taxation years
subsequent to 2018 in regard to certain activities similar to those
that were the subject of the above-mentioned reassessments. The
Bank remains confident that its tax position was appropriate and
intends to vigorously defend its position. As a result, no amount
has been recognized in the consolidated financial statements as at
April 30, 2023.
Canadian Government's 2022 Tax Measures
On November 4, 2022, the Government of Canada introduced Bill
C-32 - An Act to implement certain provisions of the fall economic
statement tabled in Parliament on November 3, 2022 and certain
provisions of the budget tabled in Parliament on April 7, 2022 to
implement tax measures applicable to certain entities of banking
and life insurer groups, as presented in its April 7, 2022 budget.
These tax measures include the Canada Recovery Dividend (CRD),
which is a one-time, 15% tax on the fiscal 2021 and 2020 average
taxable income above $1 billion, as well as a 1.5% increase in the
statutory tax rate. On December 15, 2022, Bill C-32 received royal
assent. Given that these tax measures were in effect at the
financial reporting date, a $32 million tax expense for the CRD and
an $8 million tax recovery for the tax rate increase, including the
impact related to current and deferred taxes for fiscal 2022, were
recognized in the consolidated financial statements as at April 30,
2023.
Proposed Legislation
In its March 28, 2023 budget, the Government of Canada proposed
to introduce certain tax measures applicable to the Bank. The
measures include the denial of the deduction in respect of
dividends received after 2023 on shares that are mark-to-market
property for tax purposes, the application of a 2% tax on the net
value of equity repurchases occurring as of January 1, 2024, as
well as the government's intention to implement the Pillar Two
rules (global minimum tax) published by the Organization for
Economic Co-operation and Development (OECD) for fiscal years
beginning as of December 31, 2023. The proposed measures have not
yet been included in a bill at the reporting date.
The federal budget of March 28, 2023 also included another tax
measure on amendments to the Excise Tax Act, indicating that
payment card clearing services rendered by a payment card network
operator are subject to the goods and services tax (GST) and the
harmonized sales tax (HST). On April 20, 2023, the Government of
Canada tabled Bill C-47 - An Act to implement certain provisions of
the budget tabled in Parliament on March 28, 2023 to implement,
among other things, these amendments to the GST/HST for payment
cards. Given that the amendment to the Excise Tax Act was not
virtually certain at the reporting date, no amount was recognized
in the consolidated financial statements as at April 30, 2023.
Capital Management
Capital management has a dual role of ensuring a competitive
return to the Bank's shareholders while maintaining a solid capital
foundation that covers the risks inherent to the Bank's business
activities, supports its business segments, and protects its
clients. The Bank's capital management policy defines the guiding
principles as well as the roles and responsibilities of its
internal capital adequacy assessment process. This process aims to
determine the capital that the Bank needs to maintain to pursue its
business activities and accommodate unexpected losses arising from
extremely adverse economic and operational conditions. For
additional information on the capital management framework, see the
Capital Management section on pages 55 to 64 of the Bank's 2022
Annual Report.
Basel Accord
The Bank and all other major Canadian banks have to maintain the
following minimum capital ratios established by OSFI: a CET1
capital ratio of at least 11.0%, a Tier 1 capital ratio of at least
12.5%, and a Total capital ratio of at least 14.5%. For additional
information on the ratio calculations, see page 56 of the 2022
Annual Report. All of these ratios include a capital conservation
buffer of 2.5% established by the BCBS and OSFI, a 1.0% surcharge
applicable solely to Domestic Systemically Important Banks
(D--SIBs), and a 3.0% domestic stability buffer established by
OSFI. On December 8, 2022, OSFI expanded the 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.
Lastly, OSFI requires D-SIBs to maintain a Basel III leverage ratio
of at least 3.5%. Effective February 1, 2023, OSFI increased the
leverage ratio minimum requirement by imposing a Tier 1 capital
buffer of 0.5% applicable only to D-SIBs. For additional
information on the leverage ratio calculation, see page 57 of the
2022 Annual Report.
In the second quarter of 2023, the Bank implemented OSFI's
guidance relating to the Basel III reforms, notably:
-- a revised Standardized Approach and Internal Ratings-Based (IRB) Approach to credit risk;
-- a revised Standardized Approach for operational risk;
-- a revised capital output floor;
-- a revised Leverage Ratio Framework; and
-- revised Pillar 3 disclosure requirements.
The Basel III reforms also affected the market risk and credit
valuation adjustment (CVA) risk frameworks, which will be
implemented in the first quarter of 2024.
The Basel Accord proposes a range of approaches of varying
complexity, the choice of which determines the sensitivity of
capital to risks. A less complex approach, such as the Standardized
Approach, uses regulatory weightings, while a more complex approach
uses the Bank's internal estimates of risk components to establish
risk-weighted assets (RWA) and calculate regulatory capital.
As required under Basel, RWA is calculated for each credit risk,
market risk, and operational risk. The Bank uses the IRB Approaches
for credit risk to determine minimum regulatory capital
requirements for a majority of its portfolios. The Bank must use
the Foundation Internal Ratings-Based (FIRB) Approach for certain
specific exposure types such as large corporates and financial
institutions. For all other exposure types treated under an IRB
Approach, the Bank uses the Advanced Internal Ratings-Based (AIRB)
Approach. Under the FIRB Approach, the Bank can use its own
estimate of probability of default (PD) but must also rely on OSFI
estimates for loss given default (LGD) and exposure at default
(EAD) risk parameters. Under the AIRB Approach, the Bank can use
its own estimates for all risk parameters: PD, LGD, EAD. Under both
IRB Approaches, risk parameters are subject to specific input
floors. The credit risk of certain portfolios considered to be less
significant is weighted according to the revised Standardized
Approach, which uses prescribed regulatory weightings. Exposure to
banking book equity securities is also weighted according to the
revised Standardized Approach. With respect to the capital
requirements related to securitization operations, the risk
weighting methodologies remain significantly unchanged.
For operational risk, the Bank is applying the revised
Standardized Approach, which now incorporates the Bank's internal
operational risk loss experience in the calculation of RWA.
Market risk and CVA capital requirement weighting methodologies
will remain unchanged until the first quarter of 2024. Market
risk-weighted assets are primarily determined using the Internal
Model-Based Approach, while the Standardized Approach is used to
assess interest-rate specific risk. CVA risk-weighted assets are
determined under a prescribed Standardized Approach.
The Bank must also meet the requirements of an updated capital
floor, which sets the regulatory capital level according to the
Basel III Standardized Approach. If risk-weighted assets calculated
according to Basel III are below the regulatory level, the
difference is added to risk-weighted assets. OSFI is allowing a
phase-in of the floor factor over three years, starting at 65.0% in
the second quarter of 2023 and rising 2.5% per year to reach 72.5%
in fiscal 2026. If the capital requirement is less than the capital
output floor requirement after applying the floor factor, the
difference is added to the total RWA.
The implementation of the Basel III reforms had a positive
impact of 44 bps on the Bank's CET1 capital ratio. As at April 30,
2023, the Bank was not impacted by the implementation of the
updated capital output floor. Lastly, the implementation of the
revised leverage ratio framework did not have a significant impact
on the Bank.
In addition, OSFI requires that regulatory capital instruments
other than common equity must have a non-viability contingent
capital (NVCC) clause to ensure that investors bear losses before
taxpayers should the government determine that rescuing a
non-viable financial institution is in the public interest. As at
April 30, 2023, all of the Bank's regulatory capital instruments,
other than common shares, have an NVCC clause.
OSFI's Total Loss Absorbing Capacity (TLAC) Guideline, which
applies to all D-SIBs under the federal government's bail-in
regulations, is to ensure that a D-SIB has sufficient
loss-absorbing capacity to support its internal recapitalization in
the unlikely event it becomes non-viable. Available TLAC includes
total capital as well as certain senior unsecured debts that
satisfy all of the eligibility criteria of OSFI's TLAC guideline.
OSFI requires D-SIBs to maintain a risk-based TLAC ratio of at
least 24.5% (including the domestic stability buffer) of
risk-weighted assets and a TLAC leverage ratio of at least 7.25%.
The TLAC ratio is calculated by dividing available TLAC by
risk--weighted assets, and the TLAC leverage ratio is calculated by
dividing available TLAC by total exposure. As at April 30, 2023,
outstanding liabilities of $15.4 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 April 30, 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 April
Minimum buffer BCBS surcharge (3) (4) buffer 30, 2023
---------- ------- ------------ ------- --------- ------- --------- ----------- --------
Capital
ratios
CET1 4.5 % 2.5 % 7.0 % 1.0 % 8.0 % 3.0 %11.0 % 13.3 %
Tier 1 6.0 % 2.5 % 8.5 % 1.0 % 9.5 % 3.0 %12.5 % 16.0 %
Total 8.0 % 2.5 % 10.5 % 1.0 % 11.5 % 3.0 %14.5 % 16.9 %
--------- ------- ------------ ------- --------- ------- --------- ---- ----- -----
Leverage
ratio 3.0 % n.a. 3.0 % 0.5 % 3.5 % n.a. 3.5 % 4.2 %
---------- ------- ------------ ------- --------- ------- --------- ---- ----- -----
TLAC ratio 21.5 % n.a. 21.5 % n.a. 21.5 % 3.0 %24.5 % 29.3 %
---------- ------- ------------ ------- --------- ------- --------- ---- ----- -----
TLAC
leverage
ratio 6.75 % n.a. 6.75 % 0.5% 7.25 % n.a. 7.25 % 7.8 %
---------- ------- ------------ ------- --------- ------- --------- ---- ----- -----
n.a. Not applicable
(1) The capital ratios and the leverage ratio are calculated in
accordance with the Basel III rules, as set out in OSFI's Capital
Adequacy Requirements Guideline and Leverage Requirements
Guideline.
