REG - Nat Bank of Canada - Annual Report 2024 (FS) Part 2
04/12/2024 18:00
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RNS Number : 8461O National Bank of Canada 04 December 2024
Regulatory Announcement
RNS Number: 8461O
National Bank of Canada
December 4, 2024
2024 Annual Financial Statements (Part 2)
National Bank of Canada (the "Bank") announces publication of its 2024 Annual
Report, including the audited consolidated financial statements for the years
ended 31 October 2024 and 2023, together with the notes thereto and
independent auditor's report thereon (the "2024 Financial Statements"). The
2024 Financial Statements have been uploaded to the National Storage Mechanism
and will shortly be available at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) and are available on
the Bank's website as part of the 2024 Annual Report at
https://www.nbc.ca/about-us/investors.html
(https://www.nbc.ca/about-us/investors.html)
To view the full PDF of the 2024 Financial Statements, the 2024 Annual Report
and the 2024 Annual CEO and CFO Certifications, please click on the following
links:
http://www.rns-pdf.londonstockexchange.com/rns/8421O_1-2024-12-4.pdf (http://www.rns-pdf.londonstockexchange.com/rns/8421O_1-2024-12-4.pdf)
http://www.rns-pdf.londonstockexchange.com/rns/8421O_2-2024-12-4.pdf (http://www.rns-pdf.londonstockexchange.com/rns/8421O_2-2024-12-4.pdf)
http://www.rns-pdf.londonstockexchange.com/rns/8421O_3-2024-12-4.pdf (http://www.rns-pdf.londonstockexchange.com/rns/8421O_3-2024-12-4.pdf)
Sensitivity Analysis of Allowances for Credit Losses on Non-Impaired Loans
Scenarios
The following table shows a comparison of the Bank's allowances for credit
losses on non-impaired loans (Stages 1 and 2) as at October 31, 2024 based
on the probability weightings of three scenarios with allowances for credit
losses resulting from simulations of each scenario weighted at 100%.
Allowances for credit losses on non-impaired loans
Balance as at October 31, 2024 1,115
Simulations
100% upside scenario 725
100% base scenario 860
100% downside scenario 1,469
Migration
The following table shows a comparison of the Bank's allowances for credit
losses on non-impaired loans (Stages 1 and 2) as at October 31, 2024 with
the estimated allowances for credit losses that would result if all these
non-impaired loans were in Stage 1.
Allowances for credit losses on non-impaired loans
Balance as at October 31, 2024 1,115
Simulation
Non-impaired loans if they were all in Stage 1 891
Note 9 - Financial Assets Transferred But Not Derecognized
In the normal course of its business, the Bank enters into transactions in
which it transfers financial assets such as securities or loans directly to
third parties, in particular structured entities. According to the terms of
some of those transactions, the Bank retains substantially all of the risks
and rewards related to those financial assets. The risks include credit risk,
interest rate risk, foreign exchange risk, prepayment risk, and other price
risks, whereas the rewards include the income streams associated with the
financial assets. As such, those financial assets are not derecognized and the
transactions are treated as collateralized or secured borrowings. The nature
of those transactions is described below.
Securities Sold Under Repurchase Agreements and Securities Loaned
When securities are sold under repurchase agreements and securities loaned
under securities lending agreements, the Bank transfers financial assets to
third parties in accordance with the standard terms for such transactions.
These third parties may have an unlimited right to resell or repledge the
financial assets received. If cash collateral is received, the Bank records
the cash along with an obligation to return the cash, which is included in
Obligations related to securities sold under repurchase agreements and
securities loaned in the Consolidated Balance Sheet. Where securities are
received as collateral, the Bank does not record the collateral in the
Consolidated Balance Sheet.
Financial Assets Transferred to Structured Entities
Under the Canada Mortgage Bond (CMB) program, the Bank sells securities backed
by insured residential mortgages and other securities to Canada Housing Trust
(CHT), which finances the purchase through the issuance of insured mortgage
bonds. Third-party CMB investors have legal recourse only to the transferred
assets. The cash received for these transferred assets is treated as a secured
borrowing, and a corresponding liability is recorded in Liabilities related to
transferred receivables in the Consolidated Balance Sheet.
Note 9 - Financial Assets Transferred But Not Derecognized (cont.)
The following table provides additional information about the nature of the
transferred financial assets that do not qualify for derecognition and the
associated liabilities.
As at October 31 2024 2023
Carrying value of financial assets transferred but not derecognized
Securities((1)) 110,614 91,097
Residential mortgages 24,015 23,227
134,629 114,324
Carrying value of associated liabilities((2)) 70,423 62,295
Fair value of financial assets transferred but not derecognized
Securities((1)) 110,614 91,098
Residential mortgages 23,760 22,002
134,374 113,100
Fair value of associated liabilities((2)) 70,091 61,468
(1) The amount related to the securities loaned is the maximum
amount of Bank securities that can be lent. For obligations related to
securities sold under repurchase agreements, the amount includes the Bank's
own financial assets as well as those of third parties.
(2) Associated liabilities include liabilities related to
transferred receivables and obligations related to securities sold under
repurchase agreements before the offsetting impact of $13,805 million as at
October 31, 2024 ($6,994 million as at October 31, 2023). Liabilities
related to securities loaned are not included, as the Bank can lend its own
financial assets and those of third parties. The carrying value and fair value
of liabilities related to securities loaned stood at $14,124 million before
the offsetting impact of $4,188 million as at October 31, 2024
($10,171 million before the offsetting impact of $2,090 million as at
October 31, 2023).
The following table specifies the nature of the transactions related to
financial assets transferred but not derecognized.
As at October 31 2024 2023
Carrying value of financial assets transferred but not derecognized
Securities backed by insured residential mortgages and other securities sold 25,557 24,313
to CHT
Securities sold under repurchase agreements 46,716 40,357
Securities loaned 62,356 49,654
134,629 114,324
Note 10 - Investments in Associates and Joint Ventures
As at October 31 2024 2023
Carrying Carrying
value value
Unlisted associates 40 49
As at October 31, 2024 and 2023, there were no significant restrictions
limiting the ability of associates to transfer funds to the Bank in the form
of dividends or to repay any loans or advances, if need be. Furthermore, the
Bank has not made any specific commitment or contracted any contingent
liability with respect to associates.
The table below provides summarized financial information related to the
Bank's proportionate share in all unlisted associates that are not
individually significant.
Year ended October 31((1)) 2024 2023
Net income 8 6
Other comprehensive income − −
Comprehensive income 8 6
(1) The amounts are based on the cumulative balances for the
12-month periods ended September 30, 2024 and 2023.
Note 11 - Premises and Equipment
Owned assets held Right-of-use Total
assets
Land Head office Buildings Computer Equipment Leasehold Total Real estate
building under equipment and furniture improvements
construction
Cost
As at October 31, 2022 74 431 56 276 117 377 1,331 805 2,136
Additions and modifications − 222 3 70 8 53 356 59 415
Disposals − − (7) − (13) (27) (47) (47)
Transfers((1)) − (397) 386 4 7 − − − −
Fully depreciated assets (2) (35) (3) (8) (48) (4) (52)
Impact of foreign currency translation − − − 2 − 1 3 3 6
As at October 31, 2023 74 256 436 317 116 396 1,595 863 2,458
Additions and modifications((2)) 16 119 141 104 12 51 443 66 509
Disposals − − (2) (3) (1) (4) (10) (10)
Transfers((1)) − (375) 321 24 30 − − − −
Fully depreciated assets (1) (60) (2) (15) (78) (54) (132)
Impact of foreign currency translation − − − 2 − − 2 1 3
As at October 31,2024((3)) 90 − 895 384 155 428 1,952 876 2,828
Accumulated depreciation
As at October 31, 2022 38 162 61 179 440 299 739
Depreciation for the year 4 55 10 36 105 106 211
Disposals (5) − (13) (27) (45) (45)
Impairment losses((4)) − − − − − 11 11
Fully depreciated assets (2) (35) (3) (8) (48) (4) (52)
Impact of foreign currency translation − 1 − − 1 1 2
As at October 31, 2023 35 183 55 180 453 413 866
Depreciation for the year 30 58 15 35 138 95 233
Disposals (2) (3) (1) (4) (10) (10)
Impairment losses((4)) − − − − − 2 2
Fully depreciated assets (1) (60) (2) (15) (78) (54) (132)
Impact of foreign currency translation − − − − − 1 1
As at October 31, 2024 62 178 67 196 503 457 960
Carrying value as at October 31, 2023 74 256 401 134 61 216 1,142 450 1,592
Carrying value as at October 31, 2024 90 − 833 206 88 232 1,449 419 1,868
(1) During the year ended October 31, 2023, the Bank had started
occupying certain floors of the new head office building under construction.
As a result, amounts related to significant components being utilized were
transferred to their corresponding asset categories.
(2) During the year ended October 31, 2024, the Bank acquired
office and commercial space in the building at 700 Saint-Jacques Street in
Montreal.
(3) As at October 31, 2024, contractual commitments related to
the head office building stood at $5 million, covering a period up to 2025.
(4) During the year ended October 31, 2024, the Bank recorded
impairment losses of $2 million related to right-of-use assets ($11 million
during the year ended October 31, 2023). These impairment losses were
recognized in Non-interest expenses - Occupancy in the Consolidated Statement
of Income and reported under the Other heading in segment disclosures.
Assets Leased Under Operating Leases
The Bank is a lessor under operating lease agreements for certain buildings.
These leases have terms varying from one year to five years and do not contain
any bargain purchase options or contingent rent.
The future minimum payments receivable under these operating leases total $5
million and include sublease revenues of $4 million related to real estate
right-of-use assets.
Note 11 - Premises and Equipment (cont.)
Leases Recognized in the Consolidated Statement of Income
Year ended October 31 2024 2023
Interest expense 17 17
Expense for leases of low-value assets((1)) 11 10
Expense relating to variable lease payments 80 100
Income from leasing and subleasing((2)) 4 4
(1) The expense relates to lease payments for low-value assets that are
part of the exemptions permitted by the practical expedients of IFRS 16.
(2) These amounts for the years ended October 31, 2024 and 2023 include
variable lease payments of $2 million.
For the year ended October 31, 2024, the cash outflows for leases amounted to
$218 million (2023: $229 million).
Note 12 - Goodwill and Intangible Assets
Goodwill
The following table presents changes in the carrying amounts of goodwill by
cash-generating unit (CGU) and by business segment for the years ended
October 31, 2024 and 2023.
Personal and Wealth Financial Markets((1)) USSF&I Other Total
Commercial((1)) Management
( ) Third-Party Securities Managed ( ) Total ( ) Credigy Ltd.((1)) Advanced Bank of Asia Limited((1)) Total ( ) Flinks
Solutions((1)) Brokerage((1)) Solutions((1)) Technology Inc.((1))
Balance as at October 31, 2022 54 256 434 269 959 235 34 136 170 101 1,519
Impact of foreign currency − − − − − − − 2 2 − 2
translation
Balance as at October 31, 2023 54 256 434 269 959 235 34 138 172 101 1,521
Impact of foreign currency − − − − − − − 1 1 − 1
translation
Balance as at October 31, 2024 54 256 434 269 959 235 34 139 173 101 1,522
(1) Constitutes a CGU.
Goodwill Impairment Testing and Significant Assumptions
For impairment testing purposes, goodwill resulting from a business
combination must be allocated, as of the acquisition date, to a CGU or group
of CGUs expected to benefit from the synergies of the business combination.
Goodwill is tested for impairment annually or more frequently if events or
circumstances indicate that the recoverable value of the CGU or group of CGUs
may have fallen below its carrying amount.
Goodwill was tested for impairment during the years ended October 31, 2024
and 2023, and no impairment loss was recognized.
The recoverable value of a CGU or group of CGUs is based on the value in use
that is calculated based on discounted after-tax cash flows. Future after-tax
cash flows are estimated based on a five-year period, which is the reference
period used for the most recent financial forecasts approved by management.
Cash flows beyond that period are extrapolated using a long-term growth rate.
The discount rate used for each CGU or group of CGUs is calculated using the
cost of debt financing and the cost related to the Bank's equity. This rate
corresponds to the Bank's weighted average cost of capital and reflects the
risk specific to the CGU. The long-term growth rate used in calculating
discounted cash flow estimates is based on the forecasted growth rate plus a
risk premium. The rate is constant over the entire five-year period for which
the cash flows were determined. Growth rates are determined, among other
factors, based on past growth rates, economic trends, inflation, competition,
and the impact of the Bank's strategic initiatives. As at October 31, 2024,
for each CGU or CGU group, the discount rate (after tax) used was 9.72% (9.78%
as at October 31, 2023), and the long-term growth rate varied between 2% and
5%, depending on the CGU, as at October 31, 2024 and 2023.
Estimating a CGU's value in use requires significant judgment regarding the
inputs used in applying the discounted cash flow method. The Bank conducts
sensitivity analyses by varying the after-tax discount rate upward by 1% and
the terminal growth rates downward by 1%. Such sensitivity analyses
demonstrate that a reasonable change in assumptions would not result in a
CGU's carrying value exceeding its value in use.
Intangible Assets
Indefinite useful life Finite useful life Total
Management contracts((1)) Trademark Total Internally- generated software((2)) Other Other intangible assets Total
software
Cost
As at October 31, 2022 159 8 167 2,109 128 60 2,297 2,464
Acquisitions − − − 282 17 − 299 299
Disposals − − − (19) − − (19) (19)
Impairment losses((3)) (1) (1) (2) (315) − − (315) (317)
Fully amortized intangible assets (168) (18) − (186) (186)
As at October 31, 2023 158 7 165 1,889 127 60 2,076 2,241
Acquisitions − − − 241 19 − 260 260
Impairment losses((3)) (2) − (2) − − − − (2)
Fully amortized intangible assets (182) (23) (58) (263) (263)
As at October 31, 2024 156 7 163 1,948 123 2 2,073 2,236
Accumulated amortization
As at October 31, 2022 974 76 54 1,104 1,104
Amortization for the year 287 20 6 313 313
Disposals (6) − − (6) (6)
Impairment losses((3)) (240) − − (240) (240)
Fully amortized intangible assets (168) (18) − (186) (186)
As at October 31, 2023 847 78 60 985 985
Amortization for the year 263 18 − 281 281
Impairment losses((3)) − − − − −
Fully amortized intangible assets (182) (23) (58) (263) (263)
As at October 31, 2024 928 73 2 1,003 1,003
Carrying value as at October 31, 2023 158 7 165 1,042 49 − 1,091 1,256
Carrying value as at October 31, 2024 156 7 163 1,020 50 − 1,070 1,233
(1) For annual impairment testing purposes, management contracts
are allocated to the Managed Solutions CGU.
(2) The remaining amortization period for significant
internally-generated software is three years.
(3) During the year ended October 31, 2024, the Bank recorded
impairment losses of $2 million resulting from the impairment test carried
out on indefinite-life intangible assets ($2 million during the year ended
October 31, 2023) as well as a negligible amount related to
internally-generated software for which the Bank has decided to cease its use
or development ($75 million during the year ended October 31, 2023). In
2023, these impairment losses related to internally-generated software had
been recognized in Non‑interest expenses - Technology in the Consolidated
Statement of Income and reported under the Personal and Commercial ($59
million), Wealth Management ($8 million), Financial Markets ($7 million)
segments and under the Other heading ($1 million) in segment disclosures.
Note 13 - Other Assets
As at October 31 2024 2023((1))
Receivables, prepaid expenses and other items 3,579 3,118
Interest and dividends receivable 1,742 1,605
Due from clients, dealers and brokers 1,302 538
Defined benefit asset (Note 25) 487 356
Deferred tax assets (Note 26) 828 666
Current tax assets 669 925
Reinsurance contract assets 22 16
Insurance contract assets 41 20
Commodities((2)) 573 544
9,243 7,788
(1) Certain amounts have been adjusted to reflect accounting
policy changes arising from the adoption of IFRS 17. For additional
information, see Note 2 to these Consolidated Financial Statements.
(2) Commodities are recorded at fair value based on quoted prices
in active markets and are classified in Level 1 of the fair value measurement
hierarchy.
Note 14 - Deposits
As at October 31 2024 2023
On demand((1)) After notice((2)) Fixed term((3)) Total Total
Personal 5,058 39,418 50,705 95,181 87,883
Business and government((4)) 65,627 27,885 139,218 232,730 197,328
Deposit-taking institutions 2,643 95 2,896 5,634 2,962
73,328 67,398 192,819 333,545 288,173
(1) Demand deposits are deposits for which the Bank does not have
the right to require notice of withdrawal and consist essentially of deposits
in chequing accounts.
(2) Notice deposits are deposits for which the Bank may legally
require a notice of withdrawal and consist mainly of deposits in savings
accounts.
(3) Fixed-term deposits are deposits that can be withdrawn by the
holder on a specified date and include term deposits, guaranteed investment
certificates, savings accounts and plans, covered bonds, and other similar
instruments.
(4) As at October 31, 2024, business and government deposits
included subscription receipts of $1.0 billion issued as part of the agreement
to acquire Canadian Western Bank (CWB). For additional information, see Note
16.
Deposits - Business and government includes, among other items, covered
bonds, as described below, and deposits of $23.5 billion as at October 31,
2024 ($17.7 billion as at October 31, 2023) that are subject to the bank
bail-in conversion regulations issued by the Government of Canada. These
regulations provide certain powers to the Canada Deposit Insurance Corporation
(CDIC), notably the power to convert certain eligible Bank shares and
liabilities into common shares should the Bank become non-viable.
Covered Bonds
NBC Covered Bond Guarantor (Legislative) Limited Partnership
In December 2013, the Bank established the covered bond legislative program
under which covered bonds are issued. It therefore created NBC Covered Bond
Guarantor (Legislative) Limited Partnership (the Guarantor) to guarantee
payment of the principal and interest owed to the bondholders. The Bank sold
uninsured residential mortgages to the Guarantor and granted it loans to
facilitate the acquisition of these assets. During the year ended October 31,
2024, the Bank issued 750 million euros in covered bonds, and covered bonds of
750 million euros matured (covered bonds of 280 million Swiss francs and
1.0 billion euros were issued, and covered bonds of 1.5 billion euros matured
during the year ended October 31, 2023). Covered bonds
totalled $11.4 billion as at October 31, 2024 ($10.9 billion as at
October 31, 2023). For additional information, see Note 29 to these
Consolidated Financial Statements.
The Bank has limited access to the assets owned by this structured entity
according to the terms of the agreements that apply to this transaction. The
assets owned by this entity totalled $22.3 billion as at October 31, 2024
($20.9 billion as at October 31, 2023), of which $21.9 billion
($20.6 billion as at October 31, 2023) is presented in Residential mortgage
loans in the Bank's Consolidated Balance Sheet.
Note 15 - Other Liabilities
As at October 31 2024 2023((1))
Accounts payable and accrued expenses 3,433 2,458
Subsidiaries' debts to third parties 236 224
Interest and dividends payable 2,290 2,022
Lease liabilities 472 517
Due to clients, dealers and brokers 853 669
Defined benefit liability (Note 25) 103 94
Allowances for credit losses - Off-balance-sheet commitments (Note 8) 214 176
Deferred tax liabilities (Note 26) 69 28
Current tax liabilities 123 204
Insurance contract liabilities 28 8
Other items((2)(3)(4)) 865 1,016
8,686 7,416
(1) Certain amounts have been adjusted to reflect accounting
policy changes arising from the adoption of IFRS 17. For additional
information, see Note 2 to these Consolidated Financial Statements.
(2) As at October 31, 2024, Other items included provisions for
litigation of $10 million ($42 million as at October 31, 2023).
(3) As at October 31, 2024, Other items included provisions for
onerous contracts of $18 million ($31 million as at October 31, 2023).
(4) As at October 31, 2024, Other items included the financial
liability resulting from put options written to non-controlling interests of
Flinks for an amount of $5 million ($23 million as at October 31, 2023).
Note 16 - Subscription Receipts
In connection with the CWB transaction, the Bank offered an aggregate of
9,262,500 subscription receipts at a price of $112.30 per subscription receipt
pursuant to a public offering (the Public Offering) and concurrent private
placement (the Concurrent Private Placement) for a total amount of $1.0
billion.