(2) The TLAC ratio and the TLAC leverage ratio are calculated in
accordance with OSFI's Total Loss Absorbing Capacity Guideline.
(3) The capital ratios and the TLAC ratio include the capital
conservation buffer and the D-SIB surcharge. On February 1, 2023,
OSFI raised the minimum leverage ratio and the TLAC leverage ratio
by imposing a Tier 1 capital buffer of 0.5% (surcharge related to
D-SIBs).
(4) On December 8, 2022, OSFI announced that the buffer would
rise from 2.5% to 3.0%, effective February 1, 2023.
The Bank ensures that its capital levels are always above the
minimum capital requirements set by OSFI, including the domestic
stability buffer. By maintaining a strong capital structure, the
Bank can cover the risks inherent to its business activities,
support its business segments, and protect its clients.
Other disclosure requirements pursuant to Pillar 3 of the Basel
Accord and a set of recommendations defined by the EDTF are
presented in the Supplementary Regulatory Capital and Pillar 3
Disclosure report published quarterly and available on the Bank's
website at nbc.ca. Furthermore, a complete list of capital
instruments and their main features is also available on the Bank's
website.
Regulatory Developments
The Bank closely monitors regulatory developments and
participates actively in various consultative processes. In
response to the impact of the COVID-19 pandemic, on March 27, 2020,
OSFI announced a series of regulatory adjustments to support the
financial and operational resilience of banks. For additional
information about the regulatory context on October 31, 2022 and
about COVID-19 relief measures still in effect as at October 31,
2022, see pages 58 and 59 of the Capital Management section in the
2022 Annual Report. The OSFI capital, leverage, liquidity and
disclosure revised rules related to Basel III reforms took effect
in the second quarter of 2023 except for the new market risk
framework and the revised credit valuation adjustment (CVA) risk
framework, which will take effect in the first quarter of 2024, as
previously described. Since November 1, 2022, there have been no
other new significant 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 six-month period ended April 30, 2023, the Bank did not
repurchase any common shares.
On February 1, 2023, the Bank redeemed $750 million of
medium-term notes maturing on February 1, 2028. These instruments
were excluded from the capital ratio calculations as at January 31,
2023.
Dividends
On May 30, 2023, the Board of Directors declared regular
dividends on the various series of first preferred shares and a
dividend of $1.02 per common share, up 5 cents per common share or
5%, payable on August 1, 2023, to shareholders of record on June
26, 2023.
Shares, Other Equity Instruments, and Stock Options
As at April 30, 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 337,719,583 3,261
-------------------------- ----------- ---------
Stock options 12,170,881
-------------------------- ----------- ---------
(1) Limited Recourse Capital Notes (LRCN).
As at May 26, 2023, there were 337,869,397 common shares and
11,977,728 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 868 million Bank common shares, which would have
a 72.0% dilutive effect based on the number of Bank common shares
outstanding as at April 30, 2023.
Movement in Regulatory Capital (1)
Six months
ended
April 30,
(millions of Canadian dollars) 2023
------------------------------------------------------------- ----------
Common Equity Tier 1 (CET1) capital
Balance at beginning 14,818
Issuance of common shares (including Stock Option Plan) 54
Impact of shares purchased or sold for trading 5
Repurchase of common shares -
Other contributed surplus 9
Dividends on preferred and common shares and distributions
on other equity instruments (735)
Net income attributable to the Bank's shareholders and
holders of other equity instruments 1,729
Removal of own credit spread (net of income taxes) 239
Other (191)
Movements in accumulated other comprehensive income
Translation adjustments (25)
Debt securities at fair value through other comprehensive
income 24
Other 1
Change in goodwill and intangible assets (net of related
tax liability) 5
Other, including regulatory adjustments
Change in defined benefit pension plan asset (net of
related tax liability) 27
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) (7)
Other deductions or regulatory adjustments to CET1
implemented by OSFI (61)
Change in other regulatory adjustments -
----------------------------------------------------------- ----------
Balance at end 15,892
------------------------------------------------------------- ----------
Additional Tier 1 capital
Balance at beginning 3,143
New Tier 1 eligible capital issuances -
Redeemed capital -
Other, including regulatory adjustments 2
------------------------------------------------------------ ----------
Balance at end 3,145
------------------------------------------------------------- ----------
Total Tier 1 capital 19,037
------------------------------------------------------------- ----------
Tier 2 capital
Balance at beginning 1,766
New Tier 2 eligible capital issuances -
Redeemed capital (750)
Tier 2 instruments issued by subsidiaries and held by
third parties -
Change in certain allowances for credit losses (11)
Other, including regulatory adjustments 68
------------------------------------------------------------ ----------
Balance at end 1,073
------------------------------------------------------------- ----------
Total regulatory capital 20,110
------------------------------------------------------------- ----------
(1) See the Financial Reporting Method section on pages 4 to 9
for additional information on capital management measures.
Risk-Weighted Assets by Key Risk Drivers
Risk-weighted assets (RWA) amounted to $119.1 billion as at
April 30, 2023 compared to $116.8 billion as at October 31, 2022, a
$2.3 billion increase resulting mainly from organic growth in RWA
and a deterioration in the credit quality of the loan portfolio,
offset by foreign exchange movements and by methodology changes
related to the implementation of the Basel III reforms, notably for
operational risk and credit risk. The changes in the Bank's RWA by
risk type are presented in the following table.
Movement of Risk-Weighted Assets by Key Drivers (1)
(millions of Canadian dollars) Quarter ended
------------------------------------- ---------------- -------------------------------------------------
October
April 30, 31,
January
2023 31, 2023 2022
------------------------------------- --------------------------------------- --------- -------
Non-counterparty Counterparty
credit credit
risk risk Total Total Total
----------------------------------- ---------------- ------------ ------- --------- -------
Credit risk - Risk-weighted assets
at beginning 94,261 6,559 100,820 96,141 91,229
Book size 959 (387) 572 4,439 2,405
Book quality 609 342 951 697 93
Model updates 116 - 116 172 300
Methodology and policy (1,288) 237 (1,051) 106 339
Acquisitions and disposals - - - - -
Foreign exchange movements 519 59 578 (735) 1,775
------------------------------------ ---------------- ------------ ------- --------- -------
Credit risk - Risk-weighted assets
at end 95,176 6,810 101,986 100,820 96,141
------------------------------------- ---------------- ------------ ------- --------- -------
Market risk - Risk-weighted assets
at beginning 5,960 6,025 5,696
Movement in risk levels (2) (900) (65) 329
Model updates - - -
Methodology and policy - - -
Acquisitions and disposals - - -
------------------------------------ ---------------- ------------ ------- --------- -------
Market risk - Risk-weighted assets
at end 5,060 5,960 6,025
------------------------------------- ---------------- ------------ ------- --------- -------
Operational risk - Risk-weighted
assets at beginning 15,033 14,674 14,452
Movement in risk levels 93 359 222
Methodology and policy (3,061) - -
Acquisitions and disposals - - -
------------------------------------ ---------------- ------------ ------- --------- -------
Operational risk - Risk-weighted
assets at end 12,065 15,033 14,674
------------------------------------- ---------------- ------------ ------- --------- -------
Risk-weighted assets at end 119,111 121,813 116,840
------------------------------------- ---------------- ------------ ------- --------- -------
(1) See the Financial Reporting Method section on pages 4 to 9
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 six-month period ended April
30, 2023, the Bank updated the models used for certain retail
exposures, mortgages and certain non-retail exposures.
The Methodology and policy item presents the impact of changes
in calculation methods resulting from changes in regulatory
policies or from new regulations. During the quarter ended April
30, 2023, the Bank finalized the implementation of the Basel III
reforms requirements related to credit risk, operational risk, and
capital output floor.
Regulatory Capital Ratios, Leverage Ratio, and TLAC Ratios
As at April 30, 2023, the Bank's CET1, Tier 1, and Total capital
ratios were, respectively, 13.3%, 16.0% and 16.9% compared to
ratios of, respectively, 12.7%, 15.4% and 16.9% as at October 31,
2022. The CET1 and Tier 1 capital ratios increased since October
31, 2022, essentially due to the contribution from net income, net
of dividends, to common share issuances under the Stock Option Plan
and to the positive impact from the implementation of the Basel III
reforms related to credit and operational risks frameworks. These
factors were partly offset by growth in RWA and by the end of the
transitional measures applicable to ECL provisioning implemented by
OSFI at the beginning of the COVID-19 pandemic. The Total capital
ratio remained unchanged. The net positive contribution from
factors impacting the CET1 and Tier 1 capital ratios was offset by
the $750 million redemption of medium-term notes on February 1,
2023.
As at April 30, 2023, the leverage ratio was 4.2%, compared to
4.5% as at October 31, 2022. The decrease in the leverage ratio is
essentially due to the growth in total exposure and to the end of
the temporary measure permitted by OSFI with respect to the
exclusion of central bank reserves from the leverage exposure
calculation. These factors were partly offset by the growth in Tier
1 capital.
As at April 30, 2023, the Bank's TLAC ratio and TLAC leverage
ratio were, respectively, 29.3% and 7.8%, compared to 27.7% and
8.1%, respectively, as at October 31, 2022. The increase in the
TLAC ratio was due to the same factors described for the Total
capital ratio as well as to the net TLAC instrument issuances that
meet the eligibility criteria during the period. The decrease in
the TLAC leverage ratio was due to the same factors as those
provided for the leverage ratio, partly offset by the net TLAC
instrument issuances.
During the quarter and six-month period ended April 30, 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 April As at October
(millions of Canadian dollars) 30, 2023 31, 2022
-------------------------------- ----------- -------------
Capital
CET1 15,892 14,818
Tier 1 19,037 17,961
Total 20,110 19,727
-------------------------------- ----------- -------------
Risk-weighted assets 119,111 116,840
Total exposure 448,584 401,780
-------------------------------- ----------- -------------
Capital ratios
CET1 13.3 % 12.7%
Tier 1 16.0 % 15.4%
Total 16.9 % 16.9%
-------------------------------- ----------- -------------
Leverage ratio 4.2 % 4.5%
-------------------------------- ----------- -------------
Available TLAC 34,886 32,351
TLAC ratio 29.3 % 27.7%
TLAC leverage ratio 7.8 % 8.1%
-------------------------------- ----------- -------------
(1) Capital, risk-weighted assets, total exposure, the capital
ratios, and the leverage ratio are calculated in accordance with
the Basel III rules, as set out in OSFI's Capital Adequacy
Requirements Guideline and Leverage Requirements Guideline. The
calculation of the figures as at October 31, 2022 had included the
transitional measure applicable to expected credit loss
provisioning and the temporary measure regarding the exclusion of
central bank reserves implemented by OSFI in response to the
COVID-19 pandemic. These provisions ceased to apply on November 1,
2022 and April 1, 2023, respectively.
(2) Available TLAC, the TLAC ratio, and the TLAC leverage ratio
are calculated in accordance with OSFI's Total Loss Absorbing
Capacity Guideline.
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. Since March 8, 2023, the Bank of Canada has held its
policy rate at 4.50% and announced that it would continue
monitoring economic movements and the consequences of fast-rising
interest rates.
Regulatory Developments
The Bank closely monitors regulatory developments and
participates actively in various consultative processes. For
additional information about the regulatory context on October 31,
2022, see pages 77 and 78 of the Risk Management section of the
2022 Annual Report. In addition, since November 1, 2022, the
below-described regulatory developments should also be
considered.
On December 15, 2022, OSFI confirmed the qualifying rate for
uninsured mortgages (i.e., residential mortgages with a down
payment of 20% or more) will remain as the greater of the mortgage
contract interest rate plus 2% and a minimum floor of 5.25%. OSFI
is well aware that the country's economic recovery must be backed
by a strong financial system capable of supporting the Canadian
population in the current environment and that real estate market
conditions in Canada could heighten the financial risk weighing on
lenders. The minimum qualifying interest rate provides an
additional level of safety to ensure that borrowers would have the
ability to make mortgage payments should circumstances change,
e.g., in the case of reduced income or a rise in interest
rates.
On January 1, 2023, the Prohibition on the Purchase of
Residential Property by Non-Canadians Act came into effect. This
purpose of this law, which will be in effect until January 1, 2025,
is to help Canadians access the property market and to reduce
speculative purchasing that risks raising the prices of properties
in some already overheated markets. On March 27, 2023, the Act was
amended to relax rules and conditions permitting non-Canadians who
want to live in Canada to purchase a residential property.
In January 2023, OSFI launched a public consultation on
Guideline B-20 entitled Residential Mortgage Underwriting Practices
and Procedures Guideline, starting with an initial consultation on
debt servicing measures in order to mitigate the risk arising from
the high debt levels of consumers. In follow-up to the public
consultation, an industry response coordinated by the Canadian
Bankers Association was provided to OSFI in April 2023.
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 April 30, 2023
----------------- --- ------------------------------------------------------------------------------------------------------------------
Other
off-balance-
Repo-style Derivative sheet Standardized
Drawn Undrawn transactions financial items Approach IRB
(2) commitments (3) instruments (4) Total (5) Approach
---------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Retail
Residential
mortgages 73,973 8,984 - - - 82,957 12 % 88 %
Qualifying
revolving
retail 2,508 11,759 - - - 14,267 - % 100 %
Other retail 13,411 2,652 - - 33 16,096 13 % 87 %
---------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
89,892 23,395 - - 33 113,320
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Non-retail
Corporate 90,839 26,765 39,056 372 5,390 162,422 16 % 84 %
Sovereign 69,310 5,938 64,014 - 331 139,593 3 % 97 %
Financial
institutions 6,789 957 90,381 1,228 1,525 100,880 16 % 84 %
---------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
166,938 33,660 193,451 1,600 7,246 402,895
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Trading portfolio - - - 12,063 - 12,063 2 % 98 %
Securitization 4,899 - - - 4,468 9,367 86 % 14 %
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Total - Gross
credit risk 261,729 57,055 193,451 13,663 11,747 537,645 12 % 88 %
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Standardized
Approach (5) 31,636 1,148 25,948 1,215 4,397 64,344
IRB Approach 230,093 55,907 167,503 12,448 7,350 473,301
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
Total - Gross
credit risk 261,729 57,055 193,451 13,663 11,747 537,645 12 % 88 %
----------------- --- -------- ----------- --------------- ----------- ------------ ------- ------------ --------
(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 9
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 - Second Quarter 2023 and in Supplementary Regulatory
Capital and Pillar 3 Disclosure - Second Quarter 2023, which are
available on the Bank's website at nbc.ca.
Market Risk
Market risk is the risk of losses arising from movements in
market prices. The Bank is exposed to market risk through its
participation in trading, investment, and asset/liability
management activities . In recent years, as a result of the
COVID-19 pandemic and its impact on global and local economies, the
Bank has been operating in a volatile environment. Adding to this
uncertainty is the Russia-Ukraine war, which is affecting global
financial and economic markets and exacerbating economic conditions
as well as such issues as rising inflation, higher interest rates,
and a disrupted global supply chain.
The following tables provide a breakdown of the Bank's
Consolidated Balance Sheet into assets and liabilities by those
that carry market risk and those that do not carry market risk,
distinguishing between trading positions whose main risk measures
are Value-at-Risk (VaR) and stressed VaR (SVaR) and non-trading
positions that use other risk measures.
Reconciliation of Market Risk With Consolidated Balance Sheet
Items
(millions of Canadian dollars) As at April 30, 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 42,501 651 22,976 18,874 Interest rate (3)
Securities
At fair value through profit Interest rate (3)
or loss 93,111 91,666 1,445 - and equity
At fair value through other Interest rate (3)
comprehensive income 9,712 - 9,712 - and equity (4)
At amortized cost 14,099 - 14,099 - Interest rate (3)
Securities purchased under
reverse repurchase
agreements and securities
borrowed 16,827 - 16,827 - Interest rate (3)(5)
Loans and acceptances, net
of allowances 215,764 11,167 204,597 - Interest rate (3)
Interest rate and
Derivative financial instruments 14,058 12,718 1,340 - exchange rate
Defined benefit asset 470 - 470 - Other
Other 11,142 427 - 10,715
-------------------------------- ------- ------- ----------- ----------- -------------------------
417,684 116,629 271,466 29,589
------------------------------- ------- ------- ----------- ----------- -------------------------
Liabilities
Deposits 281,514 18,617 262,897 - Interest rate (3)
Acceptances 6,567 - 6,567 - Interest rate (3)
Obligations related to
securities
sold short 18,721 18,721 - -
Obligations related to
securities
sold under repurchase
agreements and securities
loaned 38,057 - 38,057 - Interest rate (3)(5)
Interest rate and
Derivative financial instruments 16,865 16,540 325 - exchange rate
Liabilities related to
transferred
receivables 25,982 9,958 16,024 - Interest rate (3)
Defined benefit liability 116 - 116 - Other
Other 6,493 - 77 6,416 Interest rate (3)
Subordinated debt 748 - 748 - Interest rate (3)
-------------------------------- ------- ------- ----------- ----------- -------------------------
395,063 63,836 324,811 6,416
-------------------------------- ------- ------- ----------- ----------- -------------------------
(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 9,876 405 - 9,471
------------------------------ ------- ---------- -------------- ----------- ---------------------
403,740 113,929 269,576 20,235
----------------------------- ------- ---------- -------------- ----------- ---------------------
Liabilities
Deposits 266,394 15,422 250,972 - Interest rate(3)
Acceptances 6,541 - 6,541 - Interest rate(3)
Obligations related to
securities
sold short 21,817 21,817 - -
Obligations related to
securities
sold under repurchase
agreements and securities
loaned 33,473 - 33,473 - Interest rate(3)(6)
Derivative financial Interest rate(7)
instruments 19,632 18,909 723 - and exchange rate(7)
Liabilities related to
transferred
receivables 26,277 9,927 16,350 - Interest rate(3)
Defined benefit liability 111 - 111 - Other(8)
Other 6,250 - 77 6,173 Interest rate(3)
Subordinated debt 1,499 - 1,499 - Interest rate(3)
------------------------------ ------- ---------- -------------- ----------- ---------------------
381,994 66,075 309,746 6,173
------------------------------ ------- ---------- -------------- ----------- ---------------------
(1) Trading positions whose risk measures are VaR as well as
total SVaR. For additional information, see the table on the
following page and in the Market Risk section of the 2022 Annual
Report that shows the VaR distribution of the trading portfolios by
risk category and their diversification effect as well as total
trading SVaR.