Pursuant to the Public Offering, on June 14, 2024, the Bank issued and sold
4,453,000 subscription receipts at a price of $112.30 for total gross proceeds
of approximately $500 million. The Public Offering was underwritten on a
bought-deal basis by a syndicate of underwriters (the Underwriters). On July
17, 2024, the Bank issued and sold 178,250 additional subscription receipts
pursuant to the partial exercise of the Underwriters' over-allotment option.
Pursuant to the Concurrent Private Placement, on June 14, 2024, the Bank
issued and sold 4,453,000 subscription receipts at a price of $112.30 to an
affiliate of Caisse de dépôt et placement du Québec (CDPQ) for total gross
proceeds of approximately $500 million. On July 17, 2024, the Bank issued and
sold 178,250 additional subscription receipts to an affiliate of CDPQ pursuant
to CDPQ's option to purchase additional subscription receipts to maintain its
pro-rata ownership.
Each subscription receipt entitles the holder thereof to receive automatically
upon closing of the CWB transaction, without any action on the part of the
holder and without payment of additional consideration, (i) one common share
of National Bank, and (ii) a cash payment equal to the amount per common share
of any cash dividends declared by the Bank and for which the record date falls
within the period from June 17, 2024 up to (but excluding) the last day the
subscription receipts are outstanding (less applicable withholding taxes, if
any). In the event that the transaction fails, the subscription receipt
holders have the right to the reimbursement of the full amount, including
interest earned. As at October 31, 2024, the total amount related to the
subscription receipts, including accrued interest, was $1.0 billion, net of
transaction costs. This amount has been included in Deposits - Business and
government. For additional information, see Note 14.
Note 17 - Subordinated Debt
The subordinated debt represents direct unsecured obligations, in the form of
notes and debentures, to the Bank's debt holders. The rights of the Bank's
note and debenture holders are subordinate to the claims of depositors and
certain other creditors. Approval from OSFI is required before the Bank can
redeem its subordinated notes and debentures in whole or in part.
On February 5, 2024, the Bank issued medium-term notes for a total amount of
$500 million bearing interest at 5.279% and maturing on February 15, 2034.
The interest on these notes will be payable semi-annually at a rate of 5.279%
per annum until February 15, 2029 and, thereafter, will be payable quarterly
at a floating rate equal to Daily Compounded CORRA (Canadian Overnight Repo
Rate Average) plus 1.80%. With the prior approval of OSFI, the Bank may, at
its option, redeem these notes as of February 15, 2029, in whole or in part,
at their nominal value plus accrued and unpaid interest. Given that the
medium-term notes satisfy the non-viability contingent capital requirements,
they qualify for the purposes of calculating regulatory capital under Basel
III.
As at October 31 2024 2023
Maturity date Interest rate Redemption date
August 2032((1)) 5.426% ((2)) August 16, 2027((3)) 750 750
February 2034 ((1)) 5.279% ((4)) February 15, 2029((3)) 500 −
1,250 750
Fair value hedge adjustment((5)) 12 −
Unamortized issuance costs((6)) (4) (2)
Total 1,258 748
(1) These notes contain non-viability contingent capital (NVCC)
provisions and qualify for the purposes of calculating regulatory capital
under Basel III. In the case of a trigger event as defined by OSFI, each note
will be automatically and immediately converted, on a full and permanent
basis, without the consent of the holder, into a specified number of common
shares of the Bank as determined using an automatic conversion formula with a
multiplier of 1.5 and a conversion price based on the greater of: (i) a floor
price of $5.00; (ii) the current market price of common shares, which
represents the volume weighted average price of common shares for the ten
trading days ending on the trading day preceding the date of the trigger
event. If the common shares are not listed on an exchange when this price is
being established, the price will be the fair value reasonably determined by
the Bank's Board. The number of shares issued is determined by dividing the
par value of the note (plus accrued and unpaid interest on such note) by the
conversion price and then applying the multiplier.
(2) Bearing interest at a rate of 5.426%, payable semi-annually
until August 16, 2027, and thereafter bearing interest at a floating rate
equal to Daily Compounded CORRA plus 2.32%, payable quarterly.
(3) With the prior approval of OSFI, the Bank may, at its option,
redeem these notes in whole or in part, at their nominal value plus accrued
and unpaid interest.
(4) Bearing interest at a rate of 5.279%, payable semi-annually
until February 15, 2029, and thereafter bearing interest at a floating rate
equal to Daily Compounded CORRA plus 1.80%, payable quarterly.
(5) The fair value hedge adjustment represents the impact of the
hedging transactions applied to hedge changes in the fair value of
subordinated debt caused by interest rate fluctuations.
(6) The unamortized costs related to the issuance of the
subordinated debt represent the initial cost, net of accumulated amortization,
calculated using the effective interest rate method.
Note 18 - Derivative Financial Instruments
Derivative financial instruments are financial contracts whose value is
derived from an underlying interest rate, exchange rate, equity price,
commodity price, credit spread, or index.
The main types of derivative financial instruments used are presented below.
Forwards and Futures
Forwards and futures are contractual obligations to buy or sell a specified
amount of currency, interest rate, commodity, or financial instrument on a
specified future date at a specified price. Forwards are tailor-made
agreements transacted in the over-the-counter market. Futures are traded on
organized exchanges and are subject to cash margining calculated daily by
clearing houses.
Swaps
Swaps are over-the-counter contracts in which two parties agree to exchange
cash flows with specific characteristics. The Bank uses the following types of
swap contracts:
· Cross-currency swaps are transactions in which counterparties
exchange fixed-rate interest payments and principal payments in different
currencies.
· Interest rate swaps are transactions in which counterparties
exchange fixed- and floating-rate interest payments based on the notional
principal value in the same currency.
· Commodity swaps are transactions in which counterparties exchange
fixed- and floating-rate payments based on the notional principal value of a
commodity.
· Equity swaps are transactions in which counterparties agree to
exchange the return on one equity or group of equities for a payment based on
an interest rate benchmark.
· Credit default swaps are transactions in which one of the parties
agrees to pay returns to the other party so that the latter can make a payment
if a credit event occurs.
Options
Options are agreements between two parties in which the writer of the option
grants the buyer the right, but not the obligation, to buy or sell, either at
a specified date or dates or at any time prior to a predetermined expiry date,
a specific amount of currency, commodity, or financial instrument at an
agreed-upon price upon the sale of the option. The writer receives a premium
for the sale of this instrument.
Notional Amounts((1))
As at October 31 2024 2023
Term to maturity Contracts held for trading purposes Contracts
designated
as hedges
3 months Over 3 Over 1 Over Total Total
or less months to year to 5 years contracts contracts
12 months 5 years
Interest rate contracts
OTC contracts
Forward rate agreements
Not settled by central counterparties 17,311 757 − − 18,068 18,068 − 9,112
Settled by central counterparties − 570 − − 570 570 − −
Swaps
Not settled by central counterparties 4,945 12,176 88,329 62,495 167,945 165,450 2,495 140,437
Settled by central counterparties 277,339 206,969 536,680 209,241 1,230,229 1,129,201 101,028 947,848
Options purchased 37 2,013 3,147 1,795 6,992 6,828 164 7,387
Options written 887 2,810 3,774 2,527 9,998 9,493 505 8,619
300,519 225,295 631,930 276,058 1,433,802 1,329,610 104,192 1,113,403
Exchange-traded contracts
Futures
Long positions 2,263 6,830 8,211 − 17,304 17,304 − 44,468
Short positions 26,235 28,985 9,069 − 64,289 64,289 − 63,418
Options purchased 8,633 − − − 8,633 8,633 − 14
Options written 278 − − − 278 278 − 14
37,409 35,815 17,280 − 90,504 90,504 − 107,914
Foreign exchange contracts
OTC contracts
Forwards 31,968 14,502 10,107 953 57,530 57,525 5 54,634
Swaps 313,548 76,960 108,747 44,522 543,777 518,470 25,307 500,841
Options purchased 15,306 25,163 5,347 − 45,816 45,816 − 36,038
Options written 15,590 31,062 7,034 − 53,686 53,686 − 41,161
376,412 147,687 131,235 45,475 700,809 675,497 25,312 632,674
Exchange-traded contracts
Futures
Long positions 51 − − − 51 51 − 69
Short positions 28 − − − 28 28 − 28
79 − − − 79 79 − 97
Equity, commodity and
credit derivative contracts((2))
OTC contracts
Forwards 6 5 21 − 32 32 − 3,579
Swaps
Not settled by central counterparties 36,295 33,482 21,696 1,287 92,760 92,580 180 81,033
Settled by central counterparties 169 189 7,372 767 8,497 8,497 − 7,400
Options purchased 8,186 142 1,334 3,615 13,277 13,277 − 6,219
Options written 7,970 229 3,490 323 12,012 12,012 − 3,329
52,626 34,047 33,913 5,992 126,578 126,398 180 101,560
Exchange-traded contracts
Futures
Long positions 4,358 556 2,698 55 7,667 7,667 − 3,030
Short positions 36,165 4,805 9,173 3 50,146 50,146 − 22,445
Options purchased 42,527 3,089 2,985 − 48,601 48,601 − 14,620
Options written 2,038 2,272 1,390 57 5,757 5,757 − 16,325
85,088 10,722 16,246 115 112,171 112,171 − 56,420
852,133 453,566 830,604 327,640 2,463,943 2,334,259 129,684 2,012,068
(1) Notional amounts are not recognized in assets or liabilities
in the Consolidated Balance Sheet. They represent the reference amount of the
contract to which a rate or price is applied to determine the amount of cash
flows to be exchanged.
(2) Includes precious metal contracts.
Note 18 - Derivative Financial Instruments (cont.)
Credit Risk
Credit risk on derivative financial instruments is the risk of financial loss
that the Bank will have to assume if a counterparty fails to honour its
contractual obligations. Credit risk related to derivative financial
instruments is subject to the same credit approval, credit limit, and credit
monitoring standards as those applied to the Bank's other credit transactions.
Consequently, the Bank evaluates the creditworthiness of counterparties and
manages the size of the portfolios as well as the diversification and maturity
profiles of these financial instruments.
The Bank limits the credit risk of over-the-counter contracts by dealing with
creditworthy counterparties and entering into contracts that provide for the
exchange of collateral between parties where the fair value of the outstanding
transactions exceeds an agreed threshold. The Bank also negotiates master
netting agreements that provide for the simultaneous close-out and settling of
all transactions with a given counterparty on a net basis in the event of
default, insolvency, or bankruptcy. However, overall exposure to credit risk,
reduced through master netting agreements, may change substantially after the
balance sheet date because it is affected by all transactions subject to a
contract as well as by changes in the market rates of the underlying
instruments.
The Bank also uses financial intermediaries to have access to established
clearing houses in order to minimize the settlement risk arising from
financial derivative transactions. In some cases, the Bank has direct access
to clearing houses for settling derivative financial instruments. In addition,
certain derivative financial instruments traded over the counter are settled
directly or indirectly by central counterparties.
In the case of exchange-traded contracts, exposure to credit risk is limited
because these transactions are standardized contracts executed on established
exchanges, each of which is associated with a well-capitalized clearing house
that assumes the obligations of both counterparties and guarantees their
performance obligations. All exchange-traded contracts are subject to initial
margins and daily settlement.
Terms Used
Replacement Cost
Replacement cost is the Bank's maximum credit risk associated with derivative
financial instruments as at the Consolidated Balance Sheet date. This amount
is the positive fair value of all derivative financial instruments, before all
master netting agreements and collateral held.
Credit Risk Equivalent
The credit risk equivalent amount is the total replacement cost plus an amount
representing the potential future credit risk exposure, as outlined in OSFI's
Capital Adequacy Requirements Guideline.
Risk-Weighted Amount
The risk-weighted amount is determined by applying the OSFI guidance to the
credit risk equivalent.
Credit Risk Exposure of the Derivative Financial Instrument Portfolio
As at October 31 2024 2023
Replacement Credit risk Risk- Replacement Credit risk Risk-
cost equivalent((1)) weighted cost equivalent((1)) weighted
amount((1)) amount((1))
Interest rate contracts 2,397 3,358 584 6,708 3,024 457
Foreign exchange contracts 6,430 6,791 1,496 7,233 5,607 1,582
Equity, commodity and credit derivative contracts 3,482 10,234 1,464 3,575 8,544 1,428
12,309 20,383 3,544 17,516 17,175 3,467
Impact of master netting agreements (6,410) (8,032)
5,899 20,383 3,544 9,484 17,175 3,467
(1) The amounts are presented net of the Impact of master netting
agreements.
Credit Risk Exposure of the Derivative Financial Instrument Portfolio by
Counterparty
As at October 31 2024 2023
Replacement Credit risk Replacement Credit risk
cost equivalent cost equivalent
OECD member-country governments 372 2,497 928 3,052
Banks of OECD member countries 835 4,922 606 3,236
Other 4,692 12,964 7,950 10,887
5,899 20,383 9,484 17,175
Fair Value of Derivative Financial Instruments ((1))
As at October 31 2024 2023
Positive Negative Net Positive Negative Net
Contracts held for trading purposes
Interest rate contracts
Forwards 69 63 6 147 54 93
Swaps 2,213 3,248 (1,035) 4,753 4,700 53
Options 97 87 10 179 208 (29)
2,379 3,398 (1,019) 5,079 4,962 117
Foreign exchange contracts
Forwards 617 380 237 878 368 510
Swaps 5,072 5,024 48 5,550 6,004 (454)
Options 487 466 21 588 544 44
6,176 5,870 306 7,016 6,916 100
Equity, commodity and credit derivative contracts
Forwards 9 3 6 40 244 (204)
Swaps 2,076 2,908 (832) 2,573 3,741 (1,168)
Options 1,377 3,129 (1,752) 962 2,424 (1,462)
3,462 6,040 (2,578) 3,575 6,409 (2,834)
Total - Contracts held for trading purposes 12,017 15,308 (3,291) 15,670 18,287 (2,617)
Contracts designated as hedges
Interest rate contracts
Swaps 18 258 (240) 1,629 1,384 245
Options − 17 (17) − 11 (11)
18 275 (257) 1,629 1,395 234
Foreign exchange contracts
Swaps 254 177 77 217 181 36
254 177 77 217 181 36
Equity, commodity and credit derivative contracts
Swaps 20 − 20 − 25 (25)
20 − 20 − 25 (25)
Total - Contracts designated as hedges 292 452 (160) 1,846 1,601 245
Designated as fair value hedges 54 302 (248) 928 902 26
Designated as cash flow hedges 238 150 88 918 699 219
Total fair value 12,309 15,760 (3,451) 17,516 19,888 (2,372)
Impact of master netting agreements (6,410) (6,410) − (8,032) (8,032) −
5,899 9,350 (3,451) 9,484 11,856 (2,372)
(1) The fair value includes the impact of treating variation
margins as settlement of the related derivative financial instrument exposure
by certain central counterparties.
Note 19 - Hedging Activities
The Bank's market risk exposure, risk management objectives, policies and
procedures, and risk measurement methods are presented in the Risk Management
section of the MD&A for the year ended October 31, 2024.
The Bank has elected, as permitted under IFRS 9, to continue applying the
hedge accounting requirements of IAS 39. Some of the tables present
information on currencies, specifically, the U.S. dollar (USD), the Australian
dollar (AUD), the Canadian dollar (CAD), the Hong Kong dollar (HKD), the euro
(EUR), the pound sterling (GBP), the Swiss franc (CHF), the Yuan (CNH) and the
Mexican peso (MXV).
Note 19 - Hedging Activities (cont.)
The following table shows the notional amounts and the weighted average rates
by term to maturity of the designated derivative instruments and their fair
value by type of hedging relationship. The fair value includes the impact of
treating variation margins as settlement of the related derivative exposure by
certain central counterparties.
As at October 31 2024 2023
Term to maturity Total Fair value Total Fair value
1 year Over 1 Over 2 years to 5 years Over Assets Liabilities Assets Liabilities
or less year to 5 years
2 years
Fair value hedges
Interest rate risk
Interest rate swaps 18 258 928 858
Notional amount - CDOR reform((1)) − − − − − 7,609
Notional amount - Other 22,012 7,058 18,194 13,751 61,015 28,868
Average fixed interest rate - Pay fixed 2.6 % 3.7 % 3.5 % 3.5 % 3.5 % 2.1 %
Average fixed interest rate - Receive fixed 4.8 % 4.2 % 3.2 % 3.4 % 4.1 % 4.1 %
Cross-currency swaps 36 27 − 33
Notional amount − 978 77 171 1,226 112
Average USD-AUD exchange rate − − − $ 0.6936 $ 0.6936 $ 0.6943
Average USD-EUR exchange rate − − − $ 1.0513 $ 1.0513 $ 1.0513
Average USD-MXV exchange rate − − − $ 0.4573 $ 0.4573
Average USD-CNH exchange rate − $ 0.1373 $ 0.1369 − $ 0.1373
Options − 17 − 11
Notional amount − 56 136 477 669 653
Average fixed interest rate - Purchased − (0.8) % (1.2) % − (1.2) % (1.3) %
Average fixed interest rate - Written − 5.2 % − 2.2 % 2.4 % 2.4 %
22,012 8,092 18,407 14,399 62,910 54 302 37,242 928 902
Cash flow hedges
Interest rate risk
Interest rate swaps − − 701 526
Notional amount - CDOR reform((1)) − − − − − 7,219
Notional amount - Other 5,081 8,942 23,096 5,389 42,508 29,963
Average fixed interest rate - Pay fixed 3.5 % 3.5 % 3.3 % 2.7 % 3.4 % 3.3 %
Average fixed interest rate - Receive fixed 2.0 % 1.2 % 2.7 % 3.1 % 2.6 % 2.6 %
Cross-currency swaps 218 150 217 148
Notional amount - CDOR reform((1)) − − − − − 3,913
Notional amount - Other 5,655 7,853 10,567 − 24,075 16,789
Average CAD-USD exchange rate $ 1.3093 $ 1.3193 $ 1.3447 − $ 1.3280 $ 1.3133
Average USD-EUR exchange rate $ 1.1487 $ 1.1210 $ 1.1043 − $ 1.1206 $ 1.1402
Average USD-GBP exchange rate − $ 1.1945 − − $ 1.1945 $ 1.2207
Average CHF-USD exchange rate − − $ 1.0064 − $ 1.0064 $ 1.0064
Equity price risk
Equity swaps
Notional amount - CDOR reform((1)) − − − − − 144 − 25
Notional amount - Other 180 − − − 180 20 −
Average price $ 113.97 − − − $ 113.97 $ 101.63
10,916 16,795 33,663 5,389 66,763 238 150 58,028 918 699
Hedges of net investments
( ) in foreign operations((2))
Foreign exchange risk
Cross-currency swaps
Notional amount 11 − − − 11 − − 10 − −
Average CAD-USD exchange rate $ 1.3561 − − − $ 1.3561 $ 1.3209
Average USD-HKD exchange rate $ 0.1287 − − − $ 0.1287 $ 0.1280
11 − − − 11 − − 10 − −
32,939 24,887 52,070 19,788 129,684 292 452 95,280 1,846 1,601
(1) Includes only contracts that referenced the CDOR rate and that
matured after June 28, 2024.
(2) As at October 31, 2024, the Bank also designated foreign
currency deposits denominated in U.S. dollars of $3,989 million as net
investment hedging instruments ($1,892 million as at October 31, 2023).
Fair Value Hedges
Fair value hedge transactions consist of using derivative financial
instruments (interest rate swaps and options) to hedge changes in the fair
value of a financial asset or financial liability caused by interest rate
fluctuations. Changes in the fair values of derivative financial instruments
used as hedging instruments offset changes in the fair value of the hedged
items. The Bank applies this strategy mainly to portfolios of securities
measured at fair value through other comprehensive income, fixed-rate mortgage
loans, fixed-rate deposits, liabilities related to transferred receivables,
and subordinated debt.
In addition, when a fixed-rate asset or liability is denominated in a foreign
currency, the Bank sometimes uses cross-currency swaps to hedge the associated
foreign exchange risk. The Bank may designate a cross-currency swap to
exchange the fixed-rate foreign currency for the functional currency at a
floating rate in a single hedging relationship addressing both interest rate
risk and foreign exchange risk. In certain cases, given that interest rate
risk and foreign exchange risk are hedged in a single hedging relationship,
the information below does not distinguish between interest rate risk and the
combination of interest rate risk and foreign exchange risk as two separate
risk categories. The Bank applies this strategy mainly to foreign currency
fixed-rate deposits.