(2) Non-trading positions that use other risk measures.
(3) For additional information, see the table in the pages ahead
and in the Market Risk section of the 2022 Annual Report that shows
the VaR distribution of the trading portfolios by risk category and
their diversification effect as well as total trading SVaR and the
interest rate sensitivity table.
(4) For additional information, see Note 6 to the audited annual
consolidated financial statements for the year ended October 31,
2022.
(5) The fair value of equity securities designated at fair value
through other comprehensive income is presented in Notes 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 Six months ended
---------------- ------------------------------- -------------------------------- ----------------
April April
January 31, April 30, 30, 30,
April 30, 2023 2023 2022 2023 2022
---------------- ------------------------------- --------------- --------------- ------- -------
Period Period Period
Low High Average end Average end Average end Average Average
---------------- ------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Interest rate (5.4) (8.6) (6.5) (6.3) (6.7) (6.3) (4.8) (4.6) (6.6) (6.0)
Exchange rate (0.9) (4.1) (2.2) (3.3) (2.3) (2.0) (1.5) (1.5) (2.2) (1.5)
Equity (5.1) (10.0) (7.7) (6.5) (7.1) (5.8) (6.9) (8.5) (7.4) (6.5)
Commodity (0.8) (1.5) (1.1) (1.4) (1.0) (0.9) (0.9) (0.8) (1.1) (0.8)
Diversification
effect(3) n.m. n.m. 8.8 9.1 8.5 7.4 6.6 6.7 8.6 7.7
----------------- ------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Total trading
VaR (6.7) (12.3) (8.7) (8.4) (8.6) (7.6) (7.5) (8.7) (8.7) (7.1)
----------------- ------ ------ ------- ------ ------- ------ ------- ------ ------- -------
Total trading
SVaR (10.3) (20.5) (14.2) (11.3) (18.3) (11.6) (12.7) (18.5) (16.2) (10.9)
----------------- ------ ------ ------- ------ ------- ------ ------- ------ ------- -------
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 49 to 52 for details on
the composition of these measures.
(2) Amounts are presented on a pre-tax basis and represent
one-day VaR and SVaR using a 99% confidence level.
(3) The total trading VaR is less than the sum of the individual
risk factor VaR results due to the diversification effect.
The average total trading VaR remained stable at $8.7 million
for the second quarter of 2023 compared to $8.6 million for the
first quarter of 2023. The average total trading SVaR decreased
from $18.3 million in the first quarter of 2023 to $14.2 million in
the second quarter of 2023. This was driven by a decrease in
interest rate and equity risk.
Daily Trading and Underwriting Revenues
The following chart shows daily trading and underwriting
revenues and VaR. During the quarter ended April 30, 2023, daily
trading and underwriting revenues were positive 92% of the days. In
addition, 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 April 30, 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 April 30, 2023 31, 2022
-------------------------------- ---------------------------- -------- ------------------
Canadian Other Canadian Other
dollar currencies Total dollar currencies Total
-------------------------------- -------- ----------- ----- -------- ----------- -----
Impact on equity
100-basis-point increase in the
interest rate (278) 7 (271) (191) (24) (215)
100-basis-point decrease in the
interest rate 232 4 236 179 27 206
--------------------------------- -------- ----------- ----- -------- ----------- -----
Impact on net interest income
100-basis-point increase in the
interest rate 95 - 95 128 2 130
100-basis-point decrease in the
interest rate (123) - (123) (141) (2) (143)
--------------------------------- -------- ----------- ----- -------- ----------- -----
Liquidity and Funding Risk
Liquidity and funding risk is the risk that the Bank will be
unable to honour daily cash and financial obligations without
resorting to costly and untimely measures. Liquidity and funding
risk arises when sources of funds become insufficient to meet
scheduled payments under the Bank's commitments.
Liquidity risk stems from mismatched cash flows related to
assets and liabilities as well as the characteristics of certain
products such as credit commitments and non-fixed-term
deposits.
Funding risk is defined as the risk to the Bank's ongoing
ability to raise sufficient funds to finance actual or proposed
business activities on an unsecured or secured basis at an
acceptable price. The funding management priority is to achieve an
optimal balance between deposits, securitization, secured funding,
and unsecured funding. This brings optimal stability to the funding
and reduces vulnerability to unpredictable events.
Regulatory Developments
The Bank continues to closely monitor regulatory developments
and participates actively in various consultative processes. For
additional information about the regulatory context as at October
31, 2022, refer to page 91 of the Risk Management section in the
2022 Annual Report. Since November 1, 2022, the below-described
regulatory developments should also be considered.
On November 7, 2022, OSFI published a new guideline entitled
Assurance on Capital, Leverage and Liquidity Returns. OSFI relies
largely on the regulatory returns produced by financial
institutions when assessing their safety and soundness. The purpose
of this draft guideline is to better inform auditors and
institutions on the work to be performed on regulatory returns in
order to clarify and align OSFI's assurance expectations across all
financial institutions. In particular, the draft guideline
addresses the assurance that must be provided by an external audit,
attestation by senior management, the assurance that must be
provided by an internal audit, and the proposed effective dates.
The Bank is actively participating in this consultation.
On April 1, 2023, revisions to OSFI's Liquidity Adequacy
Requirements Guideline came into effect. OSFI made changes that
will improve the sensitivity to risk and that will ensure that
financial institutions hold sufficient cash or other liquid
investments to meet potential liquidity needs and to support the
continued lending of credit, in particular during periods of
financial stress.
Liquidity Management
Liquid Assets
To protect depositors and creditors from unexpected crisis
situations, the Bank holds a portfolio of unencumbered liquid
assets that can be readily liquidated to meet financial
obligations. The majority of the unencumbered liquid assets are
held in Canadian or U.S. dollars. Moreover, all assets that can be
quickly monetized are considered liquid assets. The Bank's
liquidity reserves do not factor in the availability of the
emergency liquidity facilities of central banks. The following
tables provide information on the Bank's encumbered and
unencumbered assets.
Liquid Asset Portfolio (1)
As at April As at October
30, 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 42,501 - 42,501 7,285 35,216 24,180
Securities
Issued or guaranteed by the
Canadian government, U.S.
Treasury, other U.S. agencies
and other foreign governments 33,200 33,258 66,458 48,242 18,216 25,894
Issued or guaranteed by Canadian
provincial and
municipal governments 13,078 6,563 19,641 13,442 6,199 8,421
Other debt securities 11,602 3,731 15,333 3,093 12,240 9,809
Equity securities 59,042 49,222 108,264 76,965 31,299 27,291
Loans
Securities backed by insured
residential mortgages 12,815 - 12,815 8,054 4,761 5,582
-------------------------------- ---------- -------- ------- ---------- ------------ -------------
As at April 30, 2023 172,238 92,774 265,012 157,081 107,931
--------------------------------- ---------- -------- ------- ---------- ------------ -------------
As at October 31, 2022 153,384 92,257 245,641 144,464 101,177
--------------------------------- ---------- -------- ------- ---------- ------------ -------------
As at April As at October
(millions of Canadian dollars) 30, 2023 31, 2022
--------------------------------------- ----------- -------------
Unencumbered liquid assets by entity
National Bank (parent) 59,418 52,544
Domestic subsidiaries 11,049 14,576
Foreign subsidiaries and branches 37,464 34,057
-------------------------------------- ----------- -------------
107,931 101,177
------------------------------------- ----------- -------------
As at April As at October
(millions of Canadian dollars) 30, 2023 31, 2022
----------------------------------------- ----------- -------------
Unencumbered liquid assets by currency
Canadian dollar 54,503 49,466
U.S. dollar 31,981 24,871
Other currencies 21,447 26,840
---------------------------------------- ----------- -------------
107,931 101,177
--------------------------------------- ----------- -------------
Liquid Asset Portfolio (1) - Average (5)
(millions of Canadian
dollars) Quarter ended
--------------------------- ---------- --------- ------- --------------------------------------
October
April 30, 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 42,428 - 42,428 7,717 34,711 29,994
Securities
Issued or guaranteed by
the
Canadian government, U.S.
Treasury, other U.S.
agencies
and other foreign
governments 35,732 33,913 69,645 47,257 22,388 25,487
Issued or guaranteed by
Canadian
provincial and
municipal governments 14,266 6,826 21,092 14,559 6,533 7,749
Other debt securities 11,601 3,746 15,347 3,202 12,145 10,316
Equity securities 56,637 48,739 105,376 77,491 27,885 24,386
Loans
Securities backed by
insured
residential mortgages 12,369 - 12,369 7,589 4,780 4,639
-------------------------- ---------- --------- ------- ---------- ------------ ------------
173,033 93,224 266,257 157,815 108,442 102,571
--------------------------- ---------- --------- ------- ---------- ------------ ------------
(1) See the Financial Reporting Method section on pages 4 to 9
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 April 30,
(millions of Canadian dollars) 2023
---------------------------------- ----------- -------- ----------- -------- -------------------
Encumbered
assets
as a %
Encumbered Unencumbered of total
assets (2) assets Total assets
--------------------------------- --------------------- --------------------- ------- ----------
Pledged Available
as Other as Other
collateral (3) collateral (4)
--------------------------------- ----------- -------- ----------- -------- ------- ----------
Cash and deposits with financial
institutions 416 6,869 35,216 - 42,501 1.8
Securities 48,968 - 67,954 - 116,922 11.7
Securities purchased under
reverse repurchase
agreements and securities
borrowed - 16,827 - - 16,827 4.0
Loans and acceptances, net
of allowances 40,279 - 4,761 170,724 215,764 9.6
Derivative financial instruments - - - 14,058 14,058 -
Investments in associates
and joint ventures - - - 146 146 -
Premises and equipment - - - 1,508 1,508 -
Goodwill - - - 1,518 1,518 -
Intangible assets - - - 1,333 1,333 -
Other assets - - - 7,107 7,107 -
---------------------------------- ----------- -------- ----------- -------- ------- ----------
89,663 23,696 107,931 196,394 417,684 27.1
----------- -------- ----------- -------- ------- ----------
As at October
(millions of Canadian dollars) 31, 2022
---------------------------------- ----------- -------- ----------- -------- -------------------
Encumbered
assets
as a %
Encumbered Unencumbered of total
assets(2) assets Total assets
---------------------------------
Pledged Available
as as
collateral Other(3) collateral Other(4)
--------------------------------- ----------- -------- ----------- -------- ------- ----------
Cash and deposits with financial
institutions 295 7,395 24,180 - 31,870 1.9
Securities 42,972 - 66,747 - 109,719 10.6
Securities purchased under
reverse repurchase
agreements and securities
borrowed - 21,818 4,668 - 26,486 5.4
Loans and acceptances, net
of allowances 37,426 - 5,582 163,736 206,744 9.3
Derivative financial instruments - - - 18,547 18,547 -
Investments in associates
and joint ventures - - - 140 140 -
Premises and equipment - - - 1,397 1,397 -
Goodwill - - - 1,519 1,519 -
Intangible assets - - - 1,360 1,360 -
Other assets - - - 5,958 5,958 -
---------------------------------- ----------- -------- ----------- -------- ------- ----------
80,693 29,213 101,177 192,657 403,740 27.2
----------- -------- ----------- -------- ------- ----------
(1) See the Financial Reporting Method section on pages 4 to 9
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 April 30, 2023, the Bank's average LCR was 155%, 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
January
April 30, 2023 31, 2023
Total unweighted Total weighted Total weighted
value (3) value (4) value(4)
(average) (average) (average)
High-quality liquid assets (HQLA)
Total HQLA n.a. 77,354 80,159
Cash outflows
Retail deposits and deposits from small
business
customers, of which: 73,355 10,080 8,829
Stable deposits 27,822 835 850
Less stable deposits 45,533 9,245 7,979
Unsecured wholesale funding, of which: 99,230 54,145 55,111
Operational deposits (all counterparties)
and deposits in networks of cooperative
banks 29,578 7,202 7,387
Non-operational deposits (all
counterparties) 58,272 35,563 35,961
Unsecured debt 11,380 11,380 11,763
Secured wholesale funding n.a. 20,652 24,610
Additional requirements, of which: 58,769 14,784 14,746
Outflows related to derivative exposures
and other collateral requirements 17,132 7,577 7,514
Outflows related to loss of funding on
secured
debt securities 1,289 1,289 1,662
Backstop liquidity and credit enhancement
facilities and commitments to extend
credit 40,348 5,918 5,570
Other contractual commitments to extend
credit 1,809 763 790
Other contingent commitments to extend
credit 122,635 1,848 1,809
Total cash outflows n.a. 102,272 105,895
Cash inflows
Secured lending (e.g., reverse repos) 107,759 27,060 27,683
Inflows from fully performing exposures 10,120 6,598 6,148
Other cash inflows 18,229 18,229 18,504
Total cash inflows 136,108 51,887 52,335
Total adjusted Total adjusted
value (5) value(5)
Total HQLA 77,354 80,159
Total net cash outflows 50,385 53,560
Liquidity coverage ratio (%) (6) 155 % 151 %
n.a. Not applicable
(1) See the Financial Reporting Method section on pages 4 to 9
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 April 30, 2023, Level 1 liquid assets represented 85% of
the Bank's HQLA, which includes cash, central bank deposits, and
bonds issued or guaranteed by the Canadian government and Canadian
provincial governments.
Cash outflows arise from the application of OSFI-prescribed
assumptions on deposits, debt, secured funding, commitments and
additional collateral requirements. The cash outflows are partly
offset by cash inflows, which come mainly from secured loans and
performing loans. The Bank expects some quarter-over-quarter
variation between reported LCRs without such variation being
necessarily indicative of a trend. The variation between the
quarter ended April 30, 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 April 30, 2023, the Bank's
NSFR was 118%, well above the 100% regulatory requirement and
demonstrating the Bank's solid long-term liquidity position.
NSFR Disclosure Requirements (1)(2)
As at As at
April January
30, 31,
(millions of Canadian dollars) 2023 2023
Unweighted value by residual
maturity
Over
6 6
months months Weighted
No or to 1 Over value Weighted
maturity less year 1 year (3) value(3)
Available Stable Funding (ASF)
Items
Capital: 22,621 - - 748 23,369 22,762
Regulatory capital 22,621 - - 748 23,369 22,762
Other capital instruments - - - - - -
Retail deposits and deposits from
small business customers: 66,680 17,273 8,080 20,334 100,027 97,081
Stable deposits 26,139 5,619 3,568 6,056 39,615 38,887
Less stable deposits 40,541 11,654 4,512 14,278 60,412 58,194
Wholesale funding: 60,269 87,235 11,845 44,679 100,371 98,104
Operational deposits 29,328 - - - 14,664 14,778
Other wholesale funding 30,941 87,235 11,845 44,679 85,707 83,326
Liabilities with matching
interdependent
assets(4) - 4,027 2,091 19,864 - -
------ ------- -------
Other liabilities(5) : 22,046 8,624 650 674
-------
NSFR derivative liabilities(5) n.a. 5,430 n.a. n.a.
-------
All other liabilities and equity
not included in the above
categories 22,046 2,477 134 583 650 674
-------- ------ ------- -------
Total ASF n.a. n.a. n.a. n.a. 224,417 218,621
-------- ------ ------- -------
Required Stable Funding (RSF)
Items
Total NSFR high-quality liquid
assets (HQLA) n.a. n.a. n.a. n.a. 9,407 8,610
Deposits held at other financial
institutions for operational
purposes - - - - - -
Performing loans and securities: 60,946 59,735 22,001 104,187 155,439 148,482
Performing loans to financial
institutions secured by Level
1 HQLA 77 241 - - 100 474
Performing loans to financial
institutions secured by
non-Level-1
HQLA and unsecured performing
loans to financial institutions 7,109 27,822 1,806 200 5,975 5,828
Performing loans to
non-financial
corporate clients, loans to
retail
and small business customers,
and loans to sovereigns,
central
banks and PSEs, of which: 28,093 23,765 14,088 40,380 76,138 71,676
With a risk weight of less than
or equal to 35% under the
Basel
II
Standardized Approach for
credit
risk 204 2,631 696 688 2,243 2,070
Performing residential
mortgages,
of which: 9,414 5,967 4,976 57,903 53,027 52,327
With a risk weight of less than
or equal to 35% under the
Basel
II
Standardized Approach for
credit
risk 9,414 5,967 4,976 57,903 53,027 52,327
Securities that are not in
default
and do not qualify as HQLA,
including
exchange-traded equities 16,253 1,940 1,131 5,704 20,199 18,177
Assets with matching
interdependent
liabilities(4) - 4,027 2,091 19,864 - -
------ ------- -------
Other assets(5) : 3,616 31,670 21,160 19,847
-------
Physical traded commodities,
including
gold 416 n.a. n.a. n.a. 416 416
------ ------- -------
Assets posted as initial margin
for derivative contracts and
contributions to default funds
of CCPs(5) n.a. 10,628 9,034 8,168
-------
NSFR derivative assets(5) n.a. 1,660 - -
-------
NSFR derivative liabilities
before
deduction of the variation
margin posted(5) n.a. 10,780 539 551
-------
All other assets not included
in the above categories 3,200 6,731 933 938 11,171 10,712
------ ------- -------
Off-balance-sheet items(5) n.a. 109,137 4,098 3,937
-------- -------
Total RSF n.a. n.a. n.a. n.a. 190,104 180,876
-------- ------ ------- -------
Net Stable Funding Ratio (%) n.a. n.a. n.a. n.a. 118% 121%
-------- ------ ------- -------
n.a. Not applicable
(1) See the Financial Reporting Method section on pages 4 to 9
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 April
dollars) 30, 2023
----------------------- ------- -------- ------- --------
Over Over
1 Over 6 Over
month 3 months 1
to months to Subtotal year Over
1 month 3 to 12 1 year to 2
or less months 6 months months or less 2 years years Total
-------- ------- -------- ------- -------- -------- ------ ------
Deposits from banks(2) 426 - - 8 434 - - 434
Certificates of deposit
and commercial
paper(3) 3,441 4,627 3,455 1,745 13,268 - - 13,268
Senior unsecured
medium-term
notes(4)(5) 807 1,096 893 2,027 4,823 6,454 5,681 16,958
Senior unsecured
structured
notes 70 - - - 70 39 2,769 2,878
Covered bonds and
asset-backed
securities
Mortgage securitization - 1,521 2,497 2,105 6,123 4,965 14,894 25,982
Covered bonds - 1,119 1,119 1,119 3,357 1,818 8,053 13,228
Securitization of
credit
card receivables 29 - - - 29 48 - 77
Subordinated
liabilities(6) - - - - - - 748 748
4,773 8,363 7,964 7,004 28,104 13,324 32,145 73,573
-------- ------- -------- ------- -------- -------- ------ ------
Secured funding 29 2,640 3,616 3,224 9,509 6,831 22,947 39,287
Unsecured funding 4,744 5,723 4,348 3,780 18,595 6,493 9,198 34,286
-------- ------- -------- ------- -------- -------- ------ ------
4,773 8,363 7,964 7,004 28,104 13,324 32,145 73,573
-------- ------- -------- ------- -------- -------- ------ ------
As at October 31, 2022 6,122 8,390 8,393 7,113 30,018 9,338 32,752 72,108
----------------------- -------- -------- ------ ------
(1) Bankers' acceptances are not included in this table.