Regression analysis is used to assess hedge effectiveness and determine the
hedge ratio. For fair value hedges, the main source of potential hedge
ineffectiveness is a circumstance where the critical terms of the hedging
instrument and the hedged item are not closely aligned.
The following tables show amounts related to hedged items as well as the
results of the fair value hedges.
As at October 31, 2024 Year ended October 31, 2024
Carrying value Cumulative Cumulative Gains (losses) on the hedged items for ineffectiveness measurement((1)) Gains (losses) on the hedging instruments for ineffectiveness measurement((1)) Hedge ineffectiveness((1))
of hedged items hedge adjustments from
adjustments from active hedges discontinued
hedges
Securities at fair value through other comprehensive income 12,316 167 (117) 433 (427) 6
Mortgages 5,224 21 (127) 164 (168) (4)
Deposits 32,554 (170) (69) (466) 465 (1)
Liabilities related to transferred receivables 5,014 210 (8) (383) 385 2
Subordinated debt 510 12 − (12) 12 −
(264) 267 3
As at October 31, 2023 Year ended October 31, 2023
Carrying value Cumulative Cumulative Gains (losses) on the hedged items for ineffectiveness measurement((1)) Gains (losses) on the hedging instruments for ineffectiveness measurement((1)) Hedge ineffectiveness((1))
of hedged items hedge adjustments from
adjustments from active hedges discontinued
hedges
Securities at fair value through other comprehensive income 6,068 (332) (211) (191) 189 (2)
Mortgages 2,882 (213) (224) (12) 28 16
Deposits 17,728 (606) (168) 214 (219) (5)
Liabilities related to transferred receivables 4,155 (186) 13 202 (202) −
213 (204) 9
(1) Amounts are presented on a pre-tax basis.
Note 19 - Hedging Activities (cont.)
Cash Flow Hedges
Cash flow hedge transactions consist of using interest rate swaps to hedge the
risk of changes in future cash flows caused by floating-rate assets or
liabilities. In addition, the Bank sometimes uses cross-currency swaps to
hedge the foreign exchange risk caused by assets or liabilities denominated in
foreign currencies. In certain cases, given that interest rate risk and
foreign exchange risk are hedged in a single hedging relationship, the
information below does not distinguish between interest rate risk and the
combination of interest rate risk and foreign exchange risk as two separate
risk categories. The Bank applies this strategy mainly to its loan, personal
credit line, acceptance, and deposit portfolios as well as liabilities related
to transferred receivables.
The Bank also uses total return swaps to hedge the risk of changes in future
cash flows related to the Restricted Stock Unit (RSU) Plan. Some of these
swaps are designated as part of a cash flow hedge against a portion of the
unrecognized obligation of the RSU Plan. In cash flow hedges, the derivative
financial instruments used as hedging instruments reduce the variability of
the future cash flows related to the hedged items.
Regression analysis is used to assess hedge effectiveness and to determine the
hedge ratio. For cash flow hedges, the main source of potential hedge
ineffectiveness is a circumstance where the critical terms of the hedging
instrument and the hedged item are not closely aligned.
The following tables show the amounts related to hedged items as well as the
results of the cash flow hedges.
As at October 31, 2024 Year ended October 31, 2024
Accumulated other comprehensive income from active hedges Accumulated other comprehensive income from discontinued hedges Gains (losses) on hedged items for ineffectiveness measurement((1)) Gains (losses) on hedging instruments for ineffectiveness measurement((1)) Hedge ineffectiveness((1)) Unrealized gains (losses) included in Other comprehensive income as the Losses (gains) reclassified to Net interest income((1))
effective portion of the hedging instrument((1))
Interest rate risk
Loans 105 (186) (292) 288 4 284 48
Deposits (246) 5 46 (55) (4) (458) (31)
Acceptances − 156 22 (22) − (22) (148)
Liabilities related to transferred
receivables (18) 21 19 (20) (1) (19) (39)
(159) (4) (205) 191 (1) (215) (170)
Equity price risk
Other liabilities 60 − (76) 76 − 76 −
(99) (4) (281) 267 (1) (139) (170)
As at October 31, 2023 Year ended October 31, 2023
Accumulated other comprehensive income from active hedges Accumulated other comprehensive income from discontinued hedges Gains (losses) on hedged items for ineffectiveness measurement((1)) Gains (losses) on hedging instruments for ineffectiveness measurement((1)) Hedge ineffectiveness((1)) Unrealized gains (losses) included in Other comprehensive income as the Losses (gains) reclassified to Net interest income((1))
effective portion of the hedging instrument((1))
Interest rate risk
Loans (170) (240) 127 (131) (3) (127) 128
Deposits 127 117 (666) 667 8 223 (17)
Acceptances 59 266 (54) 52 − 52 (52)
Liabilities related to transferred
receivables 11 49 6 (6) − (6) (25)
27 192 (587) 582 5 142 34
Equity price risk
Other liabilities (16) − 17 (17) − (17) −
11 192 (570) 565 5 125 34
(1) Amounts are presented on a pre-tax basis.
Hedges of Net Investments in Foreign Operations
The Bank's structural foreign exchange risk arises from investments in foreign
operations denominated in currencies other than the Canadian dollar. The Bank
measures this risk by assessing the impact of foreign currency fluctuations
and hedges it using derivative and non-derivative financial instruments
(cross-currency swaps and deposits). In a hedge of a net investment in a
foreign operation (net investment hedge), the financial instruments used
offset the foreign exchange gains and losses on the investments. When
non-derivative financial instruments are designated as foreign exchange risk
hedges, only the changes in fair value that are attributable to foreign
exchange risk are taken into account when assessing and calculating the
effectiveness of the hedge.
Assessing the effectiveness of net investment hedges consists of comparing
changes in the carrying value of the deposits or the fair value of the
derivative attributable to exchange rate fluctuations with changes in the net
investment in a foreign operation attributable to exchange rate fluctuations.
Inasmuch as the notional amount of the hedging instruments and the hedged net
investments are aligned, no ineffectiveness is expected.
The following tables present the amounts related to hedged items as well as
the results of the net investment hedges.
As at October 31, 2024 Year ended October 31, 2024
Accumulated other comprehensive income from active hedges Accumulated other comprehensive income from discontinued hedges Gains (losses) on hedged items for ineffectiveness measurement((1)) Gains (losses) on hedging instruments for ineffectiveness measurement((1)) Hedge ineffectiveness((1)) Unrealized gains (losses) included in Other comprehensive income as the Losses (gains) reclassified to the Non-interest income((1))
effective portion of the hedging instrument((1))
Net investments in foreign
operations denominated in:
USD (160) (246) 90 (90) − (90) −
As at October 31, 2023 Year ended October 31, 2023
Accumulated other comprehensive income from active hedges Accumulated other comprehensive income from discontinued hedges Gains (losses) on hedged items for ineffectiveness measurement((1)) Gains (losses) on hedging instruments for ineffectiveness measurement((1)) Hedge ineffectiveness((1)) Unrealized gains (losses) included in Other comprehensive income as the Losses (gains) reclassified to the Non-interest income((1))
effective portion of the hedging instrument((1))
Net investments in foreign
operations denominated in:
USD 38 (353) 66 (66) − (66) −
(1) Amounts are presented on a pre-tax basis.
Note 19 - Hedging Activities (cont.)
Reconciliation of Equity Components
The following table presents a reconciliation by risk category of Accumulated
other comprehensive income attributable to hedge accounting.
As at October 31 2024 2023
Net gains (losses) on cash flow hedges Net foreign currency translation adjustments Net gains (losses) on cash flow hedges Net foreign currency translation adjustments
Balance at beginning 146 307 31 204
Hedges of net investments in foreign operations((1))
Gains (losses) included as the effective portion (90) (66)
Net foreign currency translation gains (losses) on investments 80 152
in foreign operations
Cash flow hedges((1))
Gains (losses) included as the effective portion
Interest rate risk (215) 142
Equity price risk 76 (17)
Losses (gains) reclassified to Net interest income
Interest rate risk (170) 34
Income taxes 86 23 (44) 17
Balance at end (77) 320 146 307
(1) Amounts are presented on a pre-tax basis.
Note 20 - Share Capital and Other Equity Instruments
Authorized
Common Shares
An unlimited number of shares without par value.
First Preferred Shares
An unlimited number of shares, without par value, issuable for a maximum
aggregate consideration of $7.5 billion.
First Preferred Shares and Other Equity Instruments
As at October 31, 2024
Redemption and Redemption Convertible into Dividend per share ($) or interest rate per LRCN((3)) Reset premium of the dividend rate or interest rate
conversion date((1)(2)) price per preferred shares((2))
share or LRCN ($)((1))
First preferred shares
issued and outstanding
Series 30((4)) May 15, 2029 ((5)(6)) 25.00 Series 31 0.38694 ((7)) 2.40 %
Series 32((4)) February 15, 2025 ((5)(6)) 25.00 Series 33 0.23994 ((7)) 2.25 %
Series 38((4)) November 15, 2027 ((5)(6)) 25.00 Series 39 0.43919 ((7)) 3.43 %
Series 40((4)) May 15, 2028 ((5)(6)) 25.00 Series 41 0.36363 ((7)) 2.58 %
Series 42((4)) November 15, 2028 ((5)(6)) 25.00 Series 43 0.44100 ((7)) 2.77 %
Other equity instruments
issued and outstanding
Limited Recourse Capital Notes (LRCN)
Series 1 (LRCN - Series 1)((8)(9)) October 15, 2025 ((5)) 1,000.00 Series 44 ((8)) 4.30 %((10)) 3.943 %
Series 2 (LRCN - Series 2)((8)(9)) July 15, 2026 ((5)) 1,000.00 Series 45 ((8)) 4.05 %((10)) 3.045 %
Series 3 (LRCN - Series 3)((8)(9)) October 16, 2027 ((5)) 1,000.00 Series 46 ((8)) 7.50 %((10)) 4.281 %
First preferred shares
authorized but not issued
Series 31((4)) May 15, 2029 ((5)) 25.00 ((11)) n.a. Floating rate ((12)) 2.40 %
Series 33((4)) February 15, 2025 ((5)) 25.00 ((11)) n.a. Floating rate ((12)) 2.25 %
Series 39((4)) November 15, 2027 ((5)) 25.00 ((11)) n.a. Floating rate ((12)) 3.43 %
Series 41((4)) May 15, 2028 ((5)) 25.00 ((11)) n.a. Floating rate ((12)) 2.58 %
Series 43((4)) November 15, 2028 ((5)) 25.00 ((11)) n.a. Floating rate ((12)) 2.77 %
n.a. Not applicable
(1) Redeemable in cash at the Bank's option, in whole or in
part, subject to the provisions of the Bank Act (Canada) and to OSFI approval.
For the preferred shares, the redemption prices are increased by all the
declared and unpaid dividends on the preferred shares to the date fixed for
redemption. In the case of LRCN, the redemption prices are increased by
interest accrued and unpaid up to the redemption date.
(2) Convertible at the option of the holders of first
preferred shares issued and outstanding, subject to certain conditions.
(3) The dividends are non-cumulative and payable quarterly,
whereas interest on the LRCN is payable semi-annually.
(4) Upon the occurrence of a trigger event, as defined by
OSFI, each outstanding preferred share will be automatically and immediately
converted, on a full and permanent basis, without the consent of the holder,
into a number of Bank common shares determined pursuant to an automatic
conversion formula. This conversion will be calculated by dividing the value
of the preferred shares, i.e., $25.00 per share, plus all declared and unpaid
dividends as at the date of the trigger event, by the value of the common
shares. The value of the common shares will be the greater of a $5.00 floor
price or the current market price of the common shares. Current market price
means the volume weighted average trading price of common shares for the ten
consecutive trading days ending on the trading day preceding the date of the
trigger event. If the common shares are not listed on an exchange when this
price is being established, the price will be the fair value reasonably
determined by the Bank's Board.
(5) For the preferred shares, redeemable at the date fixed for
redemption and on the same date every five years thereafter. In the case of
LRCN, the redemption occurs automatically upon the redemption of the preferred
shares issued by the Bank in conjunction with the LRCN and held in a limited
recourse trust. The preferred shares issued and held in a limited recourse
trust are redeemable for a period of one month from the date fixed for
redemption and on the same dates every five years thereafter.
(6) Convertible on the date fixed for conversion and on the
same date every five years thereafter, subject to certain conditions.
(7) The dividend amount is set for the five-year period
commencing on May 16, 2024 for Series 30, on February 16, 2020 for Series
32, on November 16, 2022 for Series 38, on May 16, 2023 for Series 40 and on
November 16, 2023 for Series 42 and ending on the redemption date. Thereafter,
these shares carry a non-cumulative quarterly fixed dividend in an amount per
share determined by multiplying the rate of interest equal to the sum of the
five-year Government of Canada bond yield on the applicable fixed-rate
calculation date by $25.00, plus the reset premium.
(8) The LRCN - Series 1, LRCN - Series 2 and LRCN - Series 3
are notes for which recourse is limited to the assets held by an independent
trustee in a consolidated limited recourse trust. The trust assets consist of
Series 44, Series 45 and Series 46 preferred shares issued by the Bank in
conjunction with the LRCN - Series 1, LRCN - Series 2 and LRCN - Series 3. In
the event of (i) non-payment of interest on any of the interest payment dates,
(ii) non-payment of the redemption amount upon redemption of the LRCN, (iii)
non-payment of the principal amount upon maturity of the LRCN, or (iv) an
event of default in respect of the LRCN, the noteholders will have recourse
only to the assets of the trust, and each noteholder will be entitled to its
pro rata share of the assets of the trust. In such circumstances, delivery of
the assets of the trust will eliminate all of the Bank's obligations with
respect to the LRCN. The LRCN - Series 1, LRCN - Series 2 and LRCN - Series 3
are redeemable at maturity or earlier to the extent that the Bank redeems the
Series 44, Series 45 and Series 46 preferred shares from the date fixed for
redemption, and subject to OSFI's consent and approval.
Note 20 - Share Capital and Other Equity Instruments (cont.)
(9) The Series 44, Series 45 and Series 46 preferred shares
issued by the Bank in conjunction with the LRCN - Series 1, LRCN - Series 2
and LRCN - Series 3 are held by a consolidated limited recourse trust on the
Bank's balance sheet and are therefore eliminated for financial reporting
purposes. Upon the occurrence of a trigger event, as defined by OSFI; (i) each
LRCN will be automatically redeemed and the redemption price will be covered
by delivery of the trust's assets that consist of Series 44, Series 45 and
Series 46 preferred shares; (ii) each outstanding preferred share will be
automatically and immediately converted on a full and permanent basis, without
the consent of the holder, into a number of Bank common shares determined
pursuant to an automatic conversion formula. This conversion will be
calculated by dividing the value of the preferred shares, i.e., $1,000 per
share, plus all accrued and unpaid interest as at the date of the trigger
event, by the value of the common shares. The value of the common shares will
be the greater of a $5.00 floor price or the current market price of the
common shares. Current market price means the volume weighted average trading
price of common shares for the ten consecutive trading days ending on the
trading day preceding the date of the trigger event. If the common shares are
not listed on an exchange when this price is being established, the price will
be the fair value reasonably determined by the Bank's Board.
(10) The interest rate is set for the initial period ending on the
date fixed for redemption. Every five years thereafter until November 15,
2075 for the LRCN - Series 1, until August 15, 2076 for the LRCN - Series 2
and until November 16, 2077 for the LRCN - Series 3, the interest rate on the
notes will be adjusted and will be an annual interest rate equal to the
five-year Government of Canada bond yield on the applicable interest rate
calculation date, plus the interest rate reset premium.
(11) As of the date fixed for redemption, and every five years
thereafter, the redemption price will be $25.00 per share.
(12) The dividend period begins as of the date fixed for redemption.
The amount of the floating quarterly non-cumulative dividend is determined by
multiplying by $25.00 the rate of interest equal to the sum of the 90-day
Government of Canada treasury bill yield on the floating rate calculation
date, plus the reset premium.
Second Preferred Shares
15 million shares without par value, issuable for a maximum aggregate
consideration of $300 million. As at October 31, 2024, no shares had been
issued or traded.
Shares and Other Equity Instruments Outstanding
As at October 31 2024 2023
Number Shares or LRCN Number Shares or LRCN
of shares or LRCN $ of shares or LRCN $
First Preferred Shares
Series 30 14,000,000 350 14,000,000 350
Series 32 12,000,000 300 12,000,000 300
Series 38 16,000,000 400 16,000,000 400
Series 40 12,000,000 300 12,000,000 300
Series 42 12,000,000 300 12,000,000 300
66,000,000 1,650 66,000,000 1,650
Other equity instruments
LRCN - Series 1 500,000 500 500,000 500
LRCN - Series 2 500,000 500 500,000 500
LRCN - Series 3 500,000 500 500,000 500
1,500,000 1,500 1,500,000 1,500
Preferred shares and other equity instruments 67,500,000 3,150 67,500,000 3,150
Common shares at beginning of year 338,284,629 3,294 336,582,124 3,196
Issued pursuant to the Stock Option Plan 2,297,601 146 1,678,321 95
Impact of shares purchased or sold for trading((1)) 161,646 23 31,975 3
Other − − (7,791) −
Common shares at end of year 340,743,876 3,463 338,284,629 3,294
(1) As at October 31, 2024, a total of 188,371 shares were sold
short for trading, representing an amount of $26 million (26,725 shares were
sold short for trading, representing an amount of $3 million as at October 31,
2023).
Dividends Declared and Distributions on Other Equity Instruments
Year ended October 31 2024 2023
Dividends or interest Dividends Dividends or interest Dividends
$ per share $ per share
First Preferred Shares
Series 30 18 1.2770 14 1.0063
Series 32 12 0.9598 12 0.9598
Series 38 28 1.7568 28 1.7568
Series 40 17 1.4545 16 1.3023
Series 42 21 1.7640 14 1.2375
96 84
Other equity instruments
LRCN - Series 1((1)) 21 21
LRCN - Series 2((2)) 20 20
LRCN - Series 3((3)) 38 38
79 79
Preferred shares and other equity instruments 175 163
Common shares 1,468 4.3200 1,344 3.9800
1,643 1,507
(1) The LRCN - Series 1 bear interest at a fixed rate of 4.30% per
annum.
(2) The LRCN - Series 2 bear interest at a fixed rate of 4.05% per
annum.
(3) The LRCN - Series 3 bear interest at a fixed rate of 7.50% per
annum.
Repurchases of Common Shares
On December 12, 2023, 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 then outstanding common shares) over the 12-month period ended on
December 11, 2024. On December 12, 2022, the Bank had begun a normal course
issuer bid to repurchase for cancellation up to 7,000,000 common shares
(representing approximately 2.1% of its then outstanding common shares) over
the 12-month period ended on December 11, 2023. Any repurchase through the
Toronto Stock Exchange is done at market prices. The common shares may also be
repurchased through other means authorized by the Toronto Stock Exchange and
applicable regulations, including private agreements or share repurchase
programs under issuer bid exemption orders issued by the securities
regulators. A private purchase made under an exemption order issued by a
securities regulator will be done at a discount to the prevailing market
price. The amounts that are paid above the average book value of the common
shares are charged to Retained earnings. During the years ended October 31,
2024 and 2023, the Bank did not repurchase any common shares.
Note 20 - Share Capital and Other Equity Instruments (cont.)
Reserved Common Shares
As at October 31, 2024 and 2023, there were 15,507,568 common shares reserved
under the Dividend Reinvestment and Share Purchase Plan. As at
October 31, 2024, there were 17,766,087 common shares reserved under the
Stock Option Plan (20,063,688 as at October 31, 2023).
Restriction on the Payment of Dividends
The Bank is prohibited from declaring dividends on its common or preferred
shares if there are reasonable grounds for believing that the Bank would, by
so doing, be in contravention of the regulations of the Bank Act (Canada) or
OSFI's capital adequacy and liquidity guidelines. In addition, the ability to
pay common share dividends is restricted by the terms of the outstanding
preferred shares pursuant to which the Bank may not pay dividends on its
common shares without the approval of the holders of the outstanding preferred
shares, unless all preferred share dividends have been declared and paid or
set aside for payment.
Dividend Reinvestment and Share Purchase Plan
The Bank has a Dividend Reinvestment and Share Purchase Plan for holders of
its common and preferred shares under which they can acquire common shares of
the Bank without paying commissions or administration fees. Participants
acquire common shares through the reinvestment of cash dividends paid on the
shares they hold or through optional cash payments of at least $1 per payment,
up to a maximum of $5,000 per quarter. Common shares subscribed by
participants are purchased on their behalf in the secondary market through the
Bank's transfer agent, Computershare Trust Company of Canada, at a price equal
to the average purchase price of the common shares during the three business
days immediately following the dividend payment date.
Note 21 - Non-Controlling Interests
As at October 31 2024 2023
Flinks Technology Inc.((1)) − 2
(1) As at October 31, 2024, the non-controlling interest in
Flinks stood at 3.0% (14.1% as at October 31, 2023)
Note 22 - Capital Disclosure
Capital Management Objectives, Policies and Procedures
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, 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 regarding its internal capital adequacy
assessment process. This process is a key tool in establishing the Bank's
capital strategy and is subject to quarterly reviews and periodic amendments.
Capital Management
Capital ratios are obtained by dividing capital (as defined by the OSFI's
Capital Adequacy Requirements Guideline) by risk-weighted assets (RWA) and are
expressed as percentages. RWA are calculated in accordance with the rules
established by OSFI for on- and off-balance-sheet risks. Credit, market, and
operational risks are factored into the risk-weighted assets calculation for
regulatory purposes. The definition adopted by the Basel Committee on Banking
Supervision (BCBS) distinguishes between three types of capital. Common Equity
Tier 1 (CET1) capital consists of common shareholders' equity less goodwill,
intangible assets, and other CET1 capital deductions. Additional Tier 1 (AT1)
capital consists of eligible non-cumulative preferred shares, limited recourse
capital notes, and other AT1 capital adjustments. The sum of CET1 and AT1
capital forms what is known as Tier 1 capital. Tier 2 capital consists of the
eligible portion of subordinated debt and certain allowances for credit
losses. Total regulatory capital is the sum of Tier 1 and Tier 2 capital.
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
11.5%, a Tier 1 capital ratio of at least 13.0%, and a Total capital ratio of
at least 15.0%. 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 3.5% domestic stability
buffer (DSB) established by OSFI. The DSB, which can vary from 0% to 4.0% of
RWA, consists exclusively of CET1 capital. A D‑SIB that fails to meet this
buffer requirement will not be subject to automatic constraints to reduce
capital distributions but must provide a remediation plan to OSFI. The Bank
also has to meet the requirements of the capital output floor, under which its
total RWA must not be lower than 72.5% of the total RWA as calculated under
the Basel III Standardized Approaches. Initially, OSFI proposed 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. On July 5, 2024,
OSFI announced a one-year delay to the increase in the capital output floor.
Therefore, the revised floor factor will reach 72.5% in fiscal 2027. For
fiscal 2024, the floor factor is set at 67.5%; it will remain at this level
until the end of fiscal 2025 and then increase until 2027. 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. Lastly, OSFI
requires D-SIBs to maintain a Basel III leverage ratio of at least 3.5%, which
includes a Tier 1 capital buffer of 0.5% applicable only to D-SIBs.
OSFI also requires D-SIBs to maintain a risk-based total loss-absorbing
capacity (TLAC) ratio of at least 25.0% (including the DSB) of RWA and a TLAC
leverage ratio of at least 7.25%. The purpose of TLAC 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.
In addition, OSFI requires that regulatory capital instruments other than
common shares contain Non-Viability Contingent Capital (NVCC) provisions to
ensure that investors bear losses before taxpayers where the government
determines that it is in the public interest to contribute to the survival of
a non-viable financial institution. All the Bank's regulatory capital
instruments other than common shares contain NVCC provisions.
In the first quarter of 2024, the Bank implemented OSFI's finalized guidance
of the revised market risk capital rules, consistent with the BCBS's
Fundamental Review of the Trading Book (FRTB) as well as the revised credit
valuation adjustment (CVA) framework.
During the years ended October 31, 2024 and 2023, the Bank was in compliance
with all of OSFI's regulatory capital, leverage, and TLAC requirements.
Note 22 - Capital Disclosure (cont.)
Regulatory Capital((1)), Leverage Ratio((1)) and TLAC((2))
As at October 31 2024 2023
Capital
CET1 19,321 16,920
Tier 1 22,470 20,068
Total 24,001 21,056
Risk-weighted assets 140,975 125,592
Total exposure 511,160 456,478
Capital ratios
CET1 13.7 % 13.5 %
Tier 1 15.9 % 16.0 %
Total 17.0 % 16.8 %
Leverage ratio 4.4 % 4.4 %
Available TLAC 44,040 36,732
TLAC ratio 31.2 % 29.2 %
TLAC leverage ratio 8.6 % 8.0 %
(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.
(2) Available TLAC, the TLAC ratio, and the TLAC leverage ratio
are calculated in accordance with OSFI's Total Loss Absorbing Capacity
Guideline.
Note 23 - 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 and certain interest income
related to the financing of these financial assets and liabilities, net of
interest expenses.
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, realized and unrealized gains and losses as well as interest
expenses on obligations related to securities sold short, certain commission
income as well as other income related to trading activities, and any
applicable transaction costs.
Year ended October 31 2024 2023
Net interest income (loss) related to trading activity (3,076) (1,816)
Non-interest income related to trading activity
Trading revenues (losses) 4,299 2,677
Other revenues 28 19
4,327 2,696
Trading activity revenues 1,251 880
Note 24 - Share-Based Payments
The compensation expense information provided below excludes the impact of
hedging.
Stock Option Plan
The Bank's Stock Option Plan is for officers and other designated persons of
the Bank and its subsidiaries. Under this plan, options are awarded annually
and provide participants with the right to purchase common shares at an
exercise price equal to the closing price of the Bank's common share on the
Toronto Stock Exchange on the day preceding the award. The options vest evenly
over a four-year period and expire ten years from the award date or, in
certain circumstances set out in the plan, within specified time limits. The
Stock Option Plan contains provisions for retiring employees that allow the
participant's rights to continue vesting in accordance with the stated terms
of the award agreement. The maximum number of common shares that may be issued
under the Stock Option Plan was 17,766,087 as at October 31, 2024 (20,063,688
as at October 31, 2023). The number of common shares reserved for a
participant may not exceed 5% of the total number of Bank shares issued and
outstanding.
As at October 31 2024 2023
Number of Weighted Number of Weighted
options average options average
exercise price exercise price
Stock Option Plan
Outstanding at beginning 11,546,688 $ 70.37 11,861,749 $ 64.80
Awarded 1,222,652 $ 94.08 1,416,060 $ 94.05
Exercised (2,297,601) $ 56.85 (1,678,321) $ 50.43
Cancelled((1)) (28,680) $ 86.83 (52,800) $ 87.49
Outstanding at end 10,443,059 $ 76.08 11,546,688 $ 70.37
Exercisable at end 6,835,406 $ 67.88 7,471,041 $ 61.18
(1) No expired options during the year ended October 31, 2024
(8,096 expired options during the year ended October 31, 2023).
Exercise price Options Options Expiry date
outstanding exercisable
$47.93 145,509 145,509 December 2024
$42.17 585,849 585,849 December 2025
$54.69 626,164 626,164 December 2026
$64.14 947,908 947,908 December 2027
$58.79 1,100,602 1,100,602 December 2028
$71.86 1,181,621 1,181,621 December 2029
$71.55 1,617,940 1,136,765 December 2030
$96.35 1,648,186 788,354 December 2031
$94.05 1,366,628 322,634 December 2032
$94.08 1,222,652 − December 2033
10,443,059 6,835,406
During the year ended October 31, 2024, the Bank awarded 1,222,652 stock
options (1,416,060 stock options during the year ended October 31, 2023) with
an average fair value of $13.74 per option ($14.76 for the year ended
October 31, 2023).
The average fair value of options awarded was estimated on the award date
using the Black-Scholes model as well as the following assumptions.
Year ended October 31 2024 2023
Risk-free interest rate 3.61% 3.25%
Expected life of options 7 years 7 years
Expected volatility 22.29% 23.13%
Expected dividend yield 4.62% 4.23%
Note 24 - Share-Based Payments (cont.)
The expected life of the options is based on historical data and is not
necessarily representative of how the options will be exercised in the future.
Expected volatility is extrapolated from the implied volatility of the Bank's
share price and observable market inputs, which are not necessarily
representative of actual results. The expected dividend yield represents the
annualized dividend divided by the Bank's share price at the award date. The
risk-free interest rate is based on the Canadian dollar swap curve at the
award date. The exercise price is equal to the Bank's share price at the award
date. No other market parameter has been included in the fair value
measurement of the options.
For the year ended October 31, 2024, a $17 million compensation expense
related to this plan was recognized in the Consolidated Statement of Income
($18 million for the year ended October 31, 2023).
Stock Appreciation Rights (SAR) Plan
The SAR Plan is for officers and other designated persons of the Bank and its
subsidiaries. Under this plan, participants receive, upon exercising the
right, a cash amount equal to the difference between the closing price of the
Bank's common share on the Toronto Stock Exchange on the day preceding the
exercise date and the closing price on the day preceding the award date. SARs
vest evenly over a four-year period and expire ten years after the award date
or, in certain circumstances set out in the plan, within specified time
limits. The SAR Plan contains provisions for retiring employees that allow the
participant's rights to continue vesting in accordance with the stated terms
of the award agreement. For the year ended October 31, 2024, a $6 million
compensation expense related to this plan was recognized in the Consolidated
Statement of Income (negligible amount for the year ended October 31, 2023).
As at October 31 2024 2023
Number Weighted Number Weighted
of SARs average of SARs average
exercise price exercise price
SAR Plan((1))
Outstanding at beginning 185,672 $ 65.29 207,841 $ 60.73
Awarded 16,772 $ 94.08 19,072 $ 94.05
Exercised (73,686) $ 58.50 (41,241) $ 55.64
Outstanding at end 128,758 $ 72.92 185,672 $ 65.29
Exercisable at end 79,324 $ 61.60 124,531 $ 55.53
(1) No SARs cancelled or expired during the years ended
October 31, 2024 and 2023.
Exercise price SARs SARs Expiry date
outstanding exercisable
$47.93 − − December 2024
$42.17 10,000 10,000 December 2025
$54.69 16,320 16,320 December 2026
$64.14 16,236 16,236 December 2027
$58.79 16,604 16,604 December 2028
$71.86 15,396 15,396 December 2029
$71.55 7,626 − December 2030
$96.35 10,732 − December 2031
$94.05 19,072 4,768 December 2032
$94.08 16,772 − December 2033
128,758 79,324
Deferred Stock Unit (DSU) Plans
The DSU Plans are for officers and other designated persons of the Bank and
its subsidiaries as well as for directors. These plans allow the Bank to tie a
portion of the value of the compensation of participants to the future value
of the Bank's common shares. A DSU is a right that has a value equal to the
closing price of a common share of the Bank on the Toronto Stock Exchange on
the day preceding the award. DSUs generally vest evenly over four years.
Additional DSUs are credited to the accounts of participants in an amount
equal to the dividends declared on Bank common shares and vest evenly over the
same period as the reference DSUs. DSUs may be cashed only when participants
retire or leave the Bank or, for directors, when their term ends. The DSU
Plans contain provisions for retiring employees whereby participants may
continue vesting all units in accordance with the stated terms of the award
agreement.
During the year ended October 31, 2024, the Bank awarded 35,412 DSUs at a
weighted average price of $101.48 (37,477 DSUs at a weighted average price of
$97.45 for the year ended October 31, 2023). A total of 460,259 DSUs were
outstanding as at October 31, 2024 (483,735 DSUs as at October 31, 2023).
For the year ended October 31, 2024, a $26 million compensation expense
related to these plans was recognized in the Consolidated Statement of Income
($3 million for the year ended October 31, 2023).
Restricted Stock Unit (RSU) Plan
The RSU Plan is for certain officers and other designated persons of the Bank
and its subsidiaries. The objective of this plan is to ensure that the
compensation of certain officers and other designated persons is competitive
and to foster retention. An RSU represents a right that has a value equal to
the average closing price of the Bank's common share, as published by the
Toronto Stock Exchange, over the ten trading days preceding the sixth business
day in December. RSUs generally vest evenly over three years, although some
RSUs vest on the sixth business day of December of the third year following
the award date, i.e., the date on which all RSUs expire. Additional RSUs are
credited to the accounts of participants in an amount equal to the dividends
declared on the Bank's common shares and vest over the same period as the
reference RSUs. The RSU Plan contains provisions for retiring employees
whereby participants may continue vesting units in accordance with the stated
terms of the award agreement.
During the year ended October 31, 2024, the Bank awarded 2,133,400 RSUs at a
weighted average price of $91.78 (2,058,936 RSUs at a weighted average price
of $96.42 for the year ended October 31, 2023). As at October 31, 2024, a
total of 4,645,753 RSUs were outstanding (4,382,431 RSUs as at
October 31, 2023). For the year ended October 31, 2024, a $347 million
compensation expense related to this plan was recognized in the Consolidated
Statement of Income ($173 million for the year ended October 31, 2023).
Performance Stock Unit (PSU) Plan
The PSU Plan is for officers and other designated persons of the Bank. The
objective of this plan is to tie a portion of the value of the compensation of
these officers and other designated persons to the future value of the Bank's
common shares. A PSU represents a right that has a value equal to the average
closing price of the Bank's common share, as published by the Toronto Stock
Exchange, over the ten trading days preceding the sixth business day in
December, adjusted upward or downward according to performance criteria, which
is based on the Bank's total shareholder return (TSR) growth index over three
years compared to the average TSR growth index of the comparator group
composed of Canadian banks over three years. PSUs vest on the sixth business
day of December of the third year following the award date, i.e., the date on
which all PSUs expire. Additional PSUs are credited to the accounts of
participants in an amount equal to the dividends declared on the Bank's common
shares and vest over the same period as the reference PSUs. The PSU Plan
contains provisions for retiring employees whereby participants may continue
vesting units in accordance with the stated terms of the award agreement.
During the year ended October 31, 2024, the Bank awarded 232,296 PSUs at a
weighted average price of $91.78 (234,706 PSUs at a weighted average price of
$96.42 for the year ended October 31, 2023). As at October 31, 2024, a total
of 749,971 PSUs were outstanding (745,764 PSUs as at October 31, 2023). For
the year ended October 31, 2024, a $50 million compensation expense related
to this plan was recognized in the Consolidated Statement of Income
($27 million for the year ended October 31, 2023).
Deferred Compensation Plan
This plan is exclusively for key employees of the Wealth Management segment.
The purpose of this plan is to foster the retention of key employees and
promote revenue growth and continuous profitability improvement within the
Wealth Management segment. Under this plan, participants can defer a portion
of their annual compensation, and the Bank may pay a contribution to key
employees when certain financial objectives are met. Amounts awarded by the
Bank and the compensation deferred by participants are invested in, among
other items, Bank common share units. These share units represent a right that
has a value equal to the closing price of the Bank's common share on the
Toronto Stock Exchange on the award date. Additional units are credited to the
accounts of participants in an amount equal to the dividends declared on the
Bank's common shares. Share units representing the amounts awarded by the Bank
vest evenly over four years. When a participant retires, or in certain cases
when the participant's employment ceases, the participant receives a cash
amount representing the value of the vested share units.
During the year ended October 31, 2024, the Bank awarded 143,871 share units
at a weighted average price of $105.53 (161,713 share units at a weighted
average price of $94.90 for the year ended October 31, 2023). As at
October 31, 2024, a total of 2,419,041 share units were outstanding
(2,229,248 share units as at October 31, 2023). For the year ended
October 31, 2024, a $123 million compensation expense related to this plan
was recognized in the Consolidated Statement of Income ($3 million for the
year ended October 31, 2023).
Employee Share Ownership Plan
Under the Bank's Employee Share Ownership Plan, employees who meet the
eligibility criteria can contribute up to 8% of their annual gross salary by
way of payroll deductions. The Bank matches 25% of the employee contribution
up to a maximum of $1,500 per annum. Bank contributions vest to the employee
after one year of uninterrupted participation in the plan. Subsequent
contributions vest immediately. The Bank's contributions, amounting to
$17 million for the year ended October 31, 2024 ($16 million for the year
ended October 31, 2023), were recognized when paid in Compensation and
employee benefits in the Consolidated Statement of Income. As at October 31,
2024, a total of 6,155,909 common shares were held for this plan
(6,392,648 common shares as at October 31, 2023).
Plan shares are purchased on the open market and are considered to be
outstanding for earnings per share calculations. Dividends paid on the Bank's
common shares held for the Employee Share Ownership Plan are used to purchase
other common shares on the open market.
Plan Liabilities and Intrinsic Value
Total liabilities arising from the Bank's share-based compensation plans
amounted to $1,123 million as at October 31, 2024 ($686 million as at
October 31, 2023). The intrinsic value of these liabilities that had vested
as at October 31, 2024 was $571 million ($345 million as at October 31,
2023).
Note 25 - Employee Benefits - Pension Plans and Other Post-Employment Benefit
Plans
The Bank offers pension plans that have a defined benefit component and a
defined contribution component. The Bank also offers other post-employment
benefit plans to eligible retirees. The defined benefit component of the
pension plans provides benefits based on years of plan participation and
average earnings at retirement. The other post-employment benefits include
post-employment medical, dental, and life insurance coverage. Since
September 19, 2022, the Bank has been offering a new defined contribution
component that is available to all new employees upon hiring as well as to
current participants of the defined benefit component. Therefore, as of that
date, the defined benefit component is no longer offered to new employees. For
the defined contribution component, the Bank's base contribution equals a
percentage of annual salary and the Bank's additional contribution varies
according to the employee's contributions, and the sum of the employee's age
and years of continuous service. The defined benefit component of the pension
plans is funded, whereas the defined contribution component and the other
post-employment benefit plans are not funded. The fair value of the defined
benefit component and the present value of the defined benefit obligations
were measured as at October 31.
The Bank's most significant pension plan is the Employee Pension Plan of the
National Bank of Canada; it is registered with OSFI and the Canada Revenue
Agency and subject to the Pension Benefits Standards Act, 1985 and the Income
Tax Act.
The defined benefit component of the pension plans and the other
post-employment benefit plans exposes the Bank to specific risks such as
investment performance, changes to the discount rate used to calculate the
obligation, the longevity of plan participants, and future inflation. While
management believes that the assumptions used in the actuarial valuation
process are reasonable, there remains a degree of risk and uncertainty that
may cause future results to differ significantly from these assumptions, which
could give rise to gains or losses.
According to the Bank's governance rules, the policies and risk management
related to the defined benefit component of the pension plans are overseen at
different levels by the pension committees, the Bank's management, and the
Board's Human Resources Committee. The defined benefit component of the
pension plans are examined on an ongoing basis in order to monitor the funding
and investment policies, the financial status of the plans, and the Bank's
funding requirements.
The Bank's funding policy for the defined benefit component of the pension
plans is to make at least the minimum annual contributions required by pension
regulators.
For funded plans, the Bank determines whether an economic benefit exists in
the form of potential reductions in future contributions and in the form of
refunds from the plan surplus, where permitted by applicable regulations and
plan provisions.
Defined Benefit Obligation, Assets of the Plans, and Funded Status
As at October 31
Pension plans - Defined Other post-employment
benefit component benefit plans
2024 2023 2024 2023
Defined benefit obligation
Balance at beginning 4,020 3,971 94 111
Current service cost 96 92 − −
Interest cost 231 218 5 6
Remeasurements
Actuarial (gains) losses arising from changes in demographic assumptions − (40) − 1
Actuarial (gains) losses arising from changes in financial assumptions 541 (163) 8 (3)
Actuarial (gains) losses arising from experience adjustments 43 71 4 (12)
Employee contributions 73 72
Benefits paid (230) (201) (8) (9)
Balance at end 4,774 4,020 103 94
Plan assets
Fair value at beginning 4,376 4,469
Interest income 247 242
Administration cost (3) (3)
Remeasurements
Return on plan assets (excluding interest income) 711 (329)
Bank contributions((1)) 87 126
Employee contributions 73 72
Benefits paid (230) (201)
Fair value at end 5,261 4,376
Defined benefit asset (liability) at end 487 356 (103) (94)
(1) For fiscal 2025, the Bank expects to pay an employer
contribution of $98 million to the defined benefit component of the pension
plans.