(2) Deposits from banks include all non-negotiable term deposits from banks.
(3) Includes bearer deposit notes.
(4) Certificates of deposit denominated in euros are included in
senior unsecured medium-term notes.
(5) Includes deposits subject to bank recapitalization (bail-in) conversion regulations.
(6) Subordinated debt is presented in this table, but the Bank
does not consider it as part of its wholesale funding.
As part of a comprehensive liquidity management framework, the
Bank regularly reviews its contracts that stipulate that additional
collateral could be required in the event of a downgrade of the
Bank's credit rating . The Bank's liquidity position management
approach already incorporates additional collateral requirements in
the event of a one-notch to three-notch downgrade in credit rating.
The table below presents the additional collateral requirements in
the event of a one-, two-, or three-notch credit rating
downgrade.
(millions of Canadian dollars) As at April 30, 2023
-----------------------
One-notch Two-notch Three-notch
downgrade downgrade downgrade
---------- ---------- -----------
Derivatives(1) 21 61 65
---------- ---------- -----------
(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 April 30, 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 April 30,
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 15,625 80 793 409 255 - - - 25,339 42,501
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Securities
At fair value through
profit or loss 1,213 2,982 1,558 1,172 1,900 3,569 11,201 11,042 58,474 93,111
At fair value through
other comprehensive
income 6 12 48 32 194 1,235 4,153 3,464 568 9,712
At amortized cost 1,044 587 762 223 261 5,102 4,764 1,356 - 14,099
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
2,263 3,581 2,368 1,427 2,355 9,906 20,118 15,862 59,042 116,922
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Securities purchased
under
reverse repurchase
agreements and
securities borrowed 4,822 1,937 502 410 337 996 - - 7,823 16,827
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Loans (1)
Residential mortgage 1,431 1,783 2,387 1,997 1,883 11,845 52,923 8,640 552 83,441
Personal 677 752 1,046 877 873 4,884 16,793 5,113 14,240 45,255
Credit card 2,433 2,433
Business and government 20,150 4,369 3,393 3,813 2,814 6,414 13,125 2,483 22,577 79,138
Customers' liability
under
acceptances 5,861 706 - - - - - - - 6,567
Allowances for
credit losses (1,070) (1,070)
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
28,119 7,610 6,826 6,687 5,570 23,143 82,841 16,236 38,732 215,764
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
Other
Derivative financial
instruments 1,557 1,521 1,036 1,179 442 1,309 4,199 2,815 - 14,058
Investments in
associates and
joint ventures 146 146
Premises and equipment 1,508 1,508
Goodwill 1,518 1,518
Intangible assets 1,333 1,333
Other assets(1) 2,786 647 118 807 238 596 118 546 1,251 7,107
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
4,343 2,168 1,154 1,986 680 1,905 4,317 3,361 5,756 25,670
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
55,172 15,376 11,643 10,919 9,197 35,950 107,276 35,459 136,692 417,684
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
(1) Amounts collectible on demand are considered to have no specified maturity.
(millions of Canadian As at April 30,
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 2,820 4,185 6,285 6,336 4,016 6,830 9,808 4,749 40,577 85,606
Business and government 36,531 13,747 9,534 4,469 4,700 8,894 14,641 4,593 94,646 191,755
Deposit-taking
institutions 1,458 543 579 29 29 5 14 35 1,461 4,153
40,809 18,475 16,398 10,834 8,745 15,729 24,463 9,377 136,684 281,514
Other
Acceptances 5,861 706 - - - - - - - 6,567
Obligations related
to securities
sold short(3) 20 69 468 107 865 1,337 2,940 5,778 7,137 18,721
Obligations related
to
securities sold
under
repurchase agreements
and
securities loaned 22,010 2,870 1,016 3,387 - - - - 8,774 38,057
Derivative financial
instruments 1,955 2,311 777 1,282 537 2,209 4,478 3,316 - 16,865
Liabilities related
to transferred
receivables(4) - 1,521 2,497 1,387 718 4,965 9,021 5,873 - 25,982
Securitization
- Credit card(5) 29 - - - - 48 - - - 77
Lease liabilities(5) 8 15 24 23 23 87 221 135 - 536
Other liabilities
- Other items(1)(5) 1,412 78 148 43 84 30 41 89 4,071 5,996
31,295 7,570 4,930 6,229 2,227 8,676 16,701 15,191 19,982 112,801
Subordinated debt - - - - - - - 748 - 748
Equity 22,621 22,621
72,104 26,045 21,328 17,063 10,972 24,405 41,164 25,316 179,287 417,684
Off-balance-sheet
commitments
Letters of guarantee
and
documentary letters
of credit 50 701 1,352 3,206 1,578 818 248 42 - 7,995
Credit card
receivables(6) 9,556 9,556
Backstop liquidity
and credit
enhancement
facilities(7) 15 - - 15 5,552 - - - 3,400 8,982
Commitments to
extend credit(8) 2,735 12,771 6,680 5,172 5,110 3,657 3,656 413 47,219 87,413
Obligations related
to:
Lease commitments(9) 1 1 1 1 2 6 9 5 - 26
Other contracts(10) 32 30 34 35 37 22 65 14 111 380
(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 $46.1 billion that is unconditionally
revocable at the Bank's discretion at any time.
(9) These amounts include leases for which the underlying asset
is of low value and leases other than for real estate of less than
one year.
(10) These amounts include $0.1 billion in contractual
commitments related to the head office building under
construction.
(millions of Canadian As at October 31,
dollars) 2022
------ ------ ------ ------ ------ ------ -------
Over Over Over Over
1 1 3 6 9 Over Over
month month months months months 1 year 2 years Over No
or to 3 to 6 to 9 to 12 to 2 to 5 5 specified
less months months months months years years years maturity Total
Assets
Cash and deposits
with financial
institutions 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) 2,228 527 472 161 94 502 107 491 1,376 5,958
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
4,274 3,331 2,325 1,351 792 2,244 5,289 3,523 5,792 28,921
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
59,506 16,998 17,588 12,198 10,368 29,227 107,214 33,682 116,959 403,740
------ ------ ------ ------ ------ ------ ------- ------ --------- -------
(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 transition related to the interest rate benchmark reform
continues in many countries, including in Canada. On December 31,
2021, all LIBOR (London Interbank Offered Rates) rates in European,
British, Swiss, and Japanese currency as well as the one-week and
two-month USD LIBOR rates were discontinued, whereas the other USD
LIBOR rates 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 will be replaced by the risk-free
rate CORRA (Canadian Overnight Repo Rate Average) and a term CORRA
rate, which should be available by September 30, 2023. As at April
30, 2023, the transition project was progressing according to
schedule. For additional information, see Note 1 to the audited
annual consolidated financial statements for the year ended October
31, 2022.
Social and Environmental Risk
Regulatory Developments
On March 7, 2023, OSFI published guideline B-15 Climate Risk
Management , which sets out OSFI's expectations regarding climate
risk. The guideline is OSFI's first supervisory framework dedicated
to climate change and that addresses the impacts of climate change
on managing the risks existing in the country's financial system.
It covers two main topics: Governance and financial disclosures.
The guideline will take effect for D-SIBs at the end of fiscal
2024. OSFI plans on revising this guideline to incorporate changes
in practices and standards, in particular, when the International
Sustainability Standards Board publishes IFRS S2 - Climate-related
Disclosures.