Defined Benefit Asset (Liability)
As at October 31
Pension plans - Defined Other post-employment
benefit component benefit plans
2024 2023 2024 2023
Defined benefit asset included in Other assets 487 356
Defined benefit liability included in Other liabilities − − (103) (94)
487 356 (103) (94)
Cost for Pension Plans and Other Post-Employment Benefit Plans
Year ended October 31
Pension plans Other post-employment benefit plans
2024 2023 2024 2023
Current service cost 96 92 − −
Interest expense (income), net (16) (24) 5 6
Administration costs 3 3
Expense of the defined benefit component 83 71 5 6
Expense of the defined contribution component 21 11
Expense recognized in Net income 104 82 5 6
Remeasurements((1))
Actuarial (gains) losses on the defined benefit obligation 584 (132) 12 (14)
Return on plan assets((2)) (711) 329
Remeasurements recognized in Other comprehensive income (127) 197 12 (14)
(23) 279 17 (8)
(1) Changes related to the discount rate and to the return on plan
assets are reviewed and updated on a quarterly basis. All other assumptions
are updated annually.
(2) Excludes interest income.
Allocation of the Fair Value of the Assets of the Defined Benefit Component of
the Pensions Plans
As at October 31 2024 2023
Quoted Not quoted Total Quoted Not quoted Total
in an active in an active in an active in an active
market((1)) market market((1)) market
Asset classes
Cash and cash equivalents − 120 120 − 378 378
Equity securities 432 1,450 1,882 841 1,300 2,141
Debt securities
Canadian government((2)) (537) 2 (535) (237) − (237)
Canadian provincial and municipal governments − 3,333 3,333 − 2,128 2,128
Other issuers − 403 403 − 171 171
Other − 58 58 − (205) (205)
(105) 5,366 5,261 604 3,772 4,376
(1) Unadjusted quoted prices in active markets for identical
assets that the Bank can access at the measurement date.
(2) Includes obligations related to securities sold short.
The Bank's investment strategy for plan assets considers several factors,
including the time horizon of pension plan obligations and investment risk.
For each plan, an allocation range per asset class is defined using a mix of
equity and debt securities to optimize the risk-return profile of plan assets
and minimize asset/liability mismatching.
The assets of the pension plans may include investment securities issued by
the Bank. As at October 31, 2024 and 2023, the assets of the pension plans do
not include any securities issued by the Bank.
For fiscal 2024, the Bank and its related entities received $19 million
($20 million in fiscal 2023) in fees from the pension plans for related
management, administration, and custodial services.
Note 25 - Employee Benefits - Pension Plans and Other Post-Employment Benefit
Plans (cont.)
Allocation of the Defined Benefit Obligation by the Status of the Participants
in the Defined Benefit Component of the Pension Plans
As at October 31
Pension plans - Defined benefit component Other post-employment benefit plans
2024 2023 2024 2023
Active employees 43 % 41 % 1 % 3 %
Retirees 52 % 54 % 99 % 97 %
Participants with deferred vested benefits 5 % 5 %
100 % 100 % 100 % 100 %
Weighted average duration of the
defined benefit obligation (in years) 15 14 11 10
Significant Actuarial Assumptions (Weighted Average)
Discount Rate
The discount rate assumption is based on an interest rate curve that
represents the yields on corporate AA bonds. Short-term maturities are
obtained using a curve based on observed data from corporate AA bonds.
Long-term maturities are obtained using a curve based on actual data and
extrapolated data.
To measure the obligation related to the defined benefit component of the
pension plans and related to the other post-employment benefit plans, the
vested benefits that the Bank expects to pay in each future period are
discounted to the measurement date using the spot rate associated with each of
the respective periods based on the yield curve derived using the above
methodology. The sum of discounted benefit amounts represents the defined
benefit obligation. An average discount rate that replicates this obligation
is then computed.
To better reflect current service cost, a separate discount rate was
determined to account for the timing of future benefit payments associated
with the additional year of service to be earned by the plan's active
participants. Since these benefits are, on average, being paid at a later date
than the benefits already earned by participants as a whole (i.e., longer
duration), this method results in the use of a generally higher discount rate
for calculating current service cost than that used to measure obligations
where the yield curve is positively sloped. The methodology used to determine
this discount rate is the same as the one used to establish the discount rate
for measuring the obligation.
Other Assumptions
For measurement purposes, the estimated annual growth rate for health care
costs was 4.97% as at October 31, 2024 (4.94% as at October 31, 2023). Based
on the assumption retained, this rate is expected to decrease gradually to
3.57% in 2044 and remain steady thereafter.
Mortality assumptions are a determining factor when measuring the defined
benefit obligation. Determining the expected benefit payout period is based on
best estimate assumptions regarding mortality. Mortality tables are reviewed
at least once a year, and the assumptions made are in accordance with accepted
actuarial practice. New results regarding the plans are reviewed and used in
calculating best estimates of future mortality.
As at October 31
Pension plans - Defined benefit component Other post-employment benefit plans
2024 2023 2024 2023
Defined benefit obligation
Discount rate 4.85 % 5.65 % 4.85 % 5.65 %
Rate of compensation increase 4.00 % 4.00 % 2.00 % 2.00 %
Health care cost trend rate 4.97 % 4.94 %
Life expectancy (in years) at 65 for a participant currently at
Age 65
Men 22.5 22.4 22.5 22.4
Women 24.8 24.8 24.8 24.8
Age 45
Men 23.5 23.4 23.5 23.4
Women 25.7 25.7 25.7 25.7
Year ended October 31
Pension plans - Defined benefit component Other post-employment benefit plans
2024 2023 2024 2023
Pension plan expense
Discount rate - Current service 5.60 % 5.45 % 5.60 % 5.45 %
Discount rate - Interest expense (income), net 5.65 % 5.45 % 5.65 % 5.45 %
Rate of compensation increase 4.00 % 4.00 % 2.00 % 2.00 %
Health care cost trend rate 4.94 % 4.77 %
Life expectancy (in years) at 65 for a participant currently at
Age 65
Men 22.4 22.4 22.4 22.4
Women 24.8 24.7 24.8 24.7
Age 45
Men 23.4 23.4 23.4 23.4
Women 25.7 25.6 25.7 25.6
Sensitivity of Significant Assumptions for 2024
The following table shows the potential impacts of changes to key assumptions
on the defined benefit obligation of the pension plans and other
post‑employment benefit plans as at October 31, 2024. These impacts are
hypothetical and should be interpreted with caution, as changes in each
significant assumption may not be linear.
As at October 31, 2024
Pension plans - Defined Other post-employment
benefit component benefit plans
Change in the obligation Change in the obligation
Impact of a 0.25% increase in the discount rate (178) (3)
Impact of a 0.25% decrease in the discount rate 188 3
Impact of a 0.25% increase in the rate of compensation increase 34
Impact of a 0.25% decrease in the rate of compensation increase (34)
Impact of a 1.00% increase in the health care cost trend rate 3
Impact of a 1.00% decrease in the health care cost trend rate (3)
Impact of an increase in the age of participants by one year (107) (1)
Impact of a decrease in the age of participants by one year 102 1
Projected Benefit Payments
Year ended October 31
Pension plans - Defined benefit component Other post-employment
benefit plans
2025 224 8
2026 233 8
2027 240 7
2028 247 7
2029 254 7
2030 to 2034 1,390 32
Note 26 - Income Taxes ( )
The Bank's income tax expense reported in the Consolidated Financial
Statements is as follows.
Year ended October 31 2024 2023((1))
Consolidated Statement of Income
Current taxes
Current year 1,124 772
Canada Recovery Dividend((2)) − 32
Change in income tax rate((2)) − 10
Prior period adjustments (25) 48
1,099 862
Deferred taxes
Origination and reversal of temporary differences (133) (162)
Change in income tax rate((2)) − (18)
Prior period adjustments (5) (63)
(138) (243)
961 619
Consolidated Statement of Changes in Equity
Share issuance expenses, other equity instruments and other (40) (23)
Impact of IFRS 17 adoption on November 1, 2022((3)) − (18)
(40) (41)
Consolidated Statement of Comprehensive Income
Remeasurements of pension plans and other post-employment benefit plans 32 (43)
Net change in cash flow hedges (86) 44
Net fair value change attributable to credit risk on financial liabilities (135) (63)
designated at fair value through profit or loss
Other (4) (9)
(193) (71)
Income taxes 728 507
The breakdown of the income tax expense is as follows.
Year ended October 31 2024 2023((1))
Current taxes 849 770
Deferred taxes (121) (263)
728 507
(1) Certain amounts have been adjusted to reflect accounting
policy changes arising from the adoption of IFRS 17. For additional
information, see Note 2 to these Consolidated Financial Statements.
(2) During the year ended October 31, 2023, the Bank had 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 included the impact related to current and
deferred taxes for fiscal 2022.
(3) As at October 31, 2023, as a result of adjustments arising
from the adoption of IFRS 17, an $18 million deferred tax asset has been
recorded to Retained earnings in the Consolidated Statement of Changes in
Equity. For additional information, see Note 2 to these Consolidated Financial
Statements.
The temporary differences and tax loss carryforwards resulting in deferred tax
assets and liabilities are as follows.
As at October 31 Year ended October 31 Year ended October 31
Consolidated Consolidated Statement Consolidated Statement
Balance Sheet of Income of Comprehensive Income
2024 2023((1)) 2024 2023((1)) 2024 2023
Deferred tax assets
Allowances for credit losses 410 314 96 79 − −
Deferred expenses 501 362 139 45 − −
Defined benefit liability - Other post-employment
benefit plans 39 36 − 2 3 (4)
Investments in associates − − − (23) − −
Leases liabilities 95 108 (13) (10) − −
Deferred revenue 111 91 20 29 − −
Tax loss carryforwards 48 50 (2) 15 − −
Other items((2)(3)) 43 63 (35) 13 (4) −
1,247 1,024 205 150 (1) (4)
Deferred tax liabilities
Premises and equipment and intangible assets (233) (225) (8) 87 − −
Defined benefit asset - Pension plans (126) (89) − (3) (37) 41
Investments in associates (14) (12) (2) (2) − (8)
Other items (115) (60) (57) 11 2 (27)
(488) (386) (67) 93 (35) 6
Net deferred tax assets (liabilities) 759 638 138 243 (36) 2
(1) Certain amounts have been adjusted to reflect accounting
policy changes arising from the adoption of IFRS 17. For additional
information, see Note 2 to these Consolidated Financial Statements.
(2) As at October 31, 2024, the Consolidated Balance Sheet
included a $29 million deferred tax asset related to the outstanding stock
options considered as non-qualified securities for the purpose of the Income
tax act. For the year ended October 31, 2024, a tax saving of $19 million is
recorded under Contributed surplus in the Consolidated Statement of Changes in
Equity.
(3) As at October 31, 2023, as a result of adjustments arising
from the adoption of IFRS 17, a $32 million deferred tax asset has been
recorded, of which $18 million was to Retained earnings in the Consolidated
Statement of Changes in Equity and $14 million to Income taxes in the
Consolidated Statement of Income. For additional information, see Note 2 to
these Consolidated Financial Statements.
Net deferred tax assets are included in Other assets and net deferred tax
liabilities are included in Other liabilities.
As at October 31 2024 2023((1))
Deferred tax assets 828 666
Deferred tax liabilities (69) (28)
759 638
(1) Certain amounts have been adjusted to reflect accounting
policy changes arising from the adoption of IFRS 17. For additional
information, see Note 2 to these Consolidated Financial Statements.
According to forecasts, which are based on information available as at
October 31, 2024, the Bank believes that the results of future operations
will likely generate sufficient taxable income to utilize all the deferred tax
assets before they expire.
As at October 31, 2024, the total amount of temporary differences, unused tax
loss carryforwards, and unused tax credits for which no deferred tax asset has
been recognized was $547 million ($536 million as at October 31, 2023).
As at October 31, 2024, the total amount of temporary differences related to
investments in subsidiaries, associates, and joint ventures for which no
deferred tax liability has been recognized was $7,626 million
($5,762 million as at October 31, 2023).
Note 26 - Income Taxes (cont.)
The following table provides a reconciliation of the Bank's income tax rate.
Year ended October 31 2024 2023((1))
$ % $ %
Income before income taxes 4,777 100.0 3,908 100.0
Income taxes at Canadian statutory income tax rate 1,338 28.0 1,094 28.0
Reduction in income tax rate due to
Tax-exempt income from securities (141) (3.0) (310) (7.8)
Non-taxable portion of capital gains − − (1) −
Impact of enacted tax measures((2)) − − 24 0.6
Tax rates of subsidiaries, foreign entities and associates (238) (5.0) (178) (4.5)
Other items 2 − (10) (0.3)
(377) (8.0) (475) (12.0)
Income taxes reported in the Consolidated Statement of Income and
effective income tax rate 961 20.0 619 16.0
(1) Certain amounts have been adjusted to reflect accounting
policy changes arising from the adoption of IFRS 17. For additional
information, see Note 2 to these Consolidated Financial Statements.
(2) During the year ended October 31, 2023, the Bank had 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 included the impact related to current and
deferred taxes for fiscal 2022.
Notice of Assessment
In April 2024, the Bank was reassessed by the Canada Revenue Agency (CRA) for
additional income tax and interest of approximately $110 million (including
estimated provincial tax and interest) in respect of certain Canadian
dividends received by the Bank during the 2019 taxation year.
In prior fiscal years, the Bank had been reassessed for additional income tax
and interest of approximately $965 million (including provincial tax and
interest) in respect of certain Canadian dividends received by the Bank during
the 2012-2018 taxation years.
In the reassessments, the CRA alleges that the dividends were received as part
of a "dividend rental arrangement".
In October 2023, the Bank filed a notice of appeal with the Tax Court of
Canada, and the matter is now in litigation. The CRA may issue reassessments
to the Bank for taxation years subsequent to 2019 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
October 31, 2024.
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 included 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 had been enacted as at January 31, 2023, 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 during the year ended
October 31, 2023.
Other Tax Measures
On November 30, 2023, the Government of Canada introduced Bill C-59 - An Act
to implement certain provisions of the fall economic statement tabled in
Parliament on November 21, 2023 and certain provisions of the budget tabled in
Parliament on March 28, 2023 to implement 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 (except for dividends received on "taxable preferred shares" as
defined in the Income Tax Act), as well as the application of a 2% tax on the
net value of equity repurchases occurring as of January 1, 2024. On June 20,
2024, Bill C-59 received royal assent and these tax measures were enacted at
the reporting date. The Consolidated Financial Statements reflect the denial
of the deduction in respect of the dividends covered by Bill C-59 since
January 1, 2024.
On May 2, 2024, the Government of Canada introduced Bill C-69 - An Act to
implement certain provisions of the budget tabled in Parliament on April 16,
2024. The bill includes the Pillar 2 rules (global minimum tax) published by
the Organisation for Economic Co-operation and Development (OECD) that will
apply to fiscal years beginning on or after December 31, 2023 (November 1,
2024 for the Bank). On June 20, 2024, Bill C-69 received royal assent. To
date, the Pillar 2 rules have been included in a bill or enacted in certain
jurisdictions where the Bank operates. The Pillar 2 rules do not apply to this
fiscal year. The Bank is still assessing its income tax exposure arising from
these rules but estimates that the impact on its effective income tax rate
would be an increase of approximately 1% to 2%. During the years ended October
31, 2024 and 2023, the Bank applied the exception to the recognition and
disclosure of information of deferred tax assets and liabilities arising from
the Pillar 2 rules in the jurisdictions where they have been included in a
bill or enacted.
Note 27 - 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.
Year ended October 31 2024 2023((1))
Basic earnings per share
Net income attributable to the Bank's shareholders and holders of other equity 3,817 3,291
instruments
Dividends on preferred shares and distributions on other equity instruments 154 141
Net income attributable to common shareholders 3,663 3,150
Weighted average basic number of common shares outstanding (thousands) 339,733 337,660
Basic earnings per share (dollars) 10.78 9.33
Diluted earnings per share
Net income attributable to common shareholders 3,663 3,150
Weighted average basic number of common shares outstanding (thousands) 339,733 337,660
Adjustment to average number of common shares (thousands)
Stock options((2)) 3,106 3,108
Weighted average diluted number of common shares outstanding (thousands) 342,839 340,768
Diluted earnings per share (dollars) 10.68 9.24
(1) Certain amounts have been adjusted to reflect accounting
policy changes arising from the adoption of IFRS 17. For additional
information, see Note 2 to these Consolidated Financial Statements.
(2) For the years ended October 31, 2024 and 2023, given that the
exercise price of the options was lower than the average price of the Bank's
common shares, no options were excluded from the diluted earnings per share
calculation.
Note 28 - Guarantees, Commitments and Contingent Liabilities
Guarantees
The maximum potential amount of future payments represents the maximum risk of
loss if there were a total default by the guaranteed parties, without
consideration of recoveries under recourse provisions or insurance policies or
from collateral held or pledged. The maximum potential amount of future
payments under significant guarantees issued by the Bank is presented in the
following table.
As at October 31 2024 2023
Letters of guarantee((1)) 9,302 8,339
Backstop liquidity, credit enhancement facilities and other((1)) 11,065 10,101
Securities lending 59 147
(1) For additional information on allowances for credit losses
related to off-balance-sheet commitments, see Note 8 to these Consolidated
Financial Statements.
Letters of Guarantee
In the normal course of business, the Bank issues letters of guarantee. These
letters of guarantee represent irrevocable commitments that the Bank will make
payments in the event that a client cannot meet its obligations to third
parties. The Bank's policy for requiring collateral security with respect to
letters of guarantee is similar to that for loans. Generally, the term of
these letters of guarantee is less than two years.
Backstop Liquidity and Credit Enhancement Facilities
Facilities to Multi-Seller Conduits
The Bank administers multi-seller conduits that purchase financial assets from
clients and finance those purchases by issuing asset-backed commercial paper.
The Bank provides backstop liquidity facilities to these multi-seller
conduits. As at October 31, 2024, the notional amount of the global-style
backstop liquidity facilities totalled $5.5 billion ($4.6 billion as at
October 31, 2023), representing the total amount of commercial paper
outstanding.
These backstop liquidity facilities can be drawn if the conduits are unable to
access the commercial paper market, even if there is no general market
disruption. These facilities have terms of less than one year and can be
periodically renewed. The terms and conditions of these backstop liquidity
facilities do not require the Bank to advance money to the conduits if the
conduits are insolvent or involved in bankruptcy proceedings or to fund
non-performing assets beyond the amount of the available credit enhancements.
The backstop liquidity facilities provided by the Bank have not been drawn to
date.
The Bank also provides credit enhancement facilities to these multi-seller
conduits. These facilities have terms of less than one year and are
automatically renewable unless the Bank sends a non-renewal notice. As at
October 31, 2024 and 2023, the committed notional value for these facilities
was $30 million. To date, the credit enhancement facilities provided by the
Bank have not been drawn.
The maximum risk of loss for the Bank cannot exceed the total amount of
commercial paper outstanding, i.e., $5.6 billion as at October 31, 2024
($4.6 billion as at October 31, 2023). As at October 31, 2024, the Bank
held $63 million ($67 million as at October 31, 2023) of this commercial
paper and, consequently, the maximum potential amount of future payments,
taking into account the credit enhancement facilities, was $5.5 billion
($4.5 billion as at October 31, 2023).
CDCC Overnight Liquidity Facility
Canadian Derivatives Clearing Corporation (CDCC) acts as a central clearing
counterparty for multiple financial instrument transactions in Canada. Certain
fixed-income clearing members of CDCC have provided an equally shared
committed and uncommitted global overnight liquidity facility for the purpose
of supporting CDCC in its clearing activities of securities purchased under
reverse repurchase agreements or sold under repurchase agreements. The
objective of this facility is to maintain sufficient liquidity in the event of
a clearing member's default. As a fixed-income clearing member providing
support to CDCC, the Bank provided a liquidity facility. As at October 31,
2024, the notional amount of the overnight uncommitted liquidity facility
amounted to $5.6 billion ($5.6 billion as at October 31, 2023). As at
October 31, 2024 and 2023, no amount had been drawn.
Securities Lending
Under securities lending agreements that the Bank has entered into with
certain clients who have entrusted it with the safekeeping of their
securities, the Bank lends the securities to third parties and indemnifies its
clients in the event of loss. To protect itself against any contingent loss,
the Bank obtains, as security from the borrower, a cash amount or extremely
liquid marketable securities with a fair value greater than that of the
securities loaned. No amount has been recognized in the Consolidated Balance
Sheet with respect to potential indemnities resulting from securities lending
agreements.
Other Indemnification Agreements
In the normal course of business, including securitization transactions and
discontinuances of businesses and operations, the Bank enters into numerous
contractual agreements under which it undertakes to compensate the
counterparty for costs incurred as a result of litigation, changes in laws and
regulations (including tax legislation), claims with respect to past
performance, incorrect representations or the non-performance of certain
restrictive covenants. The Bank also undertakes to indemnify any person acting
as a director or officer or performing a similar function within the Bank or
one of its subsidiaries or another entity, at the request of the Bank, for all
expenses incurred by that person in proceedings or investigations to which he
or she is party in that capacity. Moreover, as a member of a securities
transfer network and pursuant to the membership agreement and the regulations
governing the operation of the network, the Bank granted collateral in favour
of the Bank of Canada to guarantee any obligation of the Bank towards the Bank
of Canada that could result from the Bank's participation in the securities
transfer network. The durations of the indemnification agreements vary
according to circumstance; as at October 31, 2024 and 2023, given the nature
of the agreements, the Bank is unable to make a reasonable estimate of the
maximum potential liability it could be required to pay to counterparties. No
amount related to these agreements has been recognized in the Consolidated
Balance Sheet.
Commitments
Credit Instruments
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 that the Bank could be obligated to extend if the commitments were
fully drawn.
As at October 31 2024 2023
Letters of guarantee((1)) 9,302 8,339
Documentary letters of credit((2)) 158 157
Credit card receivables((3)) 10,515 9,802
Commitments to extend credit((3)) 100,280 90,706
(1) See Letters of Guarantee on the previous page.
(2) Documentary letters of credit are documents issued by the Bank
and used in international trade to enable a third party to present a payment
request to the Bank for up to an amount established under specific terms and
conditions; these instruments are collateralized by the delivery of the goods
to which they are related.
(3) Credit card receivables and commitments to extend credit
represent unused portions of authorizations to extend credit, under certain
conditions, in the form of loans or bankers' acceptances.
Financial Assets Received as Collateral
As at October 31, 2024, the fair value of financial assets received as
collateral that the Bank was authorized to sell or repledge was
$117.9 billion ($87.9 billion as at October 31, 2023). Given their
characteristics, these financial assets received as collateral are held in a
portfolio of liquid assets and consist of securities related to securities
financing and derivative transactions as well as securities purchased under
reverse repurchase agreements and securities borrowed.
Other Commitments
The Bank acts as an investor in investment banking activities whereby it
enters into agreements to finance external private equity funds and
investments in equity and debt securities at market value at the time the
agreements are signed. In connection with these activities, the Bank had
commitments to invest up to $161 million as at October 31, 2024
($127 million as at October 31, 2023). In addition, through one of its
subsidiaries, the Bank purchases retail loans originated by other financial
institutions at market value at the time of purchase. As at October 31, 2024,
the Bank had commitments to purchase loans of $148 million (negligible amount
as at October 31, 2023).
Pledged Assets
In the normal course of business, the Bank pledges securities and other assets
as collateral. A breakdown of encumbered assets pledged as collateral is
provided in the following table. These transactions are concluded in
accordance with standard terms and conditions.
As at October 31 2024 2023
Assets pledged to
Bank of Canada 333 300
Direct clearing organizations((1)) 15,391 3,046
Assets pledged in relation to
Derivative financial instrument transactions 165 6,628
Borrowing, securities lending and securities sold under reverse repurchase 41,669 85,673
agreements
Securitization transactions 28,230 25,088
Covered bonds((2)) 12,514 12,120
Other 2,377 752
Total 100,679 133,607
(1) Includes assets pledged as collateral for activities in the
systemically important payment system (designated as Lynx) as at October 31,
2024 and 2023.
(2) The Bank has a covered bond program. For additional
information, see Notes 14 and 29 to these Consolidated Financial Statements.
Note 28 - Guarantees, Commitments and Contingent Liabilities (cont.)
Contingent Liabilities
Litigation
In the normal course of business, the Bank and its subsidiaries are involved
in various claims relating, among other matters, to loan portfolios,
investment portfolios, and supplier agreements, including court proceedings,
investigations or claims of a regulatory nature, class actions, or other legal
remedies of varied natures.
More specifically, the Bank is involved as a defendant in class actions
instituted by consumers contesting, inter alia, certain transaction fees or
who wish to avail themselves of certain legislative provisions relating to
consumer protection. The recent developments in the main legal proceeding
involving the Bank are as follows:
Defrance
On January 21, 2019, the Quebec Superior Court authorized a class action
against the National Bank and several other Canadian financial institutions.
The originating application was served to the Bank on April 23, 2019. The
class action was initiated on behalf of consumers residing in Quebec. The
plaintiffs allege that non-sufficient funds charges, billed by all of the
defendants when a payment order is refused due to non-sufficient funds, are
illegal and prohibited by the Consumer Protection Act. The plaintiffs are
claiming, in the form of damages, the repayment of these charges as well as
punitive damages.
It is impossible to determine the outcome of the claims instituted or which
may be instituted against the Bank and its subsidiaries. The Bank estimates,
based on the information at its disposal, that while the amount of contingent
liabilities pertaining to these claims, taken individually or in the
aggregate, could have a material impact on the Bank's consolidated results of
operations for a particular period, it would not have a material adverse
impact on the Bank's consolidated financial position.
Note 29 - Structured Entities
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. Structured
entities are assessed for consolidation in accordance with the accounting
treatment described in Note 1 to these Consolidated Financial Statements. The
Bank's maximum exposure to loss resulting from its interests in these
structured entities consists primarily of the investments in these entities,
the fair value of derivative financial instrument contracts entered into with
them, and the backstop liquidity and credit enhancement facilities granted to
certain structured entities.
In the normal course of business, the Bank may enter into financing
transactions with third-party structured entities, including commercial loans,
reverse repurchase agreements, prime brokerage margin lending, and similar
collateralized lending transactions. While such transactions expose the Bank
to the counterparty credit risk of the structured entities, this exposure is
mitigated by the collateral related to these transactions. The Bank typically
has neither power nor significant variable returns resulting from financing
transactions with structured entities and does not consolidate such entities.
Financing transactions with third-party-sponsored structured entities are
included in the Bank's Consolidated Financial Statements and are not included
in the table accompanying this note on the next page.
Non-Consolidated Structured Entities
Multi-Seller Conduits
The Bank administers multi-seller conduits that purchase financial assets from
clients and finance those purchases by issuing commercial paper backed by the
assets acquired. Clients use these multi-seller conduits to diversify their
funding sources and reduce borrowing costs, while continuing to manage the
financial assets and providing some amount of first-loss protection. Notes
issued by the conduits and held by third parties provide additional credit
loss protection. The Bank acts as a financial agent and provides these
conduits with administrative and transaction structuring services as well as
backstop liquidity and credit enhancement facilities under the commercial
paper program. These facilities are presented and described in Note 28. The
Bank has concluded derivative financial instrument contracts with these
conduits, the fair value of which is presented in the Bank's Consolidated
Balance Sheet. Although the Bank has the ability to direct the relevant
activities of these conduits, it cannot use its power to affect the amount of
the returns it obtains, as it acts as an agent. Consequently, the Bank does
not control these conduits and does not consolidate them.
Investment Funds
The Bank enters into derivative or other financial instrument contracts with
third parties to provide them with the desired exposure to certain investment
funds. The Bank economically hedges the risks related to these derivatives by
investing in those investment funds. The Bank can also hold economic interests
in certain investment funds as part of its investing activities. In addition,
the Bank is sponsor and investment manager of mutual funds in which it has
insignificant or no interest. The Bank does not control the funds where its
holdings are not significant given that, in these circumstances, the Bank
either acts only as an agent or does not have any power over the relevant
activities. In both cases, it does not have significant exposure to the
variable returns of the funds. Therefore, the Bank does not consolidate these
funds.
Private Investments
The Bank invests in several limited liability partnerships and other
incorporated entities. These investment companies in turn invest in operating
companies with a view to reselling these investments at a profit over the
medium or long term. The Bank does not intervene in the operations of these
entities; its only role is that of an investor. Consequently, it does not
control these companies and does not consolidate them.
Third-Party Structured Entities
The Bank has invested in third-party structured entities, some of which are
asset-backed. The underlying assets consist of residential mortgages, consumer
loans, equipment loans, leases, and securities. The Bank does not have the
ability to direct the relevant activities of these structured entities and has
no exposure to their variable returns, other than the right to receive
interest income and dividend income from its investments. Consequently, the
Bank does not control these structured entities and does not consolidate them.
The following table presents the carrying amounts of the assets and
liabilities relating to the Bank's interests in non-consolidated structured
entities, the Bank's maximum exposure to loss from these interests, as well as
the total assets of these structured entities. The structured entity Canada
Housing Trust is not presented. For additional information, see Note 9 to
these Consolidated Financial Statements.
As at October 31, 2024
Multi-seller Investment Private Third-party
conduits((1)) funds((2)) investments((3)) structured entities((4))
Assets in the Consolidated Balance Sheet
Securities at fair value through profit or loss 63 174 73 −
Securities at amortized cost − − − 1,687
Derivative financial instruments − − − 24
63 174 73 1,711
As at October 31, 2023 67 1,042 92 3,447
Liabilities in the Consolidated Balance Sheet
Derivative financial instruments (13) − − (4)
(13) − − (4)
As at October 31, 2023 (82) − − (90)
Maximum exposure to loss
Securities 63 174 73 1,711
Liquidity, credit enhancement facilities and commitments 5,513 − − 438
5,576 174 73 2,149
As at October 31, 2023 4,616 1,042 92 3,916
Total assets of structured entities 5,553 1,266 390 6,418
As at October 31, 2023 4,587 2,583 651 11,390
(1) The main underlying assets, located in Canada, are residential
mortgages, automobile loans, automobile inventory financings, and other
receivables. As at October 31, 2024, the notional committed amount of the
global-style liquidity facilities totalled $5.6 billion ($4.6 billion as at
October 31, 2023), representing the total amount of commercial paper
outstanding. The Bank also provides series-wide credit enhancement facilities
for a notional committed amount of $30 million ($30 million as at
October 31, 2023). The maximum exposure to loss cannot exceed the amount of
commercial paper outstanding. As at October 31, 2024, the Bank held
$63 million in commercial paper ($67 million as at October 31, 2023) and,
consequently, the maximum potential amount of future payments as at
October 31, 2024 was limited to $5.5 billion ($4.5 billion as at
October 31, 2023), which represents the undrawn liquidity and credit
enhancement facilities.
(2) The underlying assets are various financial instruments and
are presented on a net asset basis. Certain investment funds are in a trading
portfolio.
(3) The underlying assets are private investments. The amount of
total assets of the structured entities corresponds to the amount for the most
recent available period.
(4) The underlying assets are residential mortgages, consumer
loans, equipment loans, leases, and securities.
Consolidated Structured Entities
Securitization Entity for the Bank's Credit Card Receivables
In April 2015, the Bank set up Canadian Credit Card Trust II (CCCT II) to
continue its credit card securitization program on a revolving basis and to
use the entity for capital management and funding purposes.
The Bank provides first-loss protection against the losses, since it retains
the excess spread from the portfolio of sold receivables. The excess spread
represents the residual net interest income after all the expenses related to
this structure have been paid. The Bank also provides second-loss protection
as it holds subordinated notes issued by CCCT II. In addition, the Bank acts
as an administrative agent and servicer and as such is responsible for the
daily administration and management of CCCT II's credit card receivables. The
Bank therefore has the ability to direct the relevant activities of CCCT II
and can exercise its power to affect the amount of returns it obtains.
Consequently, the Bank controls CCCT II and consolidates it.
Multi-Seller Conduit
The Bank administers a multi-seller conduit that purchases various financial
assets from clients and finances those purchases by issuing debt securities
(including commercial paper) backed by the assets acquired. The clients use
this multi-seller conduit to diversify their funding sources and reduce
borrowing costs, while continuing to manage the financial assets and providing
some amount of first-loss protection. The Bank holds the sole note issued by
the conduit and has concluded a derivative financial instrument contract with
the conduit. The Bank controls the relevant activities of this conduit through
its involvement as a financial agent, agent for administrative and transaction
structuring services as well as investor in the conduit's sole note. The
Bank's functions and investment in the conduit confer to it decision-making
power over the composition of assets acquired by the conduit and the selection
of the seller as well as some exposure to the conduit's variable returns.
Therefore, the Bank consolidates this conduit.
Note 29 - Structured Entities (cont.)
Investment Funds
The Bank enters into derivative or other financial instrument contracts with
third parties to provide them with the desired exposure to certain investment
funds. The Bank economically hedges the risks related to these derivatives by
investing in those investment funds. The Bank can also hold economic interests
in certain investment funds as part of its investing activities. The Bank
controls the relevant activities of certain funds through its involvement as
an investor and its significant exposure to their variable returns. Therefore,
the Bank consolidates these funds.
Covered Bonds
NBC Covered Bond Guarantor (Legislative) Limited Partnership
In December 2013, the Bank established the covered bond legislative program
under which covered bonds are issued. It therefore created NBC Covered Bond
Guarantor (Legislative) Limited Partnership (the Guarantor) to guarantee
payment of the principal and interest owed to the bondholders. The Bank sold
uninsured residential mortgages to the Guarantor and granted it loans to
facilitate the acquisition of these assets. The Bank acts as manager of the
partnership and has decision-making authority over its relevant activities in
accordance with the contractual terms governing the covered bond legislative
program. In addition, the Bank is able, in accordance with the contractual
terms governing the covered bond legislative program, to affect the variable
returns of the partnership, which are directly related to the return on the
mortgage loan portfolio and the interest on the loans from the Bank.
Consequently, the Bank controls the partnership and consolidates it.
Third-Party Structured Entities
In 2018, the Bank, through one of its subsidiaries, provided financing to a
third-party structured entity in exchange for a 100% interest in a loan
portfolio, the sole asset held by that entity. The Bank controls and therefore
consolidates the structured entity, as it has the ability to direct the
entity's relevant activities through its involvement in the decision-making
process. The Bank is also exposed to the entity's variable returns.
The following table presents the Bank's investments and other assets in the
consolidated structured entities as well as the total assets of these
entities.
As at October 31 2024 2023
Investments Total Investments Total
and other assets assets((1)) and other assets assets((1))
Consolidated structured entities
Securitization entity for the Bank's credit card receivables((2)(3)) 3,176 3,243 2,176 2,272
Multi-seller conduit((4)) 2,022 2,022 1,655 1,655
Investment funds((5)) 47 47 26 26
Covered bonds((6)) 21,779 22,288 20,458 20,869
Third-party structured entities((7)) 124 124 147 147
27,148 27,724 24,462 24,969
(1) There are restrictions, arising essentially from regulatory
requirements, corporate or securities laws, and contractual arrangements, that
limit the ability of some of the Bank's consolidated structured entities to
transfer funds to the Bank.
(2) The underlying assets are credit card receivables.
(3) The Bank's investment is presented net of third-party
holdings.
(4) The underlying assets, located in Canada, are mainly
residential mortgages.
(5) The underlying assets are various financial instruments and
are presented on a net asset basis. Certain investment funds are in a trading
portfolio.
(6) The underlying assets are uninsured residential mortgage loans
of the Bank. The average maturity of these underlying assets is two years. As
at October 31, 2024, the total amount of transferred mortgage loans was
$21.9 billion ($20.6 billion as at October 31, 2023), and the total amount
of covered bonds of $11.4 billion was recognized in Deposits in the
Consolidated Balance Sheet ($10.9 billion as at October 31, 2023). For
additional information, see Note 14 to these Consolidated Financial
Statements.
(7) The underlying assets consist of a loan portfolio.
Note 30 - Related Party Disclosures
In the normal course of business, the Bank provides various banking services
to related parties and enters into contractual agreements and other operations
with related parties. The Bank considers the following to be related parties:
· its key officers and directors and members of their immediate
family, i.e., spouses and children under 18 living in the same household;
· entities over which its key officers and directors and their
immediate family have control or significant influence through their
significant voting power;
· the Bank's associates and joint ventures;
· the Bank's pension plans (for additional information, see Note 25
to these Consolidated Financial Statements).
According to the established definition, the Bank's key officers are those
persons having authority and responsibility for planning, directing, and
controlling the Bank's activities, directly or indirectly.
Related Party Transactions
As at October 31
Key officers Related entities
and directors((1))
2024 2023 2024 2023
Assets
Mortgage loans and other loans 21 24 60 ((2)) 223 ((2))
Liabilities
Deposits 47 45 559 ((3)) 230 ((3))
Other − − 2 3
(1) As at October 31, 2024, key officers and directors and their
immediate family members were holding $38 million of the Bank's common and
preferred shares ($28 million as at October 31, 2023).
(2) As at October 31, 2024, mortgage loans and other loans
consisted of: (i) no amount in loans to the Bank's associates ($7 million as
at October 31, 2023) and (ii) $60 million in loans to entities over which
the Bank's key officers or directors or their immediate family members
exercise control or significant influence through significant voting power
($216 million as at October 31, 2023).
(3) As at October 31, 2024, deposits consisted of: (i) no amount
in deposits to the Bank's associates ($1 million as at October 31, 2023) and
(ii) $559 million in deposits from entities over which the Bank's key
officers or directors and their immediate family members exercise control or
significant influence through significant voting power ($229 million as at
October 31, 2023).
The contractual agreements and other transactions with related entities as
well as with directors and key officers are entered into under conditions
similar to those offered to non-related third parties. These agreements did
not have a significant impact on the Bank's results. The Bank also offers a
deferred stock unit plan to directors who are not Bank employees. For
additional information, see Notes 10, 24 and 29 to these Consolidated
Financial Statements.
Compensation of Key Officers and Directors
Year ended October 31 2024 2023((1))
Compensation and other short-term and long-term benefits 28 26
Share-based payments 27 28
(1) The amounts as at October 31, 2023 have been revised compared
to those previously presented.
Note 30 - Related Party Disclosures (cont.)
Principal Subsidiaries of the Bank((1))
As at October 31, 2024
Name Business activity Principal office address((2)) Voting Investment
shares((3)) at cost
Canada and United States
National Bank Acquisition Holding Inc. Holding company Montreal, Canada 100% 1,257
National Bank Financial Inc. Investment dealer Montreal, Canada 100%
NBF International Holdings Inc. Holding company Montreal, Canada 100%
National Bank of Canada Financial Group Inc. Holding company New York, NY, United States 100%
Credigy Ltd. Holding company Atlanta, GA, United States 100%
National Bank of Canada Financial Inc. Investment dealer New York, NY, United States 100%
National Bank Investments Inc. Mutual funds dealer Montreal, Canada 100%
National Bank Life Insurance Company Insurance Montreal, Canada 100%
Natcan Trust Company Trustee Montreal, Canada 100%
National Bank Trust Inc. Trustee Montreal, Canada 100% 195
National Bank Realty Inc. Real estate Montreal, Canada 100% 80
NatBC Holding Corporation Holding company Hollywood, FL, United States 100% 44
Natbank, National Association Commercial bank Hollywood, FL, United States 100%
Flinks Technology Inc. Information technology Montreal, Canada 97% 150
Other countries
Natcan Global Holdings Ltd. Holding company Sliema, Malta 100% 22
NBC Global Finance Limited Investment services Dublin, Ireland 100%
NBC Financial Markets Asia Limited Investment dealer Hong Kong, China 100% 5
Advanced Bank of Asia Limited Commercial bank Phnom Penh, Cambodia 100% 1,241
ATA IT Ltd. Information technology Bangkok, Thailand 100% 3
Natcan Insurance Company SCC Insurance Bridgetown, Barbados 100% 87
NBC Paris S.A. Investment services Paris, France 100% 4
(1) Excludes consolidated structured entities. For additional
information, see Note 29 to these Consolidated Financial Statements.
(2) All subsidiaries were founded or incorporated under the laws
of the state, province or country where their principal office is located,
except for National Bank of Canada Financial Group Inc., National Bank of
Canada Financial Inc. and NatBC Holding Corporation, which were incorporated
under the laws of the State of Delaware, United States, and Credigy Ltd.,
which was incorporated under the laws of the State of Nevada, United States.
(3) The Bank's percentage of voting rights in these subsidiaries.