Risk Disclosures
One of the purposes of the 2022 Annual Report, the Report to
Shareholders - Second 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 46
Management's Discussion and 55 to 105, 117
Analysis and 119 to 121 23 to 45
Notes 1, 7, 16, Notes 5 and
Consolidated Financial Statements 20, 23 and 29 11
Supplementary Financial Information 20 to 34(2)
Supplementary Regulatory Capital
and Pillar 3 Disclosure 5 to 54
2 Risk terminology and risk measures 65 to 105
3 Top and emerging risks 26 and 70 to 75 10, 30 and 45
56 to 59, 91 and 23 to 25, 35
4 New key regulatory ratios 95 to 98 and 37 to 40
-------------------
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 23 to 25
Reconciliation of the accounting
10 balance sheet to
8 to 14, 17 and
the regulatory balance sheet 18
11 Movements in regulatory capital 62 27
12 Capital planning 55 to 64
RWA by business segment and
13 by risk type 64 6 and 7
Capital requirements by risk
14 and the RWA calculation method 75 to 79 6 and 7
15 Banking book credit risk 6 and 7
16 Movements in RWA by risk type 63 28 6 and 7
Assessment of credit risk model 69, 76 to 79 and
17 performance 84 36
-------------------
Liquidity
Liquidity management and components
18 of the liquidity buffer 91 to 99 35 to 40
-------------------
Funding
Summary of encumbered and unencumbered
19 assets 94 and 95 37
Residual contractual maturities
20 of balance sheet items and
off-balance-sheet commitments 222 to 226 41 to 44
Funding strategy and funding
21 sources 98 to 100 40
-------------------
Market risk
Linkage of market risk measures
22 to balance sheet 86 and 87 32 and 33
84 to 90, 210
23 Market risk factors and 211 32 to 35
VaR: Assumptions, limitations
24 and validation procedures 88
Stress tests, stressed VaR
25 and backtesting 84 to 90
-------------------
Credit risk
83 and 171 to 31 and 68 to 19 to 46 and
26 Credit risk exposures 182 79 20 to 34(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 68 to 79 25 to 34(2)
Counterparty credit risk relating 80 to 82 and 190 37 to 46, 30
29 to derivative transactions to 193 to 34(2)
21, 25 to 26
30 Credit risk mitigation 78 to 81 and 168 and 44 to 54
-------------------
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, 30 and 45
(1) Second quarter 2023.
(2) These pages are included in the document entitled
Supplementary Financial Information - Second Quarter 2023 .
Accounting Policies and Financial Disclosure
Accounting Policies and Critical Accounting Estimates
The Bank's consolidated financial statements are prepared in
accordance with International Financial Reporting Standards (IFRS),
as issued by the International Accounting Standards Board (IASB).
The financial statements also comply with section 308(4) of the
Bank Act (Canada), which states that, except as otherwise specified
by OSFI , the consolidated financial statements are to be prepared
in accordance with IFRS. IFRS represent Canadian generally accepted
accounting principles (GAAP). None of the OSFI accounting
requirements are exceptions to IFRS. The unaudited interim
condensed consolidated financial statements for the quarter and
six-month period ended April 30, 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, higher interest
rates, and the Russia-Ukraine war continue to create uncertainty.
As a result, establishing reliable estimates and applying judgment
continue to be substantially complex. Some of the Bank's accounting
policies, such as measurement of expected credit losses (ECLs),
require particularly complex judgments and estimates. See Note 1 to
the audited annual consolidated financial statements for the year
ended October 31, 2022 for a summary of the most significant
estimation processes used to prepare the consolidated financial
statements in accordance with IFRS and for the valuation techniques
used to determine the carrying values and fair values of assets and
liabilities. The uncertainty regarding certain key inputs used in
measuring ECLs is described in Note 5 to these unaudited interim
condensed consolidated financial statements.
Financial Disclosure
During the second 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)
------- ------- ------- ------- ------- ----- -------
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Total Total
------- ------- ------- ------- ------- ------- ----- -------
Total revenues 2,479 2,582 2,334 2,413 2,439 2,466 2,211 2,254 9,652 8,927
Net income 847 881 738 826 889 930 769 833 3,383 3,140
Earnings per share ($)
Basic 2.41 2.51 2.10 2.38 2.56 2.67 2.20 2.38 9.72 8.95
Diluted 2.38 2.49 2.08 2.35 2.53 2.64 2.17 2.35 9.61 8.85
Dividends per common
share ($) 0.97 0.97 0.92 0.92 0.87 0.87 0.71 0.71 3.58 2.84
Return on common
shareholders' equity
(%)(2) 17.5 17.9 15.3 17.9 20.7 21.9 18.7 21.4 18.8 20.7
Total assets 417,684 418,342 403,740 386,833 369,570 366,680 355,621 353,873
Net impaired loans
excluding
POCI loans (2) 477 476 479 301 293 287 283 312
Per common share ($)
Book value(2) 57.65 55.92 55.24 54.29 52.28 49.71 47.44 45.51
Share price
High 103.45 99.95 94.37 97.87 104.59 105.44 104.32 96.97
Low 92.67 91.02 83.12 83.33 89.33 94.37 95.00 89.47
----- -------
(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 49 to 52 for details on
the composition of these measures.
Glossary
Acceptances
Acceptances and the customers' liability under acceptances
constitute a guarantee of payment by a bank and can be traded in
the money market. The Bank earns a "stamping fee" for providing
this guarantee.
Allowances for credit losses
Allowances for credit losses represent management's unbiased
estimate of expected credit losses as at the balance sheet date.
These allowances are primarily related to loans and
off-balance-sheet items such as loan commitments and financial
guarantees.
Assets under administration
Assets in respect of which a financial institution provides
administrative services on behalf of the clients who own the
assets. Such services include custodial services, collection of
investment income, settlement of purchase and sale transactions,
and record-keeping. Assets under administration are not reported on
the balance sheet of the institution offering such services.
Assets under management
Assets managed by a financial institution and that are
beneficially owned by clients. Management services are more
comprehensive than administrative services and include selecting
investments or offering investment advice. Assets under management,
which may also be administered by the financial institution, are
not reported on the balance sheet of the institution offering such
services.
Available TLAC
Available TLAC includes total capital as well as certain senior
unsecured debt subject to the federal government's bail-in
regulations that satisfy all of the eligibility criteria in OSFI's
Total Loss Absorbing Capacity (TLAC) Guideline.
Average interest-bearing assets
Average interest-bearing assets include interest-bearing
deposits with financial institutions and certain cash items,
securities, securities purchased under reverse repurchase
agreements and securities borrowed, and loans, while excluding
customers' liability under acceptances and other assets. The
average is calculated based on the daily balances for the
period.
Average interest-bearing assets, non-trading
Average interest-bearing assets, non-trading, include
interest-bearing deposits with financial institutions and certain
cash items, securities purchased under reverse repurchase
agreements and securities borrowed, and loans, while excluding
other assets and assets related to trading activities. The average
is calculated based on the daily balances for the period.
Average volumes
Average volumes represent the average of the daily balances for
the period of the consolidated balance sheet items.
Basic earnings per share
Basic earnings per share is calculated by dividing net income
attributable to common shareholders by the weighted average basic
number of common shares outstanding.
Basis point (bps)
Unit of measure equal to one one-hundredth of a percentage point
(0.01%).
Book value of a common share
The book value of a common share is calculated by dividing
common shareholders' equity by the number of common shares on a
given date.
Common Equity Tier 1 (CET1) capital ratio
CET1 capital consists of common shareholders' equity less
goodwill, intangible assets, and other capital deductions. The CET1
capital ratio is calculated by dividing total CET1 capital by the
corresponding risk-weighted assets.
Compound annual growth rate (CAGR)
CAGR is a rate of growth that shows, for a period exceeding one
year, the annual change as though the growth had been constant
throughout the period.
Derivative financial instruments
Derivative financial instruments are financial contracts whose
value is derived from an underlying interest rate, exchange rate or
equity, commodity price or credit instrument or index. Examples of
derivatives include swaps, options, forward rate agreements, and
futures. The notional amount of the derivative is the contract
amount used as a reference point to calculate the payments to be
exchanged between the two parties, and the notional amount itself
is generally not exchanged by the parties.
Diluted earnings per share
Diluted earnings per share is calculated by dividing net income
attributable to common shareholders by the weighted average number
of common shares outstanding after taking into account the dilution
effect of stock options using the treasury stock method and any
gain (loss) on the redemption of preferred shares.
Dividend payout ratio
The dividend payout ratio represents the dividends of common
shares (per share amount) expressed as a percentage of basic
earnings per share.
Economic capital
Economic capital is the internal measure used by the Bank to
determine the capital required for its solvency and to pursue its
business operations. Economic capital takes into consideration the
credit, market, operational, business and other risks to which the
Bank is exposed as well as the risk diversification effect among
them and among the business segments. Economic capital thus helps
the Bank to determine the capital required to protect itself
against such risks and ensure its long-term viability.
Efficiency ratio
The efficiency ratio represents non-interest expenses expressed
as a percentage of total revenues. It measures the efficiency of
the Bank's operations.
Fair value
The fair value of a financial instrument is the price that would
be received to sell an asset or paid to transfer a liability in an
orderly transaction in the principal market at the measurement date
under current market conditions (i.e., an exit price).
Gross impaired loans as a percentage of total loans and
acceptances
This measure represents gross impaired loans expressed as a
percentage of the balance of loans and acceptances.
Gross impaired loans excluding POCI loans
Gross impaired loans excluding POCI loans are all loans
classified in Stage 3 of the expected credit loss model excluding
POCI loans.
Gross impaired loans excluding POCI loans as a percentage of
total loans and acceptances
This measure represents gross impaired loans excluding POCI
loans expressed as a percentage of the balance of loans and
acceptances.
Hedging
The purpose of a hedging transaction is to modify the Bank's
exposure to one or more risks by creating an offset between changes
in the fair value of, or the cash flows attributable to, the hedged
item and the hedging instrument.