Note 31 - Financial Instruments Risk Management
The Bank is exposed to credit risk, market risk, and liquidity and funding
risk. The Bank's objectives, policies, and procedures for managing risk and
the risk measurement methods are presented in the Risk Management section of
the MD&A for the year ended October 31, 2024. Text in grey shading and
tables identified with an asterisk (*) in the Risk Management section of the
MD&A for the year ended October 31, 2024 are integral parts of these
Consolidated Financial Statements.
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 October 31, 2024 and
2023. 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 nor 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 funding
needs of its clients represent the maximum amount of additional credit that
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.
As at October 31, 2024
1 month Over 1 Over 3 Over 6 Over 9 Over 1 Over 2 Over 5 No Total
or less month to months to months to months to year to years to years specified
3 months 6 months 9 months 12 months 2 years 5 years maturity
Assets
Cash and deposits
with financial institutions 20,300 868 458 395 146 − − − 9,382 31,549
Securities
At fair value through
profit or loss 155 179 692 1,173 1,691 4,018 10,420 9,930 87,677 115,935
At fair value through
other comprehensive income 14 97 263 33 34 2,863 5,688 4,964 666 14,622
At amortized cost 232 756 545 931 629 2,748 7,170 1,597 − 14,608
401 1,032 1,500 2,137 2,354 9,629 23,278 16,491 88,343 145,165
Securities purchased under
reverse repurchase
agreements and
securities borrowed 5,525 2,900 2,222 881 − 696 − − 4,041 16,265
Loans((1))
Residential mortgage 1,901 2,012 3,466 4,431 4,762 23,671 44,223 9,993 550 95,009
Personal 861 865 1,648 1,843 1,890 7,957 12,050 6,086 13,683 46,883
Credit card 2,761 2,761
Business and government 12,533 5,621 4,733 4,747 5,588 10,704 18,364 6,545 30,885 99,720
Allowances for credit losses (1,341) (1,341)
15,295 8,498 9,847 11,021 12,240 42,332 74,637 22,624 46,538 243,032
Other
Derivative financial instruments 2,619 1,950 1,187 643 375 1,707 1,576 2,252 − 12,309
Investments in associates and
joint ventures 40 40
Premises and equipment 1,868 1,868
Goodwill 1,522 1,522
Intangible assets 1,233 1,233
Other assets((1)) 3,080 213 757 1,298 221 855 426 102 2,291 9,243
5,699 2,163 1,944 1,941 596 2,562 2,002 2,354 6,954 26,215
47,220 15,461 15,971 16,375 15,336 55,219 99,917 41,469 155,258 462,226
(1) Amounts collectible on demand are considered to have no
specified maturity.
Note 31 - Financial Instruments Risk Management (cont.)
As at October 31, 2024
1 month Over 1 Over 3 Over 6 Over 9 Over 1 Over 2 Over 5 No Total
or less month to months to months to months to year to years to years specified
3 months 6 months 9 months 12 months 2 years 5 years maturity
Liabilities and equity
Deposits((1)(2))
Personal 4,022 3,808 4,840 5,342 4,810 6,856 13,857 7,170 44,476 95,181
Business and government 34,782 14,521 18,716 10,445 6,927 9,649 37,905 6,273 93,512 232,730
Deposit-taking institutions 803 101 364 1,188 401 11 2 26 2,738 5,634
39,607 18,430 23,920 16,975 12,138 16,516 51,764 13,469 140,726 333,545
Other
Obligations related
to securities sold short((3)) 124 260 396 113 64 1,141 2,323 4,354 2,098 10,873
Obligations related to
securities sold under
repurchase agreements and
securities loaned 19,554 2,510 3,915 3,481 − 1,073 − − 7,644 38,177
Derivative financial instruments 1,875 3,134 2,183 509 372 1,844 1,886 3,957 − 15,760
Liabilities related to transferred
receivables((4)) − 1,897 1,216 1,543 197 4,169 8,872 10,483 − 28,377
Securitization - Credit card((5)) 49 − − − − − − − − 49
Lease liabilities((5)) 6 13 19 19 18 72 176 149 − 472
Other liabilities - Other items((1)(5)) 1,674 199 238 10 51 65 79 170 5,679 8,165
23,282 8,013 7,967 5,675 702 8,364 13,336 19,113 15,421 101,873
Subordinated debt − − − − − − − 1,258 − 1,258
Equity 25,550 25,550
62,889 26,443 31,887 22,650 12,840 24,880 65,100 33,840 181,697 462,226
Off-balance-sheet commitments
Letters of guarantee and
documentary letters of credit 80 1,861 1,914 1,420 1,456 2,506 203 20 − 9,460
Credit card receivables((6)) 10,515 10,515
Backstop liquidity and credit
enhancement facilities((7)) − 15 5,552 15 − − − − 5,483 11,065
Commitments to extend credit((8)) 3,243 12,896 9,811 8,121 4,600 5,248 3,635 114 52,612 100,280
Obligations related to:
Lease commitments((9)) 1 1 2 1 1 5 4 2 − 17
Other contracts((10)) 5 10 14 12 12 48 244 9 161 515
(1) Amounts payable upon demand or notice are considered to have
no specified maturity.
(2) Deposits are presented in greater detail than in the
Consolidated Balance Sheet.
(3) Amounts are disclosed according to the residual contractual
maturity of the underlying security.
(4) These amounts mainly include liabilities related to the
securitization of mortgage loans.
(5) Other liabilities are presented in greater detail than in 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 $48.6 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 $5 million in contractual commitments
related to the head office building.
As at October 31, 2023((1))
1 month Over 1 Over 3 Over 6 Over 9 Over 1 Over 2 Over 5 No Total
or less month to months to months to months to year to years to years specified
3 months 6 months 9 months 12 months 2 years 5 years maturity
Assets
Cash and deposits
with financial institutions 25,374 448 354 50 216 − − − 8,792 35,234
Securities
At fair value through
profit or loss 694 258 1,663 1,758 2,260 3,667 10,823 12,813 66,058 99,994
At fair value through
other comprehensive income 3 30 154 224 426 538 4,548 2,660 659 9,242
At amortized cost 4 158 508 338 1,399 4,110 4,713 1,352 − 12,582
701 446 2,325 2,320 4,085 8,315 20,084 16,825 66,717 121,818
Securities purchased under
reverse repurchase
agreements and
securities borrowed 2,275 1,641 716 72 416 693 − − 5,447 11,260
Loans((2))
Residential mortgage 1,409 1,250 1,990 3,126 2,990 15,339 51,112 9,089 542 86,847
Personal 613 637 1,060 1,271 1,396 6,258 15,656 5,713 13,754 46,358
Credit card 2,603 2,603
Business and government 21,406 4,262 4,007 3,204 2,783 6,695 11,322 5,414 25,099 84,192
Customers' liability under
acceptances 6,191 373 50 13 − − − − − 6,627
Allowances for credit losses (1,184) (1,184)
29,619 6,522 7,107 7,614 7,169 28,292 78,090 20,216 40,814 225,443
Other
Derivative financial instruments 2,040 1,982 1,367 1,197 611 1,696 2,399 6,224 − 17,516
Investments in associates and
joint ventures 49 49
Premises and equipment 1,592 1,592
Goodwill 1,521 1,521
Intangible assets 1,256 1,256
Other assets((2)) 2,639 774 166 1,206 547 598 252 115 1,491 7,788
4,679 2,756 1,533 2,403 1,158 2,294 2,651 6,339 5,909 29,722
62,648 11,813 12,035 12,459 13,044 39,594 100,825 43,380 127,679 423,477
(1) Certain amounts have been adjusted to reflect accounting
policy changes arising from the adoption of IFRS 17. For additional
information, see Note 2 to these Consolidated Financial Statements.
(2) Amounts collectible on demand are considered to have no
specified maturity.
Note 31 - Financial Instruments Risk Management (cont.)
As at October 31, 2023((1)) ( )
1 month Over 1 Over 3 Over 6 Over 9 Over 1 Over 2 Over 5 No Total
or less month to months to months to months to year to years to years specified
3 months 6 months 9 months 12 months 2 years 5 years maturity
Liabilities and equity
Deposits((2)(3))
Personal 4,648 3,722 4,491 6,056 5,145 8,398 11,635 4,164 39,624 87,883
Business and government 32,642 10,044 17,495 4,271 3,498 9,127 15,768 5,058 99,425 197,328
Deposit-taking institutions 646 408 32 109 18 8 15 33 1,693 2,962
37,936 14,174 22,018 10,436 8,661 17,533 27,418 9,255 140,742 288,173
Other
Acceptances 6,191 373 50 13 − − − − − 6,627
Obligations related
to securities sold short((4)) 35 155 129 73 76 347 2,332 4,123 6,390 13,660
Obligations related to
securities sold under
repurchase agreements and
securities loaned 23,041 2,719 1,040 3,467 − 274 − − 7,806 38,347
Derivative financial instruments 1,912 2,697 1,186 1,086 467 2,415 3,068 7,057 − 19,888
Liabilities related to transferred
receivables((5)) − 1,760 829 2,142 618 3,915 8,678 7,092 − 25,034
Securitization - Credit card((6)) − − − − − 48 − − − 48
Lease liabilities((6)) 9 28 25 24 23 83 197 128 − 517
Other liabilities - Other items((2)(6)) 1,417 306 174 7 27 37 58 105 4,720 6,851
32,605 8,038 3,433 6,812 1,211 7,119 14,333 18,505 18,916 110,972
Subordinated debt − − − − − − − 748 − 748
Equity 23,584 23,584
70,541 22,212 25,451 17,248 9,872 24,652 41,751 28,508 183,242 423,477
Off-balance-sheet commitments
Letters of guarantee and
documentary letters of credit 89 1,287 1,975 2,185 1,490 1,165 255 50 − 8,496
Credit card receivables((7)) 9,802 9,802
Backstop liquidity and credit
enhancement facilities((8)) − 15 5,552 15 − − − − 4,519 10,101
Commitments to extend credit((9)) 3,186 10,675 8,445 7,562 4,316 4,579 3,312 39 48,592 90,706
Obligations related to:
Lease commitments((10)) 1 1 1 2 2 6 7 1 − 21
Other contracts((11)) 11 22 34 33 36 46 138 13 127 460
(1) Certain amounts have been adjusted to reflect accounting
policy changes arising from the adoption of IFRS 17. For additional
information, see Note 2 to these Consolidated Financial Statements.
(2) Amounts payable upon demand or notice are considered to have
no specified maturity.
(3) Deposits are presented in greater detail than in the
Consolidated Balance Sheet.
(4) Amounts have been disclosed according to the residual
contractual maturity of the underlying security.
(5) These amounts mainly include liabilities related to the
securitization of mortgage loans.
(6) Other liabilities are presented in greater detail than in the
Consolidated Balance Sheet.
(7) These amounts are unconditionally revocable at the Bank's
discretion at any time.
(8) 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.
(9) These amounts include $46.7 billion that is unconditionally
revocable at the Bank's discretion at any time.
(10) 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.
(11) These amounts include $0.1 billion in contractual commitments
related to the portion under construction of the head office building.
Note 32 - Segment Disclosures
The Bank carries out its activities in four business segments, which are
defined below. For presentation purposes, other activities are grouped in the
Other heading. Each reportable segment is distinguished by services offered,
type of clientele, and marketing strategy. The presentation of segment
disclosures is consistent with the presentation adopted by the Bank for the
fiscal year beginning November 1, 2023. This presentation reflects the
retrospective application of the accounting policy changes arising from the
adoption of IFRS 17. The figures for the 2023 quarters have been adjusted to
reflect these accounting policy changes.
Personal and Commercial
The Personal and Commercial segment encompasses the banking, financing, and
investing services offered to individuals, advisors and businesses as well as
insurance operations.
Wealth Management
The Wealth Management segment comprises investment solutions, trust services,
banking services, lending services and other wealth management solutions
offered through internal and third-party distribution networks.
Financial Markets
The Financial Markets segment encompasses corporate banking and investment
banking and financial solutions for large and mid-size corporations, public
sector organizations, and institutional investors.
U.S. Specialty Finance and International (USSF&I)
The USSF&I segment encompasses the specialty finance expertise provided by
the Credigy subsidiary; the activities of the ABA Bank subsidiary, which
offers financial products and services to individuals and businesses in
Cambodia; and the activities of targeted investments in certain emerging
markets.
Other
This heading encompasses treasury activities; liquidity management; Bank
funding; asset/liability management activities; the activities of the Flinks
subsidiary, a fintech company specialized in financial data aggregation and
distribution; certain specified items; and the unallocated portion of
corporate units.
The segment disclosures are prepared in accordance with the accounting
policies described in Note 1 to these Consolidated Financial Statements,
except for the net interest income, non-interest income, and income taxes
(recovery) of the operating segments, which are presented on a taxable
equivalent basis. 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. An equivalent amount is added to
income taxes (recovery). The effect of these adjustments is reversed under the
Other heading. However, considering the enacted legislation with respect to
Canadian dividends, the Bank did not recognize any income tax deductions, nor
did it use the taxable equivalent basis method to adjust revenues related to
affected dividends received after January 1, 2024 (for additional information,
see Note 26). Operations support charges are allocated to each operating
segment presented in the business segment results. The Bank assesses
performance based on the net income attributable to the Bank's shareholders
and holders of other equity instruments. Intersegment revenues are recognized
at the exchange amount.
Note 32 - Segment Disclosures (cont.)
Results by Business Segment
Year ended October 31((1))
Personal and Commercial Wealth Financial USSF&I Other Total
Management Markets
2024 2023 2024 2023 2024 2023 2024 2023 2024 2023 2024 2023
Net interest income((2)(3)) 3,587 3,321 833 778 (2,449) (1,054) 1,303 1,132 (335) (591) 2,939 3,586
Non-interest income((2)(4)(5)) 1,086 1,083 1,953 1,743 5,479 3,710 112 77 (169) (141) 8,461 6,472
Total revenues 4,673 4,404 2,786 2,521 3,030 2,656 1,415 1,209 (504) (732) 11,400 10,058
Non-interest expenses((6)(7)(8)(9)(10)) 2,486 2,462 1,633 1,534 1,246 1,161 439 402 250 194 6,054 5,753
Income before provisions for
credit losses and income taxes 2,187 1,942 1,153 987 1,784 1,495 976 807 (754) (926) 5,346 4,305
Provisions for credit losses 335 238 (1) 2 54 39 182 113 (1) 5 569 397
Income before income taxes
(recovery) 1,852 1,704 1,154 985 1,730 1,456 794 694 (753) (931) 4,777 3,908
Income taxes (recovery)((2)(11)) 509 468 317 271 476 401 166 146 (507) (667) 961 619
Net income 1,343 1,236 837 714 1,254 1,055 628 548 (246) (264) 3,816 3,289
Non-controlling interests − − − − − − − − (1) (2) (1) (2)
Net income attributable to the
Bank's shareholders and 1,343 1,236 837 714 1,254 1,055 628 548 (245) (262) 3,817 3,291
holders of other equity
instruments
Average assets((12)) 158,917 148,511 9,249 8,560 195,881 180,837 27,669 23,007 65,546 69,731 457,262 430,646
Total assets 165,204 154,627 10,411 8,666 193,012 178,784 30,202 25,308 63,397 56,092 462,226 423,477
(1) For the year ended October 31, 2023, certain comparative
figures have been adjusted to reflect accounting policy changes arising from
the adoption of IFRS 17. For additional information, see Note 2 to these
Consolidated Financial Statements.
(2) For the year ended October 31, 2024, Net interest income was
grossed up by $79 million ($332 million in 2023), Non-interest income was
grossed up by $306 million ($247 million in 2023), and an equivalent amount
was recognized in Income taxes (recovery). The effects of these adjustments
have been reversed under the Other heading. Considering the enacted
legislation with respect to Canadian dividends, the Bank did not recognize any
income tax deductions, nor did it use the taxable equivalent basis method to
adjust revenues related to affected dividends received after January 1, 2024
(for additional information, see Note 26).
(3) During the year ended October 31, 2024, the Bank recorded an
amount of $14 million ($10 million net of income taxes) in the Other heading
to reflect the amortization of the issuance costs of the subscription receipts
issued as part of the agreement to acquire CWB (for additional information,
see Notes 14 and 16).
(4) During the year ended October 31, 2024, the Bank recorded a
gain of $174 million ($125 million net of income taxes) upon the
remeasurement at fair value of the interest already held in CWB. Also during
the year ended October 31, 2024, the Bank recorded a mark-to-market loss of
$3 million ($2 million net of income taxes) on interest rate swaps used to
manage the fair value changes of CWB's assets and liabilities that give rise
to volatility of goodwill and capital at the closing of the transaction.
(5) During the year ended October 31, 2023, the Bank had
concluded that it had lost significant influence over TMX Group Limited (TMX)
and therefore ceased using the equity method to account for this investment.
The Bank had designated its investment in TMX as a financial asset measured at
fair value through other comprehensive income in an amount of $191 million.
Upon fair value measurement, a gain of $91 million ($67 million net of
income taxes) was recorded. All these items were recorded under the Other
heading.
(6) During the year ended October 31, 2024, the Bank recorded, in
the Other heading, acquisition and integration charges of $18 million
($13 million net of income taxes) related to the CWB transaction.
(7) During the year ended October 31, 2023, the Bank had recorded
intangible asset impairment losses on technology development of $75 million in
Non-interest expenses, in the following segments: Personal and Commercial ($59
million), Wealth Management ($8 million), Financial Markets ($7 million), and
in the Other heading ($1 million). Moreover, it recorded premises and
equipment impairment losses related to right-of-use assets of $11 million in
Non-interest expenses, in the Other heading.
(8) During the year ended October 31, 2023, the Bank had recorded
litigation expenses of $35 million to resolve litigations and other disputes
arising from various ongoing or potential claims against the Bank in
Non-interest expenses in the Wealth Management segment.
(9) For the year ended October 31, 2023, Non-interest expenses in
the Other heading included an expense of $25 million related to the
retroactive impact of the changes to the Excise Tax Act, indicating that
payment card clearing services rendered by a payment card network operator are
subject to the goods and services tax (GST) and the harmonized sales tax
(HST).
(10) During the year ended October 31, 2023, the Bank had recorded
Non-interest expenses of $15 million for (i) contract termination penalties
(Personal and Commercial segment: $9 million) and for (ii) provisions for
onerous contracts (Other heading: $6 million).
(11) During the year ended October 31, 2023, the Bank had 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 a 1.5% increase
in the statutory tax rate, which included the impact related to current and
deferred taxes for fiscal 2022. These items were recorded under the Other
heading. For additional information on these tax measures, see Note 26.
(12) Represents an average of the daily balances for the period, which
is also the basis on which segment assets are reported in the business
segments.
Results by Geographic Segment
Year ended October 31((1))
Canada United States Other Total
2024 2023 2024 2023 2024 2023 2024 2023
Net interest income((2)) 1,225 1,901 1,062 1,051 652 634 2,939 3,586
Non-interest income((3)(4)) 7,055 5,700 191 98 1,215 674 8,461 6,472
Total revenues 8,280 7,601 1,253 1,149 1,867 1,308 11,400 10,058
Non-interest expenses((5)(6)(7)(8)(9)) 5,464 5,213 238 226 352 314 6,054 5,753
Income before provisions for credit losses and income taxes 2,816 2,388 1,015 923 1,515 994 5,346 4,305
Provisions for credit losses 388 284 113 81 68 32 569 397
Income before income taxes 2,428 2,104 902 842 1,447 962 4,777 3,908
Income taxes((10)) 629 353 99 68 233 198 961 619
Net income 1,799 1,751 803 774 1,214 764 3,816 3,289
Non-controlling interests (1) (2) − − − − (1) (2)
Net income attributable to the Bank's shareholders and 1,800 1,753 803 774 1,214 764 3,817 3,291
holders of other equity instruments
Average assets((11)) 378,632 355,337 28,284 29,116 50,346 46,193 457,262 430,646
Total assets 381,098 347,972 26,327 29,968 54,801 45,537 462,226 423,477
(1) For the year ended October 31, 2023, certain comparative
figures have been adjusted to reflect accounting policy changes arising from
the adoption of IFRS 17. For additional information, see Note 2 to these
Consolidated Financial Statements.