Impaired Loans
The Bank considers a financial asset, other than a credit card
receivable, to be credit-impaired when one or more events that have
a detrimental impact on the estimated future cash flows of the
financial asset have occurred or when contractual payments are 90
days past due. Credit card receivables are considered
credit-impaired and are fully written off at the earlier of the
following dates: when a notice of bankruptcy is received, a
settlement proposal is made, or contractual payments are 180 days
past due.
Leverage ratio
The leverage ratio is calculated by dividing Tier 1 capital by
total exposure. Total exposure is defined as the sum of
on-balance-sheet assets (including derivative financial instrument
exposures and securities financing transaction exposures) and
off-balance-sheet items.
Liquidity coverage ratio (LCR)
The LCR is a measure designed to ensure that the Bank has
sufficient high-quality liquid assets to cover net cash outflows
given a severe, 30--day liquidity crisis.
Loans and acceptances
Loans and acceptances represent the sum of loans and of the
customers' liability under acceptances.
Loan-to-value ratio
The loan-to-value ratio is calculated according to the total
facility amount for residential mortgages and home equity lines of
credit divided by the value of the related residential
property.
Master netting agreement
Legal agreement between two parties that have multiple
derivative contracts with each other that provides for the net
settlement of all contracts through a single payment, in the event
of default, insolvency or bankruptcy.
Net impaired loans
Net impaired loans are gross impaired loans presented net of
allowances for credit losses on Stage 3 loan amounts drawn.
Net impaired loans as a percentage of total loans and
acceptances
This measure represents net impaired loans as a percentage of
the balance of loans and acceptances.
Net impaired loans excluding POCI loans
Net impaired loans excluding POCI loans are gross impaired loans
excluding POCI loans presented net of allowances for credit losses
on amounts drawn on Stage 3 loans granted by the Bank.
Net interest income from trading activities
Net interest income from trading activities comprises dividends
related to financial assets and liabilities associated with trading
activities, net of interest expenses and interest income related to
the financing of these financial assets and liabilities.
Net interest income, non-trading
Net interest income, non-trading, comprises revenues related to
financial assets and liabilities associated with non-trading
activities, net of interest expenses and interest income related to
the financing of these financial assets and liabilities.
Net interest margin
Net interest margin is calculated by dividing net interest
income by average interest-bearing assets.
Net stable funding ratio (NSFR)
The NSFR ratio is a measure that helps guarantee that the Bank
is maintaining a stable funding profile to reduce the risk of
funding stress.
Net write-offs as a percentage of average loans and
acceptances
This measure represents the net write-offs (net of recoveries)
expressed as a percentage of average loans and acceptances.
Non-interest income related to trading activities
Non-interest income related to trading activities consists of
realized and unrealized gains and losses as well as interest income
on securities measured at fair value through profit or loss, income
from held-for-trading derivative financial instruments, changes in
the fair value of loans at fair value through profit or loss,
changes in the fair value of financial instruments designated at
fair value through profit or loss, certain commission income, other
trading activity revenues, and any applicable transaction
costs.
Office of the Superintendent of Financial Institutions (Canada)
(OSFI)
The mandate of OSFI is to regulate and supervise financial
institutions and private pension plans subject to federal
oversight, to help minimize undue losses to depositors and
policyholders and, thereby, to contribute to public confidence in
the Canadian financial system.
Operating leverage
Operating leverage is the difference between the growth rate for
total revenues and the growth rate for non-interest expenses.
Provisioning rate
This measure represents the allowances for credit losses on
impaired loans expressed as a percentage of gross impaired
loans.
Provisioning rate excluding POCI loans
This measure represents the allowances for credit losses on
impaired loans excluding POCI loans expressed as a percentage of
gross impaired loans excluding POCI loans.
Provisions for credit losses
Amount charged to income necessary to bring the allowances for
credit losses to a level deemed appropriate by management and is
comprised of provisions for credit losses on impaired and
non-impaired financial assets.
Provisions for credit losses as a percentage of average loans
and acceptances
This measure represents the provisions for credit losses
expressed as a percentage of average loans and acceptances.
Provisions for credit losses on impaired loans as a percentage
of average loans and acceptances
This measure represents the provisions for credit losses on
impaired loans expressed as a percentage of average loans and
acceptances.
Provisions for credit losses on impaired loans excluding POCI
loans as a percentage of average loans and acceptances or
provisions for credit losses on impaired loans excluding POCI loans
ratio
This measure represents the provisions for credit losses on
impaired loans excluding POCI loans expressed as a percentage of
average loans and acceptances.
Return on average assets
Return on average assets represents net income expressed as a
percentage of average assets.
Return on common shareholders' equity (ROE)
ROE represents net income attributable to common shareholders
expressed as a percentage of average equity attributable to common
shareholders. It is a general measure of the Bank's efficiency in
using equity.
Risk-weighted assets
Assets are risk weighted according to the guidelines established
by OSFI. In the Standardized calculation approach, risk factors are
applied directly to the face value of certain assets in order to
reflect comparable risk levels. In the Advanced Internal
Ratings-Based (AIRB) Approach, risk-weighted assets are derived
from the Bank's internal models, which represent the Bank's own
assessment of the risks it incurs. In the Foundation Internal
Ratings-Based (FIRB) Approach the Bank can use its own estimate of
probability of default but must rely on OSFI estimates for loss
given default and exposure at default risk parameters.
Off-balance-sheet instruments are converted to balance sheet (or
credit) equivalents by adjusting the notional values before
applying the appropriate risk-weighting factors.
Securities purchased under reverse repurchase agreements
Securities purchased by the Bank from a client pursuant to an
agreement under which the securities will be resold to the same
client on a specified date and at a specified price. Such an
agreement is a form of short-term collateralized lending.
Securities sold under repurchase agreements
Financial obligations related to securities sold pursuant to an
agreement under which the securities will be repurchased on a
specified date and at a specified price. Such an agreement is a
form of short-term funding.
Stressed VaR (SVaR)
SVaR is a statistical measure of risk that replicates the VaR
calculation method but uses, instead of a two-year history of risk
factor changes, a 12--month data period corresponding to a
continuous period of significant financial stress that is relevant
in terms of the Bank's portfolios.
Structured entity
A structured entity is an entity created to accomplish a narrow
and well-defined objective and is designed so that voting or
similar rights are not the dominant factor in deciding who controls
the entity, such as when any voting rights relate solely to
administrative tasks and the relevant activities are directed by
means of contractual arrangements.
Taxable equivalent
Taxable equivalent basis is a calculation method that consists
of grossing up certain revenues taxed at lower rates (notably
dividends) by the income tax to a level that would make it
comparable to revenues from taxable sources in Canada. The Bank
uses the taxable equivalent basis to calculate net interest income,
non-interest income and income taxes.
Tier 1 capital ratio
Tier 1 capital ratio consists of Common Equity Tier 1 capital
and Additional Tier 1 instruments, namely, qualifying
non-cumulative preferred shares and the eligible amount of
innovative instruments. Tier 1 capital ratio is calculated by
dividing Tier 1 capital, less regulatory adjustments, by the
corresponding risk-weighted assets.
TLAC leverage ratio
The TLAC leverage ratio is an independent risk measure that is
calculated by dividing available TLAC by total exposure, as set out
in OSFI's Total Loss Absorbing Capacity (TLAC) Guideline.
TLAC ratio
The TLAC ratio is a measure used to assess whether a non-viable
Domestic Systemically Important Bank (D-SIB) has sufficient
loss-absorbing capacity to support its recapitalization. It is
calculated by dividing available TLAC by risk weighted assets, as
set out in OSFI's Total Loss Absorbing Capacity (TLAC)
Guideline.
Total capital ratio
Total capital is the sum of Tier 1 and Tier 2 capital. Tier 2
capital consists of the eligible portion of subordinated debt and
certain allowances for credit losses. The Total capital ratio is
calculated by dividing Total capital, less regulatory adjustments,
by the corresponding risk-weighted assets.
Total shareholder return (TSR)
TSR represents the average total return on an investment in the
Bank's common shares. The return includes changes in share price
and assumes that the dividends received were reinvested in
additional common shares of the Bank.
Trading activity revenues
Trading activity revenues consist of the net interest income and
the non-interest income related to trading activities. Net interest
income comprises dividends related to financial assets and
liabilities associated with trading activities, net of interest
expenses and interest income related to the financing of these
financial assets and liabilities. Non-interest income consists of
realized and unrealized gains and losses as well as interest income
on securities measured at fair value through profit or loss, income
from held-for-trading derivative financial instruments, changes in
the fair value of loans at fair value through profit or loss,
changes in the fair value of financial instruments designated at
fair value through profit or loss, certain commission income, other
trading activity revenues, and any applicable transaction
costs.
Value-at-Risk (VaR)
VaR is a statistical measure of risk that is used to quantify
market risks across products, per types of risks, and aggregate
risk on a portfolio basis. VaR is defined as the maximum loss at a
specific confidence level over a certain horizon under normal
market conditions. The VaR method has the advantage of providing a
uniform measurement of financial-instrument-related market risks
based on a single statistical confidence level and time
horizon.
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IR EAASFDEXDEFA
(END) Dow Jones Newswires
May 31, 2023 08:48 ET (12:48 GMT)
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