(2) During the year ended October 31, 2024, the Bank recorded an
amount of $14 million ($10 million net of income taxes) in Net interest
income in the Canada heading to reflect the amortization of the issuance costs
of the subscription receipts issued as part of the agreement to acquire CWB
(for additional information, see Notes 14 and 16).
(3) During the year ended October 31, 2024, the Bank recorded a
gain of $174 million ($125 million net of income taxes) upon the
remeasurement at fair value of the interest already held in CWB. Also during
the year ended October 31, 2024, the Bank recorded a mark-to-market loss of
$3 million ($2 million net of income taxes) on interest rate swaps used to
manage the fair value changes of CWB's assets and liabilities that give rise
to volatility of goodwill and capital at the closing of the transaction. These
items were recorded in Canada.
(4) During the year ended October 31, 2023, the Bank had
concluded that it had lost significant influence over TMX Group Limited (TMX)
and therefore ceased using the equity method to account for this investment.
The Bank had designated its investment in TMX as a financial asset measured at
fair value through other comprehensive income in an amount of $191 million.
Upon fair value measurement, a $91 million gain ($67 million net of income
taxes) was recorded in Non-interest income, in Canada.
(5) During the year ended October 31, 2024, the Bank recorded, in
Non-interest expenses in Canada, acquisition and integration charges of
$18 million ($13 million net of income taxes) related to the CWB
transaction.
(6) During the year ended October 31, 2023, the Bank had recorded
intangible asset impairment losses on technology development of $75 million,
and it recorded premises and equipment impairment losses related to
right-of-use assets $11 million in Non-interest expenses, in Canada.
(7) During the year ended October 31, 2023, the Bank had recorded
litigation expenses of $35 million to resolve litigations and other disputes
arising from various ongoing or potential claims against the Bank in
Non-interest expenses, in Canada.
(8) For the year ended October 31, 2023, Non-interest expenses in
Canada had included an expense of $25 million related to the retroactive
impact of the changes to the Excise Tax Act, indicating that payment card
clearing services rendered by a payment card network operator are subject to
the goods and services tax (GST) and the harmonized sales tax (HST).
(9) During the year ended October 31, 2023, the Bank had recorded,
under Non-interest expenses in Canada, expenses of $15 million for (i)
contract termination penalties and for (ii) provisions for onerous contracts.
(10) During the year ended October 31, 2023, the Bank had 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 a 1.5% increase
in the statutory tax rate, which includes the impact related to current and
deferred taxes for fiscal 2022. These items were recorded in Canada. For
additional information on these tax measures, see Note 26.
(11) Represents an average of the daily balances for the period.
Note 33 - Acquisition
On June 11, 2024, the Bank entered into an agreement to acquire all of the
issued and outstanding common shares of Canadian Western Bank (CWB) by way of
a share exchange valuing CWB at approximately $5.0 billion. Each CWB common
share, other than those held by the Bank, will be exchanged for 0.450 of a
common share of National Bank. CWB is a diversified financial services
institution based in Edmonton, Alberta. This transaction will enable the Bank
to accelerate its growth across Canada. The business combination brings
together two complementary Canadian banks with growing businesses, thereby
enhancing customer service by offering a full range of products and services
nationwide, with a regionally focused service model.
The transaction is subject to the satisfaction of customary closing
conditions, including regulatory approvals, and is expected to close in 2025.
The results of the acquired business will be consolidated from the date of
closing.
Supplementary
Information
Statistical Review 240
Information for Shareholders 242
Statistical Review
As at October 31 or
for the year ended October 31((1))
(millions of Canadian dollars) 2024 2023 2022 2021 2020 2019 2018 2017 2016 2015
Consolidated Balance Sheet data
Cash and deposits with financial institutions 31,549 35,234 31,870 33,879 29,142 13,698 12,756 8,802 8,183 7,567
Securities 145,165 121,818 109,719 106,304 102,131 82,226 69,783 65,343 64,541 56,040
Securities purchased under reverse
repurchase agreements and 16,265 11,260 26,486 7,516 14,512 17,723 18,159 20,789 13,948 17,702
securities borrowed
Loans and acceptances, net of allowances 243,032 225,443 206,744 182,689 164,740 153,251 146,082 136,457 128,036 116,676
Other assets 26,215 29,722 28,921 25,233 20,963 14,475 15,661 14,433 17,498 18,105
Total assets 462,226 423,477 403,740 355,621 331,488 281,373 262,441 245,824 232,206 216,090
Deposits 333,545 288,173 266,394 240,938 215,878 189,566 170,830 156,671 142,066 130,458
Other liabilities 101,873 110,972 114,101 95,233 98,589 75,983 76,539 75,589 77,026 72,755
Subordinated debt 1,258 748 1,499 768 775 773 747 9 1,012 1,522
Share capital and other equity instruments
Preferred shares and other equity instruments 3,150 3,150 3,150 2,650 2,950 2,450 2,450 2,050 1,650 1,023
Common shares 3,463 3,294 3,196 3,160 3,057 2,949 2,822 2,768 2,645 2,614
Contributed surplus 85 68 56 47 47 51 57 58 73 67
Retained earnings 18,633 16,650 15,140 12,854 10,307 9,227 8,442 7,703 6,706 6,705
Accumulated other comprehensive income 219 420 202 (32) (118) 16 175 168 218 145
Non-controlling interests − 2 2 3 3 358 379 808 810 801
Total liabilities and equity 462,226 423,477 403,740 355,621 331,488 281,373 262,441 245,824 232,206 216,090
Average assets((2)) 457,262 430,646 393,847 363,506 318,087 286,162 265,940 248,351 235,913 222,929
Net impaired loans excluding POCI loans((3)(4)) 1,144 606 479 283 465 450 404
( ) under IFRS 9
Net impaired loans excluding POCI loans((4)) 206 281 254
under IAS 39
Consolidated Statement of Income data
Net interest income 2,939 3,586 5,271 4,783 4,255 3,596 3,382 3,436 3,205 2,929
Non-interest income 8,461 6,472 4,381 4,144 3,672 3,836 3,784 3,173 2,635 2,817
Total revenues 11,400 10,058 9,652 8,927 7,927 7,432 7,166 6,609 5,840 5,746
Non-interest expenses 6,054 5,753 5,230 4,903 4,616 4,375 4,100 3,861 3,875 3,665
Income before provisions for credit losses 5,346 4,305 4,422 4,024 3,311 3,057 3,066 2,748 1,965 2,081
and income taxes
Provisions for credit losses 569 397 145 2 846 347 327 244 484 228
Income taxes 961 619 894 882 434 443 534 483 225 234
Net income 3,816 3,289 3,383 3,140 2,031 2,267 2,205 2,021 1,256 1,619
Non-controlling interests (1) (2) (1) − 42 66 87 84 75 70
Net income attributable to the Bank's
shareholders and holders of other equity instruments 3,817 3,291 3,384 3,140 1,989 2,201 2,118 1,937 1,181 1,549
(1) Certain amounts from fiscal 2023 have been adjusted to reflect
accounting policy changes arising from the adoption of IFRS 17. For additional
information, see Note 2 to these Consolidated Financial Statements. Certain
amounts from fiscal years 2017 to 2021 were adjusted in 2022 to reflect an
accounting policy change applicable to cloud computing arrangements, aside
from the average assets figures for fiscal years 2017 to 2019.
(2) Represents an average of the daily balances for the period.
(3) Given the adoption of IFRS 9, all loans classified in Stage 3
of the expected credit loss model are impaired loans. Under IAS 39, loans
were considered impaired according to different criteria. Net impaired loans
are presented net of allowances for credit losses on Stage 3 loan amounts
drawn and, in this table, the net impaired loans presented exclude POCI loans.
(4) Includes customers' liability under acceptances for fiscal
years 2015 to 2023.
As at October 31((1)) 2024 2023 2022 2021 2020 2019 2018 2017 2016 2015
Number of common shares
(thousands) 340,744 338,285 336,582 337,912 335,998 334,172 335,071 339,592 338,053 337,236
Basic earnings per share $ 10.78 $ 9.33 $ 9.72 $ 8.95 $ 5.57 $ 6.22 $ 5.93 $ 5.43 $ 3.31 $ 4.56
Diluted earnings per share $ 10.68 $ 9.24 $ 9.61 $ 8.85 $ 5.54 $ 6.17 $ 5.86 $ 5.37 $ 3.29 $ 4.51
Dividend per share $ 4.32 $ 3.98 $ 3.58 $ 2.84 $ 2.84 $ 2.66 $ 2.44 $ 2.28 $ 2.18 $ 2.04
Share price
High $ 134.23 $ 103.58 $ 105.44 $ 104.32 $ 74.79 $ 68.02 $ 65.63 $ 62.74 $ 47.88 $ 55.06
Low $ 86.50 $ 84.97 $ 83.12 $ 65.54 $ 38.73 $ 54.97 $ 58.69 $ 46.83 $ 35.83 $ 40.75
Close $ 132.80 $ 86.22 $ 92.76 $ 102.46 $ 63.94 $ 68.02 $ 59.76 $ 62.61 $ 47.88 $ 43.31
Book value((2)) $ 65.74 $ 60.40 $ 55.24 $ 47.44 $ 39.56 $ 36.64 $ 34.31 $ 31.50 $ 28.52 $ 28.26
Dividends on preferred
shares
Series 20 - - - - - - - - - $ 1.5000
Series 28 - - - - - - - $ 0.9500 $ 0.9500 $ 0.9500
Series 30 $ 1.2770 $ 1.0063 $ 1.0063 $ 1.0063 $ 1.0063 $ 1.0156 $ 1.0250 $ 1.0250 $ 1.0250 $ 1.0250
Series 32 $ 0.9598 $ 0.9598 $ 0.9598 $ 0.9598 $ 0.9636 $ 0.9750 $ 0.9750 $ 0.9750 $ 0.9750 $ 1.0760
Series 34 - - - $ 0.7000 $ 1.4000 $ 1.4000 $ 1.4000 $ 1.4000 $ 1.1373 -
Series 36 - - - $ 1.0125 $ 1.3500 $ 1.3500 $ 1.3500 $ 1.3500 $ 0.5733 -
Series 38 $ 1.7568 $ 1.7568 $ 1.1125 $ 1.1125 $ 1.1125 $ 1.1125 $ 1.1125 $ 0.4724 - -
Series 40 $ 1.4545 $ 1.3023 $ 1.1500 $ 1.1500 $ 1.1500 $ 1.1500 $ 0.9310 - - -
Series 42 $ 1.7640 $ 1.2375 $ 1.2375 $ 1.2375 $ 1.2375 $ 1.2375 $ 0.5323 - - -
LRCN interests
Series 1 4.30 % 4.30 % 4.30 % 4.30 % 4.30 % - - - - -
Series 2 4.05 % 4.05 % 4.05 % 4.05 % - - - - - -
Series 3 7.50 % 7.50 % 7.50 % - - - - - - -
Financial ratios
Return on common
shareholders' equity((2)) 17.2 % 16.3 % 18.8 % 20.7 % 14.6 % 18.0 % 18.4 % 18.1 % 11.7 % 16.9 %
Return on average assets((2)) 0.83 % 0.76 % 0.86 % 0.86 % 0.64 % 0.81 % 0.84 % 0.81 % 0.53 % 0.73 %
13.7 -
Regulatory ratios under
Basel III((3))
Capital ratios
CET1 13.7 % 13.5 % 12.7 % 12.4 % 11.8 % 11.7 % 11.7 % 11.2 % 10.1 % 9.9 %
Tier 1 15.9 % 16.0 % 15.4 % 15.0 % 14.9 % 15.0 % 15.5 % 14.9 %((4)) 13.5 % 12.5 %((5))
Total 17.0 % 16.8 % 16.9 % 15.9 % 16.0 % 16.1 % 16.8 % 15.1 %((4)) 15.3 % 14.0 %((6))
Leverage ratio 4.4 % 4.4 % 4.5 % 4.4 % 4.4 % 4.0 % 4.0 % 4.0 % 3.7 % 4.0 %
TLAC ratio((7)) 31.2 % 29.2 % 27.7 % 26.3 % 23.7 %
TLAC leverage ratio((7)) 8.6 % 8.0 % 8.1 % 7.8 % 7.0 %
Liquidity coverage ratio 150 % 155 % 140 % 154 % 161 % 146 % 147 % 132 % 134 % 131 %
(LCR)((8))
Net stable funding ratio 122 % 118 % 117 % 117 %
(NSFR)((8))
Other information
Number of employees((9)) 29,196 28,916 27,103 24,495 25,604 24,557 22,426 20,584 20,600 19,026
Branches in Canada 368 368 378 384 403 422 428 429 450 452
Banking machines in Canada 940 944 939 927 940 939 937 931 938 930
(1) Certain amounts from fiscal 2023 have been adjusted to reflect
accounting policy changes arising from the adoption of IFRS 17. For additional
information, see Note 2 to these Consolidated Financial Statements. Certain
amounts from fiscal years 2017 to 2021 have been adjusted to reflect an
accounting policy change in 2022 applicable to cloud computing arrangements,
aside from the return on common shareholders' equity and return on average
assets figures for fiscal years 2017 to 2019.
(2) See the Glossary section on pages 130 to 133 for details on
the composition of these measures.
(3) Ratios as at October 31, 2022, 2021 and 2020 are calculated
in accordance with the Basel III rules, as set out in OSFI's Capital Adequacy
Requirements Guideline and Leverage Requirements Guideline, and reflect the
transitional measures granted by OSFI.
(4) Taking into account the redemption of the Series 28 preferred
shares on November 15, 2017.
(5) Taking into account the redemption of the Series 20 preferred
shares on November 15, 2015.
(6) Taking into account the redemption of the Series 20 preferred
shares on November 15, 2015 and the $500 million redemption of notes on
November 2, 2015.
(7) The TLAC ratio and the TLAC leverage ratio are calculated in
accordance with OSFI's Total Loss Absorbing Capacity Guideline.
(8) The LCR ratio and the NSFR ratio are calculated in accordance
with OSFI's Liquidity Adequacy Requirements Guideline.
(9) Full-time equivalent. The methodology was refined during
fiscal 2023 and the fiscal 2022 and 2021 figures have been restated.
Information for Shareholders
Description of Share Capital
The authorized share capital of the Bank consists of an unlimited number of
common shares, without par value, an unlimited number of first preferred
shares, without par value, issuable for a maximum aggregate consideration of
$7.5 billion, and 15 million second preferred shares, without par value,
issuable for a maximum aggregate consideration of $300 million. As at
October 31, 2024, the Bank had a total of 340,743,876 common shares and
67,500,000 first preferred shares issued and outstanding (including Series
44, 45 and 46 issued by the Bank in conjunction with the LRCN, for additional
information, see Note 20 to the Consolidated Financial Statements).
Stock Exchange Listings
The Bank's common shares and Series 30, 32, 38, 40 and 42 First Preferred
Shares are listed on the Toronto Stock Exchange in Canada.
Issue or class Ticker symbol
Common shares NA
First Preferred Shares
Series 30 NA.PR.S
Series 32 NA.PR.W
Series 38 NA.PR.C
Series 40 NA.PR.E
Series 42 NA.PR.G
Number of Registered Shareholders
As at October 31, 2024, there were 19,570 common shareholders recorded in the
Bank's common share register.
Dividends
Dividend Dates in Fiscal 2025
(subject to approval by the Board of Directors of the Bank)
Record date Payment date
Common shares
December 30, 2024 February 1, 2025
March 31, 2025 May 1, 2025
June 30, 2025 August 1, 2025
September 29, 2025 November 1, 2025
Preferred shares,
Series 30, 32, 38, 40 and 42
January 6, 2025 February 15, 2025
April 7, 2025 May 15, 2025
July 7, 2025 August 15, 2025
October 6, 2025 November 15, 2025
Dividends Declared on Common Shares During Fiscal 2024
Record date Payment date Dividend per share ($)
December 25, 2023 February 1, 2024 1.06
March 25, 2024 May 1, 2024 1.06
June 24, 2024 August 1, 2024 1.10
September 30, 2024 November 1, 2024 1.10
Dividends Declared on Preferred Shares During Fiscal 2024
Record Dividend per share ($)
date
Payment Series Series Series Series Series
date 30 32 38 40 42
January 8, 2024 February 15, 2024 0.2516 0.2399 0.4392 0.3636 0.4410
April 5, 2024 May 15, 2024 0.2515 0.2400 0.4392 0.3637 0.4410
July 8, 2024 August 15, 2024 0.3870 0.2399 0.4392 0.3636 0.4410
October 7, 2024 November 15, 2024 0.3869 0.2400 0.4392 0.3636 0.4410
Dividends paid are "eligible dividends" in accordance with the Income Tax
Act (Canada).
Dividend Reinvestment and Share Purchase Plan
National Bank has a Dividend Reinvestment and Share Purchase Plan for holders
of its common and preferred shares under which they can acquire common shares
of the Bank without paying commissions or administration fees. Participants
acquire common shares through the reinvestment of cash dividends paid on the
shares they hold or through optional cash payments of at least $1 per payment,
up to a maximum of $5,000 per quarter.
For additional information, shareholders may contact National Bank's registrar
and transfer agent, Computershare Trust Company of Canada, at
1‑888‑838‑1407. To participate in the plan, National Bank's beneficial
or non-registered common shareholders must contact their financial institution
or broker.
Direct Deposit
Shareholders may elect to have their dividend payments deposited directly via
electronic funds transfer to their bank account at any financial institution
that is a member of the Canadian Payments Association. To do so, they must
send a written request to the transfer agent, Computershare Trust Company of
Canada.
Head Office
National Bank of Canada
National Bank Place
800 Saint-Jacques Street, 37(th) Floor
Montreal, Quebec H3C 1A3 Canada
Telephone: 514-394-5000
Website: nbc.ca
Annual Meeting
The Annual Meeting of Holders of Common Shares of the Bank will be held on
April 24, 2025.
Corporate Social Responsibility Statement
The information will be available in March 2025 on the Bank's website at
nbc.ca.
Communication with Shareholders
For information about stock transfers, address changes, dividends, lost
certificates, tax forms and estate transfers, shareholders of record may
contact the transfer agent at the following address:
Computershare Trust Company of Canada
Share Ownership Management
100 University Avenue, 8(th) Floor
Toronto, Ontario M5J 2Y1 Canada
Telephone: 1-888-838-1407
Fax: 1-888-453-0330
E-mail: service@computershare.com
Website: computershare.com
Shareholders whose shares are held by a market intermediary are asked to
contact the market intermediary concerned.
Other shareholder inquiries can be addressed to:
Investor Relations
National Bank of Canada
800 Saint-Jacques Street, 33(rd) Floor
Montreal, Quebec H3C 1A3 Canada
Telephone: 1-866-517-5455
E-mail: investorrelations@nbc.ca
Website: nbc.ca/investorrelations
Caution Regarding Forward-Looking Statements
From time to time, National Bank of Canada makes written and oral
forward‑looking statements, including in this Annual Report, in other
filings with Canadian regulators, in reports to shareholders, in press
releases and in other communications. These statements are made pursuant to
the Canadian and American securities legislation.
The Caution Regarding Forward-Looking Statements section can be found on
page 13 of this Annual Report.
Trademarks
The trademarks belonging to National Bank of Canada and used in this report
include National Bank of Canada, National Bank, NBC, NBC Financial Markets,
National Bank Financial, NAventures, National Bank Financial-Wealth
Management, Private Banking 1859, National Bank Direct Brokerage, National
Bank Investments, NBI, National Bank Independent Network, National Bank Trust,
National Bank Life Insurance, Natcan Trust Company, National Bank Realty,
Natbank and their respective logos. Certain trademarks owned by third parties
are also mentioned in this report.
Pour obtenir une version française du Rapport annuel,
veuillez vous adresser à :
Relations avec les investisseurs
Banque Nationale du Canada
800, rue Saint-Jacques 33(e) étage
Montréal (Québec) H3C 1A3 Canada
Téléphone : 1 866 517-5455
Adresse électronique : relationsinvestisseurs@bnc.ca
Legal Deposit
ISBN 978-2-921835-83-1
Legal deposit - Bibliothèque et Archives nationales du Québec, 2024
Legal deposit - Library and Archives Canada, 2024
Printing
L'Empreinte
National Bank of Canada participates in a carbon neutral program and purchased
carbon credits to offset the greenhouse gases emitted to produce this paper
and is proud to help save the environment by using EcoLogo and Forest
Stewardship Council(®) (FSC(®)) certified paper.
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